Hon'ble Pankaj Mithal,J.
(Delivered by Hon'ble Pankaj Mithal, J.) Facts of the case:
Petitioner is a company registered and incorporated under the Companies Act, 1956 having its registered office at Banglore. The Company under a license in Form PD - 2 is running a distillery at Rosa in district Shahjahanpur which is popularly known as Rosa distillery.
Petitioner's unit at Rosa is a distillery that has also been granted a licence in Form F.L.-3/3-A to bottle 'spirits' particularly Indian Made Foreign Liquor under the U.P. Bottling of Foreign Liquor Rules, 1969 (for short the 'Rules').
The petitioner's F.L.-3/3-A license for bottling appears to have been first granted in the year 1970 and had been renewed from time to time.
Rule 7(11)(a) of the aforesaid Rules provides for an allowance on bottling wastage upto 1% of the total quantity of spirit produced during a month for the purposes of payment of excise duty.
Petitioner filed the present writ petition challenging the validity of the aforesaid Rule 7(11) of the Rules basically on the ground that the excise duty cannot be imposed by the Rules unless the Act authorises for the same.
It may be relevant to note that seven show-cause notices dated 12.3.2003/12.6.2003 were issued to the petitioner in reference to excise years 1996-2002 for payment of excise duty on spirit/liquor on bottling wastage exceeding the limit of 1% prescribed under Rule 7(11) of the aforesaid Rules. The Deputy Excise Commissioner after considering the explanation of the petitioner vide order dated 23.2.2004 confirmed the demand of Rs.26,41,038/- on such excess wastage.
The writ petition was subsequently amended vide order dated 27.10.2005 and a challenge was also permitted to the order dated 26.4.2005 passed by the Additional Excise Commissioner dismissing Appeal No.378 of 2004.
Pleadings of the parties are complete. They agree for the disposal of the writ petition at the admission stage itself.
We have heard Sri V.B. Upadhyay, Senior Advocate assisted by Sarvsri Neeraj Sharma and Nitin Gupta for the petitioner and Sri S.P. Kesarwani, learned Standing Counsel for the respondents.
Submission of the parties:
Sri Upadhyay has submitted that Rule 7(11) of the Rules imposes excise duty on bottling wastage of liquor in excess of 1% of the total quantity produced in a month. This cannot be done by the Rules and to that extent Rule 7(11) of the Rules is ultra virus to Section 41 of the United Provinces Excise Act, 1910 (in short "the Act" hereinafter). His second submission is that the excise duty is leviable at the point of issue and not earlier. The liquor cannot be issued without bottling and, therefore, demand of duty on liquor which had been wasted during bottling is wholly unjustified. The liquor which has been wasted is not which has been issued to attract any excise duty. His another submission is that the petitioner is involved in bottling of different verities of Indian Made Foreign Liquor for which different rates of duties have been prescribed. Therefore, levy of excise duty at an uniform rate of Rs.400/- per bulk litre on the bottling wastage in excess of 1% is not legal.
In support of his arguments, Sri Upadhyay has relied upon certain decisions of this Court which will be referred to by us on some later and appropriate stage.
Sri S.P. Kesarwani, learned Standing Counsel in reply contended that the petitioner is not entitle to maintain the writ petition challenging the validity of Rule 7(11) of the Rules in so far as the said Rule is in existence since 1975 and the petitioner had been taking benefit of the said Rule and paying excise duty all through. Petitioner under the conditions of the licence had agreed to abide by the same. He further submits that in none of the authorities relied upon by the petitioner Rule 7(11) of the Rules was involved rather the issue of payment of excise duty on bottling wastage in excess of 1% of the total spirit during a month is covered by a Division Bench decision of this Court dated 15.2.2002. passed in Writ Petition No. 3968 of 1978 M/s. Mohan Meakin Breweries Ltd. vs State of U. P. And others and other connected writ petitions. He has also contended that Rule 7(11) of the Rules actually gives a concession in the payment of excise duty up to 1% on wastage of liquor during bottling and it is not correct to allege that it imposes excise duty on bottling wastage.
Brief history of excise laws concerning intoxicants/liquor:
In Indian context though drinking of 'madira', 'sura' or 'soma ras' which were popular alcoholic drinks in ancient times, was common amongst the noblemen, its trade was never regarded noble. Trade or business in liquor or intoxicants by its inherent nature was always treated by both the State and society as special one which required legislative control. It was never recognized as a fundamental right of a citizen.
In the above social scenario, on the recommendation of the Excise Committee, United Provinces Excise Act, 1910 was passed subjecting 'spirit' for human consumption to excise duty.
Government of India Act, 1935 authorised the Central and the Provincial Government to exercise legislative powers according to the three lists given in the VII Schedule to the Act, namely, List I (Union List), List II (Provincial List) and List III (Concurrent List). The power of the Provincial Government to legislate in respect of subjects covered by List II included:
(i) regulation and control of production, manufacture, possession, transport, purchase and sale of intoxicating liquors etc.; and
(ii) duties of excise on alcoholic liquor for human consumption apart from other goods, manufactured and produced in the province.
Thereafter the Constitution of India vide Article 47 obliged the State to bring about prohibition of the consumption of the intoxicants and drugs which were injurious to health, except for medicinal purposes.
The Apex Court in Cooverjee B. Bharucha Vs. The Excise Commissioner AIR 1954 SC 220 agreed with the stand taken in Crowley Vs. Christensen (1890) 34 Law Ed. 620 (A) that there is no inherent right in a citizen to sell intoxicating liquor as it is a business attended with danger to the community, it may be entirely prohibited or be permitted under the conditions which may limit the evils of the said business.
The aforesaid view was reiterated by the Constitution Bench of the Supreme Court in Har Shankar Vs. The Deputy Excise and Taxation Commissioner and others AIR 1975 SC 1121 and in paragraphs 53 and 55 it was observed as under:
"53................There is no fundamental right to do trade or business in intoxicants. The State, under its regulatory powers, has the right to prohibit absolutely every form of activity in relation to intoxicants - its manufacture, storage, export, import, sale and possession. In all their manifestations, these rights are vested in the State and indeed without such vesting there can be no effective regulation of various form of activities in relation to intoxicants...........
54..............................
55. Since rights in regard to intoxicants belong to the State, it is open to the Government to part with those rights for a consideration. By Article 298 of the Constitution, the executive power of the State extends to the carrying on of any trade or business and to the making of contracts for any purpose."
The Legislatures of the States under the Constitution have been permitted to make law regarding duties of excise on the goods manufactured or produced in the State including alcoholic liquor for human consumption vide Article 246 read with Entry 51 of List II of the Seventh Schedule of the Constitution of India which is quoted below:-
"51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India:-
(a) alcoholic liquors for human consumption;
United Provinces Excise Act, 1910 vide Section 28 of the Act imposes excise duty on "excisable articles" at the rates prescribed thereunder including those articles manufactured/ produced in any distillery established or any distillery or brewery run under a licence granted under Section 17/18 of the Act. The relevant part of Section 28 is reproduced here-in-below:-
"28. Duty on excisable articles. - (1) An excise duty or a countervailing duty, as the case may be , at such rate or rates as the State Government shall direct, may be imposed, either generally or for any specified local area, on any excisable article:-
(a) imported in accordance with the provisions of Section 12(1); or
(b) exported in accordance with the provisions of Section 13; or
(c) transported; or
(d) manufactured, cultivated or collected under any licence granted under Section 17; or
(e) manufactured in any distillery established, or any distillery or brewery licenced, under Section 18;
Provided as follows:-
(i) duty shall not be so imposed on any article which has been imported into India and was liable on such importation to duty under the Indian Tariff Act, 1894, or the Sea Customs Act, 1887.
Explanation. - Duty may be imposed under this section at different rates according to the places to which any excisable article is to be removed for consumption, or according to the varying strength and quality of such article.
(2) The State Government shall in imposing an excise duty or a countervailing duty as aforesaid and fixing its rate, be guided by the directive principles specified in Article 47 of the Constitution of India (3) Such duty shall not exceed the maximum as provided hereinafter:-
...............
...............
(4) Notwithstanding anything contained in sub-section (3), the maximum rate of duty on Ale, beer, porter, cider and other fermented liquors occurring against item 2(a) in the table, in clause (e) of sub-section (3) shall be deemed to be Rupees 5 per litre with effect from June 4, 1975 and any notification issued on or after June 4, 1975 which is in conformity with the provisions of this sub-section shall be deemed to be, any always to have been, valid and lawful as if the provisions of this sub-section were in force at all material times."
The U.P. Bottling of Foreign Liquor Rules, 1969 have been framed under Section 41 of the Act read with Section 21 of the U.P. General Clauses Act by the Excise Commissioner with the previous sanction of the State Government. Rule 2 of the said Rules authorises the Collector with the previous sanction of the Excise Commissioner to grant bottling licence in Form F.L.-3/3-A to a distiller to bottle spirits; to a brewer to bottle bear; and to vintner to bottle wines.
Points for determination:
It is in the above historical background of the excise laws concerning intoxicants that we have been called upon in this writ petition to consider the validity of Rule 7(11) of the Rules; the stage of imposition/levy of excise duty on IMFL; and whether in exercise of rule making power excise duty can be imposed or has been imposed.
Excisable articles and few other terms:
Before venturing to deal with the above questions, it would be appropriate for us to consider few terms as appearing in the Act and the nature/status of IMFL vis-a-vis the term "excisable articles" used in the Act.
'Spirit' in common parlance means any liquor containing alcohol obtained by distillation. It is generally a fermented liquor, wine or any alcoholic liquid obtained by distillation and includes any other liquid containing alcohol. In short, any aqueous solution containing alcohol may be spirit.
The Act in Section 3(8) defines 'spirit' to mean any liquor containing alcohol obtained by distillation, whether it is denatured or not. Thus, any liquor containing alcohol obtained by process of distillation is a spirit.
'Liquor' according to popular dictionary meaning is a drink/beverage produced by fermentation or distillation. It normally covers alcohol, brandy, whisky, rum, gin beer, ale, porter and wine and any spirituous vinous malt, or fermented liquor, liquids and compounds whether medicated or not and by whatever name called which is fit for use as a beverage.
'Liquor' has been defined under Section 3(11) of the Act to mean liquid which is intoxicating and includes spirits of wine, spirit, wine, tari and all liquid consisting of alcohol and any substance which the State Government may be notification declare to be liquor for the purposes of the Act. Section 4 of the Act authorises the State Government to declare any substance to be a liquor for the purposes of the Act by means of a notification. It classifies liquor into two categories namely "country liquor" and "foreign liquor" and the State Government is further empowered to declare what shall be deemed to be "country liquor" and foreign liquor" respectively. Any liquor which is rectified, perfumed, medicated and denatured spirit irrespective of its place of manufacturing or production is generally categorised as foreign liquor.
The above description of the terms 'spirit,' 'liquor' "country liquor" and "foreign liquor" make it abundantly clear that liquor whether "country liquor" or "foreign liquor" and wherever made is a spirit within the meaning of Section 3(8) of the Act.
Thus there is no controversy that Indian Made Foreign Liquor is a 'liquor' within the meaning of Section 3(11) of the Act as well as a 'spirit' within the meaning of Section 3(8) of the Act and is an "excisable article" within the meaning of Sub-Section (22-a) of Section 3 of the Act. It is accordingly amenable to excise duty under Section 28 of the Act.
Stage of levy of excise on liquor:
Once IMFL is held to be excisable, the question arises at which stage excise is leviable on it.
In the pre-constitution era, the federal court of India In the matter of the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 AIR 1939 FC-1 considering the meaning of excise duty observed that primary meaning of "excise duty" or "duty of excise" is tax on certain articles of luxury (such as spirits, beer for human consumption) produced or manufactured in the country in contradiction to the customs duty on articles imported from outside. The primary and fundamental meaning of excise duty is that it is a tax on articles produced or manufactured in the taxing country and intended for human consumption.
The Chief Justice of the Federal Court in the aforesaid matter went on to observe, "In my opinion the power to make laws with respect to duties of excise given by the Constitution Act to the Federal Legislature is to be construed as a power to impose duties of excise upon the manufacturer or producer of the excisable articles, or at least at the stage of, or in connexion with, manufacture or production, and that it extends no further."
The above decision was followed with approval by the Federal Court in The Province of Madras Vs. Messrs. Boddu Paidanna and Sons AIR (29) 1942 FC 33 and it was observed that duties of excise are duties levied upon the manufacturer or producer in respect of manufacture or production of the commodity taxed.
Even the Privy Council in Governor General in Council Vs. Province of Madras AIR (32) 1945 PC 98 expressed that a duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced.
A plain and a grammatical reading of Section 28 of the Act brings to the forefront that excise duty is imposable by the State on "excisable article", imported or exported under the provisions of Section 12/13 of the Act or transported or manufactured, cultivated or collected under a licence granted under Section 17 of the Act or manufactured in any distillery established or any distillery or brewery licensed under Section 18 of the Act. In short excise duty on excisable article which includes liquor is leviable on its manufacture/production. So manufacturing of liquor in a distillery is the relevant criteria for imposing excise duty and its subsequent packing for supply in any form is not material and relevant for the purposes of imposing excise duty.
Government of India Act, 1935 had also authorised the provincial governments to legislate in respect of duties of excise on alcoholic liquor for human consumption manufactured and produced in the province. The use of the words "alcoholic liquor for human consumption" in one of the items of List II of the Seventh Schedule to the above Act is relevant and important. It denotes that excise duty is payable on alcoholic liquor for human consumption meaning thereby that liquor which is ready for human consumption is the subject matter of excise duty and the quantity and the manner of its packing and supply is of no consequence.
On the enforcement of the Constitution Entry 51 of List II of the Seventh Schedule of the Constitution also refers to duties of excise leviable on "alcoholic liquor for human consumption". The use of the words, "alcoholic liquor for human consumption" in Entry 51 of List II of the Seventh Schedule of the Constitution again re-enforces the fact that excise duty is payable on the liquor which is for human consumption. The liquor is ready for human consumption as soon as it is manufactured and produced in a distillery and as such whatever quantity is manufactured or produced becomes the subject matter of excise duty irrespective of the manner in which it is supplied.
It may be noted that the process of distillation i.e. manufacture and production of liquor and that of its packing or bottling are two distinct, separate and independent processes. A distillery may not necessarily have a license to bottle the liquor. The bottling process starts where the distillation ends. Once the distillation is over, liquor is ready and fit for human consumption. The manner in which it is kept and stored does not changes its nature. The process of bottling involves no new or additional process amounting to manufacturing. In bottling nothing is added to it in any manner and whatever liquor is produced is simply packed into bottles. The bottling process involves no improvement so as to make the product already produced more suitable for human consumption.
In R.C. Jall Vs. Union of India AIR 1962 SC 1281 it was observed that excise duty is primarily a duty on the production or manufacture of goods and is indirect duty which the manufacturer or the producer passes on to the ultimate consumer. It can be levied at convenient stage but that by itself would not change its character that is, it is the duty on the manufacture or production. The method of collection does not effect the essence of the duty. It is only a mechanism for collection for administrative convenience.
A similar view was also expressed by the Supreme Court in the two later decisions A.B. Abdul Kadir Vs. State of Kerala AIR 1976 SC 182 and M/s Mcdowll & Company Ltd. Vs. Commercial Tax Officer AIR 1977 SC 1459 and it was held that excise duty is essentially a duty on the production or manufacture of goods produced or manufactured within the Country/State, though under certain laws, it may be imposed at subsequent stages for administrative convenience.
In the case of Shroff & Company Vs. Municipal Corporation of Greater Bombay, 1989 Supp (1) SCC 347 the Apex Court held that "Excise duty" is in essence a tax on manufacture or production of goods and it can be levied on such goods as are manufactured or produced within the State.
A Constitution Bench of Seven Judges in Synthetic and Chemical Ltd. Vs. State of U.P. AIR 1990 SC 927: (1990) 1 SCC 109 observed that levy of tax on intoxicants and alcohol is an exercise of sovereign power of the State and in view of the expression "alcoholic liquor for human consumption" used means that liquor as it is consumable in the sense capable of being taken by human being as such as beverage of drinks. The relevant part of paras 54 and 67 are quoted below:
Para 54. "We have no doubt that the framers of the Constitution when they used the expression 'alcoholic liquor for human consumption' they meant at that time and still the expression means that liquor which as it is consumable in the sense capable of being taken by human beings as such as beverage of drinks. Hence, the expression under Entry 84, List I must be understood in that light............"
Para 67. "....................................................... As mentioned hereinbefore, the relevant entries in the Seventh Schedule to the Constitution demarcate legislative fields and are closely linked and supplement one another. In this connection, reference may be made to Entry 84 of List I which deals with the duties of excise on tobacco and other goods manufactured or produced in India except, inter alia, alcoholic liquors for human consumption.
Similarly, Entry 51, List II is the counter part of Entry 84 of List I so far as the State List is concerned. It authorises the State to impose duties of excise on alcoholic liquors for human consumption and opium, etc. manufactured or produced in the State and the countervailing duties at the same or lower rates on similar goods produced or manufactured elsewhere in India. It is clear that all duties of excise save and except the items specifically excepted in Entry 84 of List I are generally within the taxing power of the Central Legislature. The State Legislature has power, though limited it is, in imposing duties of excise. That power is circumscribed under Entry 51 of List II of the Seventh Schedule of the Constitution................"
The expression "alcoholic liquor for human consumption" used in Entry 51 of List II of the Seventh Schedule to the Constitution means liquor which is consumable that is capable of being taken as such. This is the stage at which the State will have power to levy excise duty on it. In M/s. Mohan Meakin Breweries Ltd. Vs. State of U. P. And others JT 1995 (6) SC 529 their lordships of the Supreme Court while dealing with the excise duty on beer observed that the stage at which liquor manufactured by company is excisable is when a finished product i.e. beer is received in bottling tank and the State Government is entitled to quantify the stock of beer for the purposes of imposition of duty under Section 28A of the Act.
Following the above authorities a Division Bench decision of this Court dated 15.2.2002 passed in Writ Petition No. 3968 of 1978 M/s. Mohan Meakin Breweries Ltd. Vs. State of U. P. And others and other connected writ petitions observed as under:-
"In view of authoritative pronouncement by Supreme Court there can be no doubt that the expression alcoholic liquor for human consumption used in this Entry means that liquor which as it is consumable, in the sense, capable of being taken by human beings as such, as beverage of drink and consequently it is at this stage that the State will have the power to levy excise duty and not at any earlier stage.
...............................
...............................
In substance, excise duty can only be imposed on potable alcohol or on alcoholic liquor fit for human consumption."
In view of above, duty of excise is leviable on the production of the liquor at the stage it is ready for human consumption and the subsequent packing or bottling of any quantity of the liquor is not material.
However, some difficulty has arisen on account of the language employed in Section 29 of the Act which provides the manner of levy of excise duty. Section 29(e) which is relevant for the purpose reads as under:-
"Section 29. Manner in which duty may be levied - Subject to Such rules, as the (Excise Commissioner) may prescribe to regulate to the time, place and manner of payment, such duty may be levied in one or more of the following ways as the (State Government) may by notification direct:
(a) ........
(b) ........
(c) ........
(d) ........
(e) in the case of spirit or beer manufactured in any distillery established or any distillery or brewery licensed under Section 18 -
(i) by a rate charged upon the quantity produced or issued from the distillery or brewery, as the case may be, or issued from a warehouse established or licensed under Section 18 (d) ;
(ii) by a rate charged in accordance with such scale of equivalents, calculated on the quantity of materials used or by the degree of attenuation of the wash or wort, as the case may be, as the State Government may prescribe :
Provided that, where payment is made upon issue of an excisable article for sale from a warehouse established or licensed under Section 18(d), it shall be at the rate of duty which is in force on that article on the date when it is issued from the warehouse."
The aforesaid provision provides that in case of spirit or beer manufactured in any distillery, excise duty would be leviable at the rate prescribed upon the quantity produced or issued from the distillery (brewery or manufacturing). The aforesaid provision envisages levy of excise duty on the quantity "produced or issued" form the distillery. Both the words produced or issued have been used. Thus, excise duty may be leviable on either the quantity of liquor produced or issued. However, the Act or Rules nowhere contemplates that it would be leviable only on the quantity issued and not at the stage of its production or upon the quantity produced. The general law is excise is leviable on the quantity produced. Therefore, in the absence of any provision excluding levy of excise duty on the quantity of liquor produced merely for the reason that Section 29 propose to levy it at either of the two stages i.e. at the stage of production and issuance, it cannot gainsaid that it can be levied only on the quantity issued.
The proviso to Section 29 says that excise duty shall be payable at the rate which is applicable at the time of issuance of the excisable article.
A harmonious reading of Sections 28 and 29 of the Act connotes that excise duty is liviable on production but the rate of duty which is to be charged has to be the rate prevailing on the date of issuance of the excisable article which in the case of liquor would definitely be after bottling. Therefore, the quantity produced is a dutiable item and not the quantity which is bottled.
Excise duty is a single point duty and can be levied only at point enumerated in Section 28 of the Act. Under Section 29 rate of duty is relatable to the date when it is issued for sale and not to the date of manufacture. Thus, duty is leviable as soon as the liquor is manufactured/produced. It is collected at the rate prevailing on the date of its issuance.
The reliance placed upon a Division Bench decisions of this Court in M/s. Mohan Meakin Breweries Ltd. Vs. State of U. P. And others reported in 1978 A. L.R. 534 and M/s. Mohan Meakin Breweries Ltd. Vs. State of U.P. and others AIR 1979 ALL. 198 for the purpose that excise duty is chargeable at the point of issue is not of any help to the petitioner. In the aforesaid decisions though it is held that excise is chargeable at the point of issue but it has not been provided that at what point of time it is leviable. Levy of excise duty is one thing, and collection is subsequent part of it. Chargebility of excise duty at the point of issue refers to the collection of excise duty, which is a stage subsequent to the levy of excise duty.
It may be noted that imposition of any tax involves process of levy of tax; its assessment and collection. Levy of excise duty is a legislative function whereupon assessment is done which is quasi judicial function followed by collection of the duty, which is an executive function.
In re, Sea Customs Act, 1878 - AIR 1963 SC 1760, it was observed by the Supreme Court " that taxable event in the case of duties is manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. This observation was quoted with approval by the Supreme Court in M/s Shinde Brothers Vs. Commissioner Raichur AIR 1967 SC 1512.
In Union of India and others Vs. Bombay Tyre International Ltd. and others (1984) 1 S.C.C. 467 and in State of Mysore and others Vs. M/s. D. Cawasji & Co. and others AIR 1971 SC 152 it was held that excise duty must be closely related to the production or manufacture of excisable goods and it did not matter if the levy was made not at the moment of production or manufacture but at a later stage and even if it was collected from retailer.
In view of above, it may safely be concluded that excise duty is leviable on the manufacture or production of the excisable articles. So the imposition/levy of excise duty is at the stage of manufacture/production and its assessment and collection at any subsequent point of time would not alter the nature of the duty or the point of levy of the duty.
In view of above and the provisions of Section 28(1) (e) of the Act read with Entry 51 of List II of the Seventh Schedule of the Constitution the State has the power to levy excise duty on excisable article i.e. alcoholic liquor as soon as it is processed and made fit for human consumption i.e. capable of being taken by human beings as a beverage and not at any stage earlier. In other words as soon as liquor is manufactured or produced for consumption by human being it becomes excisable under Section 28(1)(e) of the Act irrespective of the manner in which it is packed, stored or supplied.
Section 28 of the U.P. Act is the charging section for excise duty and excise duty on excisable article i.e. liquor in the present case becomes due as soon as it is manufactured/produced making it fit for human consumption as a beverage. Therefore, the submission that excise duty on liquor becomes payable only on its issuance which is possible only after its bottled cannot be accepted.
We are thus, of the opinion that whatever quantity of liquor is manufactured/produced in the distillery is excisable irrespective of the quantity which is bottled and supplied.
Levy of excise on liquor whether under Section 28 of the Act or it is by Rule 7(11) of the Rules:
The State was however not oblivious of the fact that the process of manufacturing/production of liquor is a cumbersome process during which losses occur due to sullage, evaporation and for various other reasons and as such inserted Section 28-A in the Act granting concession in excise duty on certain quantity of liquor on account of manufacturing and bottling wastage.
The aforesaid Section 28-A of the Act provides that where the quantity or spirit or beer in a brewery is found to be more than the quantity shown in the stock, the brewery shall be liable to pay duty on such excess quantity at the ordinary rates prescribed under Section 28 of the U.P. Act. It further provides that where the quantity of spirit or beer is found to be less by more than 10 per cent of the quantity appearing in the stock, the Excise Commissioner shall levy an additional duty on such shortage. Section 28-A of the Act is quoted below:-
"28-A. Imposition of additional duty in certain cases-(1) Where the quantity of spirit or beer in a brewery is found, on examination by such officer of the Excise Department as may be authorised by the Excise Commissioner in this behalf to exceed the quantity in hand as shown in the stock account, the brewery shall be liable to pay duty on such excess at the ordinary rates fixed under Section 28.
(2) Where the quantity of spirit or beer is less than that shown in the stock account on such examination and deficiency exceeds ten per cent, (allowance to that extent being made to cover losses due to evaporation, sullage and other contingencies within the brewery, and also to cover loss in bottling and storage) the Excise Commissioner shall levy an additional duty at the rate of one hundred per cent of ordinary rates of duty in respect of such deficit as exceeds ten per cent over and above the ordinary rates of duty."
The aforesaid provision is in two parts. The first part deals where the quantity of spirit or beer is found to be in excess and the second part deals where the quantity of spirit or beer is found to be less than by over 10 per cent of the quantity mentioned in the stock. In both the eventualities the quantity found in excess and the quantity found to be short by 10 per cent of the quantity appearing in stock such excess and shortage is also subject to payment of excise duty at the ordinary rates of duty.
We are concerned with the second eventuality, where a composite allowance of 10 per cent for loss on account of wastage due evaporation, sulage and other contingencies including loss in bottling and storage has been given. Thus, permitting charging of excise duty on the quantity of spirit or beer produced after allowing 10 per cent as composite wastage.
The Rules lay down the conditions of licence including that issued in Form FL-3/3-A. Rule 6 of the Rules enumerates the general conditions of licence issued in Form FL-3 and Rule 7 of the Rules prescribes additional special conditions applicable to FL-3 licence issued particularly for bottling of IMFL So a licence in Form FL-3 to bottle IMFL is subject to the general conditions prescribed under Rule 6 of the Rules as well as additional special conditions enumerated in Rule 7 of the Rules.
Rule 7 (11) of the Rules provides for an allowance upto 1% on the total quantity of spirit made during a month towards wastage in bottling and storage. In the event the bottling and storage wastage exceeds 1 per cent of the total quantity of spirit made during a month, no allowance on such excess quantity is permissible in so far as excise duty is concerned.
The aforesaid condition as contained in Rule 7(11)(a) of the Rules does not actually imposes any excise duty by itself. It only classifies and limits the exemption on the composite wastage of spirit or beer provided under Section 28-A of the Act. Section 28-A of the Act provides for an exemption of total composite wastage of 10 per cent on the quantity manufactured/produced during the month on account of sullage, evaporation other contingencies including loss during bottling and storage. Rule 7(11)(a) of the Rules however without disturbing the aforesaid composite wastage provided by Rule 28-A of the Rules, only compartmentalises the above wastage and limits the wastage in bottling/storage to 1 per cent. It means that out of the total wastage of 10 per cent permitted under Section 28-A of the Act only 1 per cent is permissible towards bottling and storage. It thus in no way militates with the wastage permitted and exempted from excise duty under Section 28-A of the Act. It at the same time does not impose any duty on any excisable item and in fact accords concession in excise duty on liquor which stand levied by virtue of Section 28(1)(e) of the Act.
A Division Bench decision dated 15.2.2002 of this Court in Writ Petition No. 3968 of 1978 M/s. Mohan Meakin Breweries Ltd. Vs. State of U. P. and others and other connected writ petitions while dealing with a similar question observed as under-
"These rules in fact do not levy any fresh duty: duty is levied under Section 28 of the Act. They are merely meant to discourage evasion of duty. They neither can be interpreted in light of section 28-A of the Act providing additional duty, nor in their operation be eclipsed due to section 28-A of the Act. They operate in different fields."
It was further observed:
"If deficiency is more than 1% then they are liable to pay excise duty on the excess deficiency."
In view of aforesaid facts and circumstances, we are of the opinion that Rule 7(11) of the Rules which in fact is a condition of the licence does not impose or propose to impose duty or additional duty on liquor. It merely gives an allowance in the payment of excise duty and the actual imposition of duty is by Section 28 of the Act. The aforesaid Rule only compartmentalise the composite wastage permissible under Section 28-A of the Act by restricting the bottling wastage to only 1 per cent of the quantity produced and 9% under the head evaporation, sullage and other contingencies.
Thus as no excise duty or additional duty is imposed by the aforesaid Rule, it is not violative of Section 41 of the Act and as such is not even hit by Article 265 of the Constitution of India.
In view of the aforesaid discussion, we are of the opinion that the submission of Sri Upadhyay that Rule 7(11) of the Rules is ultra vires has no legs to stand inasmuch as there is no levy of excise duty by the said Rule. It only compartmentalises and limits the wastage permissible under different heads under Section 28-A of the Act and does not by itself impose any excise duty.
Ancilliary point:
The submission of Sri Kesarwani, that Section 28-A of the Act is not applicable to the case of the petitioner is as it only applies where excess or deficient quantity of spirit or beer is found in a brewery and not to a case of distillery is without any substance. As mentioned earlier the aforesaid Section is in two parts the first part relates to excise where quantity of spirit or beer is found in excess of the stock and the second part where the quantity of spirit or beer is found to be less. In Sub-Section 1 of Section 28-A of the Act no doubt the phrase "in a brewery" has been used but it is missing from Sub-Section 2 of Section 28-A of the Act. In a brewery only beer is manufactured/produced and bottled which is also a type of a spirit whereas in a distillery all types of spirits are manufactured, produced and bottled. Section 28-A of the Act in both Subsections uses the word 'spirit' or 'beer'. The spirit is a much wider term which includes beer. In such a situation the use of the phrase "in a brewery" in the aforesaid provision cannot be construed literally but in a illustrative manner so as to include within its ambit 'distillery' also where spirit of all kinds are manufactured/produced and bottled.
Levy of excise duty at a uniform rate on different verities of liquor:
In so far as levy of excise duty at an uniform rate on different verities of IMFL is concerned, no facts and figures are before us which could prove the quantities of different verities liquors produced by the petitioner and the corresponding rate of excise applicable to the. In the absence of any such factual foundation in the pleadings, we are afraid that the issue that the respondents cannot levy duty of excise at a uniform rate cannot be appreciated and adjudicated upon in exercise of writ jurisdiction. This aspect of the matter can very well be agitated by the petitioner, if so advised, in revision against the appellate order.
Permissibility of interference in writ jurisdiction:
We find force in the argument of Sri Kesarwani that in the facts and circumstances of the case no interference is necessary in exercise of extra ordinary discretionary jurisdiction when the petitioner had accepted the above Rule and utilised the privilege accorded by Rule 7(11) of the Rules.
In a case relating to the payment of excise duty reported in AIR 1975 SC 1121 Har Shankar Vs. Dy. Excise and Taxation Commissioner and others, the Constitution Bench of the Supreme Court held that where liquor shops are auctioned and licenses granted for sale subject to contractual obligations the vendees cannot subsequently invoke writ jurisdiction to avoid enforcement of their obligations under the terms of auction. The Apex Court in paragraphs 21 and 22 of the aforesaid decision observed as under:-
"Analysing the situation here, a concluded contract must be held to have come into existence between the parties. The appellants have displayed ingenuity in their search for invalidating circumstances but a writ petition is not an appropriate remedy for impeaching contractual obligations.
The writ jurisdiction of High Courts under Article 226 of the Constitution is not intended to facilitate avoidance of obligations voluntarily incurred. That, however will not estop the appellants from contending that the amended Rules are not applicable as their licences were renewed before the amendments were made."
A similar view was expressed by the Supreme Court in State Bank of Haryana and others Vs. Jage Ram and others (1980) 3 SCC 599 . In the aforesaid case also licence for trading in retail vend for country spirit was given by auction. The successful bidder accepted the terms and conditions of the licence which was subject to the Rules providing for payment of a certain amount by way of charge in equal installments during the year. The realization of the said amount was challenged under Article 226 of the Constitution of India. The court held that those who offer their bids voluntarily in auction do so with full knowledge of the terms and conditions of the auctions and they cannot be permitted to wriggle out of the contractual obligations arising there from. Such vendees therefore, cannot invoke the writ jurisdiction to avoid the contractual obligations.
The Supreme Court in State of Orissa and others Vs. Narain Prasad and others (1996) 5 SCC 740 again in connection with a levy of excise duty irrespective of licence to trade in liquor held that such licences are in nature of contractual obligations and the Rules constitute the terms of the contract and the validity of the obligations arising there from cannot be assailed by invoking writ jurisdiction. The relevant paragraph 21 of the aforesaid decision is quoted below:-
"21. The approach adopted in this decision has to be borne in mind in every such case. It is also to be kept in mind that while the decisions referred to hereinbefore are by smaller Benches, this decision is by a Constitution Bench. A person who enters into certain contractual obligations with his eyes open and works the entire contract, cannot be allowed to turn round, according to this decision, and question the validity of those obligations or the validity of the Rules which constitute the terms of the contract. The extraordinary jurisdiction of the High Court under Article 226, which is of a discretionary nature and is exercised only to advance the interests of justice, cannot certainly be employed in aid of such persons. Neither justice nor equity is in their favour."
The writ jurisdiction is not intended to facilitate avoidance of obligation which the petitioner had voluntarily incurred as per the conditions of the licence. The petitioner as such cannot be permitted to assail the levy of excise duty on the wastage of liquor during bottling in excess of 1% of the quantity produced in a month. The petitioner has even passed on the burden of the said duty upon the ultimate customers. The trade in liquor is not noble. We are therefore of the opinion that there is no equity in favour of the petitioner which may compel this Court to exercise its discretionary jurisdiction in its favour.
The writ petition, as such, has no merit and is dismissed.
Dt: 14th October, 2011 brizesh Sd/- Pankaj Mithal, J.
I agree .
Sd/- Sunil Ambwani, J.