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2022 (1) TMI 312 - SC - VAT and Sales TaxLevy of excise duty on the liquor destroyed in fire - Demand raised against the writ petitioner company (respondent herein) towards loss of excise revenue because of destruction of liquor in fire - fire incident that took place in a godown of the distillery of the respondent company - whether demand of excise duty on the liquor lost in fire is authorised by law and has rightly been raised as per the applicable provisions of the Act of 1910, the Excise Manual and the Rules of 1969? - HELD THAT - A comprehensive look at the relevant provisions of law makes it clear that so far as IMFL is concerned, no provision is made in the Excise Manual for any wastage allowance in relation to the bottled sprit, but, in terms of Rule 7(11) of the Rules of 1969, an allowance up to 1% on the total quantity of spirit stored during a month may be allowed for actual loss in bottling and storage. Any allowance for any wastage or loss beyond the same remains, obviously, impermissible - Rule 7(11) of the Rules of 1969 is required to be taken into account for the legal consequences that so far as the bottled spirit is concerned, the licencee remains responsible for payment of duty on any kind of wastage in excess of 1%. Coupled with this provision, Rule 709 of the Excise Manual makes it clear that the distillery remains responsible for safe custody of the stock of spirit and remains liable to make good any loss of revenue caused to the Government by their negligence. The demand in question cannot be said to be unauthorised but, its validity would depend on answer to the question as to whether negligence could be imputed on the respondent company in terms of Rule 709 of the Excise Manual. Whether the fire incident in question had been an event beyond human control and no negligence could be imputed on the respondent company? - HELD THAT - The fire incident in question had not taken place due to operation of any forces of nature. It has also not been the case that the fire was a result of any mischief by any person. Noticeably, the fire that started around 12 55 p.m. on 10.04.2003 could be brought under control by the firefighters only by 5 00 a.m. on 11.04.2003. When all the relevant factors are cumulatively taken into account, we find it difficult to accept that the fire and the resultant loss had been beyond the control of human agency so as to be termed as inevitable accident. Obviously, the fire had not generated on its own and, with appropriately laid fire proof electrical installations as also firefighting measures, the incident was an avoidable one or at least the loss could have been minimised. The fault of negligence need not always be of active negligence or of gross negligence, but it may also be of an inadvertent negligence or of a passive negligence. It does not require much of discussion to say that the goods in question, being highly inflammable, required extra and excessive care for their safe custody; and any laxity or slackness in that regard was impermissible. To put it differently, what was required for ensuring safe custody of the goods in question was that of heightened safeguard measures with foresight - Even if the present case is taken to be that of inadvertence or of unintentional omission on the part of the respondent company, it would fall within the definition of negligence for the purpose of Rule 709 of the Excise Manual. In the given set of facts and circumstances, we are unable to endorse the approach and views of the High Court, where it had basically proceeded on the premise as if the incident in question was referable to an act of God . - The criticism of Excise Commissioner s order dated 11.07.2006 by the High Court, while taking the observations and findings therein being of surmises and conjectures, is also required to be disapproved. What the Excise Commissioner had observed in the order dated 11.07.2006 had been of his inferences, which were deduced out of the facts and circumstances of the case and in true application of the principles of res ipsa loquitur - there are no hesitation in disapproving the order of the High Court and in endorsing the views of the Excise Commissioner in the order dated 11.07.2006. What would be the effect of the fact that the respondent company had taken insurance coverage only of the value of liquor (and not that of excise duty thereupon) and then, had received the insurance claim towards the value of liquor? - HELD THAT - Admittedly, the respondent company had taken insurance coverage of the value of liquor and indeed received such value of liquor from the insurer. However, respondent company did not take insurance coverage of the excise duty payable over such value of liquor. The appellants contend that when the distiller has received value of liquor, on the principles of equity and fair play, the corresponding excise duty ought to be made available to them - the liability of the respondent company in this matter is rather fortified from the facts that it had taken insurance coverage of the value of liquor and indeed received such claim from the insurer. Further, failure to insure the risk of excise duty liability cannot extricate the respondent from that liability. In the scheme of law applicable, when duty of excise is upon the goods and the taxable event is the production or manufacture of the liquor, the liability to pay excise duty had arisen as soon as the liquor was manufactured. Thereafter, when the liquor got destroyed in fire but its value was recovered from the insurer, in our view, these events shall answer to the broad expression issue of an excisable article for sale from a warehouse for the purpose of proviso to Section 29(e) of the Act of 1910 - receiving of insurance claim over the value of goods by the respondent related back to the date of fire and the respondent became liable to pay excise duty at the rate which was in force on the date of fire, which would be deemed to be the date of issue from the warehouse. In the facts of the present case, where excise duty became payable on manufacture of liquor, it was obviously expected of the respondent company, as a reasonable and prudent distiller, to take all necessary steps to safeguard not only the liquor and value thereof but also the corresponding interest of the Government, i.e., the excise revenue. The Excise Commissioner had been rather justified in drawing inference that the respondent company, after having secured the value of goods for its purpose, might not have been conscious and alert in taking all the necessary care to guard against any loss to the Government due to any mishap like fire. The submission, that insurer would not have made payment of insurance claim if there was any negligence on the part of the respondent company, has its own shortcomings. The terms of fire insurance policy have not been placed on record and it cannot be deduced as to what were the terms and conditions of that policy under which insurer had acted in accepting the claim of the respondent company. Secondly, what was not treated as negligence by the insurer for the purpose of insurance claim would not ipso facto become a proposition binding on the appellants as regards loss of revenue because of loss of liquor in fire. Such a contention of the respondent could only be rejected. The demand raised by the appellants against the respondent company, of excise duty on the liquor lost in fire, is authorised by law and has rightly been raised as per the applicable provisions of the Act of 1910, the Excise Manual and the Rules of 1969. The fire incident in question cannot be said to be that of an event beyond human control and the High Court has been in error in holding that no negligence could be imputed on the respondent company. The fact that the respondent company had taken insurance coverage only of the value of liquor (and not that of excise duty thereupon) and then, had received the insurance claim towards the value of liquor also operates against the respondent company and fortifies the conclusion about negligence of the respondent company. This appeal deserves to succeed and the writ petition filed by the respondent company deserves to be dismissed.
Issues Involved:
1. Demand of Excise Duty on Liquor Lost in Fire 2. Negligence and Liability of the Respondent Company 3. Effect of Insurance Coverage Only of the Value of Liquor Detailed Analysis: 1. Demand of Excise Duty on Liquor Lost in Fire: The appellants questioned the High Court's order quashing the demand for excise duty on liquor destroyed in a fire. The Supreme Court examined whether the demand was authorized by law under the U.P. Excise Act, 1910, the Excise Manual, and the Uttar Pradesh Bottling of Foreign Liquor Rules, 1969. The Court noted that excise duty is a tax on the manufacture or production of liquor, not on its sale. The duty becomes exigible at the end of the distillation process or when issued from the distillery. The Court rejected the argument that excise duty could only be levied at the point of issue from the warehouse, stating that the taxable event was the production or manufacture of the liquor. 2. Negligence and Liability of the Respondent Company: The Court examined whether the fire incident was due to negligence on the part of the respondent company. The High Court had found that the incident was an act of God and not due to negligence. However, the Supreme Court disagreed, stating that the fire could not be attributed to natural forces like storms or lightning. The Court found that the respondent company failed to take adequate precautions, such as ensuring proper electrical installations and firefighting measures. The Court held that the respondent's negligence in maintaining safe custody of the highly inflammable liquor led to the fire, making them liable for the excise duty. 3. Effect of Insurance Coverage Only of the Value of Liquor: The respondent company had taken insurance coverage only for the value of the liquor, not for the excise duty payable on it. The appellants argued that this omission amounted to negligence. The Supreme Court agreed, stating that the respondent's failure to insure the excise duty liability indicated negligence. The Court noted that the respondent had received the value of the liquor from the insurer, which should be considered akin to the sale of liquor for the purpose of excise duty. The Court held that the receipt of the insurance claim related back to the date of the fire, making the respondent liable to pay excise duty at the rate applicable on that date. Conclusion: The Supreme Court allowed the appeal, set aside the High Court's orders, and upheld the demand of excise duty on the liquor destroyed in the fire. The Court found that the respondent company was negligent in ensuring the safe custody of the liquor and was liable to pay the excise duty. The Court also dismissed the respondent's miscellaneous application for a refund.
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