Uttar Pradesh Excise Act, 1910: Uttar Pradesh Excise Manual – Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 – In the instant case, fire incident took place in godown of distillery of the respondent company in which liquor got destroyed – Excise Department raised demand of excise duty on the liquor destroyed from the respondent company – Whether the demand in question is authorised by law – Held: s.19 of the Act 1910 states that no intoxicant can be removed from the distillery unless duty leviable thereupon has been paid – Liquor that was lying stored in the bonded warehouse had already become subject to the excise duty – Taxable event was production or manufacture and not sale – r.7(11) of the Rules of 1969 is required to be taken into account for the legal consequences that so far as the bottled spirit is concerned, the licencee remains responsible for payment of duty on any kind of wastage in excess of 1% – Rule 709 of the Excise Manual makes it clear that the distillery remains responsible for safe custody of the stock of spirit and remains liable to make good any loss of revenue caused to the Government by their negligence – Therefore demand of excise duty cannot be said to be unauthorized by law – Constitution of India – Art.265.
Uttar Pradesh Excise Act, 1910: Uttar Pradesh Excise Manual – Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 – Fire incident took place in godown of distillery of the respondent company in which liquor got destroyed – Whether respondent company remains liable to pay excise duty on the liquor lost in fire – Held: In the scheme of the Act of 1910, the Rules of 1969 and the Excise Manual, it is evident that the Government is not liable for destruction, loss or damage of any spirit stored in distillery by fire or theft or any other cause – Distillery is made responsible for safe custody of the stock of spirit and is also made liable to make good any loss of revenue caused to the Government by their negligence – The rules provide for strict supervision and control of the Excise Department over the working of distillery at every stage but that supervision and control does not correspondingly absolve the distillery of its duty and responsibility towards safe custody of the stock – The warehouse in question indeed got engulfed in fire and that led to destruction of the liquor stored therein – The respondent company could be held liable to pay the excise duty on the liquor destroyed in fire only if it could be held negligent in not ensuring safe custody of the stored liquor –In the present case, nothing has happened by natural forces like storm, floods, lightning or earthquake – Hence, the fire incident in question cannot be termed as an act of God – Even when the exact cause of fire could not be ascertained, the only inference by considering the reports of Assistant Excise Commissioner could be about some fault or shortcoming in electric installations which led to the abnormal flow of current and thereby, to the fire incident in question – It is difficult to accept that the fire and the resultant loss had been beyond the control of human agency so as to be termed as inevitable accident – When the respondent had not been able to protect the goods in question from fire within the warehouse and when all other factors, as noticed above, are taken into account, the negligence as contemplated in Rule 709 of the Excise Manual is directly attributable to the respondent company – Further, the fact that the respondent company had taken insurance coverage only of the value of liquor (and not that of excise duty thereupon) and then, had received the insurance claim towards the value of liquor also operates against the respondent company and fortifies the conclusion about negligence of the respondent company.
Allowing the appeal, the Court
HELD: 1. In terms of Article 265 of the Constitution, both levy and collection of tax must be authorised by law. By virtue of Entry 51 of List II, the State has been authorised to impose duty of excise on alcoholic liquors for human consumption manufactured or produced in the State. As per Section 19, no intoxicant can be removed from the distillery or the place of MCDOWELL AND COMPANY LTD.
storage unless the duty leviable thereupon has been paid or a bond has been executed for the payment thereof. Considering the overall scheme of the Act and the Rules, it may not be out of place to interpret the expression “removal” in Section 19 to include wastage in excess of permissible limit of total quantity of spirit produced or manufactured and stored. A comprehensive look at the scheme of Sections 17 to 19 and 28 and 29 of the Act of 1910 and the enunciations of this Court leave nothing to doubt that in respect of the liquor that had undergone the process of distillation, exigibility to excise duty had occurred at the end of the distillation process or when it was issued from the distillery. The point of quantification of this duty, even if linked in point of time to the date of issue for sale in terms of proviso to Section 29, does not relate to the ‘event of chargeability’ that had occurred as soon as the liquor was distilled and received in the bottling tank or had been otherwise issued from distillery. In other words, the liquor that was lying stored in the bonded warehouse had already become subject to the excise duty, with postponement of actual charging of the duty as per the rate applicable on the date and time of issue for sale from the warehouse. It gets perforce reiterated that taxable event was production or manufacture, and not sale, of the liquor. In this view of the matter, the submission that the levy in question is not authorised by law, and is hit by Article 265 of the Constitution of India, remains untenable. [Paras 39, 41] [937-E-F; 940-B-F]
2.1 Rule 7(11) of the Rules of 1969 is required to be taken into account for the legal consequences that so far as the bottled spirit is concerned, the licencee remains responsible for payment of duty on any kind of wastage in excess of 1%. Coupled with this provision, Rule 709 of the Excise Manual makes it clear that the distillery remains responsible for safe custody of the stock of spirit and remains liable to make good any loss of revenue caused to the Government by their negligence. Therefore, the demand in question cannot be said to be unauthorised but, its validity would depend on answer to the question as to whether negligence could be imputed on the respondent company in terms of Rule
709 of the Excise Manual. [Paras 44, 45][941-H; 942-A-C]
2.2 The present one had not been a case where anything related with the forces of nature like storm, floods, lightning or earthquake had been in operation or caused the fire. When nothing of any external natural force had been in operation in violent or sudden manner, the event of the fire in question could be referable to anything but to an act of God in legal parlance. The observations of High Court in this regard do not appear sound and are required to be disapproved. [Para 55][952-A-B]
2.3 The warehouse in question indeed got engulfed in fire and that led to destruction of the liquor stored therein. Here, the respondent company could be held liable to pay the excise duty on the liquor destroyed in fire only if it could be held negligent in not ensuring safe custody of the stored liquor. As regards this aspect, the fact that Department had control and supervision over the distillery and godown would not absolve the respondent of its liability. Further, the fire incident in question cannot be termed as an “act of God”. [Para 59][955-D-E]
3. The fault of “negligence” need not always be of active negligence or of gross negligence, but it may also be of an inadvertent negligence or of a passive negligence. It does not require much of discussion to say that the goods in question, being highly inflammable, required extra and excessive care for their safe custody; and any laxity or slackness in that regard was impermissible. To put it differently, what was required for ensuring safe custody of the goods in question was that of heightened safeguard measures with foresight. When the respondent had not been able to protect the goods in question from fire within the warehouse and when all other factors, are taken into account, the negligence as contemplated in Rule 709 of the Excise Manual is directly attributable to the respondent company. In other words, even if the present case is taken to be that of inadvertence or of unintentional omission on the part of the respondent company, it would fall within the definition of “negligence” for the purpose of Rule 709 of the Excise Manual. [Para 63][958-A-D]
MCDOWELL AND COMPANY LTD.
4. The liability of the respondent company in this matter is rather fortified from the facts that it had taken insurance coverage of the value of liquor and indeed received such claim from the insurer. Further, failure to insure the risk of excise duty liability cannot extricate the respondent from that liability. Hence, this Court agreed with the appellants, that not taking of insurance coverage of the excise duty while taking such coverage on the value of liquor itself amounts to negligence on the part of the respondent company. [Paras 67, 69][959-A; 960-A-D]
Somaiya Organic (India) Pvt. Ltd. and Anr. v. State of U.P. and Anr. (2001) 5 SCC 519 : [2001] 3 SCR 33; State of U.P. & Ors. v. Delhi Cloth Mills & Anr. (1991)
1 SCC 454 : [1990] 2 Suppl. SCR 168; State of U.P. and Ors. v. M/s Mohan Meakin Brewery Ltd. and Anr. (2011) 13 SCC 588 : [2011] 14 SCR 98; Vohra
Sadikbhai Rajakbhai & Ors. v. State of Gujarat and Ors: (2016) 12 SCC 1 : [2016] 2 SCR 772; Patel Roadways Limited v. Birla Yamaha Limited (2000) 4 SCC
91 : [2000] 2 SCR 665 – relied on.
Divisional Controller, KSRTC v. Mahadeva Shetty and Ors. (2003) 7 SCC 197: [2003] 2 Suppl. SCR 14; Har Shankar and Others v. Deputy Excise & Taxation Commissioner and Others (1975) 1 SCC 737 : [1975]
3 SCR 254; State of U.P. and Others v. M/s Modi Distillery Etc. (1995) 5 SCC 753 : [1995] 3 Suppl. SCR 119; Dharampal Satyapal v. Commissioner of Central Excise, Noida (2004) 167 ELT 291; Grill v. General Iron Screw Colliery Co. (1866) L.R. 1 C.P; State of Maharashtra and Ors. v. Kanchanmala Vijaysing Shirke and Ors. (1995) 5 SCC 659 : [1995] 3Suppl. SCR 1; Shyam Sunder and Ors. v. The State of Rajasthan (1974)
1 SCC 690 : [1974] 3 SCR 549; Scott v. London & St. Katherine Docks (1865) 3 H&C 596, 601; Pushpabai Purshottam Udeshi and Ors. v. M/s. Ranjit Ginning & Pressing Co. (P) Ltd. and Anr. (1977) 2 SCC 745 : [1977] 3 SCR 372 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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