2002 INSC 0125 SUPREME COURT OF INDIA Government of Haryana Vs. Haryana Brewery Ltd. (B.N. Kirpal, S V.Patil and B P Singh JJ.) 12.02.2002 JUDGMENT B.N.Kirpal, J. 1. The challenge in this appeal is to be decision of theHigh Court relating to levy of excise duty on the beerbrewed by the respondent. 2. This appeal arises from the decision of the High Courtwhich had allowed the respondent's writ petition and quashedthe demand raised by the appellant in respect of the years1986-86, 1987-88 and 1988-89. According to the appellant,this demand was raised because the wastage which was shown bythe respondent in the brewing of bear was more than 10 percent prior to the year 1986-87 and 7 per cent thereafter. 3. In order to understand the controversy, it isnecessary to first examine the process in connection with themanufacture of beer. This process has been referred to bythis Court in Mohan Meakin Ltd. v. Excise & TaxationCommissioner, H.P. and Ors. and describedat page 196 as follows:- "The first stage brewing process isthe feeding of malt and adjuncts into a vesselknown as Mash Tin. There it is mixed withhot water and maintained at certaintemperature. The objective of this process isto convert the starches of the malt intofermentable sugar. The extract is drawn from the Mash Tinand boiled with the addition of hops for oneto two hours after which it is centrifuged,cooled and received in the receiving vats. Atthis stage, it is called 'Wort' and containsonly fermentable sugars and no alcohol.After this, it is transferred to thefermentation tanks where yeast is added andprimary fermentation is carried out atcontrolled temperature. After attenuation(diminution of density of "Wort' resultingfrom its fermentation) is reached forfermented wort is centrifuged and transferredto the storage vats for secondaryfermentation. After secondary fermentation isover in the storage vats, it is filtered twice- first through the rough filter press andthe through the fine filter press andreceived in the bottling tanks. It is inbottling tanks that the loss of the 1 SpotLaw carbondioxide gas is made up and bulk beer is drawnfor bottling. It is filled into the bottlesand then last process of pasteurization iscarried out to make it ready for packing andmarketing. Till the liquor is removed fromthe vats and undergoes the fermentationprocess as mentioned above the presence ofalcohol is nil." 4. Section 3 of The Punjab Excise Act, 1914, asapplicable to the State of Haryana, specifies the 'exciseablearticles' and one of the articles is alcoholic liquor forhuman consumption. Sections 31 and 32 which deal with thelevy of excise duty read as follows: "31. Duty on excisable articles:- Anexcise duty or a countervailing duty as thecase may be at such rate or rates as the StateGovernment shall direct, may be imposed eithergenerally or for any specified local area, onany excisable article: (a) imported, exported or transportedin accordance with the provisions ofSection 16; or (b) manufactured or cultivated underany licence granted under Section 23;or (c) manufactured in any distilleryestablished or any distillery orbrewery licensed under Section 21: Provided as follows: (i) duty shall not be so imposed onany article which has been importedinto India and was liable onimportation to duty under the IndianTariff Act, 1894, or the Sea CustomsAct, 1878; Explanation : Duty may be imposedunder this Section at different ratesaccording to the places to which any excisablearticle is to be removed for consumption, oraccording to the varying strength and qualityof such article." "32. Manner in which duty may belevied :- Subject to such rules regulating thetime, place and manner as the FinancialCommissioner may prescribe, such duty shall belevied rateably, on the quantity of exciseablearticle imported, exported, transported,collected or manufactured in or issued from, adistillery, brewery or warehouse:- Provided that duty may be levied:- (a) on intoxicating drugs, by anaverage rate levied on the cultivationof the hemp plant or by a rate chargedon the quantity collected; (b) on spirit or beer manufactured inany distillery established or anydistillery or brewery licensed, underthis Act is accordance with such scaleor equivalents 2 SpotLaw calculated on thequantity of materials used or by thedegree of attenuation of the wash orwort, as the case may be, as the StateGovernment my prescribe: (c) on tari, by a tax on each treefrom which the tari is drawn: Provided further that where payment ismade upon issue of an exciseable article forsale from a warehouse established or licensedunder Section 22(a) it shall be made ­ (a) If the State Government bynotification so directs, at the rateof duty which was in force at the dateof import of that article; or (b) in the absence of such directionby the State Government, at the rateof duty which is in force on thatarticle on the date when it is issuedfrom the warehouse." 5. These two provisions have to be read with Rule 35 ofthe Punjab Brewery Rules, 1956, which reads as follows: "35(1). the duty on beer, at theprescribed rate, shall be charged on the totalquantity actually brewed as entered in thebrewing book by the licensee or as ascertained bythe Inspector and entered in his survey book fromB.6, whichever is higher, less an allowance ofseven per cent for wastage. (2) The duty on beer shall become dueimmediately the account of brewing has been takenby the Inspector. An account of duty to berealised on collection of daily brews shall bemaintained by the Inspector in the registered inform B. 15A. (3) The Excise Commissioner may, however,cause the charge to be made up at the close ofeach quarter in respect of all the brewingswithin that quarter and may, if the licenseeexecutes a bond in form B. 16 for its payment,defer the payment to a date not later than thefifteenth day of the month succeeding the quarterin respect of which the duty was charged. TheInspector shall at the end of each quarterprepare Beer Duty Voucher in form B. 7 and shallcause a notice in form B. 8 to be served upto thelicense for the payment of the amount. (4) At the end of each quarter theInspector shall prepare an abstract of brewingoperations in form B. 11 and a statement showingthe quantity of beer issued to troop in Punjaband other States in form B. 14 during the quarter.The abstract and the statement shall be submittedto the Collector concerned who after check willforward them to be Excise Commissioner. (5) The Inspector shall also maintain aregister in form B. 15 showing issue of beer madeto other State." 3 SpotLaw 6. The excise authorities purported to apply theprovisions of Rule 35 in order to calculate the amount ofexcise duty payable by the respondent. Show cause noticeswere issued tot he respondent wherein it was stated that thewastage referred to in Rule 35 was more than 10 per cent forthe period 1986-87 & earlier and more than 7 per cent in thelater years. It may here be noticed that for the period1986-87 & earlier the wastage allowed was 10 per cent whichwas reduced to 7 per cent from August 1986 onwards. The pleataken by the respondent before the excise authorities was thatthe rate of wastage should have been more than what wasprescribed. This plea was not accepted. Appeal was filed andafter remand a fresh order was passed by the ExciseCommissioner. The relevant part of this order is as follows : "1. Rule 35(1) clearly lays down thatduty is to be paid either on the quantity brewedas entered in the brewing book by the licensee oras ascertained by Inspector and entered in FormB-6 by him whichever is higher. In form B-6, thequantity of words collected is shown under column51 after the words are received in the collectingor fermenting vessel. The Brewery has notproduced their brewing book to show anydiscrepancy and even otherwise the rule clearlylays down that in the event of a discrepancy thehigher figure is to be taken. Hence thisargument does not help the brewery. 2. A perusal of the Form in B-6 andPart-8 in Form B-12 clearly shows that thequantity considered to be brewed is after all thevarious processes are finished and the brewedliquor is received ready of bottling or to beissued in bulk. In fact, even loss infermentation is permitted to be shown and thewastage is calculated only after allowing all theabove in column 15. Hence there is no force inthe argument advanced by the brewery regardingthe loss in various processes. 3. In so far as the contention of theBrewery that duty can be levied only onconsumption and not on wastage is concerned, aspointed out by me above, the scheme of the rulesis that the duty is first levied on the totalquantity brewed and refunds are allowed on export.etc. since the scale of wastage allowed forcalculating wastage is prescribed duty has to becharged on the remainder. 4. There is no force in the plea thatthe Haryana Brewery being a Govt. Undertaking isexempt. The rules do not make any distinctionand perhaps no such distinction would bepermissible either." 7. The aforesaid decision of the Excise Commissioner wasupheld in appeal. 8. In the writ petition which was filed, it was contendedby the respondent before the High Court that what the exciseauthorities were seeking to do was to levy the excise duty ata stage before it became potable liquor fit for humanconsumption. This, it was contended, was not permissible inview of settled legal position in that behalf, namely, thatthe State can only impose excise duty on potable liquor forhuman consumption and nothing else. 9. The High Court construed the provisions of the Act andthe Rules and purported to follow the decision of this Courtin State of U.P. and Ors. v. Modi Distillery and Ors.,etc., , and 4 SpotLaw observed that excise duty wasbeing imposed not on the beer manufactured by the respondentbut on the liquid which came out of the wort kettle which wasa stage much before the liquid extracted out of malt hadacquired the character of alcoholic liquor fit for humanconsumption. The High Court sought to read down Rule 35 anddirected that on the actual quantity of potable beermanufactured by the respondent allowance of 7 per cent shouldbe given and then duty determined. 10. At the outset, Mr. Mahendra Anand, learned seniorcounsel for the appellant submits that the Stage is notproposing to levy any excise duty on beer which had not beenmanufactured and had not become fit for human consumption. Hesubmits that the High Court has not correctly construed thedifferent provisions of the Act and the Rules. 11. Mr. Anil B. Divan, learned senior counsel for therespondent, has supported the decision of the High Court and,while drawing our attention to the decisions of this Court in Mohan Meakin and Modi Distillery (supra), has submitted thatin the registers what was entered was the quantity of liquidwhich was in the words. At this state, even the yeast had notbeen added and it could not be said that what was in thekettle as a wort was potable liquor on which excise duty couldbe levied. This quantity could not be a measure forcalculating the amount of beer on which excise duty could belevied. He submitted that excise duty was payable only afterall the processes in the manufacture of beer have beencompeted and on the end-product an exemption of 7 per centwas to be allowed. He drew our attention tot he Rules inKarnataka which had contemplated allowance being made withregard to manufacture of potable liquor. In respect of beer,those Rules have stipulated a deduction of 7 per cent at thepre-bottling stage and during the period of fermentation andan allowance of 6 per cent at the stage of filling of beerinto the bottles. Mr. Divan, therefore, contended that onthe manufactured beer a deduction of 7 per cent was logical. 12. We agree with the contention of Mr. Divan, and thisis also not disputed by Mr. Anand, that the State hasjurisdiction to levy excise duty only on beer after it hasbeen brewed and has become fit for human consumption. This isthe settled position as laid down by this Court in MohanMeakin and Modi Distillery cases. The only question which, toour mind, really arises for consideration is how to determinethe quantity of beer which is manufactured on which the exciseduty is to be levied. Section 32 gives an answer to thisquestion. The first part of the Section states that subjectto the rules which may be made by the Financial Commissionerexcise duty is to be levied, inter alia, on the excisablearticle manufactured in or issued from a distillery, breweryor warehouse. A reading of this Section leaves no manner ofdoubt that the stage at which excise duty can be levied isonly after the process of manufacture has been competed andin fact it is to be levied when it is issued from thedistillery, brewery or warehouse. 13. The proviso to Section 32 uses the expression"Provided that duty may be levied....." Clause (b) of theproviso state that the calculation of the beer manufactured would be according to such scale or equivalents calculated onthe quantity of materials used or by the degree of attenuationof the wash or wort. The opening part of Clause (b) of theproviso 5 SpotLaw indicates as to how the beer manufactured is to bedetermined. The proviso is only a manner of computing theend-product with reference tot he raw material which has beenused in the input. The tax is on the end-product and not onthe raw material. What this proviso read with Rule 35indicates that in order to determine what is the quantity ofbeer manufactured which is fit for human consumption, afterall the processes have been gone through, you seen what is thequantity of raw material which has been utilised for themanufacture of beer and in the process of manufacturing givean allowance for wastage of 7 per cent. After doing this, youdetermine the quantity of beer manufactured. An example whichhas been given is that a 1000 kgs. Of malt shouldordinary yield 6500 litres of beer. By giving an allowance ofwastage which must occur during the process of the manufactureof the end-product and limiting that allowance to 7 per cent,the quantity of beer manufactured on which excise duty wouldbe levied would be 6500 litres less 7 per cent. 14. It appears to us that the proviso to Section 32 readwith Rule 35 does nothing more than to give a rough and readymethod of calculating the quantum of beer which should havebeen manufactured in the normal process which is calculated onthe basis of the raw material used. The idea, perhaps, isthat full quantity of beer which is manufactured is accountedfor. It will be seen that registers are maintained by themanufacturer and the figures are taken from there. From therecords of the manufacturer, excise authorities will be ableto ascertain the quantum of raw material used. It is open tothe excise authorities to accept the figure indicated in therecords of the manufacturer of the total quantity of beermanufactured. Duty can be levied on this and this would be inconsonance with the first part of Section 32. It is, perhaps,only to cross-check whether the figure which is indicated inthe books of the manufacturer is correct that a formula can beused for determining the amount of beer which could or shouldor must have been manufactured. This is by taking intoaccount the quantity of raw material used, the quantity whichis in the process and as entered in the brewing book and fromthere giving an allowance of 7 per cent for wastage. Itappears to us that the allowance of 7 per cent has to be inarriving at the figure of the manufactured beer as loss ofquantity during the process of manufacture. It cannot be thaton the figure of manufactured beer, arrived at on the basis ofthe books of the respondent, an allowance of 7 per cent hasthen to be given. If the figure taken for the purpose ofcalculating the excise duty is only of the end-product, viz.,the beer produced, and not the quantity of raw material usedin the manufacture of beer during which loss of some quantityas wastage would have occurred, there cannot be a deduction ofany sum or proportion as wastage from the quantity ofend-product in order to arrive at the quantity. Theexcisable product is the quantity of beer produced and not thequantity produced, and thus excisable, minus 7 per cent. 15. The allowance is contained in the proviso to Section32 read with Rule 35. If the entries in the brewing book ofthe licensee or in the survey book B-6 of the Inspector arenot to be taken into consideration, then the question ofgiving an allowance of 7 per cent contemplated by Rule 35would also not arise. 16. It appears to us that resorting to Rule 35 andcalculating the quantity of beer which is manufactured and isfit for human consumption cannot be said to be invalid orimpermissible. 6 SpotLaw As we have already indicated, the said Ruleonly helps in determining what should be the quantity of beeractually manufactured, after all the processes have beenundertaken. 17. In the instant case, it is contended by the learnedcounsel for the respondent that the figures which are givenand entered in the brewing book pertain to the words whichmeans the liquor obtained by the exhaustion of malt or grainbut to which no yeast had been added and, therefore, had notbecome alcoholic liquor fit for human consumption. Thisfigure, it was submitted, should not have been taken intoaccount. If this be so, then the excise authorities had tocalculate and determine the exact quantity of beermanufactured by the respondent and then levy excise dutythereon. On the figures so determined, Rule 35 beinginapplicable as contended by the respondent, the question ofgiving any allowance of 7 per cent for wastage would notarise. What follows from the above is that the exciseauthorities can levy excise duty only on the beer after it has been manufactured: the levy has to be on the quantitymanufactured. How this quantity is to be arrived at has to bedetermined according to Section 32 read with Rule 35. 18. We may, however, note that before the ExciseCommissioner no dispute appears to have been raised withregard tot he figures and the contention was that thepercentage of wastage should have been more than 7 or 10 percent. Mr. Divan, however, submits that this contention whichwas upheld by the High Court was raised subsequently. Whilein the body of the writ petition, it is stated that Rule 35 isviolative of the Act, no specific prayer was made in the writpetition, but in the manner in which we have interpreted Rule35 it appears to us that it is only an enabling provisionwhich will help the excise authorities in calculating whatwould be the quantity of beer manufactured and fit for humanconsumption on which excise duty could be imposed. The saidRule is neither invalid nor does it require to be read down. 19. We, accordingly, allow this appeal and set aside thedecision of the High Court, but remand the case tot heFinancial Commissioner for a fresh decision in accordance withlaw and in the light of the observations made in thisjudgment. 7 SpotLaw