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2002 Supreme(Kar) 213
Karnataka High Court
THIRUMALA DISTILLERIES, TUMKUR - Appellant
Versus
STATE OF KARNATAKA - Respondent
Decided On : 03-15-02
W.P. : 40828 of 1999
A.N.JAYARAM, Nilofer Akbar, P.R.Ramesh
The main legal point established in the judgment is that the authorities cannot draw a presumption of clandestine manufacturing and sale of liquor without proof, and the excise duty can only be levied when the manufacture or production of the excisable article actually takes place.
Headnote:
LEVY - Karnataka Excise Act, 1965 - Section 22, Section 45, Karnataka Excise (Distilleries and Warehouse) Rules, 1967 - [22, 45, Rules of 1967] - The court quashed the impugned orders of the Deputy Commissioner and the Appellate authority, holding that the levy of excise duty, sales tax, and surcharge against the petitioner-Distillery was misconceived and arbitrary. The court found that there was no legal justification for the authorities to draw a presumption that the missing rectified spirit was converted into Indian made Liquor (I.M.L.) and sold clandestinely. The court also rejected the contention that the petitioner was liable to pay the duties under Rule 25 of the Rules of 1967, as the State legislature was incompetent to levy excise duty on rectified spirit. The court held that the excise duty could only be levied on an excisable article when its manufacture or production actually takes place, and there was no proof of the production of I.M.L. from the missing rectified spirit. The court allowed the petition and quashed the impugned orders, directing the refund of the deposited amount with interest if not refunded by a specified date.
Fact of the Case:
The petitioner, a licensed Distillery, was directed to pay excise duty, sales tax, and surcharge for the unaccounted shortage of rectified spirit. The petitioner challenged the orders of the Deputy Commissioner and the Appellate authority, contending that the levy of duties was misconceived and arbitrary.
Finding of the Court:
The court found that there was no legal justification for the authorities to draw a presumption that the missing rectified spirit was converted into Indian made Liquor (I.M.L.) and sold clandestinely. The court also rejected the contention that the petitioner was liable to pay the duties under Rule 25 of the Rules of 1967, as the State legislature was incompetent to levy excise duty on rectified spirit. The court held that the excise duty could only be levied on an excisable article when its manufacture or production actually takes place, and there was no proof of the production of I.M.L. from the missing rectified spirit.
Issues: The main issues were whether the authorities had the authority and power to assess and levy the imposts against the petitioner-Distillery, and whether the levied duties were legally correct and sustainable.
Ratio Decidendi: The court held that there was no legal justification for drawing a presumption that the missing rectified spirit was converted into I.M.L. and sold clandestinely. The court also rejected the contention that the petitioner was liable to pay the duties under Rule 25 of the Rules of 1967, as the State legislature was incompetent to levy excise duty on rectified spirit. The court held that the excise duty could only be levied on an excisable article when its manufacture or production actually takes place, and there was no proof of the production of I.M.L. from the missing rectified spirit.
Final Decision: The court allowed the petition, quashed the impugned orders, and directed the refund of the deposited amount with interest if not refunded by a specified date.
( 1 ) BY this petition, the petitioner prays:" (I) Issue a writ of certiorari or any other appropriate writ, order or direction, quashing the order of the third respondent in No. DTCR, 89/94-95, dated 3-6-1995 vide Annexure-G; (II) Issue a writ of certiorari or any other appropriate writ, order or direction, quashing the order of the second respondent in No. ECS/44/app/99, dated 19-8-1999 vide Annexure-J; (III) Grant all other consequential reliefs including costs deemed fit to grant in the circumstances of the case in the interest of justice and equity".
( 2 ) THE impugned Annexure-G is the order dated 3-6-1995 of respondentt 3-Deputy Commissioner (Excise), Tumkur District, Tumkur (herein,after referred to as 'r-3'), by which the petitioner-Distillery is directed to pay the total amount of Rs. 21,18,989/- towards the excise duty, sales tax and surcharge, for the unaccounted shortage of 11,624 litres of rectifird spirit from the petitioner-Distillery, on the assumption that the said rectified spirit had been illegally converted by the petitioner into Indian made Liquor ('i. M. L. ' for short) and had been sold in the market. The impugned Annexure-J, dated 19-8-1999 is the order of respondent 2-Appellate authority - Commissioner of Excise, Bangalore ('r-2' for short) passed dismissing the petitioner's appeal under Section 61 (2) of the karnataka Excise Act, 1965 ('excise Act' in short) against R-3's said order at Annexure-G and affirming the same.
( 3 ) THE undisputed facts giving rise to this petition may be stated as under:3. 1 The petitioner is a licensed Distillery running under the valid licence granted by the Competent Authority under the provisions of the karnataka Excise (Distilleries and Warehouse) Rules, 1967 ('the Rules of 1967' in short) for manufacture of I. M. L. Petitioner is hereinafter referred to as 'the Distillery'. It is represented by its Managing Partner sri D. S. Kumar. 3. 2 On 30-7-1994, when physical stock of rectified spirit of the Distillery was inspected by the concerned Distillery Officer, he found the shortage of 11,624 bulk litres thereof. This shortage was not accounted for by the Distillery. Therefore, on the same day, Criminal Case No. 1/94-95 for the offence under Section 36 of the Excise Act against the Distillery was booked by the said officer and the copies of the F. I. R. were submitted by him to R-2 and R-3. 3. 3 On 30-8-1994, the said D. S. Kumar, Managing Partner of the distillery (hereinafter referred to as the M. D. ') gave a representation to the Commissioner of Excise, Government of Karnataka, Bangalore, requesting him to have the said case No. 1/94-95 compounded Departmentally as he was ready to pay the compensation fee in respect of the said deficit rectified spirit, per Government Notification No. FD II PN 93, dated 30-3-1993. A photocopy of this representation is produced at Annexure-B and the true English copy thereof at Annexure-B1. Annexure-B was followed by his similar representation dated 24-9-1994 given to the concerned Assistant Commissioner of Excise, Tumkur, the photocopy whereof is at Annexure-A and its true English copy at Annexure-A1. Thereupon, in exercise of the power under Section 45 of the Excise Act, the order dated 12-12-1994, vide Annexure-D, was passed by R-3 compounding the said Criminal Case No. 1/94-95 against the Distillery imposing rs. 5,000/- as compensation; and further directing additional payment of the total amount of Rs. 27,52,000- on account of "current duty, sales tax and surcharge". That order was challenged in Appeal No. ECS 1 APP 95 under Section 61 of the Excise Act before R2-Commissioner, who, by his order dated 20-4-1995, vide Annexure-E, set aside r-3's order at Annexure-D, dated 12-12-1994 and remitted the case to him with a direction to decide it afresh by a speaking order after giving opportunity of hearing to the petitioner.
( 4 ) THEREAFTER, the matter was taken up afresh on the file of R-3 for hearing. Then a detaile
