Deadline for submitting Excise Verification Certificates is directory; delayed filing without revenue loss cannot attract penalty.

The petitioner, a company incorporated under the Companies Act, 1956, is engaged in the manufacture and export of Indian Made Foreign Liquor (IMFL) and holds a valid bottling licence under the Madhya Pradesh Excise Act, 1915, exporting IMFL under permits issued by the Excise Department.

Rule 13 of the Madhya Pradesh Foreign Liquor Rules, 1996 requires an exporter to obtain an Excise Verification Certificate (EVC) from the Excise Officer of the importing State and furnish it to the permit-issuing authority within forty days from the expiry of the permit period.

In May 2013, the petitioner exported consignments under valid export permits; the corresponding EVCs were received from the importing States and furnished to the Excise authorities, albeit beyond the prescribed period.

By order dated 06.11.2019 (No. H.7ag./A./2019/1934), the Deputy Excise Commissioner, Divisional Flying Squad, Gwalior directed the petitioner to deposit Rs.1,44,00,000/- as penalty for delayed submission of EVCs, followed by an intimation dated 15.11.2019 stating the penalty flowed from an audit objection.

The penalty was imposed without any show cause notice or opportunity of hearing.

There is no allegation that the liquor failed to reach its destination, was diverted or misused, or that any loss was caused to the State exchequer.

1. Whether the time limit prescribed under Rule 13 of the Madhya Pradesh Foreign Liquor Rules, 1996 for submission of the Excise Verification Certificate is mandatory or directory in nature.

2. Whether the penalty of Rs.1,44,00,000/-, imposed solely on the basis of an audit objection without show cause notice, opportunity of hearing, or any adjudication of breach, is sustainable in law.

Interpretation of Rule 13 of the Madhya Pradesh Foreign Liquor Rules, 1996, read with the Madhya Pradesh Excise Act, 1915, holding that the provision's object is verification that exported liquor reached its destination, and that the prescribed period for EVC submission is directory.

Bacardi India Pvt. Ltd. v. State of Karnataka & Others, 2019 (5) Kar. LJ 696, and State of Kerala v. Mc. Dowell & Co. Ltd., 1988 SCC (Ker.) 381, establish that provisions prescribing periods for production of verification certificates are directory, since compliance depends on authorities over whom the exporter has no control.

State of Bihar v. Industrial Corporation Pvt. Ltd., (2003) 11 SCC 465, mandates that before creating a penalty demand there must be adjudication of the alleged breach with an opportunity of hearing, and that authorities cannot mechanically impose penalty on the basis of an audit report without independent examination.

Procedural requirements are ordinarily directory where strict compliance would produce arbitrary or unjust consequences without advancing the legislative object unless a statute expressly provides otherwise.

The Court found it undisputed that the exports were made under valid permits, the EVCs were ultimately produced, and the impugned order contained no allegation of non-receipt, diversion, misuse, or loss to the exchequer; the penalty rested solely on delayed submission.

Since the object of the EVC is to establish that the consignment reached the destination State, and that issuance of the certificate depends entirely upon importing-State authorities beyond the exporter's control, delay attributable to such third-party authorities cannot automatically expose the exporter to penal consequences.

Finding the reasoning in Bacardi persuasive, the Court held Rule 13's purpose is verification, not penalisation, and procedural prescriptions cannot be construed to defeat substantive justice when the statutory object stands fulfilled.

The order was admittedly passed without show cause notice or hearing, and nothing on record demonstrated any adjudication to ascertain whether the delay was attributable to the petitioner or whether any breach warranting penalty had occurred.

As the demand was raised on the basis of an audit objection with no independent finding regarding misuse, diversion, or loss, the action suffered from non-application of mind and violation of natural justice contrary to State of Bihar v. Industrial Corporation.

Construing the period as mandatory would penalise the exporter for delays beyond its control—a consequence never intended by the rule-making authority—and would convert a verification mechanism into a revenue source.

The writ petition was allowed; the impugned order dated 06.11.2019 passed by respondent No.3 imposing the penalty of Rs.1,44,00,000/- was quashed.

It was declared that mere delayed submission of the certificate, in the absence of any allegation of diversion, misuse, or loss to the State, shall not by itself attract penal consequences.