Dismissed

Modi Distillery v. State of U.P. and 3 Others

Allahabad HC7 May 2022WTAX/133/2021

Case brief

AI extract

What is this about?

Writ petition challenging the demand of consideration fee ('Pratiphal Shulk') on excess transit loss of imported high strength malt spirit, and the appellate order confirming it. The court held the impost was a regulatory fee on transportation within the State, not excise duty on the imported article, and dismissed the petition, while criticising the premature recovery of the demand.

What the court decided

AI extract

Modi Distillery Vs State of U.P. and 3 Others — Customs and Excise | Allahabad HC (2022)

AFR

Court No. - 38

Case :- WRIT TAX No. - 133 of 2021

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Petitioner :- Modi Distillery Respondent :- State Of U.P. And 3 Others Counsel for Petitioner :- Pratik J. Nagar Counsel for Respondent :- C.S.C.

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Hon'ble Saumitra Dayal Singh,J.

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Heard Sri Rajat Bose along with Sri Pratik J. Nagar & Sri Atulya Kishore, learned counsel for the petitioner and Sri Manish Goyal, learned Additional Advocate General along with Sri A.K. Goyal, learned Additional Chief Standing Counsel and Sri Jagdish Mishra, learned Standing Counsel, for the State respondents.

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Present petition has been filed against the orders dated 08.07.2019 and 25.01.2021. By order dated 08.07.2019, passed by respondent no.3/Deputy Commissioner, Excise, Meerut Region, Meerut, Consideration Fee/‘Pratiphal Shulk’ Rs. 15,51,042.50 has been imposed on the petitioner, on alleged excess loss of High Strength Malt Spirit (hereinafter referred to as the HSMS), against two transactions. That order has been confirmed in appeal, vide order dated 27.01.2021, passed by the Excise Commissioner.

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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,

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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.

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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 HSMS from William Grant, against Bill of Entry BE No. 7590551 dated 10.08.2018. Those goods entered the country through a seaport, in the State of Gujarat. They were then transshipped to I.C.D., Dadri during that import. At Dadri, those goods were imported into the country and cleared for home consumption against payment of Custom Duty @ 150% of the value of goods. As per the Certificate of Analysis, Goods Note, Certificate of Origin and Age Certificate, issued by the Custom Authorities in the United Kingdom, HSMS thus imported were having alcoholic strength, 68%. Thereafter, the petitioner applied for permission to ‘import’/‘transport’ those 24,400 Bulk litres of HSMS from I.C.D., Dadri, to its distillery at Modi Nagar, Ghaziabad. That permission was granted vide order dated 21.08.2018, under the Act and Rules framed thereunder. Perusal of that order reveals, the permission was granted on Form FL-22 [under Paras 609, 615(5) & 617(3) of the Excise Manual] against payment of Import fee @ Rs. 4/- bulk litre. No amount of Excise duty was prepaid, yet the petitioner was allowed to transport the goods, against bond [under Para 610(c) of the Excise Manual]. That consignment was dispatched from the I.C.D., Dadri, in a sealed tanker bearing registration No. HR-55-AI-2419. It reached the petitioner's distillery at Modi Nagar, Ghaziabad, on 2.9.2018. At that stage, the HSMS thus imported was measured, having alcoholic strength 66.21% v/v.

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Thus, against 24,400 Bulk litres of HSMS of strength 68% v/v dispatched, only 24,346 Bulk litres of HSMS, of strength 66.2% v/v, were received at the petitioner's distillery. Thus, against allowable transit loss of 82.96 Alcoholic litres, 474.9 Alcoholic litres were found short. Thus, 391.94 Alcoholic litres or 915.75 Bulk litres excess loss was found.

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Arising from the aforesaid discrepancy, demand notice dated 05.09.2018 was issued to hold the petitioner liable to pay Consideration Fee/‘Pratiphal Shulk’ (on excess transit loss), Rs. 10,91,879.25. The petitioner submitted its reply on 11.10.2018. It objected to the applicability of Rule 5 of Rules relating to Issue of Spirit from Distilleries Working in Private Premises or in Premises Owned by the State Government Rules (hereinafter referred to as the Distillery Rules). According to the petitioner, the said Rule would apply only in case of transportation of such goods from a distillery and not in case of goods dispatched to a distillery.

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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.

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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.

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Against that common order, the petitioner filed appeal no.57 of 2019 under Section 11(1) of the Act. It was dismissed by order dated 27.01.2021. Further, by a separate letter dated 27.01.2021, the petitioner was required to deposit the disputed demand. However, within three days therefrom, on 05.02.2021, the entire disputed demand of Consideration Fee/‘Pratiphal Shulk’ was recovered, much before expiry of normal period of limitation to file a revision. It may be noted, under the scheme of the Act, under Section

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11, upon a revision being filed and 25% of the disputed demand being paid, the balance disputed demand would remain stayed during pendency of the revision application.

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Learned counsel for the petitioner would submit, the State of U.P. has no legislative competence to levy Excise duty on HSMS imported from outside the country. Consequently, it also does not have any competence to impose Consideration fee/ 'Pratiphal Shulk' , that is Excise duty, in another garb. First, reference has been made to Entry 51 read with Entry 8 of List-II of Seventh Schedule of the Constitution of India to submit, the competence of the State legislature extends to enact laws to levy excise duty on manufacture or production (inside Uttar Pradesh), of alcoholic liquor for human consumption. As to the meaning of intoxicating liquor, reference has been made to a division bench decision in M/s Jain Distillery Private Limited Vs. State of U.P. & 5 Others , Writ Tax No. 378 of 2021 , decided on 28.9.2021.

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Referring to the definition clause under the Act, it has been stated, under:- Section 3(3a) of the Act, ‘excise duty’ and ‘countervailing duty’ have the same meaning as may be assigned to those terms under Entry 51 of List-II to the Seventh Schedule to the Constitution; Section 3(8) of the Act, the word 'spirit' means any liquor containing alcohol obtained by distillation whether denatured or not; Section 3(11) of the Act, the word 'liquor' means all intoxicating liquor including those specified by the Act or as may be notified by the State Government; Section 3(13) of the Act, the word 'intoxicant' means a liquor or any intoxicating drug under the Act; Section 3(17) of the Act, the word 'import' implies bringing into Uttar Pradesh (any excisable goods) otherwise across the customs frontier as defined by the Central Government; Section 3(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,

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‘excisable articles’ means, any alcoholic liquor for human consumption or any intoxicating drug.

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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.

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By way of elaboration of his submissions learned counsel for the petitioner has relied on the provisions of Section 12 of the Act. While subSection (1) of the said provision refers to grant of permission by the State Government-for the purpose of import of excisable goods, sub-Section (2) thereof makes it plain - nothing in sub-Section (1) would apply to the goods that may be imported into the country, after suffering liability of Customs duty. HSMS having suffered Custom duty under the Indian Customs Act, 1962 (hereinafter referred to as the Customs Act), upon its import across the customs frontiers of the country i.e. at the I.C.D. Dadri, the same were not liable to suffer Excise duty or any other levy, by whatever name called, under the Act.

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Then, reliance has also been placed on provisions of Section 28 of the Act. It is the levy provision. It levies Excise duty or a Countervailing duty on any excisable article that may be imported (into the State from any other part of the country) or exported or transported to any other part of the country, in accordance with Section 12 or 13 respectively or manufactured, cultivated, or collected under Section 17 or manufactured in any distillery established under Section 18. The fact that HSMS were transported and the fact, by some process of reasoning they may be described as an excisable article, would not invite levy of Excise duty and/or Consideration fee/' Pratiphal Shulk' on that transportation. That is the clear effect of the

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first proviso to Section 28(1) read with Section 12(2) of the Act. It would injunct the levy of Excise duty on HSMS, since those goods had been imported into the country, upon sufferance of import duty under the Customs Act.

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Learned counsel for the petitioner would rely on the principle – import of HSMS into the country was not complete till the goods HSMS reached the I.C.D., Dadri. Only after the goods reached the petitioner's distillery, the import of HSMS (into the country), was complete. Therefore, by virtue of Section 12(2) read with proviso (I) to Section 28(1) of the Act, no Excise duty or Consideration Fee/‘Pratiphal Shulk’ could be imposed on any quantity of HSMS lost in the course of import of those goods into the country. Reliance has been placed on Garden Silk Mills Ltd. & Anr. Vs Union of India & Ors., (1999) 8 SCC 744 ; Kiran Spinning Mills vs Collector 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”.

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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 Mohan Meakin Breweries Ltd. Vs Excise & Taxation Commr., Chandigarh & Ors., (1976) 3 SCC 421 .

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Last, still in the alternative, in any case, conceptually and as also according to the statutory scheme itself, Consideration Fee/'Pratiphal

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Shulk’ may be levied under the Act, only by the State of export. In case of inter-State trade within the country, such levy may arise in the consignor State, upon receipt of intimation of excess loss, sent by the consignee State. In the instant case, undisputedly, the goods had been dispatched from Scotland in United Kingdom. Therefore, theoretically, and in view of the earlier submissions advanced, the levy could not arise at the instance of or by the State of import namely the State of Uttar Pradesh. Reliance has been placed on Mohan Meakin Breweries Ltd. (supra) and State of U.P. & Ors Vs. Modi Distillery & Ors., (1995) 5 SCC 753.

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Countering the submissions advanced by learned counsel for the petitioner, learned Additional Advocate General would submit, there are no pleadings made in the writ petition and no grounds have been raised to assail the legislative competence of the State of U.P. to enact any law to subject loss of imported HSMS- to Consideration Fee/‘Pratiphal Shulk’ . Reference has been made to the pleadings and grounds raised in the writ petition.

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Then, it has been further submitted, such a ground was not raised by the petitioner in its reply dated 11.10.2018 furnished to the show cause notice dated 05.9.2018. On the contrary, the petitioner applied for issuance of permission to import quantities of HSMS. The petitioner paid the import fee, chargeable thereon. The only plea raised at the stage of reply to the show-cause notice and even in the present writ petition is - Chapter VIII of the Rules (framed under the Act) does not apply to import of excisable goods into State of U.P. and that those Rules apply only to export from inside the State of U.P., to another State.

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Without prejudice to the above objection - of absence of plea, it has been submitted, Section 12(2) of the Act read with Section 3(17) of the Act do not create a bar against levy of Excise duty on transit loss or Consideration Fee/‘Pratiphal Shulk’ on excess transit loss, because the actual dispatch of the goods may have been made from the ICD Dadri. Referring to Indian Oil Corporation Limited Vs. State of U.P. & Ors., 2018 (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

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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.

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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.

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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. Excise Manual. It was thus submitted, the petitioner twice obtained permissions under the Act, to transport 24,400 Bulk litres and 24596 Bulk litres, HSMS, against payment of import fee @ Rs. 4 per Bulk litre. That permission was sought and was granted on the own application made by the petitioner, under the Act. Thus, the petitioner was permitted to transport desired quantities of HSMS, from ICD Dadri to its distillery at Modi Nagar Ghaziabad. No amount of Excise duty was prepaid, at that stage as the consignments were transported under respective bonds issued by the petitioner.

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Further, relying on the application dated 02.8.2018 made by the petitioner with respect to the first transaction, and the other application dated 31.8.2018, made by the petitioner with respect to the second transaction (Annexure SCA-1 and SCA-2), it has been submitted, the petitioner had itself sought permission to transport the (imported) High Strength Malt Spirits, from Dadri to Modi Nagar via Ghaziabad. That permission was granted subject to the conditions specified in the communication dated 20.8.2020 (Annexure CA-1 to the counter affidavit).

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Referring to the transaction thus conducted, it has been strenuously urged, the concept of crossing the custom frontier [contemplated under Section 3(17) of the Act] is wholly inapplicable to the goods that were dispatched from Dadri in Gautam Budh Nagar to Modi Nagar in Ghaziabad. Though that transportation began at I.C.D. Dadri, it cannot be said, the goods crossed the custom frontiers of the country, at Dadri. In fact, the goods were transported from one place to another, both inside the State of U.P.

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Coming to the levy provisions, it has been submitted, similarly under Section 28 of the Act, the exclusion provided under the first proviso to subSection (1) would remain inapplicable to the facts of the present case, for the reasons noted above.

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Then, it has been submitted, undisputedly the strength of the HSMS imported against the two transactions was 68% and 67.6%, London Proof. At that strength, per se, that liquor (as a category) was fit for human consumption. Its dilution for the purpose of making it marketable in the domestic tariff area, amounted to 'manufacture' as defined under Section 3(20) of the Act. It made those manufactured goods liable to suffer Excise duty under the Act. Yet, it would not render 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.

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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

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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 law.

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The decision of the Supreme Court in State of U.P. & Ors. Vs. Modi Distilleries & Ors. (supra) is stated to be distinguishable. In that, the High Court quashed the orders demanding Excise duty. The Supreme Court categorised the cases into four types. Group-A cases involved demand of Excise duty on wastage of Indian Made Foreign Liquor (IMFL) exported outside the State of U.P. Group-B cases involved demand of Excise duty on wastage during transportation (in containers) - of High Strength Spirit of strength 80-85%, from distilleries to warehouse. Group-C cases involved demand of Excise duty on obscuration. The last category - Group-D cases involved Excise duty levied on pipeline wastage. In the submission of the learned Additional Advocate General, the present case falls in neither of the categories A, B, C or D, dealt with by the Supreme Court. Looking at the strength of HSMS, at below 68%, it was an alcohol fit for human consumption. Therefore, it cannot be equated with a commodity that was only a raw material to produce alcoholic liquor fit for human consumption. For that reason, the ratio in the case of State of U.P. Vs. Modi Distillery (supra) , would not apply to the present case.

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In the present case, since the goods in question were being transported within the State, the concept of levy of Consideration Fee/‘Pratiphal Shulk’ on excess loss suffered during export to another State, also would not apply. Here, the transaction was covered as loss was suffered, during transportation within the State. It would be a transaction covered under Section 28(1)(c) of the Act, read with Section 3(19) of the Act.

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In the rejoinder arguments, Shri Bose, has referred to pleadings made in the Supplementary Rejoinder Affidavit and the Rejoinder Affidavit to submit - the plea of lack of legislative competence was raised. In any case, it has been submitted, that plea is purely legal. It arises on the undisputed facts of the case. Therefore, the same may not be barred from being raised. As to the submission based on definition of a custom frontier, strong

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objection has been raised. Though 'custom frontier' has not been defined under the Act, yet the same has been defined under Section 2(4) of the IGST Act. It means limits of the custom area as defined under Section 52 of the Customs Act. Then, the phrase 'crossing the custom frontier of India' 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:

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“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.”

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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:

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“ 3. Interpretation.- In this Act, unless there is something repugnant in this subject or context:

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(3a) “Excise Duty” and “countervailing duty” means any Excise Duty or countervailing duty, as the case may be, as is mentioned in Entry 51 of List II in the Seventh Schedule to the Constitution;

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(11) “liquor” means intoxicating liquor and includes spirits of wine, spirit, wine, tari, pachwai, beer and all liquid consisting of or containing alcohol, also any substance which the State Government may by notification declare to be liquor for the purposes of the Act.

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(13) "intoxicant" means any liquor or intoxicating drug as defined by this Act;

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(17) "import" (except in the phrase "import to India") means to bring into Uttar Pradesh otherwise than across a customs frontier as defined by the Central Government;

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(19) "Transport" means to move from one place to another within Uttar Pradesh;

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(20)"Manufacture" includes every process weather natural or artificial, by which any intoxicant is produced or prepared, and also re distillation and every process for the rectification, flavouring, blending or colouring of liquor;

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(22-a) "excisable article" means-

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(a) any alcoholic liquor for human consumption; or

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(b) any intoxicating drug;”

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Then, Section 12 of the Act reads as below:

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“ 12. Import of intoxicants. - (1) No intoxicant shall be imported unless-

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(a) the State Government has given permission, either general or special, for its imports;

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(b) such conditions (if any) as the State Government may impose have been satisfied; and

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(2) Sub-section (1) shall not apply to 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, 1878.

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(3) Clauses (a) and (b) of sub-section (1) shall not apply to liquor manufactured in India and declared under Section 4 to be foreign liquor.”

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The levy provision - Section 28 of the Act reads as below:

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“ 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, either generally or for any specified local area, on any excisable article-

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(a) imported in accordance with the provisions of Section 12 (1); or

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(b) exported in accordance with the provisions of Section 13; or

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(d) manufactured, cultivated or collected under any licence granted under Section 17; or

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(e) manufactured in any distillery established, or any distillery or brewery licensed, under Section 18 :

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Provided as follows-

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(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;

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(ii) [* * *].

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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.

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[(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.

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(3) Such duty shall not exceed the maximum as provided hereinafter:”

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Read in the backdrop of Entry 51 of List II of the 7^th Schedule to the Constitution of India, together with the definition clause of 'Excise duty' and 'import' [Section 3 (3-a) and 3(17) of the Act] together with Section 28 of the Act, it is plain - the State of U.P., could not and it did not levy Excise duty on any Excisable article imported across the customs frontier of the country, after payment of Customs duty etc. However, that embargo in law, operates against levy of Excise duty (under the Act) on an imported article, cleared or made available, as such, for home consumption. It would not extend or apply to any ‘excisable article’ manufactured from that imported and Customs duty paid, article.

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Here, as a fact, the impost of Consideration fee/'Pratiphal Shulk’ is not on the quantities of HSMS received by the petitioner, at its distillery. Rather, that impost has arisen on the excess and therefore, unaccounted loss of HSMS, while that imported article was transported inside the State of Uttar Pradesh. The text of the show-cause-notices dated 22.09.2018 and 26.09.2018 (Annexure No. 7 to the writ petition), clearly refers to the facts - against two transactions of 24,400 and 24,596 Bulk litres of Malt Spirit of strength 68% and 67.6% v/v, imported from William Grant, as cleared by the Customs authorities, 24346 and 24593 Bulk litres, were received at the petitioner's distillery, bearing strength 66.2% and 66.6% v/v, respectively.

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Accordingly, it was assumed, at that stage, the balance quantity of that commodity had been lost during transportation (against the two transactions). That loss was more than the loss allowable @ 0.5%. Accordingly, the revenue loss was estimated at Rs. 10,91,879.5 and Rs. 4,59,385/- respectively. It appears to have been demanded and recovered against the bond executed by the petitioner, as Consideration fee/'Pratiphal Shulk'.

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Therefore, the contention of learned counsel for the petitioner-ICD Dadri, Gautam Buddh Nagar was the custom frontier of the country - for the purpose of import of goods, is not central or relevant to the core issue involved in the dispute. Whether the goods HSMS are treated to have been imported into the country at the seaport at Gujarat or at land port-ICD Dadri, Gautam Buddh Nagar (inside the State of U.P.), would make no difference to the determination of that issue. It would have been relevant if the impost under challenge had been of Excise duty on clearance/receipt of HSMS, in that form and condition. Here, it may be noted, undisputedly, 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.

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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.

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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'.

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Insofar as the second submission is concerned, it must be examined - whether it was permissible for the State revenue authorities to impose Consideration fee/'Pratiphal Shulk', against alleged loss of revenue on foreign liquor, springing from excess loss of the commodity HSMS, during its transportation from a bonded warehouse at I.C.D. Dadri, Gautam Budh Nagar, to the petitioner’s distillery at Modi Nagar.

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Before making any further discussion on that count, again, it may be relevant to take note of certain provisions of the law. The statutory requirement to obtain Pass, to amongst others, import and/or transport intoxicants within the State of U.P., is contained in Section 15 & 16 of the Act. The rule making power under the Act is contained in Section 40. Relevant to the present discussion, Sections 15, 16 & 40(1), (2) and (2-d) read as below:

¶99

Passes necessary for import, export and transport. - No Intoxicant exceeding such quantity as the Government may prescribe by notification, either generally for the whole of Uttar Pradesh or for any local area comprised therein, shall be imported, exported or transported except under the provisions of the next following section:

¶100

Provided that, in the case of duty-paid foreign liquor other than denatured spirit such passes shall be dispensed with unless the [State Government] shall by notification otherwise direct to any local area :

¶101

¶102

Provided also, unless the State Government shall otherwise direct, that no pass shall be required for the transport of any [intoxicant] exported under a pass issued by an officer duly authorised in this behalf from any place beyond the limits of [Uttar Pradesh] to any other place beyond the said limits.

¶103

Grant of passes for import, exports and transport. - Passes for the import, export or transport of intoxicants may be granted by the Collector.

¶104

Such passes may be either general for the definite periods and kinds of [intoxicants] or special for specified occasions and particular consignments only.”

¶105

“ 40. Power of State Government to make rules. - (1) The [State may make rules for the purpose of Government] carrying out the provisions of this Act or other law for the time being in force relating to excise revenue :

¶106

(2) In particular and without prejudice to the generality of the foregoing provision, the State Government may make rules-

¶107

(d) regulating the import, export, transport or possession of any [intoxicant]”

¶108

(emphasis supplied)

¶109

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:

¶110

“ 12. Foreign liquor. - Foreign Liquor means

¶111

¶112

(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;

¶113

(2) spirit made in India and sophisticated or coloured so as to resemble in flavour or colour, liquor imported into India;

¶114

(3) beer brewed in India;

¶115

(4) wines and liquors made in India, and

¶116

(5) all rectified, perfumed, medicated and denatured spirits, wherever made.”

¶117

(emphasis supplied)

¶118

Thus, the fine distinction that may otherwise exist between foreign liquor imported into India and similar beverages manufactured inside the country, has been blurred. While liquors manufactured outside the country are first included in the term foreign liquor, as described under subparagraph 1 of paragraph 12 of the Manual, similar liquors distilled or manufactured inside the country are included within the meaning of that term - under Sub-paragraphs 2, 3 and 4 of paragraph 12 of the Excise Manual.

¶119

Then, under Paragraph 37 of the Excise Manual, amongst others, it has been provided as below:

¶120

“ 37. The following duties are imposed in Uttar Pradesh :

¶121

(1) On Indian-made foreign liquor imported or manufactured in, and issued from distilleries, a fixed still-head duty calculated on either the gallonage in terms of London Proof or per gallon at fixed strength.”

¶122

Again, Paragraph 41 of the Excise Manual provides for forms of wholesale vends. Amongst others, with respect to foreign liquor, it has been provided as below:

¶123

¶124

“ 41. Forms of wholesale vend. - The following forms of vend by wholesale are- permitted within Uttar Pradesh :

¶125

(2) Foreign liquor - Licence for wholesale vend may be issued by the Collector with the previous sanction of the Excise Commissioner to distillers, brewers, importers, exporters, vendors, and (in certain cases) to auctioneers.”

¶126

Coming to the specific provision under the Excise Manual, contained in Chapter VIII, it provides for a set of Rules relating to foreign liquor. Section XXXVIII thereof refers to import, export, and transport of foreign liquor other than denatured spirit. Paragraph Nos. 605, 606 contained therein, read as below:

¶127

“ 605. Foreign liquor is defined in paragraph 12 of Chapter I and is classified in paragraph 7 of the same Chapter.

¶128

Quantitative limits of import etc. - (1) No quantitative limit is prescribed for the export, transport or possession of foreign liquor (other than denatured spirit) obtained from overseas.

¶129

Note. - No duty-paid foreign liquor imported from foreign countries (other than denatured spirit) exceeding 6 quart bottles shall be imported in Uttar Pradesh in the local areas mentioned in the following Schedule except under a pass issued in accordance with paragraphs 609 to 610 infra.

¶130

SCHEDULE

¶131

(1) All Municipal areas, (2) all town areas, (3) all cantonment areas, (4) all notified areas, and (5) all railway stations.

¶132

(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.

¶133

(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.

¶134

¶135

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:

¶136

Methods of import. - Indian-made foreign liquor may be imported either-

¶137

(1) in bond for payment of duty in Uttar Pradesh;

¶138

(2) on repayment of duty in Uttar Pradesh; or

¶139

(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 transfer;

¶140

(4) free duty or a reduced rate of duty under the conditions laid down in the rules hereinafter following.

¶141

(1) Import in Bond

¶142

Conditions to be fulfilled by importer. - Any person holding a licence for the vend of foreign liquor and also regimental units in Uttar Pradesh may import Indian-made foreign liquor from a distillery, brewery, bonded warehouses or bonded laboratory in another State or Union Territory under a bond for payment of the duty imposed under Section 28 of the United Provinces Excise Act, 1910 (Act IV of 1910) after he or his agent has-

¶143

(a) obtained a permit from the Collector of the district of import in prescribed Form (F.L. 27);

¶144

(b) executed a bond (which may be either general or special) in favour of the Collector of the district of import for payment of the duty leviable on the liquor to be imported;

¶145

¶146

Permit for import. - (a) The importer shall present an application to the Collector of the district of import specifying-(1) the quantity and description of the Indian-made foreign liquor to be imported, (2) the name of the distillery, brewery, bonded warehouse or bonded laboratory from which the liquor is to be

¶147

¶148

imported, (3) the quantity of liquor to be imported in terms of L.P. and the amount of duty leviable thereon in this State, and (4) the name of the bonded warehouse to which the liquor is to be consigned.

¶149

(b) The licensed retail vendor shall also deposit in the treasury a fee at the rate of rupees five per quart bottle on spirits, cordials and wines and sixty paise per quart bottle or beer, stout and other fermented liquors, in advance and shall attach the treasury challan with his application presented to the Collector of the district of import. The Collector shall issue a permit as laid down in sub-rule (d) only when the treasury challan evidencing payment of the fee is produced.

¶150

(c) The importer shall also execute (unless a general bond previously executed by him still in force) either a general or a special bond in the prescribed form in favour of the Collector of the district of import for the payment of duty leviable under Section 28 on the actual import and on the excess loss in transit according to the rule in force in the exporting State or Union Territory.

¶151

(d) The Collector shall, 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.

¶152

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

¶153

¶154

granted it after verification by the Assistant Excise Commissioner.

¶155

(2) Within fifteen days of the date of receipt of the warehouse the importer shall clear the whole consignment on payment of duty in the treasury of the district of import. If he fails to do so, the Collector may charge storage fees at such rates as he thinks fit for the period it remains in the warehouse in excess of 15 days. The Collector may dispose it of as he thinks proper, at the risk of the importer, if it is not cleared within three months from the date of receipt.

¶156

(3) The importer shall also be liable to pay duty on excess transit wastages according to the rules in force in the State or Union Territory of export.

¶157

Note. - Clause (2) of this rule does not apply to cases where spirit has been imported by distillers and stored in the distillery building.”

¶158

(emphasis supplied)

¶159

It may be noted, under Part (A-II) of Chapter VIII, Section XXXVIII of the Excise Manual, other Rules exist to regulate the Import of Overseas Foreign Liquor in Scheduled Areas in U.P. Since, in the present case, the permit was not sought (by the petitioner), under that provision and no action has been taken thereunder, no further reference is required to be made to that set of Rules. However, as noted above, as a commodity IMFL is also included in 'Foreign Liquor', under Paragraph 12 of the Excise Manual. Therefore, there is no inherent or patent lack or error, of jurisdiction or authority involved, in the facts of this case.

¶160

Again, as a fact, the petitioner made applications under Part (A-1) of Chapter VIII, Section XXXVIII of the Manual, to cover the proposed transaction - to transport HSMS from the bonded warehouse at I.C.D. Dadri, in Gautam Budh Nagar to Modi Nagar in Ghaziabad. It described the transaction as one of import (into the State of U.P.), of HSMS. As to the nature of the commodity, there can be no dispute, HSMS at 68% and 67.6% strength v/v did not render itself alcoholic liquor unfit for human consumption. At present, that principle or test maybe available, only with respect to alcoholic liquors of much higher strength i.e., above 80-85%. This observation is being recorded, on the strength of the undisputed

¶161

¶162

individual facts of this case, seen in the light of the decision of the Supreme Court in State of U.P. & Ors. Vs. Modi Distilleries & Ors. (supra) , wherein while dealing with Group-B cases (involving cases of high strength malt spirit of 80-85% strength), it was observed as below:-

¶163

“10. What the State seeks to levy excise duty upon in 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.”

¶164

(emphasis supplied)

¶165

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.

¶166

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 Act, intoxicant, or liquor (as defined under Section 3 and 11 of the Act) including HSMS, stood covered under the regulatory provisions under the Act. Thus, amongst others, by virtue of Section 15 of the Act, HSMS could not be imported or transported within the State of Uttar Pradesh, except in accordance with the provisions of Section 16 of the Act. That provision of the Act mandatorily prescribes issuance of Pass, amongst others, for import and/or transportation of intoxicant including liquors, inside the State of U.P.

¶167

¶168

Section 12(2) of the Act only excludes the applicability of Section 12(1) of the Act, to intoxicants imported in India against Customs duty payment under Central enactments. Plainly, it has no application to Section 15 & 16 of the Act. There is no similar exclusion clause under those regulatory law provisions. Upon a co-joint reading of Sections 12, 15 and 16 of the Act, though no prior permission (under section 12) may be required under the Act to import into India, HSMS, yet a Pass (under section 16) was mandatory to be obtained, to transport the HSMS from I.C.D. Dadri, in Gautam Budh Nagar to the petitioner’s distillery at Modi Nagar, in Ghaziabad.

¶169

Therefore, at the superficial level, a piquant situation arises. Though, the regulatory law obligated the petitioner to transport the goods from Gautam Budh Nagar, Ghaziabad against valid Permit/Pass issued under the Act, it may have remained true that the nature of transaction was one of import of goods from outside the country, pursuant whereto the goods reached the I.C.D., Dadri at Gautam Budh Nagar, in the State of U.P. Hence, they were not liable to suffer Excise duty under the Act by virtue of specific exemption created under Proviso (i) to Section 28(1) of the Act.

¶170

However, that does not offer any legal mystery or difficulty as to operation and/or order of primacy of enacted laws, noticed above. In this situation, two mutually independent consequences arose, under two different laws, neither in conflict with the other. Each law was enacted by the competent legislature for its own independent and (mutually) exclusive purpose. The Customs Act sought to levy Customs duty on the import of HSMS while the Act, amongst others, sought to regulate transportation of the commodity/article thus cleared for home consumption (under the Customs Act), inside the State of U.P. Therefore, there is no conflict between the two laws.

¶171

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

¶172

¶173

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.

¶174

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, would be subject to such regulatory law when imported into the State of Uttar Pradesh.

¶175

In State of Jharkhand and Others Vs. Ajanta Bottlers and Blenders Pvt. Ltd, (2019) 7 SCC 545, an issue arose as to the validity of a regulatory import fee, imposed under State Excise laws. Finding that applicable law to be regulatory, the Supreme Court reversed the decision of the High Court, and held as under:

¶176

Indeed, if the State legislation was to provide for levy on the imported rectified spirit per se the same would be without jurisdiction, as consistently held, including by the Constitution Bench in Deccan Sugar & Abkari Co. Ltd. v. Commr. of Excise [Deccan Sugar & Abkari Co. Ltd. v. Commr. of Excise, (2004) 1 SCC 243] , para 2 of this decision, which reads thus: (SCC p. 244)

¶177

“2. It is settled by the decision of this Court in Synthetics and Chemicals Ltd. v. State of U.P. [Synthetics and Chemicals Ltd. v. State of U.P., (1990) 1 SCC 109] that the State Legislature has no jurisdiction to levy any excise duty on rectified spirit. The State can levy excise duty only on potable liquor fit for human consumption and as rectified spirit does not fall under that category the State Legislature cannot impose any excise duty. The decision in Synthetics and Chemicals Ltd. v. State of U.P. [Synthetics and Chemicals Ltd. v. State of U.P., (1990) 1 SCC

¶178

¶179

109] has been followed in State of U.P. v. Modi Distillery [State of U.P. v. Modi Distillery, (1995) 5 SCC 753] where certain wastage of ethyl alcohol was sought to be taxed. This Court following the decision in Synthetics and Chemicals Ltd. [Synthetics and Chemicals Ltd. v. State of U.P., (1990) 1 SCC 109] came to the conclusion that this cannot be done.”

¶180

The next question is whether the levy is in the nature of tax or excise duty. If it is a case of excise duty on potable liquor produced by use of imported rectified spirit, the State has jurisdiction to legislate in respect of duty on the production or manufacture of such goods produced or manufactured within the State. In the present case, we find merits in the submissions of the appellant State that the impost is neither in the nature of a tax nor excise duty but it is towards the charges by whatever name, for regulating the production of potable liquor to preserve public health and morality including for parting with its rights or privileges regarding manufacture, 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).

¶181

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 rendered to the licensees of producer of foreign liquor.

¶182

¶183

The respondent respondent, however, placed heavy reliance on the decision in State of U.P. v. Vam Organic Chemicals Ltd. [State of U.P. v. Vam Organic Chemicals Ltd., (2004) 1 SCC 225] , to contend that the State is obliged to justify the impost based on quid pro quo. We are afraid, this decision is of no avail to the respondent. In that case, the Court was dealing with challenge to Rule 3(a) therein on the ground that the State Legislature did not have legislative competence to legislate on “denatured spirit” which is unfit for human consumption. In that context, this Court relied on the decision in Synthetics and Chemicals Ltd. v. State of U.P. [Synthetics and Chemicals Ltd. v. State of U.P., (1990) 1 SCC 109] and answered the issue. If the case under consideration was to be regarding legislation on imported rectified spirit as such, this decision would have come handy. However, having opined that the purport of the impugned Rule 106(Tha), is to permit impost on the final processed product being foreign liquor “IMFL”, before bottling as fit for human consumption, the State has jurisdiction to legislate on that subject and need bear no quid pro quo to the services rendered to the licensee of manufacturer of foreign liquor (IMFL).

¶184

(emphasis supplied)

¶185

A clear distinction exists, in interpretation of provisions of substantive levy of tax or duty and provisions for levy of fee under a regulatory law. That may be recognised and maintained. The two cannot be equated as may result in the regulatory law being rendered toothless or as may allow it to be circumvented by devices that may not have been contemplated by the legislature.

¶186

The provisions of Sections 15 and 16 of the Act read with Paragraph Nos. 605 to 613 of the Excise Manual are part of the regulatory laws. The clear intent of those provisions is to ensure, no quantity of foreign liquor, suffers excessive loss, amongst others during its transportation inside the State of Uttar Pradesh, as may result in a corresponding revenue loss. It is clearly a provision in the interest of revenue to prevent unscrupulous importers from drawing excessive profits at the cost of corresponding

¶187

¶188

undue loss of revenue to the State-by arranging the import/export/transport transaction/s in a manner whereby excessive quantities of foreign liquor may be claimed lost, 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.

¶189

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 in question, on 22.04.1950. Negating the submission based on the statutory definition of ‘previous year’, the Supreme Court found, that meaning to be plainly repugnant to the definition of ‘dividend’ in Section 2 (6A)(c) of that Act.

¶190

In view of the discussion made above, the words ‘import’, ‘importer’ and ‘imported’ used in Paragraphs 608, 609, 610, 613 etc. of the Excise Manual must be read in their complete/wider/natural sense - to include within their sweep, a transaction of transportation (inside the State of Uttar Pradesh) of goods imported into India. That context (of regulatory law), requires, a departure to be made from the narrower statutory meaning of the word ‘import’, as contained in Section 3(17) of the Act. In other words, to preserve the efficacy of the regulatory law, it must be given - the word ‘import’ used in the regulatory provisions of the Act and the Excise Manual must be given a wider more generic meaning than the narrower meaning

¶191

¶192

given under Section 3(17) of the Act. That interpretation is permissible and necessary to be adopted by virtue of the opening words of Section 3 of the act namely, “In this Act, unless there is something repugnant in the subject or context”. Therefore, Consideration fee/‘Pratiphal Shulk’ may be levied on excess loss of HSMS, whether imported from outside the country or procured from another State of India. Therefore, the injunction sought against that levy, by looking at the provision of law providing for levy of Consideration fee/‘Pratiphal Shulk’ on excess loss of HSMS when transported within the State, from a distillery inside the State of Uttar Pradesh, is misconceived and inapplicable.

¶193

Again, as a fact, reference may be made to the application made by the petitioner for grant of Form FL-22. Copies of letters dated 02.08.2018 and 31.08.2018 issued by the petitioner to import 24,400 Bulk litres of HSMS and 24,346 Bulk litres of HSMS respectively, have been annexed as Annexure no.1 & 1A to the Supplementary Counter Affidavit, filed by the State. For ready reference, contents of letter dated 02.08.2018 are quoted hereinbelow:

¶194

“Ref. CE/AL/

¶195

02/08/18

¶196

To, The Excise Commissioner, UP Excise ALLAHABAD, Uttar Pradesh

¶197

Subject: Import/Lifting of 24400.00 BL(16608.5 AL with 68.0% v/v alcoholic strength) Imported Malt Scotch from L.C.D. Dadri, Dist. Gautam Budh Nagar (U.P).

¶198

Dear Sir,

¶199

We wish 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).

¶200

We will import this scotch malt from ICD Dadri, Dist. Gautam Budh Nagar (U.P), to our distillery at Modinagar.

¶201

¶202

The route to transport this Imported Malt Spirit will be as under.

¶203

Dadri-Ghaziabad-Modinagar.

¶204

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.

¶205

Thanking you

¶206

For Modi Distillery

¶207

-sd/(Mukesh Sharma) G.M. (Plant)

¶208

Enclosure: As above”

¶209

(emphasis supplied)

¶210

On that application, the Pass on Form FL-22 was issued to the petitioner. Again, for ready reference, the contents of one such Pass dated 21.08.2018 (with respect to 24,400 Bulk litres of HSMS), are quoted below:

¶211

“PARAS 609,615(5)& 617(3)

¶212

GHAZIABAD DISTRICT, UTTAR PRADESH

¶213

FL-22

¶214

Permit For import/Tranportation of Indian Made Foreign Liquor/Malti/ G.N.A./E.N.A, in Bulk

¶215

Permit No 40 Dated:21/8/18

¶216

Current Up to 30/8/18 1. Import in Bulk 24400.0 BL Malt Scotch (68.0% v/v)

¶217

1 Name & Address of the Consignor: M/s I.C.D Dadri,

¶218

Dist. Gautambudh Nagar,UP 2 Name and Address of consignee : M/s. Modi Distillery (A Unit of Modi industries Ltd.) Modi Nagar, Distt- Ghaziabad, U.P.

¶219

3 Description of Liquor : Malt Scotch

¶220

4 Quartity of Malt Spint : 24400.0 BL Consignment imported under Excise Commissioner, U.P

¶221

¶222

Order no.10495/no- 281 F(19)/Modi, Dated 20/08/18

¶223

5 Rute by Road via : Dadri-Ghaziabad-Modinagar

¶224

Rate of Import Fee :RS. 4/- Per Bulk Litre

¶225

7 Amount of duty pre-paid Utter Pradesh: UNDER BOND or to be realised in the State of Export

¶226

8.Pemitt fee any realised Rs 97600/- Deposited vide Treasury Challan no. 15 Dated: 20/08/2018

¶227

SEAL OF THE OFFICE OF ISSUE

¶228

-sd/-

¶229

21/08118

¶230

DISTRICT EXCISE OFFICER GHAZIABAD DISTRICT, GHAZIABAD (UP)”

¶231

Thus, in view of the scheme of Sections 15 & 16 of the Act, the petitioner sought permission to transport quantities of HSMS cleared in its favour, by the Customs authorities at I.C.D. at Dadri, Gautam Budh Nagar, for 'transportation' to its distillery, at Modi Nagar, Ghaziabad. It was described by the petitioner as a transaction of import, from I.C.D. Dadri. Yet, the nature of that transaction involved inter-play of the laws enacted by the State legislature i.e. the Act read with the Rules framed thereunder and the laws enacted by the Parliament, namely, the Customs Act and the Rules framed thereunder.

¶232

There is no conflict between the Customs laws enacted by the Parliament and the regulatory laws enacted by the State legislature. Under Chapter VIII of the Customs Act, the procedure is prescribed 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

¶233

¶234

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:

¶235

“ 49 . Storage of imported goods in warehouse pending clearance or removal.-

¶236

Where, -

¶237

(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 the goods cannot be cleared within a reasonable time;

¶238

(b) in the case of any imported dutiable goods, entered for warehousing, the Assistant Commissioner of Customs or Deputy Commissioner of Customs is satisfied on the application of the importer that the goods cannot be removed for deposit in a warehouse within a reasonable time, the goods may pending clearance or removal, as the case may be, be permitted to be stored in a public warehouse for a period not exceeding thirty days:

¶239

PROVIDED that the provisions of Chapter IX shall not apply to goods permitted to be stored in a public warehouse under this section:

¶240

PROVIDED FURTHER that the Principal Commissioner of Customs or Commissioner of Customs may extend the period of storage for a further period not exceeding thirty days at a time.]”

¶241

Under Chapter IX of the Customs Act, provisions have been made for warehousing (as contemplated under Section 49 of the Customs Act). Sections 57 and 58 of the Customs Act deal with licensing of public and private warehouses, respectively. Section 59 provides for issuance of bond for goods warehoused. Section 68 provides for clearance of warehoused goods, for home consumption. For ready reference, relevant extract of Section 68 of the Customs Act reads as below:

¶242

“ 68. Clearance of warehoused goods for home consumption

¶243

Any warehoused goods may be cleared from the warehouse for home consumption, if-

¶244

(a) a bill of entry for home consumption in respect of such goods has been presented in the prescribed form;

¶245

(b) the import duty, interest, fine and penalties payable in respect of such goods have been paid; and]

¶246

(c) an order for clearance of such goods for home consumption has been made by the proper officer;”

¶247

¶248

In the context of the above-described Custom laws, Circular no. 50/2020 dated 05.11.2020 (relied upon by learned counsel for the petitioner), was issued. Contents of paragraph nos. 2, 2.1, 2.1.1, 2.1.2, 2.4, 2.4.1, 2.4.2, 2.4.3 and 2.4.4 are quoted below:

¶249

“ 2. Distinction between ICD, CFS and AFS

¶250

2.1 Inland Container Depot (ICD) :

¶251

2.1.1. An off 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.

¶252

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.

¶253

2.2. Container Freight Station

¶254

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.

¶255

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, 1962, located in the jurisdiction of a Commissioner of Customs exercising control over a specified Customs port, airport, ICS/ICD while an ICD is notified under section " of the Customs Act, 1962. A CFS cannot have an independent existence and has to be linked to a Customs station within the jurisdiction of Commissioner of Customs. It is an extension of a Customs port set up with the main objective of decongestion. In a CFS only a part of the Customs processes mainly the examination of goods is normally carried out by Customs besides stuffing/de stuffing of containers and aggregation/ segregation of cargo. Thus, Custom's functions relating to processing of manifest, import/ export declarations and assessment of Bill of Entry/Shipping Bill are performed in the Custom House/Custom Office that exercises jurisdiction over the

¶256

¶257

parent port/airport/ICD/LCS to which the said CFS is attached. In the case of Customs Stations having facility of automated processing of documents, minals are provided at such CFSs for recording the result of examination, etc. In some CFSs, extension Service Centers are available for filing documents, amendments etc. However, the assessment of the documents etc. is carried out centrally.

¶258

2.2.3. An ICD may also have several CFSS attached to it within the jurisdiction of the Commissioner of Customs just as in the case of a port.

¶259

2.3. Air Freight Station (AFS)

¶260

2.3.1. An off-airport common user facility equipped with fixed installations of minimum crement and offering services for handling and temporary storage of import and export cargo etc.

¶261

2.3.2. While CFS handles maritime cargo, an AFS is meant to handle air cargo.

¶262

2.4. Important centers of activity relating to ICDs/CFSs/AFSS

¶263

2.4.1 Pail Siding (in case of a rail-based terminal): The place where container trains are ved, dispatched and handled in a terminal. Similarly, the containers are loaded on and unloaded from rail wagons at the siding through overhead cranes and / or other the equipment.

¶264

2.4.2 Container Yard: Container yard occupies the largest area in the ICD/CFS. It is acting area where the export containers are aggregated prior to dispatch to port, pt containers are stored till Customs clearance and where empty containers await movement. Likewise, some stacking areas are earmarked for keeping special ners such as refrigerated, hazardous, overweight/over-length etc.

¶265

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.

¶266

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.”

¶267

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

¶268

¶269

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 geographical boundaries of the State of U.P., for the limited purpose of a regulatory law enacted by that State.

¶270

As to the third submission advanced by learned counsel for the petitioner, limits of permissible wastage (during transportation) have been prescribed, under Rule 5 of the Distillery Rules. The same limit has been made applicable to cases of import of foreign liquor by virtue of the provisions of Paragraph No. 613(3) of the Excise Manual, quoted above. Here, it may also be noted, the Rules Relating to Issue on Spirit From Distilleries Working in Private Premises or Premises Owned by the State Government, that prescribe the permissible limits of loss, have been amended by Notification dated 08.02.1978. Rule 5 of those Rules (Paragraph 814 of the Manual) provides for (revised) permissible limit of loss during transportation. The above-described amended Rule 5 reads as below:

¶271

“ एतद्द्वारा प्रतितस्थापि�त पि�यम

¶272

5- लकड़ी के �ी�े या धातु के �ात्र में बन्ध - �त्र के अधी� �रिरवपि�त या पि�या तितत स्प्रिस्प्रट के अभि$व�� में क्षरण , वाष्�ीकरण या अन्य अ�रिर�ाय कारण से �ुई वास्तपिवक �ापि� के लिलए 0.5 प्रतितशत तक की छूट दी जायगी।

¶273

इस पि�यम के अधी� दी जा�े वाली छूट असाव�ी $ेजी गई स्प्रिस्प्रट की मात्रा से गन्तव्य स्था� �र प्राप्त मात्रा को कम करके अवधारिरत की जायगी। दो�ों मात्रा को लीटर अल्को�ल में उल्लि;लि<त पिकया जायगा। छूट की गण�ा �ारेषण में सस्प्रि>मलिलत प्रत्येक लकड़ी के �ी�े या धातु के �ात्र में पिवद्यमा� मात्रा �र की जायगी। यपिद ऐसे अतिधकारी की , ल्लिजसके द्वारा स्प्रिस्प्रट के �ारेषण की उसके गन्तव्य स्था� �र मा� की गई �ो और उसे प्रमाभिणत पिकया गया �ो , रिर�ोट से य� प्रकट �ो पिक अ�ुज्ञेय सीमा से अतिधक छीज� �ुई �ै तो बन्ध - �त्र पि�ष्�ापिदत कर�े वाला व्यपिE उत�ी कमी �र , ल्लिजत�ी छूट से अतिधक �ो शुल्क का दे�दार �ोगा। उद्ग्र�णीय शुल्क की दर इस राज्य में ऐसी स्प्रिस्प्रट �र उद्ग्र�णीय शुल्क की उच्चतम दर �ोगी। "

¶274

The fact that quantities of HSMS had been received at I.C.D., Dadri, Gautam Budh Nagar from a (geographical) place situated in the State of

¶275

¶276

Gujarat, may also not lead to the conclusion that HSMS had been imported from Gujarat. To that extent alone the reasoning offered by learned counsel for the petitioner, may not be faulted.

¶277

The import of HSMS from Scotland, in United Kingdom was not complete till the goods were cleared for home consumption, at I.C.D., Dadri. There is no fact allegation made by the petitioner of any loss of strength or volume suffered before the goods reached the I.C.D. Dadri. Therefore, the excessive loss - of strength and volume (of HSMS), occurred during the transportation of those goods, from the bonded warehouse at I.C.D., Dadri, to the petitioner’s distillery at Modi Nagar, Ghaziabad, after their clearance for human consumption.

¶278

Examined in the context of discussion made above, the geographical place where the goods HSMS commenced their journey (upon being cleared from home consumption) remained inside the State of Uttar Pradesh, i.e., at Dadri, in Gautam Budh Nagar. Yet, HSMS had not been produced inside the State of Uttar Pradesh. In fact, they were imported into the country, at the I.C.D., Dadri, in Gautam Budh Nagar. Therefore, those goods became available for home consumption, under the umbrella of local regulatory laws of the State of Uttar Pradesh, only. Keeping these facts in mind, for the purpose of levy of Consideration fee/‘Pratiphal 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.

¶279

¶280

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 to the dispute have not brought on record the contents of the bond submitted by the petitioner. Yet, its issuance is admitted on Form FL 22 (as annexed to the Writ Petition), itself. Normally, under the Act, bonds are issued on Form PD15. It is the proforma for bonds to be issued for removal of spirits from distilleries. For ready reference, proforma bond on Form PD15 reads as below:

¶281

“ P.D. 15

¶282

Form of general bond to be executed for the removal of spirits from distilleries

¶283

for transport/export without pre-payment of duty.

¶284

This Indemnity Bond made the…………………….day of……………..19…...Between……….……………………..son of.. ………………….resident of……………………………………………… (and………………………………………….son of ……………………... ……………………… resident of ………………….) (hereinafter called the distiller/the distillers which expression shall include his/their heirs, representatives, successors and assigns) of the one part AND the Governor of Uttar Pradesh (hereinafter called the Governor which expression shall include his successor and assigns) of the other part;

¶285

Whereas under the rules of the Government of Uttar Pradesh in the Excise Department the distiller is/distillers are permitted from time to time to transport/export spirits from his/their distillery at. ...to all or any of the bonded warehouses mentioned in the passes covering such transport/export without previous payment of duty on the distiller/ distillers executing an indemnity bond on the terms and conditions hereinafter mentioned;

¶286

Now this Bond witnesses and the distiller/distillers hereby convents/convent with the Governor as follows:

¶287

That the distiller/distillers shall not at any one time to so transport/export any quantity of spirits the duty on which at the rate prescribed therefor at the time or the aggregate of such duty and the duty at the aforesaid rate on any quantity previously transported/exported and not yet delivered at destination shall exceed the sum of Rupees Provided that any allowance sanctioned for dryage and wastage and any quantity not delivered at destination for which duty has been paid under clause (3) hereinafter following shall not be included in the calculation of the quantity not delivered at destination

¶288

That the distiller/distillers 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

¶289

¶290

transported/exported on that occasion into the custody of the officer-incharge of the bonded warehouse. mentioned in the pass

¶291

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.

¶292

In witness whereof the distiller has/distillers have hereunto set his hand/their hands the day of the years first above written.

¶293

In the presence of………………...

¶294

Signed by........………..

¶295

Distiller/Distillers………

¶296

(emphasis supplied)

¶297

In the face of such bond, if issued, by way of a pure contractual liability, the same would be fully enforceable. Interestingly, in State of Kerala and Others Vs. Mc. Dowell and Company Ltd., 1994 Supp. (2) SCC 605, an issue arose as to the levy of stamp duty (under Indian Stamp Act, 1899), on a 'bond' issued under the Kerala Abkari Act. There, 'bond' was defined under the Kerala Abkari Act as an instrument whereby a person obligated himself to pay money to another, on the condition that the obligation shall be void if a specified act was performed or not performed. The majority view (of two Judges) opined, that the instrument (in that case), was a 'bond' under the Indian Stamp Act, 1899, because the issuer had bound himself to pay the promised money in the event of specified quantities of liquor (that were removed from warehouses without payments of State Excise duty), being not actually exported out of the State and that liability would cease to exist if all quantities were exported. In his dissenting opinion, Justice Ram Manohar Sahai opined - since the liability to pay State Excise duty was pre-existing, the 'bond' in question was only an agreement.

¶298

Under the Act, 'bond' has not been defined. However, whether we treat the bond (that may have been issued in the present case), to be a bond simplicitor or an agreement, once issued, it would bind the issuer to account for the entire quantities of the Excisable article (as they existed at the beginning of their journey), at the end of that journey. For that reason also, exact terms of the bond apart, the nature of liability to pay

¶299

¶300

Consideration fee/‘Pratiphal Shulk’ against excess loss of HSMS may remain enforceable, by way of a pure contractual liability.

¶301

For reasons noted above, it would not be right to say - the Act and the Excise Manual create levy of Consideration Fee/'Pratiphal Shulk' only on dispatches made from the distillery and not to the distillery. All transportation of liquor within the State, is covered within the regulatory sweep of Sections 15 & 16 of the Act. The petitioner applied and the respondents granted Pass to the petitioner (to transport HSMS from I.C.D. Dadri, in Gautam Budh Nagar to petitioner’s distillery at Modi Nagar, Ghaziabad), on Form FL-22, against bond. That procedure was not contrary to the law. The petitioner was bound by the terms of the Pass read with the Excise Manual.

¶302

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.

¶303

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 generates both, the fuel i.e., the revenue as also the spark i.e., the means generated by the laws, that combusts the fuel and drives the giant engine of the State machinery, with purpose. Therefore, the State and its functionaries may never seek to outwit the citizen, either deliberately or

¶304

¶305

inadvertently, by adopting any doubtful method. The citizen and all associations, corporations, entities that he forms, must be able to trust blindly, the State for compliance of the laws, as enacted and enforced, even if the former be perceived, standing in violation of the law. That, amongst others would be one test to ascertain adherence to the rule of law, under the Constitutional scheme of governance.

¶306

Last, a regret is expressed - to the delay caused in conclusion of these proceedings. In the first place, the hearing was disrupted on certain dates owing to unavoidable circumstances. Thereafter, dictation of order, though commenced upon conclusion of hearing, could not be concluded earlier, for reasons, both, avoidable and unavoidable.

¶307

79. The Writ Petition fails and is dismissed . No order as to costs.

¶308

Order Date :- 7.5.2022 Abhilash/Prakhar/Faraz

¶309

Digitally signed by PRAKHAR SRIVASTAVA Date: 2022.05.30 18:37:42 IST Reason: Location: High Court of Judicature at Allahabad

Modi Distillery v. State of U.P. and 3 Others

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Modi Distillery v. State of U.P. and 3 Others

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