STATE OF KERALA Vs. BABY

JUDGEMENT

(1.) THE State of Kerala, the Board of Revenue and the officials of the Excise Department are the appellants in these appeals who figured as respondents in the Original petitions. THE appeals are directed against the judgment of the learned Single judge dated 11. 6. 1997 in O. P. No. 5111 of 1996 and connected cases. THE respondents herein are Licensees under S. 18 A of the Kerala Abkari Act (Act 1/1077) (for short'the Act' ). THEy challenged the levy and collection of differential duty of excise payable by them. THE proviso to S. 18 (3) of the Act authorises the department to levy differential duty of excise from licensees in respect of all stocks of Indian made foreign liquor held by them at the ctose of the former period. It was the case of the respondents/ petitioners before the learned Single Judge that mode of levy of excise duty as provided in clauses (a) to (g) in S. 17 of the Act are mutually exclusive, that the department having opted the mode as provided in S. 17 (f) of the Act, they cannot levy the differential excise duty by any other mode. According to them, the above proviso is not applicable in the instant case and even if it is applicable the proviso is ultravires the Constitution and charging section ( S. 1 7 (f) of the act) and is liable to be set aside. THE State justified the levy relying on the proviso which enables the department to levy and collect the differential duty of excise as between two licence periods from the licensees who hold the stock during the last day of the previous period. A learned Single Judge of this court while sustaining the proviso to S. 18 (3) of the Act, however, held that the department cannot levy and collect differential duty from the licensees and in that view allowed the Original Petitions and hence these appeals.

(2.) WE heard counsel on both sides. Before proceeding to discuss the legal issues arising in these appeals we think it desirable to have a survey of the various statufory provisions governing the field. S. 17 of the act is the charging section which is as follows: "17. Duty on liquor or intoxicating drugs: A duty of excise or luxury tax or both shall, if the government so direct, be levied on all liquor and intoxicating drugs (a) permitted to be imported under S. 6; or (b) permitted to be exported under S. 7; or (c) permitted under S. 11 to be transported; or (d) manufactured under any licence granted under S. 12; or (e) manufactured at any distillery, brewery, winery or other manufactory established under S. 14; or (f) issued from a distillery, brewery, winery or other manufactory or warehouse licensed or established under S. 12 or S. 14; or (g) sold in any part of the State: Provided that no duty or galtonage fee or vend fee or other taxes shall be levied under mis Act on rectified spirit including absolute alcohol which is not intended to be used for the manufacture of potable liquor meant for human consumption, Explanation:- For the purpose of this section and S. 18, the expression "duty of excise", with reference to liquor or intoxicating drugs, include countervailing duty on such goods manufactured or produced elsewhere in India and brought into the State". Section 18 of the Act prescribes the rate of excise duty payable by the licensees. The duty was increased from Rs. 20/- per proof litre to Rs. 200/- per proof litre as per an amendment introduced by Ordinance No. 2/96 and later replaced by Act 4/96 which was preceded by a policy published by the Government evidenced by Ext. P1 dated 14. 2. 1996. The revised rate had come into force with effect from 1. 4. 1996. S. 18 so far as it is relevant to the context is extracted below: "18. How duty may lie imposed:-1 Such duty of excise may believed: (a) in the case of spirits or beer, either on the quantity produced in or passed out of a distillery, brewery or warehouse licensed or established under S. 12 or S. 14 as the case may be or in accordance with such scale of equivalents, calculated on the quantity of materials used or by the degree of attenuation of the wash or wort or on the value of the liquor as the case may be, as the Government may prescribe; (b) in the case of intoxicating drugs on the quantity produced or manufactured or issued from a warehouse licensed or established under S. 14; C) xxx xxx xxx (d) xxx xxx xxx (e) in the case of toddy, or spirits manufactured from toddy, in the form of a tax on each tree from which toddy is drawn, to be paid in such installments and for such period as the Government may direct; or (f) by import, export or transport duties assessed in such manner as the Government may direct; (2) The luxury tax on liquor or in to xicating drugs shall believed: (i) in the case of any liquor in the form of a fee for licence for the sale of the liquor and in the form of a galtonage fee or vending fee, or in any one of such forms; and; (ii) in the case of an intoxicating drug, in the form of a fee for licence for the sale of the intoxicating drug. (3) the duty of excise under sub-s. (1) and the luxury tax under sub-s. (2) shall be levied at such rates as may be fixed by the government, from time to time, by notification in the Gazette, not exceeding the rates specified below: (1) Duty of excise Maximum rates (i) Duty of excise on liquors (Indian made) Rs. 200 per proof litre or an amount equal to 200% of the value of the liquor, (ii) Duty of excise on intoxicating drugs Rs. I per gram or Rs. 93 3. 10 per seer. (iii) Duty of excise in the form of tax on Rs. 50 per tree per half-year or part trees tapped for toddy thereof. xxx xxx xxx xxx" Proviso to Section 18 (3) however, carves out an exceptional circumstance enabling the authorities to collect the differential duty of excise from the licensees who hold stocks of liquor on the close of the former period, in the event of revision of rates of excise duty. The proviso to s. 18 (3) is as under: "provided that where there is a difference of duty of excise or luxury tax as between two licence periods, such difference may be collected in respect of all stocks of Indian made foreign liquor or intoxicating drugs held by licensees at the close of the former period. "

(3.) HAVING considered the rival contention we are of opinion that the levy of differential duty under proviso to S. 18 (3) is not a case of fresh impost of excise duty on the licensees. The impost of excise duty is only on the manufacturer and the proviso only enables the department to collect such increased differential excise duty as between two licence periods in respect of all stocks of Indian made foreign liquor held by the licensees at the ctose of the former period. Merely because the collection is attempted to be made from the licensees who admittedly hold the stocks of Indian made foreign liquor it cannot be said that the collection is not sanctioned by law. Excise duty is primarily a duty on the manufacture or production of goods manufactured or produced within the country. Subject always to the legislative competence of the State the said duty including the difference thereon between two licence periods can be levied at a convenient stage so tong as the nature and character of the impost is not lost. The method of collection nor its timing necessitated by exigencies of fiscal policy warranting enhancement of duty does not affect the essence of the duty as such but only relates to the timing of collection for administrative convenience. Further, there is no rule of thumb to say that the levy of excise duty can be imposed only at the stage of manufacture or production and in fact it has been held by a catena of decisions of the Hon'ble Supreme Court that the levy of excise duty need not be imposed at the stage of manufacture or production but may be deferred to a later date and that is what is exactly done in the instant case. The Apex Court has gone to the extent of holding that excise duly can be collected from persons who are neither producers nor manufacturers. In Mohan Breweries & distilleries Ltd. v. Commissioner Tax Officer, Madras & Ors. (JT 1997 (8)SC 36) it was observed as follows: "as we took at i t, the primary obligation to pay excise duty on the IMFL is of the manufacture thereof. R. 22 only provides for a convenient method for its collection. When the excise duty is collected from a party removing the IMFL from the factory of its production, other than the manufacturer, the payment of excise duty that party makes is in discharge of the obligation of the manufacturer. " Therefore, the respondents cannot wriggle out of the statutory obligation by pleading that proviso to S. 18 (3) has no relevance or application to them on the ground that they do not come within the purview of the charging S. 17 and no excise duty is levied or charged on them. Though the incidence of excise duty falls directly on the production or manufacture of goods its method of collection will not affect the essence of the duty (vide jullundur Rubber Manufacturers' Association v. Union of India (AIR 1970 SC 1589 ). In A. B. Abdul Kadir v. State of Kerala (AIR 1976 SC 182) the Supreme court ruled as follows: "excise duty it is now well settled, is aiaxon articles produced or manufactured in the fixing country. Generally speaking, the tax is on the manufacturer or the producer, yet laws are to be found which impose a duty of excise at stages subsequent to the manufacture or production. " Thus the incidence of excise duty is directly relatable to manufacture but its collection can be deterred to a later stage even from persons who may he neither manufacturers nor producers nor persons on whom original levy has been made in the exigencies of administration provided it is supported by law. No provision of law or authority of acceptance has been cited before us by the respondents in support of the proposition that excise duty is a liability exclusively liable to be fastened on the manufacturer and its collection cannot be deferred to a later date. In the aforesaid view, we have no hesitation in holding that the State was well within its power to demand difference of duty of excise as between two licence periods in respect of all stocks of Indian made foreign liquor held by the licensees at the ctose of their former period as provided under the proviso to sub-s. (3) of S. 18 of the act.