Full Judgment Text
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PETITIONER:
MOHAN MEAKlN BREWERIES LTD.
Vs.
RESPONDENT:
EXCISE & TAXATION COMMER. CHANDIGARH & ORS.
DATE OF JUDGMENT04/05/1976
BENCH:
SINGH, JASWANT
BENCH:
SINGH, JASWANT
GUPTA, A.C.
CITATION:
1976 AIR 2020 1976 SCR 510
1976 SCC (3) 421
CITATOR INFO :
R 1977 SC1459 (8)
RF 1991 SC 735 (17,20)
ACT:
Punjab Bonded Warehouse Rules, 1957, Rules 8 and 9
imposition of duty or regulatory provision, whether ultra
vires the Financial Commissioner’s powers countervailing
duty, whether impossible only on liquor existing within
State territory.
HEADNOTE:
The appellant company carried on the business of
manufacture, storage and sale of liquors Between June 1967
and April 1969 it transported various quantities of liquor
from its distilleries in Uttar Pradesh to its bonded
warehouse at Chandigarh On arrival the consignments were
examined by the Officer in Charge of the warehouse and a
shortage was found exceeding the wastage allowance
permissible under rule 8 of the Punjab Bonded Warehouse
Rules 1957 and April 1969, it Transported various quantities
of liquor from its distilleries in Uttar Pradesh to its
bonded warehouse at Chandigarh. On arrival, the consignments
were examined by the Officer-in-Charge of the warehouse, and
a shortage was found, exceeding the wastage allowance
permissible under rule of the Punjab Bonded Warehouse Rule,
1957. The Excise and Taxation Commissioner, exercising the
power of the Financial Commissioner, issued a show cause
notice and then ordered the appellant to pay duty on the
wastage in excess. The appellant’s petitions to the High
Court under Articles 226 and 227 of the Constitution, were
dismissed.
It was contended before this Court, firstly that Rules
8 and 9 of the 1957 Rules under which the duty was sought to
be imposed, were ultra vires the rule making power of the
Financial Commissioner, and secondly, that these rules were
invalid as they went beyond the scope of Ss. 16, 23 and 31
and Entry 51 List II, 7th Schedule of the Constitution, by
imposing excise duty or counter vailing duty on articles
which neither existed in the State nor were removed from the
warehouse. Dismissing the appeals the Court,
^
HELD . (1) The impugned rules do not impose any duties
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or prescribe the rates thereof or create ‘any liability in
respect thereof. They are in essence and substance of a
regulatory character rent 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,
issued be the State Government. The power exercised by the
Financial Commissioner were clearly available to him under
Sections 59 and 22 of the Act and he has not overstepped the
same. 1513G-H; 514A]
(2) According to Section 31 of the Act read with Entry 51 of
list II of the Seventh Schedule to the Constitution,
countervailing duty can be imposed on liquor meant for
consumption which is manufactured or produced elsewhere in
India. It is immaterial whether the liquor of which permits
were obtained was consumed within the union territory of
Chandigarh or was in existence in that territory or not.
Duty is sought to be charged on liquor which was actually
manufactured and left Uttar Pradesh but was found short
beyond the permissible limit and no reasonable explanation
was tendered by the appellant in respect thereof. [517D-G]
Kalyoni Stores v. The State of Orissa & ors. [1966] I
S.C.R. 865 referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 582 of
1971.
Appeal by Special Leave from the Judgment and order
dated the 29th July 1970 of the Punjab & Haryana High Court
in Civil Writ No. 2376170 and
511
CIVIL APPEAL No. 1418 of 1970.
From the Judgment order dated 4th December 1969 of the
Punjab and Haryana High Court in C.W.No. 342 of 1969.
Tirath Singh Munjral, G. K. Arora, B. C. Das Gupta &
Co. for the Appellant.
N. S. Das Behl and o. P. Sharma for the respondent.
The Judgment of the Court was delivered by
JASWANT SINGH, J.-There two Civil Appeals Nos. 1418 of
1970 and 582 of 1971, the first by certificate of fitness
granted under Article 133(1)(a) of the Constitution by the
Punjab and Haryana High Court and the second by special
leave granted by this Court which are directed against the
Judgments and orders of the said High Court dated December
4, 1969, and July 29, 1970, rendered in Civil Writ r
Petitions No. 342 of 1969 and No. 2376 of 1970 respectively
shall be disposed of by this Judgment as they arise out of
identical proceedings and raise common questions of law.
The appellant, a public limited company incorporated
under the Indian Companies Act, which carried on the
business inter alia of manufacture, storage and sale of
various kinds of Indian made foreign liquors and had its
plants for manufacture and production of beer and
distillation and production of the said liquors at Solan (in
Himachal Pradesh), at Mohan Nagar (in Uttar Pradesh), at
Lucknow (in Uttar Pradesh) and at Kasauli (in Himachal
Pradesh) held in the years 1967, 1968 and 1969 a licence in
From B.W.H. 2 under section 22 of the Punjab Excise Act (1
of 1914) (hereinafter referred to as ’the Act’) read with
Rule 2 of the Punjab Bonded Warehouse Rules, 1957 (herein
after referred to as ’the 1957 Rules’) which were framed by
the Financial Commissioner under section 59 read with
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section 22 of the Act, permitting it to run on conditions
specified therein a Bonded Warehouse at Chandigarh for
storage of bottled and bulk liquor and issue thereof under
bond or on payment of duty to the licensees of Punjab,
Haryana, Himachal Pradesh etc. One of these conditions
required the appellant to observe the provisions of the Act
as also the Rules framed and instructions issued thereunder
from time to time.
Rules 7 to 10 of 1957 Rules governing the appellant’s
licence ran thus:
"7. No liquor shall be received in the bonded
warehouse unless accompanied by a pass from the
offlcer-in-charge of the distiller- or bonded warehouse
from which it has been imported or transported.
Immediately on arrival of a consignment at the
bonded warehouse the officer-in-charge shall be
informed and the consignment shall not be opened until
the same has been examined and verified with the pass
by the officer-in-charge who shall also note the
results in the register maintained for the purpose and
also on the pass covering the consign-
512
ment. One copy of the pass with entries of receipt
shall be immediately returned to the officer, who
issued the pass ; the other copy with entries thereon.
shall he kept in the. Warehouse.
8 A wastage allowance not exceeding 1 per cent
shall be made for the actual loss in transit by leakage
or breakage of vessels or bottles containing liquor.
The allowance shall be determined by deducting from the
quantity despatched the quantity received at the
destination, both quantities being that in terms of
proof liters of spirit contents or in case of beer bulk
liters.
9 If the report of the officer-in-charge shows
that the wastage exceeds the prescribed limit, the
licensee shall be liable to pay duty at the prescribed
rate as if the wastage in excess of the prescribed
limit had actually been removed from the Warehouse.
Provided that each case of excessive wastage shall
be re ported to the Financial Commissioner for orders
who may in his discretion, on good cause being shown
remit it whole or a .. part or the duty leviable on
such wastage.
10 Liquor shall be imported/transported under bond
in accordance with the Punjab Liquor permit and Pass
Rules at the sole risk and responsibility of the
licensee. The bond in form L. 37 shall be discharged,
after liquor been duly checked and proved by the
officer-in-charge and deposited in the Ware-house."
Between Junc. 1967 and April, 1969, the appellant
transported. for the purpose of bottling, various quantities
of Indian made foreign liquors from its aforesaid
distilleries in Uttar Pradesh and Himachal Pradesh to it
Bonded Warehouse at Chandigarh. This was done on the
strength of the permits issued by the Excise and Taxation
officer, Chandigarh. Pursuant to Rule 7 of the 1957 Rules,
the officer-in-charge of the Warehouse examined the
consignments on their arrival at their destination with a
view to checking and verifying the quantities thereof with
those shown in the permits and discovered that they suffered
from shortage which exceeded the wastage allowance of 1 per
cent permissible under Rule 8 of the said Rules.
As a sequel to the detection of the aforesaid
shortages. the Excise and Taxation Commissioner exercising
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the powers of Financial Com missioner, Chandigarh
Administration, who is the first respondent here in, issued
notices calling upon the appellant to show Cause why duty at
the prescribed rate of Rs. 20/- per proof litre be not
levied against it on the wastage in excess of the prescribed
limit "as if the same had been removed from its Bonded
Warehouse at Chandigarh." In the written representation
submitted on behalf of the appellant in reply to the
notices, it was pleaded that the liquor evaporated during
transit: that
513
the Bonded Warehouse was in its initial stage and the method
of measurement of spirit was crude; that at the time of
measurement, the temperature of spirit was not taken and
that apart from evaporation, wastage occurred by leakage of
drums in transit. By his detailed orders dated January 10,
1969 and February 10, 1970, the said respondent repelled all
the pleas raised on behalf of the appellant and made the ’
notices absolute holding that there was no material on the
record to show that anything peculiar had taken place in
respect of the consignments in question which entitled the
appellant to any remission in the duty leviable on the
wastage. The appellant thereupon preferred to the High Court
writ petitions Nos. 342 of 1969 and 2376 of 1970 under
Articles 226 and 227 of the Constitution challenging the
aforesaid orders on various grounds. While the first writ
petition was dismissed by the High Court by an elaborate
Judgment and order dated December 4, 1969, the second one
was dismissed in limine vide order dated July 29, 1970.
While the High Court granted, as already indicated, a
certificate of fitness for appeal to this Court against its
Judgment and order dated December 4, 1969, it refused to so
in respect of its order dated July 29, 1970.
Though several contentions were raised by the appellant
in the aforesaid two writ petitions filed by it in the High
Court, counsel appearing on its behalf has assailed before
us the correctness of the impugned orders passed by the
first respondent on two grounds. He has in the first
instance contended that Rules 8 and 9 of the 1957 Rules
under which the duty is sought to be imposed are ultra vires
the rule making power of the Financial Commissioner.
Elaborating this submission, counsel has urged that since
the state alone has, by virtue of election 31 of the Act,
the power to impose duties mentioned therein, as also the
exclusive power under section 58(1) of the Act to make rules
for the purpose of carrying out the provisions of the Act
including those of section 31 or any other law for the time
being in force relating to excise revenue and section 13(a)
of the Act prohibits the state Government to delegate the
powers conferred on it by sections 14, 21, 31, 56 and 58 of
the Act, Rules 8 and 9 of the 1957 Rules are manifestly
beyond the competence of the Financial Commissioner. This
contention cannot, in our opinion be accepted as it proceeds
on a misconception of the correct legal position. It is, no
doubt, true that it is the state Government alone which is
empowered tn impose excise duty or countervailing duty on
any excisable article and to prescribe rates thereof as also
the make rules for carrying out inter alia the purposes of
section 31 of the Act. but it seems to be overlooked that
the impugned rules do not impose any one of the aforesaid
duties or prescribe the rates thereof or create any
liability in respect thereof. They are 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 of liquor ill the
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Bonded Warehouse without payment at the initial stage of the
duty payable under the Act and subsequently the removal of
the liquor from the Warehouse on payment or otherwise of the
duty which. as correctly pointed out by the High Court, is
chargeable under the Fiscal Rule of 1937 issued by the state
Government. The powers exercised
35-833 SCI/76
514
by the Financial Commissioner were clearly available to him
under sections 59 and 22 of the Act and he has not, in our
opinion, overstepped the same. The first contention raised
on behalf of appellant is, therefore, overruled.
It is next contended by counsel for the appellant that
Rules 8 and 9 of the 1957 Rules are also invalid as they go
beyond the scope of sections 16, 23 and 31 and Entry Sl of
List ll of the Seventh Schedule to the Constitution.
Dwelling on this contention, counsel has submitted that as
the taxing power of even the State Legislature is restricted
to the imposition of excise duty or countervailing city on
an excisable article which, according to section 3(6) of the
Act, means inter alia an alcoholic liquor for human
consumption implying thereby an alcoholic liquor in
existence, the incorporation in Rule 9 of the 1957 Rules of
the fiction making the licensee liable to pay duty at the
prescribed rate on wastage in excess of permissible limit as
if the said wastage had actually been removed from the
Warehouse has the effect of imposing duty on an article
which neither existed in the State nor was removed from the
Bonded Warehouse thus violating the scope and extent of the
taxing power. ,
For a proper appreciation of the true legal position,
it is necessary to advert to sections 3(6-b), 31, 32, 16 and
23 of the Act and Entry Sl of List II of the Seventh
Schedule to the Constitution and the connotation of the term
’countervailing duty.’
"Section 3 (6-b) . ’excise duty’ and
’countervaling duty’ mean any such excise duty or
countervailing duty as the case may be, as is mentioned
in Entry Sl of List II in the Seventh Schedule to the
Constitution.
Section 31. Duty on excisable articles.-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
special local area, on any excisable article-
(a) imported, exported or transported m
accordance with the provisions of section 16,
or
(b) manufactured or cultivated under any licence
granted under section 20. Or
(c) manufactured in any distillery established or
any distillery or brewery licensed under
section 21;
"Provided follows:-
(i) Duty shall not be so imposed on any article
which has been imported into India and was
liable on importation to duty under the India
Tarrif Act, 1894, or the Sea Customs Act,
1878.
(ii) xx xx xx xx xx xx
Explanation.-Duty may be imposed under this
section at different rates according to the
places to which
515
any excisable article is to be removed for consumption,
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A or according to the varying strength and quality of
such article
"Section 32. Manner in which duty may be levied.-
subject to such rules regulating the time, place and
manner as the Financial Commissioner may prescribe,
such duty shall be levied rateably, on the quantity of
excisable article imported, exported, transported,
collected or manufactured in, or issued from, a
distillery, brewery or warehouse;
Provided that duty may be levied-
(a) on intoxicating drugs by an acreage rate
levied on the cultivation of the hemp plant,
or by a rate charged on the quantity
collected;
(b) on spirit or beer manufactured in any
distillery established, or any distillery or
brewery licensed, under this Act in
accordance with such scale of equivalents
calculated on the quantity of materials used,
or by the degree of attenuation of the wash
or wort, as the case may be, as the state
Government may prescribe;
(c) on tari, by a tax on each tree from which the
tari is drawn:
Provided further that, where payment is made upon issue
of an excisable article for sale from a warehouse
established or licensed under section 22(a), it shall be
made-
(a) if the state Government by notification so
directs, at the rate of duty which was in
force at the date of import of that article
or
(b) in the absence of such direction by the state
Government, at the rate of duty which is in
force on that article on the date when it is
issued from a ware house.*
"Section 16. Import, export and transport of
intoxicants
No intoxicant shall be imported, exported or
transported . 1. except-
(a) after payment of any duty to which it may be
liable under this Act, or execution of a bond
for such payment, and
(b) in compliance with such conditions as the
state 1. Government may impose."
"Section 23. Removal of intoxicant from distillery-no
intoxicant shall be removed from any distillery, brewery,
516
warehouse or other place of storage established or
licensed under this Act, unless the duty, if, any,
payable under Chapter V has been paid or a bond has
been executed for the payment thereof.
"Entry 51 of List the of the Seventh Schedule to the
Constitution-Duties on excise on the following goods
manufactured or produced in the State and countervailing
duties at the same or lower rates on similar goods
manufactured or produced elsewhere in India:-
(a) alcoholic liquors for human consumption
(b) opium, Indian hemp and other narcotic drugs
and narcotics;
but not including medicinal and toilet
preparations containing alcohol or any substance
included in sub-para graph (b) of this Entry."
The expression ’countervailing duty’ is not defined in
the Act but its meaning has been made clear in the Judgment
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the this Court in Kalyani Stores v. The State of Orissa and
or.(1) where it was observed _
"This bring the consideration of the meaning of
the expression "countervailing duties" used in Entry
51. List II of the Seventh Schedule to the
Constitution. The "expression "countervailing duties"
has not been defined in . the Constitution or the Bihar
& Orissa Act 2 of 1915. We have, therefore, to depend
upon its etymological sense and the context in which it
has been used in Entry 51. In its etymological sense,
it means to counterbalance; to avail against with equal
force or virtue; to compensate for some thing or serve
as an equivalent of or substitute for: sec Black’s live
Dictionary, 4th Edn. 421. This would suggest that a
countervailing duty is imposed for the purpose of
countervailing or to avail against something with equal
force or to compensate for something as an equivalent.
Entry in List II of the Seventh Schedule to the
Constitution gives power to the State Legislature to
impose duties of excise on alcoholic liquors for human
consumption where the goods are manufactured of
produced in the State. It also gives power to levy
countervailing duties at the same or lower rates on
similar goods manufactured or produced elsewhere in
India. The fact that countervailing duties may be
imposed at the same or lower rates suggests that they
are meant for counterbalance the duties of excise
imposed on goods manufactured in the State. They may be
imposed at the same rate as excise duties or at a lower
rate, presumably to equalise the burden after taking
into account the cost of transport from the place of
manufacture of the taxing
(1) [1966] 1 S.C.R. 865.
517
State. It seems, therefore, that countervailing duties
are ment to equalise the burden on alcoholic liquors
manufactured or produced in the State. If no alcoholic
liquors similar to those imported into the state are
produced or manufactured, the right to impose
counterbalancing duties of excise levied on the goods
manufactured in the state will not arise. It may,
therefore, be accepted that countervailing duties can
only be levied is similar goods are actually produced
or manufactured in the state on which excise duties are
being levied."
lt will be seen that section 31 of the Act read with
Entry 51 of‘ List II of the Seventh Schedule to the
Constitution permits imposition of (i) excise duty by the
state Government on any exisable article imported into or
exported from or transported ill accordance with the
provisions of section 16 of the Act which means after
payment of any duty to which it may be liable under the Act
or after execution of a bond for such payment and (ii)
countervailing duty inter alia on Alcoholic liquors for
human consumption manufactured or produced elsewhere in
India.
The contention advanced on behalf of appellant which
seems to proceed on the assumption that the Chandigarh
Administration cant impose duty only if liquor is consumed
in its territory is erroneous as, according to section 31 of
the Act read with the aforesaid Entry 51 of List of the
Seventh Schedule to the Constitution, countervailing duty
can be imposed on liquor meant for consumption which is
manufactured or produced elsewhere in India. It is
immaterial whether the liquor for which permits were
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obtained was consumed within the Union Territory of
Chandigarh or was in existence in that territory or not.
What is material is whether permits were obtained for import
from Uttar Pradesh of alcoholic Liquor meant for human
consumption and the quantity showing in the permits left
Uttar Pradesh. In the present case, the liquor for which
permits were obtained by the appellant was admittedly in
existence and was meant for human consumption and did leave
the appellant’s distilleries in Uttar Pradesh for being
transported to his Warehouse in Chandigarh at his own risk
and responsibility. It is also not denied on behalf of the
appellant that Portion of the liquor which exceeded the
permissible limit of wastage did not reach the appellant’s
Warehouse and was not found therein and the shortage
remained unaccounted for. It is thus evident that duty is
not sought to be charged on an excisable article which was
not in existence, as contended on behalf of the appellant
but is sought to be charged on liquor which was actually
manufactured and left Uttar Pradesh but was found short
beyond the permissible limit and no reasonable explanation
was tendered by the appellant in respect thereof. There is
accordingly no merit or substance in the second contention
advanced on behalf of the appellant as well.
The decision of this Court in Bimal Chandra Banerjee v.
State of Madhya Pradesh(l) which is strongly relied upon on
behalf of the
(1) [1971] 1 S.C.R. 844.
518
appellant is not applicable to the present case. In that
case, the condition introduced by the state Government in
the purported exercise of its power under clause (d) and (h)
of section 62(2) of the Madhya Pradesh Excise Act, 1915, in
the appellants’ licenses prescribing the minimum quantity of
liquor to be purchased by them from the Government and
enjoining them to make compulsory payment of excise duty on
the quantity of liquor which they failed to take delivery of
was held to be invalid as it went beyond. The provisions of
sections 25, 26 27, 62(1) and’ clauses (d) and (h) of
section 62(2) of the aforesaid Act. In the present case,
however, the liquor was lifted by the appellant from its
distilleries in Uttar Pradesh and a portion thereof remained
unaccounted for, as already stated, on arrival of the
consignments at their destination.
For the foregoing reasons, the respondents were right
in demanding the duty on the shortages.
In the result, the appeals fail and are dismissed with
costs, limited to one set.
M.R. Appeals dismissed
519