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CASE NO.: Appeal (civil)  2670 of 2006

PETITIONER: State of U.P. & Ors.

RESPONDENT: Saraya Industries Ltd.

DATE OF JUDGMENT: 12/05/2006

BENCH: S.B. Sinha & P.P. Naolekar

JUDGMENT: J U D G M E N T [Arising out of SLP (Civil) No. 11483 of 2005] W I T H  CIVIL APPEAL NO.  2648                   OF 2006 [Arising out of SLP (Civil) No.15463 of 2005] State of U.P. & Ors.                                            \005Appellants Versus Simbhauli Sugar Mills Ltd.                                      \005Respondent.

CIVIL APPEAL NOS.     2649               OF 2006 [Arising out of SLP (Civil) No.15345 of 2005] State of U.P. & Ors.                                            \005Appellants Versus M/s Kesar Enterprises Ltd.                                      \005Respondent

CIVIL APPEAL NO.          2650          OF 2006 [Arising out of SLP (Civil) No.15339 of 2005] State of U.P. & Ors.                                            \005Appellants versus Radico Khaitan Ltd.                                             \005Respondent.

CIVIL APPEAL NO.              2669      OF 2006 [Arising out of SLP (Civil) No.15354 of 2005] State of U.P. & Ors.                                            \005Appellants versus M/s National Industrial Corpn. Ltd. & Anr.                      \005Respondents

CIVIL APPEAL NO.           2678         OF 2006 [Arising out of SLP (Civil) No.15341 of 2005] State of U.P. & Ors.                                            \005Appellants Versus M/s McDowell & Co. Ltd. & Anr.                          \005Respondents

CIVIL APPEAL NOS.        2647            OF 2006 [Arising out of SLP (Civil) No.13297 of 2005] State of U.P. & Ors.                                            \005Appellants versus M/s DCM Shriram Industries Ltd.                                 \005Respondent.

CIVIL APPEAL NOS.            2671        OF 2006 [Arising out of SLP (Civil) No.15245 of 2005] State of U.P. & Ors.                                            \005Appellants Versus M/s McDowell  & Co. Ltd. & Anr.                         \005Respondent.

S.B. SINHA, J  :  

       Leave granted.

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       The respondents herein are owners of distilleries.  Right to  manufacture various categories of Indian Made Foreign Liquor within the  meaning of the provisions of the Uttar Pradesh Excise Act, 1910, as  amended in 1950,  (for short, ’the Act) has been granted to them by the State  of Uttar Pradesh.  They have been granted licence for manufacturing potable  liquor.  They indisputably have been paying excise duty in terms of the  provisions of  the Act.   

The State of  Uttar Pradesh on or about 03.02.2001 allegedly adopted  a policy decision for the excise year 2001-02 which commenced from  01.04.2001 to the effect that the distilleries had to obtain and affix security  holograms issued by the department to prevent evasion of duty and  smuggling of liquor.  The Excise Commissioner issued a circular on  21.02.2001 providing that every distillery would receive holograms from his  office, wherefor plants had been established.   Another circular letter was  issued on 24.03.2001 directing that holograms on bottles, pouches and canes  would be affixed by the distilleries.  The excise duty was payable on the  bottles, pouches and canes etc. on which holograms had been affixed.   Different kinds of holograms had been provided for different sizes of  bottles/pouches, for different quantities and qualities of liquor.  Procedures  to be followed for obtaining the said holograms, transporting etc. thereof  by  the distilleries were also provided.  It was provided that the distilleries would  be entitled to receive  holograms from the incharge excise inspector on day- to-day basis and a register was required to be maintained as regards the stock  of the holograms issued, the number of holograms wasted and the closing  stock thereof.  The excise duty was to be deposited before issuance of   bottles, pouches and canes affixed with holograms.  Furthermore, the excise  duty was to be chargeable on the wasted holograms, which would be  destroyed under the orders of the Excise Commissioner.   

A new policy of execution of indemnity bonds in the prescribed form  in Form PD-16-A was directed to be issued by circular letter dated  08.11.2001, whereby and whereunder, the distilleries were made themselves  responsible for indemnifying the State for any loss of excise duty or such  other payment awarded as compensation  or damages by any court of law or  tribunal or Commissioner.  The said circular letter further provided that  holograms which were returned to the excise department as damaged or  wasted and verified by the Authorized Committee would not be exigible  to  any excise duty.  However, if the wasted holograms were not produced for  verification, the same shall be presumed to have been misused as a result  whereof the distilleries would be liable to pay excise duty on the quantity of  liquor which could have been charged, if the holograms had not been wasted  and the distilleries were made liable to compensate the State for the loss of  duty on the quantity of liquor which could have been issued under the  missing security holograms.   

On or about 19.11.2001, the Excise Commissioner issued a  clarification that in case any loss is caused to the security holograms during  transit, the distilleries would be liable to compensate the Governor for loss  of alleged duty on the quantity of the liquor, which could have been issued  under the lost security holograms.   

An Authorized Committee came to be appointed by the Excise  Commissioner, which visited the premises of the distillery of the  respondents between 15.07.2001 to 20.07.2004.  Before the  said Committee  all the wasted holograms were allegedly not produced.  A statement was  prepared by the said Committee showing the number of holograms found to  have been wasted/damaged but the serial number could not be read and  categorized as missing holograms.  The respondents were directed to deposit  the excise duty on the quantities mentioned in the said holograms.   

The  writ petitions were filed by the respondents herein before the  Allahabad High Court questioning the legality of the said circular dated

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03.02.2001 as also the circulars dated 21.02.2001, 24.02.2001, 16.06.2001,  29.10.2001, 08.11.2001 and 19.11.2001 issued by the Excise Commissioner,  inter alia, on the ground that no presumption could be raised that wasted  security holograms which could be produced for verification before the  Authorized Committee would be deemed to have been misused.  By reason  of the impugned judgment, the said writ petitions have been allowed.    

The State is, thus, before us.

       The High Court in passing the impugned judgment, inter alia, opined :  (i) that the duty cannot be charged on the basis of loss of holograms, as  excise duty was payable in terms of the notification issued under Section 29  of the Act; and (ii) no notification having been issued, excise duty demanded  only on the basis of the circulars issued by the Excise Commissioner on  account of holograms, is bad in law.

       Mr. Rakesh Dwivedi, the learned Senior Counsel appearing on behalf  of the Appellant, submitted that by reason of the circular letters issued by the  Excise Commissioner only effect was given to the rules frame by the State  dated 19.03.2001.   

Our attention, in this connection, has been drawn to the indemnity  bond as prescribed in Form No. PD-16-A in terms whereof the distillers had  undertaken to pay such amount of damages in case of loss or misplacement  of the holograms, which would be equal to the amount of excise duty  involved in such missing holograms.  Our attention, in this behalf, has also  been drawn to a rule made on 23.01.2004, in terms whereof a similar  provision had been inserted.

Mr. Dwivedi urged that the regulatory measures having been taken by  the Excise Commissioner so as to prevent evasion of payment of excise  duty, no notification was required to be issued nor any rule was required to  be framed.   The Act, whenever any such notification is required to be  issued, Mr. Dwivedi would contend,  provides for the same and, thus,  notifications were not required to be issued..

Mr Ashok H. Desai, the learned Senior Counsel appearing on behalf  of the respondents, on the other hand, submitted that the object sought to be  achieved being levy of additional excise duty, it was obligatory on the part  of the  State to issue an appropriate notification in terms of Section 29 of the  Act.  It was submitted that excise duty was payable on actual quantity of   liquor manufactured and not on notional quantity thereof.  Furthermore a  duty cannot be levied by incorporating a condition in the licence.  It was  furthermore contended that the power of the Excise Commissioner to issue  direction being limited,  and imposition of duty is within the exclusive  domain of the State, the same must be effected by way of a notification and  not by way of a circular.   

Before we advert to the rival contentions of the parties, as noticed  hereinbefore, we may take note of  certain provisions of the Act.    

’Excisable articles’ has been defined in Section 3(22a) to mean : (a)  any alcoholic liquor for human consumption; or (b) any intoxicating drug.        

Section 18 provides for establishment or licensing of distilleries and  warehouses. A licence therefor is to be issued on such condition as the State  Government deems fit to impose as regards the construction  and working of  a distillery or  brewery or manufacturer.   

Section 19 provides for removal of intoxicants from distillery, etc.   The power to levy duty on excisable articles is provided for under Section 28  of the Act.  Section 29 of the Act lays down the manner in which the duty is  to be levied, mandating that for the said purpose a  notification should be  issued in terms whereof directions as enumerated in the clauses mentioned  therein should be made.  Section 31 provides for the forms and conditions of

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licences on the terms mentioned therein.  In terms of Section 41 of the Act,  the Excise Commissioner may make rules.   

Indisputably, the rules in terms of the said provisions providing for  issuance of such holograms have been made for the first time in 2004.    Pursuant to or in furtherance of such rule making power, however, rules  have been framed.  Indisputably, in terms of the said rules,  manufacture,  processing, distribution, and payment of excise duty,  transport etc. are  regulated.   Rule 715 provides for accounts to be kept by distillers.  Rule 716  provides that such  accounts would be open to inspection at all times by  the  officer-in-charge and all superior officers.  Rule 719 empowers the Excise  Commissioner to appoint officer to the charge of distilleries, in the following  terms :

"719.  Excise Commissioner to appoint officer to the  charge of distilleries. \026 The Excise Commissioner will  appoint such officers of the Excise Department as he may  see fit to the charge of distilleries.  The pay of such  officers, will be met by Government provided that when  the annual establishment charges exceed the sum of total  of 10 per cent of the duty leviable on the issues made  from the distillery to districts in the State, plus 60 per  cent, of the export duty levied on the export of liquor  during the year, this excess shall be realized from the  distillers."         

Instructions for maintaining forms and registers are also provided in  Rules 815 and 821, which read as under :

"815. General rules to be observed.- The prescribed  registers and forms of accounts are not to be deviated  from or added to without the special orders of the Excise  Commissioner.  All fractions of gallons and of degree of  strength are to be shown to the nearest first point of  decimals.  To preserve uniformity, the system of  increasing the first  figures of decimals by one when the  second is 5 or more should be adopted in proof  conversions.

Overwriting and erasures are forbidden; any necessary  corrections must be clearly  made and must be initialed."

        "821. Distillers declaration of wash Form P.D.8.- Distillers must thoroughly dissolve the saccharine  materials used by them when they set up the wash; and  declare in Form P.D. 8 the kind and quantity of  material  used, the actual saccharometric gravity corrected for  temperature before fermentation commenced and the  total quantity for wash made."       No  controversy has been raised on behalf of the appellant that in the  event it be held, as has been done by the High Court, that by reason of the  said circular letters excise duty sought to be levied, the same would be bad  in law.   

The submission of Mr. Dwivedi, however, as noticed hereinbefore,  was that it was done with a view to obviate the difficulties faced by the  distillers and for the purpose of preventing evasion of payment of excise  duty by way of regulatory measure.  The rule made by way of notification  dated 19.03.2001 is not applicable to the distillers.  It is only applicable to  wholesale shops.  The provisions of the said rules cannot be made applicable  to the distillers, as the rules for the wholesale shops and distillers stand on   different footings.

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Mr. Dwivedi, in our opinion,  is  not correct in contending that the  circular letters referred to hereinbefore, were issued only with a view to  obviate the difficulties faced by the distillers for implementation of matters  relating to  issuance of holograms, as provided for in the rules.  Mr. Dwivedi  was also not correct in relying upon the indemnity bond purported to have  been executed by the appellant in terms whereof the licensees agreed to keep  the State indemnified for the loss of security of holograms, inasmuch as the  indemnity bonds were executed after the period in question, 2004 Rules to  which our attention has also been drawn are also indisputably not applicable.

Our attention has also been drawn to the licences granted in favour of  the distillers which allegedly contained clauses relating to payment of duty,   in case of damages or shortages of security holograms by the licensees in  their personal capacity.   The  icence, to which our attention has been drawn  by the appellant, was issued on or about 01.04.2004 i.e. after the coming into  force of the 2004 Rules.

The State indisputably is entitled to take recourse to such measures as  it may think necessary, with a view to prevent evasion of payment of excise  duty or for the purpose of preventing adulteration etc.  The State does not  say that prevention of adulteration was the purpose for which the said  circular letters were issued.  We have noticed hereinbefore that during the  period in question, there did not exist any rules.  No notification was also  issued by the State.  The licence did not contain any clause relating to  payment of excise duty either by way of penalty or damages for loss and/or  damage caused to the security holograms.  In the  circular letter dated  03.02.2001, it was, inter alia, provided :

"7.     The main revenue is of Excise duty.  Therefore,  the license fee should be so determined that on the  basis of consumption a substantial increase in  Revenue is achieved in the next year.

8.      In order to check the evasion of excise duty and  smuggling of excise, a serialized/holographic  sticker is to be provided for use on the bottles of  liquor and the convenience issue of liquor after  payment  of due excise duty  is made."

The said circular letter, therefore, did not provide for any penal clause  or a clause requiring the licensee to pay any damages.  It merely provides for  the manner in which the purported evasion of excise duty was sought to be  prevented.  By circular letter dated 21.02.2001, the distilleries were advised  to arrange application machine in every distillery for affixing security  holograms on bottles etc.  It specified the price of such holograms.  It,  however, provides that without affixing the security holograms and paying  the excise duty liquor for human consumption will not be issued.  A letter  was issued by the Excise Commission where again emphasis has been laid  on the purpose for which the security holograms were to be affixed on  bottles etc. namely, to secure Government revenue or to impose restriction  on the sale of illegal liquor.  By reason of circular letter dated 24.03.2001, a  detailed procedure has been laid down in regard to issuance of such  holograms, relevant clauses whereof are as under :

"1.     \005These security holograms are to be affixed on  bottles, pouches and canes at the level of  Distilleries/Breweries/Vintineries/foreign liquor  bond (BWFL 2/2A/2B) which shall be conclusive  proof of the fact that liquor contained in it is  manufactured by a legally authorized unit as per  standard norms.  Accordingly a safe and secure  transportation, storage possession and custody is  essential so that unsocial elements and liquor

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smugglers may not illegally catch hold of such  holograms and the Government Revenue as well as  the safety of public health may be secured.   

5.      The supply of security holograms shall be made  only to such authorized representative of  Distillery/Breweries/Vintinery/license holders of  Foreign liquor bond whose signatures have been  attested in the indent form by the officer incharge  of the Distillery/Brewery/Vintinery/license holder  of foreign liquor bond and a photo identity card  jointly signed by the officer incharge of the  Distillery / Brewery / Vintinery / license holder of  foreign liquor bond and the incharge of the  indenting unit.  Such an identity card had to be  produced before the officer incharge (hologram)  Excise Headquarter Allahabad at the time of issue  of security holograms."

10.     The Distillery / Brevery / Vintinery / license  holders of foreign liquor bond shall as per their  requirement obtain the security holograms from  the officer incharge (Excise) of the concerned unit  and their daily receipt shortage, use, wastage etc.  shall be recorded in the prescribed register HG-6.   The wasted security holograms during its use by  the concerned unit shall be kept safe in an envelop  and the code number mentioned on such hologram  shall be recorded in the register and a fortnightly  statement of wastage of such holograms shall be  made available through officer incharge of the  concerned unit to the officer incharge (holograms)  headquarter at Allahabad.

11.     The work of destroying the wasted holograms by  burning them shall be done on a quarterly basis,  after verification of wastage of such holograms by  the officer incharge (Excise) of the concerned unit  and after the approval of the Excise Commissioner  and in the presence of Deputy Commissioner  Excise of the charge, officer incharge (Excise) of  the unit an officer nominated by the Excise  Commissioner and the Manager of the concerned  unit.  A report to this effect shall be forwarded to  the officer incharge (Holograms) to headquarters.

12.     After the receipt of the holograms from the officer  incharge (Excise) of the unit, the concerned unit  shall be responsible for the safety, storage, use etc.  of such holograms and its daily record shall be  kept by the concerned unit in a register HG-6 and  they shall be totally responsible to compensate any  loss in revenue as a consequence of such wastage  of holograms.

13.     \005For any misuse of  security holograms or for not  affixing the proper hologram as per classification  of the liquor resulting in any loss to the revenue  the concerned unit shall be totally responsible."

A presumption can be raised only by law.  ’Conclusive proof’ is also  within the realm of Evidence Act.

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Although by way of regulatory measures directions may be issued in  regard to the maintenance of register in such a manner in which the wasted  holograms were to be maintained; but by reason of an executive fiat, a unit  cannot be made responsible to compensate any loss to the revenue as a  consequence of such wastage of such holograms.  Furthermore making the  concerned unit totally responsible for any misuse of   security holograms or  for not affixing the proper hologram as per classification of the liquor must  result in loss to the revenue.   

We may notice the difference between the rules and the conditions of  licence which came to be imposed as regard issuance and use of security  holograms and the provisions contained in the impugned circular letters.   The circular dated 19.03.2001 categorically provided for payment in  advance of excise.  

We have noticed hereinbefore that the contention of Mr. Dwivedi,  that the circular letters have been issued to the benefit of the respondent  distilleries  was wholly incorrect.  The said rules were not applicable at all  and the question of giving any relaxation from the rigours thereof did not  and could not arise.  The distillers were asked to execute  bonds.  Such  bonds had been executed in November 2001, which is beyond the period in  question.  Only in terms of such indemnity bonds, the concept of payment of  damages and that too in the form of liquidated damages, was evolved.  The  position came to be clarified only by the rules framed by the State on  23.01.2004 wherein it was stated  :                  "6(c)   The licensee shall submit the Security  Hologram/Holographic Shrink Sleeves in tact received  from the approved supplier with Hologram Removal pass  to officer in charge of the distillery.  In case of  shortage  in Security Hologram/Holographic Shrink Sleeves the  licensee shall be liable to deposit the excise duty  involved in the missing Hologram/Holographic Shrink  Sleeves."

. Thus, by reason of the circular letter, the concept  of payment of  damages measured in terms of the excise duty had not been conceptualized.

 The legislative field in regard to levy of excise duty is covered by  Entry 51, List II of the Seventh Schedule of the Constitution of India.  It may  be true that the resort to regulatory measures can be taken by the State, but  the same must be done in the manner laid down under the Act.  A provision  which confers powers upon a statutory authority in terms whereof a penalty  is to be imposed, damages are to be paid for non payment of excise duty, in  our opinin, must be done through a valid subordinate legislation and not by  way of issuance of a circular letter.

In Bimal Chandra Banerjee v. State of Madhya Pradesh etc. [(1970) 2  SCC 467], this Court clearly laid down : "Neither Section 25 nor Section 26 nor Section 27 nor  Section 62(1) or clauses (d) and (h) of Section 62(2)  empower the rule-making authority viz. the State  Government to levy tax on excisable articles which have  not been either imported, exported, transported,  manufactured, cultivated or collected under any licence  granted under Section 13 or manufactured in any  distillery established or any distillery or brewery licensed  under the Act. The Legislature has levied excise duty  only on those articles which come within the scope of  Section 25. The rule-making authority has not been  conferred with any power to levy duty on any articles  which do not fall within the scope of Section 25.  Therefore it is not necessary to consider whether any  such power can be conferred on that authority. Quite

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clearly the State Government purported to levy duty on  liquor which the contractors failed to lift. In so doing it  was attempting to exercise a power which it did not  possess."

The said decision has been followed in Excise Commissioner, U.P.,  Allahabad and Others v. Ram Kumar and Others  [(1976) 3 SCC 540],  wherein this Court stated  the law in the following terms :

"The common question of law that arises for  determination in all these appeals is whether the  condition incorporated in the licences of the respondents  that they would lift the fixed minimum quantity of liquor  and sell the same at their allotted shops and in case of  their default or failure to do so, they would be liable to  pay compensation equal to the amount of the excise duty  leviable on the unlifted quantity is valid and enforceable.  This point is no longer res integra. In Bimal Chandra  Banerjee v. State of Madhya Pradesh1 this Court held  that:  "No tax can be imposed by any bye-law or rule or  regulation unless the statute under which the  subordinate legislation is made specially authorises  the imposition. In the present case, the Legislature has  levied excise duty or countervailing duty on the  excisable articles which have been either imported,  exported, transported, manufactured, cultivated or  collected under any licence granted under Section 13,  or manufactured in any distillery or brewery  established or licensed under the Act; and the State  Government has not been empowered to levy any  duty on liquor which the contractors failed to lift.  Therefore, the State Government was exercising a  power which it did not possess and hence the rule  imposing the condition in the licences and the demand  notices are invalid."

In State of U.P. and Others v. Modi Distillery and Others [(1995] 5  SCC 753], this Court opined

"Mr Sehgal submitted, in the alternative, that if it was  the ultimate beverage which alone was exigible, the  process of determining the wastage and levying excise  duty thereon was only regulatory and, therefore,  permissible. We are here concerned with the demand of  the State for excise duty. The power of the State to  demand excise duty is limited in the manner  aforementioned. The demand for excise duty is not a  regulatory measure. The power of the State to levy excise  duty cannot be expanded with reference to its power to  regulate manufacture. We are not required to and do not  express any opinion in regard to the power of the State to  regulate the manufacture of alcoholic liquors for human  consumption."

The ratio of the said decision has been reiterated in State of U.P. and  Others v. Vam Organic Chemicals Ltd. and Others  [(2004) 1 SCC 225]

In State of U.P. and Others  v. Delhi Cloth Mills and Another [(1991)  1 SCC  454], this Court held :

"It is emphasised by Mr Agarwal that this provision is  meant to discourage evasion of duty. If any part of the  lower export duty charged liquor is not in fact exported it  should be made to pay the higher excise duty as payable

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on home consumed liquor. It does not impose any new  duty. We are inclined to agree. This rule does not  authorise imposition of any new tax but only authorises  charging up excise duty on the excess wastage of liquor  in course of export which was charged at concessional  rate. The old Rule 814 of the Rules was made by B.O.  No. 423/V-234-B, dated September 6, 1910 and No. 20/8  V-E 980-B, dated May 28, 1918 providing for allowance  for loss in transit. It said:

"814. An allowance will be made for the actual loss in  transit, by leakage, evaporation or other unavoidable  cause, of spirit transported or exported under bond. The  allowance is subject to the following maximum limits." Limits were prescribed differently for wooden casks and  metal vessels, keeping in mind the duration of transport.0

It was further observed :

"Thus, we find that the minimum (sic maximum)  limits of wastage in transit was prescribed even under the  old rule. This by implication enjoined that the excess  wastage would be taxed as if not wasted.         xxx             xxxx                    xxx

In Mohan Meakin Breweries Ltd. v. Excise &  Taxation Commissioner, Chandigarh 6 the appellant  company carried on the business of manufacture, storage  and sale of liquors. Between June 1967 and April 1969, it  transported various quantities of liquor from its  distilleries in U.P. to its bonded warehouse at  Chandigarh. On arrival, the consignments were examined  by the officer-in-charge of the warehouse, and a shortage  was found, exceeding the wastage allowance permissible  under Rule 8 of the Punjab Bonded Warehouse Rules,  1957. The Excise and Taxation Commissioner,  exercising the powers of the Financial Commissioner,  issued a show cause notice and then ordered the appellant  to pay duty on the wastage in excess. The show cause  notice required the appellant to pay duty on excess  wastage in course of import of liquor from U.P. and the  rules governing the appellant’s licence provided for a  wastage allowance not exceeding 1 per cent of the actual  loss in transit by leakage or breakage of vessels or bottles  containing liquor, and if the wastage exceeded the  prescribed limit the licensee should be liable to pay duty  at the prescribed rate as if the wastage in excess of the  prescribed limit had actually been removed from the  warehouse, and it was also provided that the Financial  Commissioner could in his discretion on good cause  being shown remit the whole or a part of the duty  leviable on such wastage, and these provisions were  challenged. This Court held that the impugned rules did  not impose any new duty or create any liability and that  they were in essence and substance of a regulatory  character meant to guard against perpetration of fraud or  deception on the revenue. "They provide for and regulate  the storage and subsequently the removal of liquor from  the bonded warehouse, on payment or otherwise of the  duty which is chargeable under the Fiscal Rules of  1937." We agree with Mr Agarwal that the instant Rules  636 and 814 are also of regulatory character and they are  precautionary against perpetration of fraud on the excise  revenue of the exporting State. If out of the quantity of  military rum in a consignment, a part or portion is

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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 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.

In Government of Haryana v. Haryana Brewery Ltd. and Another  [(2002) 4 SCC 547], whereupon Mr. Dwivedi relied upon, this Court  emphasized  the need of a forum where a reasonable explanation for loss of  good could be raised.  In this case, such a forum was not available.  

In State of Bihar and Others v. Industrial Corporation (P) Ltd. and  Others [(2003) 11 SCC 465], this Court clearly held :

"In the present case, what we find is that before  creating a demand of penal duty or penalty, there was no  adjudication by any authority as regards the breach  committed by the respondents. We also find that no  opportunity of any kind was offered to the respondents  before the demand as regards the penal duty was pressed  against the respondents. The matter was not even  examined as to what was the reason for shortfall in the  production of rectified spirit. The Molasses Act does not  provide for imposition of such penalty in the event of  shortfall of spirit. It must, therefore, necessarily be held  that the imposition of the impugned penalty being against  the principles of natural justice is illegal and void.

The statutory authorities must act within the four  corners of a statute. They could take recourse to the  proceeding for levy of penalty and the recovery thereof  from the respondents only in the event there existed any  agreement or statutory provision therefor. Such a power  did not vest in the Commissioner of Excise or the  Superintendents of Excise who had issued the impugned  demand notices."

It is, therefore, manifest that the duty has to be levied only in terms of  the provisions of the statute and not de’ hors the same.

It is accepted by Mr. Dwivedi that legislation relating to excise duty is  relatable to Entry 51, List II of the Seventh Schedule of the Constitution of  India.  If  that be so, provision for imposition of such duty or evasion thereof  must be provided in terms of the law.  By reason of an executive order, a  presumption cannot be raised.  No penalty can be levied.  The matter would  have been different, if the same was provided for, as has been sought to be  done now, by way of terms and conditions of licence or in terms of the rules.   By reason of an executive instruction, the provisions of the law cannot be  effaced.  A legislative policy, furthermore, must be laid down by the State.   The matter relating to an excise policy must be framed by the State.  It  cannot be done by the Excise Commissioner.  A distinction must be borne in  mind between the concept of excise duty on production and  manufacture of  liquor and parting with the exclusive privilege of the State.  Imposition of a  penalty would not come within the purview of either of the two.  When a  price is fixed by the State for parting with its exclusive privilege, the same  must again be provided in terms of the statute and the rules framed  thereunder or by way of  terms of licence.   

Before parting with the case, however, we may observe that we have  not gone into the question as regard the applicability of the rules vis-‘-vis

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the new conditions imposed in the licence, in the instant case.

We are, therefore, of the opinion that in absence of the requisite  statutory backing, the impugned levy by the State cannot be held to be  justified in law.  We, therefore, do not find any merit in these appeals.  They  are dismissed accordingly.  No costs.