The demands made on the petitioner for the excess wastage of arrack in transit at the rate of Rs. 15.50 per proof litre were illegal and beyond the powers conferred under the Act and the rules.

1. The petitioner, a holder of a distillery licence under the Kerala Abkari Act and a licenced warehouse keeper for arrack, manufactured rectified spirit from molasses by distillation in his distillery, converted a major portion of the same into arrack, a country liquor, fit for human consumption and transported it to his warehouses as authorised by the Government. It was this arrack that was supplied to the independent retail arrack shops which, in turn sold it to the general public. The petitioner's right to manufacture and transport arrack is controlled by the Abkari Act and the rules made thereunder. The petitioner was thus bound to arrange for the transport of arrack from the distillery to the warehouse at his own cost and he had to adopt all safeguards against any loss of arrack in transit or in storage. There are excise officers stationed in the distillery and in the licenced warehouse who keep a close watch of the manufacture, storage, transport, etc. of rectified spirit and arrack. The supply of arrack from the distillery to the warehouse is covered by a permit issued by the officer-in-charge of the distillery and another officer in the warehouse has to verify the consignment on arrival at the destination and report the result of his verification of the consignment to the distillery officer. Wastage noticed in each consignment is also noted in the advice copy of the permit. The petitioner had been the supply contractor of arrack under licences and permits issued by the authorities under the Act from time to time, up to the period 31st March 1978.

2. The petitioner's case is that he was liable to pay duty on arrack manufactured in his distillery at the rate of Rs.2.50 per bulk litre and that he was also entitled to deduction on account of the loss or wastage in transit. He was allowed to deduct wastage within the permissible limits and was made liable to pay on the balance quantity of arrack manufactured by him at the rate of Rs.2.50. He has paid the amount as demanded by the the excise authorities. However, the audit party of the Accountant General's. Office raised objections that wastage of arrack in transit exceeding the permitted limits of 0.5 per cent and 1 per cent attracted a higher duty of excise duty at the rate of Rs. 15.50 per proof litre. The objection of the Accountant General's Office was communicated to the petitioner by the Excise Inspector who was stationed in the petitioner's distillery, who also sent the petitioner a chalan on 31st December 1974 for payment of the deficit amount. This notice, Ext. P-1, is extracted below as this forms the basis of the subsequent demands as well:

"Short collection of duty on excess wastage of arrack. R.55(2) and 55(4) provide that if spirits are transported or exported in metallic receptacles the allowance made for loss in transit by leakage and evaporation or other unavoidable causes shall not exceed a maximum of 0.5 per cent and that if the wastage exceeds the prescribed limit the distillery or warehouse keeper shall be called upon to pay duty at the tariff rate on the excess wastage. Tariff rate is defined as the rate of duty applicable to Indian made Rectified spirit. It was noticed during the local Audit of Poisons Distillery, Chalakudy,

that there was an excess wastage of 1,238.70 proof litres, of arrack during transit. But duty on this excess wastage was collected only at the rate of Rs.2.50 per proof litre instead of atRs.15.50 per proof litre (Re.the duty on rectified spirit). The short collection works out to Rs.16,103. The particulars of recovery of this amount from the distillery are awaited from the department (July, 1974)

(Sd.) Accounts Officer.

(Sd.)

Assistant Excise Commissioner.

P.D. No. 179/74-75.

Sir,

In the light of the above orders I request you to be so good enough to remit duty on tariff rate @ 15.50 per proof litre and the chalans evidencing payment may be forwarded to this office without any further delay. Copy of the letter and related c