STATE OF KERALA Vs. SOUTHERN UNION PHARMACEUTICALS

JUDGEMENT

(1.) The State of Kerala and the Excise Inspector, Southern Union Pharmaceuticals, Thrissur are the appellants in the above appeal. They challenge the judgment and decree dated 25/06/1999 of the Principal Sub Judge, Thrissur in OS No. 334 of 1991. The suit was filed against them by the first respondent - plaintiff for a declaration that no duty on alleged wastage of rectified spirit in the manufacture of medicinal preparations in the bonded manufactury of the plaintiff can be made or realised under the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956, the Kerala Rectified Spirit Rules or the Kerala Abkari Act and for a consequential injunction restraining them from initiating any action under the Revenue Recovery Act for the recovery of any such amounts pursuant to notices issued by them. The appellants are defendants 1 and 2 in the said suit. The suit was partly decreed by the Court below finding that the demands made by the appellants defendants were unenforceable, being out of time as prescribed by R.11 of the Rules. Though the relief of declaration has been disallowed by the Court below, no appeal has been filed challenging the said finding. The suit was filed in the following facts and circumstances:

(2.) The respondent - plaintiff is a partnership firm established in the year 1955 and is engaged in the manufacture of a wide range of allopathic drugs and medicines in its pharmaceutical laboratory situate at the Museum Road, Thrissur. The suit was instituted by the Managing Partner who is authorized and competent to file the suit. Rectified spirit is a necessary raw material in the manufacturing process of the plaintiff and is used as a solvent. For the procurement, transport and use of rectified spirit, the plaintiff is possessed of all necessary licenses and permissions, as required by law. Necessary licenses have been granted by the Excise Commissioner under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (hereinafter referred to as 'The Toilet Preparations Act' for short) and the Kerala Rectified Spirit Rules, 1972 (hereinafter referred to as 'the Rectified Spirit Rules' for short). The Excise Commissioner has appointed an officer of the Excise Department to control and supervise the working of the plaintiff's laboratory. No duty is leviable on alcohol used for medicinal preparations under the Rectified Spirit Rules. It is recognized that there would be wastage of rectified spirit during the manufacturing process and the rules provide for allowances of wastage. Accordingly, the Government in consultation with the Controller and Chemical Examiner fixed the maximum percentage of wastage allowable in the process of manufacture of each medicinal preparation. The Excise Inspector posted in the plaintiff's laboratory arbitrarily calculated the wastage in his manufacturing process and ordered that the plaintiffs shall remit an amount of Rs.28,984/- as duty with interest for such wastage which was not permissible. No notice was issued before fixing the same. On a previous occasion, the Excise Inspector had calculated Rs.14,341.257 as excess wastage and had ordered the plaintiff to remit Rs.2,22,289.48 as duty payable on 30/08/1982. Though an appeal was preferred before the Excise Commissioner, Thiruvananthapuram, the same was dismissed. During the pendency of the appeal, the Excise Inspector issued Revenue Recovery notice and the plaintiff challenged the same in OS No.109 of 1983 filed before the Sub Court, Thrissur. The suit was dismissed on 29/01/1988. It is admitted that an appeal and the second appeal filed against the said judgment and decree were dismissed.

(3.) While the appeal was pending, the second defendant - Excise Inspector issued notices dated 17/01/1991 and 23/01/1991 demanding an amount of Rs.28,984/- as duty on excess wastage of rectified spirit and interest calculated thereon. He informed the plaintiff that if the amount was not paid, Revenue Recovery action would be taken against him. The proceedings of the Excise Inspector are against law, his action is arbitrary and in contravention of the rules and law, it was contended. Regarding wastage in excess of the allowable quantity, the Government has issued a notification in 1960 stipulating the wastage allowance as 5%, 10% and 15%. This was superceded by GO (P) No. 135/70 dated 30/11/1979 by which the percentage of wastage of alcohol has been fixed as 5%, 10%, 15% and 20%, dividing medicinal preparations into four groups, under R.38(1) of the Toilet and Medicinal Preparations (Excise Duty) Rules, 1956, (hereinafter referred to as 'Toilet Preparations Rules' for short). The duty fixed by the Excise Inspector was under the above rules. However, it was contended that, R.38 has been held to be ultra vires by this Court in the decision reported in Enoch Pharma v. State of Kerala and Others, 1965 KHC 115 : 1965 KLT 415 : 1965 KLJ 314 : 1965 (1) KLR 176. According to the plaintiff, no other Government was levying duty as sought to be done by the Kerala State. Further, the District Collector has no power to initiate Revenue Recovery proceedings against the plaintiff. Since the demand made by the excise officials was against law, the plaintiff claimed that a declaration to the said effect may be granted. Since no duty can be imposed on the wastage of rectified spirit in the manufacture of medicinal preparations, the plaintiff prayed for a permanent injunction restraining the defendants from initiating any action for recovery of the demanded amount invoking the provisions of the Revenue Recovery Act.