Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2011 Supreme(SC) 935

Supreme Court of India
R.V. RAVEENDRAN, P. SATHASIVAM
State of U.P. & Others
Versus
M/s Mohan Meakin Breweries Ltd. & Another
CIVIL APPEAL NOs. 4708-4709 OF 2002 With Civil Appeal No.4710 of 2002 Civil Appeal No.4711 of 2002 Civil Appeal No.4712 of 2002 Civil Appeal No.4713 of 2002
Decided on : 23-09-2011

Advocates appeared:
M/s. Dinesh Dwivedi, H.N. Salve, Salman Khurshid, Rakesh Kumar Khanna, Sr. Advocates, Ravi Prakesh Mehrotra, Garvesh Kabra, Dr. Rashmi Khanna, Surya Kant, Ms. Suruchi Aggarwal, Riteesh Singh, Ms. Jhanvi Waraha, Pranav Vyas & Faizy Ahmad Syed, Advocates.

IMPORTANT POINT
Duty on excisable goods relates to production or manufacture and not sale.

Headnote:(a) UP Excise Act, 1910 – Section 28 – Constitution of India – Entry 51 of List II – Excise duty – Duty on excisable goods – Relates to production or manufacture and not sale – Excise duty on beer can be levied either after the completion of the process of fermentation and filtration, or after fermentation – It can be collected at any stage even after production. (Para 18, 22)
       AIR 1962 SC 1281; (1990) 1 SCC 109; (1991) 1 SCC 454; AIR1962 SC 922; (1970) 2 SCC 467; (1970) 3 SCC 710; (1997) 2 SCC 193; (2002) 4 SCC 547; (1995) 5 SCC 753 – Relied upon
       (b) UP Excise Act, 1910 – Section 28A and 29(e)(i) – Beer would become exigible either at the end of filtration process when it is received in storage/bottling tanks or when it is issued from the brewery – In regard to draught beer exigibility will occur either at the end of fermentation process or when it is issued from the brewery. (Para 23)
       (c) Constitution of India – Entry 51, Schedule II – Not only authorises imposition of excise duty – Also authorizing prevention of evasion of excise duty. (Para 26)
       1961 (1) SCR 482; (1996) 3 SCC 465 – Relied upon
       (d) UP Excuse Act, 1910 – Section 28A r/w Rule 53 of the Brewery Rules, and Rule 7 of the Bottling Rules – Once the wort ferments, it becomes consumable, though finished product may require filtration, aging carbonization etc. – No infirmity in base measurement being taken in fermentation vessel and allowing 9% standard allowance to cover losses on account of sullage etc. (Para 28, 29, 31)
       (e) UP Excise Act, 1910 – Section 28A – Contention of Breweries to allow wastage of 9% on quantity measured in storage/bottling tanks – After reaching such ranks there is no wastage on account of sullage, evaporation or other wastages except small wastage during bottling and storage – Therefore there is no question of allowing wastage on quantity in storage/bottling tanks. (Para 36, 37)
       1961 (1) SCR 482; (1996) 3 SCC 465 – Relied upon
       (1995) 5 SCC 753 – Distinguished
       (f) UP Excise Act, 1910 – Section 28A r/w Rule 53 of UP Brewery Rules 1961 and Rule 7(11) of Bottling Rules – Rule 53 and rule 7(11) – Supplementary to each other – Together implementing section 28A. (Para 42)
       (g) UP Bottling Rules – Rule 7(11) – Bottling licence granted subject to special conditions including rule 7(11) – Not open to Breweries to contend allowance for wastage more than 1%. (Para 43)
       Facts of the case:
       Civil Appeal Nos.4708-4709 of 2002 are filed by the State of Uttar Pradesh aggrieved by the common order dated 15.3.2002 of the Allahabad High Court allowing CMWP No.3968 of 1978 and CMWP No.4043 of 1978 filed by two Breweries. Civil Appeal Nos.4710, 4711, 4712 and 4713 of 2002 are filed by the Breweries aggrieved by the said common order dated 15.3.2002, dismissing their writ petitions - CMWP Nos.1375 of 1978, 3690 of 1979, 4136/1978 and 4157/1978. The appeals by the state relate to imposition of duty and additional duty on excess wastage in the brewery. The appeals by the Breweries relate to imposition of duty and additional duty on excess bottling wastage.
       Finding of the Court:
       There is nothing wrong in adopting the procedure prescribed in section 28A and Rule 53 of Brewery Rules to determine the excess manufacturing wastage.
       Result:
       CA No.4708 and 4709 of 2002 allowed.
       CA Nos.4710, 4711, 4712 & 4713/2002 dismissed.

Judgment :-

R.V. Raveendran J.

Civil Appeal Nos.4708-4709 of 2002 are filed by the State of Uttar Pradesh aggrieved by the common order dated 15.3.2002 of the Allahabad High Court allowing CMWP No.3968 of 1978 and CMWP No.4043 of 1978 filed by two Breweries. Civil Appeal Nos.4710, 4711, 4712 and 4713 of 2002 are filed by the Breweries aggrieved by the said common order dated 15.3.2002, dismissing their writ petitions - CMWP Nos.1375 of 1978, 3690 of 1979, 4136/1978 and 4157/1978. The appeals by the state relate to imposition of duty and additional duty on excess wastage in the brewery. The appeals by the Breweries relate to imposition of duty and additional duty on excess bottling wastage.

Civil Appeal No.4708 of 2002

2. The first respondent (for short the `Brewery') held a Brewery Licence issued under section 18(c) of the Uttar Pradesh Excise Act, 1910 (`Act' for short) in Form-B1 and a Bottling Licence for bottling liquor for sale issued under section 17(1)(d) of the Act in Form FL-3. The Brewery was carrying on the manufacturing of beer and bottling of beer in bond, under the said Licences.

3. The Excise Inspector in-charge of the Brewery maintains a Register of manufacture and issue of beer in Form B-16. The Excise Inspector is required to examine the accounts of the brewery and take stock of the beer in hand in the brewery, on the last working day of every calendar month (prior to 19.7.1975, such examination was required to be done at the end of each quarter) after all the issues for that day are made. If he found that the actual quantity of beer in stock in the brewery was less than the quantity shown in the stock account, but the deficiency did not exceed 9%, he had to disregard the same as allowance upto 9% was permitted to cover the losses due to evaporation, sullage and other contingencies. But where the deficiency exceeded 9%, he was required to enquire into the cause and submit a report of the result to the Excise Commissioner in that behalf. The Excise Inspector in-charge, was accordingly sending reports to the Excise Commissioner whenever there was excess wastage in the case of the first respondent brewery. The Excise Commissioner issued show-cause notice giving opportunity to the Brewery to explain the excess wastage. After considering the explanation, the Excise Commissioner found that there was no satisfactory explanation and made ten orders between 26/28.6.1966 and 24.11.1973 in regard to excess manufacturing wastage' during the period September, 1963 to March, 1973, and levied and demanded in all `81,94,310/- as excise duty and an equal amount as additional duty in regard to the deficiency in excess of 9% of the total stock of beer (10% prior to 19.7.1975). The said orders were challenged by the first respondent by filing a revision before the state government. The state government by order dated 12.4.1978 dismissed the revision petition and upheld the demands by the Excise Commissioner.

4. The first respondent challenged the orders of the Excise Commissioner and the state government in Civil Misc. Writ Petition No.3968 of 1978. A Division Bench of the High Court allowed the said writ petition with other connected petitions by a common order dated 15.3.2002. It quashed the revision order dated 12.4.1978 and directed the state government to decide the revision afresh “after calculating the stock of beer for the purpose of original Rule 53 of UP Brewery Rules 1961 (Para 912 of UP Excise Manual as it then existed) and section 28-A of the UP Excise Act, when after filtration the same has assumed the shape as a finished product which is normally consumed by human beings as beverage or drink”. In short the High Court has held that the point at which the liquor manufactured by the brewery was exigible to duty was at the stage, when the beer is capable of being consumed by human beings as a beverage, comes into existence and the deficiency should be worked out with reference to measurement at such stage. The High

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2011 Supreme(SC) 935

IMPORTANT POINTDuty on excisable goods relates to production or manufacture and not sale.

Cases Referred (11)

IMPORTANT POINT
Duty on excisable goods relates to production or manufacture and not sale.