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2017 DIGILAW 462 (JK)

State of J&K v. Dogra Distilleries

2017-07-27

ALOK ARADHE, SANJEEV KUMAR

body2017
JUDGMENT : Alok Aradhe, J. In this Intra Court Appeal, the appellants have assailed the validity of order dated 31.12.2007 passed by the learned Single Judge, by which the writ petition preferred by the respondent has been allowed and Rule 38 of the Jammu and Kashmir Distillery Rules (hereinafter referred to as the Rule) has been read down and demand notice dated 29.03.2000 has been quashed. In order to appreciate the appellants” challenge to the impugned order, few facts need mention, which are stated infra. 2. The respondent owns a distillery and manufactures Indian Made Foreign liquor (IMPL) as also country liquor, under the name and style of “M/s Dogra Distillery” at Digiana, Jammu. The respondent’s manufacturing unit is registered with Directorate of Industries as small scale unit, which imports/purchase raw material, i.e., molasses etc. from outside the State for purpose of manufacturing of rectified spirit, and ultimately Indian Made Foreign Liquor. In terms of the license granted to the respondents, he can sell rectified spirit as well as Indian Made Foreign Liquor. 3. The Indian Made Foreign Liquor manufactured by the respondent is subject to excise duty. The entire manufacturing process is carried out under the supervision of Excise Department. An Excise Officer is posted to the factory premises by the Excise Department to supervise the manufacturing activity. The respondent deposits with the said representative of the Excise Department, excise duty in advance and thereafter gradually remove Indian Made Foreign Liquor from the factory premises for which proper amount is maintained by the representative of the Excise Department. In order to ensure that Indian Made Foreign Liquor does not leave the factory premises without payment of duty, the manufactured Indian Made Foreign Liquor is almost every, after its manufacture, stored in a room in the factory premises called “Bonded warehouse”, one key of which remains in the custody of the representative of the Excise Department and the other with the respondent. In the year, 1994, the respondent received communication dated 26.11.1994, by which it was asked to pay a sum of Rs. 57,33,603.05 as Excise duty as arrears. The respondent made enquiries and learnt that the Audit party had raised some objections with regard to levy of Excise duty and in its report had pointed out that the respondent was liable to make further payment on account of Excise duty to the extent mentioned in the communication. 57,33,603.05 as Excise duty as arrears. The respondent made enquiries and learnt that the Audit party had raised some objections with regard to levy of Excise duty and in its report had pointed out that the respondent was liable to make further payment on account of Excise duty to the extent mentioned in the communication. The respondent submitted the reply dated 05.01.1995. The respondent challenged the aforesaid communication in OWP No. 893 of 1995. The learned Single Judge of this Court stayed the proceeding against the respondent. 4. During the pendency of the writ petition, an order dated 19.04.1996 was passed, in which it was observed that Excise Department may review the demand raised against the respondent. Thereupon, Excise Commissioner reviewed the demand and passed a fresh order on 29.03.2000, by which initial demand of Rs. 57, 33,603.05 was revised to Rs. 12,07,500.00. The respondent challenged the aforesaid order in OWP No. 492/2000. The learned Single Judge vide judgment dated 31.12.2007 inter alia held that under section 25(o) of the Act, the State Government does not have any power to frame Rule 38. It was further held that the State Government does not have legislative competence to frame Rule prescribing the method and manner of levying duty on presumptive production of spirits from raw material. Accordingly, the learned Single Judge read down the Rule 38 of the Jammu and Kashmir Distillery Rules, as the same was in violation of section 17 of the Excise Act and quash the demand notice dated 29.03.2000 raising demand of Rs. 12,07,500.00 on the respondent. In the aforesaid factual background, the appellants have approached this Court. 5. Learned AAG for the appellants submitted that the power to levy excise duty includes the powers to prevent evasion of duty. It is further submitted that the learned Single judge ought to have appreciated that the Rule 38 was enacted under section 25(0) of the Act. It is further submitted that Rule 38 creates a legal fiction, which is permissible under fiscal statute. It is also submitted that the learned Single Judge could not have read down the Rule 38 of the Rules by the reference to section 17 of the Act, particularly, on the assumption that levy in question is on presumptive basis. It is further submitted that Rule 38 creates a legal fiction, which is permissible under fiscal statute. It is also submitted that the learned Single Judge could not have read down the Rule 38 of the Rules by the reference to section 17 of the Act, particularly, on the assumption that levy in question is on presumptive basis. In order to indicate the manner, in which duty is levied, our attention has been invited to the supplementary affidavit (annexure R-7) as well as paragraphs 1 to 3 of the reply filed in the writ petition. It is urged that the learned Single Judge has failed to take note of the stand taken by the appellants in the aforesaid supplementary affidavit and paragraphs 1 to 3 of the reply filed in the writ petition. It is argued that the appellants are not levying any additional duty and Rule 38 of the Rules is invoked to ensure leakage of evasions on duty. In support of his submissions, learned AAG has refers to the decisions in the cases of Union of India and ors. Vs. M/s Ind Swift, Civil Appeal No. 1976 of 2011 dated 21.2.2011, K.S. Papanna and anr. vs. Dy. Commercial Tax Officer, 1967 19 STC 506 AP and State of UP and ors. vs. M/s Mohan Meakin Breweries ltd. and anr. Civil Apeal Nos. 4708-47-9 of 2002. 6. On the other hand, learned senior counsel for the respondent submitted that legislature has competence of levying excise duty on manufacture of liquor, which is fit for human consumption. It is further stated that the State has no legislative competence to levy on the raw material on the basis of presumption. Learned senior counsel for the respondent has further submitted that instead of reading down the Rule, the learned Single Judge should have stuck down the Rule 38 of the Rule as parent statute, i.e., the Excise Act does not empower the State Government to levy such duty on presumptive basis. It is also submitted that during the pendency of the writ petition, the State Government has amended the Rule 38 vide SRO 236 dated 20.07.2006. In support of his submissions, he has referred to the decisions of the Supreme Court in the cases of State of UP vs. Modi Distillery, 1995 5 SCC 753 , Synthetics and Chemicals ltd. It is also submitted that during the pendency of the writ petition, the State Government has amended the Rule 38 vide SRO 236 dated 20.07.2006. In support of his submissions, he has referred to the decisions of the Supreme Court in the cases of State of UP vs. Modi Distillery, 1995 5 SCC 753 , Synthetics and Chemicals ltd. and others vs. State of UP and others, (1990) 1 Supreme Court Cases 109, Gupta Modern Breweries vs. State of J&K and others, (2007) 6 SCC 317 . 7. We have considered the submissions made by the learned counsel for the parties and have perused the record. The Jammu and Kashmir Excise Act, Svt. 1958 is an act to consolidate and amend the law relating to the import, export, transport, manufacture, sale and possession of intoxicating liquor and intoxicating drugs in the Jammu and Kashmir State. Section 17 of the Act, which deals with the manner of levying duty, reads as under:- “17. How duty may be imposed.- Such duty may be levied in one or more of the following ways: (a) by duty of excise to be charged, in the case of spirits or beer, either on the quantity produced in the distillery or brewery or passed out of the distillery, brewery or warehouse [ or imported into or exported from the state,] as the case may be; (b) in the case of intoxicating drugs, by a duty to be relatable charged on the quantity produced or manufactured or passed out of the ware house or on the acreage cultivated; (c) by payment of a sum in consideration of the grant of any exclusive or other privilege- (1) of manufacturing or supplying by wholesale or (2) of selling by retail, or (3) of manufacturing or supplying by wholesale, or selling by retail any country liquor or intoxicating drug in any local area an for any specified period of time. (d) by fees on license for manufacture or sale, (e) by transport duties assessed in such manner as (Government) may direct. (f) by duty on bottling of liquor. Rule 38 of the Rules prior to its amendment in the year, 2006 reads as under: “38. (d) by fees on license for manufacture or sale, (e) by transport duties assessed in such manner as (Government) may direct. (f) by duty on bottling of liquor. Rule 38 of the Rules prior to its amendment in the year, 2006 reads as under: “38. The licensee shall, if there is a demand upon his distillery for such a quantity, produce during each calendar year at least 90 per cent of the outturn of plain and spiced country spirit which his stills are capable of producing according to the estimate of their charge capacity entered in his licence. The calculation of the outturn shall be based on the assumption that 100 gallon of wash, whether of gur, Molasses or Mohua will yield 12 proof gallons of spirit, that each continuous still will work on an average 12 hours a day, and that each pot still will be charged with wash one and a half times a day, and that all still will work for an average of five days a week throughout the year”. 8. From the plain reading of section 17 of the Act as well as Rule 38 of the Rules prior to its amendment, it is evident that Rule 38 is a mode prescribed by the Act for levying the excise duty. Admittedly, in the instant case, demand notice is raised on the basis of Rule 38 as it is existed prior to its amendment in the year, 2006. The Supreme Court in the case of Muhammadbhai Khudabux Chippa and anr. vs. State of Gujarat and another AIR 1962 1517 while dealing with the issue of constitutionality Bombay Agriculture produce Market Act inter alia has held that no tax fee or other pecuniary imposition can be levied by the subordinate legislation unless statute specifically authorize its imposition. General authorization for carrying out the purposes of the Act does not include taxation. Similar view was taken by the Supreme Court in the Case of B.C. Banerjee vs. State of M.P., AIR 1971 516 SC. The Supreme Court has reiterated that no tax can be imposed by any bye law or rule or regulation unless the statute under which the subordinate legislation is made specially un-authorizes the imposition even if it is assumed that the power to tax can be delegated to the executive. The Supreme Court has reiterated that no tax can be imposed by any bye law or rule or regulation unless the statute under which the subordinate legislation is made specially un-authorizes the imposition even if it is assumed that the power to tax can be delegated to the executive. It is further held that a rule making authority has no plenary power and it has to act within the limits of the power granted to it. In Deepak Theatre Dhuri vs. State of Punjab and other 1992 Supp (1) SCC, also similar view was taken by the Supreme Court. The aforesaid view was further reiterated in the case of Corporation Ban vs. Saraswati and anr., (2009) 1 SCC 540 . 9. In view of the aforesaid enunciation of law, it is evident that power to levy tax or duty cannot be exercised under subordinate legislation i.e. under the Rules. Admittedly, parent act, the J&K Excise Act does provide levy on duty in the manner, which is indicated under Rule 38, which existed prior to its amendment. The aforesaid levy is, therefore, clearly impermissible under law and the learned Single Judge has rightly quashed the demand raised on the basis of aforesaid Rule. In view of the fact that the Rule 38 of the Rules is no longer in existence and has been substituted by SRO 236 dated 20.07.2006, it is not necessary for us to give any opinion with regard to validity of the aforesaid Rule. 10. Needless to say that amount deposited by the respondent pursuance to the demand notice be refunded to it along with interest as provided under section 24(b) of the Excise Act. 11. In the preceding analysis, we do not find any merit in this appeal. The same fails and is hereby dismissed.