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2016 DIGILAW 718 (ORI)

Midas Bottling Pvt. Ltd. v. State of Odisha

2016-08-31

BISWAJIT MOHANTY, I.MAHANTY

body2016
JUDGMENT : BISWAJIT MOHANTY, J. 1. In this writ application, the petitioner-company has prayed for quashing of the order dated 19.10.2015 (Annexure-3) issued by the Excise Commissioner, Odisha (opposite party no. 2) so also the demand notice dated 8.2.2016 (Annexure-1) issued by the Superintendent of Excise, Khurda (opposite party no. 4). The petitioner-company has further prayed that it should be allowed compensation for destruction of stocks which have not been declared unfit for human consumption by the Chemical Examiner of the State Drugs Testing and Research Laboratories, Bhubaneswar. 2. The case of the petitioner according to Mr. P.K. Nayak, learned counsel that there was a bottling unit in the name and style of M/s. Gemini Distilleries Pvt. Ltd. at 54 Industrial Estate, Khurda, which was engaged in production of IMFL under the cover of licenses granted to it by the State Excise Department. But in course of time, it became sick and was closed down and was under lock and seal of the State Excise Department from 1.1.2005 to 19.06.2014. The petitioner-company applied for required licenses from the State Excise Department with necessary permission to carry on manufacturing and bottling of IMFL in the said defunct unit. Vide letter dated 19.10.2011, the State Government in the Excise Department issued orders for grant of license in favour of the petitioner-company to operate M/s. Gemini Distilleries Pvt. Ltd. on the condition that any tax liability of M/s. Gemini Distilleries Pvt. Ltd. would be borne by the petitioner-company. But no license was granted to the petitioner-company from district level and ultimately licenses were issued to the petitioner-company on 30.3.2012 vide Annexure-2 series. The petitioner-company incurred heavy expenditure on account of renovation and reconditioning of the defunct unit and also deposited sum of Rs.99,04,572/- towards grant and renewal of licenses for bottling of IMFL. Notwithstanding the fact that there was inordinate delay at the level of Excise Commissioner, Odisha (opposite party no. 2) to issue NOC for import of spirit from outside the State for the purpose of blending, compounding and bottling of IMFL by the petitioner-company, the petitioner-company could only produce 64,407 B.L. of IMFL till date on trial and error basis, which is far less than the installed capacity of the Unit. On 19.6.2013, the District Excise Office issued demand notice to the petitioner-company regarding payment of Excise Duty on old stock of IMFL, spirit etc. On 19.6.2013, the District Excise Office issued demand notice to the petitioner-company regarding payment of Excise Duty on old stock of IMFL, spirit etc. lying in the premises of the bottling unit. Thereafter, on 27.5.2015, 28.5.2015, 30.5.2015, 1.6.2015 and 2.6.2015, the Chemical Examiner of the State Drugs Testing and Research Laboratories, Bhubaneswar carried out chemical examination of samples of Cheap Liquor, Blended Liquor and IMFL which were received from the officer-in-charge of the petitioner unit and recorded the finding vide Annexure-4 series that all the samples were found fit for human consumption and potable. According to the petitioner, all the chemical reports along with the report of scrutinising committee were sent to Excise Commissioner, Odisha-(opposite party no. 2) along with representation dated 14.9.2015 of the petitioner-company. After considering all these, the opposite party No. 2 strangely passed the impugned order under Annexure-3 whereby he directed the low strength of IMFL (Cheap Liquor) be destroyed with only payment of one time excise duty as prevalent during the year of manufacture as the same is no longer in circulation as per the government policy decision. Similarly, opposite party No. 2 vide Annexure3 directed destruction of Blended Spirit stock with only payment of one time excise duty as available for the lowest slab of liquor, i.e., Country Spirit. opposite party No. 2 also directed destruction of IMFL after realisation of excise duty at the then prevailing rate along with fine under Rule 39-A (7) (b) read with Rule 39 (1) of Board’s Excise Rules, 1965 as the unit failed to liquidate the stock during the required period. opposite party No. 2 also made it clear that the question of conversion/reprocessing of finished IMFL products did not arise at that stage. Relying on the said order under Annexure-3, opposite party No. 2 has issued the impugned order under Annexure-1 dated 8.2.2016 demanding payment of excise duty along with fine calculated under Rule 39-A (7) (b) of Board’s Excise Rules, 1965 to the tune of Rs.64,90,664/- while cancelling the earlier mentioned demand notice dated 19.6.2013. 3. Relying on the said order under Annexure-3, opposite party No. 2 has issued the impugned order under Annexure-1 dated 8.2.2016 demanding payment of excise duty along with fine calculated under Rule 39-A (7) (b) of Board’s Excise Rules, 1965 to the tune of Rs.64,90,664/- while cancelling the earlier mentioned demand notice dated 19.6.2013. 3. According to the petitioner so far as demand on Cheap Liquor (low strength IMFL) is concerned the policy of marketing Cheap Liquor though was introduced in Odisha in 1996-97 was rescinded in 199899 and for that reason, the Cheap Liquor held in the warehouse-in-bond could not be marketed and the stock was lying there since 1998-99 and the same was never subjected to taxation as its destruction was the only option left by then. As far as Blended Spirit is concerned, the same could not be bottled and marketed on account of closure and seal of the plant by the Excise Department from 1.1.2005 to 19.6.2014 though the unit had paid the cost of the spirit, import fee on spirit, blending and compounding cost, incidental charges including the cost of establishment on the said stock lying in the blending tanks. Lastly, so far as the finished products of IMFL are concerned, the same could not be sold firstly for the reason that the privilege of wholesale supply, import, export and transport of foreign liquor was vested on Orissa State Beverage Corporation ltd., for short, “OSBC” to the exclusion of other private operators from March 2001 onwards and OSBC decided from whom to receive stock and whom not to receive basing on the market demand. Thus, the erstwhile Gemini Distillery Pvt. Ltd had left with no scope to remove the stock within a period of three months from the date of manufacture for the purpose of sale on account of non-receipt of any demand from “OSBC”. Thus, the unit was put to a heavy loss as it had paid the cost of spirit, import fee, bottling fee, establishment cost and other incidental charges on that account. In such background, Mr. Nayak, learned counsel for the petitioner-company submitted that levy of duty of low strength of IMFL Cheap Liquor, Blended Spirit stock and finished products of IMFL is arbitrary and illegal. Further, he submitted that levy of duty on all these materials cannot be made as the stock is lying/stored in the petitioner unit. In such background, Mr. Nayak, learned counsel for the petitioner-company submitted that levy of duty of low strength of IMFL Cheap Liquor, Blended Spirit stock and finished products of IMFL is arbitrary and illegal. Further, he submitted that levy of duty on all these materials cannot be made as the stock is lying/stored in the petitioner unit. According to him, a reading of Sections 17 and 27 of the Bihar and Orissa Excise Act, 1915, for short, “the Act” makes it clear that incidence of duty depends upon removal of stock for sale from the distillery. In such background, he reiterated that the demand for duty on low strength IMFL (Cheap Liquor), Blended Spirit and the finished products of IMFL was illegal and without any authority of law and if not interfered with would amount unjust enrichment of the State. Secondly, he submitted that atleast once the Blended Spirit and finished products of IMFL have been found to be potable, there is no earthly reason to destroy those materials. Lastly, he pointed out that so far as saddling of finished product of IMFL with a fine equal to five times of duty payable is concerned, the same has been done wholly in an illegal manner as requirements of Rule 39-A (7) (b) of Board’s Excise Rules, 1965 under which such fine has been imposed are not at all satisfied in the present case in the background of certificates issued under Annexure-4 series certifying the IMFL samples to be fit for human consumption. Mr. Nayak, learned counsel for the petitioner further submitted that despite fitness certificate under Annexure-4 series, if destruction is carried out, the petitioner is entitled to compensation. 4. Mr. M. Sahoo, learned Addl. Government Advocate relying on counter affidavit filed by opposite parties 2 and 4 defended the impugned orders under Annexures-3 and 1 and submitted that the directions for levying of duty on Low Strength IMFL (Cheap Liquor), Blended Spirit and finished products of IMFL and their destruction have been made in accordance with law. Mr. 4. Mr. M. Sahoo, learned Addl. Government Advocate relying on counter affidavit filed by opposite parties 2 and 4 defended the impugned orders under Annexures-3 and 1 and submitted that the directions for levying of duty on Low Strength IMFL (Cheap Liquor), Blended Spirit and finished products of IMFL and their destruction have been made in accordance with law. Mr. Sahoo further submitted that the petitioner is liable to pay the Excise duty as levied made under Annexure-1 as vide Annexure-A/2 series the petitioner took all the liabilities of M/s. Gemini Distillery Pvt. Ltd. and also agreed to pay any dues which might arises in future vis-à-vis M/s. Gemini Distillery Pvt. Ltd. He further submitted that the petitioner is liable to pay the entire arrear import dues amounting Rs.64,90,664/-. He also submitted that although the old IMFL stocks of the petitioner unit have been found fit for human consumption but under no circumstances, the said stock can be marketed as there is apprehension of risk to human beings if old stocks are sold in the market. 5. Relying on the rejoinder filed by the petitioner, learned counsel for the petitioner submitted that the direction under Annexure-3 to destroy Blended Spirit stock and finished products of IMFL defies all logic inasmuch as all these have been found potable as per Annexure4 series. Similarly, he submitted that direction to impose fine on finished products of IMFL by making use of Rule 39-A (7) (b) also defies all logic as these have been found fit for human consumption. He also reiterated that how IMFL could not be sold on account of non-receipt of any demand from “OSBC.” He further submitted that since all the goods like Blended Spirit stock, finished products of IMFL have been found fit for human consumption, in case of destruction, the petitioner is clearly entitled to compensation. 6. Heard Mr. P.K. Nayak, learned counsel for the petitioner-company and Mr. M. Sahoo, learned Addl. Government Advocate for the opposite parties. 7. The undisputed fact is that on 27.5.2015, 28.5.2015, 30.5.2015, 1.6.2015 and 2.6.2015, upon chemical examination, the State Drugs Testing and Research Laboratories, Bhubaneswar vide its chemical examination report under Annexure-4 series has found Cheap Liquor, Blended Spirit stock and IMFL are fit for human consumption and potable. M. Sahoo, learned Addl. Government Advocate for the opposite parties. 7. The undisputed fact is that on 27.5.2015, 28.5.2015, 30.5.2015, 1.6.2015 and 2.6.2015, upon chemical examination, the State Drugs Testing and Research Laboratories, Bhubaneswar vide its chemical examination report under Annexure-4 series has found Cheap Liquor, Blended Spirit stock and IMFL are fit for human consumption and potable. A perusal of Annexure-3 shows that though the chemical examination reports were brought to the notice of the opposite party No. 2, however, without discussing the said reports and without overcoming the findings made thereunder; in a mechanical manner, the order under Annexure-3 has been passed directing destruction of Blended Spirt stock and finished products of IMFL. This is a clear case of non-application of mind on the part of opposite party No. 2. In such background, direction under Annexure-3 for destruction of Blended Spirit stock and finished products of IMFL cannot be sustained in law being arbitrary in nature. However, so far as low strength IMFL (Cheap Liquor) is concerned, since the Cheap Liquor is no longer under circulation as per government policy, the same might have to be destroyed with payment of compensation, as these are still fit for human consumption as has been certified under Annexure-4 series, if it cannot be used for any other purpose. Now, coming to the direction for payment of duty on low strength of IMFL (Cheap Liquor), Blended Spirit stock and finished products of IMFL, the contention of Mr. Nayak is that Excise duty has to be paid only at the time of removal of stock for sale cannot be accepted as the charging Section, i.e., Section 27 of “the Act” no way confines the power to impose duty only to a situation when stocks are removed for sale. Section 27 delineates various types of activities on which the Excise duty can be imposed. However, the order of Excise Commissioner, Odisha does not deal with detail factual background and specific provisions of law under which such duty has been directed to be levied. The order under Annexure-3 so also the counter are silent on this aspect. With regard to various legal contentions of Mr. Nayak, relating to imposition of duty as made out in paragraphs-9 to 11 of the writ application, the reply in the counter is delightfully vague and the same also does not throw any light. The order under Annexure-3 so also the counter are silent on this aspect. With regard to various legal contentions of Mr. Nayak, relating to imposition of duty as made out in paragraphs-9 to 11 of the writ application, the reply in the counter is delightfully vague and the same also does not throw any light. With regard to direction of Excise Commissioner, Odisha under Annexure-3 for implosion of fine under Rule 39 (A) (7) (b) read with Section 39 (1) of Board’s Excise Rules, 1965, this Court has no hesitation in accepting the submission of the petitioner that such imposition is clearly illegal as the finished products of IMFL have been found to be fit for human consumption as certified under Annexure-4 series. So imposition of five times fine is illegal. 8. For all these reasons, the order under Annexure-3 so far as it directs levy of duty on low strength IMFL (Cheap Liquor), Blended Spirit stock and finished products of IMFL are set aside, so also the direction to pay fine under Rule 39-A (7) (b) of The Board’s Excise Rules. Further, the order under Annexure-3 is also set aside so far as it directs destruction of the stocks of Blended Spirit stock and finished products of IMFL. Consequently, the order under Annexure-1 is also quashed and the matter is remitted back to the Excise Commissioner, Odisha (opposite party no. 2) to take a fresh decision in the matter relating to levying Excise duty on low strength IMFL (Cheap Liquor), Blended Spirit stock and finished products of IMFL in accordance with law after giving reasonable opportunity of hearing to the petitioner-company. He is also directed to take a decision on payment of compensation in case he decides to go ahead with destruction of low strength IMFL (Cheap Liquor) which have been found fit for human consumption in accordance with law. The writ application is accordingly disposed of. I. Mahanty, J. – I agree.