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TMI Blog2022 (6) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... he Excise Commissioner. 3. Admittedly, the petitioner has a remedy of revision against the order dated 27.01.2021, under Section 11 of the Uttar Pradesh Excise Act, 1910 (hereinafter referred to as the Act). However, the present petition was filed directly before this Court, on the plea of lack of jurisdiction. Thus, it has been submitted, the entire quantities of HSMS subjected to Consideration Fee/Pratiphal Shulk' had been imported into the country from M/s William Grant & Sons Distillers Limited, Giravan Distillery, Grangestone Industrial Estate, Girvan, Scotland, United Kingdom (hereinafter referred to as William Grant). Therefore, the said goods fell outside the scope of levy of Excise duty by the State of U.P. Accordingly, the matter was entertained, and Counter Affidavit called. Pleadings are complete. The matter was thus heard. Here, it may be noted, the plea of alternative remedy has not been urged at the stage of final hearing. The State has also sought a decision on merits. 4. Learned counsel for the petitioner states, the petitioner is a duly incorporated company having its distillery at Modi Nagar, Ghaziabad. It first imported into the country, 24,400 Bulk litres of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m a distillery and not in case of goods dispatched to a distillery. 6. Similarly, in the second transaction, the petitioner sought to import 24596 Bulk litres of HSMS from William Grant. Similar procedures were followed, and similar communications were issued leading to similar result. In that case, against 24596 Bulk litres of HSMS of strength 67.6% v/v, measured by the Custom Authorities of United Kingdom, upon receipt at the petitioner's distillery, the same were found to be 24593 Bulk litres of HSMS of 66.6% strength. Against allowable transit loss 164.82 Alcoholic litres, loss suffered was found to be 248 Alcoholic litres. Thus, 164.82 Alcoholic litres or 385.10 Bulk litres excess loss was found. On 22.09.2018, a second demand notice no.484 was issued demanding Consideration Fee/excise duty/'Pratiphal Shulk' Rs.4,59,385.20. The petitioner filed its reply dated 11.10.2018, to that notice. 7. Thereafter, the date of personal hearing was fixed for 08.05.2019. On 08.07.2019, a common order was passed confirming the demand of Consideration Fee/'Pratiphal Shulk', on excess transit loss at Rs.15,51,042.50, on both transactions (described above), @ Rs. 1192.33 per Bulk litre. 8. Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18) of the Act, a corresponding definition of 'export' exists; Section 3(19) of the Act, the word 'transport' means movement from one place to another within the State of Uttar Pradesh; Section 3(20) of the Act, the word 'manufacture' includes every process whether natural or artificial, by which an intoxicant may be produced or prepared and last; under Section 3(22a) of the Act, 'excisable articles' means, any alcoholic liquor for human consumption or any intoxicating drug. 11. Thus, relying on the aforesaid provisions of the Act, it has been vehemently urged, HSMS were imported by the petitioner from William Grant, across the customs frontier of the country, (as defined by the Central Government) namely, the I.C.D., Dadri. They were neither excisable goods nor they were goods produced inside the State of U.P. nor they were brought inside the State of U.P. from any other State within the country. Therefore, by very description of their arrival into the country and/or the State of U.P., from abroad, the goods HSMS were not amenable to Excise duty under the Act. Therefore, they were not liable to suffer levy of Consideration Fee/'Pratiphal Shulk', either. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or of Customs, (2000) 10 SCC 228 and Indian Tourist Development Corporation Limited Through Hotel Ashoka vs. Assistant Commercial Tax & Anr. (2012) 3 SCC 204. In that context, reliance has also been placed on Circular No.50 of 2020 dated 05.11.2020 issued by the Government of India, declaring I.C.Ds. to be "self-contained Customs station". 15. Second, in the alternative, it has been submitted, in any case, the levy of Consideration Fee/'Pratiphal Shulk' may arise under the Act only in the event of transportation loss suffered during, and upon it exceeding, permissible limits, only when that excisable article may be in transit from a distillery. Assuming, HSMS were excisable goods, the excess loss was suffered while those goods were in transit from the ICD, Dadri to the petitioner's distillery. That transaction would fall outside the levy provision even if that provision were to apply. Here, referring to paragraph No. 612 read with paragraph Nos. 613 and 814 of the U.P. Excise Manual (under Chapter-VIII), it has been submitted, those provisions apply only to dispatches made by and from the distillery and not - to the distillery. In that regard, reliance has been placed on M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6) ADJ 706, it has been submitted, regulatory provisions cannot be cited to define the custom frontiers under the Act. Merely because Section 60 of the Customs Act permits clearance of goods from a Customs warehouse, it cannot be said - upon clearance/dispatch of goods from such warehouse, the goods first crossed the custom frontier of the country. Those are only facilitative provisions for the benefit of the importer or owner of the goods. The Inland Container Depots (I.C.Ds.) are creatures of statute. They are not determinative of occurrence of the taxable event under the Act. 20. In the present case, undisputedly, the goods landed in the country through the seaport at Gujarat. Therefore, the entry of HSMS, across the customs frontier was complete at that point of time. Their storage at I.C.D. Dadri was only a facilitation arrangement to ensure further compliances of the provisions of the Customs Act. It was not determinative of the physical crossing of the goods across the customs frontier of the country. 21. Then, reference has been made to the permission to transport, obtained by the petitioner on Form FL-22, issued under paragraph Nos. 609, 615(5) and 617(3) of the U.P. Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the imported article HSMS unfit for human consumption. It did not make them fall outside the legislative competence of the State of U.P., to impose Excise duty under the Act. 26. In such circumstances, it must be presumed, the goods that were dispatched against the two disputed transactions from I.C.D. Dadri were of requisite strength i.e., 68% & 67.6% v/v, measuring 24,440 & 24,596 Bulk litres, respectively. However, upon the same being tested for strength, upon their arrival at Modi Nagar, they were found to be of strength 67% and 66.21% v/v. It represented excessive loss, beyond the permissible limit i.e. 0.5%. It also represented excess loss of quantity 1300.85 Bulk litres. It is for that purpose that the Rule provides for realisation of Consideration Fee/'Pratiphal Shulk', to ensure, no quantity of excisable goods is dealt with except in compliance with the regulatory law enacted by the State. Relying on the amended law providing for permissible loss @ of 0.5%, as approved by the Supreme Court in State of U.P. and Others Vs. Delhi Cloth Mills and another, (1991) 1 SCC 454, it has been urged that the demand of Consideration Fee/'Pratiphal Shulk', is wholly in accordance with l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; has been defined under Section 2(a)(b) of the CST Act. It means crossing the limits of the area of a customs station within which imported goods or exported goods are ordinarily kept, before clearance by a custom authority. In turn, 'customs area' has been defined under Section 2(11) of the Customs Act. It reads: "2(11). "customs area' means the area of a customs station [or a warehouse] and includes any area in which imported goods or export goods are ordinarily kept before clearance by customs authorities." 30. Heard learned counsel for the parties (over a long period of time, interspersed with adjournments). In face of the first issue raised being purely legal, and in absence of any dispute as to fact, the objection raised by the State - to availability of pleadings (in the writ petition) - to support the first ground of challenge raised, is not accepted. To deal with the first submission advanced by learned counsel for the petitioner, it is relevant to take note of certain provisions of the Act, namely, sub-Sections (3-a), (11), (13), (17), (19), (20) and (22-a) of Section 3 of the Act may be seen. They read as below: "3. Interpretation.- In this Act, unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the provisions of Section 13; or (c) transported; or (d) manufactured, cultivated or collected under any licence granted under Section 17; or (e) manufactured in any distillery established, or any distillery or brewery licensed, under Section 18 : Provided as follows- (i) duty shall not be so imposed on any article which has been imported into [***]India and was liable on such importation to duty under the Indian Tariff Act, 1894, or the Sea Customs Act, 1887; (ii) [* * *]. Explanation. - (1) Duty may be imposed under this section at different rates according to the places to which any excisable article is to be removed for consumption, or according to the varying strength and quality of such article. [(2) The State Government shall, in imposing an Excise duty or a countervailing duty as aforesaid and in fixing its rate, be guided by the directive principles specified in Article 47 of the Constitution of India. (3) Such duty shall not exceed the maximum as provided hereinafter:" 33. Read in the backdrop of Entry 51 of List II of the 7th Schedule to the Constitution of India, together with the definition clause of 'Excise duty' and 'import' [S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utedly, the petitioner manufactures foreign liquor from HSMS at its distillery at Modi Nagar, Ghaziabad, by making adequate dilutions to HSMS under a pre-defined process; it thus obtains foreign liquor of strength 42.8% v/v; bottles the same and clears those excisable goods against payment of Excise duty, inside the State of U.P. Therefore, it is not the case of the petitioner that foreign liquor manufactured from HSMS was not dutiable under the Act. In fact, its case is otherwise. 37. In view of the above, the frontal aspect of the first submission advanced by learned counsel for the petitioner, is found to be misconceived. In absence of any impost of Excise duty under the Act, on HSMS, that aspect of the submission advanced, is academic. Strictly, it does not arise in the facts of the present case. However, it's other aspect may be examined a little later. 38. Also, in view of the discussion made above, the ratio arising from Golden Silk Mills Ltd (supra); Kiran Spinning Mills (supra); Indian Tourist Development Corporation Ltd. (supra), does not conflict with the impost of Consideration Fee/'Pratiphal Shulk'. 39. Insofar as the second submission is concerned, it must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any [intoxicant]" (emphasis supplied) 41. Under the Act, numerous Rules have been framed from time to time. Apparently, for the sake of convenience and ready reference, they have been compiled in a compendium, popularly known as the U.P. Excise Manual (hereinafter referred to as the 'Excise Manual'). That compendium has been arranged in Chapters, broken into Sections, further structured into Parts, with various individual Rule numbers mentioned as paragraphs of that compendium, numbered consecutively, in a single series. Paragraph no. 12 of the Excise Manual reads as below: "12. Foreign liquor. - Foreign Liquor means- (1) beer and spirit, wines and liquors, which have been imported into India and are intended for human consumption and were liable, on such importation, to duty under the Indian Tariff Act, 1894 (read with the Indian Tariff Act, 1934), or the Sea Customs Act, 1878; (2) spirit made in India and sophisticated or coloured so as to resemble in flavour or colour, liquor imported into India; (3) beer brewed in India; (4) wines and liquors made in India, and (5) all rectified, perfumed, medicated and denatured spirits, wherever made." (emphasis supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (4) all notified areas, and (5) all railway stations. (2) A bona fide traveller coming into Uttar Pradesh may import for his own personal use, Indian-made foreign liquor not exceeding two quart bottles in all. Indian-made foreign liquor may be imported in larger quantities only in accordance with the rules hereinafter following. There is no quantitative limit for transport of Indian-made foreign liquor. (3) No denatured spirit in excess of limit of retail sale shall be imported, exported or transported except under a pass as provided for in Sections 15 and 16 of the Act. 46. Part (A-1) of Chapter VIII, Section XXXVIII of the Excise Manual pertains to Import of IMFL. It contains Rules pertaining to import of IMFL into the State of U.P., from any other State in the country. Paragraph Nos. 608, 609, 610 and 613 of the Manual read as below: 608. Methods of import. - Indian-made foreign liquor may be imported either- (1) in bond for payment of duty in Uttar Pradesh; (2) on repayment of duty in Uttar Pradesh; or (3) on repayment of duty in the State or Union Territory of export, at the rates leviable in Uttar Pradesh to be subsequently transferred to this State by book trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless there is any reason to the contrary, prepare a permit in triplicate in Form F.L. 22 sanctioning the import under bond. The permit shall contain all the particulars specified in sub-clause (a) and shall clearly specify that a bond for payment of duty has been executed in the district of import. One copy of the permit shall be made over to the importer, the second copy shall be forwarded to the Chief Revenue Authority of the district of export and the third shall be retained by the Collector for record and verification of the consignment on arrival. The permit shall remain in force up to the date specified therein. ... 613. Pass to be verified by Assistant Excise Commissioner. - (1) As soon as may be after such arrival the officer in-charge of the bonded warehouse shall certify on the importer's copy of the pass full details regarding the liquor received in such form as may be prescribed in the pass or required by the authorities of the district or place of export and shall return it to the officer who granted it after verification by the Assistant Excise Commissioner. (2) Within fifteen days of the date of receipt of the warehouse the importer shall clear the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Group 'B' cases is the wastage of liquor after distillation, but before dilution; and, in the Group 'D' cases, the pipeline loss of liquor during the process of manufacture, before dilution. It is clear, therefore, that what the State seeks to levy excise duty upon is not alcoholic liquor for human consumption but the raw material or input still in process of being rendered fit for consumption by human beings. The State is not empowered to levy excise duty on the raw material or input that is in the process of being made into alcoholic liquor for human consumption." (emphasis supplied) 49. Second, even otherwise, it would be one thing to say - HSMS, if it had been cleared inside the State of U.P. for consumption in that form itself, would not have attracted levy of Excise duty under the Act (by virtue of its import from outside the country), and it would be completely another thing to say - that commodity would therefore fall outside the regulatory provisions of the Act. 50. The applicable provisions - Section 15 and 16 of the Act have been quoted in paragraph 40 above. Clearly, those provisions are regulatory laws and not levy provisions. Therefore, under the Scheme of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no conflict between the two laws. 54. For the imposition of tax or Customs duty liability, on imported HSMS, it must be accepted and recognised, the goods were imported across the customs frontiers of the country at I.C.D. Dadri, in Gautam Budh Nagar. Therefore, no amount of Excise duty may have been imposed under the Act, on those goods till they remained HSMS. Yet, by way of a regulatory measure, the State legislature could bind the importer/petitioner to account for the entire quantity of HSMS thus imported, to ensure it was used wholly to manufacture excisable articles inside the State of Uttar Pradesh. Consequently, to enforce that regulatory measure, it could impose fee on excessive loss of that imported commodity, during its transportation inside the State of Uttar Pradesh i.e., upon their clearance from the bonded warehouse at Dadri to its distillery at Modi Nagar, Ghaziabad. 55. Merely because no Excise duty could be levied under the Act on HSMS, there is no reason to accept - those goods imported into the country would be exempt from operation of the regulatory law, inside the State of Uttar Pradesh though similar goods originating in any part of the country, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, supply or sale of potable liquor or intoxicating liquor and to regulate the use of imported rectified spirit for production and sale of potable liquor. In such a case, the State need bear no quid pro quo to the services rendered to the licensee for production of foreign liquor (IMFL). 16. The fact that the manufacturer-respondent has already obtained requisite licences for import of rectified spirit and production of foreign liquor (IMFL) on payment of fixed rates does not mean that the State has surrendered all facets of its rights in respect of every form of activity in relation to potable liquor - its manufacture, storage, export, import, sale and possession. The amended provision is an enabling provision authorising the State to levy charges or impost for ceding its one or more of the activity in respect of foreign liquor (IMFL) produced by use of imported rectified spirit. Such impost can be in addition to the general power of the State to issue licence on payment of fees for production and sale of potable liquor. As observed in Har Shankar [Har Shankar v. Excise & Taxation Commr., (1975) 1 SCC 737] , in para 56, the State need bear no quid pro quo to the services render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st, though the same may have been unscrupulously removed during their transportation, to obtain liquor, either of same strength or lesser strength. In the present case, as recorded in the show cause notices, the goods HSMS were lost both in quantity and strength. 59. Undisputedly, under Section 3 of the Act, where the context otherwise requires, the statutory definition of any word or phrase, may be departed. There is no exception to doubt the same. In Dhandhania Kedia & Co. Vs CIT AIR 1959 SC 219, a three-Judge bench of the Supreme Court had the occasion to consider if the statutory definition given to the phrase "previous year" incorporated under section 2(11) of the Indian Finance Act, 1950, being period of twelve months ending last day of March next, preceding the year for which assessment was to be made, would apply to words 'six previous years' used in Section 6 of that Act for the purpose of computation of accumulated profits of a company preceding the date of its liquidation. That dispute arose, since, to the erstwhile State of Udaipur, the Income Tax Act first came in force on 01.04.1950 whereas the disputed dividend Rs. 26000/- first arose upon liquidation of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h to submit that we want to Import/purchase 24400.0 B.L. (16608.5 AL with 68.0% v/v alcoholic strength) of 3 years old Vatted Malt Scotch from M/s William Grant & Sons Distillers Ltd., Giravan Distillery, Grangestone Industrial Estate, Girvan, Scotland via invoice no.3003501 dt. 06/06/2018 for the development of IMFL products in our distillery. The 24400.00 BL Malt Scotch will come to India in tanker through Ship to India and then will come to custom ware house I.C.D, Dadri, Dist. Gautam Budh Nagar (U.P). We will import this scotch malt from ICD Dadri, Dist. Gautam Budh Nagar (U.P), to our distillery at Modinagar. The route to transport this Imported Malt Spirit will be as under. Dadri-Ghaziabad-Modinagar. We are enclosing herewith the Performa invoice issued by M/s William Grant & Sons Distillers Ltd., Scotland. Therefore it is requested to kindly grant your permission to import 24400.0 B.L.Malt Scotch from LC.D. Dadri, Dist. Gautam Budih Nagar ((UP), with 60 days time. Thanking you For Modi Distillery -sd/- (Mukesh Sharma) G.M. (Plant) Enclosure: As above" (emphasis supplied) 62. On that application, the Pass on Form FL-22 was issued to the petitioner. Again, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed to obtain clearance of goods, for import and export. Section 45 of the Customs Act places restriction on the custody and removal of imported goods. Thus, goods imported from outside the country are unloaded in a customs area. They remain in the custody of the person approved by the Principal Commissioner of Customs or Commissioner of Customs, until they are cleared for consumption or warehousing or transit, in accordance with the provisions of the Customs Act. Under Section 46 of the Customs Act, a detailed procedure is provided for entry of goods on importation, on the strength of bill of entries etc. Section 47 of the Customs Act provides for clearance of goods for home consumption upon payment of import duty. Section 49 of the Customs Act provides for storage of goods in warehouse, pending their clearance or removal. For ready reference, that provision reads as below: "49. Storage of imported goods in warehouse pending clearance or removal.- Where, - (a) in the case of any imported goods, whether dutiable or not, entered for home consumption, the Assistant Commissioner of Customs or Deputy Commissioner of Customs is satisfied on the application of the importer that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or non-bonded cargo. 2.1.2. An ICD is a "self-contained Customs station" like a port or air cargo unit where filing of Customs manifests, Bills of Entries, Shipping Bills and other declarations, assessment and all the activities related to clearance of goods for home use, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export, transshipment, etc., take place. An ICD would have its own automated system/ with a separate station code (such as INTKD 6, INSNF6 etc.) being allotted by Ministry of Commerce and with in-built capacity to enter examination reports and enable assessment of documents, processing of manifest, amendments, etc. 2.2. Container Freight Station 2.2.1. An of seaport (or port) facility having such fixed installations or otherwise, equipment, machinery etc. Providing services for handling / clearance of laden import, export containers for home use, warehousing, temporary admissions, re-export etc under customs control and with storage facility for customs bonded or non-bonded cargo. 2.2.2. Though by definition, both ICD and CFS are similar, a CFS is only a Customs area notified under section 8 of the Customs Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. 2.4.3. Warehouse: Public warehouse appointed under section 57 or private warehouse licensed under section 58 is a covered space/shed where export cargo is received and import cargo stored/delivered; containers are stuffed/ stripped or reworked; LCL exports are consolidated and import LCLS are unpacked; and cargo is physically examined by Customs. Export and import consignments are generally handled either at separate areas in a warehouse or in different nominated warehouses/sheds. 2.4.4. Gate Complex: The gate complex regulates the entry and exits of road vehicles carrying cargo and containers through the terminal. It is place where documentation, security and container inspection procedures are undertaken." 67. Thus, it may be true, the I.C.D. at Dadri is a Self-contained Custom Station or Off Seaport (or port) facility. To that limited extent, for the purpose of the Customs Act, mainly for the levy of Customs duty and clearance of goods for home consumption, it may be considered a custom frontier of the country, irrespective of its geographical location, well inside the mainland. Yet, that status under that law would have no impact on the definition and identity of the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratiphal Shulk', on excess transportation loss of HSMS, the applicable law for computation of that regulatory fee would remain the laws of the State of Uttar Pradesh, only. Any other construction may lead to redundancy of the regulatory law, a consequence to be avoided. Therefore, in such circumstance, Consideration fee/'Pratipahal Shulk' would be imposed in accordance with the rates prescribed in the State of Uttar Pradesh and not any other State. Thus, upon excessive loss of HSMS, the petitioner became obligated to pay Consideration Fee/'Pratiphal Shulk'. To that transaction, it was no longer relevant that the goods originated from Scotland in United Kingdom. By virtue of Paragraph 613(3) of the Excise Manual the petitioner was bound to compensate the loss to revenue arising from excessive loss of HSMS during transportation, inside the State of Uttar Pradesh, at rates prescribed under amended Paragraph 814 of the Manual. 72. In the absence of any pleading or evidence led by the State, though not part of the true reasoning, yet, it may be observed in the passing, under the terms of the bond executed by the petitioner, it became legally bound to that liability. The parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stillers shall within the time mentioned in his/their pass issued by the officer-in-charge of the distillery on each occasion of the transport/export of spirits or within such further time as may be granted by way of extension by the Collector of the transporting/ exporting district, deliver or cause to be delivered the spirits so transported/exported on that occasion into the custody of the officer-incharge of the bonded warehouse. mentioned in the pass 3. That if the whole or any quantity of spirit transported/exported on any occasion shall not have been delivered at the destination as hereinbefore agreed, the distiller/distillers shall indemnify the Governor of any loss of duty which the Governor may suffer by reason of such non-delivery or short delivery by paying to him on demand the duty at the rate then in force on any quantity of spirit not so delivered. In witness whereof the distiller has/distillers have hereunto set his hand/their hands the day of the years first above written. In the presence of..................... Signed by................... Distiller/Distillers......... (emphasis supplied) 73. In the face of such bond, if issued, by way of a pure contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Accordingly, for reasons noted above, the writ petition lacks merit. No further challenge has been raised to the computation method adopted by the revenue authorities, to determine the amount of Consideration Fee/'Pratiphal Shulk'. Thus, it is not the petitioner's case that computation made is excessive or that it should have been computed through any other method. 77. Before parting, it may be observed, statutory authorities must act within the confines of the law. In the present case, they ought to have waited for expiry of the period of limitation that was available to the petitioner, to file revision, before recovering the disputed amount. The beauty and predictability of the rule of law may not take seed and it may not bear fruit in a civil society, unless the State authorities discharge their powers and functions, with the exactitude advised by the law. That degree of self-restraint alone lays the foundation of trust between the almighty State and its functionaries on one side and the citizen (and his associations, corporations, entities etc.), on the other. The citizen is tiny, yet he is the omnipresent entity for whom the modern-day State exists. It is his labour that g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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