1977 (1) TMI 168 - HC - Central Excise

Court Invalidates Inclusion of Excise Duty in Liquor Issue Price

The court held that Rule 15, allowing the State Government to recover excise duty as part of the issue price for undrawn liquor, is invalid and ultra ... - Issues Involved:1. Whether excise duty leviable on arrack is part of the issue price which can be collected for unlifted quantity as laid down in Rule 15 of the Vend Rules.2. If excise duty is part of the issue price, is Rule 15 validRs.Issue-wise Detailed Analysis:1. Whether excise duty leviable on arrack is part of the issue price which can be collected for unlifted quantity as laid down in Rule 15 of the Vend Rules:The petitioners, successful bidders for arrack shop leases, argued against the inclusion of excise duty in the issue price for unlifted quantities of arrack. According to Rule 15 of the Andhra Pradesh Excise (Arrack Retail Vend Special Conditions of Licences) Rules, 1969 (Vend Rules), licensees must purchase a minimum guaranteed quantity of arrack each month. If they fail to do so, the issue price for the shortfall is deducted from their advance payment, which includes both the cost of arrack and excise duty. The petitioners contended that excise duty should not be included in this calculation, as it would amount to levying excise duty on undelivered liquor, which they argued is ultra vires the Act.The court examined the definition and application of 'excise duty' under Section 21 and Section 22 of the Excise Act and concluded that excise duty is levied on the quantity of arrack issued from the distillery. The court noted that the issue price, as per Rule 17 of the Vend Rules, includes both the cost of arrack and the excise duty payable. Therefore, under Rule 15, the licensee must pay the issue price, including excise duty, for undrawn liquor.2. If excise duty is part of the issue price, is Rule 15 validRs.The court analyzed whether including excise duty in the issue price for undrawn liquor under Rule 15 is valid and consistent with the Act. The court referred to several Supreme Court decisions, including B.C. Banerjee v. State of M.P., which held that excise duty cannot be levied on liquor not lifted by the contractor, as it is not an excisable article. The court observed that excise duty is levied on the manufacture and production of liquor and can only be collected when the liquor is issued from the distillery.The court found that Rule 15, by including excise duty in the issue price for undrawn liquor, effectively levies excise duty on liquor not issued from the distillery, which is not authorized by the Act. The court rejected the argument that Rule 15 merely provides for liquidated damages, noting that disguising the demand as compensation does not change its nature as a levy of excise duty on undrawn liquor. The court cited the Supreme Court's decision in Excise Commr. U.P. v. Ram Kumar, which invalidated a similar provision for compensation based on unlifted liquor.The court distinguished the case from Panna Lal v. State of Rajasthan, where the Supreme Court found no levy of excise duty on undrawn liquor, emphasizing that the contractual obligation in that case was not dependent on the quantity of liquor sold. In contrast, Rule 15 of the Vend Rules imposes an obligation to pay the issue price, including excise duty, for undrawn liquor.Conclusion:The court concluded that Rule 15, in so far as it enables the State Government to recover excise duty as part of the issue price for undrawn liquor, is invalid and ultra vires the provisions of the Act. Consequently, the writ petitions were allowed to the extent that they challenged the inclusion of excise duty in the demand for undrawn liquor, and dismissed in other respects. No orders were made as to costs, with an advocate's fee of Rs. 150/- in each case.