IMPORTANT POINT
By reason of an executive instruction, the provisions of the law cannot be effacted. 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.

Headnote:Uttar Pradesh Excise Act, 1910 As Amended in 1950 — Sections 18, 29, 31 and 41 — Rules 715, 716, 719, 815 and 821 of 2004 Rules — Payment of excise duty either by way of penalty or damages for loss and/or damage caused to the security holograms — Circular dated 19-3-2001 categorically provided for payment in advance of excise — Validity — Respondents owners of distilleries — Grant of right to manufacture various categories of Indian Made Foreign Liquor — They have been granted licence for manufacturing potable liquor — Respondents paying excise duty in terms of provisions of the Act — State of Uttar Pradesh allegedly adopted a policy decision for the excise year 2001-02 to the effect that distilleries had to obtain and affix security holograms issued by the department of prevent evasion of duty and smuggling of liquor — Excise duty was payable on the bottles, pouches and canes etc. on which holograms had been affixed — 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 — It was provided that the excise duty was to be chargeable on the wasted holograms — Whether levy of duty on basis of loss of holograms was justified in law — (No) — Constitution of India — Entry 51, List II.
       Held : 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.(Para 23)
       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. (Para 24)
       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. (Para 26)
       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. (Para 27)
       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.(Para 30)
       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.(Para 37)
       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. (Para 38)

JUDGMENT

S.B. Sinha, J. — Leave granted.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. The writ petitions were filed b

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2006 Supreme(SC) 488

IMPORTANT POINTBy reason of an executive instruction, the provisions of the law cannot be effacted. 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.

Cases Referred (7)

IMPORTANT POINT
By reason of an executive instruction, the provisions of the law cannot be effacted. 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.