2006 (5) TMI 535 - SC - Central Excise

Summary

Issues Involved:
1. Legality of charging excise duty based on loss of holograms.
2. Requirement of a notification for levying excise duty.
3. Authority of the Excise Commissioner to issue directions and impose duties.
4. Validity of circulars issued by the Excise Commissioner regarding holograms.
5. Imposition of indemnity bonds and their legal standing.
6. Distinction between regulatory measures and imposition of excise duty.
7. Applicability of rules and conditions of licenses issued post-2004.

Detailed Analysis:

1. Legality of Charging Excise Duty Based on Loss of Holograms:
The High Court ruled that excise duty cannot be charged based on the loss of holograms, as excise duty is payable in terms of the notification issued under Section 29 of the Uttar Pradesh Excise Act, 1910. The court held that no presumption could be raised that wasted security holograms, which could not be produced for verification, would be deemed to have been misused.

2. Requirement of a Notification for Levying Excise Duty:
The High Court opined that excise duty demanded only on the basis of circulars issued by the Excise Commissioner without an appropriate notification under Section 29 of the Act is bad in law. The statutory framework mandates that excise duty should be levied through a notification.

3. Authority of the Excise Commissioner to Issue Directions and Impose Duties:
The Excise Commissioner issued several circulars mandating the use of security holograms to prevent evasion of duty and smuggling of liquor. However, the court found that the Commissioner's power to issue directions is limited, and the imposition of duty is within the exclusive domain of the State, which must be effected by way of a notification, not by circulars.

4. Validity of Circulars Issued by the Excise Commissioner Regarding Holograms:
The circulars issued by the Excise Commissioner were challenged on the grounds that they imposed duties without statutory backing. The court held that regulatory measures can be taken by the State, but they must be done in the manner laid down under the Act. The circulars lacked statutory backing and thus could not enforce the levy of excise duty.

5. Imposition of Indemnity Bonds and Their Legal Standing:
The court noted that indemnity bonds, which made distilleries responsible for any loss of excise duty due to lost holograms, were executed after the period in question and were not applicable. The concept of payment of damages measured in terms of excise duty was not conceptualized by the circulars but only by the indemnity bonds executed later.

6. Distinction Between Regulatory Measures and Imposition of Excise Duty:
The court emphasized that while regulatory measures can be taken to prevent evasion of excise duty, such measures must be backed by statutory provisions. The imposition of duty through executive orders or circulars without legislative backing is not permissible. The court cited precedents to underline that excise duty must be levied in accordance with the statute and not through executive instructions.

7. Applicability of Rules and Conditions of Licenses Issued Post-2004:
The court observed that the rules and conditions of licenses issued post-2004, which included clauses for payment of duty in case of loss or damage to holograms, were not applicable to the period in question. The statutory backing for such rules came into effect only after the rules were framed in 2004.

Conclusion:
The Supreme Court upheld the High Court's decision, ruling that the imposition of excise duty based on the loss of holograms without statutory backing is invalid. The court emphasized the necessity of following the statutory framework for levying excise duty and the limitations of the Excise Commissioner's authority to impose such duties through circulars. The appeals were dismissed, reinforcing that excise duty must be levied through proper legislative procedures and notifications.