Facts of the Case

A batch of writ petitions led by M/s Kedia Trading challenged the constitutional validity of the Chhattisgarh Molasses Control and Regulation Rules, 2022, framed under Section 8(c) and Section 62 of the Chhattisgarh Excise Act, 1915.

The petitioners were traders and manufacturers dealing in molasses exclusively for non-intoxicant purposes, such as cattle feed, gudakhu, agricultural and industrial uses. They contended that molasses in its natural form is merely a by-product of the sugar industry and does not contain alcohol or possess intoxicating properties. Despite this, the State Government required them to obtain excise licences, pay licence fees and molasses duty, and subjected them to excise regulation under the 2022 Rules.

The petitioners challenged the Rules as unconstitutional, beyond the legislative competence of the State, and contrary to the parent Excise Act.

Issues Involved

  1. Whether the Chhattisgarh Molasses Control and Regulation Rules, 2022 are ultra vires the Constitution of India.
  2. Whether the State Government possesses legislative competence to regulate molasses used exclusively for non-intoxicant purposes under the Excise Act.
  3. Whether molasses is an "intoxicant", "liquor", or "excisable article" within the meaning of the Chhattisgarh Excise Act, 1915.
  4. Whether delegated legislation can enlarge the scope of the parent statute by regulating activities beyond its object.
  5. Whether compulsory excise licensing and levy of duty on non-intoxicant molasses violate Articles 14 and 19(1)(g) of the Constitution.

Petitioners' Arguments

  • Molasses is merely a by-product of sugar manufacturing and is not an intoxicant in its natural form.
  • It neither contains alcohol nor is fit for human consumption.
  • Alcohol can be produced only after a separate industrial fermentation process.
  • The petitioners exclusively traded in molasses for cattle feed, gudakhu, agriculture and industrial purposes and had no connection with liquor manufacture.
  • Sections 2(6), 2(11-a), 2(12) and 2(13) of the Chhattisgarh Excise Act do not include molasses within the definition of excisable article, intoxicant or liquor.
  • The State Legislature derives legislative competence only with respect to intoxicating liquor and alcoholic liquor for human consumption under Entries 8 and 51 of List II.
  • Since molasses is already taxable under the GST regime, its regulation for commercial trade cannot be brought under the Excise Act merely because it has the potential to be converted into alcohol.
  • The Rules of 2022 travelled beyond the scope of the parent statute and imposed unreasonable restrictions on the petitioners' fundamental right to carry on business under Article 19(1)(g).
  • The Rules were therefore liable to be declared unconstitutional and ultra vires.

Respondents' Arguments

The State Government submitted that:

  • Molasses is the principal raw material for manufacturing alcohol.
  • Since molasses can be converted into potable liquor, its movement, storage and sale require strict regulation to prevent diversion and illegal liquor production.
  • Section 8(c) of the Excise Act authorises regulation of "any other base" capable of being utilised for liquor manufacture, which includes molasses.
  • The Rules were framed only to regulate supply, transport, possession, licensing and movement of molasses.
  • Regulation was necessary to safeguard State revenue and prevent misuse.
  • The State Legislature possesses legislative competence under Entry 8 of List II to regulate all materials connected with manufacture of intoxicating liquor.
  • Therefore, the Rules were valid and within the scope of the Excise Act.

The Union of India clarified that GST merely governs taxation on supply of goods and does not regulate movement, possession or licensing of molasses.

Court Findings / Order

The Chhattisgarh High Court allowed all the writ petitions and declared the Chhattisgarh Molasses Control and Regulation Rules, 2022 unconstitutional.

The Court held that:

  • Molasses in its raw form is not an intoxicant, liquor or excisable article under the Chhattisgarh Excise Act.
  • It becomes capable of producing alcohol only after undergoing fermentation.
  • The parent Excise Act deals only with intoxicating liquor and intoxicating drugs.
  • Delegated legislation cannot enlarge the scope of the parent statute.
  • Section 62 merely authorises framing of rules for carrying out the provisions of the Excise Act and does not permit regulation of matters beyond the Act.
  • Rule-making power cannot create substantive obligations not contemplated by the parent legislation.
  • Regulation of molasses for industrial, agricultural, cattle-feed and other non-intoxicant purposes falls outside the scope of the Excise Act.
  • Licensing requirements, excise duty and regulatory restrictions imposed upon ordinary traders dealing in non-intoxicant molasses were beyond the legislative competence of the State.

Accordingly, the Court declared the Chhattisgarh Molasses Control and Regulation Rules, 2022 to be ultra vires the Constitution and allowed all consequential reliefs in favour of the petitioners.

Important Clarification

The judgment clarifies that:

  • Delegated legislation cannot travel beyond the parent statute.
  • Rule-making powers cannot expand the legislative field beyond the object and purpose of the parent Act.
  • Raw molasses used exclusively for non-intoxicant purposes cannot automatically be treated as an intoxicant merely because it has the potential to produce alcohol after fermentation.
  • The State may regulate activities directly connected with intoxicating liquor within the limits of the Excise Act, but cannot regulate ordinary commercial trade in non-intoxicant molasses under the guise of excise legislation.
  • The decision reinforces constitutional limits on delegated legislation and legislative competence under the Seventh Schedule.

Sections Involved

  • Constitution of India
    • Article 14
    • Article 19(1)(g)
    • Article 246
    • Article 246A
    • Entry 8, List II
    • Entry 51, List II
    • Entry 52, List I
    • Entry 84, List I
  • Chhattisgarh Excise Act, 1915
    • Section 2(6)
    • Section 2(6-a)
    • Section 2(11-a)
    • Section 2(12)
    • Section 2(13)
    • Section 8(c)
    • Section 62
  • Chhattisgarh Molasses Control and Regulation Rules, 2022

Link to download the order - https://www.mytaxexpert.co.in/uploads/1783924313_2127compressed.pdf

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