Allowed

United Breweries Limited v. State of Karnataka

Karnataka HC4 Apr 2024WP/26796/2019

Case brief

AI extract

What is this about?

Two breweries challenged excise demands for alleged shortfalls in beer production. The court found Schedule-A prescribes yield per 1000 kgs of malt only, so adding adjuncts to compute minimum yield was impermissible; penalties require clear rules. Both impugned orders were quashed.

What did the court decide?

Impugned orders dated 29.01.2021 and 15.6.2019 quashed; writ petitions allowed.

United Breweries Limited Vs State of Karnataka — Writ and Judicial Review | Karnataka HC (2024)

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NC: 2024:KHC:14318 WP No. 26796 of 2019 C/W WP No. 4346 of 2021

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 4^TH DAY OF APRIL, 2024

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BEFORE

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THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR WRIT PETITION NO. 26796 OF 2019 (EXCISE) C/W WRIT PETITION NO. 4346 OF 2021 (EXCISE) IN WRIT PETITION NO. 26796 OF 2019:

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BETWEEN:

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UNITED BREWERIES LIMITED A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956, AND HAVING ITS REGISTERED OFFICE ADDRESS AT LEVEL-4 UB TOWER, UB CITY, VITTAL MALLYA ROAD, BANGALORE-560 001 BY ITS AUTHORIZED SIGNATORY.

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…PETITIONER

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(BY SRI. AJITH A SHETTY, ADVOCATE) AND:

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Digitally signed by B K MAHENDRAKUMAR Location: High Court of Karnataka

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STATE OF KARNATAKA DEPARTMENT OF REVENUE, M.S. BUILDING, DR. AMBEDKAR VEEDHI, BANGALORE-560 001 BY ITS PRINCIPAL SECRETARY.

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DEPARTMENT OF FINANCE GOVERNMENT OF KARNATAKA, M.S. BUILDING, DR. AMBEDKAR VEEDHI, BANGALORE-560 001 BY ITS PRINCIPAL SECRETARY.

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DEPARTMENT OF EXCISE 2ND FLOOR, T.T.M.C. BUILDING, A BLOCK, BMTC BUS STAND, SHANTINAGAR,

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2 - NC: 2024:KHC:14318 WP No. 26796 of 2019 C/W WP No. 4346 of 2021

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BANGALORE-560 027 BY ITS COMMISSIONER.

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THE DEPUTY COMMISSIONER (EXCISE) BANGALORE RURAL DISTRICT, 2ND FLOOR, DISTRICT ADMINISTRATION BUILDING, BEERASANDRA VILLAGE, DEVANAHALLI TALUK, BANGALORE RURAL DISTRICT-562 110.

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SUPERINTENDENT OF EXCISE UNITED BREWERIES LIMITED, NELAMANGALA, TUMKUR ROAD, BOMMANAHALLI, BANGALORE-562 123.

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…RESPONDENTS

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(BY SRI. RUBEEN JACOB, AAG A/W SRI. S.R. KHAMROZ KHAN, AGA)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THE IMPUGNED DEMAND NOTICE DATED 15.6.2019 ISSUED BY THE R-4 BEARING REFERENCE AS PER ANNEXUER-Q, AS BEING ULTRA VIRES OF RULE 3 AND SCHEDULE-A TO THE 'KARNATAKA EXCISE [REGULATION OF YIELD, PRODUCTION AND WASTAGE OF SPIRIT , BEER, WINE OR LIQUORS] RULES, 1998 AND ETC.

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IN WRIT PETITION NO. 4346 OF 2021:

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BETWEEN:

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ANHEUSER BUSCH INBEV INDIA LIMITED (FORMERLY KNOWN AS SABMILLER INDIA LIMITED) 6TH FLOOR, GREEN HEART BUILDING MFAR MANYATA TECH PARK, PHASE - 4 NAGAWARA, BENGALURU - 560 045 REPRESENTED BY ITS AUTHORISED SIGNATORY MS. AJITHA PICHAIPILLAI.

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…PETITIONER

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(BY SRI. K.G. RAGHAVAN, SENIOR COUNSEL FOR SRI. AJAY J.N., ADVOCATE)

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AND:

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THE STATE OF KARNATAKA

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NC: 2024:KHC:14318 WP No. 26796 of 2019 C/W WP No. 4346 of 2021

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ACTING THROUGH THE MINISTRY OF EXCISE, VIDHAN SOUDHA BANGALORE - 560 001.

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THE COMMISSIONER OF EXCISE 2ND FLOOR, TTMC BUILDING, A BLOCK, BMTC, SHANTINAGAR BANGALORE - 560 002.

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…RESPONDENTS

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(BY SRI. RUBEEN JACOB, AAG A/W SRI. S.R. KHAMROZ KHAN, AGA)

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THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO CALL FOR THE RECORDS PERTAINING TO THE ORDER DATED 29.1.2021 ANNEXURE-A ISSUED BY R-2 AND AFTER GOING INTO THE LEGALITY AND VALIDITY THEREOF, TO QUASH THE IMPUGNED ORDER AND FORBEAR THE RESPONDENTS THEIR AGENTS SERVANTS AND OFFICERS ETC., FROM ACTING PURSUANT THERETO; DECLARE THE IMPUGNED ORDER DATED 29.1.2021 ANNEXURE-A AS BEING IN CONTRAVENTION OF RULE 3 AND SCHEDULE A OF THE YIELD RULES AND ETC

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THESE PETITIONS, COMING ON FOR PRELIMINARY HEARING IN ''B' GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:

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ORDER

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The petitioners have been granted a license for the manufacturing and sale of brewed beer under the Karnataka Excise (Brewery) Rules, 1967 (hereinafter referred to as "Brewery Rules, 1967").

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Petitioner in W.P.No.4346/2021 challenges the order dated 29.01.2021 passed by the 2nd respondent, rejecting the petitioner's explanation to the show cause notice dated 11.8.2016 for violation of Rule 3 of the Karnataka Excise (Regulation of Yield, Production, and Wastage of Spirit, Beer, Wine, or Liquors) Rules,

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4 - NC: 2024:KHC:14318 WP No. 26796 of 2019 C/W WP No. 4346 of 2021

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1998 (hereinafter referred to as "Rules, 1998"), stating that there was a shortfall in the production of beer as per Rules 3 and 7 read with Schedule-A of the Rules, 1998.

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Petitioner in W.P.No.26796/2019 challenges the order dated 15.6.2019 passed by the 4th respondent, demanding excise duty, including additional excise duty, amounting to Rs.109,44,77,224/- for a shortfall in the production of beer as stated in Schedule-A to Rule 3 and 7 of the Rules, 1998.

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Mr. K.G. Raghavan, learned senior counsel

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representing the petitioner's counsel in W.P.No.4346/2021 argues that: a) The competent authority has considered ingredients other than malt for determining the shortfall in beer production under Rules 3 and 7 of the Brewery Rules, 1998.

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b) Schedule-A to Rule 3 of the Yield Rules, 1998 mandates that for every 1000 Kgs of malt used, the petitioner should produce 6500 liters of beer, and since the petitioner has produced beer in excess of the prescribed quantity, the impugned order passed by the 2nd respondent contradicts the provisions of the Rules, 1998.

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Mr. Ajit Anand Shetty, learned counsel for the petitioner in W.P.No.26796/2019, reiterates the submission made by the learned senior counsel in W.P.No.4346/2021. Additionally,

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NC: 2024:KHC:14318 WP No. 26796 of 2019 C/W WP No. 4346 of 2021

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he argues that the 4th respondent lacks the authority to pass the impugned order, as the power is vested with the Commissioner of Excise as stated under Rule 7 of the Rules, 1998.

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Mr. Rubeen Jacob, learned Additional Advocate General for the respondents, argues that the petitioners have used a lesser quantity of malt than required. Malt, being the main ingredient for beer production, the calculation of the percentage of beer produced is based on the quantity of malt used, despite other ingredients being in excess. Therefore, the impugned order is in conformity with Schedule-A of Rules 3 & 7 of the Yield Rules, 1998. Considered the submissions made by the learned counsel for the parties.

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In W.P.No.4346/2021, the petitioner used 23,74,681 Kgs of malt for the Excise period 2015-2016 and manufactured 3,29,80,989 liters of beer against the required quantity of 15,43,5426.50 liters. The 2nd respondent calculated the minimum beer yield with malt by adding a quantity of adjuncts, i.e., sugar and flakes, to the malt used for calculating the minimum quantity of beer. Schedule-A to Rules 3 and 7 of the Rules, 1998 states that for every 1000 kgs of malt, a minimum quantity of 6,500 liters has to be produced, and there is no rule prescribing a minimum quantity of malt for the production of every liter of beer. In the absence of any specific rule to this effect, the calculation raised by the 2nd respondent contradicts Schedule-A to Rules 3 and 7 of the Yield Rules, 1998.

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6 - NC: 2024:KHC:14318 WP No. 26796 of 2019 C/W WP No. 4346 of 2021

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In WP No.26796/2019, the petitioner used 64,69,951 Kgs of malt and produced 6,12,27,800 bulk liters of beer, applying a multiplier of 1000. In the impugned order, the 4th respondent determined a shortfall of 11,84,3928.23 bulk liters by applying Schedule-A to the Rules. The 4th respondent concluded that there is a shortfall in beer production to an extent of 11,84,3928.23 bulk liters, which contradicts Schedule-A to Rules 3 and 7 of the Rules, 1998.

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To impose a penalty, there must be a clear and specific provision or rule outlining the circumstances under which the penalty can be applied. Essentially, it emphasizes the importance of having established guidelines or rules to ensure that penalties are applied consistently and fairly, rather than at the discretion of the authority.

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When regulations dictate that for every 1,000 kilograms of malt utilized, 6,005 liters of beer must be manufactured, the competent authority cannot exceed these rules , and levy penalties, by stating that the malt, which is the primary ingredient for brewing beer, is less in quantity compared to other ingredients, as this action would contradict the essence of the rules. Accordingly, I pass the following:

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ORDER

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i) The writ petitions are allowed.

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NC: 2024:KHC:14318 WP No. 26796 of 2019 C/W WP No. 4346 of 2021

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ii) The impugned order dated 29.01.2021 passed by the 2^nd respondent at Annexure-A in W.P.4346/2021 is hereby quashed.

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iii) The impugned order dated 15.6.2019 passed by the 4^th respondent at Annexure-Q in W.P.26796/2019 is hereby quashed.

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