Holding

Excise duty may be levied only on beer after it is brewed and fit for human consumption, and Rule 35 together with the proviso to Section 32 provides a valid method of computing the taxable quantity, with the 7% wastage allowance applied to the raw material used.

Summary

The Government of Haryana issued a show‑cause notice demanding excise duty on beer brewed by Haryana Brewery Ltd, alleging that the wastage in the brewing process exceeded the statutory allowance. The brewery contended that duty could be levied only after the beer became fit for human consumption and that the 7% wastage allowance under Rule 35 of the Punjab Brewery Rules should be applied to the raw material, not deducted from the end‑product. The Punjab High Court quashed the demand, holding that duty should be calculated on the actual potable beer with a 7% allowance. The Supreme Court allowed the appeal, affirming that excise duty may be imposed only after the beer is brewed and fit for consumption, and that Rule 35 and the proviso to Section 32 of the Punjab Excise Act are valid methods for determining the taxable quantity, with the 7% allowance applied to the raw material loss. The Court set aside the High Court’s order and remanded the matter to the Financial Commissioner for fresh determination.

Issues considered

Whether excise duty on beer can be levied before the product becomes fit for human consumption.
Whether Rule 35 of the Punjab Brewery Rules, which allows a 7% wastage deduction, is valid and how it should be applied.
How the quantity of beer liable to excise duty should be calculated under Section 32 of the Punjab Excise Act.

Legislation cited

Punjab Excise Act, 1914s. 31, s. 32

Subjects

excise dutybeerPunjab Excise ActRule 35wastage allowancepotable liquormanufacturing processjurisdiction

Judgment

A GOVERNMENT OF HARYANA
v.
HARYANA BREWERY LTD. AND ANR.

FEBRUARY 12, 2002

B [B.N. KIRPAL, SHIVARAJ V. PATIL AND
BISHESHWAR PRASAD SINGH, JJ.]

Punjab Excise Act, 1914/Punjab Brewery Rules, 1956-Ss. 31 and 321
C Rule 35-Manufacture of beer-Excise Duty-Levy of-Held, can be levied •
only after the process of manufacture was completed and has became fit for
human consumption-Tax is on the end product and not on the raw material.

Appellant-Excise authorities issued a show cause notice to the
respondent imposing excise duty on the beer brewed sating that the wastage
D referred to in Rule 35 was more than 10 percent for the period 1986-87 and
earlier, and more than 7 percent in the later years. Respondent raised a plea
before the excise authorities, that the percentage of wastage should have been
more than 7 or 10 percent. The said plea was rejected. Thereafter respondent
filed a writ petition before the High Court contending that it was not
permissible for the excise authorities to levy excise duty at the stage before
.E potable beer becomes fit for human consumption. High Court quashed the
demand by holding that on the actual quantity of potable beer manufactured
by the respondent allowance of 7 percent should be given and then duty
determined. Hence the present appeal.

F On behalf of appellant it was contended that the State is not proposing
to levy any excise duty on beer which had not been manufactured and had
not become fit for human consumption, and that the High Court has not
correctly construed the different provisions of the Act and Rules.

On behalf of respondents it was contended that excise duty was payable
G only after all the process in the manufacture of beer have been completed
and on the end-product an exemption of 7 percent was to be allowed.

Allowing the appeal and setting aside the order of High Court, the Court

HELD : 1. The state has jurisdiction to levy excise duty only on beer
H after it has been brewed and has become fit for human consumption. Resorting
942
GOVT. OF HARY ANA v. HARY ANA BREWERY LTD. 943

to Rule 35 of the Punjab Brewery Rules and calculating the quantity of beer A
which is manufactured and is fit for human consumption cannot be said to
be invalid or impermissible. (950-H)

1.2. A reading of Section 32 of the Punjab Excise Act leaves no manner
of !loubt that the stage at which excise duty can be levied is only after the
process of manufacture has been completed and in fact, it is to be levied when B
it is issued from the distillery, brewery or warehouse. The tax is on the end-
product and not on the raw material. The allowance of 7 percent has to be in
arriving at the figure of the manufactured beer as loss of quantity during the
process of manufacture. It cannot be that on the figure of manufactured beer,
arrived at on the basis of the books of the respondent, an allowance of 7 C
percent has to be given. If the figure taken for the purpose of calculating the
excise duty is only of the end-product, viz., the beer produced, and not the
quantity of raw material used in the manufacture of beer during which loss
of some quantity as wastage would have occurred, there cannot be a deduction
of any sum of proportion as wastage from the quantity of end-product in order
to arrive at that quantity. The excisable produce is the quantity of beer D
produced and not the quantity produced, and thus excisable, minus 7 percent.
The allowance is contained in the proviso to Section 32 read with Rule 35. If
the entries in the brewing book of the licensee or in the survey book of the
Inspector are not to be taken into consideration, then the question of giving
an allowance of 7 percent contemplated by Rule 35 would also not arise. E
(950-E, G)

2. However, in the instant case, before the Excise Commissioner no
dispute has been raised with regard to the figures and the contention was that
the percentage of wastage should have been more than 7 or IO percent. Thus
the matter is remanded to the Financial Commissioner for a fresh decision
in accordance with law and in the light of the observations made in this
F
judgement. [951-E, GI

CIVIL APPELLATE JURISDICTION Civil Appeal No. 1999 of
1997.

From the Judgment and Order dated 22.7 .96 of the Punjab and Haryana G
High Court in C. W.P. No. 18750 of 1995.

Mahendra Anand, Anil B. Divan, Y.V. Giri, S. Ganesh Neeraj Kumar
Jain, Aditya Kumar Chaudhary, J.P. Dhanda, Mahesh Agarwal, Manu
Krishnan, Rishi Agarwal, E.C. Agrawala, Praveen Kumar for applicants in
Intervention Application), Prateek Jalan, R.N. Poddar and B.V. Balaram Das, H
944 SUPREME COURT REPORTS [2002] I S.C.R.

A for the appearing parties.
The Judgment of the Court was delivered by

KIRP AL, J. The challenge in this appeal is to the decision of the High
Court relating to levy of excise duty on the beer brewed by the respondent.
B This appeal arises from the decision of the High Court which had
allowed the respondent's writ petition and quashed the demand raised by the
appellant in respect of the years 1986-87, 1987-88 and 1988-89. According
to the appellant, this demand was raised because the wastage which was
shown by the respondent in the brewing of beer was more than 10 per cent
C prior to the year 1986-87 and 7 per cent thereafter.

In Order to understand the controversy, it is necessary to first examine
the process in connection with the manufacture of beer. This process has
been referred to by this Court in Mohan Meakin Ltd. v. Excise and Taxation
Commissioner, H.P. and Ors., [1997] 2 SCC 193 and described at page 196
D as follows:-

"The first stage brewing process is the feeding of malt and adjuncts
into a vessel known as Mash Tin. There it is mixed with hot water
and maintained at certain temperature. The objective of this process
is to convert the starches of the malt into fermentable sugar.
E
The extract is drawn from the Mash Tin and boiled with the
addition of hops for one to two hours after which it is centrifuged,
cooled and received in the receiving Vats. At this stage, it is called
'Wort and contains only fermentable sugars and no alcohol. After
this, it is transferred to the fermentation tanks where yeast is added
F and primary fermentation is carried out at controlled temperature.
After attenuation (diminution of density of 'Wort' resulting from its
fermentation) is reached for fermented wort is centrifuged and
transferred to the storage vats for secondary fermentation. After
secondary fermentation is over in the storage vats, it is filtered twice--
G first through the rough filter press and then through the fine filter
press and received in the bottling tanks. It is in bottling tanks that the
loss of the carbon dioxide gas is made up and bulk beer is drawn for
bottling. It is filed into the bottles and then last process of pasteurisation •
is carried out to make it ready for packing and marketing. Till the
liquor is removed from the vats and undergoes the fermentation process
H as mentioned above the presence of alcohol is nil."
j
GOVT. OF HARYANA v. HARY ANA BREWERY LTD. [KIRPAL, J.] 945
Section 3 of The Punjab Excise Act, 1914, as applicable to the State of A
Haryana, specifies the 'exciseable articles' and one of the articles is alcoholic
liquor for human consumption. Sections 31 and 32 which deal with the levy
+
of excise duty read as follows:

"31. Duty on excisable articles:- An excise duty or a countervailing
duty as the case may be at such rate or rates as the State Government B
shall direct, may be imposed either generally or for any specified
local area, on any excisable article:

(a) imported, exported or transported in accordance with the
provisions of Section 16; or

(b) manufactured or cultivated under any licence granted under
c
' Section 23; or
(c) manufactured in any distillery established or any distillery or
brewery licensed under Section 21;
Provided as follows; D
(i) duty shall not be so imposed on any article which has been
imported into India and was liable on importation to duty under
the Indian Tariff Act, 1894, or the Sea Customs Act, 1878;
Explanation : Duty may be imposed under this Section at different E
rates according to the places to which any excisable article is to be
removed for consumption, or according to the varying strength and
quality of such article."

"32, Manner in which duty may be levied:- Subject to such rules
regulating the time, place and manner as the Financial Commissioner F
may prescribe, such duty shall be levied rateably, on the quantity of
exciseable article imported, exported, transported, collected or
manufactured in or issued from, a distillery, brewery or warehouse:-

Provided that duty may be levied:-
(a) On intoxicating drugs, by an average rate levied on the G
cultivation of the hemp plant or by a rate charged on the quantity
collected;
(b) on spirit or beer manufactured in any distillery established or
any distillery or brewery licensed, under this Act in accordance
with such scale or equivalents calculated on the quantity of H
946 SUPREME COURT REPORTS [2002] I S.C.R.

A materials used or by the degree of attenuation of the wash or
wort, as the case may be, as the State Government may prescribe:

(c) on tari, by a tax on each tree from which the tari is drawn:

Provided further that where payment is made upon issue of an
exciseable article for sale from a warehouse established or licensed
B under Section 22(a) it shall be made-

(a) if the State Government by notification so directs, at the rate
of duty which was in force at the date of import of that article;
or
c (b) in the absence of such direction by the State Government, at
the rate of duty which is in force on that article on the date when
it is issued from the warehouse."

These two provisions have to be read with. Rule 35 of the Punjab
D Brewery Rules, 1956, which reads as follows:

"35(1). The duty on beer, at the prescribed rate, shall be charged
on the total quantity actually brewed as entered in the brewing book
by the licensee or as ascertained by the Inspector and entered in his
survey book from B.6, whichever is higher, less an allowance of
E seven per cent for wastage.

(2) The duty on beer shall become due immediately the account
of brewing has been taken by the Inspector. An account of duty to be
realised on collection of daily brews shall be maintained by the
Inspector in the registered in form B.15A.
F (3) The Excise Commissioner may, however, cause the charge to
be made up at the close of each quarter in respect of all the brewings
within that quarter and may, if the licenses executes a bond in form
B.16 for its payment, defer the payment to a date not later than the
fifteenth day of the month succeeding the quarter in respect of which ..
G the duty was charged. The Inspector shall at the end of each quarter
prepare Beer Duty Voucher in form B.7 and shall cause a notice in
form B.8 to be served upto the license for the payment of the amount. .

( 4) At the end of each quarter the Inspector shall prepare an
abstract of brewing operations in form B.11 and a statement showing
H the quantity of beer issued to troops in Punjab and other States in
GOVT. OFHARYANAv. HARYANABREWERY LTD. [KIRPAL,J.] 947
form B.14 during the quarter. The abstract and the statement shall be A
~-
submitted to the Collector concerned who after check will forward
them to be Excise Commissioner.

(5) The Inspector shall also maintain a register in form B.15
showing issue of beer made to other State."
B
The excise authorities purported to apply the provisions of Rule 35 in
order to calculate the amount of excise duty payable by the respondent. Show
cause notices were issued to the respondent wherein it was stated that the
wastage referred to in Rule 35 was more than I 0 per cent for the period
1986-87 and earlier and more than 7 per cent in the later years. It may here
'
be noticed that for the period 1986-87 and earlier the wastage allowed was
c
10 per cent which was reduced to 7 per cent from August 1986 onwards. The
plea taken by the respondent before the excise authorities was that the rate
of wastage should have been more than what was prescribed. This plea was
not accepted. Appeal was filed and after remand a fresh order was passed by
the Excise Commissioner. The relevant part of this order is as follows: D
"I. Rule 35( I) clearly lays down that duty is to be paid either on
the quantity brewed as entered in the brewing book by the licensee
or as ascertained by Inspector and entered in Form B-6 by him
whichever is higher. In form B-6, the quantity of worts collected is
shown under column 51 after the worts are received in the collecting E
or fermenting vessel. The Brewery has not produced their brewing
book to show any discrepancy and even otherwise the rule clearly
I>
lays down that in the event of a discrepancy the higher figure is to
be taken. Hence this argument does not help the brewery.

2. A perusal of the Form in B-6 and Part-8 in Form B-12 clearly
F
shows that the quantity considered to be brewed is after all the various
processes are finished and the brewed liquor is received ready of
bottling or to be issued in bulk. In fact, even loss in fermentation is
permitted to be shown and the wastage is calculated only after allowing
all the above in column I 5. Hence there is no force in the argument G
advanced by the brewery regarding the loss in various processes.

3. In so far as the contention of the Brewery that duty can be
levied only on consumption and not on wastage is concerned, as
pointed out by me above, the scheme of the rules is that the duty is
first levied on the total quantity brewed and refunds are allowed on H
\.
948 SUPREME COURT REPORTS (2002] I S.C.R.

A export etc., since the scale of wastage allowed for calculating wastage
is prescribed duty has to be charged on the remainder.

4. There is no force in the plea that the Haryana Brewery being
a Govt. Undertaking is exempt. The rules do not make any distinction
and perhaps no such distinction would be permissible either."
B
The aforesaid decision of the Excise Commissioner was upheld in appeal.

In the writ petition which was filed, it was contended by the respondent
before the High Court that what the excise authorities were seeking to do was
to levy the excise duty at a stage before it became potable liquor fit for
c human consumption. This, it was contended, was not permissible in view of
settled legal position in that behalf, namely, that the State can only impose
excise duty on potable liquor for human consumption and nothing else.

High Court construed the provisions of the Act and the Rules and
D purporated to follow the decision of this Court in State of U.P. and Ors. v.
Modi Distillery and Ors. etc., (1955] 5 SCC 753, and observed that excise
duty was being imposed not on the beer manufactured by the respondent but
on the liquid which came out of the wort kettle which was a stage much
before the liquid extracted out of malt had acquired the character of alcoholic
liquor fit for human consumption. The High Court sought to read down Rule
E 35 and directed that on the actual quantity of potable beer manufactured by
the respondent allowance of 7 per cent shou Id be given and then duty
determined.

At the outset, Mr. Mahendra Anand, learned seni.or counsel for the
.
appellant submits that the State is not proposing to levy any excise duty on
F beer which had not been manufactured and had not become fit for human
consumption. He submits that the High Court has not correctly construed the
different provisions of the Act and the Rules,

Mr. Anil B. Divan, learned senior counsel for the respondent, has
G supported the decision of the High Court and, while drawing our attention to
the decisions of this Court in Mohan Meakin and Modi Distillery (supra), has
submitted that in the registers what was entered was the quantity of liquid
which was in the worts. At this stage, even the yeast had not been added and
it could not be said that what was in the kettle as a wort was potable liquor
on which excise duty could be levied. This quantity could not be a measure
H for calculating the amount of beer on which excise duty could be levied. He
GOVT. OF H,ARYANA v. HARYANA BREWERY LTD. [KIRPAL, J.] 949

submitted that excise duty was payable only after all the processes in the A
manufacture of beer have been completed and on the end-product an exemption
of 7 per cent was to be allowed. He drew our attention to the Rules in
Kamataka which had contemplated allowance being made with regard to
manufacture of potable liquor. In respect of beer, those Rules have stipulated
a deduction of 7 per cent at the pre-bottling stage and during the period of
fermentation and an allowance of 6 per cent at the stage of filling of beer into B
the bottles. Mr. Divan, therefore, contended that on the manufactured beer a
deduction of 7 per cent was logical.

We agree with the contention of Mr. Divan, and this is also not disputed
by Mr. Anand, that the State has jurisdiction to levy excise duty only on beer C
after it has been brewed and has become fit for human consumption. This is
the settled position as laid down by this Court in Mohan Meakin and Modi
Distillery cases. The only question which, to our mind, really arises for
consideration is how to determine the quantity of beer which is manufactured
on which the excise duty is to be levied. Section 32 gives an answer to this
question. The first part of the Section states that subject to the rules which D
may be made by the financial Commissioner excise duty is to be levied, inter
alia, on the exciseable article manufactured in or issued from a distillery,
brewery or warehouse. A reading of this Section leaves no manner of doubt
that the stage at which excise duty can be levied is only after the process of
manufacture has been completed and in fact it is to be levied when it is E
issued from the distillery, brewery or warehouse.

The proviso to Section 32 uses the expression "Provided that duty may
be levied ..... " Clause (b) of the proviso states that the calculation of the beer
manufactured would be according to such scale or equivalents calculated on
the quantity of materials used or by the degree of attenuation of the wash or F
wort. The opening part of clause (b) of the proviso indicates as to how the
beer manufactured is to be determined. The proviso is only a manner of
computing the end-product with reference to the raw material which has been
used in the input. The tax is on the end-product and not on the raw material.
What this proviso read with Rule 35., indicates that in order to determine G
what is the quantity of beer manufactured which is fit for human consumption,
after all the processes have been gone through, you see what is the quantity
.of raw material which has been utilised for the manufacture of beer and in
the process of manufacturing give an allowance for wastage of 7 per cent.
After doing this, you determine the quantity of beer manufactured. An example
which has been given is that a 1000 kgs. of malt should ordinarily yield 6500 H
950 SUPREME COURT REPORTS [2002) I S.C.R.

A litres of beer. By giving an allowance of wastage which must occur during
the process of the manufacture of the end-product and limiting that allowance
to 7 per cent, the quantity of beer manufactured on which excise duty would
be levied would be 6500 litres less 7 per cent.

It appears to us that the proviso to Section 32 read with Rule 35 does
B nothing more than to give a rough and ready method of calculating the
quantum of beer which should have been manufactured in the normal process
which is calculated on the basis of the raw material used. The idea, perhaps,
is that full quantity of beer which is manufactured is accounted for. It will
be seen that registers are maintained by the manufacturer and the figures are
C taken from there. From the records of the manufacturer, excise authorities
will be able to ascertain the quantum of raw material used. It is open to the
excise authorities to accept the figure indicated in the records of the
manufacturer of the total quantity of beer manufactured. Duty can be levied
on this and this would be in consonance with the first part of Section 32. It
is, perhaps, only to cross-check whether the figure which is indicated in the
D books of the manufacturer is correct that a formula can be used for determining
the amount of beer which could or should or must have been manufactured.
This is by taking into account the quantity of raw material used, the quantity
which is in the process and as entered in the brewing book and from there
giving an allowance of 7 per cent for wastage. It appears to us that the
allowance of 7 per cent has to be in arriving at the figure of the manufactured
E beer as loss of quantity during the process of manufacture. It cannot be that
on the figure of manufactured beer, arrived at on the basis of the books of
the respondent, an allowance of 7 per cent has then to be given. If tht:: figure
taken for the purpose of calculating the excise duty is only of the end-
product, viz., the beer produced, and not the quantity of raw material used in
F the manufacture of beer during which loss of some quantity as wastage
would have occurred, there cannot be a deduction of any sum or proportion
as wastage from the quantity of end-product in order to arrive at that quantity.
The excisable product is the quantity of beer produced and not the quantity
produced, minus 7 per cent.

G The allowance is contained in the proviso to Section 32 read with Rule
35. If the entries in the brewing book of the licensee or in the survey book
· B-6 of the Inspector are not to be taken into consideration, then the question
of giving an allowance of 7 per cent contemplated by Rule 35 would also not
arise.

H It appears to us that resorting to Rule 35 and calculating the quantity
GOVT. OF HARYANA v. HARYANA BREWERY LTD. (KIRPAL, J.] 951
of beer which is manufactured and is fit for human consumption cannot be A
-<-
said to be invalid or impermissible. As we have already indicated, the said
Rule only helps in determining what should be the quantity of beer actually
==» manufacture, after all the processes have been undertaken.

In the instant case, it is contended by the learned counsel for the
respondent that the figures which are given and entered in the brewing book B
pertain to the worts which means the liquor obtained by the exhaustion of
•
malt or grain but to which no yeast had been added and, therefore, had not
become alcoholic liquor fit for human consumption. This figure, it was
• submitted, should not have been taken into account. If this be so, ther. the
excise authorities had to calculate and determine the exact quantity of beer
manufactured by the respondent and then levy excise duty thereon. On the
c
figures so determined, Rule 35 being inapplicable as contended by the
respondent, the question of giving any allowance of 7 per cent for wastage
would not arise. What follows from the above is that the excise authorities
can levy excise duty only on the beer after it has been manufactured: the levy
has to be on the quantity manufactured. How this quantity is to be arrived at D
has to be determined according to Section 32 read with Rule 35.

~
We may, however, note that before the Excise Commissioner no dispute
appears to have been raised with regard to the figures and the contention was
that the percentage ·of wastage should have been more than 7 or I 0 per cent.
Mr. Divan, however, submits that this contention which was upheld by the
E
High Court was raised subsequently. While in the body of the writ petition,
it is stated that Rule 35 is violative of the Act, no specific prayer was made
> in the writ petition, but in the manner in which we have interpreted Rule 35
it appears to us that it is only an enabling provision which will help the
~
excise authorities in calculating what would be the quantity of beer F
manufactured and fit for human consumption on which excise duty could be
imposed. The said Rule is neither invalid nor does it require to be read down.

We, accordingly, allow this appeal and set aside the decision of the
High Court, bot remand the case to the Financial Commissioner for a fresh
decision in accordance with law and in the light of the observations made in G
this judgment.
...
S.V.K. Appeal allowed.