# Modi Distillery v. State of U.P. & Anr

- **Citation:** (2022) 6 ILRA 987
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2022-05-07
- **Case number:** Writ Tax No. 133 of 2021
- **Bench:** Saumitra Dayal Singh
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/modi-distillery-v-state-of-u-p-anr-48699
- **Pages:** 29

## Headnote

(A) Tax Law - The Uttar Pradesh Excise
Act, 1910 - Sections 2, 3, 11, 12, 13, 15,
16, 17, 18, 19, 20, 22, 28 & 40 - The U.P.
Excise Manual - paragraph Nos. 605, 608,
609, 610, 613, 615(5), 617(3), 814 -
''import', ''importer' and ''imported' -
The Customs Act , 1962 - Section 45, 46,
47, 49, 57, 58, 59, 68 , Indian Stamp Act,
1899 - 'bond' - for the purpose of levy of
Consideration fee/''Pratiphal Shulk', on
excess transportation loss of HSMS, the
applicable law for computation of that
regulatory fee would remain the laws of
the State of Uttar Pradesh, only -
Consideration
fee/''Pratipahal
Shulk'
would be imposed in accordance with the
rates prescribed in the State of Uttar
Pradesh and not any other State -
statutory authorities must act within the
confines of the law. (Para - 71)

Consideration Fee/'Pratiphal Shulk' - imposed
on petitioner - alleged - excess loss of High
Strength Malt Spirit ( HSMS) - against two
transactions - order confirmed in appeal -
remedy of revision - filed directly before this
Court - plea of lack of jurisdiction - entire
quantities of HSMS subjected to Consideration
Fee/Pratiphal Shulk' - imported into the
country - said goods fell outside the scope of
levy of Excise duty by State of U.P. - State
revenue authorities to impose Consideration
fee/'Pratiphal Shulk', against alleged loss of
revenue on foreign liquor - springing from
excess loss of the commodity HSMS - during its
transportation from a bonded warehouse at
I.C.D. Dadri, Gautam Budh Nagar - to
petitioner's distillery at Modi Nagar - whether
permissible.(Para -2,3,39 )

HELD:-Consideration
fee/''Pratiphal
Shulk'
may be levied on excess loss of HSMS,
whether imported from outside the country or
procured
from
another
State
of
India.
Injunction sought against that levy, by
looking at the provision of law providing for
levy of Consideration fee/''Pratiphal Shulk' on
excess loss of HSMS when transported within
the State, from a distillery inside the State of
Uttar
Pradesh,
is
misconceived
and
inapplicable. Petitioner bound to compensate
loss to revenue arising from excessive loss of
HSMS during transportation, inside the State
of Uttar Pradesh, at rates prescribed under
amended Paragraph 814 of the Manual.(Para
- 60)
988 INDIAN LAW REPORTS ALLAHABAD SERIES
Writ Petition dismissed. (E-7)

List of Cases cited:-

## Text

_Characters 0–39,655 of 91,956. This is a partial read: ask again with offset=39655 for what follows._

6 All. Modi Distillery Vs. State of U.P. & Anr.
987
does not fall under Clause (b) of subSection (i) of Section 149 of the Act, 1961
for the Assessment Years 2013-14, 201415 and 2015-16 (where the income of an
assessee escaping assessment to tax is less
than Rs.50,00,000/-) and notice has not
been issued within limitation under the
unamended provisions of Section 149, then
proceedings under the amended provisions
cannot be initiated.

12. For all the reasons aforestated, the
impugned notice under Section 148 of the
Act, 1961 issued on 01.04.2021 for the
Assessment
Year
2014-15
and
the
impugned notice dated 13.01.2022 under
Section 144 of the Act, 1961 and the
reassessment order dated 13.01.2022 under
Section 147 read with Section 144B of the
Act, 1961 for the Assessment Year 2014-15
passed by the respondent No.4 are hereby
quashed. The writ petition is allowed.
----------
(2022)06ILR A987
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 07.05.2022

BEFORE

THE HON'BLE SAUMITRA DAYAL SINGH, J.

Writ Tax No. 133 of 2021

Modi Distillery ...Petitioner
Versus
State of U.P. & Anr. ...Respondents

Counsel for the Petitioner:
Sri Pratik J. Nagar, Sri Atulya Kishore, Sri
Rajat Bose

Counsel for the Respondents:
C.S.C.

(A) Tax Law - The Uttar Pradesh Excise
Act, 1910 - Sections 2, 3, 11, 12, 13, 15,
16, 17, 18, 19, 20, 22, 28 & 40 - The U.P.
Excise Manual - paragraph Nos. 605, 608,
609, 610, 613, 615(5), 617(3), 814 -
''import', ''importer' and ''imported' -
The Customs Act , 1962 - Section 45, 46,
47, 49, 57, 58, 59, 68 , Indian Stamp Act,
1899 - 'bond' - for the purpose of levy of
Consideration fee/''Pratiphal Shulk', on
excess transportation loss of HSMS, the
applicable law for computation of that
regulatory fee would remain the laws of
the State of Uttar Pradesh, only -
Consideration
fee/''Pratipahal
Shulk'
would be imposed in accordance with the
rates prescribed in the State of Uttar
Pradesh and not any other State -
statutory authorities must act within the
confines of the law. (Para - 71)

Consideration Fee/'Pratiphal Shulk' - imposed
on petitioner - alleged - excess loss of High
Strength Malt Spirit ( HSMS) - against two
transactions - order confirmed in appeal -
remedy of revision - filed directly before this
Court - plea of lack of jurisdiction - entire
quantities of HSMS subjected to Consideration
Fee/Pratiphal Shulk' - imported into the
country - said goods fell outside the scope of
levy of Excise duty by State of U.P. - State
revenue authorities to impose Consideration
fee/'Pratiphal Shulk', against alleged loss of
revenue on foreign liquor - springing from
excess loss of the commodity HSMS - during its
transportation from a bonded warehouse at
I.C.D. Dadri, Gautam Budh Nagar - to
petitioner's distillery at Modi Nagar - whether
permissible.(Para -2,3,39 )

HELD:-Consideration
fee/''Pratiphal
Shulk'
may be levied on excess loss of HSMS,
whether imported from outside the country or
procured
from
another
State
of
India.
Injunction sought against that levy, by
looking at the provision of law providing for
levy of Consideration fee/''Pratiphal Shulk' on
excess loss of HSMS when transported within
the State, from a distillery inside the State of
Uttar
Pradesh,
is
misconceived
and
inapplicable. Petitioner bound to compensate
loss to revenue arising from excessive loss of
HSMS during transportation, inside the State
of Uttar Pradesh, at rates prescribed under
amended Paragraph 814 of the Manual.(Para
- 60)
988 INDIAN LAW REPORTS ALLAHABAD SERIES
Writ Petition dismissed. (E-7)

List of Cases cited:-

1. M/s Jain Distillery Pvt. Ltd. Vs St. of U.P. &
ors., Writ Tax No. 378 of 2021

2. Garden Silk Mills Ltd. & anr. Vs U.O.I. &
ors., (1999) 8 SCC 744

3. Kiran Spinning Mills Vs Collector of Customs,
(2000) 10 SCC 228

4. I.T.D.C. Ltd. Through Hotel Ashoka Vs A.C.T.
& anr. (2012) 3 SCC 204

5. Mohan Meakin Breweries Ltd. Vs Excise &
Taxation Commr., Chandigarh & ors., (1976) 3
SCC 421

6. St. of U.P. & ors. Vs. Modi Distillery & ors.,
(1995) 5 SCC 753

7. I.O.C. Ltd. Vs St. of U.P. & ors., 2018 (6) ADJ
706

8. St. of U.P. & ors. Vs Delhi Cloth Mills & anr. ,
(1991) 1 SCC 454

9. St. of Jhar. & ors. Vs Ajanta Bottlers &
Blenders Pvt. Ltd, (2019) 7 SCC 545

10. Dhandhania Kedia & Co. Vs CIT AIR 1959
SC 219

11. St. of Kerala & ors. Vs Mc. Dowell & Co.
Ltd., 1994 Supp. (2) SCC 605

(Delivered by Hon'ble Saumitra Dayal
Singh, J.)

1. Heard Sri Rajat Bose along with
Sri Pratik J. Nagar & Sri Atulya Kishore,
learned counsel for the petitioner and Sri
Manish
Goyal,
learned
Additional
Advocate General along with Sri A.K.
Goyal, learned Additional Chief Standing
Counsel and Sri Jagdish Mishra, learned
Standing
Counsel,
for
the
State
respondents.

2. Present petition has been filed
against the orders dated 08.07.2019 and
25.01.2021. By order dated 08.07.2019,
passed
by
respondent
no.3/Deputy
Commissioner, Excise, Meerut Region,
Meerut,
Consideration
Fee/''Pratiphal
Shulk' Rs. 15,51,042.50 has been imposed
on the petitioner, on alleged excess loss of
High Strength Malt Spirit (hereinafter
referred to as the HSMS), against two
transactions. That order has been confirmed
in appeal, vide order dated 27.01.2021,
passed by the Excise Commissioner.

3. Admittedly, the petitioner has a
remedy of revision against the order dated
27.01.2021, under Section 11 of the Uttar
Pradesh Excise Act, 1910 (hereinafter
referred to as the Act). However, the
present petition was filed directly before
this Court, on the plea of lack of
jurisdiction. Thus, it has been submitted,
the entire quantities of HSMS subjected to
Consideration Fee/Pratiphal Shulk' had
been imported into the country from M/s
William Grant & Sons Distillers Limited,
Giravan Distillery, Grangestone Industrial
Estate, Girvan, Scotland, United Kingdom
(hereinafter referred to as William Grant).
Therefore, the said goods fell outside the
scope of levy of Excise duty by the State of
U.P.
Accordingly,
the
matter
was
entertained, and Counter Affidavit called.
Pleadings are complete. The matter was
thus heard. Here, it may be noted, the plea
of alternative remedy has not been urged at
the stage of final hearing. The State has
also sought a decision on merits.

4. Learned counsel for the petitioner
states, the petitioner is a duly incorporated
company having its distillery at Modi
Nagar, Ghaziabad. It first imported into the
country, 24,400 Bulk litres of HSMS from
William Grant, against Bill of Entry BE
6 All. Modi Distillery Vs. State of U.P. & Anr.
989
No. 7590551 dated 10.08.2018. Those
goods entered the country through a
seaport, in the State of Gujarat. They were
then transshipped to I.C.D., Dadri during
that import. At Dadri, those goods were
imported into the country and cleared for
home consumption against payment of
Custom Duty @ 150% of the value of
goods. As per the Certificate of Analysis,
Goods Note, Certificate of Origin and Age
Certificate,
issued
by
the
Custom
Authorities in the United Kingdom, HSMS
thus imported were having alcoholic
strength, 68%. Thereafter, the petitioner
applied
for
permission
to
''import'/''transport' those 24,400 Bulk litres
of HSMS from I.C.D., Dadri, to its
distillery at Modi Nagar, Ghaziabad. That
permission was granted vide order dated
21.08.2018, under the Act and Rules
framed thereunder. Perusal of that order
reveals, the permission was granted on
Form FL-22 [under Paras 609, 615(5) &
617(3) of the Excise Manual] against
payment of Import fee @ Rs. 4/- bulk litre.
No amount of Excise duty was prepaid, yet
the petitioner was allowed to transport the
goods, against bond [under Para 610(c) of
the Excise Manual]. That consignment was
dispatched from the I.C.D., Dadri, in a
sealed tanker bearing registration No. HR55-AI-2419. It reached the petitioner's
distillery at Modi Nagar, Ghaziabad, on
2.9.2018. At that stage, the HSMS thus
imported was measured, having alcoholic
strength 66.21% v/v.

5. Thus, against 24,400 Bulk litres of
HSMS of strength 68% v/v dispatched,
only 24,346 Bulk litres of HSMS, of
strength 66.2% v/v, were received at the
petitioner's
distillery.
Thus,
against
allowable transit loss of 82.96 Alcoholic
litres, 474.9 Alcoholic litres were found
short. Thus, 391.94 Alcoholic litres or
915.75 Bulk litres excess loss was found.
Arising from the aforesaid discrepancy,
demand notice dated 05.09.2018 was issued
to hold the petitioner liable to pay
Consideration Fee/''Pratiphal Shulk' (on
excess transit loss), Rs. 10,91,879.25. The
petitioner
submitted
its
reply
on
11.10.2018. It objected to the applicability
of Rule 5 of Rules relating to Issue of Spirit
from
Distilleries Working
in
Private
Premises or in Premises Owned by the
State
Government
Rules
(hereinafter
referred to as the Distillery Rules).
According to the petitioner, the said Rule
would apply only in case of transportation
of such goods from a distillery and not in
case of goods dispatched to a distillery.

6. Similarly, in the second transaction,
the petitioner sought to import 24596 Bulk
litres of HSMS from William Grant.
Similar procedures were followed, and
similar
communications
were
issued
leading to similar result. In that case,
against 24596 Bulk litres of HSMS of
strength 67.6% v/v, measured by the
Custom Authorities of United Kingdom,
upon receipt at the petitioner's distillery, the
same were found to be 24593 Bulk litres of
HSMS
of
66.6%
strength.
Against
allowable transit loss 164.82 Alcoholic
litres, loss suffered was found to be 248
Alcoholic litres. Thus, 164.82 Alcoholic
litres or 385.10 Bulk litres excess loss was
found. On 22.09.2018, a second demand
notice no.484 was issued demanding
Consideration Fee/excise duty/''Pratiphal
Shulk' Rs.4,59,385.20. The petitioner filed
its reply dated 11.10.2018, to that notice.

7. Thereafter, the date of personal
hearing was fixed for 08.05.2019. On
08.07.2019, a common order was passed
confirming the demand of Consideration
Fee/''Pratiphal Shulk', on excess transit loss
at Rs.15,51,042.50, on both transactions
990 INDIAN LAW REPORTS ALLAHABAD SERIES
(described above), @ Rs. 1192.33 per Bulk
litre.

8. Against that common order, the
petitioner filed appeal no.57 of 2019 under
Section 11(1) of the Act. It was dismissed
by order dated 27.01.2021. Further, by a
separate letter dated 27.01.2021, the
petitioner was required to deposit the
disputed demand. However, within three
days therefrom, on 05.02.2021, the entire
disputed
demand
of
Consideration
Fee/''Pratiphal Shulk' was recovered, much
before expiry of normal period of limitation
to file a revision. It may be noted, under the
scheme of the Act, under Section 11, upon
a revision being filed and 25% of the
disputed demand being paid, the balance
disputed demand would remain stayed
during
pendency
of
the
revision
application.

9. Learned counsel for the petitioner
would submit, the State of U.P. has no
legislative competence to levy Excise duty on
HSMS imported from outside the country.
Consequently, it also does not have any
competence
to
impose
Consideration
fee/'Pratiphal Shulk', that is Excise duty, in
another garb. First, reference has been made
to Entry 51 read with Entry 8 of List-II of
Seventh Schedule of the Constitution of India
to submit, the competence of the State
legislature extends to enact laws to levy
excise duty on manufacture or production
(inside Uttar Pradesh), of alcoholic liquor for
human consumption. As to the meaning of
intoxicating liquor, reference has been made
to a division bench decision in M/s Jain
Distillery Private Limited Vs. State of U.P.
& 5 Others, Writ Tax No. 378 of 2021,
decided on 28.9.2021.

10 . Referring to the definition clause
under the Act, it has been stated, under:-
Section 3(3a) of the Act, ''excise duty' and
''countervailing
duty'
have
the
same
meaning as may be assigned to those terms
under Entry 51 of List-II to the Seventh
Schedule to the Constitution; Section 3(8)
of the Act, the word 'spirit' means any
liquor containing alcohol obtained by
distillation whether denatured or not;
Section 3(11) of the Act, the word 'liquor'
means all intoxicating liquor including
those specified by the Act or as may be
notified by the State Government; Section
3(13) of the Act, the word 'intoxicant'
means a liquor or any intoxicating drug
under the Act; Section 3(17) of the Act, the
word 'import' implies bringing into Uttar
Pradesh (any excisable goods) otherwise
across the customs frontier as defined by
the Central Government; Section 3(18) of
the Act, a corresponding definition of
'export' exists; Section 3(19) of the Act, the
word 'transport' means movement from one
place to another within the State of Uttar
Pradesh; Section 3(20) of the Act, the word
'manufacture'
includes
every
process
whether natural or artificial, by which an
intoxicant may be produced or prepared
and last; under Section 3(22a) of the Act,
''excisable articles' means, any alcoholic
liquor for human consumption or any
intoxicating drug.

11. Thus, relying on the aforesaid
provisions of the Act, it has been
vehemently urged, HSMS were imported
by the petitioner from William Grant,
across the customs frontier of the country,
(as defined by the Central Government)
namely, the I.C.D., Dadri. They were
neither excisable goods nor they were
goods produced inside the State of U.P. nor
they were brought inside the State of U.P.
from any other State within the country.
Therefore, by very description of their
arrival into the country and/or the State of
6 All. Modi Distillery Vs. State of U.P. & Anr.
991
U.P., from abroad, the goods HSMS were
not amenable to Excise duty under the Act.
Therefore, they were not liable to suffer
levy
of
Consideration
Fee/''Pratiphal
Shulk', either.

12. By way of elaboration of his
submissions
learned
counsel
for
the
petitioner has relied on the provisions of
Section 12 of the Act. While sub-Section
(1) of the said provision refers to grant of
permission by the State Government-for the
purpose of import of excisable goods, subSection (2) thereof makes it plain - nothing
in sub-Section (1) would apply to the goods
that may be imported into the country, after
suffering liability of Customs duty. HSMS
having suffered Custom duty under the
Indian Customs Act, 1962 (hereinafter
referred to as the Customs Act), upon its
import across the customs frontiers of the
country i.e. at the I.C.D. Dadri, the same
were not liable to suffer Excise duty or any
other levy, by whatever name called, under
the Act.

13. Then, reliance has also been
placed on provisions of Section 28 of the
Act. It is the levy provision. It levies Excise
duty or a Countervailing duty on any
excisable article that may be imported (into
the State from any other part of the
country) or exported or transported to any
other part of the country, in accordance
with Section 12 or 13 respectively or
manufactured,
cultivated,
or
collected
under Section 17 or manufactured in any
distillery established under Section 18. The
fact that HSMS were transported and the
fact, by some process of reasoning they
may be described as an excisable article,
would not invite levy of Excise duty and/or
Consideration fee/'Pratiphal Shulk' on that
transportation. That is the clear effect of the
first proviso to Section 28(1) read with
Section 12(2) of the Act. It would injunct
the levy of Excise duty on HSMS, since
those goods had been imported into the
country, upon sufferance of import duty
under the Customs Act.

14. Learned counsel for the petitioner
would rely on the principle - import of
HSMS into the country was not complete
till the goods HSMS reached the I.C.D.,
Dadri. Only after the goods reached the
petitioner's distillery, the import of HSMS
(into
the
country),
was
complete.
Therefore, by virtue of Section 12(2) read
with proviso (I) to Section 28(1) of the Act,
no
Excise
duty
or
Consideration
Fee/''Pratiphal Shulk' could be imposed on
any quantity of HSMS lost in the course of
import of those goods into the country.
Reliance has been placed on Garden Silk
Mills Ltd. & Anr. Vs Union of India &
Ors., (1999) 8 SCC 744; Kiran Spinning
Mills vs Collector of Customs, (2000) 10
SCC
228
and
Indian
Tourist
Development
Corporation
Limited
Through Hotel Ashoka vs. Assistant
Commercial Tax & Anr. (2012) 3 SCC
204. In that context, reliance has also been
placed on Circular No.50 of 2020 dated
05.11.2020 issued by the Government of
India, declaring I.C.Ds. to be "selfcontained Customs station".

15. Second, in the alternative, it has
been submitted, in any case, the levy of
Consideration Fee/'Pratiphal Shulk' may
arise under the Act only in the event of
transportation loss suffered during, and
upon it exceeding, permissible limits, only
when that excisable article may be in transit
from a distillery. Assuming, HSMS were
excisable goods, the excess loss was
suffered while those goods were in transit
from the ICD, Dadri to the petitioner's
distillery. That transaction would fall
992 INDIAN LAW REPORTS ALLAHABAD SERIES
outside the levy provision even if that
provision were to apply. Here, referring to
paragraph No. 612 read with paragraph
Nos. 613 and 814 of the U.P. Excise
Manual (under Chapter-VIII), it has been
submitted, those provisions apply only to
dispatches made by and from the distillery
and not - to the distillery. In that regard,
reliance has been placed on Mohan
Meakin Breweries Ltd. Vs Excise &
Taxation Commr., Chandigarh & Ors.,
(1976) 3 SCC 421.

16. Last, still in the alternative, in any
case, conceptually and as also according to
the statutory scheme itself, Consideration
Fee/'Pratiphal Shulk' may be levied under
the Act, only by the State of export. In case
of inter-State trade within the country, such
levy may arise in the consignor State, upon
receipt of intimation of excess loss, sent by
the consignee State. In the instant case,
undisputedly,
the
goods
had
been
dispatched
from
Scotland
in
United
Kingdom. Therefore, theoretically, and in
view of the earlier submissions advanced,
the levy could not arise at the instance of or
by the State of import namely the State of
Uttar Pradesh. Reliance has been placed on
Mohan Meakin Breweries Ltd. (supra)
and State of U.P. & Ors Vs. Modi
Distillery & Ors., (1995) 5 SCC 753.

17. Countering the submissions
advanced by learned counsel for the
petitioner, learned Additional Advocate
General would submit, there are no
pleadings made in the writ petition and no
grounds have been raised to assail the
legislative competence of the State of U.P.
to enact any law to subject loss of imported
HSMS- to Consideration Fee/''Pratiphal
Shulk' . Reference has been made to the
pleadings and grounds raised in the writ
petition.

18. Then, it has been further
submitted, such a ground was not raised by
the petitioner in its reply dated 11.10.2018
furnished to the show cause notice dated
05.9.2018. On the contrary, the petitioner
applied for issuance of permission to
import quantities of HSMS. The petitioner
paid the import fee, chargeable thereon.
The only plea raised at the stage of reply to
the show-cause notice and even in the
present writ petition is - Chapter VIII of the
Rules (framed under the Act) does not
apply to import of excisable goods into
State of U.P. and that those Rules apply
only to export from inside the State of U.P.,
to another State.

19. Without prejudice to the above
objection - of absence of plea, it has been
submitted, Section 12(2) of the Act read
with Section 3(17) of the Act do not create
a bar against levy of Excise duty on transit
loss or Consideration Fee/''Pratiphal Shulk'
on excess transit loss, because the actual
dispatch of the goods may have been made
from the ICD Dadri. Referring to Indian
Oil Corporation Limited Vs. State of
U.P. & Ors., 2018 (6) ADJ 706, it has been
submitted, regulatory provisions cannot be
cited to define the custom frontiers under
the Act. Merely because Section 60 of the
Customs Act permits clearance of goods
from a Customs warehouse, it cannot be
said - upon clearance/dispatch of goods
from such warehouse, the goods first
crossed the custom frontier of the country.
Those are only facilitative provisions for
the benefit of the importer or owner of the
goods. The Inland Container Depots
(I.C.Ds.) are creatures of statute. They are
not determinative of occurrence of the
taxable event under the Act.

20. In the present case, undisputedly,
the goods landed in the country through the
6 All. Modi Distillery Vs. State of U.P. & Anr.
993
seaport at Gujarat. Therefore, the entry of
HSMS, across the customs frontier was
complete at that point of time. Their storage
at I.C.D. Dadri was only a facilitation
arrangement to ensure further compliances
of the provisions of the Customs Act. It was
not determinative of the physical crossing
of the goods across the customs frontier of
the country.

21. Then, reference has been made to
the permission to transport, obtained by
the petitioner on Form FL-22, issued
under paragraph Nos. 609, 615(5) and
617(3) of the U.P. Excise Manual. It was
thus
submitted,
the
petitioner
twice
obtained permissions under the Act, to
transport 24,400 Bulk litres and 24596
Bulk litres, HSMS, against payment of
import fee @ Rs. 4 per Bulk litre. That
permission was sought and was granted on
the
own
application
made
by
the
petitioner, under the Act. Thus, the
petitioner was permitted to transport
desired quantities of HSMS, from ICD
Dadri to its distillery at Modi Nagar
Ghaziabad. No amount of Excise duty was
pre-paid, at that stage as the consignments
were transported under respective bonds
issued by the petitioner.

22. Further, relying on the application
dated 02.8.2018 made by the petitioner
with respect to the first transaction, and the
other application dated 31.8.2018, made by
the petitioner with respect to the second
transaction (Annexure SCA-1 and SCA-2),
it has been submitted, the petitioner had
itself sought permission to transport the
(imported) High Strength Malt Spirits,
from Dadri to Modi Nagar via Ghaziabad.
That permission was granted subject to the
conditions specified in the communication
dated 20.8.2020 (Annexure CA-1 to the
counter affidavit).

23. Referring to the transaction thus
conducted, it has been strenuously urged,
the concept of crossing the custom frontier
[contemplated under Section 3(17) of the
Act] is wholly inapplicable to the goods
that were dispatched from Dadri in Gautam
Budh Nagar to Modi Nagar in Ghaziabad.
Though that transportation began at I.C.D.
Dadri, it cannot be said, the goods crossed
the custom frontiers of the country, at
Dadri. In fact, the goods were transported
from one place to another, both inside the
State of U.P.

24. Coming to the levy provisions, it
has been submitted, similarly under Section
28 of the Act, the exclusion provided under
the first proviso to sub-Section (1) would
remain inapplicable to the facts of the
present case, for the reasons noted above.

25. Then, it has been submitted,
undisputedly the strength of the HSMS
imported against the two transactions was
68% and 67.6%, London Proof. At that
strength, per se, that liquor (as a category)
was fit for human consumption. Its dilution
for the purpose of making it marketable in
the domestic tariff area, amounted to
'manufacture' as defined under Section
3(20)
of
the
Act.
It
made
those
manufactured goods liable to suffer Excise
duty under the Act. Yet, it would not render
the imported article HSMS unfit for human
consumption. It did not make them fall
outside the legislative competence of the
State of U.P., to impose Excise duty under
the Act.

26. In such circumstances, it must be
presumed, the goods that were dispatched
against the two disputed transactions from
I.C.D. Dadri were of requisite strength i.e.,
68% & 67.6% v/v, measuring 24,440 &
24,596 Bulk litres, respectively. However,
994 INDIAN LAW REPORTS ALLAHABAD SERIES
upon the same being tested for strength,
upon their arrival at Modi Nagar, they were
found to be of strength 67% and 66.21%
v/v. It represented excessive loss, beyond
the permissible limit i.e. 0.5%. It also
represented excess loss of quantity 1300.85
Bulk litres. It is for that purpose that the
Rule
provides
for
realisation
of
Consideration Fee/''Pratiphal Shulk', to
ensure, no quantity of excisable goods is
dealt with except in compliance with the
regulatory law enacted by the State.
Relying on the amended law providing for
permissible loss @ of 0.5%, as approved by
the Supreme Court in State of U.P. and
Others Vs. Delhi Cloth Mills and
another, (1991) 1 SCC 454, it has been
urged that the demand of Consideration
Fee/''Pratiphal
Shulk',
is
wholly
in
accordance with law.

27. The decision of the Supreme Court
in State of U.P. & Ors. Vs. Modi Distilleries
&
Ors.
(supra)
is
stated
to
be
distinguishable. In that, the High Court
quashed the orders demanding Excise duty.
The Supreme Court categorised the cases into
four types. Group-A cases involved demand
of Excise duty on wastage of Indian Made
Foreign Liquor (IMFL) exported outside the
State of U.P. Group-B cases involved demand
of
Excise
duty
on
wastage
during
transportation (in containers) - of High
Strength Spirit of strength 80-85%, from
distilleries to warehouse. Group-C cases
involved demand of Excise duty on
obscuration. The last category - Group-D
cases involved Excise duty levied on pipeline
wastage. In the submission of the learned
Additional Advocate General, the present
case falls in neither of the categories A, B, C
or D, dealt with by the Supreme Court.
Looking at the strength of HSMS, at below
68%, it was an alcohol fit for human
consumption. Therefore, it cannot be equated
with a commodity that was only a raw
material to produce alcoholic liquor fit for
human consumption. For that reason, the
ratio in the case of State of U.P. Vs. Modi
Distillery (supra), would not apply to the
present case.

28. In the present case, since the goods
in question were being transported within the
State, the concept of levy of Consideration
Fee/''Pratiphal Shulk' on excess loss suffered
during export to another State, also would not
apply. Here, the transaction was covered as
loss was suffered, during transportation
within the State. It would be a transaction
covered under Section 28(1)(c) of the Act,
read with Section 3(19) of the Act.

29. In the rejoinder arguments, Shri
Bose, has referred to pleadings made in
the Supplementary Rejoinder Affidavit
and the Rejoinder Affidavit to submit -
the plea of lack of legislative competence
was raised. In any case, it has been
submitted, that plea is purely legal. It
arises on the undisputed facts of the case.
Therefore, the same may not be barred
from being raised. As to the submission
based on definition of a custom frontier,
strong objection has been raised. Though
'custom frontier' has not been defined
under the Act, yet the same has been
defined under Section 2(4) of the IGST
Act. It means limits of the custom area as
defined under Section 52 of the Customs
Act. Then, the phrase 'crossing the
custom frontier of India' has been defined
under Section 2(a)(b) of the CST Act. It
means crossing the limits of the area of a
customs station within which imported
goods or exported goods are ordinarily
kept, before clearance by a custom
authority. In turn, 'customs area' has been
defined under Section 2(11) of the
Customs Act. It reads:
6 All. Modi Distillery Vs. State of U.P. & Anr.
995

"2(11). "customs area' means the
area of a customs station [or a warehouse]
and includes any area in which imported
goods or export goods are ordinarily kept
before clearance by customs authorities."

30. Heard learned counsel for the
parties (over a long period of time,
interspersed with adjournments). In face of
the first issue raised being purely legal, and
in absence of any dispute as to fact, the
objection raised by the State
- to
availability of pleadings (in the writ
petition) - to support the first ground of
challenge raised, is not accepted. To deal
with the first submission advanced by
learned counsel for the petitioner, it is
relevant to take note of certain provisions
of the Act, namely, sub-Sections (3-a), (11),
(13), (17), (19), (20) and (22-a) of Section
3 of the Act may be seen. They read as
below:

"3. Interpretation.- In this Act,
unless there is something repugnant in this
subject or context:

(3a)
"Excise
Duty"
and
"countervailing duty" means any Excise
Duty or countervailing duty, as the case
may be, as is mentioned in Entry 51 of List
II in the Seventh Schedule to the
Constitution;

(11) "liquor" means intoxicating
liquor and includes spirits of wine, spirit,
wine, tari, pachwai, beer and all liquid
consisting of or containing alcohol, also
any substance which the State Government
may by notification declare to be liquor for
the purposes of the Act.

(13)
"intoxicant"
means
any
liquor or intoxicating drug as defined by
this Act;

(17) "import" (except in the
phrase "import to India") means to bring
into Uttar Pradesh otherwise than across a
customs frontier as defined by the Central
Government;

(19) "Transport" means to move
from one place to another within Uttar
Pradesh;

(20)"Manufacture" includes every
process weather natural or artificial, by
which any intoxicant is produced or
prepared, and also re distillation and every
process for the rectification, flavouring,
blending or colouring of liquor;

(22-a) "excisable article" means-

(a) any alcoholic liquor for
human consumption; or

(b) any intoxicating drug;"

31. Then, Section 12 of the Act reads
as below:

"12. Import of intoxicants. - (1)
No intoxicant shall be imported unless-

(a) the State Government has
given permission, either general or special,
for its imports;

(b) such conditions (if any) as the
State Government may impose have been
satisfied; and

(c) the duty (if any) imposed
under Section 28 has been paid or a bond
has been executed for the payment thereof.

(2) Sub-section (1) shall not
apply to any article which has been
996 INDIAN LAW REPORTS ALLAHABAD SERIES
imported into India and was liable on such
importation to duty under the Indian Tariff
Act, 1894, or the Sea Customs Act, 1878.

(3) Clauses (a) and (b) of subsection (1) shall not apply to liquor
manufactured in India and declared under
Section 4 to be foreign liquor."

32. The levy provision - Section 28 of
the Act reads as below:

"28. Duty on excisable articles. -
(1) An excise duty or a countervailing duty,
as the case may be, at such rate or rates as
the State Government shall direct, may be
imposed, either generally or for any
specified local area, on any excisable
article-

(a) imported in accordance with
the provisions of Section 12 (1); or

(b) exported in accordance with
the provisions of Section 13; or

(c) transported; or

(d) manufactured, cultivated or
collected under any licence granted under
Section 17; or

(e) manufactured in any distillery
established, or any distillery or brewery
licensed, under Section 18 :

Provided as follows-

(i) duty shall not be so imposed
on any article which has been imported
into [***]India and was liable on such
importation to duty under the Indian
Tariff Act, 1894, or the Sea Customs Act,
1887;

(ii) [* * *].

Explanation. - (1) Duty may be
imposed under this section at different rates
according to the places to which any
excisable article is to be removed for
consumption, or according to the varying
strength and quality of such article.

[(2) The State Government shall,
in
imposing
an
Excise
duty
or
a
countervailing duty as aforesaid and in
fixing its rate, be guided by the directive
principles specified in Article 47 of the
Constitution of India.

(3) Such duty shall not exceed the
maximum as provided hereinafter:"

33. Read in the backdrop of Entry 51
of List II of the 7th Schedule to the
Constitution of India, together with the
definition clause of 'Excise duty' and
'import' [Section 3 (3-a) and 3(17) of the
Act] together with Section 28 of the Act, it
is plain - the State of U.P., could not and it
did not levy Excise duty on any Excisable
article imported across the customs frontier
of the country, after payment of Customs
duty etc. However, that embargo in law,
operates against levy of Excise duty (under
the Act) on an imported article, cleared or
made
available,
as
such,
for
home
consumption. It would not extend or apply
to any ''excisable article' manufactured
from that imported and Customs duty paid,
article.

34. Here, as a fact, the impost of
Consideration fee/'Pratiphal Shulk' is not
on the quantities of HSMS received by the
petitioner, at its distillery. Rather, that
impost has arisen on the excess and
therefore, unaccounted loss of HSMS,
while that imported article was transported
6 All. Modi Distillery Vs. State of U.P. & Anr.
997
inside the State of Uttar Pradesh. The text
of the show-cause-notices dated 22.09.2018
and 26.09.2018 (Annexure No. 7 to the writ
petition), clearly refers to the facts - against
two transactions of 24,400 and 24,596 Bulk
litres of Malt Spirit of strength 68% and
67.6% v/v, imported from William Grant,
as cleared by the Customs authorities,
24346 and 24593 Bulk litres, were received
at the petitioner's distillery, bearing strength
66.2% and 66.6% v/v, respectively.

35. Accordingly, it was assumed, at
that stage, the balance quantity of that
commodity
had
been
lost
during
transportation
(against
the
two
transactions). That loss was more than the
loss allowable @ 0.5%. Accordingly, the
revenue
loss
was
estimated
at
Rs.
10,91,879.5
and
Rs.
4,59,385/-
respectively. It appears to have been
demanded and recovered against the bond
executed by the petitioner, as Consideration
fee/'Pratiphal Shulk'.

36. Therefore, the contention of
learned counsel for the petitioner-ICD
Dadri, Gautam Buddh Nagar was the
custom frontier of the country - for the
purpose of import of goods, is not central
or relevant to the core issue involved in the
dispute. Whether the goods HSMS are
treated to have been imported into the
country at the seaport at Gujarat or at land
port-ICD Dadri, Gautam Buddh Nagar
(inside the State of U.P.), would make no
difference to the determination of that
issue. It would have been relevant if the
impost under challenge had been of Excise
duty on clearance/receipt of HSMS, in that
form and condition. Here, it may be noted,
undisputedly, the petitioner manufactures
foreign liquor from HSMS at its distillery
at Modi Nagar, Ghaziabad, by making
adequate dilutions to HSMS under a predefined process; it thus obtains foreign
liquor of strength 42.8% v/v; bottles the
same and clears those excisable goods
against payment of Excise duty, inside the
State of U.P. Therefore, it is not the case of
the
petitioner
that
foreign
liquor
manufactured from HSMS was not dutiable
under the Act. In fact, its case is otherwise.

37. In view of the above, the frontal
aspect of the first submission advanced by
learned counsel for the petitioner, is found
to be misconceived. In absence of any
impost of Excise duty under the Act, on
HSMS, that aspect of the submission
advanced, is academic. Strictly, it does not
arise in the facts of the present case.
However,
it's
other
aspect
may
be
examined a little later.

38. Also, in view of the discussion
made above, the ratio arising from Golden
Silk Mills Ltd (supra); Kiran Spinning
Mills
(supra);
Indian
Tourist
Development Corporation Ltd. (supra),
does not conflict with the impost of
Consideration Fee/'Pratiphal Shulk'.

39. Insofar as the second submission
is concerned, it must be examined -whether
it was permissible for the State revenue
authorities
to
impose
Consideration
fee/'Pratiphal Shulk', against alleged loss of
revenue on foreign liquor, springing from
excess loss of the commodity HSMS,
during its transportation from a bonded
warehouse at I.C.D. Dadri, Gautam Budh
Nagar, to the petitioner's distillery at Modi
Nagar.

40. Before making any further
discussion on that count, again, it may be
relevant to take note of certain provisions
of the law. The statutory requirement to
obtain Pass, to amongst others, import
998 INDIAN LAW REPORTS ALLAHABAD SERIES
and/or transport intoxicants within the State
of U.P., is contained in Section 15 & 16 of
the Act. The rule making power under the
Act is contained in Section 40. Relevant to
the present discussion, Sections 15, 16 &
40(1), (2) and (2-d) read as below:

15. Passes necessary for import,
export and transport. - No Intoxicant
exceeding such quantity as the Government
may prescribe by notification, either
generally for the whole of Uttar Pradesh or
for any local area comprised therein, shall
be imported, exported or transported
except under the provisions of the next
following section:

Provided that, in the case of dutypaid foreign liquor other than denatured spirit
such passes shall be dispensed with unless the
[State Government] shall by notification
otherwise direct to any local area :

Provided also, unless the State
Government shall otherwise direct, that no
pass shall be required for the transport of
any [intoxicant] exported under a pass
issued by an officer duly authorised in this
behalf from any place beyond the limits of
[Uttar Pradesh] to any other place beyond
the said limits.

16. Grant of passes for import,
exports and transport. - Passes for the
import, export or transport of intoxicants
may be granted by the Collector.

Such passes may be either general
for the definite periods and kinds of
[intoxicants]
or
special
for
specified
occasions and particular consignments only."

"40. Power of State Government
to make rules. - (1) The [State may make
rules for the purpose of Government]
carrying out the provisions of this Act or
other law for the time being in force
relating to excise revenue :

...

(2) In particular and without
prejudice to the generality of the foregoing
provision, the State Government may make
rules-

...

(d) regulating the import, export,
transport or possession of any [intoxicant]"

(emphasis supplied)

41. Under the Act, numerous Rules
have been framed from time to time.
Apparently, for the sake of convenience
and ready reference, they have been
compiled in a compendium, popularly
known
as
the
U.P.
Excise
Manual
(hereinafter referred to as the 'Excise
Manual'). That compendium has been
arranged in Chapters, broken into Sections,
further structured into Parts, with various
individual Rule numbers mentioned as
paragraphs of that compendium, numbered
consecutively, in a single series. Paragraph
no. 12 of the Excise Manual reads as
below:

"12. Foreign liquor. - Foreign
Liquor means-

(1) beer and spirit, wines and
liquors, which have been imported into
India
and
are
intended
for
human
consumption and were liable, on such
importation, to duty under the Indian Tariff
6 All. Modi Distillery Vs. State of U.P. & Anr.
999
Act, 1894 (read with the Indian Tariff Act,
1934), or the Sea Customs Act, 1878;

(2) spirit made in India and
sophisticated or coloured so as to resemble
in flavour or colour, liquor imported into
India;

(3) beer brewed in India;

(4) wines and liquors made in
India, and

(5)
all
rectified,
perfumed,
medicated and denatured spirits, wherever
made."

(emphasis supplied)

42.