TMI Blog2003 (9) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... gislature has no power to enact law levying duty on the spirit, which is not meant for human consumption thus no penal duty could have been imposed on rectified spirit. So far as the third submission of Mr. Ray to the effect that the penalty was in the nature of compensation for the breach of condition No. 8 of the tender notice is concerned, the same has no merit. The tender notice does not provide for imposition of any penalty and in the absence of any opportunity to the distillers the penalty could not be realized nor could it be adjusted against the statutory price for rectified spirit.Mr. Ray, is not correct when he submits that such demand was made in terms of the condition of the contract in respect whereof the writ petitions of the respondents were not maintainable. Appeal dismissed. - Appeal (civil) 4618-4630 of 1997 - - - Dated:- 4-9-2003 - V.N. KHARE CJ S.B. SINHA, JJ. JUDGMENT 2003 Supp(3) SCR 362 The following Order of the Court was delivered : Whether the State of Bihar can levy penalty for loss or wastage of molasses, and if so, under which law and to what extent and further whether such loss can be directed to be recovered from the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Auditor General in its report allegedly found out a potential loss of revenue by reason of such loss or wastage of molasses. In the said report the purported potential loss of revenue in relation to each of the licensee had been quantified. Pursuant to or in furtherance of the said audit report notices were issued to the respondents herein levying penal duty. The nautre of such penal duty, the extent of shortfall and the period wherefor notices had been issued would appear from the following chart which may be noticed herein by way of example as disclosed in C.A. No. 4619-20 of 1997. Civil Appeal No. 4619-20 of 1997 State of Bihar v. Arun Chemical Industries Pvt. Ltd The appellants herein sought to justify levy of the said penal duty relying on or on the basis of condition no. 8 of the Tender Notice dated 25.8.1980 purported to have been issued under Section 22 of the Bihar Excise Act for wholesale supply of country spirit to the retail vendors for the period from 1.11.1980 to 30.9.1983. It is not in dispute that the owners of the distilleries who had been granted licences in Excise Form Nos. 28 and 28A questioned the terms and conditions of licences as also the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit report; (ii) that the State had no jurisdiction to levy and duty; (iii) no finding has been arrived at by the authorities before issuing the impugned demand notice as regard shortfall in production of rectified spirit that the molasses had been diverted or misutilised for illicit distillation or there had been contravention of the 1947 Act and the rules framed thereunder; (iv) the 1947 Act and 1915 Act do not provide for levy of any such penalty; (v) all the respondents did not take part in the tender process nor were they eligible therefor having regard to the nature of licences possessed by them; (vi) even in relation to those who were holders of the licences for carrying out the distillation work such a clause in the tender notice without any specifications as to how and under what circumstances penalty could be levied was arbitrary; (vii) no machinery for recovery of the same having been created nor any authority has been specified under the 1915 Act for adjudication of levy or recovery of such penalty, reference to condition no. 8 of the tender notice providing for levy of penalty was meaningless; (viii) nothing has been brought on record to show tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l L.J. 592 it was held by Allahabad High Court as under : Learned Standing Counsel, however, contended that the State Government was justified in withholding both the price payable to the petitioner and the release certificate claimed by the petitioner if it could be shown that the claimed by the petitioner if it could be shown that the petitioner had failed to perform its obligation under the agreement between the parties. Learned Standing Counsel placed reliance upon Cl. 9 of the said Order which has been quoted above. In our opinion, this contention of the learned Standing Counsel is not tenable. Cl. 9 itself shows that even though the State Government has a statutory authority to direct a rice miller, still, the terms and conditions on which the Government paddy will be converted into rice by the licensed rice miller will be such terms and conditions as may be agreed upon . The agreement itself containing the terms and conditions cannot be said to be a statutory contract merely because the State Government has a right under Cl. 9 to direct a rice mill to convert paddy into rice. It has been stated above that along with the counteraffidavit annexure C.A. 1 has been annexed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the principles of natural justice is illegal and void. The statutory authorities must act within the four-corners of a statute. They could take recourse to the proceeding for levy of penalty and the recovery thereof from the respondents only in the event there existed any agreement or statutory provision therefor. Such a power did not exist in the Commissioner of Excise or the Superintendents of Excise who had issued the impugned demand notices. The statutory authorities also could not have sought to levy penalty relying on or on the basis of the audit report only. They were required to apply their own independent mind for the purpose of finding out as to whether the respondents in law had committed any breach of the terms and conditions of licence or the provisions of 1947 or 1915 Acts so as to make them liable for levy of penalty. The concerned authorities acting in terms of the statutory provisions, therefore, without any further investigation could not have acted mechanically on the audit report. So far as the second submission of Mr. Ray is concerned, it would not detain us very long as the matter stands almost covered by a catena of decisions of this Court. In Syn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95 per cent by volume of ethyl alcohol. Dictionaries and technical books showed that rectified spirit (95 per cent) was an industrial alcohol and not potable as such. It appeared, therefore, that industrial alcohol, which was ethyl alcohol (95 per cent), by itself was not only non-potable but was highly toxic. The range of potable alcohol varied from country spirit to whisky and the ethyl alcohol content thereof varied between 19 to about 43 per cent, according to the ISI specifications. In other words, ethyl alcohol (95 per cent) was not an alcoholic liquor for human consumption but could be used as a raw material or input, after processing and substantial dilution, in the production of whisky, gin, country liquor, etc. In the light of experience and development, it was necessary to state that intoxicating liquor meant only that liquor which was consumable by human beings as it was. Shri Ray, however, relied upon the decision in Bihar Distillery and Anr. v. Union of India and Ors., reported in [1997] 2 SCC 727. In that case it was held that the State is empowered to impose duty if it is found that the rectified spirit is being removed from the distillery for the purpose of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to potable purposes, both during and after the manufacture of rectified spirit, continues unaffected. Any rectified spirit supplied, diverted or utilised for potable purposes, i.e., for obtaining or manufacturing potable liquors shall be supplied to and/or utilised, as the case may be, in accordance with the State excise enactment concerned and the rules and regulations made thereunder. If the State is so advised, it is equally competent to prohibit the use, diversion or supply of rectified spirit for potable purposes. How far and to what extent the said observations are correct need not be considered by us but suffice it to point out that this decision had not noticed the earlier decision given by a Bench of three learned Judge in Modi Distillery (supra). Modi Distilleries (supra) applies in all fours to the facts of the present case and we are bound thereby. Even otherwise, it appears that the question as to whether any excise duty can be levied by the State upon the industrial alcohol or rectified spirit useable for industrial purposes is concluded by a decision of this Court in State of Bihar and Others v. New Swadeshi Sugar Mills Ltd. and Others, Civil Appeal No. 3343 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be realized nor could it be adjusted against the statutory price for rectified spirit. It is furthermore interesting to note that the Comptroller and Auditor General in its counter affidavit before the High Court as also before this Court stated that the steps for recovery of such amount was required to be taken for avoiding potential loss of revenue due to wastage of molasses in the distilleries . The stand of the appellants, thus, runs contrary to the stand of the Comptroller and Auditor General, although the impugned demand was made pursuant to or in furtherance of its report. It will bear repetition to state that the appellants herein by issuing the demand notices sought to give effect to the report of the Comptroller and Auditor General. It is, therefore, not correct to contend that they intended to recover the amount by way of compensation by alleging loss to it for which respondents became liable in terms of condition No. 8 of the tender notice (supra). Revenue being a subject-matter of legislation in terms of Entry 8 of List II of the Seventh Schedule of the Constitution of India, the recovery thereof must be made in terms of the provisions of a legislative Act enact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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