# 14 (ADDL.) S.C.R. 98 STATE OF U.P. & ORS v. M/S MOHAN MEAKIN BREWERIES LTD. & ANR

- **Citation:** [2011] 14 S.C.R. 98
- **Court:** Supreme Court of India
- **Decided:** 2011-09-23
- **Case number:** Civil Appeal Nos. 4708-4709 of 2002
- **Bench:** R. V. Raveendran, P. Sathasivam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/14-addl-s-c-r-98-state-of-u-p-ors-v-m-s-mohan-meakin-breweries-ltd-anr-27582
- **Pages:** 56

## Headnote

Uttar Pradesh Excise Act, 1910:
c
s.29(e)(i) - Beer - Excisablity of - Stage when the beer
manufactured is exigible to duty -
Held: When the
fermentation process of wort is completed, it becomes an
alcoholic liquor for human consumption and there is no legal
impediment for subjecting beer to excise duty at that stage -
0
The State has legislative competence to levy excise duty on
beer either after the completion of the process of fermentation
.and filtration, or after fermentation - Excise laws - Liquor.
s. 28A -
Imposition of additional duty -
Excess
manufacturing wastage - Basis for determination - Held: The
E base measurement is taken in the fermentation vessel and
9% standard allowance is provided to cover losses on
account of evaporation, sul/age and other contingencies within
the Brewery- Uttar Pradesh Brewery Rules 1961 - r.53.
F
Constitution of India, 1950:
Seventh Schedule, List II, Entry 51 - Held: Entry 51
should be read not only as authorizing the imposition of an
excise duty, but also as authorizing a provision which prevents
evasion of excise duty - To ensure that there is no evasion
G of excise duty in regard to manufacture of beer, the State is
entitled to make a provision to prevent evasion of excise duty,
though it is leviable at the stage of issue from the brewery -
Excise - Liquor.
H
98
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
BREWERIES LTD. & ANR.
LIQUOR:
99
Beer - Process of Brewing - Discussed - Excise laws.
The instant appeals were filed ,by the State and the
Breweries. The appeals by the State related to imposition
of duty and additional duty on excess wastage in the
brewery. The appeals by the Breweries related to
imposition of duty and additional duty on excess bottling
wastage.
A
B
By impugned order, the High Court had directed the C
state government to decide the revision afresh "after
calculating the stock of beer for the pur.pose of
1;ariginal
Rule 53 of UP Brewery,Rules 1961 (Para 912 of UP Excise
Manual as it then existed) and section 28-A of the UP
Excise Act, 'when after filtration the same has assumed o
the shape as a finished product which is normally
consumed by human beings as beverage or drink" .. It
also held that the point at which the liquor manufactured
by the brewery is exigible to duty is at the stage, when
the beer is capable of being consumed by human beings
E
as a beverage comes into existence and the deficiency
should be worked. out with reference to measurement at
such stage. The High Court rejected the procedure
adopted by the appellants· that the process of
manufacture is complete and the liquor becomes exigible
F
to duty when the wort along with the yeast is received in
the fermenting vessels and ferments and that is the stage
of ascertaining excess manufacturing wastage. (excess
deficiency).
The stand of the Brewery was that the wastage G
allowance was to be given, not with reference to the
quantity in the fermentation tank, but with reference to the
quantity in the storage/bottling tanks (after completion of
fermentation and filtration process) when the
manufacturing process is complete and only bottling
H
100 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A remains; that the measurement should be taken only
when the manufacture is complete and not when it is still
in the process of manufacture; and the manufacture
process is completed not when the wort is in the
fermentation tank but only when the filtration process is
s finished.
The questions which arose for consideration in the
instant appeals were: At what stage does the. beer
manufactured is exigible to duty; and whether the
procedure adopted by the appellants for ascertainjng
C excess manufacturing wastage (excess deficiency) is
proper.
Disposing of the appeals, the Court
0
HELD: 1. The process of brewing beer involves
malting, mashing, boiling, fermentation, separation of
yeast from the beer, ageing and finishing. The fermented
alcoholic liquor that can be identified as 'beer' comes into
existence on completion o

## Text

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A
B
[2011) 14 (ADDL.) S.C.R. 98
STATE OF U.P. & ORS.
V.
M/S MOHAN MEAKIN BREWERIES LTD. & ANR.
(Civil Appeal Nos. 4708-4709 of 2002)
SEPTEMBER 23, 2011
[R. V. RAVEENDRAN AND P. SATHASIVAM, JJ.]
Uttar Pradesh Excise Act, 1910:
c
s.29(e)(i) - Beer - Excisablity of - Stage when the beer
manufactured is exigible to duty -
Held: When the
fermentation process of wort is completed, it becomes an
alcoholic liquor for human consumption and there is no legal
impediment for subjecting beer to excise duty at that stage -
0
The State has legislative competence to levy excise duty on
beer either after the completion of the process of fermentation
.and filtration, or after fermentation - Excise laws - Liquor.
s. 28A -
Imposition of additional duty -
Excess
manufacturing wastage - Basis for determination - Held: The
E base measurement is taken in the fermentation vessel and
9% standard allowance is provided to cover losses on
account of evaporation, sul/age and other contingencies within
the Brewery- Uttar Pradesh Brewery Rules 1961 - r.53.
F
Constitution of India, 1950:
Seventh Schedule, List II, Entry 51 - Held: Entry 51
should be read not only as authorizing the imposition of an
excise duty, but also as authorizing a provision which prevents
evasion of excise duty - To ensure that there is no evasion
G of excise duty in regard to manufacture of beer, the State is
entitled to make a provision to prevent evasion of excise duty,
though it is leviable at the stage of issue from the brewery -
Excise - Liquor.
H
98
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
BREWERIES LTD. & ANR.
LIQUOR:
99
Beer - Process of Brewing - Discussed - Excise laws.
The instant appeals were filed ,by the State and the
Breweries. The appeals by the State related to imposition
of duty and additional duty on excess wastage in the
brewery. The appeals by the Breweries related to
imposition of duty and additional duty on excess bottling
wastage.
A
B
By impugned order, the High Court had directed the C
state government to decide the revision afresh "after
calculating the stock of beer for the pur.pose of
1;ariginal
Rule 53 of UP Brewery,Rules 1961 (Para 912 of UP Excise
Manual as it then existed) and section 28-A of the UP
Excise Act, 'when after filtration the same has assumed o
the shape as a finished product which is normally
consumed by human beings as beverage or drink" .. It
also held that the point at which the liquor manufactured
by the brewery is exigible to duty is at the stage, when
the beer is capable of being consumed by human beings
E
as a beverage comes into existence and the deficiency
should be worked. out with reference to measurement at
such stage. The High Court rejected the procedure
adopted by the appellants· that the process of
manufacture is complete and the liquor becomes exigible
F
to duty when the wort along with the yeast is received in
the fermenting vessels and ferments and that is the stage
of ascertaining excess manufacturing wastage. (excess
deficiency).
The stand of the Brewery was that the wastage G
allowance was to be given, not with reference to the
quantity in the fermentation tank, but with reference to the
quantity in the storage/bottling tanks (after completion of
fermentation and filtration process) when the
manufacturing process is complete and only bottling
H
100 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A remains; that the measurement should be taken only
when the manufacture is complete and not when it is still
in the process of manufacture; and the manufacture
process is completed not when the wort is in the
fermentation tank but only when the filtration process is
s finished.
The questions which arose for consideration in the
instant appeals were: At what stage does the. beer
manufactured is exigible to duty; and whether the
procedure adopted by the appellants for ascertainjng
C excess manufacturing wastage (excess deficiency) is
proper.
Disposing of the appeals, the Court
0
HELD: 1. The process of brewing beer involves
malting, mashing, boiling, fermentation, separation of
yeast from the beer, ageing and finishing. The fermented
alcoholic liquor that can be identified as 'beer' comes into
existence on completion of the process of fermentation.
E Ageing is carried out only in the manufacture of certain
types of beer, by storing beer in storage tanks for certain
period. Filtration removes the remaining yeast (the major
portion settles as sediment in the fermentation vats and
is removed as sullage) and then packed into barrels,
bottles or cans. The filtration, ageing and finishing are
F processes to remove impurities, improve the clarity, taste
and inc~ease shelf life. [Para 13] [121-C-E]
R. C. Jail Parsi vs. Union of India AIR 1962 SC 1281:
1962 Suppl. SCR 436; State of U.P. vs. Delhi Cloth Mills
G 1991 (1) SCC 454: 1990 (2) Suppl. SCR 168 - referred to.
H
Encyclopedia ~ritannica (15th Edition, Vol.14, Page
739); Wikipedia (http://en.wikipedia. org/wiki/Beer) -
referred to.
'.
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
101
BREWERIES LTD. & ANR.
Re: Question No. (i)
A
2. The words 'received in the bottling tank' obviously
referred to beer being received in any container or vessel
for storage, after fermentation and filtration. It may
however be noted that the said observation that beer is 8
exigible to excise duty only when it passes through the
fine filter press would apply only to the standard types
of beer which is sold in bottles and cans. Beer is also
supplied in casks and barrels, taken directly from
fermentation vessels without undergoing any filtration or
further processing, known as Draught (or Draft) beer. C
Such beer is unpasteurized and unfiltered (or even if
filtered, only in a limited manner and not fine filtered like
beer intended to be sold in bottles or cans). Para 29 of
Excise Manual (Vol.V Chapter XI) notes that
uncarbonated top fe.rmentation beer, which include D
draught beer are racked directly from the fermenting
vessel. Thus when the fermentation process of wort is
completed, it becomes an alcoholic liquor for human
consumption and there is no legal impediment for
subjecting beer to excise duty at that stage. Therefore, E
the State has legislative competence to levy excise duty
on beer either after the completion of the process of
fermentation and filtration, or after fermentation. Section
29 (e)(i) of the U.P. Excise Act, 1910 makes it clear that in
the case of beer manufactured in a brewery, excise duty F
may be levied, by a rate charged upon the quantity
produced or issued from the brewery or issued from a
warehouse. This means that in respect of beer that
undergoes the process of filtration, the exigibility to
excise duty will occur either at the end of filtration. G
process when it is received in storage/bottling tanks or '.
when it Is issued from the brewery. In regard to draught
beer drawn directly from fermentation vessels, without
further processing or filtration, the exigibility to excise
duty will occur either at the end of fermentation process H
102
SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A or when it is issued from the brewery. [Paras 22, 23) [133A-H]
Synthetics and Chemicals Ltd & Ors. vs. State of U.P. &
Ors. 1990 (1) SCC 109: 1989 {1) Suppl. SCR 623; State of
B · U.P. vs. Modi Distillery & Ors. 1995 (5) SCC 753: 1995 (3)
Suppl. SCR 119; Government of Haryana vs. Haryana
Breweries Ltd. & Anr. 2002 (4) SCC 547: 2002 (1) SCR 942
-- relied on.
c
Question No.(ii)
3.1. Entry 51 of List II of Seventh Schedule of the
Constitution of India should be read not only as
authorizing the imposition of an excise duty, but also as
authorizing a provision which prevents evasion of excise
0
duty. To ensure that there is no evasion of excise duty
in regard to any beer manufactured, the State is entitled
to make a provision to prevent evasion of excise duty,
though it is leviable at the stage of issue from the
brewery. The beer brewing process shows that once the
E wort ferments, it becomes consumable, though the
manufacturing process to have a finished product may
in some cases require filtration, aging carbonization etc.
To ensure that there is no t:vasion of excise duty by
diversion of beer (excisable article) before it becomes a
finished product, section 28A of the Act. has been
F enacted and that is implemented by Rule 53 of the
Brewery Rules, and Rule 7 of the Bottling Rules. The
Excise Inspector in-charge is required to take physical
stock of the beer in hand in the brewery periodically
(once a quarter prior to the amendment of 1975 and once
G in a month from July 1975) by dip and gravity of the
quantities in the fermentation vessels. Recourse to
section 28A of the Act will be held only when there is
abnormal deficiency or shortage in the actual quantity in
the brewery when compared to the quantity mentioned
· ~ in the stock account, that is more than 9%, which would
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
103
BREWERIES LTD. & ANR.
show evasion of excise duty. The standard procedure of A
levying excise duty is not on the quantity of excisable
article in the fermentation vessels. The standard
procedure is to levy excise duty when the beer is
removed from the brewery. The State was thus collecting
excise duty in the usual course with reference to the beer
B
after the entire manufacturing process was completed
when it is removed from the brewery. It resorted to
section 28A, Rule 53 of Brewery Rules and Rule 7 of
J3ottling Rules and levied double the amount of excise
duty (excise duty plus equal amount as additional duty) c
only in those months when the periodic examination
showed excessive manufacturing 'wastage'. The
procedure adopted was the most logical process to
ensure that excisable articles were not clandestinely
removed and to ensure that there is no evasion of excise 0
duty having regard to the brewing procedure. If the actual
stock assessed is less than the stock as per Stock
Account and the difference is less than S%, ~he difference
was ignored. Only if the difference exceeded 9%, the
quantity in excess of 9% was treated as the excess
E
wastage and excise duty and an equal amount as
additional duty was charged in regard to such excess.
For this purpose necessarily the quantity in the
fermentation vessels had to be considered. If the quantity ·
in the bottling tanks are to be taken as the basis, then
there will be no way of finding out whether there was any
F
siphoning off from the fermentation vessel or during
filtration process. Fermented wort is beer and it could be
removed from fermenting vessels or during storage or
filtration. Therefore, the base measurement is taken in the
fermentation vessel and 9% standard allowance is G
provided to cover losses on account of sullage etc.
[Paras 26, 28, 29] [134-B; 136-A-D; 137-C-H; 138-A·B]
3.2. The Act provides that levy of excise duty on beer ·
can not only be with reference to the quantity produced
H
104 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A and issued from a brewery, but can also be by calculating
the quantity of materials used or by the degree of
attenuation of the wash or wort, as the case may be, as
the State Government may prescribe. This means the
excise duty on the beer manufactured can be levied not
s only with reference to the actual quantity issued or
removed, but can also be by a rate charged in
accordance with a scale of equivalent, calculated on the
quantity of materials used or by the degree of attenuation
of the wash or wort prescribed by the State Government.
c The said alternative method of levying excise duty does
not depend upon the actual quantity manufactured or
issued. It is with reference to the deemed quantity
manufactured rather than the actual quantity
manufactured. Such a procedure has been in vogue in
0 England and it is permissible in India. Rule 42 of Chapter
XI of the Excise Manual (Vol. 5) gives a detailed
description of the attenuation method of charging duty
on beer. Therefore there is nothing wrong in adopting the
procedure prescribed in section 28A and Rule 53 of
Brewery Rules to determine the excess manufacturing
E wastage. [paras 30, 31] [138-C-E; 143-C]
3.3. When manufacturing process is complete and
the beer has reached storage/bottling tanks, there is no
question of any manufacturing loss. The allowance of 9%
F is made to cover loss due to evaporation, sullage and
other contingencies within the brewery. 9% is allowed as
loss in quantity because the quantity in fermentation tank
is measured and taken as the base and thereafter the
sullage/yeast heads are removed as sediment in the
G fermentation \iessels or by the filtration process and there
will also be certain amount of evaporation during the
process of filtration, racking and storage etc. If the
quantity measured after the fermentation and filtration
processes should be the base ·figure, for purpose of
allowance to cover loss on account of sullage,
H evaporation etc., there will be no need for granting any
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
105
BREWERIES LTD. & ANR.
allowance because once it have passed the filtration
A
stage the sullage and other impurities has been removed
and the beer is ready for being filled in barrels, casks or
bottles. The 9% allowance is for the wastages occurring
during the stages of fermentation and filtration and not
in regard to the stages between storage after filtration
B
and removal. The Brewery has virtually mixed up the.
issue relating to the question as to when beer is exigible
to excise duty with the question as to the quantity on
which the allowance of 9% should be granted. A
combined reading of rules 37 and 53 of Breweries Rules, c
with or without section 28A make it clear that the
allowance of 9% as losses in the brewery (10% as losses
'in the course of manufacture in the brewery prior to 1975)
is with reference to the quantity in the fermentation tank
and not with reference to the quantity of beer in the 0
storage/bottling tanks after filtration. A large allowance up
to 9% of the total stock of beer has been provided
towards wastage, only to cover the loss occurring from
fermentation stage to post-filtration stage, as the quantity
has been calculated with reference to the fermentation
E
vats and there will be considerable wastage due to
sullage and evaporation. Rules 37 and 53 of the
Breweries Rules (paras 896 and 912 of the Excise
Manual) also proceeded on that basis that the
measurement would be with reference to the quantities
in the fermentation vessels taken by dip and gravity
F
method. If the quantity measured in the storage/bottling
tanks (after filtration) should form the basis, there was no
occasion or need for making a huge allowance of 9% for
sullage, evaporation and other contingences, as there
· would be no sullage, evaporation or other wastages after G
that stage (that is completion of manufacture) and the
allowance under Section 28-A of the Act will become
redundant, except for the small percentage provided for
wastage during bottling and storage. [Paras 32-34, 36]
(142-D-H; 143-A-D-H; 144-A, D-E; 146-D]
H
106
SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A
3.4. When the quantity of the liquid in the
fermentation vessels were measured, on account of
fermentation, the liquid was already in the process of
conversion into an 'alcoholic liquor for human
consumption', though had not become a finished product
s of beer. Therefore, the principles in Baldev Singh _and A.
Sanyasi Rao, will apply and not the decision in Modi
Distillery. Therefore we hold that there is no infirmity in
the method adopted by the excise department to arrive
at the excess wastage or in making a demand for excise
c duty and additional duty in regard to such excess
wastage. [para 37] [147-E-F]
D
Ba/deo Singh vs. CIT 1961 (1) SCR 482; Union of India
vs. A. Sanyasi Rao and others 1996 (3) SCC 465: 1996 (2)
SCR 570 - relied on.
State of U.P. vs. Modi Distillery & Ors. 1995 (5) SCC 753:
1995 (3) Suppl. SCR 119 - held inapplicable.
4. In the appeals relating to demands made upon the
breweries for duty on excess wastage in bottling and
E storage of beer, the appellant breweries were holding
bottling licences in form No.FL3 to bottle beer, governed
by the U.P. Bottling of Foreign Liquor Rules, 1969. Rule
6 provides that every licence granted in Form No. FL3
shall be subject to the conditions enumerated therein.
F Rule 7 enumerates the additional special conditions
applicable to bottling of India made liquor in bond under
FL3 licence. Rule 53 of Brewery Rules made in 1961 (para
912 of the Excise manual) before the amendment on
19. 7.1975 provided for allowance of a deficiency not
G exceeding 10% to cover losses in bulk due to
evaporation, sullage and other contingencies within the
brewery. At that time a separate licence for bottling was
not contemplated. The Bottling Rules made in 1969
provided for an allowance of one percent loss in bottling
H and storage. On 19.7.1975, Rule 53 (para 912 of Excise
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
107
BREWERIES LTD. & ANR.
manual) was substituted and the allowance to cover A
losses due to evaporation, sullage and other
contingencies within the brewery was reduced to 9% in
view of the provision in the Bottling Rules providing for
an allowance of one percent for losses in bottling and
storage. Section 28A was inserted by U.P. Act 9 of 1978
B
(with a provision that the section shall be deemed always
to have been inserted) providing for an allowance to a
total extent of 10% in regard to losses within the brewery
and the losses in bottling and storage. It is not in dispute
that the process of brewing beer and the process of C
bottling beer are considered to be distinct and separate
processes governed respectively by the Brewery Rules
and Bottling Rules. The operations connected with
bottling are required to be conducted in a separate
premises under a different licence. The process of
bottling begins with the transfer of bulk beer from the
D
brewery for bottling. Sub-section (2) of section 28A refers
to an allowance to an extent of 10% not only in regard to
losses within the brewery but also to cover losses in
bottling and storage. Rule 53 of the Brewery Rules and
Rule 7(11) of the Bottling Rules when read conjointly
E
show that the said rules are supplementary to each other
and together implement section 28A of the Act. At all
events, the validity of neither Rule 53 . of Brewery Rules
nor Rule 7(H) of Bottling Rules is under challenge. The
brewery having obtained the bottling licence subject to
F
the special conditions which include the condition in Rule
7(11) of the Bottling Rules, cannot ignore the said Rule
and contend that the allowance for losses in bottling
could be more than one percent, that is upto ten per cent.
In view of that, there is no merit in the contention of the. G
breweries that they are entitled to allowance of ten per
cent towards losses in bottling and storage after the
excisable article has left the Brewery. [Paras 39, 40, 42,
43] [148-B; 15o":B-C; 151-H; 152-A-H; 153-A]
H
108 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A
Mohan Meakin Ltd. v. Excise & Taxation Commissioner,
H.P. 1997 (2) sec 193: 1996 (9} Suppl. SCR 258 - relied
on.
Case Law Reference:
B
1962 Suppl. SCR 436
referred to
Para 16
1989 (1) Suppl. SCR 623 relied on
Paras 17, 21
1990 (2) Suppl. SCR 168 referred to
Para 18
c
1996 (9) Suppl. SCR 258 relied on
Para 19, 22
2002 (1) SCR 942
relied on
Para 20, 21, 31
1995 (3) Suppl. SCR 119 referred to
Para 21
1961 (1) SCR 482
relied on
Para 26
D
1996 (2) SCR 570
relied on
Para 27
1995 (3) Suppl. SCR 119 held inapplicable Para 37
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
E 4708-4709 of 2002.
F
G
H
From the Judgment and Order dated 15.03.2002 of the
High Court of Judicature at Allahabad in C.M.W.P. Nos. 3968
and 4043 of 1978.
Dinesh Dwivedi, H.N. Salve, Salman Khurshid, Rakesh
Kumar Khanna, Ravi Prakash Mehrotra, Garvesh Kabra, Dr.
Rashmi Khanna, Surya Kant, Suruchi Aggarwal, Riteesh Singh,
Jhanvi Woraha, Pranav Vyas arid Faizy Ahmad Syed for the
appearing parties.
The Judgment of the Court was delivered by
R.V. RAVEENDRAN J. 1. Civil Apf'eal Nos.4708-4709
of 2002 are filed by the State of Uttar Pradesh aggrieved by
the common order dated 15.3.2002 of the Allahabad High
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
109
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
Court allowing CMWP No.3968of1978 and CMWP No.4043
A
of 1978 filed by two Breweries. Civil Appeal Nos.4710, 4711,
4712 and 4713 of 2002 are filed by the Breweries aggrieved
by the said common order dated 15.3.2002, dismissing their
writ petitions - CMWP Nos.1375 of 1978, 3690 of 1979, 4136/ ·
1978 and 4157 /1978. The appeals by the state relate to
B
imposition of duty and additional duty on excess .wastage in the
brewery. The appeals by the Breweries relate to imposition of
1duty and additional duty on excess bottling wastage.
Civil Appeal No.4708 of 2002
c
2. The first respondent (for short the 'Brewery') held a
Brewery Licence issued under section 18(c) of the Uttar
Pradesh Excise Act, 1910 ('Act' for short) in Form-B1 and a
Bottling Licence for bottling liquor for sale issued under section
17(1 )(d) of the Act in Form FL-3. The Brewery was carrying on
D
the manufacturing of beer and bottling of beer in bond, under
the said licences.
3. The Excise Inspector in-charge of the Brewery maintains
a Register of manufacture and issue of beer in Form B-16. The
E
Excise Inspector is required to examine the accounts of the
brewery and take stock of the beer in hand in the brewery, on
the last working day of every calendar month (prior to 19.7.1975,
such examination was required to be done at the end of each
quarter) after all the issues for that day are made. If he found
F
that the. actual quantity of beer in stock in the brewery was, less
than the quantity shown in the stock account, but the deficiency
did not exceed 9%, he had to disregard the same as allowance
upto 9% was permitted to cover the losses due to evaporation,
sullage and other contingencies. But where the deficiency
exceeded 9%, he was required to enquire into the cause and
G
submit a report of the result to the Excise Commissioner in that
behaif. The Excise Inspector in-charge, was accordingly
sending reports to the Excise Commissioner whenever there
was excess we.stage in the case of the first respondent brewery.
The Excise Commissioner issued show-cause notice giving
H
110
SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A opportunity to the Brewery to explain the excess wastage. After
considering the explanation, the Excise Commissioner found
that there was no satisfactory explanation and made ten orders
between 26/28.6.1966 and 24.11.1973 in regard to excess
'manufacturing wastage' during the period September, 1963
B to March, 1973, and levied and demanded in all '81,94,310/-
as excise duty and an equal amount as additional duty in regard
to the deficiency in excess of 9% of the total stock of beer (10%
prior to 19.7.1975). The said orders were challenged by the first
respondent by filing a revision before the state government. The
c state government by order dated 12.4.1978 dismissed the
revision petition and upheld the demands by the Excise
Commissioner.
4. The first respondent challenged the orders of the Excise
Commissioner and the state government in Civil Misc. Writ
D Petition No.3968 of 1978. A Division Bench of the High Court
allowed the said writ petition with other connected petitions by
a common order dated 15.3.2002. It quashed the revision order
dated 12.4.1978 and directed the state government to decide
the revision afresh "after calculating the stock of beer for the
E purpose of original Rule 53 of UP Brewery Rules 1961 (Para
912 of UP Excise Manual as it then existed) and section 28-A
of the UP Excise Act, when after filtration the same has
assumed the shape as a finished product which is normally
consumed by human beings as beverage or drink". In short the
F High Court has held that the point at which the liquor
manufactured by the brewery was exigible to duty was at the
stage, when the beer is capable of being consumed by human
beings as a beverage, comes into existence and the deficiency
should be worked out with reference to measurement at such
G stage. The High Court rejected the contention of the appellants
that as soon as wort along with yeast is received in the
fermenting vessels and ferments, the process of manufacture
is complete. Feeling aggrieved by the decision of the High
Court, the appellant has filed this appeal.
H
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
111
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
Contention of Parties
A
5. The State contends that the liquor becomes exigible to
duty when the wort (processed extract of malt) along with yeast
· is received in the fermenting vessels and ferments. It is
contended that as the wort is placed in the fermentation tanks
8
and the yeast is added to it, fermentation starts immediately
with the conversion of sugar into alcohol. After the addition of
yeast when alcohol is first formed, the liquid in the. ferr.1entation
tank becomes alcoholic liquor for human consumption. It is
pointed out that Entry 51 of List II of Seventh Schedule uses
the words "alcoholic liquor for human consumption" and not C
"alcoholic liquor fit for human consumption" and therefore, beer
is 'manufactured' when the fermenting agents are added to the
wort and fermentation process commences. The State
contended that excise duty is leviable on the manufacture and
production of goods; and that the stage at which it should be
D
imposed, the manner of collection thereof and the rate at which
it is to be imposed, are matters within the discretion of the
State. It is lastly submitted that the power to impose a tax or
duty implicitly carries with it the power to provide against
evasion thereof. It is submitted that what is in issue is not levy
E
of excise duty, but the validity of measures introduced to identify
the unauthorised or illegal diversion of beer resulting in evasion
of excise duty.
6. The case of the state government as put forth in the
F
counter affidavit to the writ petition is extracted thus: VVort is
passed into the fermentation vat and fermenting yeast are
added to the wort by a simultaneous process. As soon as the
wort along with yeast is received in the fermenting vessels or
fermenting vat, it ferments and process of manufacture of beer
is complete. It is gauged to find out its quantity and this quantity G
is entered in the resister in Form B-4. In the said register in
Form-84 the dip and gravity of the wort is taken. As
fermentation starts simultaneously the quantity determined by
dip and gravity is taken to be beer produced. On the register
in Form B-4 the Brewers put in their initials. It is denied that
H
112
SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A
process of manufacture of beer ends when sullage and yeast
calls are removed by filtration. In fact quantity of yeast and
sullage filtered out may vary frorn one filtration to another in
different process. Even after filter beer contains both some
yeast and sullage and petitioner cannot say that he is only
B
entitled to pay excise duty on such quantity after excluding all
such yeast and sullage. The filtration is only a process to make
it more marketable in this competitive business but could not
be part of manufacture. The event of excisable article going into
human consumption has no connection with the taxable event
c in the case of excise duty and excise duty is imposed at the
stage of manufacture of goods and not at the stage of excisable
article going into human consumption.
7. The Brewery contended that the stage for levy and
0
realisation of excise duty on beer was the stage of issue of beer
from the brewery/bottling bonded warehouse after complying
with the statutory provisions and regulations prescribed for
bottling and issue for sale. It was submitted that no excise duty
could be imposed prior to the stage of occurrence of the
excisable event, namely the issue of beer from the brewery/
E
bottling bonded warehouse for sale and human consumption.
Alternatively, it was submitted that beer manufactured was
exigible to duty at the time or stage when the finished product
(bee') is received in the storage/bottling tanks, after filtration
and not at any earlier stage of manufacturing process. It is
F
submitted that the system of collection of excise duty on beer,
does not permit levy or realisation of any amount by way of
excise duty or fine on the quantity of beer which is wasted in
the manufacturing process before it become exigible to excise
duty. It is contended that the legislative competence to levy
G excise duty under Entry 51 (a) of List II of Seventh Schedule to
Constitution of India is with reference to 'alcoholic liquors for
human consumption'. As the wort solution cannot be described
as alcoholic liquor for human consumption at the stage of
fermentation and filtration, the state government cannot levy any
H excise duty or additional duty equal to excise duty, in regard to
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
113
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
wastage which occurs with reference a material which is not
A
'alcoholic liquor for human consumption'. It is contended that
the levy of excise duty/additional duty by the Excise
Commissioner was on the deficiency, that is, the difference
between the quantities of wort and finished product (beer),
which comprises of the scum, yeast cells brought on top ·of
B
fermenting wort, carbon-di-oxide evolved, sullage etc., settled
at the bottom of vats which impurities are to be eliminated
before beer could be said to be manufactured or could be
described as an alcoholic liquor for human consumption. It is
contended that the Excise authorities had calculated the c
deficiency in the stock of beer in a wrong manner; and that
while taking stock of beer in the brewery, for the purpose of
calculating the allowance the authorities have taken the product
at an intermediate stage in the process of manufacture instead
of taking stock of the finished product.
o
8. The relevant contentions of the Brewery in the writ
petition are extracted below :
(i) The process of manufacturing beer ends when the
sullage and yeast cells are removed by filtration and
E
fermentation ceases and the manufactured bulk beer is ready
to be transferred : (a) for bottling in bond; and (b) to casks for
sale and human consumption as draught beer. [Vide para 8
of the WP].
(ii) The method adopted by the Excise department in
working out the deficiency in stock is erroneous. What was
required under paragraph 912 of Excise Manual was to
compare the stock of manufactured beer as mentioned in the
stock account of beer and the actual stock of beer giving
allowance for the quantity issued. What has been done in the
G
instant case is to assume certain quantity as part of the stock
account of beer which was not beer and was undergoing the
process of manufacture into beer. Similarly the quantity of beer
issued from the Brewery has not been taken in its entirety to
be the quantity of beer issued. The quantity issued has been . H
F
114
SUPREME COURT REPORTS [2011) 14 (ADDL.) S.C.R.
A
equated with the quantity actually bottled with the result that the
quantity of beer which has been wasted in the process of
bottling has been treated to be part of the stock of beer in the
beer account. [Vide para 61]
8
(iii) If the quantity of beer which is actually issued for bottling
from the brewery is taken into account in its entirety for purposes
of the stock account, the percentage of deficiency between the
stock account of beer and the actual quantity of beer found on
physical verification will be below 10% [Vide para 63].
C
(iv) What is being subjected to the levy of penalty or penal
duty before becoming a manufactured saleable article is the
deficiency between the wort and the finished beer for sale,
comprising of scum and yeast cells brought on top of fermenting
wort, carbon dioxide evolved, sullage etc. settled at the bottom
D of vats which impurities have to be eliminated etc. before beer
could become saleable. Thus what has not come to exist as
such saleable goods cannot be termed as excisable article.
[Vide para 93(b))"
Questions for consideration
E
9. On the contentions urged, the following two questions
arise for our consideration:
(i)
At what stage does the beer manufactured is
F
exigible to duty?
(ii)
Whether the procedure adopted by the appellants
for ascertaining excess manufacturing wastage
(excess deficiency) is proper?
G
To appreciate these issues and find answers to the questions,
it is necessary to refer to the process of manufacture of beer,
the relevant provisions of the UP Excise Act, 1910 (For short
'the Act') and the relevant Brewery Rules.
H
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
115
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
Process of manufacture of Beer
A
10. Encyclopaedia Britannica (15th Edition, Vol.14, Page
739) describes the stages of brewing process thus :
"Beer production involves malting, milling, mashing, extract
separation, hop addition and boiling, removal of hops and
B
precipitates, cooling and aeration, fermentation, separation
of yeast from young beer, aging, maturing, and packaging.
The object of the entire process is to convert grain starches
to sugar, extract it with water, and then ferment it with yeast
to produce the alcoholic, lightly carbonated beverage."
C
As the description of the brewing process given in
Encyclopaedia Britannica is detailed and very lengthy, we have
opted for the following shorter and simpler description of the
brewing process given in Wikipedia (http://en.wikipedia. org/ d
wiki/Beer) which is in consonance with what is stated in
Encyclopaedia Britannica :
"The process of making beer is known as brewing. A
dedicated building for the making of beer is called a
brewery ...... The purpose of brewing is to convert the
E
starch source into a sugary liquid called wort and to convert
the wort into the alcoholic beverage known as beer in a
fermentation process effected by yeast.
The first step, where the wort is prepared by mixing the
F
starch source (normally malted barley) with hot water, is
known as "mashing". Hot water (known as "liquor" in
brewing terms) is mixed with crushed malt or malts (known
as "grist") in a mash tun. The mashing process takes
around 1 to 2 hours, during which the starches are
G
converted to sugars, and then the sweet wort is drained
off the grains. The grains are now washed in a process
known as "sparging". This washing allows the. brewer to
gather as much of the fermentable liquid from the grains
.as possible. The process of filtering the spent grain from
H
A
B
c
D
E
F
G
H
116
SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
the wort and sparge water is called wort separation. The
traditional process for wort separation is lautering, in which
the grain bed itself serves as the filter medium. Some
modern breweries prefer the use of filter frames which
allow a more finely ground grist. Most modern breweries
use a continuous sparge, collecting the original wort and
the sparge water together. However, it is possible to collect
a second or even third wash with the not quite spent grains
as separate batches. Each run would produce a weaker
wort and thus a weaker beer. This process is known as
second (and third) runnings.
The sweet wort collected from sparging is put into a kettle,
or "copper", (so called because these vessels were
traditionally made from copper) and boiled, usually for
about one hour. During boiling, water in the wort
evaporates, but the sugars and other components of the
wort remain; this allows more efficient use of the starch
sources in the beer. Boiling also destroys any remaining
enzymes left over from the mashing stage. Hops are
added during boiling as a source of bitterness, flavour and
aroma. Hops may be added at more than one point during
the boil. The longer the hops are boiled, the more bitterness
they contribute, but the less hop flavour and aroma remains
in the beer.
After boiling, the hopped wort is now cooled, ready for the
yeast. In some breweries, the hopped wort may pass
through a h,opback, which is a small vat filled with hops, to
add aromatic hop flavouring and to act as a filter; but
usually the hopped wort is simply cooled for the fermenter,
where the yeast is added. During fermentation, the wort
becomes beer in a process which requires a week to
months depending on the type of yeast and strength of the
be.er. In addition to producing alcohol, fine particulate
matter suspended in the wort settles during fermentation.
Once fermentation is complete, the yeast also settles,
STATE OF U.P. & ORS. v. MIS MOHAN MEAKIN
117
BREWERIES LTD. & ANR. [R.V. RAVEENDRAN, J.]
leaving the beer clear.
A
Fermentation is sometimes carried out in two stages,
primary and secondary. Once most of the alcohol has
been produced during primary fermentation, the beer is
transferred to a new vessel and allowed a period of
B
secondary fermentation. Secondary fermentation is used
when the beer requires long storage before packageing
or greater clarity. When the beer has fermented, it is
packaged either into casks for cask ale or kegs, aluminium
cans, or bottles for other sorts of beer."
11. We may next extract the definition of beer, stages of
manufacture of beer, and the fermentation process described
in Chapter XI (Brewing) from UP Excise Manual (Volume-V) :
c
"Beer defio_ed - The term 'beer' as used in the Indian o
Excise Law, refers to 'fermented, undistilled liquors, of
which malt is the primary base, and are flavoured with a
wholesome bitter usually hops'. Beer therefore includes
ale, beer, black beer, porter, stout, etc., and the precise
manufacture of these products is termed "brewing".
E
Lager beers - The beers mentioned above are prepared
by what is known as a 'top fermentation process; the
yeasts employed are designated 'top yeasts and the
products 'top fermentation beers'. In contradistinction to the
above, lager beers -are prepared by employing 'bottom
F
yeasts' and the process is termed 'bottom fermentation'.
'Barley - The fermenting raw material commonly used in
production of beers are (a) Barley, (b) Barley Malt (or Malt),
(c) other unmalted cereals such as maize or rice, which
G
are employed as grits, broken rice or flakes and maize
starch, (d) sugars derived almost exclusively from
sugarcane and maize starch, such as, cane sugar, invert,
etc. The latter two viz,. (c) and (d) are known as 'malt
adjuncts' as they partially replace the malt.
H
118
SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A
Manufacture of beer may be considered under the
following five stages :
B
c
D
E
F
G
H
(a)
Preparation of the malt from Barley.
(b)
Infusion of the ground malt or 'grist' and straining
the resultant extract or wort.
(c)
Boiling the wort with hops or other bitters, straining
of the hops and cooling.
(d)
Fermenting the wort.
(e)
Settling, Racking, cellar treatment and bottling.
Fermentation
Unlike Whisky fermentation, fermentation of beer is
conducted in England by employing top fermentation yeast
and the different systems only differ in the flocculation and
attenuating power of the yeast employed, while in bottom
fermentation breweries producing larger beers. The yeast
is generally mixed with a small quantity of wort at 65 F and
poured into the incoming wort, or if the yeast required in
vogorating, it is allowed to come into·active fermentation
before addition to the fermenting vessel.