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PETITIONER: MOHAN MEAKlN BREWERIES LTD.

       Vs.

RESPONDENT: EXCISE & TAXATION COMMER. CHANDIGARH & ORS.

DATE OF JUDGMENT04/05/1976

BENCH: SINGH, JASWANT BENCH: SINGH, JASWANT GUPTA, A.C.

CITATION:  1976 AIR 2020            1976 SCR  510  1976 SCC  (3) 421  CITATOR INFO :  R          1977 SC1459  (8)  RF         1991 SC 735  (17,20)

ACT:      Punjab Bonded  Warehouse Rules,  1957, Rules  8  and  9 imposition of  duty or  regulatory provision,  whether ultra vires the  Financial  Commissioner’s  powers  countervailing duty, whether  impossible only  on  liquor  existing  within State territory.

HEADNOTE:      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  Uttar  Pradesh  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 and April 1969, it Transported various quantities of liquor  from its  distilleries in  Uttar Pradesh  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  of the Punjab Bonded Warehouse Rule, 1957. The  Excise and  Taxation Commissioner, exercising the power of  the Financial  Commissioner, issued  a show  cause notice and  then ordered  the appellant  to pay  duty on the wastage in  excess. The  appellant’s petitions  to the  High Court under  Articles 226  and 227 of the Constitution, were dismissed.      It was  contended before this Court, firstly that Rules 8 and 9 of the 1957 Rules under which the duty was sought to be imposed,  were ultra  vires the  rule making power of the Financial Commissioner,  and secondly, that these rules were invalid as  they went  beyond the scope of Ss. 16, 23 and 31 and Entry  51 List  II, 7th Schedule of the Constitution, by imposing excise  duty or  counter vailing  duty on  articles which neither existed in the State nor were removed from the warehouse. Dismissing the appeals the Court, ^      HELD .  (1) The impugned rules do not impose any duties

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or prescribe  the rates  thereof or create ‘any liability in respect thereof.  They are  in essence  and substance  of  a regulatory character  rent 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, issued be  the State  Government. The power exercised by the Financial Commissioner  were clearly  available to him under Sections 59 and 22 of the Act and he has not overstepped the same. 1513G-H; 514A] (2) According to Section 31 of the Act read with Entry 51 of list  II  of  the  Seventh  Schedule  to  the  Constitution, countervailing duty  can be  imposed  on  liquor  meant  for consumption which  is manufactured  or produced elsewhere in India. It  is immaterial whether the liquor of which permits were obtained  was consumed  within the  union territory  of Chandigarh or  was in  existence in  that territory  or not. Duty is  sought to  be charged  on liquor which was actually manufactured and  left Uttar  Pradesh but  was  found  short beyond the  permissible limit  and no reasonable explanation was tendered by the appellant in respect thereof. [517D-G]      Kalyoni Stores  v. The  State of Orissa & ors. [1966] I S.C.R. 865 referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal No. 582 of 1971.      Appeal by  Special Leave  from the  Judgment and  order dated the 29th July 1970 of the Punjab &  Haryana High Court in Civil Writ No. 2376170 and 511                CIVIL APPEAL No. 1418 of 1970.      From the  Judgment order dated 4th December 1969 of the Punjab and Haryana High Court in C.W.No. 342 of 1969.      Tirath Singh  Munjral, G.  K. Arora,  B. C. Das Gupta & Co. for the Appellant.      N. S. Das Behl and o. P. Sharma for the respondent.      The Judgment of the Court was delivered by      JASWANT SINGH,  J.-There two Civil Appeals Nos. 1418 of 1970 and  582 of  1971, the  first by certificate of fitness granted under  Article 133(1)(a)  of the Constitution by the Punjab and  Haryana High  Court and  the second  by  special leave granted  by this  Court which are directed against the Judgments and  orders of  the said High Court dated December 4, 1969,  and July  29,  1970,  rendered  in  Civil  Writ  r Petitions No.  342 of 1969 and No. 2376 of 1970 respectively shall be  disposed of  by this Judgment as they arise out of identical proceedings and raise common questions of law.      The appellant,  a public  limited company  incorporated under  the  Indian  Companies  Act,  which  carried  on  the business inter  alia of  manufacture, storage  and  sale  of various kinds  of Indian  made foreign  liquors and  had its plants  for   manufacture  and   production  of   beer   and distillation and production of the said liquors at Solan (in Himachal Pradesh),  at Mohan  Nagar (in  Uttar Pradesh),  at Lucknow (in  Uttar Pradesh)  and  at  Kasauli  (in  Himachal Pradesh) held  in the years 1967, 1968 and 1969 a licence in From B.W.H.  2 under  section 22 of the Punjab Excise Act (1 of 1914)  (hereinafter referred  to as  ’the Act’) read with Rule 2  of the  Punjab Bonded  Warehouse Rules, 1957 (herein after referred  to as ’the 1957 Rules’) which were framed by the  Financial  Commissioner  under  section  59  read  with

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section 22  of the  Act, permitting  it to run on conditions specified therein  a  Bonded  Warehouse  at  Chandigarh  for storage of  bottled and  bulk liquor and issue thereof under bond or  on payment  of duty  to the  licensees  of  Punjab, Haryana, Himachal  Pradesh  etc.  One  of  these  conditions required the  appellant to observe the provisions of the Act as also  the Rules framed and instructions issued thereunder from time to time.      Rules 7  to 10  of 1957 Rules governing the appellant’s licence ran thus:           "7. No  liquor shall  be received  in  the  bonded      warehouse  unless   accompanied  by  a  pass  from  the      offlcer-in-charge of the distiller- or bonded warehouse      from which it has been imported or transported.           Immediately on  arrival of  a consignment  at  the      bonded  warehouse   the  officer-in-charge   shall   be      informed and  the consignment shall not be opened until      the same  has been  examined and verified with the pass      by  the  officer-in-charge  who  shall  also  note  the      results in  the register maintained for the purpose and      also on the pass covering the consign- 512      ment. One  copy of  the pass  with entries  of  receipt      shall be  immediately  returned  to  the  officer,  who      issued the  pass ; the other copy with entries thereon.      shall he kept in  the. Warehouse.           8 A  wastage allowance  not exceeding  1 per  cent      shall be made for the actual loss in transit by leakage      or breakage  of vessels  or bottles  containing liquor.      The allowance shall be determined by deducting from the      quantity  despatched   the  quantity  received  at  the      destination, both  quantities being  that in  terms  of      proof liters of spirit contents or in case of beer bulk      liters.           9 If  the report  of the  officer-in-charge  shows      that the  wastage exceeds  the  prescribed  limit,  the      licensee shall  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.           Provided that each case of excessive wastage shall      be re  ported to  the Financial Commissioner for orders      who may  in his  discretion, on  good cause being shown      remit it  whole or  a ..  part or  the duty leviable on      such wastage.           10 Liquor shall be imported/transported under bond      in accordance  with the  Punjab Liquor  permit and Pass      Rules at  the  sole  risk  and  responsibility  of  the      licensee. The  bond in  form L. 37 shall be discharged,      after liquor  been  duly  checked  and  proved  by  the      officer-in-charge and deposited in the Ware-house."      Between Junc.  1967  and  April,  1969,  the  appellant transported. for the purpose of bottling, various quantities of  Indian   made  foreign   liquors  from   its   aforesaid distilleries in  Uttar Pradesh  and Himachal  Pradesh to  it Bonded  Warehouse  at  Chandigarh.  This  was  done  on  the strength of  the permits  issued by  the Excise and Taxation officer, Chandigarh.  Pursuant to  Rule 7 of the 1957 Rules, the  officer-in-charge   of  the   Warehouse  examined   the consignments on  their arrival  at their  destination with a view to  checking and  verifying the quantities thereof with those shown in the permits and discovered that they suffered from shortage  which exceeded the wastage allowance of 1 per cent permissible under Rule 8 of the said Rules.      As  a   sequel  to   the  detection  of  the  aforesaid shortages. the  Excise and  Taxation Commissioner exercising

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the  powers   of   Financial   Com   missioner,   Chandigarh Administration, who  is the first respondent here in, issued notices calling upon the appellant to show Cause why duty at the prescribed  rate of  Rs. 20/-  per proof  litre  be  not levied against it on the wastage in excess of the prescribed limit "as  if the  same had  been removed  from  its  Bonded Warehouse at  Chandigarh."  In  the  written  representation submitted on  behalf  of  the  appellant  in  reply  to  the notices, it  was pleaded  that the  liquor evaporated during transit: that 513 the Bonded Warehouse was in its initial stage and the method of measurement  of spirit  was crude;  that at  the time  of measurement, the  temperature of  spirit was  not taken  and that apart  from evaporation, wastage occurred by leakage of drums in  transit. By  his detailed orders dated January 10, 1969 and February 10, 1970, the said respondent repelled all the pleas  raised on  behalf of the appellant and made the ’ notices absolute  holding that  there was no material on the record to  show that  anything peculiar  had taken  place in respect of  the consignments  in question which entitled the appellant to  any remission  in the  duty  leviable  on  the wastage. The appellant thereupon preferred to the High Court writ petitions  Nos. 342  of 1969  and 2376  of  1970  under Articles 226  and 227  of the  Constitution challenging  the aforesaid orders  on various  grounds. While  the first writ petition was  dismissed by  the High  Court by  an elaborate Judgment and  order dated  December 4,  1969, the second one was dismissed  in limine  vide order  dated July  29,  1970. While the  High  Court  granted,  as  already  indicated,  a certificate of  fitness for appeal to this Court against its Judgment and  order dated December 4, 1969, it refused to so in respect of its order dated July 29, 1970.      Though several contentions were raised by the appellant in the  aforesaid two writ petitions filed by it in the High Court, counsel  appearing on  its behalf has assailed before us the  correctness of  the impugned  orders passed  by  the first respondent  on  two  grounds.  He  has  in  the  first instance contended  that Rules  8 and  9 of  the 1957  Rules under which the duty is sought to be imposed are ultra vires the  rule   making  power  of  the  Financial  Commissioner. Elaborating this  submission, counsel  has urged  that since the state  alone has,  by virtue  of election 31 of the Act, the power  to impose  duties mentioned  therein, as also the exclusive power under section 58(1) of the Act to make rules for the  purpose of  carrying out  the provisions of the Act including those  of section 31 or any other law for the time being in  force relating to excise revenue and section 13(a) of the  Act prohibits  the state  Government to delegate the powers conferred  on it by sections 14, 21, 31, 56 and 58 of the Act,  Rules 8  and 9  of the  1957 Rules  are manifestly beyond the  competence of  the Financial  Commissioner. This contention cannot, in our opinion be accepted as it proceeds on a  misconception of the correct legal position. It is, no doubt, true  that it  is the state Government alone which is empowered tn  impose excise  duty or  countervailing duty on any excisable article and to prescribe rates thereof as also the make  rules for  carrying out inter alia the purposes of section 31  of the  Act. but  it seems to be overlooked that the impugned  rules do  not impose  any one of the aforesaid duties  or   prescribe  the  rates  thereof  or  create  any liability in  respect  thereof.  They  are  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  of  liquor  ill  the

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Bonded Warehouse without payment at the initial stage of the duty payable  under the  Act and subsequently the removal of the liquor from the Warehouse on payment or otherwise of the duty which.  as correctly  pointed out by the High Court, is chargeable under the Fiscal Rule of 1937 issued by the state Government. The powers exercised 35-833 SCI/76 514 by the  Financial Commissioner were clearly available to him under sections  59 and  22 of the Act and he has not, in our opinion, overstepped  the same.  The first contention raised on behalf of appellant is, therefore, overruled.      It is  next contended by counsel for the appellant that Rules 8  and 9 of the 1957 Rules are also invalid as they go beyond the  scope of  sections 16, 23 and 31 and Entry Sl of List  ll  of  the  Seventh  Schedule  to  the  Constitution. Dwelling on  this contention,  counsel has submitted that as the taxing power of even the State Legislature is restricted to the  imposition of  excise duty or countervailing city on an excisable article which, according to section 3(6) of the Act,  means   inter  alia  an  alcoholic  liquor  for  human consumption  implying   thereby  an   alcoholic  liquor   in existence, the  incorporation in Rule 9 of the 1957 Rules of the fiction  making the  licensee liable  to pay duty at the prescribed rate on wastage in excess of permissible limit as if the  said wastage  had actually  been  removed  from  the Warehouse has  the effect  of imposing  duty on  an  article which neither existed in the State nor was  removed from the Bonded Warehouse  thus violating the scope and extent of the taxing power. ,      For a  proper appreciation  of the true legal position, it is necessary to advert to sections 3(6-b), 31, 32, 16 and 23 of  the Act  and Entry  Sl of  List  II  of  the  Seventh Schedule to the Constitution and the connotation of the term ’countervailing duty.’           "Section   3    (6-b)   .    ’excise   duty’   and      ’countervaling duty’  mean  any  such  excise  duty  or      countervailing duty as the case may be, as is mentioned      in Entry  Sl of  List II in the Seventh Schedule to the      Constitution.           Section 31.  Duty on excisable articles.-An excise      duty, or  a countervailing  duty, as the case may be at      such rate  or  rates  as  the  State  Government  shall      direct, may  be imposed,  either generally  or for  any      special local area, on any excisable article-           (a)  imported,   exported    or   transported    m                accordance with the provisions of section 16,                or           (b)  manufactured or  cultivated under any licence                granted under section 20. Or           (c)  manufactured in any distillery established or                any  distillery  or  brewery  licensed  under                section 21;           "Provided follows:-           (i)  Duty shall  not be  so imposed on any article                which has  been imported  into India  and was                liable on importation to duty under the India                Tarrif Act,  1894, or  the Sea  Customs  Act,                1878.           (ii) xx xx xx xx xx xx                Explanation.-Duty may  be imposed  under this                section at  different rates  according to the                places to which 515      any excisable article is to be removed for consumption,

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    A or  according to  the varying strength and quality of      such article      "Section 32.  Manner in  which  duty  may  be  levied.-      subject to  such rules  regulating the  time, place and      manner as  the Financial  Commissioner  may  prescribe,      such duty  shall be levied rateably, on the quantity of      excisable  article   imported,  exported,  transported,      collected  or   manufactured  in,  or  issued  from,  a      distillery, brewery or warehouse;      Provided that duty may be levied-           (a)  on intoxicating  drugs  by  an  acreage  rate                levied on  the cultivation of the hemp plant,                or  by   a  rate   charged  on  the  quantity                collected;           (b)  on   spirit  or   beer  manufactured  in  any                distillery established,  or any distillery or                brewery   licensed,   under   this   Act   in                accordance with  such  scale  of  equivalents                calculated on 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;           (c)  on tari, by a tax on each tree from which the                tari is drawn:      Provided further that, where payment is made upon issue of  an   excisable  article   for  sale   from  a  warehouse established or  licensed under  section 22(a),  it shall  be made-           (a)  if the  state Government  by notification  so                directs, at  the rate  of duty  which was  in                force at  the date  of import of that article                or           (b)  in the absence of such direction by the state                Government, at  the rate  of duty which is in                force on  that article on the date when it is                issued from a ware house.*      "Section  16.   Import,   export   and   transport   of intoxicants      No  intoxicant   shall   be   imported,   exported   or      transported . 1. except-           (a)  after payment  of any duty to which it may be                liable under this Act, or execution of a bond                for such payment, and           (b)  in compliance  with such  conditions  as  the                state 1. Government may impose."      "Section 23.  Removal of  intoxicant from distillery-no intoxicant shall be removed from any distillery, brewery, 516      warehouse or  other place  of  storage  established  or      licensed under  this Act,  unless the  duty,  if,  any,      payable under  Chapter V  has been  paid or  a bond has      been executed for the payment thereof.      "Entry 51  of List  the of  the Seventh Schedule to the Constitution-Duties  on   excise  on   the  following  goods manufactured or  produced in  the State  and  countervailing duties  at   the  same  or  lower  rates  on  similar  goods manufactured or produced elsewhere in India:-           (a)  alcoholic liquors for human consumption           (b)  opium, Indian  hemp and  other narcotic drugs                and narcotics;           but   not    including   medicinal    and   toilet           preparations containing  alcohol or  any substance           included in sub-para graph (b) of this Entry."      The expression  ’countervailing duty’ is not defined in the Act  but its meaning has been made clear in the Judgment

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the this  Court in Kalyani Stores v. The State of Orissa and or.(1) where it was observed _           "This bring  the consideration  of the  meaning of      the expression  "countervailing duties"  used in  Entry      51.  List   II  of   the  Seventh   Schedule   to   the      Constitution. The  "expression "countervailing  duties"      has not been defined in . the Constitution or the Bihar      & Orissa  Act 2  of 1915. We have, therefore, to depend      upon its etymological sense and the context in which it      has been  used in  Entry 51. In its etymological sense,      it means to counterbalance; to avail against with equal      force or  virtue; to compensate for some thing or serve      as an equivalent of or substitute for: sec Black’s live      Dictionary, 4th  Edn. 421.  This would  suggest that  a      countervailing duty  is  imposed  for  the  purpose  of      countervailing or to avail against something with equal      force or  to compensate for something as an equivalent.      Entry in  List  II  of  the  Seventh  Schedule  to  the      Constitution gives  power to  the State  Legislature to      impose duties  of excise on alcoholic liquors for human      consumption  where   the  goods   are  manufactured  of      produced in  the State.  It also  gives power  to  levy      countervailing duties  at the  same or  lower rates  on      similar goods  manufactured or  produced  elsewhere  in      India. The  fact  that  countervailing  duties  may  be      imposed at  the same  or lower rates suggests that they      are meant  for  counterbalance  the  duties  of  excise      imposed on goods manufactured in the State. They may be      imposed at the same rate as excise duties or at a lower      rate, presumably  to equalise  the burden  after taking      into account  the cost  of transport  from the place of      manufacture of the taxing  (1) [1966] 1 S.C.R. 865. 517      State. It  seems, therefore, that countervailing duties      are ment  to equalise  the burden  on alcoholic liquors      manufactured or  produced in the State. If no alcoholic      liquors similar  to those  imported into  the state are      produced  or   manufactured,  the   right   to   impose      counterbalancing duties  of excise  levied on the goods      manufactured in  the state  will  not  arise.  It  may,      therefore, be  accepted that  countervailing duties can      only be  levied is  similar goods are actually produced      or manufactured in the state on which excise duties are      being levied."      lt will  be seen  that section  31 of the Act read with Entry 51  of‘  List  II  of  the  Seventh  Schedule  to  the Constitution permits  imposition of  (i) excise  duty by the state Government  on any  exisable article  imported into or exported  from   or  transported  ill  accordance  with  the provisions of  section 16  of  the  Act  which  means  after payment of  any duty to which it may be liable under the Act or after  execution of  a bond  for such  payment  and  (ii) countervailing duty  inter alia  on  Alcoholic  liquors  for human consumption  manufactured  or  produced  elsewhere  in India.      The contention  advanced on  behalf of  appellant which seems to  proceed on  the  assumption  that  the  Chandigarh Administration cant  impose duty  only if liquor is consumed in its territory is erroneous as, according to section 31 of the Act  read with  the aforesaid  Entry 51  of List  of the Seventh Schedule  to the  Constitution, countervailing  duty can be  imposed on  liquor meant  for consumption  which  is manufactured  or   produced  elsewhere   in  India.   It  is immaterial  whether   the  liquor  for  which  permits  were

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obtained  was   consumed  within   the  Union  Territory  of Chandigarh or  was in  existence in  that territory  or not. What is material is whether permits were obtained for import from Uttar  Pradesh of  alcoholic  Liquor  meant  for  human consumption and  the quantity  showing in  the permits  left Uttar Pradesh.  In the  present case,  the liquor  for which permits were  obtained by  the appellant  was admittedly  in existence and  was meant for human consumption and did leave the appellant’s  distilleries in  Uttar  Pradesh  for  being transported to  his Warehouse  in Chandigarh at his own risk and responsibility.  It is  also not denied on behalf of the appellant that  Portion of  the liquor  which  exceeded  the permissible limit  of wastage  did not reach the appellant’s Warehouse  and  was  not  found  therein  and  the  shortage remained unaccounted  for. It  is thus  evident that duty is not sought  to be  charged on an excisable article which was not in  existence, as  contended on  behalf of the appellant but is  sought to  be charged  on liquor  which was actually manufactured and  left Uttar  Pradesh but  was  found  short beyond the  permissible limit  and no reasonable explanation was tendered  by the  appellant in respect thereof. There is accordingly no  merit or  substance in the second contention advanced on behalf of the appellant as well.      The decision of this Court in Bimal Chandra Banerjee v. State of  Madhya Pradesh(l) which is strongly relied upon on behalf of the  (1) [1971] 1 S.C.R. 844. 518 appellant is  not applicable  to the  present case.  In that case, the  condition introduced  by the  state Government in the purported exercise of its power under clause (d) and (h) of section  62(2) of the Madhya Pradesh Excise Act, 1915, in the appellants’ licenses prescribing the minimum quantity of liquor to  be purchased  by them  from  the  Government  and enjoining them  to make compulsory payment of excise duty on the quantity of liquor which they failed to take delivery of was held  to be invalid as it went beyond. The provisions of sections 25,  26 27,  62(1) and’  clauses  (d)  and  (h)  of section 62(2)  of the  aforesaid Act.  In the  present case, however, the  liquor was  lifted by  the appellant  from its distilleries in Uttar Pradesh and a portion thereof remained unaccounted for,  as  already  stated,  on  arrival  of  the consignments at their destination.      For the  foregoing reasons,  the respondents were right in demanding the duty on the shortages.      In the  result, the appeals fail and are dismissed with costs, limited to one set. M.R.                                       Appeals dismissed 519