The High Court of Himachal Pradesh has formally quashed an order issued by the Financial Commissioner (Excise) that resulted in the cancellation of the manufacturing and subsidiary licenses held by M/s K.M. Distillery Private Limited. Presiding over the case, Justice Sandeep Sharma ruled that the foundational inspection conducted on June 2, 2025 , which led to the license revocation , was legally vitiated due to a failure to comply with the mandatory statutory requirements regarding the constitution of the raiding team.

The court’s decision mandates the immediate restoration of the distillery’s BWH-2, L-13C, L-15, and L-16 licenses, provided the petitioner fulfills all other applicable regulatory conditions. The ruling underscores the necessity for strict adherence to statutory protocols when government agencies exercise coercive powers, specifically noting that the absence of a required police official from the inspection team created a material defect that could not be overlooked as a mere administrative irregularity .

Statutory Requirements and Procedural Flaws

The dispute originated from a surprise inspection carried out at the distillery’s Parwanoo facility. During this operation, a team from the Department of State Taxes and Excise discovered various quantities of holograms, stickers, and discrepancies in spirit storage levels. Following this report, the Financial Commissioner proceeded to issue a show-cause notice under Section 29 of the Himachal Pradesh Excise Act, 2011 , subsequently ordering the cancellation of the company's operating licenses on July 14, 2025 .

In challenging this order, the company argued that the inspecting team had not been constituted according to the legal framework established by the state government. A notification issued on April 26, 2025 , explicitly details that any excise inspection under Section 8 of the Act must be carried out by a specific class of officer who is accompanied by an officer of the State Taxes and Excise Department—not below the rank of Assistant State Taxes and Excise Officer—and a police officer not below the rank of Deputy Superintendent of Police.

The court examined the official order dated May 31, 2025 , which authorized the raid. It was established that while several officials from the Excise Department were present, the team lacked the requisite police presence mandated by law. Justice Sandeep Sharma observed that the purpose of including officers from external departments in such raids is to ensure a fair and transparent process. By omitting the mandatory police representative, the state deviated from the legislative intent of the Act, rendering the entire inspection exercise null and void .

The Standard of Judicial Review

During the proceedings, the state government attempted to argue that the inspection was covered under Section 10 of the Act and that procedural lapses should not invalidate the entire search. However, the High Court rejected this contention, maintaining that the legislative amendment of Section 6 in 2024 and the subsequent notification were designed to safeguard the interests of license holders against potential bias or arbitrary action.

The court further elucidated that the "non-inclusion of an officer not below the rank of Deputy Superintendent of Police is a procedural lapse , which can be ignored; rather, the same being a material defect in constitution of team entire inspection proceedings need to be quashed and set aside." This rigorous stance clarifies that where a statute prescribes a specific manner for conducting a search or seizure, the authorities must follow that exact process, or the legal weight of the evidence collected is fundamentally undermined.

The judgment further noted that even if there were allegations of irregularities—such as discrepancies between actual stock and statutory entries in the D-14 register, or claims regarding the inoperability of CCTV systems—these findings could not support the cancellation of licenses because the investigative process itself was fundamentally flawed from its inception.

Implications for Future Excise Operations

The ruling provides a clear precedent regarding the importance of inter-departmental participation in excise raids. By emphasizing that the constitution of an inspection team is a substantive requirement rather than an administrative formality, the court has placed a heavy burden on state authorities to ensure that all future inspections align strictly with current statutory notifications.

The court noted that the petitioner-company had already deposited the required license fees for the 2025-26 period. In the interest of justice, the court ordered that the fees already deposited be adjusted toward the upcoming financial year 2026-27 . This direction provides immediate financial and operational relief to the distillery, allowing it to resume manufacturing activities without being penalized for the failures in the government's own procedural oversight.

By invalidating the inspection, the court effectively cleared the basis for the subsequent punitive action taken by the Financial Commissioner. Consequently, the respondents are now tasked with the restoration of the petitioner’s BWH-2, L-13C, L-15, and L-16 licenses. This decision serves as a significant check on the exercise of regulatory power, ensuring that while the government maintains the authority to regulate distillery operations, such actions must remain within the strict boundaries defined by the legislature. The matter is now concluded at the High Court level, with the state directed to comply with the order to restore the petitioner's operational status subject to standard compliance requirements.