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State of U.P. and Ors. Versus Saraya Industries Ltd.

2006 (5) TMI 535 - SUPREME COURT OF INDIA

Civil Appeal No. 2670 of 2006 (Arising out of SLP (Civil) No. 11483 of 2005) - Dated:- 12-5-2006 - S.B. Sinha And P.P. Naolekar, JJ. For Appellant/Petitioner/Plaintiff: Rakesh Dwivedi and R.G. Padia, Sr. Advs., Kamlendra Mishra, Rajeev Dubey, Gaurav Bhatia, Piyush Vats, Gaurav Librahan, Adarsh Upadhyay and Vimla Sinha, Advs For Respondents/Defendant: Ashok H. Desai, Sr. Adv., Anjali K. Verma, Meera Mathur, Vishwajit Singh, Jatendra Mohan Sharma and Ambhoj Kumar Sinha, Advs. JUDGMENT S.B. Sinha, .....

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esh on or about 03.02.2001 allegedly adopted a policy decision for the excise year 2001-02 which commenced from 01.04.2001 to the effect that the distilleries had to obtain and affix security holograms issued by the department to prevent evasion of duty and smuggling of liquor. The Excise Commissioner issued a circular on 21.02.2001 providing that every distillery would receive holograms from his office, where for plants had been established. Another circular letter was issued on 24.03.2001 dire .....

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be entitled to receive holograms from the incharge excise inspector on day- to-day basis and a register was required to be maintained as regards the stock of the holograms issued, the number of holograms wasted and the closing stock thereof. The excise duty was to be deposited before issuance of bottles, pouches and canes affixed with holograms. Furthermore, the excise duty was to be chargeable on the wasted holograms, which would be destroyed under the orders of the Excise Commissioner. 4. A ne .....

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and verified by the Authorized Committee would not be exigible to any excise duty. However, if the wasted holograms were not produced for verification, the same shall be presumed to have been misused as a result whereof the distilleries would be liable to pay excise duty on the quantity of liquor which could have been charged, if the holograms had not been wasted and the distilleries were made liable to compensate the State for the loss of duty on the quantity of liquor which could have been is .....

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espondents between 15.07.2001 to 20.07.2004. Before the said Committee all the wasted holograms were allegedly not produced. A statement was prepared by the said Committee showing the number of holograms found to have been wasted/damaged but the serial number could not be read and categorized as missing holograms. The respondents were directed to deposit the excise duty on the quantities mentioned in the said holograms. 7. The writ petitions were filed by the respondents herein before the Allaha .....

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. The State is, thus, before us. 8. The High Court in passing the impugned judgment, inter alia, opined : (i) that the duty cannot be charged on the basis of loss of holograms, as excise duty was payable in terms of the notification issued under Section 29 of the Act; and (ii) no notification having been issued, excise duty demanded only on the basis of the circulars issued by the Excise Commissioner on account of holograms, is bad in law. 9. Mr. Rakesh Dwivedi, the learned Senior Counsel appear .....

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rams. Our attention, in this behalf, has also been drawn to a rule made on 23.01.2004, in terms whereof a similar provision had been inserted. Mr. Dwivedi urged that the regulatory measures having been taken by the Excise Commissioner so as to prevent evasion of payment of excise duty, no notification was required to be issued nor any rule was required to be framed. The Act, whenever any such notification is required to be issued, Mr. Dwivedi would contend, provides for the same and, thus, notif .....

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nnot be levied by incorporating a condition in the licence. It was furthermore contended that the power of the Excise Commissioner to issue direction being limited, and imposition of duty is within the exclusive domain of the State, the same must be effected by way of a notification and not by way of a circular. Before we advert to the rival contentions of the parties, as noticed hereinbefore, we may take note of certain provisions of the Act. (i) 'Excisable articles' has been defined in .....

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vided for under Section 28 of the Act. Section 29 of the Act lays down the manner in which the duty is to be levied, mandating that for the said purpose a notification should be issued in terms whereof directions as enumerated in the clauses mentioned therein should be made. Section 31 provides for the forms and conditions of licences on the terms mentioned therein. In terms of Section 41 of the Act, the Excise Commissioner may make rules. 11. Indisputably, the rules in terms of the said provisi .....

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rs. Rule 719 empowers the Excise Commissioner to appoint officer to the charge of distilleries, in the following terms: 719. Excise Commissioner to appoint officer to the charge of distilleries. - The Excise Commissioner will appoint such officers of the Excise Department as he may see fit to the charge of distilleries. The pay of such officers, will be met by Government provided that when the annual establishment charges exceed the sum of total of 10 per cent of the duty leviable on the issues .....

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lons and of degree of strength are to be shown to the nearest first point of decimals. To preserve uniformity, the system of increasing the first figures of decimals by one when the second is 5 or more should be adopted in proof conversions. Overwriting and erasures are forbidden; any necessary corrections must be clearly made and must be initialed. 821. Distillers declaration of wash Form P.D.8.- Distillers must thoroughly dissolve the saccharine materials used by them when they set up the wash .....

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that it was done with a view to obviate the difficulties faced by the distillers and for the purpose of preventing evasion of payment of excise duty by way of regulatory measure. The rule made by way of notification dated 19.03.2001 is not applicable to the distillers. It is only applicable to wholesale shops. The provisions of the said rules cannot be made applicable to the distillers, as the rules for the wholesale shops and distillers stand on different footings. 14. Mr. Dwivedi, in our opin .....

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e indemnity bonds were executed after the period in question, 2004 Rules to which our attention has also been drawn are also indisputably not applicable. 15. Our attention has also been drawn to the licences granted in favour of the distillers which allegedly contained clauses relating to payment of duty, in case of damages or shortages of security holograms by the licensees in their personal capacity. The licence, to which our attention has been drawn by the appellant, was issued on or about 01 .....

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was also issued by the State. The licence did not contain any clause relating to payment of excise duty either by way of penalty or damages for loss and/or damage caused to the security holograms. In the circular letter dated 03.02.2001, it was, inter alia, provided: 7. The main revenue is of Excise duty. Therefore, the license fee should be so determined that on the basis of consumption a substantial increase in Revenue is achieved in the next year. 8. In order to check the evasion of excise d .....

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o arrange application machine in every distillery for affixing security holograms on bottles etc. It specified the price of such holograms. It, however, provides that without affixing the security holograms and paying the excise duty liquor for human consumption will not be issued. A letter was issued by the Excise Commission where again emphasis has been laid on the purpose for which the security holograms were to be affixed on bottles etc. namely, to secure Government revenue or to impose rest .....

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ard norms. Accordingly a safe and secure transportation, storage possession and custody is essential so that unsocial elements and liquor smugglers may not illegally catch hold of such holograms and the Government Revenue as well as the safety of public health may be secured. 5. The supply of security holograms shall be made only to such authorized representative of Distillery/Breweries/Vintinery/license holders of Foreign liquor bond whose signatures have been attested in the indent form by the .....

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liquor bond shall as per their requirement obtain the security holograms from the officer incharge (Excise) of the concerned unit and their daily receipt shortage, use, wastage etc. shall be recorded in the prescribed register HG-6. The wasted security holograms during its use by the concerned unit shall be kept safe in an envelop and the code number mentioned on such hologram shall be recorded in the register and a fortnightly statement of wastage of such holograms shall be made available throu .....

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ssioner and the Manager of the concerned unit. A report to this effect shall be forwarded to the officer incharge (Holograms) to headquarters. 12. After the receipt of the holograms from the officer incharge (Excise) of the unit, the concerned unit shall be responsible for the safety, storage, use etc. of such holograms and its daily record shall be kept by the concerned unit in a register HG-6 and they shall be totally responsible to compensate any loss in revenue as a consequence of such wasta .....

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maintained; but by reason of an executive fiat, a unit cannot be made responsible to compensate any loss to the revenue as a consequence of such wastage of such holograms. Furthermore making the concerned unit totally responsible for any misuse of security holograms or for not affixing the proper hologram as per classification of the liquor must result in loss to the revenue. We may notice the difference between the rules and the conditions of licence which came to be imposed as regard issuance .....

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e distillers were asked to execute bonds. Such bonds had been executed in November 2001, which is beyond the period in question. Only in terms of such indemnity bonds, the concept of payment of damages and that too in the form of liquidated damages, was evolved. The position came to be clarified only by the rules framed by the State on 23.01.2004 wherein it was stated: 6(c) The licensee shall submit the Security Hologram/Holographic Shrink Sleeves intact received from the approved supplier with .....

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the Constitution of India. It may be true that the resort to regulatory measures can be taken by the State, but the same must be done in the manner laid down under the Act. A provision which confers powers upon a statutory authority in terms whereof a penalty is to be imposed, damages are to be paid for non payment of excise duty, in our opinion , must be done through a valid subordinate legislation and not by way of issuance of a circular letter. 20. In Bimal Chandra Banerjee v. State of Madhy .....

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stillery or brewery licensed under the Act. The Legislature has levied excise duty only on those articles which come within the scope of Section 25. The rule-making authority has not been conferred with any power to levy duty on any articles which do not fall within the scope of Section 25. Therefore it is not necessary to consider whether any such power can be conferred on that authority. Quite clearly the State Government purported to levy duty on liquor which the contractors failed to lift. I .....

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iquor and sell the same at their allotted shops and in case of their default or failure to do so, they would be liable to pay compensation equal to the amount of the excise duty leviable on the unlifted quantity is valid and enforceable. This point is no longer res integra. In Bimal Chandra Banerjee v. State of Madhya Pradesh1 this Court held that: No tax can be imposed by any bye-law or rule or regulation unless the statute under which the subordinate legislation is made specially authorises th .....

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sing a power which it did not possess and hence the rule imposing the condition in the licences and the demand notices are invalid. 22. In State of U.P. and Ors. v. Modi Distillery and Ors. MANU/SC/0788/1995MANU/SC/0788/1995 : (1995)5SCC753 , this Court opined Mr. Sehgal submitted, in the alternative, that if it was the ultimate beverage which alone was exigible, the process of determining the wastage and levying excise duty thereon was only regulatory and, therefore, permissible. We are here co .....

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ion has been reiterated in State of U.P. and Ors. v. Vam Organic Chemicals Ltd. and Ors. MANU/SC/0833/2003MANU/SC/0833/2003 : AIR2003SC4650 23. In State of U.P. and Ors. v. Delhi Cloth Mills and Anr. MANU/SC/0510/1991MANU/SC/0510/1991 : (1991)1SCC454 , this Court held: It is emphasised by Mr. Agarwal that this provision is meant to discourage evasion of duty. If any part of the lower export duty charged liquor is not in fact exported it should be made to pay the higher excise duty as payable on .....

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al loss in transit, by leakage, evaporation or other unavoidable cause, of spirit transported or exported under bond. The allowance is subject to the following maximum limits. Limits were prescribed differently for wooden casks and metal vessels, keeping in mind the duration of transport. It was further observed: Thus, we find that the minimum (sic maximum) limits of wastage in transit was prescribed even under the old rule. This by implication enjoined that the excess wastage would be taxed as .....

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der Rule 8 of the Punjab Bonded Warehouse Rules, 1957. The Excise and Taxation Commissioner, exercising the powers of the Financial Commissioner, issued a show cause notice and then ordered the appellant to pay duty on the wastage in excess. The show cause notice required the appellant to pay duty on excess wastage in course of import of liquor from U.P. and the rules governing the appellant's licence provided for a wastage allowance not exceeding 1 per cent of the actual loss in transit by .....

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at the impugned rules did not impose any new duty or create any liability and that they were in essence and substance of a regulatory character meant to guard against perpetration of fraud or deception on the revenue. "They provide for and regulate the storage and subsequently the removal of liquor from the bonded warehouse, on payment or otherwise of the duty which is chargeable under the Fiscal Rules of 1937." We agree with Mr. Agarwal that the instant Rules 636 and 814 are also of r .....

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trued in light of the mischief it was designed to remedy. There is no dispute that excise duty is a single point duty and may be levied at one of the points mentioned in Section 28. In Government of Haryana v. Haryana Brewery Ltd. and Anr. MANU/SC/0119/2002MANU/SC/0119/2002 : [2002]1SCR942 , whereupon Mr. Dwivedi relied upon, this Court emphasized the need of a forum where a reasonable explanation for loss of good could be raised. In this case, such a forum was not available. 24. In State of Bih .....

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ven examined as to what was the reason for shortfall in the production of rectified spirit. The Molasses Act does not provide for imposition of such penalty in the event of shortfall of spirit. It must, therefore, necessarily be held that the imposition of the impugned penalty being against 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 .....

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