Allahabad High Court
Saraya Industries Ltd. vs State Of U.P. And Ors. on 6 January, 2005
Equivalent citations: 2005(1)AWC911
Author: V.M. Sahai
Bench: V.M. Sahai, Poonam Srivastava
JUDGMENT V.M. Sahai, J.
1. The question that arises for consideration in these petitions is whether excise duty could be levied against the petitioners if the security holograms which were to be affixed by the distilleries on the bottles, pouches and canes under bound were wasted and could not be produced by the distillery before the excise department for verification.
2. The petitioner distilleries have filed these writ petitions for quashing of the policy decision issued by the State Government dated 3.2.2001 and the circulars issued by the Excise Commissioner in pursuance of it, as arbitrary, invalid and against law. Civil Misc. Writ Petition No. 1204 of 2004 is treated to be the leading writ petition.
3. The petitioner, M/s. Saraya Industries Ltd., manufactures Indian Made Foreign Liquor (in short I.M.F.L.). It has licence for manufacture of potable liquor and carries on manufacturing activities at its distillery unit at Sardarnagar, district Gorakhpur. The petitioner had been paying excise duty, in accordance with the provisions of U.P. Excise Act, 1910, as amended in 1950 (in short the Act). The State Government on 3.2.2001 took a policy decision, for the excise year 2001-02 which commenced from 1.4.2001, that the distilleries were under obligation to obtain and affix security holograms (in short holograms) issued by the department to prevent evasion of duty and smuggling of liquor. In pursuance of the policy decision taken by the State Government, the Excise Commissioner issued a circular on 21.2.2001, which provided that every distillery shall receive holograms from his office for which plant had been established in his office. The Excise Commissioner issued another letter on 24.3.2001 that the holograms on bottles, pouches and canes shall be affixed by the distillery/brewery etc. when the liquor is stored under bound. The excise duty was payable on the bottles, pouches and canes etc. on which holograms had been affixed. Different kinds of holograms were provided for different quality of country-made liquor and I.M.F.L. On the same day on 24.3,2001 another circular was issued by the Excise Commissioner that provided the procedure to be followed for obtaining, transporting and picking up of holograms by the distilleries. The distilleries were to obtain holograms from the office of Excise Commissioner, in sealed packets under a removal pass and deposit the entire holograms with the Excise Inspector, in-charge or the distillery, who was to ensure that the sealed packets covered by the removal pass were intact. In case of loss or tampering with the seal the Excise Inspector was to report the matter to the Excise Commissioner and an F.I.R. was to be lodged and excise duty involved on the quantity of liquor that could have been issued under the holograms was to be worked out and charger) from the distillery. It was further provided that the distillery would be entitled to receive holograms from the in-charge Excise Inspector on day-to-day basis and a, register G. H.-6, would be maintained with regard to the stock of the holograms issued, the number of holograms wasted and the closing stock of the holograms. It provided that excise duty shall be got deposited before the issuance of bottles, pouches and canes affixed with holograms. It was also provided that excise duty shall be chargeable on the wasted holograms and wasted holograms shall be destroyed under the order of the Excise Commissioner.
4. On 8.11.2001 the Excise Commissioner came out with a new policy of bond in Form PD-16A to be executed by the distillery to make it responsible for indemnifying the Governor of the State for any loss of excise duty or such other payment awarded as compensation or damages by any court of law or Tribunal or Commissioner established under the law for any accident, death or illness, etc, caused by consumption of spurious liquor carrying misused holograms. This circular dated 8.11.2001, further provided that the holograms that were returned to the excise department as damaged or wasted and verified by the authorized committee shall not be liable to any excise duty. However, if the wasted holograms were not produced for verification, then it shall be presumed that it had been misused and the distillery would be liable to pay excise duty on the quantity of country liquor or I.M.F.L., as the case, may be, which could have been charged, if the holograms had not been wasted and the distillery was made liable to compensate the Governor for the loss of duty on the quantity of liquor which could have been issued under the missing security holograms.
5. In the counter-affidavit filed by the Assistant Excise Commissioner it is alleged that the policy of affixing holograms on bottles, pouches and canes of liquor was adopted to rule out the possibility of illicit liquor on one hand and on other to curb evasion of duty and smuggling of liquor to safeguard public health. It is alleged that the letters issued by Excise Commissioner provides information to all distilleries manufacturing potable liquor regarding Government policy in this regard and about issue, transport, safe custody use and keeping of records and account of holograms and consequences for damage, loss of hologram issued to the distilleries. The counter-affidavit further states that the petitioner had prayed for quashing of the report dated 20.7.2001, by which demand for misuse of holograms claimed as lost or not accounted for was passed in accordance with the contracted obligation as well as under Government policy fully disclosed and known to the petitioners prior to renewal of licences for 2001-02, 2002-03, 2003-04 and 2004-05. The counter-affidavit after asserting exclusive privilege in regulating control, manufacture, transport and sale etc. of liquor under the Act states that the policy was based on increase in consumption of liquor and its revenue making it necessary to ensure foolproof system to be evolved so that from all whole sale and retail sale points in the State only advance excise duty paid liquor may be sold.
6. It is alleged in paragraph 3B of the counter-affidavit that the State Government took a policy decision on 3.2.2001, which was followed by the Excise Commissioner by issuance of a circular on 21.2.2001, that had been modified from time to time, providing that holograms be affixed on bottles, pouches and canes of country liquor and I.M.F.L. with the object to rule out the possibility of illicit liquor being sold in the market and to curb evasion of excise duty and smuggling of liquor with an intention to safeguard public health.
7. In paragraph 3C of the counter-affidavit it is alleged that under Section 24, 24A (a) and Section 24B of the Act the State Government has exclusive right or privilege to regulate or control manufacture, transport and sale of country liquor or I.M.F.L. Section 24 lays down that the Excise Commissioner may grant licence to any person to manufacture, sell or possess liquor etc. as provided under Sections 17 and 18. Section 31 provides that the licence granted is to be governed with restrictions and conditions laid down and such restrictions and conditions of the licence has to be compulsorily followed by the licensee. In the year 2001-02 the new excise policy was adopted, as there was increase in consumption of liquor. To ensure of foolproof system, the excise duty was to be deposited at the manufacturing points or at the distillery/brewery/ vintenary points to check evasion of excise duty and to check sale of smuggled liquor from licensed retail shops of country liquor, I.M.F.L. and beer shops.
8. In paragraph 3E of the counter-affidavit it had been stated that the Excise Commissioner and liquor manufacturers agreed that under new excise policy holograms shall be affixed. The holograms were to be affixed by the manufacturing distilleries and no issue of liquor from the distillery would be made without advance payment of excise duty in Uttar Pradesh. Even President of U.P. Distillers' Association has written a letter on 16.11.2001, appreciating new excise policy with the object of increasing the State revenue and stamping out consumption of illicit liquor and introduction of holograms was also appreciated. If in handling of holograms at any stage proper care is not taken, then the smugglers may misuse it. The petitioner had submitted indemnity bond in pursuance of the Government policy and instructions of the Excise Commissioner, and is under contractual obligations in case of unaccounted holograms, to indemnify the Governor by payment of excise duty.
9. In the rejoinder-affidavit it had been stated that the indemnity bond executed by the petitioner would not apply to the instant case as the wastage of holograms relates to the period April, 2001 to October, 2001. The indemnity bond had been executed in the month of November, 2001, in Form PD-16A. Further there was no contractual obligation on the petitioner to pay any excise duty or indemnify the loss to the Governor on account of wastage of holograms for the period prior to execution of the indemnity bond.
10. It is claimed that holograms were introduced for the first time w.e.f. 1.4.2001 and were to be affixed by the distilleries on the bottles, pouches and canes through a machine which resulted in wastage of holograms and some were wasted in such a manner that they could not be accounted for. Subsequently, the petitioner started fixing the holograms by manual process, thereafter, the wastage came down and in subsequent years there is no loss or wastage of security holograms. The period in dispute in this petition is from April, 2001 to October, 2001, on the verification of holograms between 15.7.2004 to 20.7.2004, the respondents found as under :
11. After verification of wasted security holograms by the committee constituted by the respondents, it was found, Plain country liquor (200 ml.) Total waste holograms ... 4,48,872 Produced holograms ... 3,97,739 Missing holograms ... 51,133 Duty on 200 ml. plain liquor excise duty ... Rs. 7.20 Excise duty ... Rs. 3,68,157.60 Specified country liquor (200 ml.) Total waste holograms ... 1,93,846 Produced holograms ... 1,42,212 Missing holograms ... 51,634 Duty on 200 ml. plain liquor excise duty -- Rs. 12 Excise duty -- Rs. 6,19,608 Total excise duty on plain + specified country liquor -
Rs. 3,68,157.60 + Rs. 6,19,608 = Rs. 9,87,765.60
12. The petitioner in order to establish the claim filed holograms statement alone with the supplementary-affidavit, which is extracted below :
Holograms Statement Summary Statement of Country Liquor
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Particulars 2001-02 2002-03 2003-04
Receipt 165720000 166440000 146240000
Consumed 164166338 156729352 143094054
Actual Wastage 102767 71672 0
(partial)
Actual Wastage .06% 0.045% 0.00%
in % (Partial)
Duty Deposit 14171 16994 17167
(In Lacs Rs.)
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13. The respondents did not dispute it.
14. We have heard Shri Bharat Ji Agrawal, learned senior counsel, assisted by Shri Neeraj Sharma for the petitioners and Shri Bipin Kumar Pandey, learned standing counsel appearing for respondents. Shri Agrawal urged that under the Act there is no provision that provides for levy of excise duty with reference to the number of holograms issued without actual removal, or issuance of liquor from the distillery. He urged that there is no complaint against the petitioners of evasion of excise duty that is payable when the liquor is issued from the distillery after payment of excise duty. Section 29 (c) (ii) provides that excise duty can only be levied by notification and not by administrative circular. Section 77 provides for notification but no notification had been issued levying excise duty on holograms. He urged that holograms are not excisable goods, therefore, no excise duty can be levied on holograms. He lastly urged that under Rules 709, 715, 716, 719, 722, 736, 755, 760, 766, 768, 786-789, 792, 802, 812, 813, 8,14, 818, 819 and 820, there is no provision for imposition of any excise duty on the basis of any presumption being drawn by the Excise Commissioner.
15. Shri Pandey, learned standing counsel relied on the counter-affidavit. He urged that condition No. 3 of the licence granted to the petitioner provides for regulatory measures that can be taken by the Excise Commissioner in the interest of excise revenue which are binding on the petitioner. He urged that excise duty is being demanded from the petitioner on holograms that had not been produced for verification before the committee. Therefore, there is a presumption that they have been misused by the petitioner and excise duty had been evaded, therefore, the petitioner is liable to indemnify the Governor or in any case he is liable to pay the excise duty on the quantity of liquor that could have been sold by using the holograms which had not been accounted for by the petitioner.
16. From the statement given in the supplementary-affidavit which had not been disputed by the respondents it appears that while the petitioner was affixing holograms by machine there was a wastage of holograms whereas subsequently when they started affixing holograms manually the wastage came to zero level. However, the question as to whether on the basis of policy decision taken by the State Government and the various circulars issued by the Excise Commissioner, excise duty could be levied or charged from the distilleries for failure to produce holograms for verification before the respondents, resulting in liability to pay excise duty on the quantity of country liquor or I.M.F.L. which could have been charged, had the holograms not been wasted and the distilleries were liable to compensate the Governor for the loss of such excise duty on the quantity of liquor which could have been issued under the missing holograms, it is necessary to extract Section 28 of Act which reads as under :
"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 Section17; or
(e) manufactured in any distillery established, or any distillery or brewery licensed, under Section 18 :
Provided as follows :
(1) 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, 1878. (2) The State Government shall, in imposing an excise duty or a countervailing duty as aforesaid and in 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 :
(a) Countervailing duty on excisable articles imported in accordance with the provisions of Section 12 (1)-
......................................................................................"
17. Section 28 clearly provides that excise duty or a countervailing duty can be imposed by the State Government on any excisable article. It provides that duty may be levied on different excisable articles. Before excise duty can be imposed the article sought to be taxed must be an excisable article. The term 'excisable article' has been defined in Section 3 (22a), which is extracted below :
3 (22a) "Excisable article" means :
(a) any alcoholic liquor for human consumption ; or
(b) any intoxicating drug.
18. Liquor has been defined under Section 3 (11) of the Act. It is extracted below :
"3 (11) "liquor" means intoxicating liquor and includes spirits of wine, spirit, wine, tari, pachwal, beer and all liquid consisting of or containing alcohol, also any substance which the (State Government) may by notification declare to be liquor for the purposes of this Act ;"
19. From the aforesaid definition of excisable article it is clear that the excise duty can be imposed on alcoholic liquor manufactured for human consumption. The State Government is competent to levy excise duty as soon as the manufacture of excisable article is complete or it may be levied at the stage of issue. It is not disputed that the excise duty is chargeable at the point of issue of alcoholic liquor. A question arose before this Court in Civil Misc. Writ Petition No. 2602 of 1973, Mohan Meakin Breweries Ltd.. Distillery, Lucknow v. State of U.P. and Ors., decided on 9.3.1979, as to whether excise duty is payable on wastage that occurs during the bottling process of Rum manufactured by the distillery. It was urged before the Division Bench that in view of Clause 7 of the bottling licence excise duty could be recovered on I.M.F.L. at the discretion of the Excise Commissioner on the wastages of spirit in bottling and filling the bottles. The Court held that the Excise Act does not authorise the imposition of excise duty by a term contained in a bottling licence. It further held that the term of licence was ineffective as under Sections 28 and 29, the excise duty could only be charged at the point of issue of liquor. The argument of the learned standing counsel that the petitioners having executed an indemnity bond and undertaken to pay the Governor excise duty on the wasted and unaccounted holograms or that it was one of the conditions of licence that the licencee would be bound by the directions issued by the Excise Commissioner, and was liable to pay excise duty cannot be accepted. The duty cannot be levied by incorporating it in licence. The charge must arise within four corners of Section 28. The terms of the licence that provides that the licensees would be bound by the direction of the Excise Commissioner, cannot empower the Commissioner to levy excise duty, as held in M/s. Mohan Meakin Breweries (supra). The Excise Commissioner under the terms of licence can issue directions to regulate the manufacture and sale of liquor. The directions could only be regulatory in nature but by regulatory directions duty could not be imposed. The ambit of regulatory power has been explained by the Apex Court in State of U.P. v. Modi Distillery, (1995) 5 SCC 753. It held that the demand of excise duty is not a regulatory measure. The power of the State to levy excise duty cannot be expanded with reference to its power to regulate manufacture.
20. Even if the petitioners had executed indemnity bond it would not result in levy of excise duty unless a notification was issued under Section 29 levying excise duty. The Apex Court in Bimal Chandra Banerjee v. State of Madhya Pradesh and Ors., AIR 1971 SC 517, had held that a tax can be imposed only by a statute and not by a rule or regulation unless the statute authorises it to be done. Thus, excise duty was not chargeable from the petitioners either on the basis of any clause contained in their licences or on the basis of indemnity bond executed by them.
21. We may now advert to the issue whether excise duty could be levied for failure to produce holograms. A hologram is defined in the New Shorter Oxford English Dictionary, 1993, edition as below :
"hologram" has been mentioned as "A pattern produced by interference between light reflected by an object and other light with the same or a related phase ; a photograph of such a pattern, which can be illuminated so as to produce a spatial image of the object used."
22. The word "hologram" had been defined in the New Lexicon Webster's Dictionary, 1988, edition as below :
"hologram" has been mentioned as "An interference pattern resolvable into a completely three dimensional image when illuminated by a laser beam."
23. A hologram, therefore, is usually a photograph with a pattern. It is issued by the excise department to be affixed on bottles, pouches and canes to prevent evasion of excise duty. It cannot, by any stretch, fall or be deemed as an excisable article.
24. Section 29 lays down the manner in which the excise duty can be levied. It provides that the Excise Commissioner can frame the rules and regulate the payment of excise duty. The State Government can direct that excise duty would be charged on any excisable article by notification. Without issuance of notification under Section 77 of the Act excise duty cannot be levied either by the State Government or by the Excise Commissioner.
25. Holograms are affixed on the bottles, pouches and canes to rule out the possibility of spurious liquor being sold in the market by any unauthorised persons in order to safeguard public health as stated in the policy decision taken by the State Government and implemented by the Excise Commissioner. It is affixed only with a purpose to ensure that proper liquor manufactured by the distilleries should go in the market and the smugglers may not be able to obtain these holograms and the flow of spurious liquor in the market be curbed. The holograms obviously cannot be treated, by itself, as an article on which excise duty could be levied nor it can furnish basis for assuming that if they were not produced for verification the respondents could levy duty presuming that the liquor must have been misused. Such an inference does not arise directly or indirectly from the provisions of the Act. Liquor is subject matter of Entry 84 of List-I of the Seventh Schedule of the Constitution. Entry 51 of List-II authorizes the State Government to impose excise duty on the liquor manufactured or produced in the State. In our opinion the State could levy the excise duty only on liquor. No duty could be levied for failure to produce holograms.
26. A Division Bench of this Court in Civil Misc. Writ Petition No. 459 of 1978, Simbhaoli Industry (P.) Ltd. v. State of U.P. and Ors., decided on 11.10.1979, considered the demand of excise duty on wastage that occurred during transportation from distillery to warehouse and demand of excise duty on pipeline loss of liquor during the process of manufacture, before dilution and held that no duty could be charged on wastage of transportation in containers from distillery to warehouse and it further held that excise duty could not be charged on pipeline wastage. The Division Bench decision has been approved by the Apex Court in Modi Distillery (supra). It was held that the State could not levy excise duty upon wastages as it is not alcoholic liquor for human consumption but the raw material on input still in process of being rendered fit for consumption by human beings. The Court further held that Rule 775 and other rules which indicate the mode of levy of excise duty upon alcohol other than alcoholic liquor for human consumption could not extend the limited power of the State Government, under the rule, to levy excise duty under Entry 51 of List II of the Seventh Schedule of the Constitution.
27. The learned standing counsel has vehemently urged that in view of the conditions imposed in the licence granted to the distillery, they are bound by the directions issued by the State Government or the Excise Commissioner. We have already dealt with this aspect It is true that the directions could be given by the State Government or the Excise Commissioner to the distilleries, which are regulatory in nature and are to be followed by the distilleries but demand of excise duty cannot be said to be a regulatory measure and excise duty cannot be levied on the petitioner in the guise that the respondents are regulating manufacture of liquor.
28. There is yet another infirmity. No notification had been issued and excise duty is being demanded only on the basis of circulars issued by the Excise Commissioner on unaccounted holograms. We are of the opinion that in absence of any notification levying excise duty on missing holograms, the Commissioner or the State Government could not levy or demand any excise duty from the petitioners.
29. The learned standing counsel had vehemently urged that the petitioners have an alternative remedy of filing an appeal under Section 11 of the Act. He urged that appeal in similar matter is pending before the Excise Commissioner. It is well-settled that if an order passed by an authority is without jurisdiction, alternative remedy would not be a bar in maintainability of writ petition. The validity of the policy decision of the State Government and circulars issued by the Excise Commissioner by which excise duty had been demanded on unaccounted holograms being illegal and without jurisdiction, we are of the opinion that the writ petition filed by the petitioners are maintainable even if appeal is pending before the Excise Commissioner.
30. For the reasons stated above we are of the opinion that no excise duty be levied or charged on the basis of unaccounted holograms. Neither the State Government nor the Excise Commissioner was competent to direct distilleries to compensate on assumption that holograms having not been produced for verification, they were liable to pay for loss of duty. Consequently, the demand of excise duty raised by the respondents on lost or missing holograms was not justified under the Act and deserved to be quashed.
31. In the result these writ petitions succeed and are allowed. The demand of excise duty on missing or unaccounted security holograms are quashed. If any excise duty on security holograms had been paid or deposited by the petitioners the same shall be refunded to them within a period of three months from the date a certified copy of this order is produced before the Excise Commissioner, U.P. at Allahabad.
32. Parties shall bear their own costs.