IMPORTANT POINT
Exercise of power u/r 633(7), Uttar Pradesh Excise Manual in violation of principles of natural justice is null and void.

JUDGMENT

D.K. Jain, J. —

1. Challenge in this appeal, by special leave, is to the judgment and order dated 18th January, 1996, delivered by the High Court of Judicature at Allahabad in C.W.P. No.599 of 1994. By the impugned judgment, the High Court has come to the conclusion that although the State Government had no authority to levy Excise duty under Section 28 of the U.P. Excise Act, 1910 (for short “the Act”) on rectified spirit (industrial alcohol) in question but it could impose penalty on the appellant under Rule 633(7) of the Uttar Pradesh Excise Manual, (for short “the Excise Manual”).

2. The background facts, essential for disposal of the instant appeal, in brief, are that on 15th October, 1988, the Excise Commissioner, Uttar Pradesh, issued an order authorising nine distilleries in the State, including M/s Daurala Sugar Works, to export rectified spirit (industrial alcohol), outside India. Since the export consignment was to be routed through the appellant, as handling agent as also the owner of the bonded warehouse at Kandla Port, where the spirit was to be stored before export, the appellant was required to furnish an indemnity bond, in the prescribed form, in favour of the Excise Commissioner as the authorised nominee of the exporter. On 20th December 1988, the appellant executed an indemnity bond in favour of the Governor of Uttar Pradesh in relation to permission for removal by rail 67.77 lac bulk litres of rectified spirit of any strength ranging between 91.68% V/V @ 15.60C to 95% V/V @ 15.60C. One of the conditions in the indemnity bond was that if the said quantity of rectified spirit, after deducting such allowance for dryage and wastage, as may be sanctioned, is not delivered at the warehouse at Kandla, the authorised nominee, the appellant herein, shall indemnify the Governor for any loss of duty, which the Governor may suffer by reason of such non delivery or short delivery, by paying him on demand the duty @ ‘40/- per alcoholic litre, on spirit not so delivered, after making the allowances aforesaid.

3. On 8th January, 1989, M/s Daurala Sugar Works consigned a rake of 15 tank wagons, loaded with 3,54,413 bulk litres of rectified spirit under PD-25 pass for export against order dated 15th October, 1988. The said consignment was dispatched through the Northern Railway to Kandla Port. However, out of 15 tank wagons only 14 tank wagons reached the Kandla Port. On 16th January, 1989, it was discovered that the 15th tank wagon was lying empty at Gandhi Dham Railway Station.

4. On 2nd October, 1992, a notice was issued by the Excise Commissioner to the appellant alleging that since the pass in form PD-25, issued to the appellant by the concerned Collector in terms of Rule 633 of the Excise Manual had not been received back along with certificate from the Collector for due delivery, they were liable to deposit in the Government Treasury, Excise duty on the rectified spirit @ ‘40/- per alcoholic litre, which amounted to ‘8,71,744/- along with interest at the rate of 18% per annum (‘5,49,199/-).

5. The appellant having failed to deposit the said amount, another notice was issued by the Commissioner requiring them to show cause as to why their name be not black-listed and in future, permission for export may not be granted, on account of default on their part in not depositing Excise duty as demanded earlier.

6. The appellant responded to the said show cause notice by their letter dated 11th February, 1993, in which it was stated that since the reason for non receipt of the said rectified spirit was being investigated, the matter may be deferred till 30th June, 1993. Finally, vide their letter dated 29th April, 1994, the appellant replied to the show cause notice, contesting Excise Commissioner’s claim for payment of Excise duty on account of non-receipt of full quantity of rectified spirit at the Kandla Port. It was pleaded that since the entire rake of 15 tank wagons was handed over to the Railway authorities