Case Note & Summary
The case arises from a fire incident on 10.04.2003 at the godown of the respondent company, a distillery licensee, which destroyed 35,642 cases of Indian Made Foreign Liquor (IMFL). The Excise Commissioner raised a demand of Rs. 6,39,32,449.44 towards loss of excise revenue. The respondent challenged this demand in the Allahabad High Court, which quashed the demand, holding that the incident was an act of God and no negligence was proved. The State of Uttar Pradesh appealed to the Supreme Court. The Supreme Court allowed the appeals, setting aside the High Court's orders. The Court held that under Rule 7(11)(a) of the Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 and Rules 708 and 709 of the Uttar Pradesh Excise Manual, the licensee is absolutely liable to pay excise duty on liquor destroyed in fire, regardless of negligence. The defense of act of God is not available against a statutory duty. The Court also held that insurance coverage does not affect the liability. The demand was restored, and the respondent was directed to pay the balance amount after adjusting the Rs. 3 crores already deposited.
Headnote
A) Excise Law - Liability for Duty on Destroyed Goods - Absolute Liability - Rule 7(11)(a) of Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 and Rules 708, 709 of Uttar Pradesh Excise Manual - The court held that the licensee is absolutely liable to pay excise duty on liquor destroyed in fire, irrespective of negligence, as the duty is a statutory charge on the goods and the licensee is responsible for their safekeeping. The fire incident, even if an act of God, does not extinguish the liability. (Paras 41-65) B) Excise Law - Act of God - Defense Not Available - The court rejected the High Court's finding that the fire was an act of God, holding that even if it were, the statutory liability for excise duty remains unaffected. The defense of act of God is not available against a statutory obligation to pay duty. (Paras 56-60) C) Excise Law - Negligence - Not Required for Liability - The court clarified that under Rule 7(11)(a) and Rule 709, negligence is not a prerequisite for liability; the licensee is liable for any loss of excisable goods, including by fire, unless specifically exempted. The High Court erred in requiring proof of negligence. (Paras 52-55) D) Excise Law - Control of Department - Effect on Liability - The fact that the excise department had control over the distillery and godown does not shift the liability for duty from the licensee to the department. The licensee remains primarily responsible for the goods and the duty. (Paras 50-51) E) Excise Law - Insurance Coverage - No Effect on Duty Liability - The receipt of insurance claim for the value of the liquor does not affect the liability to pay excise duty, as the duty is a separate statutory obligation. (Paras 70-73)
Issue of Consideration
Whether the respondent company is liable to pay excise duty on Indian Made Foreign Liquor destroyed in a fire at its godown, and whether the demand raised by the Excise Commissioner is authorised by law.
Final Decision
Appeals allowed; impugned orders of High Court dated 10.04.2017 and 06.11.2019 set aside; demand of excise duty restored; respondent directed to pay balance amount after adjusting Rs. 3 crores deposited.
Law Points
- Absolute liability of licensee for excise duty on destroyed liquor
- Act of God defense not available when duty is statutory
- Negligence not required under Rule 7(11)(a) of UP Bottling of Foreign Liquor Rules
- 1969
- Control of department over distillery does not shift liability
- Insurance coverage does not affect excise duty liability
