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TMI Blog1990 (10) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 16 of the Act. In the bonded warehouses the same are sometimes diluted, separately bottled and sold. They also used to manufacture and bottle military rum under a licence and supply the same to the defence personnel inside and outside the State of U.P. The Officer Commanding Rail Head Depot A.S.C., Pathankot having obtained permits from the State of Punjab for the import of military rum, against those permits the respondents exported military rum from their distillery, under different passes. The excise duty on military rum for export was ₹ 7 per L.P. Litre while the rate for consumption within the State was ₹ 21 per L.P. Litre. If the exported military rum was under bond thereupon duty was realised by the importing State from the importer thereof. The respondents bottled the rum according to rules and supplied the same to the consignees at the distillery premises and the consignments were taken by the consignees under the seal of the railway authorities to their respective destinations. It appears by Notification dated March 26, 1979 in exercise of the powers under Sections 28 and 29 of the Act, read with section 21 of the U.P. General Clauses Act, 1904 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e importing State. If there is excess wastage on transit the result is that the quantity actually received by the destination State is less than the quantity on which the State of U .P. charged the lower rate and, therefore, on the quantity shown as wastage the State of U.P. ought to recoup its differential duty by charging excise duty at the higher rate; and that this is clearly envisaged by the Act and the United Provinces Excise Manual Rules, hereinafter referred to as 'the Rules'. Counsel further submits that it has a wholesome purpose, namely, to discourage evasion of duty and that there is no question of levying excise duty twice on the same article inasmuch as the amount of export duty actually paid is always deducted from the demand; and that it is a duty of regulatory character meant to guard against perpetration of fraud or deception on excise revenue which the State is entitled to receive. It is said to be a realisation of escaped duty justified by the implied presumption. Mr. K.K. Venugopal, the learned counsel for the respondents, submits that in this case while the exporting State, that is, U.P., levied export duty at a concessional rate the importing State l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the U.P. Act 7 of 1970 clearly covers Indian made foreign liquors. There could be no dispute as to military rum being one of the Indian made foreign liquors excisable under the Act. A duty of excise under Section 28 is primarily levied upon a manufacturer or producer in respect of the excisable commodity manufactured or produced irrespective of its sale. Firstly, it is a duty upon excisable goods, not upon sale or proceeds of sale of the goods. It is related to production or manufacture of excisable goods. The taxable event is the production or manufacture of the liquor. Secondly, as was held in A.B. Abdulkadir v. The State of Kerala. reported in 1962 (2) Suppl. SCR 741: AIR 1962 SC 922, an excise duty imposed on the manufacture and production of excisable goods does not cease to be so merely because the duty is levied at a stage subsequent to manufacture or production. That was a case on Central Excise, but the principle is equally applicable here. It does not cease to be excise duty because it is collected at the stage of issue of the liquor out of the distillery or at the subsequent stage of declaration of excess wastage. Legislative competence under entry 51 of list II on levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been realized in advance in cases of import other than those covered by clause (c). (3) On receipt of the permit the exporter shall deposit into the treasury; (a) Export duty on the total quantity of liquor to be ex- ported; and (b) Where the export is made to a State or Union Territory with which the State of Uttar Pradesh has entered into a reciprocal arrangement for the adjustment of the excise duty by book transfer, and the rate higher than that enforced in the State of Uttar Pradesh, and that payable in the importing State or Union Territory on the total quantity of liquor to be exported. (4) On receipt of the permit and the treasury receipt the wholesale vendor shall prepare a pass in form F.L. 23 in quadruplicate and submit it to the Excise Inspector, in-charge of the distillery. The Excise Inspector shall after satisfying himself that duty has been correctly realized, affix his signature to the pass. The exporter shall then send one copy of the pass to the Collector of the district of export, one copy to the Chief Revenue Authority of the place of import or such other officer as may be authorised in this behalf. One copy to the consignee and shall retain the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of the charge. Rule 37-B provided for maintenance of register of refunds against exports of Indian-made foreign liquor and said that the Excise Inspector incharge of the distillery shall enter all the details given by the distillers in the statement in form P.D. 31, in a register to be maintained by him in form P.D. 31-A. As and when refunds are allowed by the Excise Commissioner, he shall make entries about refund in this register in relevant columns under his signature. Similar entries shall also be made by the office of the Assistant Excise Commissioner concerned, on the copies of P.D. 31 statement received from the exporters, and be initialled by the Assistant Excise Commissioner after verification. Thus it is seen that though not specifically mentioning charging up of differential export duty on excess wastage, the above rules definitely envisaged refund of excise duty of countervailing or equalising nature. Mr. Agarwal also brings to our notice Rule 8 14 which substituted the old Rule by the Excise Commissioner's Notification No. 10909/IX. 241-A, dated February 8, 1978. It provided as under: "Allowance for loss in transit. An allowance upto 0.5 per ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty as payable on home consumed liquor. It does not impose any new duty. We are inclined to agree. This rule does not authorise imposition of any new tax but only authorises charging up excise duty on the excess wastage of liquor in course of export which was charged at concessional rate. The old Rule 814 of the Rules was made by B.O. No. 423/V-284-B, dated September 6, 1910 and No. 20/8 V-E 980B, dated May 28, 1918 providing for allowance for Joss in transit. It said: "An allowance will be made for the actual loss in transit, by leakage, evaporation or other unavoidable cause, of spirit transported or exported under bond. The allowance is subject to the following maximum limits." Limits were prescribed differently for wooden casks and metal vessels, keeping in mind the duration of transport. Thus, we find that the minimum limits of wastage in transit was prescribed even under the old rule. This by implication enjoined that the excess wastage would be taxed as if not wasted. The question may arise as to the date of the new Rule 814, to decide whether the impugned notices would be covered by it or by the old Rule. Section 77 of the Act provides the answer. It says: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual loss in transit by leakage or breakage of vessels or bottles containing liquor, and if the wastage exceeded the prescribed limit the licensee should be liable to pay duty at the prescribed rate as if the wastage in excess of the prescribed limit had actually been removed from the Warehouse, and it was also provided that the Financial Commissioner could in his discretion on goods cause being shown remit the whole or a part of the duty leviable on such wastage, and these provisions were challenged. This Court held that the impugned rules did not impose any new duty or create any liability and that they were in essence and substance of a regulatory character meant to guard against perpetration of fraud or deception on the revenue. "They provide for and regulate the storage and subsequently the removal of liquor from the bonded warehouse, on payment or otherwise of the duty which is chargeable under the Fiscal Rules of 1937." We agree with Mr. Agarwal that the instant Rules 636 and 814 are also a regulatory character and they are precautionary against perpetration of fraud on the excise revenue of the exporting State. If out of the quantity of military rum in a cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting State. If as a matter of fact it is found that the exported liquor actually crossed the territory of the exporting State intact there may not be any justification for demanding differential duty. That will of course be a question of fact in no way affecting the right to demand the differential duty. The decision in M/s. Ajudhia Distillery Rajaka, Sahaspur v. State of Uttar Pradesh and Anr., reported in 1980 Taxation Law Reports 2262, quashing such a demand and holding that the exporting State had no jurisdiction to charge duty on the liquor wastage in transit cannot be said to have been correctly decided and the impugned judgment in the instant case suffers from the same infirmity, and has to be set aside. Rule 814 envisages the levy of such differential duty. There is no question of double charging or multiple point charging in this case. It is only a question of recovery of the difference on proof of the purposes for which lower duty was earlier levied having failed to be achieved entailing liability to make good the difference. The Rules 636, 637-A and 637 are also relevant to this extent. It was reiterated in M/s. Mc Dowell and Co. Ltd. v. Commercial Tax Officer, VH Circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of differential duty was only deferred to this moment and it still continued to be a duty on production or manufacture of rum. It could not be regarded as a duty not connected with the taxable event of manufacture or production. There is also no similarity with the excise duty sought to be levied only on the unlifted quantity of liquor by contractors which was held to be impermissible under Sections 28 and 29 of the Act in Excise Commissioner, U.P. v. Ram Kumar, [1976] 3 SCC 540 and State of Madhya Pradesh v. Firm Gappulal, AIR 1976 SC 633: 1976 (2) SCR 1041. In the instant case the military rum was obtained for the purpose of export and the lower export duty was paid and only when the rum did not result in export the question of imposing the differential duty arose. The notion of the excise duty being changed or cancelled on account of what transpires later is not foreign to excise law. Generally speaking the imposing of the differential duty i.e. charging up the duty on the report of the excess wastage is the opposite of the system of drawback prevalent in some systems. Drawback means the repayment of duties or taxes previously charged on commodities, from which they are reli ..... X X X X Extracts X X X X X X X X Extracts X X X X
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