Threshold excise tax on liquor manufacturers to be mentioned on 1 July to ascertain revision

By S.S. Selvanayagam

The Supreme Court Thursday (5) fixed to mention on 1 July to ascertain the contents of the amended gazette notification of the threshold excise tax.

When the fundamental right petition bemoaning of the gazette notification compelling all liquor and beer manufacturers to pay a threshold excise tax of Rs. 200 million per month, being the minimum amount came up before the Supreme Court yesterday, the Attorney General informed Court that the said gazette notification has been rescinded and amended.

The Bench comprised Justices B.P. Aluvihare, Sisira J. De Abrew and Nalin Perera.

The Supreme Court on 25 March has issued Interim Order suspending the gazette notification compelling all liquor and beer manufacturers to pay a threshold excise tax of Rs. 200 million per month, being the minimum amount.

Chief Justice K. Sripavan, Justices Sisira J. De Abrew and Anil Gooneratne issued this Interim Order operative till the final hearing and determination on four petitions filed by aggrieved small and medium manufacturers of liquor.

Court took cognisance that under Excise Ordinance, the Finance Minister has no power to impose excise tax.

The Court was mindful that the excise tax imposes pecuniary burden on the citizen and was of the view that there interpretation be given to the said tax.

The Court granted leave to proceed with those petitions for the alleged violation of the petitioners’ fundamental rights to equality and equal protection of the law as well as to the right to the freedom to engage in lawful business or enterprise etc.

Sanjeeva Jayawardene PC with Rajeev Amarasuria appeared for Scotland Distiller & Blenders Ltd., Kushan D’ Alwis PC for Nipponexpo Ltd., Saliya Peiris instructed by Gowry Shangary Thavarasha for Uvaglen Ltd. and Chula Bandara instructed by Gananda Silva appeared for ACME Lanka Distillers Ltd.

Finance Minister Ravi Karunanayake, Ministry Secretary Dr. R.H.S. Samarathunga, Commissioner General of Excise L.K.G. Gunawardena, former Commissioner General D.P.M.V. Hapuarachchi, Deputy Commissioner of Excise (Revenue) A. Bodaragama and the Attorney General are cited as Respondents.

Deputy Solicitors Viraj Dayaratne and Viveka Siriwardena appeared for the Respondents.

Petitioners bemoan that the said excise notice will have the effect of compelling small and medium manufacturers to be forced to close down their business as a result of inability to pay the said excise duties.

They lament that it would result in the cancellation of their licenses, which would result in the loss of livelihood to the shareholders, directors and employees.

The Petitioners state that on 29 January 2015, the Finance Minister presented an Interim Budget or Interim Appropriation bill to Parliament and in the course of the budget speech announced that he proposed to charge a tax of Rs. 200 million a month on liquor and beer manufactures, in order to discourage small-time operators and rationalise the number of manufacturers.

On 18 February 2015, the Petitioners received a letter signed by former Commissioner General of Excise, stating therein that as a result of the Budget announced in January 2015, the Excise notification No. 973 has been published. Accordingly, all liquor and beer manufacturers were liable to pay an excise tax of Rs. 200 million, being the minimum amount starting from the month of April 2015. It further state therein that in the event the said Licence holders fail to pay the said amount of Tax, their Licences are to be cancelled with effect from 01.05.2015.

 The Petitioners state that by the Gazette Notice, the Finance Minister has ordered (a) that all arrack and beer manufacturers should pay a minimum excise duty of Rs. 200 million per month; (b) that “liquor manufacturing licenses of all arrack and beer manufacturers who shall not fulfil the above condition with respect to a certain month shall be cancelled with effect from 1st of the subsequent month” and (c) that this procedure shall be in effect from 01.04.2015.

 The Petitioners further state that as will be morefully demonstrated to Your Lordships’ Court at the hearing of this Application, the purported Notification is ultra-vires the several provisions of the Excise Ordinance that have been expressly relied upon by the 1st Respondent. In fact, the Petitioner state that not only is the said Notification ultra-vires the said provisions but also, simply does not confirm and comply with the scheme of the said Ordinance or even general principles of taxation, which demand that a tax must be referrable to an objective standard and rationale.

The Petitioners states the said order of the Minister requiring all excise manufacturers to pay a minimum mandatory excise duty Rs. 200 million a month is entirely irrational, arbitrary and discriminatory in that: 

it fails to take cognisance that there are a number of small and medium scale manufacturers such as the 1st Petitioner who do not even have a turnover of Rs. 200 million a month;

it fails to take into account that the turnover of each individual manufacturer would be different and that small and medium scale manufacturers cannot be grouped or clubbed together with other larger manufacturers whose turnover would enable them to pay the minimum excise duties of Rs. 200 million a month; 

it fails to take cognisance that many manufacturers are suddenly required to pay tenfold or more the excise duty that they had hitherto been paying;

The Petitioners maintain that the order is offensive to the following principles found in Chapter VI of the Directive Principles of State Policy and Fundamental Duties: 

Article 27(2) (f) which provides that the objectives of the State should include “the establishment of a just social order in which the means of production, distribution and exchange are not concentrated and centralised in the State, State agencies or in the hands of a privileged few, but are dispersed among and owned by all the People of Sri Lanka.”

Article 27 (8) “The State shall ensure that the operation of the economic system does not result in the concentration of wealth and the means of production to the common detriment.”

 The Petitioners state the imposition of the said Excise Order is unreasonable, unlawful, arbitrary, mala fide, and capricious, made for an ulterior motive and is an infringement and or imminent infringement of their Fundamental Rights of the Petitioner.