Supreme Court of India
STATE OF U.P. AND ORS.versusDELHI CLOTH MILLS & ANR.
- Citation
- 1990 INSC 309
- Decided
- 9 October 1990
- Disposal
- Appeal(s) allowed
- Bench
- K N SAIKIA
Holding
The Act provides for a fixed wastage allowance and expressly taxes any excess wastage; thus, the levy of differential excise duty on excess transit wastage is valid.
Summary
The State of Uttar Pradesh sought to recover differential excise duty on excess wastage of military rum that was exported by the respondents, Delhi Cloth Mills, under a lower export duty rate. The respondents argued that the duty on excess wastage could not be levied, and the Allahabad High Court quashed the demand. The Supreme Court held that the U.P. Excise Act, 1910 provides a fixed wastage allowance and expressly taxes any wastage above that limit; therefore, the levy of differential duty on excess transit loss is valid. The Court emphasized that the relevant Rules (636, 814) are regulatory, intended to prevent revenue loss, and do not create a new tax. Consequently, the appeal by the State was allowed and the High Court judgment set aside.
Issues considered
- Whether the U.P. Excise Act, 1910 and its Rules permit the levy of differential excise duty on excess wastage of liquor in transit during export.
- Whether the demand for duty on excess wastage amounts to an unlawful additional tax or is a valid regulatory measure.
Legislation cited
- Constitution of Indias. List II, Entry 51
- General Clauses Act, 1904s. 21
- U.P. Excise Act, 1910s. 16, s. 28, s. 29, s. 77
Subjects
excise dutydifferential dutyexcess wastagetransit lossmilitary rumexportU.P. Excise ActRule 814Rule 636countervailing dutydrawback
Judgment
STATE OF U.P. AND ORS.
A
v.
DELHI CLOTH MILLS & ANK
OCTOBER 9, 1990
B [K.N. SAIKIA AND S.C. AGRAWAL, JJ.]
U. P. Excise Act, 1910-Sections 28 and 29 and Notification da1ed
26th March 1979-!j,xcise du1y-Cowitervailing excise duty-Minimum
limits of wastage .fii ·transit-Provision for-Charging up of duty on
excess wastage-,'. And imposition of excise duty on liquor before its issue
C from the distillery-Whether valid.
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 dnty on military rumfor export was Rs.7per L.P. Litre
D while the rate for consumption within the State was Rs.21 per L.P. uire.
An allowance upto 0.5 per cent for wastage during transit by leakage,
evaporation etc. was provided. Against a proper permit the respon-
dents 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
E respective destinations.
By a notification dated March 26, 1979, issued in supersession 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
F 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 cal~ulated 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
G of the orders arid 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
effecno the impugned orders.
The High Court allowed the respondents' writ petition holding
H that the State of U .P. and the Excise authorities were not entitled to levy
168
STATE OF U.P. r. D.C.M. 169
excise duty on the wastage of liquor in transit. Hence this appeal by the
A
State.
On the question, whether differential duty is Ieviable. under the
Act and the Rules.
Allowing the appeal, this Court, B
HELD: The Act having provided for fixed wastage allowance 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 wastage in transit could be validly made. [179E]
Absolute equality and justice is not attainable in taxing laws. c
Legislature must be left to decide the State policy within constitutional
limitations. [179F]
Rules 636 and 814 are of regulatory character and they are pre-
cautionary against perpetration of fraud on the excise revenue of the D
exporting State. A statute has to be construed in the light of the mischief
it was designed to remedy. [1soo I
In the instant case, the military rum was obtained for the purpose
of export and the tower export duty was paid and only when the rum did
not result in export the question of imposing the differential duty arose. E
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 previously
charged on coillmodities, from which they are relieved on exportation. [183B]
F
The system of charging up the duty on the subsequent event of non
export cannot., therefore, be said to be irrespective 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 G
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. [1830]
A.B. Abdu/kadir v. State of Kera/a, [1962] 2 Suppl. SCR 741;
Bimal Chandra Banerjee v. State of Madhya Pradesh. [1970] 2 SCC H
170 SUPREME COURT REPORTS [ 1990] Supp. 2 S.C.R.
467; State of Mysore & Ors. v. M/s. D. Cawasji and Co., [1970] 3 SCC
A
710; M/s. Mohan Meakin Breweries Ltd. v. Excise & Taxation Com-
missioner, Chandigarh, 11976] Supp. SCC 421; M/s. Mc Dowell and Co.
Lid. v. Commercial Tax Officer, VII Circle, Hyderabad, [1977] l 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
B of Madhya Pradesh v. Firm Gappulal, AIR 1976 SC 633, referred to.
M/s. Ajudhia Distillery Rajaka, Sahaspur v. State of U.P. and
Anr., [1980] Taxation Law Reports 2262, overruled.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4297
of 1983.
c
From the Judgment and Order dated 26.10.1979 of the Allaha-
bad High Court in C.M.W. No. 7168 of 1972.
Raja Ram Agarwal and A.K. Srivastava for the Appellants.
D
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
E 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 authorities 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 spiri,t not otherwise
F specified' under Section 28 of the United Provinces Excise Act, 1910,
hereinafter referred to as 'the Act'. After manufacture they transport
those spirit in big containers from the distilleries to their warehouses,
transporting 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
· G 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., Pathankot having obtained permits from the
State of Punjab for the import of military rum, against those permits
the respondents exported military rum from their distillery, under
different passes. The excise duty on military rum for export was Rs.7
H per L.P. Litre while the rate for consumption within the State was
STATE OF U.P. v. D.C.M. [SAIKIA, J.I 171
Rs.21 per L.P. Litre. If the exported military rum was under bond
A
thereupon duty was realised by the importing State from the importer
thereof. The respondents bottled the rum according to rules and sup-
plied the same to the consignees at the distillery premises and the
consignments were taken by the consignees under the seal of the rail-
way authorities to their respective destinations.
B
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
c
save in the case of issued under bond". By order dated 13.10.1970
notice was issued to the respondents demanding Rs.4,295.55p. on the
wastage which was termed as "excess transit wastage" of rum cal-
culated at the maximum rate of Rs.21 per L.P. Litre. A representation
of the respondents dated November 9, 1970 was rejected by order D
dated 15.1.1972. Another representation through the All India Distil-
lers 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 E
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 F
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
VIiar 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 G
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 appellants, ,.
submits that the duty has been levied keeping in mind the fact that in H
172 SUPREME COURT REPORTS [ 1990) Supp. 2 S.C.R.
A 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. Counterv.ailing duty is paid by the impor-
ter on the quantity actually received in the importing State. If there is
excess wastage on transit the res.ult is that the quantity actually
received by the destination State is less than the quantity on which the
B State of U.P. charged the lower rate and, therefore, on the quantity
shown· as wastage the State of U .R. ought to recoup its differential
0
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
C article inasmuch as the amount of export duty actually paid is always
deducted from the demand; and that it is a duty of regulatory character
meant to guard against perpetration of fraud or deception on excise
revenue which the State is entitled to receive. It is said to be a realisa-
tion of escaped duty justified by the implied presumption.
D
Mr. K.K. Venugopal, the learned counsel for the respondents,
submits that in this case while the exporting State, that is, U.P., levied
export duty at a concessional rate the importing State levied counter-
vailing duty on the quantity of rum imported; and the quantity
exported and subjected to excise duty by the exporting State being the
E same as the quantity whereupon countervailing duty was imposed by
the importing State, there could be no question of collecting differen-
tial duty on the excess wastage by the exporting State and if that was
done it would amount to double taxation. Explaining the procedure
for export from U.P. counsel states that after export duty is paid, the
exporter gets the alcohol re.Ieased and transport it to the importing
F 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 consignment is taxed less the
wastage. The impugned demand notices have, submits counsel, rightly
been quashed by the High Court arid the appellants have rightly been
restrained from levying such differential duty on excess wastage on
G transit in course of export.
The only question to be decided, therefore, is whether the diffe-
rential 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
H the Act provides that an excise duty or a countervailing duty, as the
STATE OF U.P. v. D.C.M. (SAIKIA, J.I 173
case may be, at such rate or rates as the State Government shall direct
may be imposed either generally <;>r for any specified local area on any A
excisable article stated in that sectio~.
".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 B
Schedule to the Constitution. 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 pro-
duced elsewhere in India:
c
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and
narcotics; but not including medicinal and toilet prepara-
tions containing alcohol or any substance included in sub- D
paragraph (b) of this entry.'"
The original Section 28 of the Act now re-numbered as sub-
section (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 military rum being one of the Indian E
made foreign liquors excisable 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 irres-
pective 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 F
manufacture of the liquor. Secondly, as was held in A.Ii. Abdulkadir
v. The State of Kera/a, reported in 1962 (2) Suppl. SCR 741 : AIR 1962
SC 922, an excise duty imposed on the manufacture and production of
excisable goods does not cease to be so merely because the duty is
·levied at a stage subsequent to manufacture or production. That was a
case on Central Excise, but the principle is equally applicable here. It G
doe.s 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 subsequent 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 H
174 SUPREME COURT REPORTS [ 1990) Supp. 2 S.. C.R.
dispute chat the military rum exported was produced in the State of
A
U.P. In State of Mysore & Ors. v. M/s. D. Cawasji & Co., [1970) 3
SCC 710, which was on Mysore Excise Act, it was held that the excise
duty must be closely related to production or manufacture of excisabl\'
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 col-
B lected from retailer. The differential duty in the instant case, there-
fore, did not cease to be an excise duty even it was levied on the
exporter after declaration of excess wastage. The·1:axable 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
c 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.
D
Mr. Agarwal refers us to Rule 636 of the Rules which at the
relevant time said:
"636. A distiller holding licences for bottling Indian-
made foreign liquor of his own manufacture and for selling
E it by wholesale may export such foreign liquor bottled on
his wholesale premises, to any other Stat~ or Union Terri-
tory in India subject to the following conditions:
(I) The exporter shall obtain from the importer a
permit authorizing the import signed by the Chief Revenue
F 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
G 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
H or Union Territory in case the Indian-made foreign
STATE OF U.P. v. D.C.M. [SAIKIA, J.l 175
liquor is imported in State or Union territory with
A
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 facl that it has been realized B
in advance in cases of import other than those
covered by clause (c).
(3) On receipt of the permit the exporter shall de-
posit into the treasury;
(a) Export duty on the total quantity of liquor to be c
exported; 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 adjust- D
ment of the excise duty by book transfer, and the rate
of duty in the importing State or Union Territory is
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. E
(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,
incharge of the distillery. The Excise Inspector shall after
satisfying himself that duty has been correctly realized, F
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 accom- G
pany 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 SUPREME COURT REPORTS I 1990] Supp. 2 S.C.R.
A (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;
B
(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
c respect of each consignment. The Chief Revenue Autho-
rity 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
D 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
E 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
F 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
G Territory of India shall be credited by book transfer to the Govern-
ment 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 evey distil-
ler making exports of Indian-made foreign liquor to other States, shall
submit a statement showing all such exports made during the proceed-
H ing quarter, in form P.O.· 31 to the Excise Commissioner, duly
STATE OF U.P. v. D.C.M. [SAIKIA, J.l 177
verified by the officer incharge, distillery, despatching simultaneously A
a copy thereof to the Assistant Excise Commissioner of the charge. ·
Rule 37-B provided for maintenance of register of refunds against
exports of Indian-made foreign liquor and said that the Excise
Inspector incharge of the distillery shall enter all the details given by
the distillers in th.e statement in form P.D. 31, in a register to be
B
maintained by him in form P.D. 31-A. As and when refunds are
allowed by th.e 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 Com-
missioner concerned, on the copies of P.D. 31 statement received from
the exporters, and be initialled by the Assistant Excise Commissioner
after verification. c
Thus it is seen that though not specifically mentioning charging
up of differential export duty on excess wastage, the above rules defi-
nitely envisaged refund of excise duty of countervailing or equalising
nature.
D
Mr. Agarwal also brings to our notice R>ile 814 which substituted
the old Rule by the Excise Commissioner's Notification 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, E
evaporation or other unavoidable cause, or spirit trans-
ported 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 destination, both quantities being stated in terms F
bf 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 consignment
of spirit .has been gauged and proved at its destination G
shows that the wastage has occurred above the limit allow-
able the person executing the bond shall be liable to pay
duty on so much of the deficiency as in excess of the allo-
wance. The rate of dut;: leviable shall be the highest rate of
duty leviable on such spirit in this State.
H
178 SUPREME COURT REPORTS [ 1990] Supp. 2 S.C.R.
When the wastage does not exceed the prescribed
A
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 explanation of
the Distillers or the person executing the bond .and forward
B 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 Distillery 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
c 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 satisfied
D that the excess wastage in a consignment was on account of
an accident or other unavoidable cause but in otl:ier cases,
the matter shall be referred to the Excise Commissioner for
orders. Cases in which the Deputy Excise Commissioner
writes off duty shall be reported by him to the Excise
Commissioner.''
E
It is emphasised by Mr. Agarwal that this provision is meant to dis-
courage 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 imposi-
F tion 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 loss in transit. It said:
G "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 sub-
ject to the following maximum limits."
Limits were prescribed differently for wooden casks and metal vessels,
H keeping in mind the duration of transport.
STATE OF U.P. v. D.C.M. [SAIKIA, J.] 179
Thus, we find that the minimum limits of wastage in transit was
A
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: B
"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."
c
(The two provisos are not relevant for the purpose of this case)
Both the old and the new Rule 814 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 D
object of this ancient formula, 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 E
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 Constitutional limitations. F
In Mis. Mohan Meakin Breweries Ltd. v. Excise & Taxation
Commissioner, Chandigarh, reported in 1976 Suppl. SCR 510 : 1976 3
sec 421, the appellant company carried on the busine.ss of manufac-
ture, storage and sale of liquors. Between June, 1967 and April 1969,.
it transported various quantities of liquor from its distilleries in U.P. to G
its b:1nded 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 permissible
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 H
180 SUPREME COURT REPORTS [ 1990] Supp. 2 S.C.R.
A 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
B licensee should be liable to pay duty at the prescribed rate as if the
wastage in excess of the prescribed limit had actually been removed
from the Warehouse, and it was also provided that the Financial Com-
missioner could in his discretion on goods cause being shown remit the
whole or a part of the duty leviable on such wastage, and these provi-
sions were challenged. This Court held that the impugned rules did not
c impose any new duty or create any liability and that they were in
essence and substance of a regulatory character meant to guard agaimt
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 Piscal Rules of 1937." We agree with Mr. Agar-
0 wal thai 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 w_astage in
transit and to that extent did not result in export, the State would, in
the absence of reasonable explanation, have reason to presume that
E · 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.
F 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
G authorities and the consignments reached their destination with seals
inH1ct would not go to support the contention that the State Govern-
ment 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
H such concessional duty was paid did not reach its destination, and the
STATE OF U.P. v. D.C.M. [SAIKIA, J.] 181
shortage is shown as wastage in transit, it surely meant that the short
A,
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 B
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 con-
signee. In case countervailing duty has been paid on the entire
quantity 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 c
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 exporting State intact there
may not be any justification for demanding differential duty. That will D
of course be a question 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., reported in 1980Taxation
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 E
the impugned judgment in the instant case suffers from the same
infirmity, and has to be set aside. Rule 814 envisages the levy of sucn
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 uf the purposes for which lower duty was earlier
levied having failed to be achieved entailing liability to make good the F
difference. The Rules 636, 637-A and 637 are also relevant to this
extent.
Ifwas reiterated in M/s. Mc Dowell and Co. Ltd. v. C<Jmmercial
Tax Officer, Vll Circle, Hyderabad, [1977] I SCR 914: AIR 1977 SC
1459, following Abdul Kadir (supra) that excise duty is a duty on the G
producti'On or manufacture of goods produced or manufactured within
the country though laws are to be found which impose a duty of excise
at" stage~ 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 H
182 SUPREME COURT REPORTS [ 1990] Supp. 2 S.C.R.
A 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 rate so as to equalise the burden after taking into account
the cost of transport from the place of manufacturing to the taxing
B 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.
c
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
D 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 tu impose such a duty. The fact that the exported rum
was on payment of export duty or on bond would not again be material
E ·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 1t still
continued to be a duty on production or manufature of rum. It could
F 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 Sections 28 and 29 of the Act in Excise Commis-
G sioner, 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
H what transpires later is not foreign to excise law. Generally speaking
STATE OF U.P. v. D.C.M. ISAIKIA, J.] 183
the imposing of the differential duty i.e. charging up the duty on the A
report of the excess wastage is the opposite of the system of draw-
back 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 B
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 c
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 D
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. E
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. F
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