Case: State of Uttar Pradesh &amp; Others Vs. Delhi Cloth Mill &amp; Another

jurisdiction to charge duty on the liquor wastage in transit cannot be said to have been correctly decided and the impugned judgment in the instant case suffers from the same infirmity, and has to be set aside. Rule 814 envisages the levy of such differential duty. There is no question of double charging or multiple point charging in this case. It is only a question of recovery of the difference on proof of the purposes for which lower duty was earlier levied having failed to be achieved entailing liability to make good the difference. Rules 636, 637-A and 637 are also relevant to this extent 20. It was reiterated in McDowell and Co. Ltd. v. CTO ( 1977 (1) SCC 441 : 1977 SCC(Tax) 198 : 1977 (1) SCR 914 : 1977 AIR(SC) 1459) following Abdul Kadir 1962 (S2) SCR 741 : 1962 AIR(SC) 922) that excise duty is a duty on the production or manufacture of goods produced or manufactured within the country though laws are to be found which impose a duty of excise at stages subsequent to the manufacture or production. Similarly what was stated in Kalyani Stores v. State of Orissa ( 1966 (1) SCR 865 : 1966 AIR(SC) 1686) was reiterated in Mohan Meakin Breweries Ltd. ( 1976 (3) SCC 421 : 1976 SCC(Tax) 318 : 1976 Supp SCR 510) that a countervailing duty is meant "to counter balance; to avail against with equal force or virtue; to compensate for something or serve as equivalent or substitute for". A countervailing duty is "meant to equalise the burden on alcoholic liquors manufactured or produced in the State." They may be imposed at the same rate as excise duty or at a lower so as to equalise the burden after taking into account the cost of transport from the place of manufacturing to the taxing State. Countervailing duties are meant to equalise burden on alcoholic liquors imported from outside the State and the burden placed by excise duties on alcoholic liquors manufactured or produced in the State. Countervailing duties can only be levied if similar goods are actually produced or manufactured in the State on which excise duties are being levied. Thus, countervailing duty paid in the importing State does not ipso facto affect the excise revenue of the exporting State21. The fact that the importer is required to pay countervailing duty on the imported military rum could, therefore ipso facto be no ground for opposing the levy of differential duty on the excess wastage of exported rum that duty being levied with a view to safeguard the excise revenue of the exporting State. If the excess wastage was actually lost to consumers while in the importing State no justification of such a duty may arise, that, however, would be an entirely different question without in any way affecting the competence of the legislature of the exporting State to impose such a duty. The fact that the exported rum was on payment of export duty or on bond would not again be material inasmuch as when the rum meant for export failed to be exported, there may be a presumption, may be rebuttable one, that what is shown as the excess has merged in mass of rum consumed within the State and was not separated from such a mass. The imposition of differential duty was only deferred to this moment and it still continued to be a duty on production or manufacture of rum. It could not be regarded as a duty not connected with the taxable event of manufacture or production22. There is also no similarity with the excise duty sought to be levied only on the unlifted quantity of liquor by contractors which was held to be impermissible under Sections 28 and 29 of the Act in Excise Commissioner, U.P. v. Ram Kumar ( 1976 (3) SCC 540 : 1976 SCC(Tax) 360) and State of M.P. v. Firm Gappulal ( 1976 (1) SCC 791 : 1976 SCC(Tax) 71 : 1976 AIR(SC) 633 : 1976 (2) SCR 1041 ). In the instant case the military rum was obtained for the purpose of export and the lower export duty was paid and only when the rum did not result in export the question of imposing the differential duty arose. The notion of the excise duty being changed or cancelled on account of what transpires later is not foreign to excise law. Generally speaking the imposing of the differential duty i.e. charging up the duty on the report of the excess wastage is the opposite of the system of drawback prevalent in some systems. Drawback means the repayment of duties or taxes previously charged on commodities, from which they are relieved on exportation. For example, in the customs laws of some countries an allowance is made by the government upon the duties due on imported merchandise when the importer, instead of selling it within the country re-exports it, and then the difference of the duty is refunded, if already paid. Similarly, in England there is a provision of refund of duties on British wine when the wine incidentally is spoilt or otherwise unfit for use or when delivered to another person has been returned to the maker as so spoilt or unfit. The system of charging up the duty on the sub-sequent event of non-export cannot, therefore, be said be irrespective of production or manufacture23. In the instant case if it is proved to the satisfaction of the appropriate authorities that countervailing duty had been paid on the entire consignment irrespective of the wastage then the question would arise as to whether the wastage could be ignored altogether by the exporting State as was done by the importing State. Counsel for the parties had no objection to the idea that if the explanation for wastage was satisfactory and the countervailing duty was paid in the importing State on the entire consignment irrespective of the wastage, there would be room for adjustment by reducing the duty to similar extent

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]21. The fact that the importer is required to pay countervailing duty on the imported military rum could, therefore ipso facto be no ground for opposing the levy of differential duty on the excess wastage of exported rum that duty being levied with a view to safeguard the excise revenue of the exporting State. If the excess wastage was actually lost to consumers while in the importing State no justification of such a duty may arise, that, however, would be an entirely different question without in any way affecting the competence of the legislature of the exporting State to impose such a duty. The fact that the exported rum was on payment of export duty or on bond would not again be material inasmuch as when the rum meant for export failed to be exported, there may be a presumption, may be rebuttable one, that what is shown as the excess has merged in mass of rum consumed within the State and was not separated from such a mass. The imposition of differential duty was only deferred to this moment and it still continued to be a duty on production or manufacture of rum. It could not be regarded as a duty not connected with the taxable event of manufacture or production22. There is also no similarity with the excise duty sought to be levied only on the unlifted quantity of liquor by contractors which was held to be impermissible under Sections 28 and 29 of the Act in Excise Commissioner, U.P. v. Ram Kumar ( 1976 (3) SCC 540 : 1976 SCC(Tax) 360) and State of M.P. v. Firm Gappulal ( 1976 (1) SCC 791 : 1976 SCC(Tax) 71 : 1976 AIR(SC) 633 : 1976 (2) SCR 1041 ). In the instant case the military rum was obtained for the purpose of export and the lower export duty was paid and only when the rum did not result in export the question of imposing the differential duty arose. The notion of the excise duty being changed or cancelled on account of what transpires later is not foreign to excise law. Generally speaking the imposing of the differential duty i.e. charging up the duty on the report of the excess wastage is the opposite of the system of drawback prevalent in some systems. Drawback means the repayment of duties or taxes previously charged on commodities, from which they are relieved on exportation. For example, in the customs laws of some countries an allowance is made by the government upon the duties due on imported merchandise when the importer, instead of selling it within the country re-exports it, and then the difference of the duty is refunded, if already paid. Similarly, in England there is a provision of refund of duties on British wine when the wine incidentally is spoilt or otherwise unfit for use or when delivered to another person has been returned to the maker as so spoilt or unfit. The system of charging up the duty on the sub-sequent event of non-export cannot, therefore, be said be irrespective of production or manufacture23. In the instant case if it is proved to the satisfaction of the appropriate authorities that countervailing duty had been paid on the entire consignment irrespective of the wastage then the question would arise as to whether the wastage could be ignored altogether by the exporting State as was done by the importing State. Counsel for the parties had no objection to the idea that if the explanation for wastage was satisfactory and the countervailing duty was paid in the importing State on the entire consignment irrespective of the wastage, there would be room for adjustment by reducing the duty to similar extent