Statutory penalty and excise duty require adjudication and authority; State power does not extend to industrial alcohol.

Fiscal demands and penalties cannot be levied or recovered without prior adjudication, notice, and statutory authority; a burden based only on an audit report and imposed without hearing is contrary to natural justice and void. The text also states that State excise power does not extend to rectified spirit or industrial alcohol not meant for human consumption, so duty on such alcohol cannot be sustained, and recovery cannot be justified as compensation when it is imposed as a statutory demand rather than an adjudicated contractual liability.

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Issues: (i) whether the State could levy and recover penal duty or penalty for alleged loss or wastage of molasses without prior adjudication, notice, or statutory authority; (ii) whether the State had legislative competence to levy duty or recover compensation in respect of rectified spirit not meant for human consumption.

Issue (i): whether the State could levy and recover penal duty or penalty for alleged loss or wastage of molasses without prior adjudication, notice, or statutory authority.

Analysis: The demand was founded only on the audit report and was issued without giving the affected units any opportunity of hearing. No authority determined whether there was any breach of licence conditions or whether molasses had in fact been diverted or misused. The relevant enactments did not provide a machinery for imposing such penalty, and the authorities could not act mechanically or assume the role of judge in their own cause. A monetary burden could not be raised or recovered in the absence of statutory power or an adjudicated breach.

Conclusion: The levy and recovery of penal duty or penalty were illegal and void, being contrary to natural justice and unsupported by statutory authority.

Issue (ii): whether the State had legislative competence to levy duty or recover compensation in respect of rectified spirit not meant for human consumption.

Analysis: Rectified spirit at the relevant stage was industrial alcohol and not alcoholic liquor for human consumption. The State's excise power extended only to alcoholic liquor fit for human consumption, and the attempt to recover duty on industrial alcohol could not be sustained. The demand could not be justified as compensation for breach of a tender condition, because it was made in exercise of statutory power and not as enforcement of an adjudicated contractual liability.

Conclusion: The State had no power to impose the impugned duty or recover the amount as compensation in the facts of the case, and the challenge by the respondents succeeded.

Final Conclusion: The appeals failed and the High Court's setting aside of the impugned demands was substantially affirmed, with only a clarification on the scope of State competence regarding potable liquor.

Ratio Decidendi: A fiscal demand or penalty cannot be imposed and recovered without prior adjudication, statutory authority, and observance of natural justice, and the State's excise power does not extend to industrial alcohol or rectified spirit not meant for human consumption.

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