1. The Board of Revenue, Bihar in exercise of powers conferred by Section 90 of the Bihar Excise Act, 1951 (hereinafter to be referred to asthe Act) framed Rule 15B by way of amendment in the Bihar Excise Rules (hereinafter to be referred to as the Rules). The purpose of which is to make a distiller responsible of maintaining minimum fermentation and distillation efficiencies and such minimum recovery of alcohol from molasses as prescribed in Rule 15B. Inter alia, this rule also provides in sub-rule (3) that "In case the recovery of alcohol is below the prescribed minimum, the officer incharge shall call for explanation of the distiller and forward the same alongwith his comments to the Excise Commissioner. The Excise Commissioner shall, if necessary, make enquiries in the matter and pass necessary order imposing penalty".

2. It is the aforesaid power of the Excise Commissioner to impose penalty in the given situation which is under serious challenge in this writ petition filed by a Company which holds licences in Forms 19, 19B, 19C, 20 and 28A prescribed under the Act. The Company manufactures Extra Neutral Alcohol (ENA) as well as rectified spirit both being non-potable alcohol, unfit for human consumption. The Company uses ENA in the manufacture of India Made Foreign Liquor (IMFL) and also exports ENA and rectified spirit to other distilleries and other industrial units. For admitted failure on the part of Company to maintain minimum recovery of alcohol during the period January 2000 to November 2001, the Company was given a notice for submitting explanation as to why penalty be not imposed for recovery of alcohol below the prescribed minimum. The petitioner submitted its explanation which was not accepted and a penalty of Rs. 1,19,07,614.08 paise was imposed by the Excise Commissioner, Bihar through an order dated 25.9.2002. On challenge by the petitioner through a writ petition bearing CWJC No. 13813 of 2002, the said order of the Excise Commissioner was found to be too cryptic and was, accordingly, set aside and the matter was remitted back to the Excise Commissioner, Bihar, Patna for passing a speaking order after affording an opportunity of hearing to the petitioner. Pursuant to said judgment and order dated 24.11.2003 petitioner was given opportunity of hearing and by impugned order dated 11.3.2005 contained in Annexure-15 the Commissioner of Excise, Bihar, Patna by a reasoned order rejected the explanation of the petitioner and decided to impose penalty under Rule 15B of the Rules on the basis of a principle adopted by the Excise Commissioner that penalty must be such as to compensate the State of Bihar for the loss of excise duty and loss of sales tax on the quantity of rectified spirit/ENA which could not be produced due to failure of the petitioner to achieve the minimum recovery of alcohol prescribed by Rule 15B. After calculating the penalty on the basis of order of the Excise Commissioner, the Excise Department has served the petitioner with a demand notice dated 4.10.2005 contained in Annexure-16 series whereby for the entire period between January 2000 to November 2002 a sum of Rs. 1,45,41,694.13 paise on account of notional loss of sales tax was imposed on the petitioner. The order of the Excise Commissioner contained in Annexure-15 and the demand notice contained in Annexure-16 series have also been challenged through this writ petition.

3. The main issues raised on behalf of the petitioner are following:

(i) The first ground for challenging the vires of Rule 15B is whether the State of Bihar can impose such penalty which amounts to excise duty on notional loss or production of rectified spirit i.e. alcohol not fit for human consumption, in view of Article 265 read With Entry 8 and Entry 51 of List II of the Seventh Schedule of the Constitution of India.

(ii) The vires of Rule 15B, particularly that part which vests the Excise Commissioner with the power to impose penalty has also been challenged on