STATE OF U.P. AND ORS. versus DELHI CLOTH MILLS & ANR.

Citation: [1990] SUPP. 2 S.C.R. 168 · Decided: 09-10-1990 · Supreme Court of India · Bench: K.N. SAIKIA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

A 
B 
STATE OF U.P. AND ORS. 
v. 
DELHI CLOTH MILLS & ANK 
OCTOBER 9, 1990 
[K.N. SAIKIA AND S.C. AGRAWAL, JJ.] 
U. P. Excise Act, 1910-Sections 28 and 29 and Notification da1ed 
26th March 1979-!j,xcise du1y-Cowitervailing excise duty-Minimum 
limits of wastage .fii ·transit-Provision for-Charging up of duty on 
excess wastage-,'. And imposition of excise duty on liquor before its issue 
C from the distillery-Whether valid. 
The respondents are manufacturers of high strength spirit. They 
also used to manufacture and bottle military rum under a licence and 
supply the same to the defence personnel inside and outside the State of 
U.P. The excise dnty on military rumfor export was Rs.7per L.P. Litre 
D while the rate for consumption within the State was Rs.21 per L.P. uire. 
An allowance upto 0.5 per cent for wastage during transit by leakage, 
evaporation etc. was provided. Against a proper permit the respon-
dents supplied rum to the Officer Commanding Rail Road Depot. 
A.S.C., Pathankot at the distillery premises and the consignments were 
taken by the consignees under the seal of the railway authorities to their 
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respective destinations. 
By a notification dated March 26, 1979, issued in supersession to 
earlier notification, the Governor was pleased to direct that with effect 
from. April 1, 1970 duty shall be imposed on country spirit at the rates 
mentioned in the schedule and that the duty was payable before issue 
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from the distillery or bonded warehouse concerned save in the case· of 
issued under bond. Accordingly a notice was issued to the respondents 
demanding Rs.4,295.55P on the wastage which was termed as "excess 
transit wastage" of rum cal~ulated at the maximum rate of Rs.21 per 
L.P. Litre. The representation against the demand having been rejected, 
they filed.a writ petition before the High Court challenging the validity 
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of the orders arid praying for a mandamus commanding the State of 
U. P. not to realise or adjust any amount of duty towards wastage from 
the respondents' advance duty account and restraining them from giving 
effecno the impugned orders. 
The High Court allowed the respondents' writ petition holding 
H that the State of U .P. and the Excise authorities were not entitled to levy 
168 
STATE OF U.P. r. D.C.M. 
169 
excise duty on the wastage of liquor in transit. Hence this appeal by the 
State. 
On the question, whether differential duty is Ieviable. under the 
Act and the Rules. 
Allowing the appeal, this Court, 
HELD: The Act having provided for fixed wastage allowance also 
in effect provided that the excess above the allowable wastage. will be 
taxed. It cannot therefore be said that no such charging up of excise 
duty on the excess wastage in transit could be validly made. [179E] 
Absolute equality and justice is not attainable in taxing laws. 
Legislature must be left to decide the State policy within constitutional 
limitations. [179F] 
Rules 636 and 814 are of regulatory character and they are pre-
cautionary against perpetration of fraud on the excise revenue of the 
exporting State. A statute has to be construed in the light of the mischief 
it was designed to remedy. [1soo I 
In the instant case, the military rum was obtained for the purpose 
of export and the tower export duty was paid and only when the rum did 
not result in export the question of imposing the differential duty arose. 
The notion of the excise duty being changed or cancelled on account of 
what transpires later is not foreign to excise law. [182H] 
Drawback means the repayment of duties or taxes previously 
charged on coillmodities, from which they are relieved on exportation. [183B] 
The system of charging up the duty on the subsequent event of non 
export cannot., therefore, be said to be irrespective of production or 
manufacture. [183C] 
·· 
A 
B 
c 
D 
E 
F 
In the instant case, If it is proved to the satisfaction of the 
appropriate authorities that counter-vailing duty had been paid on the 
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entire consignment irrespective of the wastage then the question would 
arise as to whether the wastage could be ignored altogether by the 
exporting State as was done by the importing State. [1830] 
A.B. Abdu/kadir v. State of Kera/a, [1962] 2 Suppl. SCR 741; 
Bimal Chandra Banerjee v. State of Madhya Pradesh. [1970] 2 SCC 
H 
A 
B 
c 
D 
170 
SUPREME COURT REPORTS 
[ 1990] Supp. 2 S.C.R. 
467; State of Mysore & Ors. v. M/s. D. Cawasji and Co., [1970] 3 SCC 
710; M/s. Mohan Meakin Breweries Lt

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