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2019 (8) TMI 583 - HC - VAT and Sales TaxVires of Rule 20(2) of the Karnataka Excise (Possession, Transport, Import and Export of Intoxicants) Rules, 1967 - delay caused in furnishing of EVCs collected from the Excise authorities of the destination States - export of liquor - time limit for furnishing of EVCs within the time prescribed i.e., sixty days/ninety days (defence supplies). HELD THAT - There is no fetter on the Government to frame rules exercising the power to regulate the export of intoxicants which includes regulatory measure to insist for EVCs as a proof of export of liquor to the other destined States. The power delegated by the legislature to the executive vide Rule 20(2) cannot be held to be excessive, arbitrary or illegal. The next question would be whether such production of EVCs within a prescribed period is mandatory or directory. In the present set of facts, the respondents have not alleged any misuse of the export permits and the quantity of exported liquor did not reach the destinations. It is the specific case of the petitioners that the EVCs were submitted belatedly beyond the period of time prescribed and thus the same are rejected. For the Excise year 2018-19, out of about 1,405 export permits said to have been issued, approximately in 51 cases, EVCs were submitted belatedly for which explanation offered shows that destination States issued the EVCs belatedly due to various factors which was beyond the control of the petitioner and the same can not be rejected outrightly. As could be seen, furnishing of verification certificates is only for proof of the export and the quantity exported. This Court is of the considered opinion that production of EVCs is mandatory to avail the benefit of reduced duty pursuant to export of liquor to other States. Some proof is necessary to substantiate the liquor exported has reached the destination/other States. However, describing the time limit of sixty/ninety days for production of EVCs can be held to be directory, since the production of such EVCs within the prescribed period is dependant on the functioning of the authorities of different States, which is beyond the control of the person exporting the liquor. Any EVCs submitted beyond the prescribed period with sufficient cause shown requires to be considered, if it is otherwise established that the liquor was exported to other States by adequate material evidence - the credit has to be adjusted depending upon the facts and circumstances of the case. Furnishing of such EVCs belatedly would not disentitle the petitioner to avail the reduced rate of duty to which he is otherwise entitled to. Whether the expression shall partakes the character of may depends upon the intent of legislation, which requires to be achieved not only from the phraseology of the provision, but considering its nature, design and the consequences. Applying this principle, the word shall used in rule 20(2) requires to be read as may . Furnishing of EVC Forms in terms of Rule 20(2) of the Export Rules is mandatory, but the time prescribed of sixty/ninety days (defence supplies) for furnishing of such EVC Forms is merely directory. Subject to the same, Rule 20(2) of the Export Rules is held to be intra vires the Constitution - the demand of excise duty as per Annexure A dated 11.02.2019 stands quashed. Petition disposed off.
Issues Involved:
1. Whether Rule 20(2) of the Karnataka Excise (Possession, Transport, Import and Export of Intoxicants) Rules, 1967 is ultra vires Section 71 of the Karnataka Excise Act, 1956. 2. Whether the requirement of furnishing Export Verification Certificates (EVCs) within sixty/ninety days is mandatory or directory. 3. Legality of the demand for excise duty based on delayed submission of EVCs. 4. Validity of the action to invoke the bank guarantee furnished by the petitioner. Detailed Analysis: 1. Ultra Vires Argument: The petitioner challenged Rule 20(2) of the Karnataka Excise Rules as being ultra vires Section 71 of the Karnataka Excise Act, arguing that it should be read as directory and not mandatory. The court examined Section 71(2)(d) of the Act, which empowers the State Government to make rules regulating the import, export, transport, manufacture, possession, supply, or storage of any intoxicants. The court found that the power to regulate includes every kind of regulation, including time stipulation, and therefore, Rule 20(2) is not ultra vires the Act. 2. Mandatory vs. Directory: The court considered whether the requirement to furnish EVCs within sixty/ninety days is mandatory or directory. It noted that the term 'shall' in Rule 20(2) indicates a mandatory requirement. However, based on precedents from the Kerala and Andhra Pradesh High Courts, the court concluded that while the submission of EVCs is mandatory, the time frame of sixty/ninety days is directory. This is because the submission of EVCs depends on external authorities, which is beyond the control of the petitioner. 3. Demand for Excise Duty: The petitioner argued that the demand for excise duty based on the delayed submission of EVCs is arbitrary and against Article 265 of the Constitution. The court agreed, stating that the delay in submitting EVCs should not alter the rate of excise duty if the export is otherwise substantiated by substantial material. Therefore, the demand for excise duty was quashed. 4. Invocation of Bank Guarantee: The court found that the action of the respondents to invoke the bank guarantee furnished by the petitioner was unjustifiable. The invocation of the bank guarantee is contingent upon the non-submission of EVCs within the prescribed time, which the court held to be directory. Therefore, the action to invoke the bank guarantee was invalid. Conclusion: The court held that furnishing of EVCs in terms of Rule 20(2) is mandatory, but the time prescribed for furnishing such EVCs is directory. Consequently, Rule 20(2) is intra vires the Constitution. The demand for excise duty based on delayed EVCs was quashed, and the action to invoke the bank guarantee was deemed unjustifiable. The respondents were directed to process the petitioner’s application for export permits and issue the pending permits, if any, subject to satisfying the other conditions prescribed. The writ petitions were disposed of accordingly.
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