STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. versus M/S MCDOWELL AND COMPANY LIMITED

Citation: [2022] 3 S.C.R. 899 · Decided: 05-01-2022 · Supreme Court of India · Bench: A.M. KHANWILKAR · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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899
[2022] 3 S.C.R. 899
899
STATE OF UP THROUGH SECRETARY (EXCISE) & ORS.
v.
M/S MCDOWELL AND COMPANY LIMITED
(Civil Appeal Nos. 169-170 of 2022)
JANUARY 05, 2022
[A. M. KHANWILKAR, DINESH MAHESHWARI AND
KRISHNA MURARI, JJ.]
Uttar Pradesh Excise Act, 1910: Uttar Pradesh Excise Manual
– Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 – In the
instant case, fire incident took place in godown of distillery of the
respondent company in which liquor got destroyed – Excise
Department raised demand of excise duty on the liquor destroyed
from the respondent company – Whether the demand in question is
authorised by law – Held: s.19 of the Act 1910 states that no
intoxicant can be removed from the distillery unless duty leviable
thereupon has been paid – Liquor that was lying stored in the bonded
warehouse had already become subject to the excise duty – Taxable
event was production or manufacture and not sale – r.7(11) of the
Rules of 1969 is required to be taken into account for the legal
consequences that so far as the bottled spirit is concerned, the
licencee remains responsible for payment of duty on any kind of
wastage in excess of 1% – Rule 709 of the Excise Manual makes it
clear that the distillery remains responsible for safe custody of the
stock of spirit and remains liable to make good any loss of revenue
caused to the Government by their negligence – Therefore demand
of excise duty cannot be said to be unauthorized by law –
Constitution of India – Art.265.
Uttar Pradesh Excise Act, 1910: Uttar Pradesh Excise Manual
– Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 – Fire
incident took place in godown of distillery of the respondent
company in which liquor got destroyed – Whether respondent
company remains liable to pay excise duty on the liquor lost in fire
– Held: In the scheme of the Act of 1910, the Rules of 1969 and the
Excise Manual, it is evident that the Government is not liable for
destruction, loss or damage of any spirit stored in distillery by fire
or theft or any other cause – Distillery is made responsible for safe
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SUPREME COURT REPORTS
[2022] 3 S.C.R.
custody of the stock of spirit and is also made liable to make good
any loss of revenue caused to the Government by their negligence
– The rules provide for strict supervision and control of the Excise
Department over the working of distillery at every stage but that
supervision and control does not correspondingly absolve the
distillery of its duty and responsibility towards safe custody of the
stock – The warehouse in question indeed got engulfed in fire and
that led to destruction of the liquor stored therein – The respondent
company could be held liable to pay the excise duty on the liquor
destroyed in fire only if it could be held negligent in not ensuring
safe custody of the stored liquor –In the present case, nothing has
happened by natural forces like storm, floods, lightning or
earthquake – Hence, the fire incident in question cannot be termed
as an act of God – Even when the exact cause of fire could not be
ascertained, the only inference by considering the reports of
Assistant Excise Commissioner could be about some fault or
shortcoming in electric installations which led to the abnormal flow
of current and thereby, to the fire incident in question – It is difficult
to accept that the fire and the resultant loss had been beyond the
control of human agency so as to be termed as inevitable accident
– When the respondent had not been able to protect the goods in
question from fire within the warehouse and when all other factors,
as noticed above, are taken into account, the negligence as
contemplated in Rule 709 of the Excise Manual is directly
attributable to the respondent company – Further, the fact that the
respondent company had taken insurance coverage only of the value
of liquor (and not that of excise duty thereupon) and then, had
received the insurance claim towards the value of liquor also
operates against the respondent company and fortifies the conclusion
about negligence of the respondent company.
Allowing the appeal, the Court
HELD: 1. In terms of Article 265 of the Constitution, both
levy and collection of tax must be authorised by law. By virtue of
Entry 51 of List II, the State has been authorised to impose duty
of excise on alcoholic liquors for human consumption
manufactured or produced in the State. As per Section 19, no
intoxicant can be removed from the distillery or the place of

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