State of
U.P. & Ors Vs. Delhi Cloth Mills & Anr [1990] INSC
311 (9 October 1990)
Saikia,
K.N. (J) Saikia, K.N. (J) Agrawal, S.C.
(J)
CITATION:
1991 AIR 735 1990 SCR Supl. (2) 168 1991 SCC (1) 454 JT 1990 (4) 131 1990 SCALE
(2)719
ACT:
U.P.
Excise Act, 1910---Sections 28 and 29 and Notifica- tion dated 26th March
1979--Excise duty--Countervailing excise duty--Minimum limits of wastage in
transit--Provision for--Charging up of duty on excess wastage--And imposition
of excise duty on liquor before its issue from the distill- ery--Whether valid.
HEAD NOTE:
The
respondents are manufacturers of high strength spirit. They also used to
manufacture and bottle military rum under a licence and supply the same to the defence
personnel inside and outside the State of U.P.
The excise duty on military rum for export was Rs.7 per L.P. Litre while the
rate for consumption within the State was Rs.21 per L .P. Litre. An allowance upto
0.5 per cent for wastage during transit by leakage, evaporation etc. was
provided.
Against
a proper permit the respondents supplied rum to the Officer Commanding Rail
Road Depot. A.S.C., Pathankot at the distillery premises and the consignments
were taken by the consignees under the seal of the railway authorities to their
respective destinations.
By a
notification dated March 26, 1979, issued in super- session to earlier
notification, the Governor was pleased to direct that with effect from April 1,
1970 duty shall be imposed on country spirit at the rates mentioned in the
schedule and that the duty was payable before issue from the distillery or
bonded warehouse concerned save in the case of issued under bond. Accordingly a
notice was issued to the respondents demanding Rs.4,295.55P on the wastage
which was termed as "excess transit wastage" of rum calculated at the
maximum rate of Rs.21 per L .P. Litre. The representation against the demand
having been rejected, they filed a writ petition before the High Court
challenging the validity of the orders and praying for a mandamus commanding
the State of U.P. not to realise or adjust any amount
of duty towards wastage from the respondents' advance duty account and
restraining them from giving effect to the impugned orders.
The
High Court allowed the respondents' writ petition holding that the State of U.P. and the Excise authorities were not entitled to levy
169 excise duty on the wastage of liquor in transit. Hence this appeal by the
State.
On the
question, whether differential duty is leviable.
under
the Act and the Rules.
Allowing
the appeal, this Court,
HELD:
The Act having provided for fixed wastage allow- ance also in effect provided
that the excess above the allowable wastage will be taxed. It cannot therefore
be said that no such charging up of excise duty on the excess wast- age in transit
could be validly made. [179E] Absolute equality and justice is not attainable
in taxing laws. Legislature must be left to decide the State policy within
constitutional limitations. [179F] Rules 636 and 814 are of regulatory
character and they are precautionary against perpetration of fraud on the
excise revenue of the exporting State. A statute has to be construed in the
light of the mischief it was designed to remedy. [180D] 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. [182H] Drawback means the repayment of duties or taxes previ- ously
charged on commodities, from which they are relieved on exportation. [183B] The
system of charging up the duty on the subsequent event of non export cannot,
therefore, be said to be irre- spective of production or manufacture. [183C] In
the instant case, if it is proved to the satisfaction of the appropriate
authorities that counter-vailing 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. [183D] A.B. Abdulkadir v. State of Kerala, [1962] 2 Suppl. SCR 741; Bimal
Chandra Banerjee v. State of Madhya Pradesh,
[1970] 2 SCC 170 467; State of Mysore & Ors. v. M/s. D. Cawasji and Co.,
[1970] 3 SCC 710; M/s. Mohan Meakin Breweries Ltd. v. Excise
M/s.
Mc Dowell and Co. Ltd. v. Commercial Tax Officer, VII Circle, Hyderabad, [1977]
1 SCR 914; Kalyani Stores v. State of Orissa and Ors., [1966] 1 SCR 865; Excise
Commissioner, U.P. v. Ram Kumar, [1976] 3 SCC 540 and State of Madhya Pradesh
v. Firm Gappulal, AIR 1976 SC 633, referred to.
Mls. Ajudhia
Distillery Rajaka, Sahaspur v. State of U.P.
and Anr., [1980] Taxation Law Repons 2262, overruled. & CIVIL APPELLATE
JURISDICTION: Civil Appeal No. 4297 of 1983.
From
the Judgment and Order dated 26.10.1979 of the Allahabad High Court in C.M.W.
No. 7168 of 1972.
Raja
Ram Agarwal and A.K. Srivastava for the Appellants.
K.K. Venugopal,
Rajinder Sachher, Satish Chandra, K.C. Dua, and J.P. Misra for the Respondents.
The
Judgment of the Court was delivered by K.N. SAIKIA, J. The State of U.P. by
special leave appeals from the Judgment of the High Court of Allahabad dated
26.10.1979, allowing the respondents' writ petition and holding that the State
of U.P. and the Excise authori- ties were not entitled to levy excise duty on
the wastage of liquor in transit. The respondents are manufacturers of high
strength spirit classified as other sorts of spirit not otherwise specified'
under Section 28 of the United Prov- inces Excise Act, 19 10, hereinafter
referred to as 'the Act'. After manufacture they transport those spirit in big
containers from the distilleries to their warehouses, trans- porting them on
passes issued under section 16 of the Act.
In the
bonded warehouses the same are sometimes diluted, separately bottled and sold.
They also used to manufacture and bottle military rum under a licence and
supply the same to the defence personnel inside and outside the State of U.P. The Officer Commanding Rail Head Depot A.S.C., Pathan-
kot having obtained permits from the State of Punjab for the import of military rum, against those permits the
respond- ents exported military rum from their distillery, under different
passes. The excise duty on military rum for export was Rs.7 per L.P. Litre
while the rate for consumption within the State was 171 Rs.21 per L.P. Litre.
If the exported military rum was under bond thereupon duty was realised by the
importing State from the importer thereof. The respondents bottled the rum ac-
cording to rules and supplied the same to the consignees at the distillery
premises and the consignments were taken by the consignees under the seal of
the railway authorities to their respective destinations.
It
appears by Notification dated March 26, 1979 in exercise of the powers under
Sections 28 and 29 of the Act, read with section 21 of the U.P. General Clauses
Act, 1904, and in supersession of the earlier Government Notification the
Governor was pleased to direct that with effect from April 1, 1979 duty shall
be imposed on country spirit at the rates specified in the schedule thereto and
the duty was payable "before the issue from the distillery or bonded
warehouse concerned save in the case of issued under bond".
By
order dated 13.10.1970 notice was issued to the respond- ents demanding Rs.4,295.55p.
on the wastage which was termed as "excess transit wastage" of rum
calculated at the maximum rate of Rs.21 per L.P. Litre. A representation of the
re- spondents dated November
9, 1970 was rejected
by order dated 15.1.1972. Another representation through the All India
Distillers Association was also rejected by order dated August 28, 1972.
Several
writ petitions challenging similar orders were filed by others before the
Allahabad High Court for quashing the orders. The respondents also filed Civil
Miscellaneous Writ No. 7168 of 1972 under Article 226 of the constitution of
India praying for appropriate writ, order or direction quashing the impugned
orders dated 13.10.1970, 9.11.1970, 15.1.1972 and 28.8.1972 and for a mandamus
commanding the State of U.P. not to realise or adjust any amount of duty
towards wastage from the respondents' advance duty account otherwise than in
accordance with law and restraining them from giving effect to the impugned
orders. The High Court by the impugned judgment dated 26.10.1979 relying on an
earlier Division Bench decision of the same High Court in M/s. Mohan Meakin
Breweries Ltd. and Anr. v. State of Uttar Pradesh and Ors., (Writ Petition No.
2604 of 1973, decided on 11.9.1979) allowed the writ petition and quashed the
impugned orders thereby holding that no excise duty could legally be levied on
the excess wastage the occurred during the transport of liquor in course of
export, that is, taking out of U.P.
otherwise
than across a customs frontier as defined by the Central Government.
Mr.
Raja Ram Agarwal, the learned counsel for the appel- lants, submits that the
duty has been levied keeping in mind the fact that in 172 U.P. excise duty is
levied at two different rates--at a higher rate when the liquor is sold inside
the State, and at a lower rate when it is exported outside the State. Counter- vailing
duty is paid by the importer on the quantity actual- ly received in the
importing State. If there is excess wastage on transit the result is that the
quantity actually received by the destination State is less than the quantity
on which the State of U .P. charged the lower rate and, therefore, on the
quantity shown as wastage the State of U.P. ought to recoup its differential
duty by charging excise duty at the higher rate; and that this is clearly
envisaged by the Act and the United Provinces Excise Manual Rules, hereinafter
referred to as 'the Rules'. Counsel further submits that it has a wholesome
purpose, namely, to discourage evasion of duty and that there is no question of
levying excise duty twice on the same article inasmuch as the amount of export
duty actually paid is always deducted from the demand; and that it is a duty of
regulatory charac- ter meant to guard against perpetration of fraud or decep- tion
on excise revenue which the State is entitled to re- ceive. It is said to be a realisation
of escaped duty justi- fied by the implied presumption.
Mr.
K.K. Venugopal, the learned counsel for the respond- ents, submits that in this
case while the exporting State, that is, U.P., levied export duty at a concessional
rate the importing State levied countervailing duty on the quantity of rum
imported; and the quantity exported and subjected to excise duty by the
exporting State being the same as the quantity whereupon countervailing duty
was imposed by the importing State, there could be no question of collecting
differential duty on the excess wastage by the exporting State and if that was
done it would amount to double taxa- tion. Explaining the procedure for export
from U.P. counsel states that after export duty is paid, the exporter gets the
alcohol released and transport it to the importing States in bottles or casks.
In the importing State countervailing duty is paid on full consignment at its
destination and the seals of the bottles transported are intact. So the entire
con- signment is taxed less the wastage. The impugned demand notices have,
submits counsel, rightly been quashed by the High Court and the appellants have
rightly been restrained from levying such differential duty on excess wastage
on transit in course of export.
The
only question to be decided, therefore, is whether the differential duty is leviable
under the Act and the Rules. For answering the question we may refer to the Act
and the Rules. Included in Chapter V of the Act, which deals with duties and
fees, Section 28 of the Act provides that an excise duty or a countervailing
duty, as the 173 case may be, at such rate or rates as the State Government
shall direct may be imposed either generally or for any specified local area on
any excisable article stated in that section.
"Excise
duty" and "countervailing duty" as defined in Section 3(3a) of
the Act means any such excise duty or countervailing duty, as the case may be,
as is mentioned in entry 51 of List II in the Seventh Schedule to the Constitu-
tion. That entry reads as follows:
"51.
Duties of 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 narcot- ics; but not including
medicinal and toilet preparations containing alcohol or any substance included
in subparagraph (b) of this entry." The original Section 28 of the Act now
re-numbered as subsection (1) thereof, and sub-sections 2 and 3 inserted by section
2 of the U.P. Act 7 of 1970 clearly covers Indian made foreign liquors. There
could be no dispute as to mili- tary rum being one of the Indian made foreign
liquors ex- cisable under the Act. A duty of excise under Section 28 is
primarily levied upon a manufacturer or producer in respect of the excisable
commodity manufactured or produced irre- spective of its sale. Firstly, it is a
duty upon excisable goods, not upon sale or proceeds of sale of the goods. It
is related to production or manufacture of excisable goods. The taxable event
is the production or manufacture of the liq- uor. Secondly, as was held in A.B.
Abdulkadir v. The State of Kerala. reported in 1962 (2) Suppl. SCR 741: AIR
1962 SC 922, an excise duty imposed on the manufacture and produc- tion of
excisable goods does not cease to be so merely because the duty is levied at a
stage subsequent to manufac- ture or production. That was a case on Central
Excise, but the principle is equally applicable here. It does not cease to be
excise duty because it is collected at the stage of issue of the liquor out of
the distillery or at the subse- quent stage of declaration of excess wastage.
Legislative competence under entry 51 of list II on levy of excise duty relates
only to goods manufactured or produced in the State as was held in Bimal
Chandra Banerjee v. State of Madhya Pradesh, [1970] 2 SCC 467. In the instant
case there is no 174 dispute that the military rum exported was produced in the
State of U.P. In State of Mysore & Ors. v. M/s. D. Cawasji & Co.,
[1970] 3 SCC 7 10, which was on Mysore Excise Act, it was held that the excise
duty must be closely related to production or manufacture of excisable goods
and it did not matter if the levy was made not at the moment of production or
manufacture but at a later stage and even if it was collected from retailer.
The differential duty in the in- stant case, therefore, did not cease to be an
excise duty even it was levied on the exporter after declaration of excess
wastage. The taxable event was still the production or manufacture.
It is
settled law as was held in Bimal Chandra Banerjee v. State of Madhya Pradesh
(supra), a case under the Madhya Pradesh Excise Act, that no tax can be levied
by the State Government in the absence of specific authorisation by statute. In
that case the levy of duty on liquor which the contractor failed to lift was
held to have been an attempt to exercise a power which the State Government did
not possess.
Mr. Agarwal
refers us to Rule 636 of the Rules which at the relevant time said:
"636.
A distiller holding licences for bottling Indianmade foreign liquor of his own
manufacture and for selling it by wholesale may export such foreign liquor
bottled on his wholesale premises, to any other State or Union Territory in
India subject to the following condi- tions:
(1)
The exporter shall obtain from the importer a permit authorizing the import
signed by the Chief Revenue Authority of the importing State or Union Territory
or by an officer duly authorized in this behalf.
(2)
The permit shall specify:
(a) the
name and address of the person of firm authorized to import;
(b) the
description and quantity of the foreign liquor to be imported;
(c)
the rate of duty chargeable in the importing State or Union Territory in case
the Indian-made foreign 175 liquor is imported in State or Union territory with
which the state of Uttar Pradesh has entered into reciprocal arrangements for
the adjustment of the excise duty by book transfer.
(d)
the rate of duty charged in the importing State or Union Territory and the fact
that it has been realized in advance in cases of import other than those
covered by clause (c).
(3) On
receipt of the permit the exporter shall deposit into the treasury;
(a)
Export duty on the total quantity of liquor to be ex- ported; and (b) Where the
export is made to a State or Union Territory with which the State of Uttar
Pradesh has entered into a reciprocal arrangement for the adjustment of the
excise duty by book transfer, and the rate higher than that enforced in the
State of Uttar Pradesh, and that payable in the importing State or Union
Territory on the total quantity of liquor to be exported.
(4) On
receipt of the permit and the treasury receipt the wholesale vendor shall
prepare a pass in form F.L. 23 in quadruplicate and submit it to the Excise
Inspector, in- charge of the distillery. The Excise Inspector shall after
satisfying himself that duty has been correctly realized, affix his signature
to the pass. The exporter shall then send one copy of the pass to the Collector
of the district of export, one copy to the Chief Revenue Authority of the place
of import or such other officer as may be authorised in this behalf. One copy
to the consignee and shall retain the fourth copy. The treasury receipt shall
always accompany the copy of the pass sent to the Collector of the exporting
districts.
(5)
The pass in form F.L. 23 shall state clearly:
(a) the
name and address of the consignor;
176
(b) the name and address of the consignee;
(c) the
exact description and quantity of each kind of foreign liquor despatched under
the pass;
(d) the
route by which it is despatched;
(e) the
date of despatch; and (f) in case of export against duty paid permit, the fact
that the duty has been prepaid in the State of import.
(6) A separate
pass in form F.L. 23 shall be issued in respect of each consignment. The Chief
Revenue Authority or other officer of the place of import should send the copy
of the pass received by him, duly countersigned, to the Excise Commissioner,
Uttar Pradesh, in support of the claim for' refund of duty annually after the
close of the excise year.
(7)
Should the rate of duty in the importing State be lower than that in force in
Uttar Pradesh, exporter shall be entitled to a refund of the difference in
duty. If the duty has been prepaid in the State of import at the rate in force
at the time of issuing import permit, the exporter shall be entitled to a
refund of duty deposited by him in the State of export on verification of the
claim by the Excise Inspector incharge of the distillery on the basis of export
passes in form F.L. 23 duly countersigned by the Chief Revenue Authority of the
State or Union Territory of import or the officer appointed in this behalf in
token of receipt of the consignment of Indian-made foreign liquor" Rule
637 provided than the duty, other that export duty, on foreign liquor
manufactured at any distillery in Uttar Pradesh and exported therefrom on
prepayment of duty to any State or Union Territory of India shall be credited
by book transfer to the Government of the importing State or Union Territory
after the close of the excise year. Rule 637-A provided for registration of
claims for refund or export of Indian-made foreign liquor and provided that
every distiller making exports of Indian-made foreign liquor to other States,
shall submit a statement showing all such exports made during the proceeding
quarter, in form P.D. 31 to the Excise Commissioner, duly 177 verified by the
officer incharge, distillery, despatching simultaneously a copy thereof to the
Assistant Excise Com- missioner of the charge. Rule 37-B provided for
maintenance of register of refunds against exports of Indian-made for- eign
liquor and said that the Excise Inspector incharge of the distillery shall
enter all the details given by the distillers in the statement in form P.D. 31,
in a register to be maintained by him in form P.D. 31-A. As and when refunds
are allowed by the Excise Commissioner, he shall make entries about refund in
this register in relevant columns under his signature. Similar entries shall
also be made by the office of the Assistant Excise Commissioner concerned, on
the copies of P.D. 31 statement received from the exporters, and be initialled
by the Assistant Excise Commissioner after verification.
Thus
it is seen that though not specifically mentioning charging up of differential
export duty on excess wastage, the above rules definitely envisaged refund of
excise duty of countervailing or equalising nature.
Mr. Agarwal
also brings to our notice R.ale 8 14 which substituted the old Rule by the
Excise Commissioner's Noti- fication No. 10909/IX. 241-A, dated February 8,
1978. It provided as under:
"Allowance
for loss in transit. An allowance upto 0.5 per cent will be made for the actual
loss in transit by leakage, evaporation or other unavoidable cause, or spirit
transport- ed or exported under bond in wooden casks or metal vessels.
The
allowance to be made under this rule will be determined by deducting from the
quantity of spirit despatched from the distillery, the quantity received at the
place of destina- tion, both quantities being stated in terms of alcohol. The
allowance will be calculated on the quantity contained in each wooden cask
metal vessels comprised in a consignment.
If the
report of the officer by whom the consign- ment of spirit has been gauged and
proved at its destination shows that the wastage has occurred above the limit allowa-
ble the person executing the bond shall be liable to pay duty on so much of the
deficiency as in excess of the allow- ance. The rate of duty leviable shall be
the highest rate of duty leviable on such spirit in this State.
178
When the wastage does not exceed the prescribed limit, no action need be taken
by the Officer-in-charge of the Distillery or bonded warehouse, as the case may
be, but when the wastage exceeds the allowable limit, the Officer-in-charge of
the Distillery shall obtain the expla- nation of the Distillers or the person
executing the bond and forward the same together with a full report of the
circumstances to the Assistant Excise Commissioner or the Deputy Excise
Commissioner of the charge in which the Dis- tillery is situated. The Assistant
Excise Commissioner or the Deputy Excise Commissioner shall charge duty on
excess wastage provided that when the total wastage in a consign- ment is
within the allowable limit. Deputy/Assistant Excise Commissioner of the charge
may write off the excess wastage in any particular wooden cask or metal vessel:
Provided
further that the Deputy Excise Commis- sioner may write off the duty upto
Rs.500, if he is satis- fied that the excess wastage in a consignment was on
account of an accident or other unavoidable cause but in other cases, the
matter shall be referred to the Excise Commis- sioner for orders. Cases in
which the Deputy Excise Commis- sioner writes off duty shall be reported by him
to the Excise Commissioner." It is emphasised by Mr. Agarwal that this
provision is meant to discourage evasion of duty. If any part of the lower
export duty charged liquor is not in fact exported it should be made to pay the
higher excise duty as payable on home consumed liquor. It does not impose any
new duty. We are inclined to agree. This rule does not authorise imposition of
any new tax but only authorises charging up excise duty on the excess wastage
of liquor in course of export which was charged at concessional rate. The old
Rule 814 of the Rules was made by B.O. No. 423/V-284-B, dated September 6, 1910
and No. 20/8 V-E 980B, dated May 28, 1918 providing for allowance for Joss in
transit. It said:
"An
allowance will be made for the actual loss in transit, by leakage, evaporation
or other unavoidable cause, of spirit transported or exported under bond. The
allowance is subject to the following maximum limits." Limits were
prescribed differently for wooden casks and metal vessels, keeping in mind the
duration of transport.
179
Thus, we find that the minimum limits of wastage in transit was prescribed even
under the old rule. This by implication enjoined that the excess wastage would
be taxed as if not wasted.
The
question may arise as to the date of the new Rule 814, to decide whether the
impugned notices would be covered by it or by the old Rule. Section 77 of the
Act provides the answer. It says:
"77.
Publication of rules and notifications.--All rules made and notifications
issued under the Act shall be published in the Official Gazette, and shall,
have effect as if enacted in this Act from the date of such publication or from
such other date as may be specified in that behalf." (The two provisos are
not relevant for the purpose of this case) Both the old and the new Rule 8 14
must, therefore, have effect from the date of publication in the Official
gazette or from such other date as may be specified in that behalf as if
enacted in the Act. The object of this ancient formu- la, namely, "as if
enacted in this Act" was to emphasise the fact that the notifications were
to be as effective as the Act itself. Its validity could be questioned in the
same way as the validity of the Act could be questioned. It is an ancient form
of rule making still to be found in the Act.
Thus
the Act having provided for fixed wastage allowance also in effect provided
that the excess above the allowable wastage will be taxed. It can not, therefore,
be said that no such charging up of excise duty on the excess wastage in
transit could be validly made. The validity of Rule 814 had not been questioned
before the High Court. Absolute equality and justice is not attainable in
taxing laws. Legislature must be left to decide the State policy within
Constitution- al limitations.
In
M/s. Mohan Meakin Breweries Ltd. v. Excise & Taxation Commissioner, Chandigarh,
reported in 1976 Suppl. SCR 5 10: 1976 3 SCC 42 1, the appellant company
carried on the busi- ness of manufacture, storage and sale of liquors. Between
June, 1967 and April 1969,. it transported various quanti- ties of liquor from
its distilleries in U.P. 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 permis- sible under rule 8
of the Punjab Bonded Warehouse Rules, 1957. The Excise and Taxation
Commissioner, exercising the powers of the . Financial Commissioner. issued a
show cause notice and then ordered 180 the appellant to pay duty on the wastage
in excess. The show cause notice required the appellant to pay duty on excess
wastage in course of import of liquor from U.P. and the rules governing the
appellant's licence provided for a wastage allowance not exceeding 1% of the
actual loss in transit by leakage or breakage of vessels or bottles con- taining
liquor, and if the wastage exceeded the prescribed limit the licensee should be
liable to pay duty at the prescribed rate as if the wastage in excess of the
pre- scribed limit had actually been removed from the Warehouse, and it was
also provided that the Financial Commissioner could in his discretion on goods
cause being shown remit the whole or a part of the duty leviable on such
wastage, and these provisions were challenged. This Court held that the
impugned rules did not impose any new duty or create any liability and that
they were 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 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." We agree with Mr. Agarwal that the instant
Rules 636 and 814 are also a regulatory character and they are precautionary
against perpetration of fraud on the excise revenue of the exporting State. If
out of the quantity of military rum in a consignment, a part or portion is
claimed to have been wastage in transit and to that extent did not result in
export, the State would, in the absence of reasonable expla- nation, have
reason to presume that the same have been disposed of otherwise than by export
and impose on it the differential excise duty. A statute has to be construed in
light of the mischief it was designed to remedy. There is no dispute that
excise duty is a single point duty and may be levied at one of the points
mentioned in Section 28.
The
submission of the respondents that they paid duty on the entire quantity of rum
to be exported under excise passes issued to the importer and that after
payment of the export duty the rum bottled under the conditions enumerated in
the Rules was supplied to the consignee at the distillery premises and the
consignments were taken by the consignees under their seals and under the seal
of the Railway authori- ties and the consignments reached their destination
with seals intact would not go to support the contention that the State Government
was not competent to levy any duty on the excess wastage that is shown to have
occurred during transit inasmuch as only a concessional rate of duty was levied
on the liquor which was supposed to be exported out side the State of U.P. and
if the entire quantity on which such concessional duty was paid did not reach
its destination, and the 181 shortage is shown as wastage in transit, it surely
meant that the short delivery was not exported. The reason of the wastage would
not be material so far as this conclusion is concerned. Had this quantity been
not exported but consumed locally the State would have derived higher duty of
which it has been deprived.
The
argument that countervailing duty is paid by the importers in the importing
State on the quantity actually received, would also be immaterial for this
conclusion though that may be of some importance for the purpose of revenue of
the importing State as well as the consignee. In case countervailing duty has
been paid on the entire quanti- ty of the consignment in the importing State
there may be room for adjustment in accordance with the provisions of Rules
636, 637, 637-A and 637-B of the Rules. The only material question may be
whether the wastages was caused while the bottles were on transit but still
within the territory of the exporting State or in transit inside the importing
State. If as a matter of fact it is found that the exported liquor actually
crossed the territory of the ex- porting State intact there may not be any
justification for demanding differential duty. That will of course be a ques- tion
of fact in no way affecting the right to demand the differential duty. The
decision in M/s. Ajudhia Distillery Rajaka, Sahaspur v. State of Uttar Pradesh
and Anr., report- ed in 1980 Taxation Law Reports 2262, quashing such a demand
and holding that the exporting State had no 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 differen- tial duty. There
is no question of double charging or multi- ple 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.
The
Rules 636, 637-A and 637 are also relevant to this extent.
It was
reiterated in M/s. Mc Dowell and Co. Ltd. v. Commercial Tax Officer, VH Circle,
Hyderabad, [1977] 1 SCR 9 14: AIR 1977 SC 1459, following Abdul Kadir (supra)
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. The State of Orissa and Ors., [1966] 1 SCR
865, was reiterated in M/s Mohan Meakin Breweries Ltd. (supra) that a
countervailing duty is meant "to counter balance; to avail 182 against
with equal force or virtue; to compensate for some- thing or serve as
equivalent or substitute for". A counter- vailing 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 rate 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 State.
The
fact that the importer is required to pay counter- vailing duty on the imported
military rum could, therefore, ipso facto be no ground for opposing the levy of
differen- tial 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 entire- ly
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 materi-
al 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 pro- duction or manufacture of rum. It
could not be regarded as a duty not connected with the taxable event of
manufacture or production.
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 Sec-
tions 28 and 29 of the Act in Excise Commissioner, U.P. v. Ram Kumar, [1976] 3
SCC 540 and State of Madhya Pradesh v. Firm Gappulal, AIR 1976 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 183 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 allow- ance is made by the
Government upon the duties due on im- ported merchandise when the importer,
instead of selling it within the country-re-exports it, and then the difference
of 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 subsequent event
of non export can not, therefore, be said to be irrespective of production or
manufacture.
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 irre- spective of the wastage, there
would be room for adjustment by reducing the duty to similar extent.
For
the foregoing reasons, the impugned Judgment is set aside and the appeal is
allowed, but under the facts and circumstances of the case, without any order
as to costs.
Y. Lal
Appeal allowed.
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