Patna High Court
Industrial Corporation Pvt. Ltd. And ... vs State Of Bihar And Ors. on 15 May, 1996
Equivalent citations: AIR1997PAT34
Author: D.P. Wadhwa
Bench: D.P. Wadhwa, B.P. Singh
JUDGMENT D.P. Wadhwa, C.J.
1. The principal question which requires determination in this batch of 13 writ applications is if the State can levy penalty for loss or wastage of molasses, and if so, under which law and to what extent. The Act involved would appear to be the Bihar Molasses Control Act, 1947 (for short 'the Molasses Act').
2. To illustrate the petitioner in C. W.J. C. No. 6845 of 1989 is engaged in the manufacture/ production of spirit in its distillery at Lauriya under a licence issued to it in Form No. 28A, which licence, as noted above, is for the manufacture of spirit in the distillery for use in the manufacture of chemical and for industrial, scientific and other purposes. On May 25, 1989, the Commissioner, Excise, Bihar, gave a notice to the petitioner to deposit an amount of Rs. 72,96,135/- by way of penalty in the Government Treasury within fifteen days of the receipt of the notice. The petitioner was also required to show cause as to why its licence be not cancelled for contravention of the conditions of the licence. The relevant portion of this notice reads as under (English Translation) :--
"In the year 1987-88 M/s. Panchrukhi Distillery, Panchrukhi, has produced from each quintal of Molasses 18.00 bulk litre i.e. 29.7 L. P. Litre (wrongly typed as bulk litre in Annexure-6). According to the Condition No. 1 of the licence issued under Section 28A and according to the conditions as mentioned in the Molasses Allotment Order, the Distillery is required to produce 22.5 bulk litre i.e. 36 L. P. litre of spirit per quintal of molasses."
"In the year 1987-88 your Distillery distilled 39388 quintal of Molasses for production of spirit and from which merely 7,09,354 bulk litres of spirit was produced. Whereas according to the rules, it was necessary to produce 88,6230.00 bulk litre of Spirit at the production rale of 22.5 bulk litre per quintal of molasses. In this manner there is a loss of production of 17687.00 bulk litre of spirit, which according to an average of 65.0 above proof should be 291845.40 L. P. litre of spirit. In this manner you have contravened the aforementioned conditions. Upon this a penal duty on the Excise Revenue amounting to Rs. 72,96,135 at the rate of Rs. 25 L. P. litre is warranted and which you are liable to pay."
3. It would appear that the respondents have sought to recover penalty on account of an audit objection. Accountant General has been impleaded as a respondent in one of the writ applications (CWJC No. 4696 of 1994). In this case it has been alleged that the Superintendent of Excise under the Excise Act has directed the petitioner to deposit a sum of Rs. 76,23,387/ - by way of penalty on the basis of the audit report submitted by the Accountant General (Audit-11,), Bihar. It is stated in this demand notice that there his been shortage of molasses in the financial year 1992-93 on account of which the Accountant General has prescribed penalty of Rupees 76,23,387/-. The petitioner in that case was asked to deposit this amount within one month. The Accountant General has filed his counter-affidavit in the case and the stand taken by him is as under :--
"That it is not correct to say that A. G. has imposed a penalty of Rs. 76,23,387/- by way of penal duty for the loss of Molasses. In fact, Para I of Section A, Part U of the Inspection Report No. 26/93-94 talks of loss of revenue due to wastage of Molasses. It further states that the Bihar Molasses (Control) Act, 1947 and the rules framed thereunder do not provide for any allowance for wastage of molasses either in transit from Sugar Factory to Distillery or in storage, handling and working in process or distillation. Further, under Rule 3(j) of Bihar (Control) Rules, 1955, the ownership of all molasses allotted to a distillery shall continue to vest in the owner of a sugar factory until it is actually delivered at the distillery and all losses occurring from any cause other than wilful omission on the part of the allottees shall be borne by the sugar factory. At test check of the molasses receipt and consumption register for the year 1992-93 along with details furnished to audit, revealed that a total quantity of 8470-43 quintals of molasses was wasted in course of transit from sugar factory to the distillery. It has been further reported that the quantity of 84.70.43 quintals of molasses was adequate to produce 3,04,935.40 L. P. L. of spirit @ 36 L. P.L. per quintal of molasses involving revenue potential of Rs. 76,23,387/-@ Rs. 251- per L.P.L. The Inspection report further pointed out the irregularities in not taking any step against the potential loss of revenue due to wastage of molasses in the said distillery. The report also suggested for steps to be taken to realise the amount under intimation to audit.
"That the Inspection report has been prepared by the Competent Authority under the State Accountant General who conducts receipt audit under the guidance and instruction of the Comptroller and Auditor General of India. In terms of Section 16 of C.A.G. (Duties, Powers and Conditions of Service) Act, 1971, the CAG of India has power to audit receipts of the State and to satisfy himself that the rules and procedures in that behalf are designed to secure an effective checks on assessment, collection and proper allocation of revenue and are duly observed. In the instant case the order Annexure 1 is based on the Audit Report which shall be deemed to be a statutory report and as such Annexures I and 2 to the writ application are legal and valid.
"That in the instant case, the Bihar Molasses (Control) Act, 1947 and the Rules framed thereunder do not provide for any allowance for loss of molasses owing to leakage, evaporation or deterioration during storage in Distillery or during transit from the sugar factories to distilleries or in the process of distillation. In the absence of any provision in the Act or the Rules framed thereunder the inspection/ audit has pointed out the irregularities in not taking any steps against the potential loss of revenue due to wastage of molasses in the said distillery."
4. At this stage we might as well consider individual cases describing the demands created by the respondents by way of penalty or penal duty.
C.W.J.C. No. 11972 of 1993:
Here the licence was granted in Form No. 28A under Section 13 of the Excise Act. The demand has been created on the basis of a letter from the Distillery Officer (an Excise Officer) which he has sent with reference to the letter of the Superintendent of Excise on the basis of an audit objection that there has been shortfall in production of spirit during the years 1985-86 and 1986-87. The petitioner has been directed to pay Rs. 53,30,217.50 by way of penal duty for shortfall in production for the year 1985-86. The petitioner in this case has also been asked to pay Rupees 39,19,815/- by way of penal duty for the shortfall in the production of spirit for the year 1986-87. There is a challenge to these demands as well as condition No. 1 of licence in Form 28A.
C.W.J.C. No. 6845 of 1989 :
Licence was granted in Form No. 28A under Section 13 of the Excise Act. The demand has been created by a letter dated 25-5-1989 issued by the Commissioner of Excise whereby he has imposed a penal duty for the shortfall in production of spirit for the year 1987-88. The petitioner has challenged this demand as well as amendment made in condition No. 1 of the licence in Form No. 28A.
C.W.J.C. No. 8032 of 1995 :
The petitioner holds a licence in Form No. 28A. The petitioner has challenged the demand which has been created by Memo No. 175, dated 15-9-1995 issued by the Superintendent of Excise whereby the petitioner has been directed to pay an amount of Rs. 82,41,120/-for the shortfall in production of spirit for the year 1988-89.
C.W.J.C. No. 2385 of 1988:
The petitioner has challenged the amendment in condition No. 1 of the licence issued in form No. 28A under Section 13 of the Excise Act in so far as it required the petitioner to produce 22.5 bulk litres of rectified spirit per quintal of molasses and imposition of penal duty for shortfall in the production thereof.
C.W.J.C. No. 1517 of 1984:
The petitioner was granted permit for the period from 1-12-81 to 31-3-82 and from 1-4-82 to 30-11-82 for manufacture/production of spirit. The demand has been created by a letter dated 13-2-84 from the Commissioner of Excise. The petitioner has been directed to pay penal duty to the tune of Rs. 15,18,021; 77 for both the periods for the shortfall in the production of spirit.
C.W.J.C. No. 1518 of 1984:
In this case permit was granted to the petitioner for manufacture of spirit. The demand has been created by the Superintendent of Excise, Sultanganj, by letter dated 10-1-84 whereby the petitioner has been directed to pay penal duty to the extent of Rs. 11,19,058.00 for the shortfall in the production of spirit for the year 1982-83.
C.W.J.C. No. 2334 of 1984:
The petitioner is holder of permit for production of spirit. The demand has been created by letter dated 17-2-84 by the Commissioner of Excise for payment of penal duty of Rs. 18,94,706/-for the period 1982-83 for the shortfall in the production of spirit.
C.W.J.C. No. 5487 of 1990:
The petitioner was issued a permit for production of spirit. A demand has been made by letter dated 31-5-90 by Commissioner of Excise directing the petitioner to pay Rs. 76,49,040.00 by way of penal duty for the shortfall in the production during the period 1-11-83 to 31-3-87.
C.W.J.C. No. 5484 of 1990:
The petitioner was granted a licence in Form No. 28A for production of spirit. A demand has been created by letter dated 25-5-1989 of the Commissioner of Excise, Bihar, and the petitioner has been directed to pay a sum of Rs. 51,16,691.25 as penal duty for the shortfall in production for the period 1987-88.
C.W.J.C. No. 5648 of 1986:
The petitioner was granted permit for production of spirit. A demand has been made by letter dated 9-1-1985 of the Commissioner of Excise, Bihar, directing the petitioner to pay a sum of Rs. 33,71,825.31 as penal duty for the shortfall in production for the period 1980-81.
C.W.J.C. No. 5649 of 1986:
The petitioner was granted permit for production of spirit. The demand has been created by letter dated 9-1-1985 of the Commissioner of Excise, Bihar, asking the petitioner to pay a sum of Rs. 64,51,228.09 as penal duty for the shortfall in production of spirit for the period from 1-12-1981 to 31-3-1982.
C.W.J.C. No. 6433 of 1988:
The petitioner was granted licence in Form No. 28A for production of rectified spirit. The petitioner has challenged amendment in condition No: I of the licence issued in Form No. 28A of the Act requiring the petitioner to manufacture 22.5 bulk litre of spirit per quintal of molasses and imposition of penal duty on the shortfall in the manufacture of spirit.
5. In this set of cases we need not refer to the relevant constitutional provisions being Entries 6, 8 and 51 of List II (State List), Entry 84 of List I (Union List) and Entry 33, List III (Concurrent List) and Industries (Development and Regulation) Act, 1951 (for short 'I.D.R. Act') as all these provisions were considered by a Seven-Judge Bench decision of the Supreme Court in Synthetics and Chemicals Ltd. v. State of U.P., (1990) 1 SCC 109: (AIR 1990 SC 1927). The questions with which the Court in that case was mainly concerned were:
(i) Whether the power to levy excise duty in case of industrial alcohol was with the State Legislature or the, Central Legislature.
(ii) What is the,scope and ambit of Entry 8 of List II of the 7th Schedule of the Constitution?
(iii) Whether the State Government has exclusive right or privilege of manufacturing, selling, distributing, etc. of alcohols including industrial alcohol. In this connection the extent, scope and ambit of such right or privilege has also to be examined.
The Court after considering various contentions of the parties and examining various provisions of the Constitution and the law observed as under:--
"83. Having regard to the principles of interpretation and the constitutional provisions, in the light of the language used and having considered the impost and the composition of industrial alcohol and the legislative practice of this country, we are of the opinion that the impost in question cannot be justified as State imposts as these have been done. We have examined the different provisions. These are not merely regulatory. These are much more than that. These seek to levy imposition in their pith and substance not as incidental or as merely disincentives but as attempts to raise revenue for State's purposes. There is no taxing provision permitting these in the lists in the field of industrial alcohol for the State to legislate.
84. Furthermore, in view of the occupation of the field by the IDR Act, it was not possible to levy this impost.
85. After the 1956 amendment to the IDR Act bringing alcohol industries (under fermentation industries) as Item 26 of the First Schedule to IDR Act the control of this industry has vested exclusively in the Union. Thereafter, licences to manufacture both potable and non-potable alcohol is vested in the Central Government. Distilleries are manufacturing alcohol under the central licences under IDR Act. No privilege for manufacture even if one existed, has been transferred to the distilleries by the State. The State cannot itself manufacture industrial alcohol without the permission of the Central Government. The States cannot claim to pass a right which they do not possess, nor can the States claim exclusive right to produce and manufacture industrial alcohol which are manufactured under the grant of licence from the Central Government. Industrial alcohol cannot upon coming into existence under such grant be amenable to States' claim of exclusive possession of privilege. The State can neither rely on Entry 8 of List II nor Entry 33 of List III as a basis for such a claim. The State cannot claim that under Entry 33 of List III, it can regulate industrial alcohol as a product of the scheduled industry, because the Union, under Section 18-G of the IDR Act, has evinced clear intention to occupy the whole field."
Then the Court laid down the limits of the power of the State to legislate in respect of alcohol:
"86. The position with regard to the control of alcohol industry has undergone material and significant change after the amendment of 1956 to the IDR Act. After the amendment, the State is left only the following powers to legislate in respect of alcohol:
(a) It may pass any legislation in the nature of prohibition of potable liquor referable to Entry 6 of List II and regulating powers.
(b) It may lay down regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol.
(c) The State may charge excise duty on potable alcohol and sales tax under Entry 52 of List II. However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the State on industrial alcohol.
(d) However, in case State is rendering any service, as distinct from its claim of so-called grant of privilege, it may charge fees based on quid pro quo."
It will be thus seen that the Supreme Court has specifically laid down that licence to manufacture both potable and non-potable alcohol is vested in the Central Government.
The Court has also clarified that industrial alcohol which is ethyl alcohol (95 per cent) by itself is not only non-potable but is highly toxic and that the range of spirits of potable alcohol is from country spirit to whisky and the ethyl alcohol content varies between 19 to about 43 per cent. These standards are according to the ISI specifications. 'In other words', the Court said, 'ethyl alcohol (95 per cent) is not alcoholic liquor for human consumption but can be used as raw material input after processing and substantial dilution in the production of whisky, gin, country liquor, etc.' In State of U.P. v. Modi Distillery, (1995) 5 SCC 753 : (1995 AIR SCW 3791), the Court was concerned with the legality of the demand of excise duty by the State when (i) there was wastage of Indian-made foreign liquor exported out of State of U.P.; (ii)demand for excise duty on wastage during transportation in containers of high strength spirit of 80 to 85% from distillery to warehouse; (iii) demand of excise duty on obscuration; and (iv) that sought to be levied on pipeline wastage. The Court referred to its decision in Synthetics and Chemicals Ltd. v. State of U.P. (AIR 1990 SC 1927) and held that when the State seeks to levy excise duty upon cases enumerated in (ii) and (iv) above i.e., wastage of liquor after distillation but before dilution and the pipelines loss of liquor before the process of manufacture before dilution, it was levy of excise duty upon (sic) is not alcoholic liquor for human consumption but the raw material or input still in process of being fit for human beings. The Court said that the State was not empowered to levy excise duty on the raw material or input that was in the process of being made into alcoholic liquor for human consumption. It said-
"That the measure of excise duty upon alcoholic liquor for human consumption is the alcoholic strength thereof does not make any difference in this behalf. It is only the alcoholic strength of the final product which is relevant."
As regards the process of obscuration described in item (iii) above, the Court said that it was clear that the obscuration was not of alcoholic liquor for human consumption and the levy of excise thereon was beyond the State's power.
6. The Molasses Act provides for the control of the distribution, supply, storage and price of molasses produced by factories in the State of Bihar. Molasses have been defined to mean the final residual by-product of factories manufacturing sugar from cane or by refining gur, by means of vacuum pans, but does not include convertible molasses, which are the final residual by-product of sugar factories operating on the open pan system. The Act is to be implemented by Controller which means the Excise Commissioner as defined in the Bihar Excise Act, 1915 (for short 'the Excise Act'). Excise Officer has also the same meaning. This Act requires submission of returns relating to stock of molasses which cannot be moved without the permission of the Controller. No agreement can be entered into for the supply of molasses except with the permission of the Controller and subject to the terms and conditions which he might impose. Controller can issue directions for supply of molasses to State Government, the distilleries or to such other persons or organisations as he might specify. Prices for sale of molasses have also to be fixed under the Act. For the working of the Act, the State Government imposes administrative charges on molasses. The Act also provides as to how molasses are to be stored and prohibits adulteration of molasses. Section 9-B of the Act provides that an owner, manager or occupier of a factory or a stockiest or any other person shall not adulterate molasses having a density of not less than 80 brick and a fermentable sugar content (expressed as reducing sugars) of not less than 37 per centum and shall allow free access to any Excise Officer deputed by the Controller to his factory or place of business and afford such Officer every facility for inspection of such premises. Power also exists for entry, seizure and inspection of molasses if there is contravention of provision of the Act or the Rules or directions issued by the Controller. Section 10 of the Act provides for levy of penalty and is as under:--
"If any person contravenes any provision of, or fails to comply with any order or direction issued under this Act or the Rules made thereunder, or makes any false statement regarding any matter in respect of which he is required under this Act or the said Rules to give information, he shall be punishable with imprisonment of either description for a term which may extend to three years or with fine which may extend to ten thousand rupees, or with both.
Any Court trying a contravention of the provisions of Sections 4, 6, 8, 9-A and 9-B may direct that any molasses in respect of which the Court is satisfied that any of the said provisions has been contravened, shall be forfeited to Government:
Provided that a contravention of the provision of Section 8, if made before the commencement of the Bihar Molasses (Control) Third (Amendment) Act, 1959, shall not be punishable under this Act:
Provided further that -
(i)(a) the Controller of Molasses may accept from any person, who is reasonably suspected of having committed an offence punishable under this section, a payment of a sum not exceeding rupees ten thousand in lieu of prosecution or by way of composition for such offences as the case may be; and
(b) in any case in which any molasses has been seized as being liable to confiscation under this Act, may, at any time before the Magistrate has passed an order under this section, release the molasses on payment of any sum not exceeding the value thereof as estimated by the Controller of Molasses including the administrative charges and movement permit fee.
(ii) When the payments referred to above have been duly made the accused person, if in custody, shall be discharged and the molasses seized (if any) shall be released and no further proceeding shall be taken against such person or molasses."
7. Certain forms have been prescribed under the Bihar Molasses Control Rules, 1955. One of the provisions in the Rules is that the ownership of all molasses allotted to a distillery or any person or organisation shall continue to vest in the owner, occupier or Manager of a sugar factory or the stockiest until it is actually delivered at the distillery or at any other place where it is directed to be delivered and all losses occurring from any cause other than wilful omission on the part of the allottees shall be borne by the sugar factory.
8. Rules 5, 13(a) and 16 which appear to be relevant to the controversy in the present case are as under:--
"(5)(a) The Controller shall specify from time to time the grade under which molasses shall be classified. Molasses issued for sale from the sugar factory shall conform to such grades.
(b) The method of analysis to be followed in determining the specification and grades to which molasses shall conform shall be prescribed by the Controller.
13. (a) On arrival of molasses at a distillery before discharge into the storage tank reserved for the purpose, control test shall be carried out forthwith with the assistance, if necessary, of the distillery or such other officer as may be deputed by the Controller.
The result of the test shall be prepared in triplicate the original being sent to the occupier of the sugar factory, the duplicate to the Special Officer for Molasses within twenty four hours of the test, and the triplicate copy shall be pasted in the guard file maintained for the purpose.
16. (1) No distillery shall refuse molasses supplied by the sugar factory under the orders of the Controller, without the prior approval of the Controller.
(2) In case of the unauthorised refusal by the distillery the cost of molasses, freight and other incidental charges as fixed by the Controller may be recovered from the distillery as an arrear of land revenue and paid to the sugar factory concerned.
(3) If in the opinion of the Controller the molasses despatched to a distillery is not of the grade as specified under Rule 5(a) the same may be returned to the sugar factory concerned and the freight and other incidental charges as fixed by the Controller may be recovered from the sugar factory as an arrear of land revenue."
9. Section 13 of the Excise Act prohibits manufacture, sale etc. of intoxicants without the authority and subject to the terms and conditions of a licence granted in that behalf by the Collector.
10. Under Section 17 no intoxicant shall be removed from any distillery, brewery, warehouse or other place of storage licensed, established, authorised or continued under the Act, unless duty (if any) payable under Chapter V (relating to duty) has been paid or bond has been executed for the payment thereof.
11. Section 22 provides that the State Government may grant to any person, on such conditions and for such period as it may think fit, the exclusive privilege -
(a) (i) of manufacturing or supplying wholesale, or
(ii) of manufacturing and supplying wholesale, or
(iii) of selling wholesale or retail, or
(iv) of manufacturing or supplying wholesale and selling retail, or
(v) of manufacturing and supplying wholesale and selling retail, any country liquor or intoxicating drug within any specified local area, or
(b) of manufacturing, storing, using, possessing, exporting, importing, including wholesale or retail sale of liquor which after manufacture is denatured to render it unfit for human consumption and is thereby termed as denatured spirit, and any other intoxicant:
Provided that public notice shall be given of the intention to grant any such exclusive privilege, and that any objection made by any person residing within the area affected shall be considered before an exclusive privilege is granted.
(2) No grantee of any privilege under subsection (1) shall exercise the same unless or until he has received a licence in that behalf from the Collector or the Excise Commissioner.
When exclusive privilege is granted under Section 22, it is Form No. 28. It would appear that we are only concerned with Form No. 28. Under this form licence is granted under Sections 13 of the Excise Act to the licensee to manufacture country spirit in a distillery.
Conditions 1 and 6(a) which are relevant for our purposes are as under:--
"1. The spirit manufactured under this licensee shall be of average good quality according to the standard for the time being prescribed by the Excise Commissioner and shall be subject to periodical analysis by or under the orders of the Collector or the Excise Commissioner, and the licensee shall be bound to take steps to remedy any defect in the quality thereof which the Excise Commissioner may consider material. The licensee shall manufacture denatured spirit upto 20 per cent, of the portable quantity, if required by Government.
1. (a) The spirit manufactured shall be supplied to the warehouses within the contract area of the licensee and to such other warehouses in other areas as may be specially ordered by the Commissioner of Excise, from time to time and to such persons as are entitled to purchase spirit direct from the distillery.
1. (b) The distiller shall be bound by all general or special orders which may be issued by the Commissioner of Excise from time to time.
6. (a) The terms and conditions of the tender on the basis of which exclusive privilege of wholesale supply of country spirit has been granted to the holder of this licence shall also be deemed to be the terms and conditions of this licence so far as they relate to the manufacture of spirit and the terms and conditions of this licence in so far as they are inconsistent with the terms and conditions of the tender aforesaid, shall be construed as having been modified by the latter."
12. Licence to manufacture spirit in a distillery for use in the manufacture of chemical and for industrial, scientific and other purposes is issued in Form No. 28A. Condition 1 of the licence is as under:--
"The spirit manufactured under this licence shall be subject to periodical analysis by or under the orders of the Collector or the Excise Commissioner and the licensee shall be bound to take steps to remedy any defect in quality thereof which the Excise Commissioner may consider material. The licensee shall be bound to supply out of his total production of spirit such quantity or quantities to such person or concerns as the Excise Commissioner may from time to time direct."
This condition was superseded by the following by the Board of Revenue in exercise of their powers under Section 38 of the Excise Act which came into force with effect from April 1, 1987. (Published in Bihar Gazette Extraordinary No. 609, dated October 17, 1986) :--
"The spirit manufactured under this licence shall be subject to periodical analysis by or under the orders of the Collector or the Excise Commissioner and the Licensee shall be bound to take steps to remedy any defect in quality thereof which the Excise Commissioner may consider material and the Licensee shall ensure a minimum recovery of 22.5 Bulk litres or 36.0 I. P. Litres of rectified spirit from one quintal of molasses. If he makes available lesser recovery than this, he shall be liable for payment of penal duty for the loss calculated on the shortage. The Licensee shall be bound to supply out of his total production of spirit such quantity or quantities to such person or, concerns as the Excise Commissioner may from time to time direct."
13. In Synthetics and Chemical Ltd.'s case (AIR 1990 SC 1927) the Supreme Court has clearly laid down that licence to manufacture both potable and non-potable alcohol is vested in the Central Government. In this view of the matter, Form No. 28A and the provision of the Excise Act under which it is prescribed have no validity in the eye of law. Condition 1 of the licence in Form No. 28A contravention of which is alleged by the respondents has, therefore, no meaning. As a matter of fact, to us it appears that Form No. 28A should be scrapped altogether as it is not within the jurisdiction of the State Government to grant any such licence for the manufacture of spirit in any distillery for commercial use.
14. It is difficult to decipher the stand of the respondent as to whether there is contravention of the Excise Act or that of the Molasses Act. In some of the writ applications it is not Form No. 28A under which licences had been granted as such but that it was on account of inviting tenders that the Board of Revenue under the Excise Act granted exclusive privilege of supplying country liquor produced from Molasses to licensed vendors in various districts as given in the tender notice. It is not necessary to set out all the conditions of the tender notice except to note Condition No. 8 which is as under:--
"The spirit supplied to the bonded warehouse shall be of the strength specified from time to time by the Excise Commissioner. In the entire State of Bihar for producing liquor only molasses shall be used as raw material. Such contractor who are owners of distillery shall have to produce a minimum quantity of 36 L. P. litre of spirit. If such contractor who are owners of distillery produces lesser amount than above then they shall be liable to pay penal duty on shortfall of production."
The respondents have contended that it is on the basis of contravention of Condition No. 8 that penalty has been imposed on shortfall of production of spirit.
15. The respondents have contended in their argument that the petitioners were holding licence in Form No. 28 and not in Form No. 28A and that Form No. 28 was a licence for manufacturing country liquor. Reference is also made to Rule 3(A)(b) of the Excise Rules framed by the Board of Revenue under Section 90 of the Bihar Excise Act wherein distilleries could be opened for supply of country spirit and supply of foreign liquor. On this basis it is alleged that the petitioners opened their distilleries after getting their licence under Rule 3 (A) which are for supply of country liquor and that it was clear that it was not rectified spirit. It is also submitted that the petitioners have not produced any material to show that they were manufacturing rectified spirit under licence in Form No. 28. Rule 1 (j) has been quoted to show that rectified spirit means plain spirit of a strength of not less than fifty degrees above proof and that the petitioners did not produce any material to show that the plain spirit of a strength of 50 degrees of above proof were not fit for human consumption. It was submitted that the petitioners had wrongly contended that they were manufacturing rectified spirit in order to wriggle out of the contractual obligations to pay penalty under the contract. The respondents say that the petitioners, who were granted licences on the basis of tender could be visited with penalty under Clause 8 of the notice of tender. The grant of licence, it is submitted, was conditional on the petitioners agreeing to pay penalty for contravention of the conditions of tender.
16. Mr. Maitin, learned counsel for the respondents laid stress on the fact that once having agreed to the terms of the contract, the petitioners could not be heard saying that they were not liable to pay penalty. But then it has not been stated by Mr. Maitin as to what was the basis of penalty and how it had been arrived at. That is apart from the fact that no notice had been given to any of the petitioners to show cause as to why penalty be not imposed for contravening the terms of the contract or the licence. Mr. Maitin then referred to Rule 21 of the Rules framed by the Board of Revenue under the Excise Act which is as under:--
"An account shall be taken of the distiller's stock of spirit at such intervals not being greater than three months and in such manner as the Commissioner may direct and the distiller shall pay to Government duty at the rate prescribed for the manufacture of spirit on all spirit which may not be forthcoming and for which he shall be unable to account to the satisfaction of the Commissioner in excess of a wastage allowance."
On the basis of this rule it was asserted that the authorities could levy duty on the quantity of spirit which was not forthcoming and for which the distillery was unable to account to the satisfaction of the Excise Commissioner,
17. Then it was submitted by Mr. Maitin that it could not be argued that conditions for production of spirit from Molasses were onerous and that the petitioners did not show any document to contend to the contrary. It was submitted that the petitioners did not produce any document to show if the molasses supplied were of any lower grade that is stipulated and from that rectified spirit of the specifications could not be produced. But then it may also be noted that the respondents have brought on record certain documents to show that at times molasses received did not meet the required standard and were not even fit for use in the distillery. It is in fact the very grievance of the petitioners, apart from their legal submissions that on what basis the penal duty or penalty has been arrived at. It was also submitted that the penalty imposed was not excessive in nature and that only that much amount had been demanded which was the loss of excise duty on shortfall of spirit, It was submitted that the petitioners had no right of hearing where order related to demand for payment of duty in terms and conditions of licence. It was, however, admitted that the State Government could not levy excise duty on industrial alcohol, but then it was argued that inserting the penal clause in the form of licence did not amount to levying of any excise duty. It was submitted that the decision of the Supreme Court in Synthetics and Chemicals Ltd.'s case (AIR 1990 SC 1927) was not applicable in the present case as the State Government was merely regulating the production of industrial alcohol which right, as per the decision of the Supreme Court, the State Government had. It was lastly submitted that the whole purpose of penal clause in Form No. 28A was that no spirit should be misutilised and diverted for manufacture of country liquor and that under Section 38 of the Excise Act provisions existed that the licence could be granted on such restrictions and conditions as the Board of Revenue may directs and that in view of that the Board had every power to make provisions in the licence for penalty.
18. It is not that in all the writ applications the respondents have filed their counter-affidavits. In C.W.J.C. No. 2334 of 1984 the respondents have stated that the Commissioner of Excise directed the petitioner to obtain licence in Forms 27 and 28 from the Collector of the district and that Condition No. 8 of the tender notice formed part of the condition of the licence in Form 27.
The petitioner is said to be distiller who was found to be falling short of producing 36 L.P. litre of spirit per quintal of molasses and, therefore, liable to penalty to be decided by the Excise Commissioner. It is stated that the petitioner-licensee by accepting the licence accepted the terms and conditions of the licence. In C.W.J.C. No. 1517 of 1984 reference is again of Condition No. 8 of the tender notice and to Form No. 27 that the condition imposed in the tender notice forming part of condition of licence in Form No. 27. In C.W.J.C. No. 11972 of 1993 the respondents state that the petitioner was holder of excise licence in Form No. 28A after Form No. 28 had been amended by the Board of Revenue in the exercise of statutory powers conferred by Section 90 read with Section 38 of the Bihar Excise Act whereby the licensee was to ensure minimum recovery of 22.5 bulk litres or 36 L. P. litres of rectified spirit from one quintal of molasses and in case of default he was liable for payment of penal duty. In C.W.J.C. No. 8032 of 1995 licence had been granted in Form No. 28A as per the averments of the respondents. In C.W.J.C. No. 4696 of 1994 again the licence is in Form No. 28 A conditions of which are applicable to the petitioner and contravention whereof will make him liable to penalty.
19. Licence under Form No. 27 is for the wholesale of country spirit in a particular area. One of the conditions of this licence is that the spirit sold should be of average good quality according to the standard for the time being prescribed by the Excise Commissioner.
20. We have examined the rival contentions of the parties. The respondents have taken contradictory stand whether licence was issued in Form No. 27, 28 or 28A. If we refer to the decisions of the Supreme Court in Modi Distillery's (1995 AIR SCW 3791) and Synthetics and Chemicals Ltd.'s (AIR 1990 SC 1927) cases, both licences in Form Nos. 28 and 28 A would appear to be ultra vires State power to grant such licences. Otherwise also the demand of penalty, we find, is bad on many counts. As noted above, before creating such A demand df penal duty or penalty, no show cause notice was issued to the petitioners. Merely on the basis of audit report, penalty was sought to be recovered. The matter was not examined even from the angle if proper grade of molasses was supplied and what was the reason for shortfall in production of rectified spirit. That there has been a shortfall in production of rectified spirit, which apart from the fact that the State had no jurisdiction to levy any duty, could not one lead to the conclusion that molasses had been diverted or misutilised for illicit distillation. If at all there is any contravention, it has to be under the Molasses Act or the Rules framed thereunder. That Act does not envisage levy of any penalty. Mr. Maitin, learned counsel for the respondents, could not point out any provision of law either under the Excise Act or Molasses Act under which the demand of penalty could have been made. Penal duty is also a part of excise duty and when State has no jurisdiction to impose excise duty it certainly cannot levy any penal duty. In some of the cases where the licences had been granted on the basis of acceptance of tenders of the petitioners, it was stressed that the petitioners had agreed to payment of penalty, but such a clause without any specifications as to how and under what circumstances penalty could be levied is arbitrary. After all, power to levy penalty has to be derived from the provisions of the Excise Act or the Rules and exercised under those provisions. Outside the Act no authority has any power to impose any penalty and then to use the State machineries for recovery of the same. The argument, therefore, that Condition No. 8 of the tender notice provided for levy of penalty is meaningless. As noted above, the Supreme Court in Synthetics and Chemical Ltd.'s case (AIR 1990 SC 1927) has laid down the parameters of powers of State to legislate in respect of alcohol. The State can pass legislation laying down regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol. We have not been shown any provision either in the Excise Act or the Molasses Act or the Rules framed thereunder under which the penalties demanded from the petitioners have been levied. It is not the case of the respondents that on account of less production of ethyl alcohol from molasses ethyl alcohol had been diverted and misused as a substitute for potable alcohol. Their whole case is that because of less production of ethyl alcohol which ultimately could have been converted into potable alcohol on the basis of licence granted by the State, the State has suffered loss of excise duty on potable alcohol. This argument appears to be rather far-fetched. Even the foundational facts necessary to prove diversion or misuser of molasses are lacking.
21. When the respondents say that particular quantity of country spirit should be produced from molasses supplied, they are talking of certain fixed parameters and conditions. It may be that the petitioners are unable to meet those parameters. The production of the spirit in distillery may be on that account uneconomical but it cannot be said that there has been wastage or diversion of molasses inviting penalty under the Molasses Act. The respondents admit that spirit manufactured from molasses cannot be subject to excise duty by the State under the Excise Act. It is, therefore, too much to assume that because of shortfall of production of spirit there would be consequent shortfall of manufacture of country liquor causing loss of revenue to the State. Under Section 13 of the Excise Act it would be only for intoxicant that the licence should be required. Can it be said that a person to whom licence has been granted under Section 13 of the Act and to whom molasses have also been supplied is bound to manufacture country liquor? We think not. In that case there could be misuse of molasses entailing penalty, if any, under the Molasses Act and the Rules framed thereunder. Section 15 of the Excise Act talks of establishment of distillery, breweries or warehouses for manufacture and storage of liquor but that to our mind has to be read down to mean for the manufacture and storage of intoxicant. Chapter V of the Excise Act gives the power to the State Government to impose excise duty and ways of levying such duty. Under Section 17 of Chapter IV of, the Act relating to manufacture, possession and sale of intoxicant the duty is payable at the time of removal of intoxicant. It is not the case of the respondents that any intoxicant has been removed without payment of duty. As noted above, it is difficult to comprehend the stand of the respondents for levy of penal duty or penalty on the ground that there has been less production of country liquor from the molasses supplied to the petitioner. To our mind, provisions of Excise Act are inapplicable in the present case. Again as noted above, we are unable to find any provision under the Molasses Act or the Rules framed thereunder as to how impugned penal duty or penalty could be levied under those provisions even though we may assume that there has been less production of spirit from the molasses and then from the spirit to country liquor as per the parameters prescribed. The remedy for breach of the provisions of the Molasses Act or the Rules has to be found thereunder which are not there for the purpose of levying penal duty or penalty in the circumstances of the cases before us.
22. Respondents have no jurisdiction to levy the penalty or penal duty and we, therefore, set aside the impugned demands. The orders levying penalty or penal duty and demanding payment of that are quashed.
23. These writ applications are allowed. There shall, however, be no order as to costs.
B.P. Singh, J.
24. I agree