Orissa High Court
Case Details
AFR ORISSA HIGH COURT: CUTTACK W.P(C) NO. 1910 OF 2016 In the matter of an application under Articles 226 and 227 of the Constitution of India. --------------- United Spirits Limited ..… Petitioner State of Odisha and others ….. Opp. Parties -Versus- For petitioner : Mr. Durga Prasad Nanda Sr. Advocate along with M/s. Biswa Mohan Patnaik, P.R. Patnaik, S.R. Singh Samanta, R. Sharma, R.K. Ray, K.C. Mishra and B. Binaya, Advocates For opp. parties : Mr. S.N. Nayak, Addl. Standing Counsel P R E S E N T: THE HONOURABLE DR. JUSTICE B.R.SARANGI AND THE HONOURABLE MR JUSTICE MURAHARI SRI RAMAN Date of Hearing: 10.08.2023:: Date of Judgment: 14.08.2023 DR. B.R. SARANGI, J. United Spirits Limited, a company incorporated under the Companies Act, 1956, has filed this writ petition seeking to quash the demand notice dated 01.09.2012 under Annexure-5, whereby it has been called Page 1 of 22 upon to deposit the duty arising due to the transit wastage of ENA (Extra Neutral Alcohol) beyond the allowable limit amounting to Rs. 57,85,991.00 @ Rs.220/-, as well as the office order dated 19.11.2015 under Annexure-11, whereby the representation, filed by the petitioner in compliance to the order dated 05.10.2015 passed by this Court in W.P.(C) No.2452 of 2014, has been rejected. 2. The factual matrix of the case, in brief, is that, one M/s. Heritage Distilleries Private Ltd. (hereinafter to be referred in short as “M/s. HDPL”) had established an industry at Ekamkana, Nimapara in the district of Puri for blending, bottling and manufacturing of IMFL. The present writ petitioner took over the factory/industry of M/s. HDPL on lease basis for a period of 5 years with effect from 01.04.2013 and accordingly obtained license from opposite party nos. 3 and 4 for compounding, blending and bottling of IMFL in the factory premises of M/s. HDPL. At the time of taking over the lease of the factory of M/s. HDPL, the petitioner through its official filed an undertaking by way of an affidavit dated 22.03.2013 before the Excise Authorities Page 2 of 22 that it shall pay the amount claimed against M/s. HDPL, as and when the demand became payable as per law. Clauses- 4 and 5 of the affidavit read as under:- “4. That there is a demand of Rs.57,85,991/- (Rupees Fifty Seven Lakhs Eighty Five Thousand Nine Hundred Ninety One) only against M/s. Heritage Distilleries Private Limited, Ekamkona, Nimapara, Puri towards payment of Excise Duty on account of wastage of E.N.A due to accident in the way of transportation to the Unit and the Prayer of petition is under consideration under Rule-32 of boards Excise Rules. 5) That the Company to pay the amounts, claimed against Heritage Distilleries Private Limited in points 3 and 4 of this Affidavit, as and when the demands become payable as per law.” 2.1 M/s. HDPL had the permit dated 24.07.2012 for import of ENA for a quantity of 25000 BL (41535.000 LPL) from M/s-Triveni Engineering & Industry Ltd., Mujafarnagar, U.P. The said permit was valid for the period from 24.7.2012 up to 17.8.2012. On 16.08.2012, while the consignment was being transported in vehicle No.PB-19D- 9104 of M/s. Madhu Transport, Meerut, it faced an accident on 16.08.2012 near village “Thanbala” under the Sasaram Police Station, Rohatas of Bihar. The Tanker
Legal Reasoning
Driver lodged an FIR before the Officer-in-Charge of Page 3 of 22 Sasaram Police Station on 18.8.2012 and also informed the Excise Authorities of Rohatas. 2.2 The Excise Officer (Inspector Production) visited the site of the accident and submitted a report on 21.08.2012 wherein the factum of accident was confirmed and the quantity of leakage of ENA due to the accident was recorded. The first demand of excise duty was raised on 01.09.2012 on the wastage of ENA to the tune of 26715.310 LPL to the erstwhile M/s. HDPL. In response to the said notice M/s. HDPL submitted a representation before opposite party no.2 on 12.09.2012 for waiver of such demand as the ENA lost was due to an accident of the tanker in transit. The representation of M/s. HDPL was forwarded on 03.10.2012 by the opposite party no.4 to the opposite party no.2 with a comment that if the opposite party no.2 is satisfied regarding the deficiency being caused by accident or any other unavoidable cause, the duty levied should be refunded as per proviso to Sub-rule (2) of Rule- 32 of the Excise Rules, 1965. A further representation was made by M/s. HDPL on 19.12.2012 enclosing all the Page 4 of 22 documents relating and evidencing the accident of the vehicle carrying the ENA. But the said representation was rejected by opposite party no.2 on the ground that the plea of M/s. HDPL is not sustainable and it is bound to deposit the demand raised vide letter dated 21.08.2013 amounting to Rs.57,85,991/- as excise duty on the quantity of ENA lost. 2.3 Challenging such demand notice dated 01.09.2012 as well as the letter dated 21.08.2013, the petitioner approached this Court by filing W.P(C) No.2452 of 2014. This Court, vide order dated 28.03.2014, stayed the said demand subject to payment of 50% of the demand. Accordingly, the petitioner deposited Rs.28,92,996/-, as 50% of the demand, on 24.04.2014. However, this Court disposed of W.P.(C) No. 2452 of 2014, vide order dated 05.10.2015, directing the Excise Commissioner, Odisha to take a decision on the issue raised by the petitioner within a stipulated period. But, the Excise Commissioner-opposite party no.2, without considering the core issues involved, rejected the representations dated 12.09.2012 and Page 5 of 22 19.12.2012 vide order dated 19.11.2015. Hence, this writ petition. 3.
Legal Reasoning
Mr. D.P. Nanda, learned Senior Advocate appearing along with Mr. P.R. Patnaik, learned counsel for the petitioner contended that excise duty cannot be imposed on non-excisable article and, as such, the loss in transit was by way of an accident, therefore, the demand for excise duty on the ENA so lost cannot be sustained. It is further contended that as the percentage of ethyl alcohol in ENA is 94.8 % and, as such, the demand of excise duty on the lost ENA cannot be imposed, as the said ENA is not fit for human consumption, being not converted to IMFL. In the instant case, the ethyl alcohol content being 94.8% in the ENA, the said ENA which was lost in the accident while in transit not being stored, received, weighed or verified in opposite party no.6 distillery or warehouse, the demand as per Annexure-5 dated 01.09.2012 and the office order dated 19.11.2015 under Annexure-11 cannot be sustained. Therefore, contended that the petitioner is not liable to pay any excise duty in view of proviso to Sub-rule (2) of Rule 32 Page 6 of 22 of the Board's Excise Rules, 1965, wherein it has been specifically mentioned that if the opposite party no.2 is satisfied that the tanker carrying ENA faced an accident, the demand of excise duty on the lost ENA be waived. In view of such specific provision, the demand so raised cannot be sustained, as the loss has been admittedly caused due to accident. To substantiate his contention, learned Senior Counsel appearing for the petitioner has placed reliance on Synthetics and Chemicals Ltd. etc. v. State of U.P. and others, AIR 1990 SC 1927; State of U.P. and others v. Vam Organic Chemicals Ltd and others, (2004) 1 SCC 225; and Mohan Meakin Limited v. State of Himachal Pradesh and others, (2009) 3 SCC 157. 4. Mr. S.N. Nayak, learned Addl. Standing Counsel appearing for the State-opposite parties contended that once the petitioner has taken over M/s. HDPL with an undertaking by way of an affidavit to pay the demanded amount as and when it became payable as per law, the petitioner is liable to pay the same. On the strength of NOC Page 7 of 22 granted by the Excise Commissioner, Odisha, vide letter dated 18.07.2012, import pass was issued by the District Excise Office, Puri on 24.07.2012 in favour of the erstwhile M/s. HDPL to import 25,000BL (41,535LPL) of ENA from the State of Uttar Pradesh. The consignment was carried on by a tanker which reached the Unit on 31.08.2012. The consignment was measured and 14819.690LPL of ENA was found in the tanker. Therefore, the rest 26715.310LPL of ENA was calculated to be the transit wastage. After deducting the allowable transit wastage, excess wastage of spirit was found to be 26299.960LPL and, accordingly, demand notice dated 01.09.2012 for payment of Rs.57,85,991/- was issued by the District Excise Office, Puri towards excise duty on excess wastage of spirit pursuant to the provisions of Rule-32 of Board's Excise Rules, 1965. 4.1 It is further contended that in obedience to the order of this Court dated 05.10.2015 passed in W.P.(C) No. 2452 of 2014, the petitioner was heard on 07.11.2015 and sought for one weeks time to produce supportive Page 8 of 22 documents. Subsequently, the matter was again heard on 16.11.2015 and the supportive documents/papers produced by the petitioner were taken into consideration. Proviso to Rule-32(2) of Board's Excise Rules, 1965 was invoked by the counsel for the petitioner. But, it was not up to the satisfaction of the Excise Commissioner that such deficiency was caused by accident or other unavoidable reason, for which he rejected the representation filed by the petitioner. Thereby, no illegally or irregularity has been committed by making a demand towards excise duty on excess wastage of spirit as per the provisions of Rule 32 of the Board’s Excise Rules, 1965. Thus, he sought for
Decision
dismissal of the writ petition. 5. This Court heard Mr. D.P. Nanda, learned Senior Advocate appearing along with Mr. P.R. Patnaik, learned counsel for the petitioner and Mr. S.N. Nayak, learned Addl. Standing Counsel appearing for the State-opposite parties in hybrid mode and perused the records. Pleadings have been exchanged between the parties and with the consent Page 9 of 22 of learned counsel for the parties, the writ petition is being disposed of finally at the stage of admission. 6. Before delving into the core issues involved in this case, it is worthwhile to refer to the relevant provisions of Act and Rules, which were relied upon by the respective parties. Section 2 (6) & 27 of Bihar & Odisha Excise Act, 1915. “2. Definitions:-In this Act, unless there is anything repugnant in the subject or context.- xxx xxx xxx (6) 5 'excisable article' means. (a) any alcoholic liquor for human consumption; or (b) any intoxicating drug (6-a) 6 'excise duty' and 'countervailing duty' means any such excise duty- or countervailing duty, as the case may be, as is mentioned in (Entry 51 of List II in the 7th Schedule to the Constitution)." xxx xxx xxx "Sec-27: Power to impose duty on import, export, transport and manufacture:- (1) An excise duty or countervailing duty, as the case may be at such rate or rates as the State Government may direct, may be imposed, either generally or for any specified local area, on (a) any excisable article imported, or (b) any excisable article exported, or (c) any excisable article transported, or Page 10 of 22 (d) any excisable article tari manufactured under any licence granted in respect of clause (a) of section-13, or (other than (e) any hemp plant cultivated, or any portion of such plant collected, under any licence granted in respect of clause(b) or clause-(c) of section-13, or (f) any excisable article manufactured in any distillery established, authorised, or continued under this Act- or brewery licensed, Explanation-Duty may be imposed on any article under this sub-section at different rates according to the places to which such article is to be removed for consumption, or according to the varying strengths and quality of such article." Rules-10(1), 16 (1), (2),(3) &(4), 32 (1) & (2), 63 (6) & (7) of the Board's Excise Rules, 1965: “10(1) Government shall not be made responsible for the destruction, loss or damage by fire, theft or any other cause whatsoever, occurring to any spirit stored, received, gauged, weighed or verified in the distillery or warehouse." xxx xxx xxx "Rule-16 (1) - An account shall be taken of the distiller's of spirit, by the Superintendent at least once every quarter. (2) The distiller shall pay to the Government duty at the rate prescribed by the State Government under section 27 of the Act, on all spirit which may not be forthcoming in the stock-taking mentioned in sub- rule (1) and for which he is unable to the satisfaction of the Commissioner, in of a wastage allowance of 1 and half per cent calculated on the number of proof litres passed into the storeroom. (3) Wastage for the purpose a collection of duty on the excess as aforesaid in sub-rule (2) shall be calculated annually, that is, at the end of the year for which the licence is in force. Page 11 of 22 (4) If it is proved to the satisfaction of the Commissioner, or of such officer as he may specify, that the deficiency or wastage, mentioned in sub-rules (2) and (3), in excess of 1 and half per cent has been caused by accident or other unavoidable cause, the payment of duty at the above rate on such deficiency shall not be required." xxx xxx xxx “Rule 32 (1) - An allowance at a rate not exceeding in any case the appropriate maximum specified in the table below, shall be made for the loss in transit by leakage or evaporation of spirit which is transported or exported in metal vessels only under bond by land, the period of transit meaning to the receiving the day of arrival include warehouse but not the day of despatch:- in Maximum quantities of allowance Period of transit (1) (a) For a journey of not greater duration than five days, (b) For a journey of duration exceeding five but not exceeding twenty days, (c) For a journey of duration exceeding twenty days. Percentage of wastage allowed (2) 0.5 percent 1.0 percent per day of the journey 2 percent Provided that if, in any case, the temperature of the spirit on arrival at its destination is found to be lower than that when despatched, a further allowance shall be made, if necessary, of 0.05percent for every degree of difference between the two temperatures. Page 12 of 22 (2) If the report of the officer by whom a consignment of spirit, transported or exported by land under bond or duty-free, has been gauged and destination, shows that proved on arrival at its wastage to a greater extent than the appropriate allowance specified in sub-rule (1) has occurred, the distiller or the warehouse-keeper, as the case may be, on receipt of an intimation to the effect from the said officer shall pay forthwith the duty at the highest rate for the time being in force on country spirit in any place through which the said consignment has passed, on so much of the deficiency as is in excess of the above allowances: Provided that, if it shall be proved to the satisfaction of the Commissioner that such deficiency has been caused by accident or other unavoidable cause, the duty levied on such deficiency shall be refunded, and in any case, the Commissioner's decision shall be final. the (3) The wastages referred to in this rule shall be determined by deducting from the quantity of spirit the quantity despatched, destination, both quantities being stated in terms of L.P. litres, and the percentages shall he calculated on the quantity of spirit contained on despatch in each cask or other receptacle comprised in a consignment. received at xxx xxx xxx Rule-63 xxxxx (6) - A consignment of spirit to a warehouse shall be imported or transported as the case may be, under bond and at the sole risk and responsibility of the distiller or the wholesale licensee concerned, and the bond shall be released only after the spirit is taken into stock in the ware house after being duly gauged and proved by the Officer-in-charge of the warehouse and after the duty on the excess deficiency, if any, occurring during transit in the quantity of the spirit so imported or transported has been realised. (7) Allowance for any deficiency in the quantity of spirit during transit mentioned in Page 13 of 22 sub-rule (6) shall be regulated by rule 32 in Chapter II.” 7. On the basis of the factual matrix, as delineated above, there is no dispute that ENA was being transported from UP to Odisha and during transit, the truck met with an accident, for which there was admitted leakage of ENA. The definition of Section 2 (6) of Bihar & Orissa Excise Act, 1915, as mentioned above, clearly indicates ‘5’ excisable article. Under sub-clauses (a), (b) it is mentioned that ‘any alcoholic liquor for human consumption’ or ‘any intoxicating drug’ comes under excisable articles. Therefore, any alcoholic liquor for human consumption is excisable. The question regarding the legislative competence of the State to impose and levy duty on alcohol and its authority to control the alcohol industry was considered in the light of the provisions of Entries 8 and 51 of List II and Entries 52 and 84 of List 1 of Schedule VII of the Constitution of India and the provisions of the Industries Development and Regulation Act, 1956. Page 14 of 22 8. In Synthetics and Chemicals Ltd (supra), the apex Court held in Para 74 of the judgment that the “rectified spirit/ENA” is neither intoxicating liquor occurring in Entry 8 of List II nor it was “alcoholic liquor for human consumption” occurring in Entry 51 of List II. Therefore, the State could not claim the legislative competence to legislate in respect of “industrial alcohol” under either of the abovementioned Entries. In paragraphs 63 and 64 of the judgment, the apex Court held that the States have, as an expression of their sovereign power, but subject to limitations, the power to regulate the use of alcohol and that power must include the power to make provisions to prevent and or check the “industrial alcohol” being used as ‘intoxicating’ or “drinkable alcohol”. Ultimately, in Para 87, the apex Court held as follows:- “The position with regard to the control of alcohol industry has undergone material and significant change after the amendment of 1956 to the IDR Act. After the amendment, the state is left with only the following powers to legislate in respect of alcohol: (a) It may pass any legislation in the nature of prohibition of potable liquor referable to entry 6 of list II and regulating powers. Page 15 of 22 (b) It may lay down regulations to ensure that non potable alcohol is not diverted and misused as a substitute for potable alcohol. (c) The state may charge excise duty on potable alcohol and sales tax under entry 52 of list fl. However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the state on industrial alcohol. (d) However, in case state is rendering any service, as distinct from its claim of so-called grant of privilege, it may charge fees based on quid pro quo. See in this connection, the observations of India Mica's case (supra)." Therefore, the ENA being not alcoholic liquor for human consumption, the imposition/demand of excise duty, in the instant case, on the ENA so lost in accident during transit is otherwise also cannot be sustained and, as such, the impugned demand is illegal. 9. May it be noted that Section 27 of the Bihar & Orissa Excise Act, 1915 gives power to impose duty on import, export, transport and manufacture. Sub-clauses (a) to (d) make it very clear that an excise duty or countervailing duty, as the case may be, at such rate or rates as the State Government may direct, may be imposed, either generally or for any specified local area, on Page 16 of 22 (a) any excisable article imported, or (b) any excisable article exported, or (c) any excisable article transported, or (d) any excisable article (other than tari manufactured under any licence granted in respect of clause (a) of Section-13. Therefore, the test remains whether ENA can come within the meaning of Sub-clauses (a) to (d) of Section 27 of the Act. If that will be taken into consideration and on the basis of the law laid down by the apex Court, as mentioned above, the excise duty cannot be imposed on ENA. 10. Even Rule 10(1) of the Board’s Excise Rules, 1965 states that Government shall not be made responsible for the destruction, loss or damage by fire, theft or any other cause whatsoever, occurring to any spirit stored, received, gauged, weighed or verified in the distillery or warehouse. But this is not the case where, any damage has been caused by any fire, theft or any other cause whatsoever, to any spirit stored, received, gauged, weighed or verified in the distillery or warehouse. Rather, it is an exceptional circumstance where the ENA on transit, the Page 17 of 22 truck met an accident and thereby there is a loss. Therefore, it is not coming under Rule 10 (1) of the Board’s Excise Rules, 1965. 11. Even Rule 16 (1) of the Rules, 1965 cannot have any aid to the present circumstances. On perusal of Sub- rule (4) of Rule 16, it is made clear that if it is proved to the satisfaction of the Commissioner, or of such officer as he may specify, that the deficiency or wastage, mentioned in Sub-rules (2) and (3), in excess of one and half per cent has been caused by accident or other unavoidable cause, the payment of duty at the above rate on such deficiency shall not be required. Thereby, the quantum of loss to which the levy of duty is not required has been provided under the said provision. 12. Rule 32 (1) of Rules, 1965 makes it clear that an allowance at a rate not exceeding in any case the appropriate maximum specified in the table, shall be made for the loss in transit by leakage or evaporation of spirit which is transported or exported in metal vessels only under bond by land, the period of transit meaning to Page 18 of 22 include the day of arrival in the receiving warehouse but not the day of despatch. Needless to say, the quantity of allowance is granted in case of leakage or evaporation of spirit which is transported or exported. That also does not cover the said clause to which the present situation arises. But certainly Sub-rule (2) of Rule 32 comes to play for the rescue of the petitioner so far as its proviso is concerned, which specifically provides that if it shall be proved to the satisfaction of the Commissioner that such deficiency has been caused by accident or other unavoidable cause, the duty levied on such deficiency shall be refunded, and in any case, the Commissioner's decision shall be final. 13. Thereby, the petitioner’s case is fully covered by proviso to Rule 32(2) of the Board’s Excise Rules, 1965. The same shall be in conformity with Rule 63(7). Therefore, present is a case, which may come under the proviso to Rule 32(2) read with Rule 63(7) of the Board’s Excise Rules, 1965. 14. Similar question had come up for consideration before this Court in W.P.(C) No. 7655 of 2012 (M/s. Trinath Page 19 of 22 Samart Pac (P) Ltd. v. State of Odisha and others) and this Court, vide order dated 26.10.2021, relying upon Rule 32(2), which states that if it shall be proved to the satisfaction of the Commissioner that such deficiency has been caused by accident or other unavoidable cause, the duty levied on such deficiency shall be refunded, and that in any case, the Commissioner's decision shall be final, quashed the demand raised. 15. Needless to mention here that admittedly, in the instant case, while ENA was being transported from UP to Odisha, during transit the truck met with an accident, an FIR was lodged, the Excise Authorities submitted report to that extent and in view of such position, the petitioner is not required to further prove the factum of excess wastage on account of accident. As such, in the counter affidavit filed by the opposite parties, nothing has been spelt out to this extent. As a consequence thereof, the demand so raised cannot be sustained in the eye of law. 16 In Vam Organic Chemicals (supra), the apex Court rejected the contention that the State has the power Page 20 of 22 to levy excise duty on industrial alcohol or denatured spirit under Entry 33 of List III of Schedule VII to the Constitution. This has already been negatived in Synthetics & Chemicals Ltd (supra). 17. In State of Odisha v. Utkasl Distilleries Ltd., (2022) 5 SCC 326, the Supreme Court of India held that “Perusal of Section 27(2) of the said Act would reveal that the States’ power to impose duty on import, export, transport and manufacture is only in respect of any excisable articles imported, exported, transported and manufactured. “Excisable article” has been defined to be any alcoholic liquor for human consumption or any intoxicating drug. It is, thus, clear that even under the relevant statute, the State has power to levy excise duty only in respect of the alcoholic liquor for human consumption.” It was also observed that the State has no power to levy excise duty on wastage of liquor after distillation. 18. In Mohan Meakin Limited (supra), it was held by the apex Court that the doctrine of res extra commercium has no application to the industrial alcohol, which is Page 21 of 22 produced in an industry controlled and regulated under Schedule VII List I Entry 52. 19. In view of the facts and law, as discussed above, the irresistible conclusion arrived at by this Court is that the demand raised by the authority under Annexure-5 dated 01.09.2012 and the order dated 19.11.2015 under Annexure-11 rejecting of representation of the petitioner, in compliance to the order dated 05.10.2015 passed by this Court in W.P.(C) No. 2452 of 2014, cannot be sustained in the eye of law and the same are liable to be quashed and are hereby quashed. 20. Hence, the writ petition is allowed. But, however, there shall be no order as to costs. (DR. B.R. SARANGI) JUDGE M.S. RAMAN, J. I agree. (M.S. RAMAN) JUDGE Signature Not Verified Digitally Signed Signed by: ARUN KUMAR MISHRA Designation: ADR-cum-Addl. Principal Secretary Reason: Authentication Location: Orissa High Court Date: 14-Aug-2023 18:27:12 Orissa High Court, Cuttack The 14th August, 2023, Arun Page 22 of 22