Excise duty cannot be recovered on undrawn arrack when the statute authorises levy only on liquor actually issued.

Rule 15 of the Andhra Pradesh Excise (Arrack Retail Vend Special Conditions of Licences) Rules, 1969 was examined to determine whether the notified issue price could include excise duty on arrack not lifted by the licensee. The Court held that excise duty under the statutory scheme could be levied and collected only on arrack actually issued from the distillery, and no levy could be sustained on undrawn liquor. Labelling the demand as issue price, compensation, or liquidated damages did not cure the absence of statutory authority. Rule 15 was therefore invalid and ultra vires the Act to the extent it authorised recovery of excise duty on undrawn liquor.

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Issues: Whether the issue price under Rule 15 of the Andhra Pradesh Excise (Arrack Retail Vend Special Conditions of Licences) Rules, 1969 includes excise duty on unlifted arrack and, if so, whether that part of the rule is valid.

Analysis: The issue price notified under the rules included both the cost of arrack and the excise duty component. The statutory scheme, however, levied and collected excise duty only on arrack issued from the distillery. Arrack not drawn by the licensee was not issued from the distillery, and therefore no excise duty could be levied, assessed, or collected on such undrawn liquor under the Act. A contractual or rule-based description of the demand as issue price, compensation, or liquidated damages could not validate a levy which the Act itself did not authorise. The reasoning of the earlier Full Bench view was held not to accord with the controlling Supreme Court decisions, which treated similar demands on unlifted liquor as unauthorised.

Conclusion: Rule 15 was invalid and ultra vires the Act to the extent it permitted recovery of excise duty as part of the issue price for undrawn liquor. The writ petitions succeeded on that limited question and failed on the remaining matters.

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