Supreme Court of India
STATE OF U.P. & ORS.versusM/S MOHAN MEAKIN BREWERIES LTD. & ANR.
- Citation
- 2011 INSC 710
- Decided
- 23 September 2011
- Disposal
- Disposed off
- Bench
- R V RAVEENDRAN
Holding
Beer becomes exigible to excise duty upon completion of fermentation (or after filtration for filtered beer), and the excess‑wastage calculation based on fermentation‑vessel stock with a 9% allowance is constitutionally and statutorily valid.
Summary
The State of Uttar Pradesh challenged M/s Mohan Meakin Breweries Ltd. for levying excise duty and additional duty on alleged excess manufacturing and bottling wastage of beer. The High Court had directed the State to recompute the stock of beer under Rule 53 of the UP Brewery Rules and Section 28A of the UP Excise Act, treating the point of duty liability as the stage when beer becomes a consumable beverage. The Supreme Court examined (i) the stage at which beer becomes exigible to excise duty and (ii) whether the method of measuring excess wastage using the quantity in fermentation vessels with a 9% allowance is lawful. It held that beer is exigible to duty upon completion of fermentation (and, for filtered beer, after filtration) and that the statutory procedure of basing the excess‑wastage calculation on fermentation‑vessel measurements is valid. Consequently, the Court allowed the State’s appeals (CA 4708‑4709) and dismissed the breweries’ appeals (CA 4710‑4713), setting aside the High Court’s order and dismissing the writ petitions.
Issues considered
- At what stage does beer become exigible to excise duty under the Uttar Pradesh Excise Act?
- Is the procedure adopted under Section 28A and Rule 53 of the Brewery Rules for ascertaining excess manufacturing wastage valid?
Legislation cited
- Constitution of Indias. Seventh Schedule, List II, Entry 51
- U.P. Bottling of Foreign Liquor Rules, 1969s. Rule 7
- U.P. Brewery Rules, 1961s. Rule 37, s. Rule 41, s. Rule 53
- Uttar Pradesh Excise Act, 1910s. 22a, s. 28, s. 28A, s. 29(e)(i), s. 3(10), s. 3(3a)
Subjects
excise dutybeermanufacturing wastageUttar Pradesh Excise ActSection 28Afermentationbottlinglegislative competenceEntry 51additional dutybrewery rules
Judgment
[2011) 14 (ADDL.) S.C.R. 98
A STATE OF U.P. & ORS.
V.
M/S MOHAN MEAKIN BREWERIES LTD. & ANR.
(Civil Appeal Nos. 4708-4709 of 2002)
SEPTEMBER 23, 2011
B
[R. V. RAVEENDRAN AND P. SATHASIVAM, JJ.]
Uttar Pradesh Excise Act, 1910:
c s.29(e)(i) - Beer - Excisablity of - Stage when the beer
manufactured is exigible to duty - Held: When the
fermentation process of wort is completed, it becomes an
alcoholic liquor for human consumption and there is no legal
impediment for subjecting beer to excise duty at that stage -
0 The State has legislative competence to levy excise duty on
beer either after the completion of the process of fermentation
.and filtration, or after fermentation - Excise laws - Liquor.
s. 28A - Imposition of additional duty - Excess
manufacturing wastage - Basis for determination - Held: The
E base measurement is taken in the fermentation vessel and
9% standard allowance is provided to cover losses on
account of evaporation, sul/age and other contingencies within
the Brewery- Uttar Pradesh Brewery Rules 1961 - r.53.
F Constitution of India, 1950:
Seventh Schedule, List II, Entry 51 - Held: Entry 51
should be read not only as authorizing the imposition of an
excise duty, but also as authorizing a provision which prevents
evasion of excise duty - To ensure that there is no evasion
G of excise duty in regard to manufacture of beer, the State is
entitled to make a provision to prevent evasion of excise duty,
though it is leviable at the stage of issue from the brewery -
Excise - Liquor.
H 98
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 99
BREWERIES LTD. & ANR.
LIQUOR: A
Beer - Process of Brewing - Discussed - Excise laws.
The instant appeals were filed ,by the State and the
Breweries. The appeals by the State related to imposition
of duty and additional duty on excess wastage in the B
brewery. The appeals by the Breweries related to
imposition of duty and additional duty on excess bottling
wastage.
By impugned order, the High Court had directed the C
state government to decide the revision afresh "after
calculating the stock of beer for the pur.pose of 1;ariginal
Rule 53 of UP Brewery,Rules 1961 (Para 912 of UP Excise
Manual as it then existed) and section 28-A of the UP
Excise Act, 'when after filtration the same has assumed o
the shape as a finished product which is normally
consumed by human beings as beverage or drink".. It
also held that the point at which the liquor manufactured
by the brewery is exigible to duty is at the stage, when
the beer is capable of being consumed by human beings E
as a beverage comes into existence and the deficiency
should be worked. out with reference to measurement at
such stage. The High Court rejected the procedure
adopted by the appellants· that the process of
manufacture is complete and the liquor becomes exigible
F
to duty when the wort along with the yeast is received in
the fermenting vessels and ferments and that is the stage
of ascertaining excess manufacturing wastage. (excess
deficiency).
The stand of the Brewery was that the wastage G
allowance was to be given, not with reference to the
quantity in the fermentation tank, but with reference to the
quantity in the storage/bottling tanks (after completion of
fermentation and filtration process) when the
manufacturing process is complete and only bottling H
100 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A remains; that the measurement should be taken only
when the manufacture is complete and not when it is still
in the process of manufacture; and the manufacture
process is completed not when the wort is in the
fermentation tank but only when the filtration process is
s finished.
The questions which arose for consideration in the
instant appeals were: At what stage does the. beer
manufactured is exigible to duty; and whether the
procedure adopted by the appellants for ascertainjng
C excess manufacturing wastage (excess deficiency) is
proper.
Disposing of the appeals, the Court
0 HELD: 1. The process of brewing beer involves
malting, mashing, boiling, fermentation, separation of
yeast from the beer, ageing and finishing. The fermented
alcoholic liquor that can be identified as 'beer' comes into
existence on completion of the process of fermentation.
E Ageing is carried out only in the manufacture of certain
types of beer, by storing beer in storage tanks for certain
period. Filtration removes the remaining yeast (the major
portion settles as sediment in the fermentation vats and
is removed as sullage) and then packed into barrels,
bottles or cans. The filtration, ageing and finishing are
F processes to remove impurities, improve the clarity, taste
and inc~ease shelf life. [Para 13] [121-C-E]
R. C. Jail Parsi vs. Union of India AIR 1962 SC 1281:
1962 Suppl. SCR 436; State of U.P. vs. Delhi Cloth Mills
G 1991 (1) SCC 454: 1990 (2) Suppl. SCR 168 - referred to.
Encyclopedia ~ritannica (15th Edition, Vol.14, Page
739); Wikipedia (http://en.wikipedia. org/wiki/Beer) -
referred to.
H
'.
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 101
BREWERIES LTD. & ANR.
Re: Question No. (i) A
2. The words 'received in the bottling tank' obviously
referred to beer being received in any container or vessel
for storage, after fermentation and filtration. It may
however be noted that the said observation that beer is
8
exigible to excise duty only when it passes through the
fine filter press would apply only to the standard types
of beer which is sold in bottles and cans. Beer is also
supplied in casks and barrels, taken directly from
fermentation vessels without undergoing any filtration or
further processing, known as Draught (or Draft) beer. C
Such beer is unpasteurized and unfiltered (or even if
filtered, only in a limited manner and not fine filtered like
beer intended to be sold in bottles or cans). Para 29 of
Excise Manual (Vol.V Chapter XI) notes that
uncarbonated top fe.rmentation beer, which include D
draught beer are racked directly from the fermenting
vessel. Thus when the fermentation process of wort is
completed, it becomes an alcoholic liquor for human
consumption and there is no legal impediment for
subjecting beer to excise duty at that stage. Therefore, E
the State has legislative competence to levy excise duty
on beer either after the completion of the process of
fermentation and filtration, or after fermentation. Section
29 (e)(i) of the U.P. Excise Act, 1910 makes it clear that in
the case of beer manufactured in a brewery, excise duty F
may be levied, by a rate charged upon the quantity
produced or issued from the brewery or issued from a
warehouse. This means that in respect of beer that
undergoes the process of filtration, the exigibility to
excise duty will occur either at the end of filtration. G
process when it is received in storage/bottling tanks or '.
when it Is issued from the brewery. In regard to draught
beer drawn directly from fermentation vessels, without
further processing or filtration, the exigibility to excise
duty will occur either at the end of fermentation process H
102 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A or when it is issued from the brewery. [Paras 22, 23) [133-
A-H]
Synthetics and Chemicals Ltd & Ors. vs. State of U.P. &
Ors. 1990 (1) SCC 109: 1989 {1) Suppl. SCR 623; State of
B · U.P. vs. Modi Distillery & Ors. 1995 (5) SCC 753: 1995 (3)
Suppl. SCR 119; Government of Haryana vs. Haryana
Breweries Ltd. & Anr. 2002 (4) SCC 547: 2002 (1) SCR 942
-- relied on.
Question No.(ii)
c
3.1. Entry 51 of List II of Seventh Schedule of the
Constitution of India should be read not only as
authorizing the imposition of an excise duty, but also as
authorizing a provision which prevents evasion of excise
0 duty. To ensure that there is no evasion of excise duty
in regard to any beer manufactured, the State is entitled
to make a provision to prevent evasion of excise duty,
though it is leviable at the stage of issue from the
brewery. The beer brewing process shows that once the
E wort ferments, it becomes consumable, though the
manufacturing process to have a finished product may
in some cases require filtration, aging carbonization etc.
To ensure that there is no t:vasion of excise duty by
diversion of beer (excisable article) before it becomes a
finished product, section 28A of the Act. has been
F enacted and that is implemented by Rule 53 of the
Brewery Rules, and Rule 7 of the Bottling Rules. The
Excise Inspector in-charge is required to take physical
stock of the beer in hand in the brewery periodically
(once a quarter prior to the amendment of 1975 and once
G in a month from July 1975) by dip and gravity of the
quantities in the fermentation vessels. Recourse to
section 28A of the Act will be held only when there is
abnormal deficiency or shortage in the actual quantity in
the brewery when compared to the quantity mentioned
·~ in the stock account, that is more than 9%, which would
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 103
BREWERIES LTD. & ANR.
show evasion of excise duty. The standard procedure of A
levying excise duty is not on the quantity of excisable
article in the fermentation vessels. The standard
procedure is to levy excise duty when the beer is
removed from the brewery. The State was thus collecting
excise duty in the usual course with reference to the beer B
after the entire manufacturing process was completed
when it is removed from the brewery. It resorted to
section 28A, Rule 53 of Brewery Rules and Rule 7 of
J3ottling Rules and levied double the amount of excise
duty (excise duty plus equal amount as additional duty) c
only in those months when the periodic examination
showed excessive manufacturing 'wastage'. The
procedure adopted was the most logical process to
ensure that excisable articles were not clandestinely
removed and to ensure that there is no evasion of excise
0
duty having regard to the brewing procedure. If the actual
stock assessed is less than the stock as per Stock
Account and the difference is less than S%, ~he difference
was ignored. Only if the difference exceeded 9%, the
quantity in excess of 9% was treated as the excess E
wastage and excise duty and an equal amount as
additional duty was charged in regard to such excess.
For this purpose necessarily the quantity in the
fermentation vessels had to be considered. If the quantity ·
in the bottling tanks are to be taken as the basis, then
there will be no way of finding out whether there was any F
siphoning off from the fermentation vessel or during
filtration process. Fermented wort is beer and it could be
removed from fermenting vessels or during storage or
filtration. Therefore, the base measurement is taken in the
fermentation vessel and 9% standard allowance is G
provided to cover losses on account of sullage etc.
[Paras 26, 28, 29] [134-B; 136-A-D; 137-C-H; 138-A·B]
3.2. The Act provides that levy of excise duty on beer ·
can not only be with reference to the quantity produced
H
104 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A and issued from a brewery, but can also be by calculating
the quantity of materials used or by the degree of
attenuation of the wash or wort, as the case may be, as
the State Government may prescribe. This means the
excise duty on the beer manufactured can be levied not
s only with reference to the actual quantity issued or
removed, but can also be by a rate charged in
accordance with a scale of equivalent, calculated on the
quantity of materials used or by the degree of attenuation
of the wash or wort prescribed by the State Government.
c The said alternative method of levying excise duty does
not depend upon the actual quantity manufactured or
issued. It is with reference to the deemed quantity
manufactured rather than the actual quantity
manufactured. Such a procedure has been in vogue in
England and it is permissible in India. Rule 42 of Chapter
0
XI of the Excise Manual (Vol. 5) gives a detailed
description of the attenuation method of charging duty
on beer. Therefore there is nothing wrong in adopting the
procedure prescribed in section 28A and Rule 53 of
Brewery Rules to determine the excess manufacturing
E wastage. [paras 30, 31] [138-C-E; 143-C]
3.3. When manufacturing process is complete and
the beer has reached storage/bottling tanks, there is no
question of any manufacturing loss. The allowance of 9%
F is made to cover loss due to evaporation, sullage and
other contingencies within the brewery. 9% is allowed as
loss in quantity because the quantity in fermentation tank
is measured and taken as the base and thereafter the
sullage/yeast heads are removed as sediment in the
G fermentation \iessels or by the filtration process and there
will also be certain amount of evaporation during the
process of filtration, racking and storage etc. If the
quantity measured after the fermentation and filtration
processes should be the base ·figure, for purpose of
allowance to cover loss on account of sullage,
H evaporation etc., there will be no need for granting any
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 105
BREWERIES LTD. & ANR.
allowance because once it have passed the filtration A
stage the sullage and other impurities has been removed
and the beer is ready for being filled in barrels, casks or
bottles. The 9% allowance is for the wastages occurring
during the stages of fermentation and filtration and not
in regard to the stages between storage after filtration B
and removal. The Brewery has virtually mixed up the.
issue relating to the question as to when beer is exigible
to excise duty with the question as to the quantity on
which the allowance of 9% should be granted. A
combined reading of rules 37 and 53 of Breweries Rules, c
with or without section 28A make it clear that the
allowance of 9% as losses in the brewery (10% as losses
'in the course of manufacture in the brewery prior to 1975)
is with reference to the quantity in the fermentation tank
and not with reference to the quantity of beer in the 0
storage/bottling tanks after filtration. A large allowance up
to 9% of the total stock of beer has been provided
towards wastage, only to cover the loss occurring from
fermentation stage to post-filtration stage, as the quantity
has been calculated with reference to the fermentation E
vats and there will be considerable wastage due to
sullage and evaporation. Rules 37 and 53 of the
Breweries Rules (paras 896 and 912 of the Excise
Manual) also proceeded on that basis that the
measurement would be with reference to the quantities
in the fermentation vessels taken by dip and gravity F
method. If the quantity measured in the storage/bottling
tanks (after filtration) should form the basis, there was no
occasion or need for making a huge allowance of 9% for
sullage, evaporation and other contingences, as there
· would be no sullage, evaporation or other wastages after G
that stage (that is completion of manufacture) and the
allowance under Section 28-A of the Act will become
redundant, except for the small percentage provided for
wastage during bottling and storage. [Paras 32-34, 36]
(142-D-H; 143-A-D-H; 144-A, D-E; 146-D] H
106 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A 3.4. When the quantity of the liquid in the
fermentation vessels were measured, on account of
fermentation, the liquid was already in the process of
conversion into an 'alcoholic liquor for human
consumption', though had not become a finished product
s of beer. Therefore, the principles in Baldev Singh _and A.
Sanyasi Rao, will apply and not the decision in Modi
Distillery. Therefore we hold that there is no infirmity in
the method adopted by the excise department to arrive
at the excess wastage or in making a demand for excise
c duty and additional duty in regard to such excess
wastage. [para 37] [147-E-F]
Ba/deo Singh vs. CIT 1961 (1) SCR 482; Union of India
vs. A. Sanyasi Rao and others 1996 (3) SCC 465: 1996 (2)
SCR 570 - relied on.
D
State of U.P. vs. Modi Distillery & Ors. 1995 (5) SCC 753:
1995 (3) Suppl. SCR 119 - held inapplicable.
4. In the appeals relating to demands made upon the
breweries for duty on excess wastage in bottling and
E storage of beer, the appellant breweries were holding
bottling licences in form No.FL3 to bottle beer, governed
by the U.P. Bottling of Foreign Liquor Rules, 1969. Rule
6 provides that every licence granted in Form No. FL3
shall be subject to the conditions enumerated therein.
F Rule 7 enumerates the additional special conditions
applicable to bottling of India made liquor in bond under
FL3 licence. Rule 53 of Brewery Rules made in 1961 (para
912 of the Excise manual) before the amendment on
19.7.1975 provided for allowance of a deficiency not
G exceeding 10% to cover losses in bulk due to
evaporation, sullage and other contingencies within the
brewery. At that time a separate licence for bottling was
not contemplated. The Bottling Rules made in 1969
provided for an allowance of one percent loss in bottling
H and storage. On 19.7.1975, Rule 53 (para 912 of Excise
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 107
BREWERIES LTD. & ANR.
manual) was substituted and the allowance to cover A
losses due to evaporation, sullage and other
contingencies within the brewery was reduced to 9% in
view of the provision in the Bottling Rules providing for
an allowance of one percent for losses in bottling and
storage. Section 28A was inserted by U.P. Act 9 of 1978 B
(with a provision that the section shall be deemed always
to have been inserted) providing for an allowance to a
total extent of 10% in regard to losses within the brewery
and the losses in bottling and storage. It is not in dispute
that the process of brewing beer and the process of C
bottling beer are considered to be distinct and separate
processes governed respectively by the Brewery Rules
and Bottling Rules. The operations connected with
bottling are required to be conducted in a separate
premises under a different licence. The process of
bottling begins with the transfer of bulk beer from the D
brewery for bottling. Sub-section (2) of section 28A refers
to an allowance to an extent of 10% not only in regard to
losses within the brewery but also to cover losses in
bottling and storage. Rule 53 of the Brewery Rules and
Rule 7(11) of the Bottling Rules when read conjointly E
show that the said rules are supplementary to each other
and together implement section 28A of the Act. At all
events, the validity of neither Rule 53 .of Brewery Rules
nor Rule 7(H) of Bottling Rules is under challenge. The
brewery having obtained the bottling licence subject to F
the special conditions which include the condition in Rule
7(11) of the Bottling Rules, cannot ignore the said Rule
and contend that the allowance for losses in bottling
could be more than one percent, that is upto ten per cent.
In view of that, there is no merit in the contention of the. G
breweries that they are entitled to allowance of ten per
cent towards losses in bottling and storage after the
excisable article has left the Brewery. [Paras 39, 40, 42,
43] [148-B; 15o":B-C; 151-H; 152-A-H; 153-A]
H
108 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A Mohan Meakin Ltd. v. Excise & Taxation Commissioner,
H.P. 1997 (2) sec 193: 1996 (9} Suppl. SCR 258 - relied
on.
Case Law Reference:
B 1962 Suppl. SCR 436 referred to Para 16
1989 (1) Suppl. SCR 623 relied on Paras 17, 21
1990 (2) Suppl. SCR 168 referred to Para 18
1996 (9) Suppl. SCR 258 relied on Para 19, 22
c
2002 (1) SCR 942 relied on Para 20, 21, 31
1995 (3) Suppl. SCR 119 referred to Para 21
1961 (1) SCR 482 relied on Para 26
D
1996 (2) SCR 570 relied on Para 27
1995 (3) Suppl. SCR 119 held inapplicable Para 37
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
E 4708-4709 of 2002.
From the Judgment and Order dated 15.03.2002 of the
High Court of Judicature at Allahabad in C.M.W.P. Nos. 3968
and 4043 of 1978.
F Dinesh Dwivedi, H.N. Salve, Salman Khurshid, Rakesh
Kumar Khanna, Ravi Prakash Mehrotra, Garvesh Kabra, Dr.
Rashmi Khanna, Surya Kant, Suruchi Aggarwal, Riteesh Singh,
Jhanvi Woraha, Pranav Vyas arid Faizy Ahmad Syed for the
appearing parties.
G The Judgment of the Court was delivered by
R.V. RAVEENDRAN J. 1. Civil Apf'eal Nos.4708-4709
of 2002 are filed by the State of Uttar Pradesh aggrieved by
the common order dated 15.3.2002 of the Allahabad High
H
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 109
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
Court allowing CMWP No.3968of1978 and CMWP No.4043 A
of 1978 filed by two Breweries. Civil Appeal Nos.4710, 4711,
4712 and 4713 of 2002 are filed by the Breweries aggrieved
by the said common order dated 15.3.2002, dismissing their
writ petitions - CMWP Nos.1375 of 1978, 3690 of 1979, 4136/ ·
1978 and 4157 /1978. The appeals by the state relate to B
imposition of duty and additional duty on excess .wastage in the
brewery. The appeals by the Breweries relate to imposition of
1duty and additional duty on excess bottling wastage.
Civil Appeal No.4708 of 2002
c
2. The first respondent (for short the 'Brewery') held a
Brewery Licence issued under section 18(c) of the Uttar
Pradesh Excise Act, 1910 ('Act' for short) in Form-B1 and a
Bottling Licence for bottling liquor for sale issued under section
17(1 )(d) of the Act in Form FL-3. The Brewery was carrying on D
the manufacturing of beer and bottling of beer in bond, under
the said licences.
3. The Excise Inspector in-charge of the Brewery maintains
a Register of manufacture and issue of beer in Form B-16. The E
Excise Inspector is required to examine the accounts of the
brewery and take stock of the beer in hand in the brewery, on
the last working day of every calendar month (prior to 19.7.1975,
such examination was required to be done at the end of each
quarter) after all the issues for that day are made. If he found F
that the. actual quantity of beer in stock in the brewery was, less
than the quantity shown in the stock account, but the deficiency
did not exceed 9%, he had to disregard the same as allowance
upto 9% was permitted to cover the losses due to evaporation,
sullage and other contingencies. But where the deficiency
exceeded 9%, he was required to enquire into the cause and G
submit a report of the result to the Excise Commissioner in that
behaif. The Excise Inspector in-charge, was accordingly
sending reports to the Excise Commissioner whenever there
was excess we.stage in the case of the first respondent brewery.
The Excise Commissioner issued show-cause notice giving H
110 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A opportunity to the Brewery to explain the excess wastage. After
considering the explanation, the Excise Commissioner found
that there was no satisfactory explanation and made ten orders
between 26/28.6.1966 and 24.11.1973 in regard to excess
'manufacturing wastage' during the period September, 1963
B to March, 1973, and levied and demanded in all '81,94,310/-
as excise duty and an equal amount as additional duty in regard
to the deficiency in excess of 9% of the total stock of beer (10%
prior to 19.7.1975). The said orders were challenged by the first
respondent by filing a revision before the state government. The
c state government by order dated 12.4.1978 dismissed the
revision petition and upheld the demands by the Excise
Commissioner.
4. The first respondent challenged the orders of the Excise
Commissioner and the state government in Civil Misc. Writ
D Petition No.3968 of 1978. A Division Bench of the High Court
allowed the said writ petition with other connected petitions by
a common order dated 15.3.2002. It quashed the revision order
dated 12.4.1978 and directed the state government to decide
the revision afresh "after calculating the stock of beer for the
E purpose of original Rule 53 of UP Brewery Rules 1961 (Para
912 of UP Excise Manual as it then existed) and section 28-A
of the UP Excise Act, when after filtration the same has
assumed the shape as a finished product which is normally
consumed by human beings as beverage or drink". In short the
F High Court has held that the point at which the liquor
manufactured by the brewery was exigible to duty was at the
stage, when the beer is capable of being consumed by human
beings as a beverage, comes into existence and the deficiency
should be worked out with reference to measurement at such
G stage. The High Court rejected the contention of the appellants
that as soon as wort along with yeast is received in the
fermenting vessels and ferments, the process of manufacture
is complete. Feeling aggrieved by the decision of the High
Court, the appellant has filed this appeal.
H
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 111
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
Contention of Parties A
5. The State contends that the liquor becomes exigible to
duty when the wort (processed extract of malt) along with yeast
· is received in the fermenting vessels and ferments. It is
contended that as the wort is placed in the fermentation tanks
8
and the yeast is added to it, fermentation starts immediately
with the conversion of sugar into alcohol. After the addition of
yeast when alcohol is first formed, the liquid in the. ferr.1entation
tank becomes alcoholic liquor for human consumption. It is
pointed out that Entry 51 of List II of Seventh Schedule uses
the words "alcoholic liquor for human consumption" and not C
"alcoholic liquor fit for human consumption" and therefore, beer
is 'manufactured' when the fermenting agents are added to the
wort and fermentation process commences. The State
contended that excise duty is leviable on the manufacture and
production of goods; and that the stage at which it should be D
imposed, the manner of collection thereof and the rate at which
it is to be imposed, are matters within the discretion of the
State. It is lastly submitted that the power to impose a tax or
duty implicitly carries with it the power to provide against
evasion thereof. It is submitted that what is in issue is not levy E
of excise duty, but the validity of measures introduced to identify
the unauthorised or illegal diversion of beer resulting in evasion
of excise duty.
6. The case of the state government as put forth in the F
counter affidavit to the writ petition is extracted thus: VVort is
passed into the fermentation vat and fermenting yeast are
added to the wort by a simultaneous process. As soon as the
wort along with yeast is received in the fermenting vessels or
fermenting vat, it ferments and process of manufacture of beer
is complete. It is gauged to find out its quantity and this quantity G
is entered in the resister in Form B-4. In the said register in
Form-84 the dip and gravity of the wort is taken. As
fermentation starts simultaneously the quantity determined by
dip and gravity is taken to be beer produced. On the register
in Form B-4 the Brewers put in their initials. It is denied that H
112 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A process of manufacture of beer ends when sullage and yeast
calls are removed by filtration. In fact quantity of yeast and
sullage filtered out may vary frorn one filtration to another in
different process. Even after filter beer contains both some
yeast and sullage and petitioner cannot say that he is only
B entitled to pay excise duty on such quantity after excluding all
such yeast and sullage. The filtration is only a process to make
it more marketable in this competitive business but could not
be part of manufacture. The event of excisable article going into
human consumption has no connection with the taxable event
c in the case of excise duty and excise duty is imposed at the
stage of manufacture of goods and not at the stage of excisable
article going into human consumption.
7. The Brewery contended that the stage for levy and
realisation of excise duty on beer was the stage of issue of beer
0 from the brewery/bottling bonded warehouse after complying
with the statutory provisions and regulations prescribed for
bottling and issue for sale. It was submitted that no excise duty
could be imposed prior to the stage of occurrence of the
excisable event, namely the issue of beer from the brewery/
E bottling bonded warehouse for sale and human consumption.
Alternatively, it was submitted that beer manufactured was
exigible to duty at the time or stage when the finished product
(bee') is received in the storage/bottling tanks, after filtration
and not at any earlier stage of manufacturing process. It is
F submitted that the system of collection of excise duty on beer,
does not permit levy or realisation of any amount by way of
excise duty or fine on the quantity of beer which is wasted in
the manufacturing process before it become exigible to excise
duty. It is contended that the legislative competence to levy
G excise duty under Entry 51 (a) of List II of Seventh Schedule to
Constitution of India is with reference to 'alcoholic liquors for
human consumption'. As the wort solution cannot be described
as alcoholic liquor for human consumption at the stage of
fermentation and filtration, the state government cannot levy any
H excise duty or additional duty equal to excise duty, in regard to
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 113
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
wastage which occurs with reference a material which is not A
'alcoholic liquor for human consumption'. It is contended that
the levy of excise duty/additional duty by the Excise
Commissioner was on the deficiency, that is, the difference
between the quantities of wort and finished product (beer),
which comprises of the scum, yeast cells brought on top ·of B
fermenting wort, carbon-di-oxide evolved, sullage etc., settled
at the bottom of vats which impurities are to be eliminated
before beer could be said to be manufactured or could be
described as an alcoholic liquor for human consumption. It is
contended that the Excise authorities had calculated the c
deficiency in the stock of beer in a wrong manner; and that
while taking stock of beer in the brewery, for the purpose of
calculating the allowance the authorities have taken the product
at an intermediate stage in the process of manufacture instead
of taking stock of the finished product. o
8. The relevant contentions of the Brewery in the writ
petition are extracted below :
(i) The process of manufacturing beer ends when the
sullage and yeast cells are removed by filtration and E
fermentation ceases and the manufactured bulk beer is ready
to be transferred : (a) for bottling in bond; and (b) to casks for
sale and human consumption as draught beer. [Vide para 8
of the WP].
F
(ii) The method adopted by the Excise department in
working out the deficiency in stock is erroneous. What was
required under paragraph 912 of Excise Manual was to
compare the stock of manufactured beer as mentioned in the
stock account of beer and the actual stock of beer giving
allowance for the quantity issued. What has been done in the G
instant case is to assume certain quantity as part of the stock
account of beer which was not beer and was undergoing the
process of manufacture into beer. Similarly the quantity of beer
issued from the Brewery has not been taken in its entirety to
be the quantity of beer issued. The quantity issued has been . H
114 SUPREME COURT REPORTS [2011) 14 (ADDL.) S.C.R.
A equated with the quantity actually bottled with the result that the
quantity of beer which has been wasted in the process of
bottling has been treated to be part of the stock of beer in the
beer account. [Vide para 61]
(iii) If the quantity of beer which is actually issued for bottling
8
from the brewery is taken into account in its entirety for purposes
of the stock account, the percentage of deficiency between the
stock account of beer and the actual quantity of beer found on
physical verification will be below 10% [Vide para 63].
C (iv) What is being subjected to the levy of penalty or penal
duty before becoming a manufactured saleable article is the
deficiency between the wort and the finished beer for sale,
comprising of scum and yeast cells brought on top of fermenting
wort, carbon dioxide evolved, sullage etc. settled at the bottom
D of vats which impurities have to be eliminated etc. before beer
could become saleable. Thus what has not come to exist as
such saleable goods cannot be termed as excisable article.
[Vide para 93(b))"
Questions for consideration
E
9. On the contentions urged, the following two questions
arise for our consideration:
(i) At what stage does the beer manufactured is
F exigible to duty?
(ii) Whether the procedure adopted by the appellants
for ascertaining excess manufacturing wastage
(excess deficiency) is proper?
G To appreciate these issues and find answers to the questions,
it is necessary to refer to the process of manufacture of beer,
the relevant provisions of the UP Excise Act, 1910 (For short
'the Act') and the relevant Brewery Rules.
H
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 115
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
Process of manufacture of Beer A
10. Encyclopaedia Britannica (15th Edition, Vol.14, Page
739) describes the stages of brewing process thus :
"Beer production involves malting, milling, mashing, extract
separation, hop addition and boiling, removal of hops and B
precipitates, cooling and aeration, fermentation, separation
of yeast from young beer, aging, maturing, and packaging.
The object of the entire process is to convert grain starches
to sugar, extract it with water, and then ferment it with yeast
to produce the alcoholic, lightly carbonated beverage." C
As the description of the brewing process given in
Encyclopaedia Britannica is detailed and very lengthy, we have
opted for the following shorter and simpler description of the
brewing process given in Wikipedia (http://en.wikipedia. org/ d
wiki/Beer) which is in consonance with what is stated in
Encyclopaedia Britannica :
"The process of making beer is known as brewing. A
dedicated building for the making of beer is called a
brewery ...... The purpose of brewing is to convert the E
starch source into a sugary liquid called wort and to convert
the wort into the alcoholic beverage known as beer in a
fermentation process effected by yeast.
The first step, where the wort is prepared by mixing the F
starch source (normally malted barley) with hot water, is
known as "mashing". Hot water (known as "liquor" in
brewing terms) is mixed with crushed malt or malts (known
as "grist") in a mash tun. The mashing process takes
around 1 to 2 hours, during which the starches are G
converted to sugars, and then the sweet wort is drained
off the grains. The grains are now washed in a process
known as "sparging". This washing allows the. brewer to
gather as much of the fermentable liquid from the grains
.as possible. The process of filtering the spent grain from H
116 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A the wort and sparge water is called wort separation. The
traditional process for wort separation is lautering, in which
the grain bed itself serves as the filter medium. Some
modern breweries prefer the use of filter frames which
allow a more finely ground grist. Most modern breweries
B use a continuous sparge, collecting the original wort and
the sparge water together. However, it is possible to collect
a second or even third wash with the not quite spent grains
as separate batches. Each run would produce a weaker
wort and thus a weaker beer. This process is known as
c second (and third) runnings.
The sweet wort collected from sparging is put into a kettle,
or "copper", (so called because these vessels were
traditionally made from copper) and boiled, usually for
about one hour. During boiling, water in the wort
D evaporates, but the sugars and other components of the
wort remain; this allows more efficient use of the starch
sources in the beer. Boiling also destroys any remaining
enzymes left over from the mashing stage. Hops are
added during boiling as a source of bitterness, flavour and
E aroma. Hops may be added at more than one point during
the boil. The longer the hops are boiled, the more bitterness
they contribute, but the less hop flavour and aroma remains
in the beer.
F After boiling, the hopped wort is now cooled, ready for the
yeast. In some breweries, the hopped wort may pass
through a h,opback, which is a small vat filled with hops, to
add aromatic hop flavouring and to act as a filter; but
usually the hopped wort is simply cooled for the fermenter,
where the yeast is added. During fermentation, the wort
G
becomes beer in a process which requires a week to
months depending on the type of yeast and strength of the
be.er. In addition to producing alcohol, fine particulate
matter suspended in the wort settles during fermentation.
Once fermentation is complete, the yeast also settles,
H
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 117
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
leaving the beer clear. A
Fermentation is sometimes carried out in two stages,
primary and secondary. Once most of the alcohol has
been produced during primary fermentation, the beer is
transferred to a new vessel and allowed a period of B
secondary fermentation. Secondary fermentation is used
when the beer requires long storage before packageing
or greater clarity. When the beer has fermented, it is
packaged either into casks for cask ale or kegs, aluminium
cans, or bottles for other sorts of beer."
c
11. We may next extract the definition of beer, stages of
manufacture of beer, and the fermentation process described
in Chapter XI (Brewing) from UP Excise Manual (Volume-V) :
"Beer defio_ed - The term 'beer' as used in the Indian o
Excise Law, refers to 'fermented, undistilled liquors, of
which malt is the primary base, and are flavoured with a
wholesome bitter usually hops'. Beer therefore includes
ale, beer, black beer, porter, stout, etc., and the precise
manufacture of these products is termed "brewing".
E
Lager beers - The beers mentioned above are prepared
by what is known as a 'top fermentation process; the
yeasts employed are designated 'top yeasts and the
products 'top fermentation beers'. In contradistinction to the
above, lager beers -are prepared by employing 'bottom F
yeasts' and the process is termed 'bottom fermentation'.
'Barley - The fermenting raw material commonly used in
production of beers are (a) Barley, (b) Barley Malt (or Malt),
(c) other unmalted cereals such as maize or rice, which G
are employed as grits, broken rice or flakes and maize
starch, (d) sugars derived almost exclusively from
sugarcane and maize starch, such as, cane sugar, invert,
etc. The latter two viz,. (c) and (d) are known as 'malt
adjuncts' as they partially replace the malt.
H
118 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A Manufacture of beer may be considered under the
following five stages :
(a) Preparation of the malt from Barley.
(b) Infusion of the ground malt or 'grist' and straining
B the resultant extract or wort.
(c) Boiling the wort with hops or other bitters, straining
of the hops and cooling.
(d) Fermenting the wort.
c
(e) Settling, Racking, cellar treatment and bottling.
Fermentation
Unlike Whisky fermentation, fermentation of beer is
D
conducted in England by employing top fermentation yeast
and the different systems only differ in the flocculation and
attenuating power of the yeast employed, while in bottom
fermentation breweries producing larger beers. The yeast
is generally mixed with a small quantity of wort at 65 F and
E
poured into the incoming wort, or if the yeast required in
vogorating, it is allowed to come into·active fermentation
before addition to the fermenting vessel. Yeast food, if any
is needed is in a few hours is at its height as can be seen
by the maximum temperature reached and is allowed to
F continue for 5 to 8 days.
The following description of the practice in India is of
interest:
Pitching of the wort - The fermentation vats usually have
G
a capacity of 3,000 gallons, which is equivalent to 140
bushels of malt (having a sugar content of 40 per cent).
The cooled hopped wort from the malt is mixed at this
stage with 300 lb. of sugar and Yz lb. of ammonium
sulphate followed by 60 lb. of yeast in suspension
H
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 119
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
(containing 85 per cent moisture) and allowed to ferment A
for 5-6 days. The peak of the fermentation is reached in
36 hours. At the end of the fermentation, the vats are slowly
aerated by 'Sterilized air'. Fermentation of beer is
conducted by employing top fermentation yeast. This and
the atmosphere of CO on the top of the vat prevent any B
bacteria gaining access to the beer. The fermentation is
carried on until the gravity of the wort falls down to 1.042,
when the wort is run off into fining vessels so as to settle
and clarify. Throughout the fermenting stage the
temperature of the wort is regulated by coils of piping called c
at temperature through which cold water is passed.
Fermentation of lager beers. - Bottom fermentation
processes used for lager beer differ from top fermentation
adopted for ales in that the temperature ranges between
41 degree Fahrenheit and 56 degree Fahrenheit, while the D
yeast settles as a firm black cover at the bottom of the
fermenting vessel. The primary fermentation also lasts for
7 to days at the higher temperature or 12 to 14 days at
lower temperatures as the rate of fermentation is
considerably slower than in top fermentation systems. E
Bottom fermentation beer is usually lagered or stored for
periods varying from 1 to 9 months (generaliy 6 to 8
weeks) after this primary fermentation during which slow
changes called 'maturation' occur and this gives the name
to the beer. Fermentation in the storage stage is due to F
primary yeasts carried down with the beer from the
fermenting vessel.
Gasing, Racking and Bottling - Although lager beer is
ultimately filtered before racking into casks, clarification is G
an essential function of the storage.
Uncarbonated top fermentation beers, which include the
bulk of British draught ales are either racked directly from
the fermenting vessel or settling back to which they are run
down from Fermenting vessels. The settling back provides H
120 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A a means of further clarification by sedimentation during 2
to 12 hours. This is also used for addition of primings,
colourings and sometimes finings though these are
sometimes added to individual casks. The beer loses
carbon dioxide and gets aerated. Dry hops are also
B sometime added to the settling backs. Racking in cylinders
and counter pressure racking is also followed."
12. The first respondent describes (in Annexure-1 to the writ
petition) the process of manufacturing beer in its brewery thus:
c "The Process of Manufacturing of Beer - Coarsely
crushed barley malt termed "grist" added with cooked
maize and rice clakes is boiled at a specific temperature
in treated water in the vessel called mashtun by which the
starches present in the grain are converted into sugars. The
D extract from the grain called wort is drawn into another
vessel called 'copper' to which ~ops flowers and sugar is
added and boiled with the purpose of sterilizing the wort,
separating wastable proteins in the form of precipitate,
dissolving bittering constitutents of hops and imparting
E aromatic flavour of hops flowers. The spent hops are
separated from the boiled wort which is cooled and
passed into fermentation vats.
Brewers yeast is "pitched" to initiate fermentation. The
fermentation is carried on at low temperature. Lot of
F
frothing takes place, the yeast cells multiply and bri'l.Q up
dirty heads with resins of hops etc., at the top which are
cleared out, the convertible sugars are decomposed into
alcohol and carbon dioxide gas; the hanging particles in
the wort settled down with coagulated albuminous
G substances and yeast cells during the process of
fermentation which is carried on for 8 to 10 days.
The fermented wort is racked into settling tanks or storage
tanks leaving the sullage or sludge at the bottom of
H fermentation vats. At this stage also (i.e. in storage vats)
STATE OF U.P. & ORS. v. M/S MOHAN -MEAKIN 121
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
some yeast cells are present in the fermented wort and · A
secondary fermentation takes place besides some
residuary particles in the bulk of fermented wort settling at
the bottom of the storage vats.
To eliminate secondary fermentation and haze from this, B
it is passed through filter machines in which 100 to 150
filter sheets are fixed. The filterate is transferred to bottling
tanks for bottling beer in a separate bonded warehouse,
which is carried on under the supervision of the officer-in-
charge of the warehouse."
c
13. It is thus evident that the process of brewing beer
involves malting, mashing, boiling, fermentation, separation of
yeast from the beer: ageing and finishing. The fermented
alcoholic liquor that can be identified as 'beer' comes into
existence on completion of the process of fermentation. Ageing D
is carried out only in the manufacture of certain types of beer,
by storing beer in storage tanks for certaip period. Filtration
removes the remaining yeast (the major portion settles as
sediment in the fermentation vats.and is removed as sullage)
and then packed into barrels, bottles or cans. The filtration, E
ageing and finishing are processes to remove impurities,
improve the clarity, taste and increase shelf life.
Retevant provisions of the Act ·and the Rules
14. The relevant provisions of the UP Excise Act, 1910 are F
extracted below :
"Section 3 (3a). "Excise duty" and "countervailing duty"
means any such excise duty or countervailing duty, as the
case may be, as is mentioned Entry 51 of List II in the G
Seventh Schedule to the Constitution;
Section 3 (10). "Beer" includes ale, stout, porter and all
other fermented liquor made from malt;
Section 3 (22a). "Excisable article" means - (a) any ' H
122 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A alcoholic liquor for human consumption; or (b). any
intoxicating drug;
Section 28 Duty on excisable articles-(1) An excise duty
or a countervailing duty, as the case may be, at such rate
or rates as the State Government shall direct, may be
B
imposed, either generally or for any specified local area,
on any excisable article-
(a) imported in accordance with the provisions of
Section 12 (1); or
c
(b) experted in accordance with the provisions of
Section 13; or
(c) transported; or
D (d) manufactured, cultivated or collected under any
licence granted under Section 17; or
(e) manufactured in any distillery established or any
distillery or brewery licensed, under Section 18:
E
xxxxxx
Section 28A - Imposition of additional duty in certain
cases - (1) Where the quantity of spirit or beer in a brewery
is found, on examination by such officer of the Excise
F Department as may be authorised by the Excise
Commissioner in this behalf to exceed the quantity in hand
as shown in the stock account, the brewery shall be liable
to pay duty on such excess at the ordinary rates fixed under
Section 28.
G
(2) Where the quantity of spirit or beer is less than that
shown in the stock account on such examination and
deficiency exceeds ten per cent; (allowance to that_ extent
being made to cover losses due to evaporation, sullage
and other contingencies within the brewery, and also to
H cover loss in bottling and storage) the Excise
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 123
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
Commissioner shall l~vy an additional duty at the rate of A
one hundred per cent of ordinary rates of duty in respect
of such deficit as exceeds ten per cent over and above
the ordinary rates of duty."
Section 29. Manner in which duty may be levied - 8
Subject to Such rules, as the Excise Commissioner may
prescribe to regulate to the time, place and manner of
payment, such duty may be levied in one or more of the
following ways as the State Government may by
notification direct:
c
(a) to (d) ... (omitted as not relevant)
(e) in the case of spirit or beer manufactured in any distillery
established or any distillery or brewery licensed under
Section 18 - o
(i) by a rate charged upon the quantity produced or
issued from the distillery or brewery, as the case
may be, or issued, from a warehouse established
or licensed ,_undd'r Section 18 (d);
E
(ii) by a rate charged in accordance with such scale
of equivalents, calculated on the quantity of
materials used or by the degree of attenuation of
the wash or wort, as the ca&e may be, as the State
Government may prescribe : F
Provided that, where payment is made upon issued of an
excisable article for sale from a warehouse established or
licensed under Section 18(d), it shall be at the rate of duty
which is in force on that article on the date when it is issued G
from the warehouse."
15. Rule 53 of the UP Brewery Rules, 1961 (Paragraph
912 of the Excise Manual) as it stood prior to substitution of
the rule on 19. 7.1975 provided for quarterly examination of
stock and re:ad as follows: H
124 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A "912. Quarterly Examination of Stock. - The accounts
of a brewery and the stock of beer in hand in the brewery
shall be examined by the Assistant Excise commissioner
once a quarter. If the quantity of the beer in stock in the
brewery on such examination be found to exceed the
8 quantity shown as in hand in the stock account, the brewer
shall be liable to pay duty on such excess at double the
rate prescribed for ordinary issue. If the quantity be found
less than that shown in the stock account, the cause of the
deficiency shall be inquired into and the result reported to
c the Excise Commissioner, who may direct the levy of a fee
not exceeding double the amount represented by the duty
on such deficiency. Provided that any deficiency not
exceeding 10. per cent, shall be disregarded, allowance
to the extent being made to cover loss in bulk due to
evaporation, sullage and other contingencies within the
D
brewery. This allowance Shall be calculated upon the
amount represented by the actual ascertained balance in
hand at the date of the last stock taking, together with the
total quantity since manufactured or received, as shown
in column 2 and 3 of the register of manufacture and issue
E
(form 8-16).
Rule 53 of the Brewery Rules (para 912 ofthe Excise Manual)
as substituted on 19.7.1975 reads as under:
F "912. On the last working day of every calendar rnonth after
all the issues for that day are made, the Officer-in-charge
shall examine the accounts of brewery and take the stock
of beer in hand in the brewery. if the quantity of the beer
in stock in the brewery on such examination be found to
exceed the quantity shown as in hand in the stock account
G
the brewer shall be liable to pay duty on such excess at
the rate prescribed for ordinary issue if the quantity be
found less than that shown in the stock account and such
deficiency does not exceed nine per cent of the total stock
of beer in the month the same may be disregarded
H allowances to that extent being made to cover losses due
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 125
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
to evaporation, sullage and other contingencies within the A
brewery. But if the deficiency in stock be found to exceed
nine per cent the cause shall be enquired into and the result
reported to the Excise Commissioner who may direct the
levy of duty on such deficiency as may be found in excess
of nine percent at the rate prescribed for ordinary issue. B
This nine per cent free allowance shall be calculated up
on the quantity represented by the actual ascertained
balances in hand at the close of the last stock taking
together with the total quantity since manufactured or
received, as shown in columns 2 and 3 of the register of c
manufacture and issue (Form B-1).
Rule 37 of the Brewery Rules (para 896 of the Excise Manual)
reads thus:
"896. Worts to be drawn off in the order of D
production: All worts shall be removed successiv~ly, and
in the customary order of brewing .to the under back,
coppers, coolers and fermenting vessels, and shall not be
removed from the last named vessel until an account has
been taken by the officer incharge or until after the expiry E
of twenty four hours from the time at which the worts are
collected in these vessels."
Rule 41 of the Brewery Rules (para 900 of Excise Manual)
deals with issue of beer and is extracted below:
F
"900. Beer not to be issued until dut'j paid or bond
executed - [Rule 41]. No beer shall be removed from a
brewery until the duty imposed under section 28 of the UP
Excise Act, 1910 (Act No.IV of 1910) has been paid or
until a bond under section 19 of the Act in Form B-7 or B- G
8 has been executed by the brewer for export of beer
outside the State, direct from the brewery.
Legal position enunciated by this Court
16. We may next refer to the decisions of this Court bearing
126 SUPREME COURT REPORTS (2011] 14 (ADDL.) S.C.R.
A on the issue in R. C. Jail Parsi vs. Union of India [AIR 1962
SC 1281), this court held :
"Excise duty is primarily a duty on the production or
manufacture of goods produced or manufactured within
the country. It is an indirect duty which the manufacturer or
B
producer passes on to the ultimate consumer, that is, its
ultimate incidence will always be on the consumer.
Therefore, subject always to the legislative competence of
the taxing authority, the said tax can be levied at a
convenient stage so long as the character of the impost,
c that is, it is a duty on the manufacture or production, is
not lost. The method of collection does not affect the
essence of the duty, but only relates to the machinery of
collection for administrative convenience. Whether in a
particular case the tax ceases to be in essence an excise
D duty, and the rational connection between the duty and the
person on whom it is imposed ceased to exist, is to be
decided on a fair construction of the provisions of a
particular Act."
E (emphasis supplied}
17. In Synthetics and Chemicals Ltd. vs. State of U.P.
[1990 (1} SCC 109), this Court held that the expression
"alcoholic liquor for human consumption" must be understood
in its common and normal sense. The expression
F "consumption" must also be understood in the sense of direct
physical intake by human beings and not utilisation in some
other forms for the ultimate benefit of hum2n consumption and
the expression is intended to mean "liquor which as it is, could
be consumed, in the sense of capable of being taken by the
G human beings as such as a beverage or drink".
18. In State of U.P. vs. Delhi Cloth Mills (1991 (1) SCC
454], this Court dealing with section 28 of UP Excise Act, 1910
considered the question whether the excise authorities were
H entitled to levy excise duty on the wastage of liquor (military rum}
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 127
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
in transit and held that the levy of differential duty (that is A
charging up the duty on the report of excess wastage) did not
cease to be an excise duty even if it was levied on declaration
of excess wastage. The taxable event was still the production
or manufacture. This Court observed:
B
"A duty of excise under Section 28 is primarily levied upon
a manufacturer or producer in respect of the excisable
commodity manufactured or produced irrespective 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 C
event is the production or manufacture of the liquor.
Secondly, as was held in A. B. Abdulkadir v. The State
of Kerala - AIR1962SC922, an excise duty imposed on
the manufacture and production of excisable goods docs
not cease to be so merely because the duly is levied at a D
stage subsequent to manufacture 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 subsequent stage of E
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 Bima/ Chandra Banerjee v. State of Madhya
Pradesh - 1970 (2) SCC 467. In the instant case there is F
no dispute that the military rum exported was produced in
the State of U.P. In State of Mysore and Ors. v. Mis D.
Cawasji & Co. - 1970 (3) sec 710, which was on Mysore
Excise Act, it was held that the excise duty must be closely
related to production or manufacture of excisable goods G
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
instant case, therefore, did not cease to be an excise duty
even it was levied on the exporter after declaration of H
128 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A excess wastage. The taxable event is still the production
or manufacture ........... .
...... Rules 636 and 814 are also of regulatory character
and they are precautionary against perpetration of fraud
on the excise revenue of the exporting state. If out of the
B
quantity of military rum in a consignment, a part of 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 explanation, have reason to
presume that the same have been disposed of otherwise
c 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."
D
19. In Mohan Meakin Ltd. vs. Excise & Taxation
Commissioner, H.P. [1997 (2) SCC 193), this Court examined
the question as to when beer is exigible to excise duty under
the Punjab Excise Act, 1914 and Punjab Breweries Rules
E 1932. This Court held that Beer would mean fermented liquor
from malt, when it is potable or in consumable condition as
beverage. The state of levying excise duty upon alcoholic liquor
arises when excisable article is brought to the stage of human
consumption with the requisite alcoholic strength thereof and it
F is only the final product which is relevant. In that case, the levy
of excise duty at the stage when the manufacturing of the beer
was at wort stage was challenged. This Court posed the
question: Whether the levy of excise duty, on beer when it was
in the process of manufacture is correct? This Court answered
G the question thus :
'The levy of excise duty is on alcoholic liquor for human
consumption, manufacture or production. At what stage
beer is exigible to duty is the question. The process of
manufacture of beer is described as under:
H
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 129
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
I
The first stage brewing process is the feeding of A
Malt and adjuncts into a vessel known as Mash Tun.
There it is mixed with hot water and maintained at
certain temperature. The objective of this process
is to convert the starches of the matt into
fermentable sugar. B
The extract is drawn from the Mash Tun and boiled
with the addition of hops for one to two hours after
which it is contrifuged, cooled and received in the
receiving wats. At this stage, it is called "Wort" and C
contains only fermentable sugars and no alcohol.
After this it is transferred to the fermentation tanks
where Yeast is added 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 D
is centrifuged and transferred to the storage vats
for secondary fermentation. After secondary
fermentation is over in the storage vats, it is filtered
twice-first through the rough filter press and then
through the fine filter press and received in the E
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 r.eady for packing and marketing. Till the F
liquor is removed from the vats and undergoes
the fermentation process as mentioned above the
presence of alcohol is nil.
Excisable article would mean any alcoholic liquor for G
human consumption or any intoxicating drug. The levy or
impost of excise duty would be only on alcoholic liquor for
human consumption or for bPing produced in the brewery.
Beer would mean fermented liquor from malt, when it is
potable or in consumable condition as beverage. It is seen
H
130 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A that the levy is in terms of entry 51 of List II of the Seventh
Schedule which envisages that duties of excise on the
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.
B
Thus, the final product of the beer is relevant excisable
articl~ exigible to duty under Section 31 of the Act when it
passes through fine filter press and received in the bottling
tank. The question is : at what stage the duty is liable to
be paid? Section 23 specifically envisages that until the
c payment of duty is made or bond is executed in that behalf
as per the procedure and acceptance by the Financial
Commissioner, the finished product, namely, the beer in
this case, shall not be removed from the place at which
finished product was stored either in a warehouse within
D factory premises or precinct or permitted place of usage.
Under these circumstances, the point at which excise duty
is exigible to duty is the time when the finished product,
i.e., bear was received in bottling tank or the finished
product is removed from the place of storage or
E warehouse etc."
· (emphasis supplied)
20. In Government of Haryana vs. Haryana Brewery Ltd.
F [2002 (4) SCC 547], this Court held :
"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 after it has been brewed
and has become fit for human consumption. This is the
G 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
H an answer to this question. The first part of the Section
STATE OF U.P. & ORS. v. M/S MOHAN MEAKIN 131
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
states that subject to the rules which may be made by the A
Financial Commissioner; Excise Duty is to be levied, inter
alia, on the excisable 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 B
of manufacture has been completed and in fact, it is to
be levied when it is issued from the distillery, brewery or
warehouse."
(emphasis supplied) . C
Re: Question No. (i)
21. The High Court has held that the point at which the
liquor manufactured. by the brewery is exigible to excise duty
is the stage when the finished product (beer) capable of being 0
consumed by human beings as a beverage or drink, comes into
existence that is, after the process of fermentation and filtration.
In Synthetics and Chemicals Ltd & Ors. vs. State of U.P. &
Ors. - 1990 (1) SCC 109 and State of U.P. vs. Modi Distillery
& Ors. - 1995 (5) SCC 753, this Court held that having regard E
to Entry 51 of List II of Seventh Schedule to the Constitution,
the State would be authorized to impose excise duty on
alcoholic liquor for human consumption which meant that the
liquor, as itself, was consumable in the sense that it was
capable of being taken by human beings as such as a
beverage or drink. This Court in Government of Haryana vs. . F
Haryana Breweries Ltd. & Anr.. - 2002 (4) SCC 547, held that
State has jurisdiction to levy excise duty on beer only after it
has been brewed and has become fit for human consumption;
and having regard to section 32 of the Punjab Excise Act, 1914,
the stage at which excise duty could be levied on beer was after G
the process of manufacture was complete and when it is issued
from the brewery or warehouse.
22. This Court also reiterated the said position in Mohan
Meakin Ltd. vs. Excise & Taxation Commissioner, H.P. - H
132 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A 1997 (2) SCC 193 but further observed that beer would be
exigible to duty when it passes through the fine filter press (after
fermentation) and is received in the bottling tank. The words
'received in the bottling tank' obviously referred to beer being
received in any container or vessel for storage, after
B fermentation and filtration. It may however be noted that the said
observation that beer is exigible to excise duty only when it
passes through the fine filter press would apply only to the
standard types of beer which is sold in bottles and cans. Beer
is also supplied in casks and barrels, taken directly from
c fermentation vessels without undergoing any filtration or further
processing, known as Draught (or Draft) beer. Such beer is
unpasteurized and unfiltered (or even if filtered, only in a limited
manner and not fine filtered like beer intended to be sold in
bottles or cans). Para 29 of Excise Manual (Vol.V Chapter.XI)
D notes that uncarbonated top fermentation beer, which include
draught beer are racked directly from the fermenting vessel.
Thus when the fermentation process of wort is completed, it
becomes an alcoholic liquor for human consumption and there
is no legal impediment for subjecting beer to excise duty at that
stage. Therefore, the State has legislative competence to levy
E excise duty on beer either after the completion of the process
of fermentation an.d filtration, or after fermentation.
23. Section 29 (e)(i) of the Act makes it clear that in the
case of beer manufactured in a brewery, excise auty may be
F levied, by a rate charged upon the quantity produced or issued
from the brewery or issued from a warehouse. This means that
in respect of beer that undergoes the process of filtration, the
exigibility to excise duty will occur either at the end of filtration
process when it is received in storage/bottling tanks or when it
G is issued from the brewery. In regard to draught beer drawn
directly from fermentation vessels, without further processing or
filtration, the exigibility to excise duty will occur either at the end
of fermentation process or when it is issued from the brewery.
H
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 133
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
Re: Question No.(ii) A
24. The High Court rejected the Brewery's contention that
only such beer which comes to the 'bottling tank' after filtration,
can be treated as 'manufactured beer' and exigible to excise
duty and wastage allowance could be given only with reference B
to such beer which has become a finished product. But the
High Court allowed the writ petition of the Brewery and directed
.that validity of the demand should be decided afresh, "after
calculating the stock of beer for the purpose of original Rule
53 of UP Brewery Rules, 1961 (Para 912 of UP Excise Manual
as it then existed) and section 28A of UP Excise Act, when C
after filtration the same assumes the shape as a finished
product which is normally consumed by human beings as a
beverage or drinl(. The real question arising for consideration
in this case is not about the stage at which beer is exigible to
excise duty, but whether the procedure adopted by the appellant D
for ascertaining the excess wastage (or shortage in quantity)
and levying duty and additional duty thereon, is legal and valid.
25. The contention which ultimately found favour with the
High Court, was based on legislative competence. The brewery E
contended that section 28A provided for levy of 'excise duty'
and an equal amount as additional duty on 'excess wastage'
or shortage in quantity manufactured; that the legislative
competence to levy excise duty is derived from Entry 51 of List
II of Seventh Schedule to the Constitution : "Duties of excise F
on ....... (a) alcoholic liquors for human consumption"; that
therefore, if excise duty or additional duty is to be levied under
section 28A, the article that could be subjected to duty should
be 'an alcoholic liquor for human consumption'; that the .term
'alcoholic liquor for human consumption' means a liquor which G
could be taken by a human being 'as it is' without the need for
any further process; and that in regard to beer, that stage is
reached only after fermentation and filtration processes are
completed. It was submitted ·that before filtration, the product-
in-process was not an alcoholic liquor for human consumption H
and therefore there was no legislative competence to levy
134 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A excise duty or additional duty on such product-in-process.
26. This contention ignores the fact that Entry 51 should
be read not only as authorizing the imposition of an excise duty,
but also as authorizing a provision which prevents evasion of
excise duty. This Court in Baldeo Singh vs. CIT - 1961 (1)
8
SCR 482, held as under:
"...... Under Entry 54 a law could of course be passed
imposing a tax on a person on his own income. It is not
disputed that u11der that entry a law could also be passed
C to prevent a person from evading the tax payable on his
own income. As is well known the legislative entries have
to be read in a very wide manner and so as to include
all subsidiary and ancillary matters. So Entry 54 should
be read not only as authorizing the imposition of a tax
D but also as authorizing an enactment which prevents the
tax imposed being evaded. If it were not to be so read,
then the admitted power to tax a person on his own income
might often be made infructuous by ingenious contrivances.
Experience has shown that attempts to evade the tax are
E often made."
(emphasis supplied)
27. In this context, we may also consider the decision of
this Court in Union of India vs. A. Sanyasi Rao and others -
F 1996 (3) sec 465, this Court considered the constitutionality
of the provisions for presumptive tax in sections 44-AC and
206-C of the Income Tax Act, 1961 for collecting tax on profits
and gains from trading in alcoholic liquor for human
consumption (and other goods specified therein) at the stage
G of purchase on a presumptive basis. The respondents therein
contended that the said sections lacked legislative competence
as income tax was a tax on income, while the levy under section
44-AC was one on purchase when no income had occurred and
that the tax was on a hypothetical income and not real income.
H This Court held that the object in enacting sections 44-AC and
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 135
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
206-C was to enable the Revenue to collect the legitimate dues A
of the State from the persons carrying on particular trades, in
view of the peculiar difficulties experienced in the past and the
measure was so enacted to check evasion of substantial
revenue due to the state. Trade or business, results in or
produce income, which can be brought to tax. In order to 8
prevent evasion of tax legitimately due on such 'income',
section 44-AC and section 206-C were enacted, so as to
facilitate the collection of tax on that income which is bound to
arise or accrue, at the very inception itself or at an anterior stage
and therefore one cannot contend that the aforesaid statutory c,
provisions lacked legislative competence. After all, statutory
provisions obliging to pay 'advance tax' were not new and
sections 44-AC and 206-C were similar. The standard by which
the amount of tax was measured, being the purchase price,
would not in any way alter the nature and basis of the levy viz., 0
that the tax imposed was a tax on income and it could not be
labelled as a tax on purchase of goods. The charge for the levy
of the income that accrued or arose is laid by the charging
sections viz., sections 5 to 9 and not by virlue of section 44-
AC or section 206-C. The fact that the income was levied at E
a flat rate or at an earlier stage will not in any way alter the
nature or character of the levy since such matters are
completely in the realm of legislative wisdom. What is brought
to tax, though levied with reference to the purchase price and
at an earlier point is nonetheless income liable to be taxed
under the Income Tax Act. This Court referring to the argument F
about absence of legislative competence to levy tax before
accrual of income, referred to Entry 82 of List I of Seventh
Schedule ("Taxes on income other than agricultural income")
and held as under :
G
. • ... the word 'income occurring in Entry 82 in List I of the
Seventh Schedule should be construed liberally and in a
very wide manner and the power to legislate will take in
all incidental and ancillary matters including the
authorization to make provision to prevent evasion of tax, H
136 SUPREME COURT REPORTS [2011) 14 (ADDL.) S.C.R.
A in any suitable manner."
28. To ensure that .there is no evasion of excise duty in
regard to any beer manufactured, the State is entitled to make
a provision to prevent evasion of excise duty being evaded,
B though it is leviable at the stage of issue from the brewery. The
beer brewing process shows once the wort ferments, it
becomes consumable, though the manufacturing process to
have a finished product may in some cases require filtration,
aging carbonization etc. To ensure that there is no evasion of
excise duty by diversion of beer (excisable article) before it
C becomes a finished product, section 28A of the Act has been
enacted and that is implemented by Rule 53 of the Brewery
Rules, and Rule 7 of the Bottling Rules. The Excise Inspector
in-charge is required to take physical stock of the beer in hand
in the brewery periodically (once a quarter prior to the
D amendment of 1975 and once in a month from July 1975) by
dip and gravity of the quantities in the fermentation vessels. We
may illustrate the method adopted to ascertain whether there
is any excess manufacturing wastage (or illegal siphoning of
beer) before it reaches the bottling tariks :
E
a. The opening balance (actual quantity) 1000 Litres
b. Quantity brewed during the month
under survey 2600 Litres
c. Total stock of beer (a + b) in the
F brewery 3600 Litres
d. Quantity of beer issued during the
month 2600 Litres
e. Balance quantity in hand as per
G stock account (c - d) 1000 Litres
f. Actual balance found on physical
examination 600 Litres
g. Wastage in manufacture
(difference between quantity shown in
H stock account and actual quantity in
STATE OF U.P. & ORS. v. M/S MOHAN MEAKIN 137
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.)
the brewery) 400 Litres · A
h. Wastage allowable at 9%* of the total
stock of beer in the month(3600 litres)
under Rule 53 of Brewery 324 Litres
*(9% is the allowance towards losses due to evaporation,
sullage and other contingencies within the brewery). B
i. Excess wastage chargeable to duty
& addl. duty (g + h) 76 Litres
29. It should be noted that recourse to section 28A of the
Act will be held only when there is abnormal deficiency or c
shortage in the actual quantity in the brewery when compared
to ~he quantity mentioned in the stock account, that is more than
9%, which would show evasion of excise duty. The standard
procedure of levying excise duty is not on the quantity of
excisable article in the fermentation vessels. The standard 0
procedure is to levy excise duty when the beer is removed from
the brewery. The State was thus collecting excise duty in the
usual course with reference to the beer after the entire
manufacturing process was completed when it is removed from
the brewery. It resorted to section 28A, Rule 53 of Brewery E
Rules and Rule 7 of Bottling Rules and levied double the amount
of excise duty {excise duty plus equal amount as additional
duty) only in thos~ mont_hs when the periodic examination
showed excessive manufacturing 'wastage'. The procedure
adopted was the most logical process to ensure that excisable
articles were not clandestinely removed and to ensure that there F
is no evasion of excise duty having regard to the brewing
procedure. If the actual stock assessed is less than the stock
as per Stock Account and the difference is less than 9%, the
difference was ignored. Only if the difference exceeded 9%, the
quantity in excess of 9% was treated as the excess wastage G
and excise duty and an equal amount as additional duty was
charged in regard to such excess. For this purpose necessarily
the quantity in the fermentation vessels had to be considered.·
If the quantity in the bottling tanks are to be taken as the basis,
then there will be no way of finding out whether there was any H
138 SUPREME COURT REPORTS [2011) 14 (ADDL.) S.C.R.
A siphoning off from the fermentation vessel or during filtration
process. Fermented wort is beer and it could be removed from
fermenting vessels or during storage or filtration. Therefore, the
base measurement is taken in the fermentation vessel and 9%
; standard allowance is provided to cover losses on account of
B sullage etc.
30. The Act provides that levy of excise duty on beer can
not only be with reference to the quantity produced and issued
from a brewery, but can also be by calculating the quantity of
C materials used or by the degree of attenuation of the wash or
wort, as the case may be, as the State Government may
prescribe. This means the excise duty on the beer
manufactured can be liivied not only with reference to the actual
quantity issued or removed, but can also be by a rate charged
in accordance with a scale of equivalent, calculated on the
D quantity of materials used or by the degree of attenuation of
the wash or wort prescribed by the State Government. The said
alternative method of levying excise duty does not depend upon ·
the actual quantity manufactured or issued. It is with reference
to the deemed quantity manufactured r~ther than the actual
E quantity manufactured. Such a procedure has been in vogue
in England and it is permissible in India. Rule 42 of Chapter XI
of the Excise Manual (Vol. 5) gives a detailed description of
the attenuation method of charging. duty on beer and it is
extracted below: ·
F
"42. The attenuation method of charging duty on beer. -
In the United Kingdom, the duty is levied on beer in
proportion to the original gravity of the wort. Really
speaking, the Excise control of breweries is much less
stringent than in the case of distilleries. No excise locks
G
are used. The constant presence of an officer is only
considered necessary in the case of every large breweries
working continuously. The safety of the revenue depends
on notices of all essential operations which are required
to be given to the Excise. The length of notice to be giveli
H depends on the importance of the particular operation and
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 139
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
on the facility with which the local officer can attend. One A
officer is, in general, in charge of a group of the smaller
breweries.
A brewer must give timely notice of -
(1) his attention to brew; 8
(2) the nature and amount of materials to be used;
(3) the time at which he expects his mash-tun to be
drained (this is to enable the officer to take a dip C
of the drained grains which must lie for two hours
after draining or until the officer arrives).
(4) his intention to mix the products -of one or more
brewings;
D
(5) . any modification in his routine methods of brewing;
(6) any alterations he proposes to make in the position
etc., of his brewing vessel;
(7) Finally and most important of all, the brewer is E
required to give notice to the officer of his intention
to 'collect beer', ie., he must intimate as closely as
possible the time when the wort will be ready for
pitching with yeast. When the wort is collected for
fermentation the brewer must forthwith take the F
specific gravity with his saccharometer and also the
dip, in order that the density and gallonage may be
recorded in case the officer does not attend. In ·
. caseswhere the officer attends before fermentation
has materially affected the gravity he is able ~o verify G
these figures and above all to see that they have
been recorded properly by the brewer. ·
In order that his control may be effective, the officer must
time his visits to the brewery so as to arrive when H
140 SUPREME COURT REPORTS (2011) 14 (ADDL.) S.C.R.
A fermentation has not advanced too far for check and so
that the brewer has had reasonable time to make his
entries of gravity and gallonage. If having had reasonable
time, the brewer has failed to make his entry this omission
is treated as a serious excise offence.
B
It may be asked why stress is not laid on the necessity for
the attendance of the officer at the time of pitching the wort.
This, bowever, is generally impracticable seeing that
usually brewers 'collect' at the same hour and that the
presence of the officer at more than one brewery is
c impossible. This being so, his visits must be unexpected,
the responsibility for honest declaration of gravity and dip
being imposed on the brewer. The brewer's records, if
confirmed by the officer, are thus the basis on which the
duty is levied."
D
31. This Court in Haryana Brewery Ltd. (supra) recognized
the alternative method of calculating the quantity of beer
manufactured to be valid. This Court held:
"The proviso to Section 32 uses the expression "provided
E
that duty may be levied .... ." Clause (b) of the proviso state
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 wort. The opening part of Clause (b) of the
F 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 tot he 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
G Rule 35 indicates that in order to determine what is the
quantity of beer manufactured which is fit for human
consumption, after all the processes have been gone
through, you seen what is the 'quantity of raw material which .
has been utilised for the manufacture of beer and in the
H
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 141
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
process of manufacturing give an allowance for wastage A
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 ordinary yield 6500 litres
of beer. By giving an allowance of wastage which must
occur during the process of the manufacture of the end- B
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.
14. It appears to us that the proviso to Section 32 read C
with Rule 35 does 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 D
are maintained by the manufacturer and the figures are
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 E
manufacturer of the total quantity of beer manufactured.
Duty can be levied on this and this would be inconsonance
with the first part of Section 32. It is, perhaps, only to cross-
check whether the figure which is indicated in the books
of the manufacturer is correct that a formula can be used F
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 G
wastage. It appears to us that the allowance of 7 per cent
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 H
142 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A allowance of 7 per cent has then 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
B occurred, there cannot be a deduction of any sum or
proportion as wastage from the quantity of end-product in
order to arrive at the quantity. The excisable product is the
quantity of beer produced and not the quantity produced,
and thus excisable, minus 7 per cent."
C Therefore there is nothing wrong in adopting the procedure
prescribed in section 28A and Rule 53 of Brewery Rules to
determine the excess manufacturing wastage.
32. The Brewery wants the wastage allowance to be given,
D not with reference to th~ quantity in the fermentation tank, but
with reference to the quantity in the storage/bottling tanks (after
completion of fermentation and filtration process) when the
manufacturing process is complete and only bottling remains.
The argument of the respondent is that the measurement should
E be taken only when the manufacture is complete and not when
it is still in the process of manufacture; and the manufacture
process is completed not when the wort is in the fermentation
tank but only when the filtration process is finished. But this
contention ignores the fact that when manufacturing process is
F complete and the beer has reached storage/bottling tanks,
there is no question of any manufacturing loss. The allowance
of 9% is made to cover loss due to evaporation, sullage and
other contingencies within the brewery. 9% is allowed as loss
in quantity because the quantity· in fermentation tank is
G measured and taken as the base and thereafter the sullage/
yeast heads are removed as sediment in the fermentation
vessels or by the filtration process and there will also be certain
amount of evaporation during the process of filtration, racking
and storage etc. In fact, the Brewery specifically admits this
H position in Annexure-1 to the writ petition while describing the
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 143
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
process of manufacturing beer : A
"From the above brief description of manufacturing
process, it will be observed that the deficiency between
the quantity of wort to the point when beer is ready for
bottling, occurs because of elimination of impurities" viz.,
8
yeast cells and dirty heads b;ought up in fermentation at
top, evaporation taking place; carbon dioxide evolved out;
and sullage settled at the bottom. The quantity of these.
impurities accounting for the said deficiency in the process
of manufacture cannot be taken as beer and excisable
article for purposes of levy of duty. For culmination of these C
impurities and other contingencies mentioned of in rule
912, an allowance of 10% is fixed."
33. If the quantity measured after the fermentation and
filtration processes should be the base figure, for purpose of D
allowance to cover loss on account of sullage, evaporation etc.,
there will be no need for granting any allowance because once
it have passed the filtration stage the sullage and other
impurities has been removed and the beer is ready for being
filled in barrels, casks or bottles. The 9% allowance is for the E
wastages occurring during the stages of fermentation and .
filtration and not in regard to the stages between storage after
filtration and removal. The Brewery has virtually mixed up the
issue relating to the question as to when beer is exigible to
excise duty with the question as to the quantity on which the F
allowance of 9% should be granted. As noticed above, a
combined reading of rules 37 and 53 of Breweries Rules, with
or without section 28A make it clear that the allowance of 9%
as losses in the brewery (10% as losses in the course of
manufacture in the brewery prior to 1975) is with reference to G
r
the quantity in the fermentation tank and not with reference to
the quantity of beer in the storage/bottling tanks after filtration.
34. We may now consider the contention on behalf of
brewery that they are entitled to allowance upto 9% towards
such wastage from the quantity measured in the storage/ H
144 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A bottling tanks after fermentation and filtratiqn. We extract below
the contention of the Brewery in this behalf from its writ petition:
"(X) That section 28A(2) in so far as it purports to provide
for permissible wastage could operate only from the stage
B the State Government became competent to impose
excise duty/additional duty and till beer is brought to such
a stage that it is rendered fit for human consumption, the
State Legislature has no legislative competence to levy
excise duty/additional duty and hence the State
Legislature cannot take into consideration for the purposes
c of levy of excise duty/additional duty any wastage prior to
the stage when the liquor/beer becomes fit for human
consumption."
A large allowance up to 9% of the total stock of beer has been
D provided towards wastage, only to cover the loss occurring from
fermentation stage to post-filtration stage, as the quantity has
been calculated with reference to the fermentation vats and
there will be considerable wastage due to sullage and
evaporation. Rules 37 and 53 of the Breweries Rules (paras
E 896 and 912 of the Excise Manual) also proceeded on that
basis that the measurement would be with reference to the
quantities in the fermentation vessels taken by dip and gravity
method.
35. In fact, the brewery describes the nature of these losses
F in the brewery in Annexure I to the writ petition (in the connected
WP No.1375/1978) as under:
"MANUFACTURING LOSSES
G (i) Varying constituents of Malt viz. percentage of
proteins etc. produced sludge or sullage in more or
less quantity. Thus sullage to be removed will have
differing percentages.
(ii) Depending on the process - top and bottom
H
STATE OF U.P. &ORS. v. MIS MOHAN MEAKIN 145
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
fermentation etc. there may be more or less of A
scum and dirty heads containing yeast cells to be
. removed, thus losses will be variable at this stage.
(iii) The removal of solids is continuously carried on at
different stages in the manufacturing process. With B
frequency of the centrifugal machines or the
Filtration Plants having to be opened depending
upon the quantity and turbidity of the fermented wort
or green beer to be cleared off to be sparklingly
clear, the losses will be more or less. With the
banking of import of quality filter sheets, the C
indigenously made filter sheets have to be used
which are to be more frequently changed then the
imported ones. There are losses in absorption in
filter sheets and leakage at ends of plates.
D
(iv) Some quantity of fermenting wort is lost in removal
of scum and dirty heads and in removal of sullage
from the bottom of the tanks.
(v) Every time the fermenting or fermented wort or E
green beer is transferred by means of pipes, what
is left over in pipes has to be drained off, water and
steam is run in pipes to sterilize them, so that there
may be no contamination to spoil beer.
The varying losses at each stage in the manufacturing F
process are natural and unavoidable. With the above
mentioned variable losses, accidental, off chance
occurrence or those losses which are incidental to the
process of manufacture are provided for in rule 912 under
"Contingencies". G
The contingent losses, a few of which are given below,
make the losses in manufacturing proc~ss vary and erratic.
(a) Due to failure of electricity and refrigeration, there
may be brisk fermentation and wild bacterial H
146 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A infection, which may make it sour to be turned into
vinegar, or if more spoilt, may have to be destroyed.
(b) By sudden leakage of brine coiled pipes, the
fermenting wort may be mixed up with brine which
becomes unpalatable and has to be destroyed.
B
(c) With haziness persisting after filtration once, it may
have to be treated with approved chemicals and
refiltered.
c (d) Bursting of transfer pipes, leakage of valves etc."
36. If the quantity measured in the storage/bottling tanks
(after filtration) should form the basis, there was no occasion
or need for making a huge allowance of 9% for sullage,
evaporation and other contingences, as there would be no
D sullage, evaporation or other wastages after that stage (that is
completion of manufacture) and the allowance under Section
28A of the Act will become redundant, except for the small
percentage provided for wastage during bottling and storage.
E 37. The Brewery placed strong reliance upon the decision
of this Court in State of U.P. vs. Modi Distillery & Ors. - 1995
(5) SCC 753. In that decision, this Court was considering the
validity of demand for excise duty on the wastage of high
strength spirit (80% to 85%) during transportation in containers
F from distillery to warehouse (referred to as 'Group B' cases).
This Court held :
"In other words, ethyl alcohol (95 per cent) was not an
alcoholic liquor for human consumption but could be used
as a raw material or input, after processing and substantial
G
dilution in the production of whiskey, gin, country liquor etc.
In the light of experience and development, it was
necessary to state that 'intoxicating liquor' meant only that
liquor which was consumable by human beings as it was.
H What the State seeks to levy excise duty upon in the Group
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 147
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
'B' cases is the wastage of liquor after distillation, but A
before dilution; and, in the Group 'D' cases, the pipeline
loss of liquor during the process of manufacture, before
dilution. It is clear, therefore, that what the State seeks to
levy excise duty upon is not alcoholic liquor for human
consumption but the raw material or input still in process B
of being rendered fit for consumption by human beings.
The State is not empowered to levy excise duty on the raw
material or input that is in the process of being made into
alcoholic liquor for human consumption."
The said decision will not assist the first respondent - brewery C
as that was a case of levy of excise duty on raw materials or
inputs which were still in process. That matter related to distilled
alcohol and not fermented beer. The wastage considered by
this Court was all with reference to alcohol that had not been
diluted and therefore was not 'alcoholic liquor for human D
consumption'. This Court held that the State is not empowered
to levy duty on the raw material or inputs that is in the process
of being made into an alcoholic liquor for human consumption.
The position is different here. When the quantity of the liquid in
the fermentation vessels were measured, on account of E
fermentation, the liquid was already in the process of conversion
into an 'alcoholic liquor for human consumption', though had not
become a finished product of beer. Therefore, the principles
in Ba/dev Singh and A. Sanyasi Rao, will apply and not the
decision in Modi Distillery. Therefore we hold that there is no F
infirmity in. the method adopted by the excise department to
arrive at the excess wastage or in making a demand for excise
duty and additional duty in regard to such excess wastage.
Re : CA No.4709 of 2002 :
G
38. The question arising in this appeal is the same as in
CA No.4708 of 2002 and the facts are also similar to the facts
of CA Nos.4708 of 2002. The only difference in facts is that
the demand in this case related to the period 3.6.1970 to
5.9.1972 and the amount of duty/additional duty that was H
(.>
148 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A demanded was Rs.1,40,596.89. For the reasons stated in CA
No.4708/2002, this appeal is also allowed.
Re : CA Nos.4710, 4711, 4712, 4713 of 2002
39. All these four appeals relate to demands made upon
B the breweries for duty on excess wastage in bottling and
storage of beer. The first appellant brewery has described the
process of bottling of beer thus (in Annexure P2 to the writ
petition - WP No.1375/1978):
"Before carbonated beer is conveyed to the automatic
bottling machine through pipes, the whole line is cleaned
and sterilized to ensure that there are no wild bacteria
which may spoil the beer passed through these pipes.
Bottles which are cleaned and sterilized in Automatic Bottle
D Washing Plant, are fed by conveyors to the beer bottling
machine. While the bottles are filled, some quantity of beer
is spilt by foaming which takes place and with pressure of
Co2 gas bottles burst in the process of bottling. The beer
which is spilt is mixed with b.roken glass pieces, oil etc.
E on the conveyor belts. It is contaminated and has to go
waste.
To increase the shelf life of beer, the filled bottles are
placed in pasteurization tanks and the water in which these
F bottles are immersed is gradually raised to temperature
of 650 and after keeping these bottles for a fixed time in
hot water, these are cooled down.
With the expansion of Co2 gas during this process some
bottles burst and the beer contained therein gets mixed up
G with water.
Leaky bottles are also taken out from the pasteurization
tanks, which are decanted for reprocessing of their
contents. Some wastage occurs in the process of
decanting.
STATE OF U.P. & ORS. v. M/S MOHAN MEAKIN 149
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.)
After pasteurization of filled bottles, capsuling, labeling and A
packing is done,· in which some bottles break. During the
process of bottling what goes waste in spilling as
mentioned above, in unavoidable. It does not exist in the
form of goods for sale and human consumption. Thus
being not an excisable article is not leviable with duty." B
The Breweries have also described the various instances
of bottling wastages in the writ petition as under :
"BOTTLING WASTAGES
c
The wastages occur at different stages in bottling process
as under:
(a) Loss of beer in transfer pipe from Bottling Tank to
bottling machine, which has to be washed away to sterilize
0
pipes before bottling operations are began every day.
(b) There being pressure of C02 gas in beer there is loss
by bursting of bottles in filling and capping machines. With
the pressure of gas foaming takes place and there is
spillage of beer between the bottling and capping E
machines. The spilt beer cannot be recovered as it gets
mixed up with oil on the conveyor belts and is
contaminated.
(c) There are some breakages on conveyors between F
capping machine and pasteurization tanks.
(d)·During pasteurization the filled bottles are immersed
in water and the temperature of water is gradually raised
to about 65°C after keeping for a fixed time, it is gradually
called, with the expansion of gas the bottles burst to a G
varying percentage depending on the varying quality of
bottles from mould to mould and batch to batch and beer
is mixed with water in the tanks.
H
150 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A (e) Some breakages do occur in capsuling, labelling and
packing of filled bottles.
(f) Sometimes rebottling may have to be done and loss on
this account may occur.
B 40. The appellant breweries are holding bottling licences
· in form No.FL3 to bottle beer, governed by the U.P. Bottling of
Foreign Liquor Rules, 1969 ('Bottling Rules' for short). Rule 6
provides that every licence granted in Form No. FL3 shall be
subject to the conditions enumerated therein. Rule 7
C enumerates the additional special conditions applicable to
bottling of India made liquor in bond under FL3 licence. Sub-
rules (10) and (11) of Rule 7 are relevant for our purpose and
they are extracted below :
0 "7. Following additional special conditions will be
applicable to bottling of Indian Made Foreign liquor in
bond under F.1.-3 licence:
(1) to (9) xx xx x omitted as not relevant
·E (10) On the last working, day of every calendar month, after
all the transactions for that day are made, the Excise
Inspector lncharge shall take the stock of unbottled and
bottled spirit 3rd beer/stored in the bottling warehouse,
enter into the prescribed registers and ascertain the
F wastage of spirit in the bottling operations and storage in
the bonded warehouse.
(11) (a) An allowance up to one per cent may be made
on the total quantfty of spirit and beer stored during a
month for actual loss in bottling and storage. The licensee
G
shall be responsible for the payment of duty on wastage
in excess of one per cent,
(b) when the wastage does not exceed the prescribed limit,
no action need be taken by the Excise Inspector lncharge
H but if an excess is found at the time of monthly stock taking
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 151
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
the Excise Inspector shall submit a statement to the A
Collector by the fifth day of the month in Form F.L.B. 10
showing the quantity of actual wastage and the duty to be
paid by the licensee on the excess wastage. On receipt
of the statement the Collector shall recover the duty from
the licensee at the full rate of duty leviable on Indian made B
foreign spirit and beer."
A 1. The appellants contended that section 28A provides
for an allowance of 10% to cover losses due to evaporation,
sullage and other contingencies within the brewery and also to C
cover losses in bottling and storage. Rule 53 of the Brewery
Rules as amended on 19.7.1975 (Rule 912 of the Excise
Manual) provides for an allowance of 9% of the total stock of
beer in the month to cover losses due to evaporation, sullage
and other contingencies within the brewery. Rule 7(11 )(a) of the
Bottling Rules provides for an allowance up to one per cent of D
the total stock of spirit during a month, for actual loss in bottling
and storage. The appellants submitted that section 28A did not
make such a division of 10% allowance, into 9% for loss in the
brewery and one percent for loss in bottling; and that therefore
it is impermissible to divide the wastage under tWo separate E
heads of 9% wastage to cover losses due to evaporation,
sullage and other contingencies within the brewery under rule
53 of the Brewery Rules, (para 912 of U.P. Excise Manual) and
only one percent, for losses in bottling and storage urider the
Bottling Rules. According to them the wastage in bottling can F
itself go to an extent of 10%. At all events, if the total wastage.
due to evaporation, sullage and other contingencies in the
brewery and the total wastage in bottling and storage, together
did not exceed 10%, no duty or additional duty could be levied
on the assumption that the losses in bottling and storage was G
restricted only to one percent, as such division would be
contrary to section 28A of the Act.
42. Rule 53 of Brewery Rules made in 1961 (para 912 of
the Excise manual) before the amendment on 19. 7 .1975 H
152 SUPREpAE COURT REPORTS [2011] 14 (ADDL.) $.C.R.
A provided for allowance of a deficiency not exceeding 10% to
cover losses in bulk due to evaporation, sullage and other
contingencies within the brewery. At that time a separate licence
for bottling was not contemplated. The Bottling Rules made in
1969 provided for an allowance of one percent loss in bottling
B and storage. On 19.7.1975, Rule 53 (para 912 of Excise
manual) was substituted and the allowance to cover losses due
to evaporation, sullage and other contingencies within the
brewery was reduced to 9% in view of the provision in the
Bottling Rules providing for an allowance of one percent for
c losses in bottling and storage. Section 28A was inserted by
U.P. Act 9 of 1978 (with a provision that the section shall be
deemed always to have been inserted) providing for an
allowance to a total extent of 10% in regard to losses within
the brewery and the losses in bottling and storage. It is not in
dispute that the process of brewing beer and the process of
0
bottling beer are considered to be distinct and separate
processes governed respectively by the Brewery Rules and
Bottling Rules. The operations connected with bottling are
required to be conducted in a separate premises under a
different licence. The process of bottling begins with the transfer
E of bulk beer from the brewery for bottling. Sub-section (2) of
section 28A refers to an allowance to an extent of 1oo/o not only
in regard to losses within the brewery but also to cover losses
in bottling and storage. As noticed above, Rule 53 of the
Brewery Rules and Rule 7(11) of the Bottling Rules whe11 read
F conjointly show that the said rules are supplementary to each
other and together implement section 28A of the Act. At all
events, the validity of neither Rule 53 of Brewery Rules nor Rule
7(11) of Bottling Rules is under challenge. Be that as it may.
G 43. The brewery having obtained the bottling licence
subject to the special conditions which include the condition in
Rule 7(11) of the Bottling Rules, cannot ignore the said Rule
and contend that the allowance for losses in bottling could be
more than one percent, that is upto ten per cent. In view of the
H above there is no merit in the contention of the breweries that
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN 153
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
they are entitled to allowance of ten per cent towards losses in A
bottling and storage after the excisable article has left the
Brewery. The appeals are therefore liable to be dismissed.
Conclusion :
44. CA Nos.4708-4709/2002 are allowed and the order B
of the High Court in Civil Misc. WP Nos.3968/1978 and 4043/
2008 are set aside and the said writ petitions are dismissed.
45. CA Nos.4710, 4711, 4712 & 4713/2002 are
dismissed affirming the decision of the High Court dismissing C
C.M. W.P. Nos.1375/1978, 3690/1979, 4136/1978 and 4157/
1978, though for reasons, somewhat different from the
reasoning of the High Court.
D.G. Appeals disposed of. D
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "excise duty"Sign in to search