CIVIL WRIT JURISDICTION CASE No.8691 OF 1994 In the matter of an application under Articles 226 and 227 of the Constitution of India. ------- Mc Dowell & Co. Ltd., Hathidah, P.S. Hathidah, District Patna through its General Manager ( Works), Sri Krishnamurty Pattabhiraman son of late Krishnamurty, residing at the campus of McDowell & Co. Ltd., Hathidah, P.S. Hathidah, District Patna. ----- Petitioner. -Versus- 1. The State of Bihar through the Secretary to the Government of Bihar, Department of Excise & Prohibition, Vikas Bhawan, Patna. 2. The Commissioner of Excise, Bihar, Vikas Bhawan, Patna. 3. The Collector, Patna. 4. The Superintendent of Excise, Hathidah Distillery, Hathidah,District-Patna. ---- Respondents. For The Petitioner :Mr. G.P.BIMAL, Advocate and Mr. Satyabir Bharti, Adv. For the State : Mr. Anil Kumar Verma, A.C. to S.C,3, ---------- P R E S E N T THE HON'BLE MR. JUSTICE S.K.KATRIAR THE HON'BLE MR. JUSTICE BIRENDRA PRASAD VERMA --- S.K.Katriar, J : This writ petition is directed against the order dated 05.09.1994 (Annexure-2), passed by the learned Excise Commissioner, Government of Bihar, whereby he has affirmed the Demand Notice dated 12.05.1994(Annexure-1), issued under the signature of the in-charge Superintendent of Excise, McDowell Distillery, Hathidah, and the petitioner has been called upon to pay penalty of Rs.29,961.00 P for non-payment of the duties of excise under the Bihar Excise Act, 1915 ( hereinafter referred to as “the Act” ), read with the Rules dated 29.04.1919, framed by the Board of Revenue under section 90 of the Act ( hereinafter referred 2 to as “the Rules”), for not paying duties of excise on the loss in transit beyond the permissible limit. 2. A brief statement of facts essential for disposal of this writ petition may be indicated. The petitioner is a Public Limited Company having its manufacturing unit at Hathidah, district Patna. It relates to manufacture of Extra Neutral Alcohol ( ENA in short ), which is an improved version of spirit, is an industrial product, and is also used as a raw material for manufacture of alcohol fit for human consumption. During the period 1992-93, it had transported 1,85,476.00 L.P. Litres of ENA to Serampore Distillery and Chemicals Cooperative Ltd., West Bengal (hereinafter referred to as the Bengal distillery) . Its excise register under the Act and Rules jointly maintained by the Department and the petitioner disclosed supply of 1,85,476.00 London Proof Liters (L.P.L. for short), of ENA to the Bengal Distillery during the period 1992-93. It further disclosed that 1,83,801.90 LPL was stored at the destination. There was thus a total wastage of 1674.10 LPL in transit. According to the authorities, Rule 33 of the Rules permits admissible wastage of .5% only i.e., 1,008.30 LPL. There was thus an excess wastage of 665.80 L.P.L. occasioned by evaporation and leakage in the tanker during the course of transit. This was detected during the course of audit of the register maintained jointly. Extract of Audit No. 78/93-94 ( Item No. 5), is marked as Annexure-1A, which, inter-alia, stated that penal duty of Rs.29,961.00 P ( Rs. 45/- per L.P.L.), was imposed upon the petitioner. This was followed by the demand notice bearing memo No. 328, dated 12.5.1994(Annexure-1). 3 2.1). The petitioner challenged the same by preferring an appeal in terms of Section 8(2) of the Act, which was rejected by the learned Excise Commissioner by the impugned order. The Department had taken the stand that the penalty has been imposed for not paying the requisite prescribed duties on the amount of wastage beyond the prescribed permissible limit of wastage. The concluding portion of the impugned order is reproduced hereunder : “ Finally the petitioner has challenged the right to levy excise duty by the State. The contention is that State can levy duty only on potable liquor and not on rectified spirit. In this case the Extra Neutral Alcohol was exported under bond for manufacture of IMFL. The purpose of export was to manufacture potable liquor. Thus it was not duty on rectified spirit but on potable spirit.” Hence this writ petition. 3. While assailing the validity of the impugned order, learned counsel for the petitioner submits that no duties of excise is payable on ENA because it is not fit for human consumption. He has taken us through the relevant provisions of the Constitution of India, the Act, and the Rules. He has also relied upon the following reported judgments : (i) New Swadeshi Sugar Mills Ltd. Vrs. State of Bihar, 1983 P.L.J.R.- 105. (ii) The same was upheld by the Supreme Court, by its order dated 24.08.1994, in State of Bihar Vrs. New Swadeshi Sugar Mills Ltd. & Anr. ( 2003) 11 SCC 478. 4 (iii) State of Bihar Vrs. Industrial Corporation Pvt. Ltd. and others( 2003) 11 SCC 465, (paragraph 24). (iv) State of U.P. and others Vrs. Modi Distillery and others (1995) 5 SCC 753 and (v) Mc.Dowell & Company Ltd. Vrs. State of Bihar and others, 2006 (4) P.L.J.R. 269 (paragraph-13). 4. Learned counsel for the respondents submits that the penalty has been imposed, not on non-payment of excise duties on the loss of the product in transit beyond permissible limit, but for non-supply of two- fold informations, namely, the date of delivery of the product in question at the destination, and the extent of loss in transit. 5. We have perused the materials on record and considered the submissions of the learned counsel for the parties. We have to examine the relevant provisions cited by the learned counsel for the parties in respect of their respective stand. The issues are not Res Integra, have been decided by a Division Bench of this Court, and upheld by the Supreme Court. Just the same issues fell for consideration of this Court as well as the Supreme Court, which have been relied upon by the petitioner. Except the case of State of U.P. Vrs Modi Distillery (Supra), the other four judgments dealt with the Act and Rules and the Constitution. 6. The first judgment on this point is of a Division Bench of this Court in New Swadeshi Sugar Mills Ltd. Vrs. State of Bihar (Supra ). That was a case where rectified spirit was sought to be subjected to levy under the Act on the ground that it was converted into liquor fit for human consumption at a later stage. The Division Bench rejected the contention and held as follows:- 5 “18) ………. Rule 33, in order to protect the interest of the State, lays down the quantity or permissible wastage by way of leakage or evaporation of spirit that may be deducted from the total quantity of spirit that is transported or exported under bond for calculation of the quantity on which duty may be levied. It merely lays down that no transporter can claim evaporation or leakage beyond the quantity specified under rule 33. The rule precludes the transporter from raising a plea of unlimited losses due to uncontrolled leakage or evaporation . Even if the leakage is total and evaporation is 100%, the reduction will be only that which is provided in rule 33. In other words, it is merely a protection, assumed by the State to itself, against unscrupulous transporters. This rule means nothing beyond that. It does not create a right in any authority to levy any duty. Secondly, this rule applies only to such transportation or export that is done under the bond. If transportation or export is not done under bond, rule 33 of the Rules has no application whatsoever, as it the case with rectified spirit despatched from the premises of the petitioner without bond. xx xx xx xx xx xx xx xx xx 20 : It is also well settled that if an article becomes dutiable at a later stage by becoming fit for human consumption, duty cannot be levied at the prior stage where it is not fit for human consumption, duty cannot be levied at the prior stage where it is not fit for human consumption.” 6 7. It is thus evident that the Division Bench held that section 27 of the Act is the charging section, and the duties of excise under the Act can be levied only on the products described as “ Excisable Article” in the Act which reads as follows: “ S. 27 : Power to impose duty on import, export, transport and manufacture- (1) An excise duty or a countervailing duty, as the case may be, as such rate or rates as the State Government may direct, may be imposed, either generally or for any specified local area on – (a) any excisable article imported, or (b) any excisable article exported, or (c) any excisable article transported, or (d) any excisable article ( other than tari ) manufactured under any licence granted in respect of clause (a) of section 13, or (e) any hemp plant cultivated, or any portion of such plant collected, under any license granted in respect of clause (b) or clause (c) of section 13, or (f) any excisable article manufactured in any distillery or brewery licensed, established, authorized or continued under this Act.” (2) A duty, at such rate or rates as the State Government may direct, may be imposed, either generally or for any specified local area, on any tari drawn under any license granted under section 14, sub-section (1)” 7.1 It was further held therein that ENA , an industrial item not fit for human consumption, can be put to diverse commercial use other than human consumption, and is rendered fit for human consumption after it is used as raw material. The Division Bench examined various constitutional provisions and reached the conclusion that no duties of excise under the Act and Rules can be levied on ENA before it is rendered fit for human consumption. The 7 judgment of this Court was handed on 13.10.1982, and the impugned order was passed on 05.09.1994. This judgment was clearly indicated in the petitioner’s memorandum of appeal before the learned Excise Commissioner. He was bound by the same and ought to have followed the same. The relevant portion of the memorandum of appeal is reproduced herein below: “ There are several decisions of the various High Courts on the subject that the State of Government cannot levy duty on excise on rectified spirit and other alcoholic liquor not fit for human consumption. A reference may be made to the decisions of : (a) Patna High Court in C.W.J.C. No. 1327 of 1979 in the case of the New Swadeshi Sugar Mills Ltd. Versus the State of Bihar & Others decided on 15.10.1981 by Hon’ble Mr. Justice H.L. Agrawal and Justice S.S. Hussan.” 8. The State of Bihar challenged the judgment of this Court before the Supreme Court by preferring Civil Appeal No. 3343 of 1983 ( State of Bihar Vrs. New Swadeshi Sugar Mills. Ltd. & Ors. ) , and was decided on 24.08.1994.The order of the Supreme Court dismissing the appeal of the State of Bihar, and upholding the judgment of this Court, is reproduced herein below: - “ 1. We find that the conclusion of the High Court that no duty can be levied by the appellant State on rectified spirit, having regard to the provisions of the Constitution, has been upheld by this Court in the case of Synthetics and Chemicals Ltd. v. State of U.P. It has been held there that the provisions in various State Acts which purport to levy a tax or charge upon industrial alcohol, also called rectified spirit and 8 alcohol used and usable for industrial purposes, are unconstitutional. 2. Having regard to the fact that the provision in the State Act imposing the levy is unconstitutional, it is unnecessary to go into the appellants’ argument based on a rule made in exercise of the rule-making power in the State Act. The rule concerned relates to duty to be paid on rectified spirit which is transported, a prescribed quantity being allowed to be deducted by way of leakage or evaporation. In the notice issued to the respondents it was such duty which was claimed in the sum of Rs. 8,62,678. Duty itself not being leviable , that claim must also be held to be invalid. 3. The appeal is, accordingly, dismissed. There shall be no order as to costs.” 9. Identical issue under the Act and Rules fell for the consideration in the Supreme Court in the case of State of Bihar and others Vrs. Industrial Corporation Pvt. Ltd. and others (Supra ). After full length discussion on this issue, the Supreme Court noticed the order of Division Bench of this Court in the case of New Swadeshi Sugar Mills Ltd. (Supra), and approved the legal position enunciated by this Court. Paragraph- 24 of the judgment is reproduced herein below : “ How far and to what extent the said observations are correct need not be considered by us but suffice it to point out that this decision had not noticed the earlier decision given by a Bench of three learned Judges in Modi Distillery. Modi Distillery applies on all fours to the facts of the present case and we are bound thereby. Even otherwise, it appears that the question as to 9 whether any excise duty can be levied by the State upon the industrial alcohol or rectified spirit usable for industrial purposes is concluded by a decision of this Court in State of Bihar v. New Swadeshi Sugar Mills Ltd,. which arose out of a judgment of the Patna High Court in New Swadeshi Sugar Mills Ltd. v. State of Bihar.” 10. Identical issues under the U.P. Excise Act 1910, read with U.P. Excise Act 1910, fell for the consideration of the Supreme Court in the case of State of U. P. Vrs. Moddi Distillery and others ( Supra ). The Supreme Court took the same view as in the aforesaid case, namely, ENA is an industrial product, unfit for human consumption, and cannot as such be subjected to the duties of excise under the U.P. Act and the Rules. 11. Just the same issues once again fell for the consideration of a Division Bench of this Court inter parties, namely, Md.Dowell and Company Ltd. Vrs. State of Bihar and others ( Supra ) . The Division Bench recapitulated a large number of decisions of the Supreme Court as well as this Court some of which have been discussed herein above, and reached the same conclusion. Paragraphs-13 and 14 of the judgment is reproduced herein below: “13) : On careful consideration of the case laws, noticed above, and the relevant constitutional provisions, it is clear that Bench of three Judges of the Supreme Court in the case of State of U.P. vs. Modi Distillery ( supra ) have relied upon judgment of Constitution Bench in the case of Synthetics and Chemicals Ltd. ( supra) and decided in favour of the contention raised on behalf of the petitioner that State can levy excise duty only upon alcoholic liquor fit for human 10 consumption when its manufacture is complete and not upon the raw material or input still in process of being rendered fit for consumption by human beings. State cannot impose duty of excise or sales tax on industrial alcohol i.e. alcohol unfit for human consumption. Again the judgment in the case of Deccan Sugar and Akhari Co. Ltd. vs. Commissioner of Excise ( supra) by three judges of the Supreme Court clearly supports the stand of the petitioner that State Legislature cannot impose any excise duty on rectified spirit because it does not fall under the category of potable liquor fit for human consumption. 14) : So far as judgments cited by the learned Advocate General are concerned, they deal only with situations requiring administrative control over manufacture of rectified spirit for purpose of further use and in that context, the power of the State Government was recognized that it can frame schemes to ensure that such rectified spirit is removed or used only for lawful purposes and not for manufacture of illegal potable liquor in the State. The issue in those cases were different and did not relate to the controversy at hand as to whether the State Government can impose excise duty upon alcoholic liquor unfit for human consumption directly or even by way of penalty under the Excise Act. So far as this issue is concerned, the stand of the petitioner is fully supported by judgments of the Apex Court cited on behalf of the petitioner on the basis whereof it can safely be held that State cannot levy excise duty on rectified spirit or other kind of alcohol unfit for human consumption and it cannot do so even by resorting to levy penalty on the ground of alleged loss or inefficiency in the system of a distiller engaged in manufacture of industrial 11 alcohol, rectified spirit or any alcoholic liquor unfit for human consumption. 12. It is thus evident that duties of excise under the Act and the Rules is not leviable on ENA because it is unfit for human consumption. In that view of the matter, no duty can be imposed on the losses for the product in transit, and is beyond the scheme of the Act and Rules. Penalty follows assessment. When assessment cannot be done, there cannot be the question of imposition of penalty. When the foundation is gone, where is the question of the superstructure. Putting the same thing in other words, borrowing an expression from criminal jurisprudence, the question of sentence arises only after conviction. 13. We would like to observe that the authorities under the Act and the Rules should promptly implement pronouncements of this Court and the Supreme Court, and its refusal to do so generates clearly avoidable litigations to the harassment of the parties and the Court. 14. This writ petition was admitted by order dated 16.01.1995, and is reproduced herein below : “ This application will be heard. Learned counsel for the petitioner prays for stay of operation of the impugned demand. We do not think that at this stage it is necessary to grant such stay. However, we make it clear that in the event of petitioner succeeding in the writ petition, the amount he will have to pay on account of non-grant of stay will be returned by the State with 18 per cent interest thereon. “ 15. In the result, this writ petition is allowed with costs. The impugned order dated 05.09.1994 ( Annexure-2) is hereby set aside. Respondent No.4 shall ensure refund of the amount along with interest @ 18% from the date of deposit till the date of refund. 12 Respondent no. 4 shall ensure deposit of costs of this writ petition quantified at Rs. 25,000/- ( Rs. Twenty five thousand) with the High Court Legal Services Committee, Patna, within a period of four weeks from today. ( S. K. Katriar, J ) Birendra Prasad Verma, J: I agree. ( Birendra Prasad Verma, J ) Patna High Court Dated 17th August, 2010 B.Tiwary/ A.F.R.