Summary
The Court restored Uttar Pradesh’s excise-duty demand on bottled liquor destroyed in a distillery warehouse fire. Manufacture was the taxable event, and postponement of collection until issue for sale did not extinguish the accrued liability. Under Rule 709, liability for the fire loss depended on negligence, which the circumstances established: highly inflammable stock required heightened safeguards, the asserted precautions were inadequately substantiated, and neither an act of God nor an inevitable accident was shown. Departmental supervision and payment of an insurance claim did not absolve the distiller.
Issues
- Whether excise duty could be demanded on manufactured liquor destroyed before issue for sale.
- Whether the warehouse fire and surrounding evidence established negligence under Rule 709.
- What effect departmental control and insurance of the liquor’s value had on liability.
Provisions considered
- Sections 17-19, 28 and 29, including the proviso to Section 29, Uttar Pradesh Excise Act, 1910Manufacture attracted duty; collection at issue for sale was a later stage, and the insured fire loss attracted the rate prevailing on the fire date. (¶¶ 33, 36-41, 68)
- Rules 708 and 709, Uttar Pradesh Excise ManualDepartmental supervision did not displace the distiller’s safe-custody duty; the negligent fire loss made it liable for the lost revenue. (¶¶ 34, 45, 47, 59-64)
- Rule 7(11), read with Excise Manual Rule 813, Uttar Pradesh Bottling of Foreign Liquor Rules, 1969The bottled-spirit allowance was limited to the prescribed 1%; Rule 7(11) was relevant alongside the negligence requirement under Rule 709. (¶¶ 34-36, 42-45)
- Article 265; Seventh Schedule, List II, Entry 51, Constitution of IndiaThe duty was authorised by the statutory scheme governing alcoholic liquor manufactured in the State. (¶¶ 32, 39-41)
Held
- Excise duty attached to manufacture or production, rather than sale or sale proceeds. The later collection and rate-determination point did not postpone the taxable event; destruction before physical issue from the warehouse therefore did not make the demand unauthorised. (¶ 39-41)
- Rule 7(11) could not be treated as wholly inapplicable merely because the loss occurred by fire. Its limited allowance for bottling and storage had to be read with Rule 709, under which the present demand’s validity depended on negligence. (¶ 42-45)
- Excise officers’ supervision and the joint-lock arrangement protected State revenue but did not relieve the distiller of responsibility for safe custody. Rules 708 and 709 expressly allocated the relevant responsibilities. (¶ 47)
- No external natural force caused the fire, so the act-of-God defence failed. Inevitable accident required proof that prevention demanded care beyond the legally required standard; the company did not establish that defence in the circumstances. (¶¶ 53-57, 60-63)
- Highly inflammable liquor required heightened precautions. The evidence did not adequately establish the recommended earthing and foam arrangements, and burnt cables and the surrounding circumstances supported an inference of electrical shortcomings. The Commissioner’s inference of negligence was justified through res ipsa loquitur; inadvertent or passive negligence sufficed under Rule 709. (¶ 58-64)
- Recovery of the liquor’s insured value reinforced liability and related back to the fire date, treated as the issue date for applying the duty rate. In these circumstances, failure to protect the corresponding excise revenue through insurance also supported negligence. Insurer payment did not bind the State on negligence, particularly without the policy terms in evidence. (¶ 65-70)
Result
Appeal allowed; High Court orders set aside; company’s writ petition and consequential refund-related application dismissed; excise demand sustained; no order as to costs.