2007 (1) TMI 645 - HC - Central Excise

Summary

Issues Involved:
1. Liability of the petitioner to pay excise duty on liquor destroyed in a fire accident.
2. Interpretation of the charging section under the Karnataka Excise Act, 1965, and related rules.
3. Validity of the demand notice issued by the respondent.

Detailed Analysis:

1. Liability of the petitioner to pay excise duty on liquor destroyed in a fire accident:

The petitioner, a firm manufacturing Indian made liquor under a license, faced a dispute regarding the liability to pay excise duty on liquor destroyed in a fire accident. The respondents argued that the manufacturing process was complete, and the duty was applicable even though the liquor was destroyed before being issued. The petitioner contended that no excise duty was payable as the charge was not complete until the goods were issued.

2. Interpretation of the charging section under the Karnataka Excise Act, 1965, and related rules:

Sections 22 and 23 of the Karnataka Excise Act, 1965, were pivotal in this case. Section 22 prescribes the levy of excise duty on excisable articles manufactured or produced in the State. Section 23 outlines the ways of levying such duties, including on the quantity of excisable articles produced, manufactured, or issued from a distillery. Rule 2 of the Karnataka Excise (Excise Duties & Fees) Rules, 1968, specifies that excise duty shall be levied on excisable articles issued from any distillery, warehouse, or place of storage.

The petitioner argued that the charge was incomplete as the liquor was not issued from the distillery, and thus, no liability for excise duty arose. This was supported by the interpretation of the charging section and the rules, indicating that the charge is effectuated only at the issue point.

3. Validity of the demand notice issued by the respondent:

The respondents issued a demand notice for Rs. 24,53,580/-, asserting that the petitioner was liable for the duty as the liquor was manufactured and the duty rate was prescribed. The petitioner challenged this, arguing that the demand was not enforceable as the charge was incomplete without the issuance of the liquor.

The court examined the statutory provisions and concluded that the charging section under Section 22 of the Act was incomplete without the aid of Rule 2, which links the levy to the issuance of the excisable articles. The court held that the charge is complete only when the manufactured article is issued from the distillery or warehouse. Since the liquor was destroyed before issuance, the charge was not effectuated, and thus, the demand notice was quashed.

Conclusion:

The court allowed the writ petition, quashing the demand notice and directing the respondents to refund any amount already recovered from the petitioner unless it could be adjusted against any other outstanding liability. The court emphasized that the charging section should be strictly construed, and the levy could not be sustained as the charge was not complete without the issuance of the liquor.