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TMI Blog2022 (1) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dismissed. - CIVIL APPEAL NO(s). 169-170 of 2022 (Arising out of SLP(C) Nos. 11596-11597 of 2020 - - - Dated:- 5-1-2022 - HON. A.M. KHANWILKAR, HON. DINESH MAHESHWARI AND HON. KRISHNA MURARI, For Petitioner(s) Ms. Aishwarya Bhati, ASG Mr. Samar Vijay Singh, AOR Celeste Agarwal, Adv. Prabjot Kaur, Adv. Mr. Vipin Singh Bansal, Adv. Mr. Amit Ojha, Adv. For Respondent(s) Mr. Niraj Gupta, AOR JUDGMENT Dinesh Maheshwari, J. Preliminary and brief outline Leave granted. 2. By way of these appeals, the State of Uttar Pradesh and its officers related with the Excise Department as also the District Magistrate, Shahjahanpur have essentially questioned the order dated 10.04.2017 in Misc. Bench No. 4493 of 2006, whereby the High Court of Judicature at Allahabad, Lucknow Bench, Lucknow quashed the demand raised against the writ petitioner company (respondent herein) towards loss of excise revenue because of destruction of liquor in fire. The appellants have also questioned the order dated 06.11.2019 in C.M. Application No. 90936 of 2019, whereby the High Court directed the appellant No. 2 (Excise Commissioner, Uttar Pradesh) to expeditiously take a fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for which negligence was required to be shown; that the order passed by the Excise Commissioner was based on conjectures and without any cogent evidence about negligence on the part of the writ petitioner; and that the incident was nothing but an act of God. The High Court, accordingly, set aside the impugned orders of demand and recovery towards the alleged loss of excise revenue. Thereafter, for the department having failed to refund the amount deposited pursuant to the interim order in the writ petition, the respondent company moved an application before the High Court whereupon, by the order dated 06.11.2019, the High Court directed the Excise Commissioner to take a decision on the application for refund within four weeks. 3.5. As noticed, the aforesaid orders dated 10.04.2017 and 06.11.2019 passed by the High Court are questioned in these appeals. The appellants maintain that the High Court was not justified in its findings that the incident in question was an act of God and not that of negligence on the part of the respondent. The appellants rely upon Rule 7(11)(a) of the Rules of 1969 and Rules 708 and 709 of the Excise Manual to contend that the respondent company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions pertaining to the electrical installations: - (a) Except the endorsement made herein the relevant rules of Indian Electricity Rules, 1956 was being complied with. (b) The details mentioned in the subsequent page are not according to Indian Electricity Rules, 1956 Hence, in the interest of Safety, you are requested that you should rectify the deficiency by engaging any of the authorized electrician and sent a report within one month after compliance in accordance with the Indian Electricity Rules,1956. xxx xxx xxx Rule 35: It is found that CAUTION place is not placed at certain prominent places. The same should be placed/installed. Rule 61(2): At one point of Turbine s Distribution Board Panel, earth wiring has been done with a thin wire. Hence the same should be removed and strip earthing should be done. (underlining supplied) In response to the aforesaid, the respondent company stated, in its letter dated 23.09.2002, that the work pointed out in the report had been completed. 7.2. Apart from the above, it appears that certain modification/upgradation work was undertaken at the production plant in the distillery and in that regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., smoke was noticed emitting from the godown. Thereupon, the Excise Inspector in-charge of the distillery was immediately informed and the joint locks were opened; and it was noticed that the stocks of IMFL were on fire. The information about this fire was given to the Police Department and also to the Fire Department and other Excise Authorities. As per the averments and the material on record, it appears that the firefighters could bring the fire under control only by 5:00 a.m. on 11.04.2003. 9. It is borne out that upon receiving information about the incident in question, the Deputy Excise Commissioner, Bareilly, reached the distillery at about 06:30 p.m. on 10.04.2003 and carried out spot inspection with other officers of the department and the Manager Personnel of the respondent company. In his initial report drawn on spot inspection, the said Deputy Excise Commissioner took note of the efforts being made for controlling and dousing the fire as also damage to a substantial quantity of liquor; and also indicated that upon enquiring about the possible reasons of this fire, he was informed that the same took place, probably, due to short circuit in the electricity supply. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s report could be usefully extracted as under: - (f) Cause of Fire : A detailed enquiry and Investigation was done by me in the distillery after the fire incident. All the Officers mentioned in para (d) have also made inquiries and investigated the matter in detail. All the Investigating Officers have also reached to the conclusion that undisputedly the cause of fire was unknown. During my Investigation and calculation work also, no fact or evidence came to my knowledge, which indicates that there was any negligence either on the part of Distiller or on the part of Excise Staff deputed in the Distillery. It also does not appear that the said incident was deliberately done by any of them . In fact, the Distiller and the Excise Staff have worked jointly with great efficiency and hard work during and after the fire Incident. Thereby ---- stock was saved from the damaged stock. This fact was confirmed by, Joint Excise Commissioner Investigation dated 30.04.2003, Deputy Excise Commissioner, Bareilly Incharge, Bareilly, investigation dated 10.04.03, Fire Brigade Officer, Investigation report dated 13.04.03 and Station House Officer s Final Report dated 11.04.03, also with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... destroyed in fire was laid down in Rule 709 of the Excise Manual and on the basis thereof, the Excise Commissioner was competent enough to proceed. The Principal Secretary, inter alia, stated as under: - Please refer to your letter No. G-43/9-alcohol/Rosa- Fire incident dated 27th November, 2003 regarding directions to be given to the District Magistrate Shahjahanpur with regard to imposition of excise duty on the stock of IMFL destroyed in fire incident dated 10.04.2003 at M/s McDowell Co. Ltd., Rosa, Shahjahanpur. 1. In this Connection I have been advised to ask you that the provision regarding imposition of excise duty involved in the stock of IMFL destroyed in the above fire incident at McDowell Co Ltd., Rosa Shahjahanpur on 10.04.2003 is laid down in rule 709 of Excise Manual, on the basis of which you are competent enough to proceed in the matter. 2. Your proposal regarding levy of excise duty on the stock of IMFL destroyed in the above fire incident is in Order. Please take necessary steps at the earliest and inform the same to the Government within 15 days. 12.3. Proceeding on the letter so received from the Principal Secretary, the Excise Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent matter, could be reproduced in extenso as under: OFFICE OF EXCISE COMMISSIONER, UTTAR PRADESH, ALLAHABAD No. 7244/9-Alcohol/131/Rosa/Fire Incident Allahabad Dated 11.07.2006 ORDER M/s McDowell Company Ltd., Rosa, District Shahjhanpur is a PD-2 Licensed distillery. The abovementioned distillery has been granted FL-3 and FL 3A license under the Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 and has been doing the bottling of Indian Made Foreign Liquor of their brand and brand of Harbartsons Ltd. respectively. On 10.04.2003, due to fire incident in the FL-3 and FL3A godown of the distillery, 35,642 (Thirty five thousand six hundred forty two) cases of Indian Made Foreign Liquor of different brands got destroyed. During investigation, it is revealed that the McDowell and company ltd. had taken the insurance of the Indian Made Foreign Liquor kept in the sealed godown. The distillery has also received the claim for that. A Show cause Notice no. 463/CAA/Rosa Distillery/Shahjahanpur dated 24.09.2003 was given to the M/s. McDowell and Company ltd. in relation to the burning of the alcohol kept in the sealed godown. It has been stated by the M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the excise duty imposed on the alcohol was not done. In this way, the licensee has secured his value of alcohol. The licensee has not suffered any loss in this incident and whatever loss has taken place has been recovered from the insurance. Therefore, perhaps the licensee was careless regarding the electric equipments. The licensee was aware about the terms and conditions while taking license that he is to pay the excise duty on the wastage of stocked alcohol greater than 1 % of the quantity. Inspite of having knowledge, the licensee has not arranged the fire proof electric equipments of good quality due to which questioned incident has taken place. The carelessness taken by the distiller in the safety of the stock of alcohol cannot be considered as Act of God. The license is granted to him under the UP Bottling of Foreign Liquor Rules, 1969. There is provision of charging excise duty on the wastage more than 1 % under Rule 7(11) (a) of those Rules. The Licensee cannot deny the conditions of the license. It has been clearly stated by the Constitution Bench of the Hon ble Supreme Court in judgment Har Shankar and Anr. Vs. Deputy Excise and Taxation Commissioner and Anr. (1997) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th July, 2006 of the District Magistrate Shahajahanpur, U.P. demanding ₹ 6,39,32,449.44. ii. Issue, a writ order, or direction in the nature of mandamus com-manding the respondents not to recover any amount from the petitioner towards the alleged demand with regards to the quantity of Indian Made Foreign Liquor destroyed due to fire accident at Shahjhanpur on 10th April, 2003. iii. Issue a writ/order or directions in the nature of mandamus de-claring Rule 7 (11) of the UP Bottling of Indian Made Foreign Liquor Rules, 1969 as null and void and ultra vires of the UP Excise Act. iv. Issue a writ/order or directions in the nature of Certiorari calling for the records and quashing the Impugned Order of the State Government which was conveyed through letter dated 17.02.2004 of the Principal Secretary (Excise), Government of UP to Excise Commissioner. 14.1. In the said writ petition, an interim order was passed by the High Court on 25.07.2006 staying the recovery proceedings subject to the respondent company depositing an amount of ₹ 3 crores with the Excise Commissioner. The respondent company attempted to challenge this interim order dated 25.07.2006 by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negligence, it is liable to make good the said loss. The condition precedent, therefore, is the factum of negligence on the part of petitioner. We have no manner of doubt that in the present case Rule 7(11)(a) of Rules, 1969 has no application and it is Rule 709 of U.P. Excise Manual which is attracted. 16. The High Court, thereafter, proceeded to analyse the impugned order dated 11.07.2006 and observed that the inferences drawn therein were lacking in material foundation and were only of conjectures and surmises. The High Court found that there was no apparent negligence on the part of the company and also recorded its conclusion that the incident was nothing but an act of God. The High Court further observed that negligence being the condition precedent for the fiscal liability in question, no such liability could be fixed unless negligence was found on the basis of some material; and held that in absence of any material to show that the loss was caused on account of any negligence on the part of the company, the demand in question was wholly illegal and unsustainable. The High Court proceeded to set aside the demand in question with the following observations and findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material to show that loss was caused on account of any negligence on the part of petitioner, we find that demand made in this writ petition is wholly illegal and cannot sustain. 32. The writ petition is accordingly allowed. Impugned orders dated 11.7.2006 and 17.7.2006 are hereby set aside. No costs. (underlining supplied) 17. After the decision aforesaid, the respondent company sought directions for refund/adjustment of the sum of ₹ 3 crores deposited in compliance of the interim order. The said application, being C.M. No. 90936 of 2019, was considered and allowed by the High Court by its order dated 06.11.2019 requiring the Excise Commissioner to decide the application moved by the company while keeping in view of the fact that the money was deposited pursuant to the interim order and subsequently, the writ petition was allowed. Rival submissions 18. While assailing the orders passed by the High Court, learned counsel for the appellants has advanced essentially two-fold contentions: one, that it had been clearly a case of negligence on the part of the respondent company where the fire incident cannot be termed as an act of God; and second, that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncident in question, the defects and deficiencies in electrical installations and wiring had been indicated and when the incident of fire took place due to short-circuit, the company cannot avoid its liability by merely suggesting that they had followed all preventive measures or had taken a certificate from the Fire Department. 20. As regards the entitlement of appellants to demand and recover the excise duty on IMFL lost in fire and corresponding liability of the respondent company to make such payment, learned counsel for the appellants has made elaborate reference to the relevant statutory provisions and has submitted that the demand in question has been squarely in conformity with law and deserves to be upheld. 21. With reference to entries 8 and 51 of List II of the Seventh Schedule to the Constitution of India, learned counsel would submit that the entire field of legislation on the subject relating to intoxicating liquors as also the matters concerning duties of excise and countervailing duties is in the domain of the State legislature; and for the present purpose, the matter is governed by the provisions contained in the Act of 1910, the Excise Manual and the Rules o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to the decision of this Court in the case of Har Shankar and Others v. Deputy Excise Taxation Commissioner and Others: (1975) 1 SCC 737 , the learned counsel would submit that when the licencee has taken the licence after carefully reading the Rules of 1969, it cannot wriggle out of the conditions of licence. 22. On the question as to when IMFL became exigible to excise duty, learned counsel has contended that in the scheme of the Act of 1910 and Rules thereunder, excise duty is leviable right from the point of entry of spirit into the distillery for manufacturing of alcohol and on every point including the points of blending, manufacturing and bottling; and thereafter on the bottled spirit. It is thus contended that the respondent company is incorrect in its assertion that the goods having been destroyed in the godown, excise duty did not become leviable. It is submitted that the moment spirit has been stored in the bottle, excise duty is leviable on the bottle, even if the same is not taken out of the warehouse. 22.1 With reference to Sections 28 and 29 of the Act of 1910, learned counsel would submit that these provisions, respectively empowering the State to imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to loss in the manner that even when the distiller has received value of liquor, the corresponding excise duty would not be made available to the State. The learned counsel has also contended that omission on the part of the respondent company to take insurance coverage of the value of excise duty, while taking insurance coverage of the value of the liquor, itself amounts to negligence on the part of the respondent and for this reason too, the respondent is liable to make payment of the excise duty on the value of liquor recovered from the insurance company. In support of these contentions, the learned counsel has referred to an order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Northern Bench, New Delhi in the case of Dharampal Satyapal v. Commissioner of Central Excise, Noida: (2004) 167 ELT 291 , wherein remission of duty on account of damage of goods (pan masala) in rain water was disallowed, when it was found that the assessee had been compensated by the insurance company with an amount which was much more than the duty involved. 25. Per contra, the learned counsel for the respondent has supported the order passed by the High Court allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that the reason of fire was unknown and there was no proof with regard to the negligence of distillery. With these facts and factors, learned counsel for the respondent would submit that the fire incident due to which IMFL got destroyed was not caused by any negligence of the respondent and coupled with this remains the fact that complete control and supervision of the distillery was exercised by the State Excise Department. Thus, according to the learned counsel, there being no negligence on the part of the respondent, no liability of excise duty on the liquor destroyed in fire could be fastened on it. 27. While maintaining that there was no negligence on the part of the respondent, the learned counsel has assailed the legality and validity of the demand of duty against the respondent. In this regard, learned counsel has referred to Article 265 of the Constitution of India, the provisions of the Act of 1910 and the Rules thereunder as also the Excise Manual and has submitted that Rule 708 of the Excise Manual absolves the State Government from the responsibility for the destruction, loss or damage of any spirit stored in distillery by fire or theft or by gauging or proof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e eventuality in between postmanufacturing and before sale, Rule 7(11) of the Rules 1969 allows 1% of wastage and mandates to charge full rate if wastage occurs beyond 1%; and in case of destruction or loss due to fire or theft etc., the distillery is made liable for loss of revenue only if there is negligence on its part. Thus, according to the learned counsel, in the present case, where the liquor had not been issued from the godown for sale and had not been lost due to any negligence on the part of distiller, the levy of excise duty deserves to be disapproved, for being not the one authorized by law and being hit by the requirements of Article 265 of the Constitution of India. Learned counsel has referred to the decision in Somaiya Organic (India) Pvt. Ltd. and Anr. v. State of U.P. and Anr.: (2001) 5 SCC 519 to submit that both the levy and collection of tax must be authorised by law. According to the learned counsel, the High Court has correctly held that Rule 709 of the Excise Manual would be applicable and no duty could be imposed on the respondent as there was no negligence on its part. 28. As regards the effect of insurance and reimbursement of the value of IMFL by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case. 32. The fundamental constitutional mandate that no tax shall be levied or collected except by authority of law is contained in Article 265 of the Constitution of India, which reads as under: - 265. Taxes not to be imposed save by authority of law.- No tax shall be levied or collected except by authority of law. 32.1. The relevant Entries 8 and 51 in List II (State List) of the Seventh Schedule to the Constitution of India could also be usefully reproduced as under: - 8. Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors. 51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India: - (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics, but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. 33. The law relating to intoxicating liquors and intoxicating drugs in the State of Utta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Excise Commissioner under Section 18. 18. Establishment or licensing of distilleries and warehouses.- The Excise Commissioner may- (a) establish a distillery in which spirit may be manufactured under a licence granted under Section 17 on such conditions as the State Government deems fit to impose; (b) discontinue any distillery so established; (c) licence, on such conditions as the State Government deems fit to impose the construction and working of a distillery or brewery or manufactory; (d) establish or licence a warehouse wherein any intoxicant may be deposited and kept without payment of duty; and (e) discontinue any warehouse so established. 19. Removal of intoxicants from distillery, etc.- No intoxicant shall be removed from any distillery, brewery, manufactory, warehouse or other place of storage established under this Act unless the duty (if any) payable under Chapter V has been paid or a bond has been executed for the payment thereof. *** *** *** 28. Duty on excisable articles (1) An excise duty or a countervailing duty, as the case may be at such rate or rates as the State Government shall direct may be imposed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) where the intoxicating drug is manufactured from hemp plant (cannabis sativa) cultivated or collected under a licence granted under the provisions of Section 17 (1) (b) and (c), by an acreage rate levied on the cultivation, or by a rate charged upon the amount collected ; (e) in the case of spirit or beer manufactured in any distillery established or any distillery brewery or manufactory licensed under Section 18- (i) by a rate charged upon the quantity produced or issued from the distillery brewery or manufactory, as the case may be, or issued from a warehouse established or licensed under Section 18 (d) ; (ii) by a rate charged in accordance with such scale or equivalents, calculated on the quantity of materials used or by the degree of attenuation of the wash or wort, as the case may be, as the State Government may prescribe : Provided that, where payment is made upon issue of an excisable article for sale from a warehouse established or licensed under Section 18(d), it shall be at the rate of duty which is in force on the article on the date when it is issued from the warehouse. 34. Rules 708, 709 and 813 of the Excise Manual, dealing with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he officer-incharge, but when an excess is found in any case at the time of monthly stock-taking, the officer incharge must obtain a written explanation from the distillers and forward the same together with a full report of the circumstances to the Assistant Excise Commissioner/Deputy Excise Commissioner. The Assistant Excise Commissioner/Deputy Excise Commissioner shall charge the duty on excess wastage if he is satisfied that the wastage in excess of the prescribed limit is not on account of an accident or any unavoidable cause. In case the excess wastage is due to an accident or unavoidable cause, the matter will be referred to the Excise Commissioner for orders. 35. One major activity concerning one of the intoxicating liquors, namely, bottling and storage of foreign liquor, is regulated in the State of Uttar Pradesh by the Rules of 1969 which, inter alia, provide for grant of bottling licence in Form FL-3 to a distiller to bottle spirits; to a brewer to bottle beer; and to a vintner to bottle wines. Various general conditions of such a licence are contained in Rule 6 of these Rules and then, additional special conditions in relation to bottling of IMFL in bond under FL-3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment was not to be liable for any loss in the quantity of this stored liquor for whatever reason; and on the other hand, the distillery, i.e., the respondent was to be responsible for the safe custody thereof and also liable to make good any loss of revenue including owing to any loss during storage beyond permissible one per cent of the total quantity. Considering that mandate, the respondent was solely liable for payment of excise duty on wastage of stored total quantity with allowance only upto one per cent, as specified. While keeping in view these salient features emerging from a combined reading of the above quoted provisions of the Act of 1910, the Excise Manual and the Rules of 1969, we may take up the questions calling for determination in this case. Whether the demand in question is authorised by law? 37. With reference to the provisions above-mentioned, the main plank of submissions on behalf of the respondent company has been that the point of quantification and calculation of excise duty being the point of issue from the bonded warehouse and that point/stage having not reached in relation to the liquor destroyed in fire, the question of demand of excise dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned in Section 28 of the Act of 1910. The relevant observations and declaration of law by this Court could be usefully reproduced as under: - 8. The original Section 28 of the Act now re-numbered as subsection (1) thereof, and sub-sections (2) and (3) inserted by Section 2 of the U.P. Act 7 of 1970 clearly covers Indian made foreign liquors. There can 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. State of Kerala: 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 duly is levied at a stage subsequent to manufacture or production. That was a case on Central Excise, but the principle is equally applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the brewery or issued from a warehouse. This means that in respect of beer that undergoes the process of filtration, the exigibility to excise duty will occur either at the end of the filtration process when it is received in storage/bottling tanks or when it is issued from the brewery. In regard to draught beer drawn directly from fermentation vessels, without further processing or filtration, the exigibility to excise duty will occur either at the end of the fermentation process or when it is issued from the brewery. (underlining supplied) 40. The very same provision [i.e., Section 29(e)(i) of the Act of 1910], which has been interpreted by this Court in the aforesaid decision of M/s Mohan Meakin in relation to beer manufactured in a brewery, applies with necessary variations to the case of spirit manufactured in a distillery established under Section 18. Undoubtedly, the liquor in question was manufactured by the respondent company in its distillery established under Section 18. Thus, the liquor that had been produced, became exigible to excise duty at the end of the distillation process when it was received in storage/bottling tanks or when it was issued from the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Excise Manual and not Rule 7(11) of the Rules of 1969, which deals only with wastage in normal course of bottling operation and storage. It has further been contended that only Rule 709 of the Excise Manual could be taken recourse of by the Government, but in that case, the distillery could be made liable only if it could be shown that the loss had been caused to the Government by any negligence on part of the distillery. 43. In regard to the above submissions, though the demand in question would be essentially referable to Rule 709 of the Excise Manual, but Rule 7(11) of the Rules of 1969 provides for an allowance up to 1% on the total quantity of spirit stored during a month towards actual loss in bottling and storage; and the licencee is responsible for payment of duty on the wastage in excess of 1%. This Rule 7(11) makes it clear that even in relation to the wastage in storage, the allowance is only up to 1% of total quantity of spirit stored during a month. This provision may also be read with Rule 813 of the Excise Manual, which provides for free wastage allowance for different kinds of spirit in a distillery with the specified percentage, namely the plain and spice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 709 of the Excise Manual. We shall examine various features related with this question in the next segment of discussion. Whether respondent company remains liable to pay excise duty on the liquor lost in fire 46. As noticed, the fire incident in question led the Excise Commissioner to propose recovery of excise duty on the stock of IMFL destroyed in fire from the respondent company and the respondent company maintained that the incident was due to the reasons beyond human control and there was no negligence on its part. However, ultimately, the Excise Commissioner passed the order dated 11.07.2006 holding, inter alia, that the respondent company had not arranged the fire proof electric equipments of good quality due to which the incident had taken place; and the carelessness of the distillery for the safety of stock cannot be attributed to an act of God. The High Court has, however, held that the inference drawn by the Excise Commissioner was nothing but of conjectures and surmises without any material foundation. The High Court has also observed that when a fiscal liability was founded on a condition precedent, i.e., negligence on the part of the person concerned, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where one of the locks is of the Excise Department and other of the distillery. The other provisions of the Rules of 1969 and the Excise Manual further make it clear that as regards general arrangement and management of distilleries, elaborate provisions have been made like as to how the pipes would be laid, fixed and painted, as to how lock fastening would be constructed etc. Even a minor alteration in the distillery arrangement requires previous sanction of the Excise Commissioner (Rule 771) and repairs etc. are to be reported (Rule 772). The rules in their conspectus provide for strict supervision and control of the Excise Department over the working of distillery at every stage but that supervision and control does not correspondingly absolve the distillery of its duty and responsibility towards safe custody of the stock of spirit and towards avoidance of wastage. Any doubt in that regard is effectively quelled by a combined reading of Rules 708 and 709 of the Excise Manual as also Rule 7(11) of the Rules of 1969. The contentions in this regard as urged on behalf of the respondent company are, therefore, rejected. Negligence 48. Now, for entering into the core of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been ~ed -Bruce Payne ~ed the real needs of the students b : to fail to attend to sufficiently or properly : not give proper attention or care to .. 2 : to carelessly omit doing (something that should be done) either altogether or almost altogether : leave undone or unattended to through carelessness or by intention : pass lightly over ~ing their obvious duty ~ed to mention that he was a convict Bernard Smith . neg●li●gence 1 a : the quality or state of being negligent b : a failure to exercise the care that a prudent person usu. exercises opposed to diligence; 49.3. In Black s Law Dictionary 10th Edition pp. 1196-1198, negligence and several of its forms and features have been explained. For the present purpose, we may usefully extract the relevant parts as under: - negligence , n. (14c) 1. The failure to exercise the standard of care that a reasonably prudent person would have exercised in a similar situation; any conduct that falls below the legal standard established to protect others against unreasonable risk of harm, except for conduct that is intentionally, wantonly, or willfully disregardful of others rights; the doing of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igence in law signifies a coming short of the performance of duty. Failure to use the care that a reasonably prudent and careful person would use under similar circumstances. Negligence is the absence of proper care, caution and diligence; of such care, caution and diligence, as under the circumstances reasonable and ordinary prudence would require to be exercised. 50. Salmond on Jurisprudence refers to a terse exposition in Grill v. General Iron Screw Colliery Co.: (1866) L.R. 1 C.P., that negligence is the absence of such care as it was the duty of the defendant to use ; and further explains the subtle distinction of inadvertent and advertent negligence in the following: - It is to be observed, in the second place, that carelessness or negligence does not necessarily consists in thoughtfulness or inadvertence. This is doubtless the commonest form of it, but it is not the only form. If I do harm, not because I intended it, but because I was thoughtless and did not advert to the dangerous nature of my act, or foolishly believed that there was no danger, I am certainly guilty of negligence. But there is another form of negligence, in which there is no thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stress on this theory but looking to the relevant background, it would be apposite to take note of a few features related with act of God and its connotations on the jurisprudential principles of liability. 54. In P. Ramanatha Aiyar s Advanced Law Lexicon 5th Edition, p. 83, variegated connotations of the term act of God or Vis major are specified with reference to the treatise and citations. A few relevant aspects for the present purpose could be usefully extracted as under: - All natural agencies, as opposed to human activities, constitute acts of God, and not merely those which attain an extraordinary degree of violence or are of very unusual occurrence. The distinction is one of kind and not one of degree. The violence or rarity of the event is relevant only in considering whether it could or could not have been prevented by reasonable care : if it could not, then it is an act of God which will relieve from liability, howsoever trivial or common its cause may have been. If this be correct, then the unpredictable nature of the occurrence will go only to show that the act of God in question was one which the defendant was under no duty to foresee or provide against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving regard to the conditions of time and place known to be prevailing. For instance, where by experience of a number of years, preventive action can be taken, Lord Westbury defined the act of God (damnum fatale in Scotch Laws) as an occurrence which no human foresight can provide against and of which human prudence is not bound to recognize the possibility. This appears to be the nearest approach to the true meaning of act of God. Lord Blancaburgh spoke of it as an irresistible and unsearchable providence nullifying our human effort . 54.2. In the case of Vohra Sadikbhai Rajabhai (supra), the water released from a dam constructed by the respondents flooded the land of the appellants and destroyed the plantation therein. As per the respondents, the water had to be released from the dam as it reached alarming level because of heavy rains and non-release would have breached the dam; and that the action was taken in public interest and it was occasioned because of the rains, which was an act of God. The appellants, on the other hand, contended that it was sheer negligence on the part of the respondents in not maintaining low level of the water keeping in mind the ensuing mons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of acts of God. Examples are: storm, tempest, lightning, extraordinary fall of rain, extraordinary high tide, extraordinary severe frost, or a tidal bore which sweeps a ship in mid-water. What is important here is that it is not necessary that it should be unique or that it should happen for the first time. It is enough that it is extraordinary and such as could not reasonably be anticipated 54.3. The case of Patel Roadways (supra) essentially related to a common carrier s liability when goods entrusted to it were destroyed in a fire that took place in the godown of the appellant. As regards the question of negligence vis-a-vis a common carrier s liability, this Court referred to a passage from Sarkar on Evidence (15th Edn., 1999) at p. 1724 and observed that as a rule, negligence is not to be presumed; it is rather to be presumed that ordinary care has been used but that this rule does not apply in the case of common carriers, who, on grounds of public policy, are presumed to have been negligent if goods entrusted to their care have been lost or damaged or delayed in delivery. 55. The present one had not been a case where anything related with the forces of nature like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n all such normal and reasonable requirements, could not have prevented the fire in question. While looking for an appropriate answer to this question, we shall have to take an overall view of the material available on record as also all the surrounding factors and circumstances. In this regard, before proceeding further, we could profitably refer to a significant guiding principle embodied in the maxim res ipsa loquitur whereby negligence may be presumed from the mere fact of accident; of course, the presumption depends upon the nature of the accident and the surrounding factors. Res ipsa loquitur 58. In order to understand the operation of the maxim res ipsa loquitur, we may usefully refer to a couple of the decisions of this Court. Of course, these decisions related with vehicular accidents but the principles therein remain fundamental in operation of res ipsa loquitur. 58.1. Shyam Sunder and Ors. v. The State of Rajasthan: (1974) 1 SCC 690 had been a case where the victim was travelling in a truck whose engine got fire and while jumping from the vehicle, he struck against a stone on the side of the road and died on the spot. The High Court in that case held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accident but cannot prove how it happened to establish negligence on the part of the defendant. This hardship is sought to be avoided by applying the principle of res ipsa loquitur. The general purport of the words res ipsa loquitur is that the accident speaks for itself or tells its own story. There are cases in which the accident speaks for itself so that it is sufficient for the plaintiff to prove the accident and nothing more. It will then be for the defendant to establish that the accident happened due to some other cause than his own negligence. Salmond on the Law of Torts (15th Ed.) at p. 306 states: The maxim res ipsa loquitur applies whenever it is so improbable that such an accident would have happened without the negligence of the defendant that a reasonable jury could find without further evidence that it was so caused . In Halsbury's Laws of England, 3rd Ed., Vol. 28, at p. 77, the position is stated thus: An exception to the general rule that the burden of proof of the alleged negligence is in the first instance on the plaintiff occurs wherever the facts already established are such that the proper and natural inference arising from them is that the injury ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uture, they should be tested in fire station Shahjahanpur before refilling; and it was also suggested that Foam Installation should be provided for better management of firefighting arrangements. 60.2.1. From the material placed on record, it is not forthcoming if strip earthing had indeed been carried out, though the respondent company generally stated in its letter dated 23.09.2002 that what was pointed out by the Assistant Electricity Inspector had been carried out. As to when strip earthing was done and in what manner is not forthcoming. Further, it is also not forthcoming if Foam Installations were provided, as suggested by the Fire Brigade Officer. In view of extra care required of the highly inflammable material, significance of none of these aspects could be gainsaid. 60.3. Though it is true that as per the suggestions made in the reports relating to the fire incident in question, exact cause of fire could not be ascertained but there had been indications that the officers, including the Excise Officer and Station House Officer had seen burnt wires; and it was reported that the fire possibly took place because of short circuit. Taking note of these facts as also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces 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. 63. As noticed, 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take insurance coverage of value of excise duty, while taking coverage of the value of liquor, itself amounts to negligence. On the other hand, the respondent would submit that the claim received from the insurer cannot be termed as consideration because there was no transfer of property in goods and there was no sale. It has also been submitted that there was no such requirement in law that the respondent company was to take insurance coverage of the excise duty too. Yet further, it has also been submitted that clearance of insurance claim by the insurer itself shows that there was no negligence on the part of the respondent. The Excise Commissioner in its order dated 11.07.2006 has observed that the distiller had taken insurance of the value of goods and for this reason too, it remained rather lax in taking all care against fire. 67. Having examined the matter in its totality, we are clearly of the view that 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 extric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 70. 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. Summation 71. In summation of what has been discussed hereinabove, we hold, - (i). The demand raised by the appellants against the respondent company, of excise duty on the liquor lost in fire, is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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