# STATE OF UP THROUGH SECRETARY (EXCISE) & ORS v. M/S MCDOWELL AND COMPANY LIMITED

- **Citation:** [2022] 3 S.C.R. 899
- **Court:** Supreme Court of India
- **Decided:** 2022-01-05
- **Case number:** Civil Appeal Nos. 169-170 of 2022
- **Bench:** A. M. Khanwilkar, Dinesh Maheshwari, Krishna Murari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-up-through-secretary-excise-ors-v-m-s-mcdowell-and-company-limited-36050
- **Pages:** 63

## Headnote

Uttar Pradesh Excise Act, 1910: Uttar Pradesh Excise Manual
- Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 - In the
instant case, fire incident took place in godown of distillery of the
respondent company in which liquor got destroyed - Excise
Department raised demand of excise duty on the liquor destroyed
from the respondent company - Whether the demand in question is
authorised by law - Held: s.19 of the Act 1910 states that no
intoxicant can be removed from the distillery unless duty leviable
thereupon has been paid - Liquor that was lying stored in the bonded
warehouse had already become subject to the excise duty - Taxable
event was production or manufacture and not sale - r.7(11) of the
Rules of 1969 is required to be taken into account for the legal
consequences that so far as the bottled spirit is concerned, the
licencee remains responsible for payment of duty on any kind of
wastage in excess of 1% - Rule 709 of the Excise Manual makes it
clear that the distillery remains responsible for safe custody of the
stock of spirit and remains liable to make good any loss of revenue
caused to the Government by their negligence - Therefore demand
of excise duty cannot be said to be unauthorized by law -
Constitution of India - Art.265.
Uttar Pradesh Excise Act, 1910: Uttar Pradesh Excise Manual
- Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 - Fire
incident took place in godown of distillery of the respondent
company in which liquor got destroyed - Whether respondent
company remains liable to pay excise duty on the liquor lost in fire
- Held: In the scheme of the Act of 1910, the Rules of 1969 and the
Excise Manual, it is evident that the Government is not liable for
destruction, loss or damage of any spirit stored in distillery by fire
or theft or any other cause - Distillery is made responsible for safe
A
B
C
D
E
F
G
H
900
SUPREME COURT REPORTS
[2022] 3 S.C.R.
custody of the stock of spirit and is also made liable to make good
any loss of revenue caused to the Government by their negligence
- The rules provide for strict supervision and control of the Excise
Department over the working of distillery at every stage but that
supervision and control does not correspondingly absolve the
distillery of its duty and responsibility towards safe custody of the
stock - The warehouse in question indeed got engulfed in fire and
that led to destruction of the liquor stored therein - The respondent
company could be held liable to pay the excise duty on the liquor
destroyed in fire only if it could be held negligent in not ensuring
safe custody of the stored liquor -In the present case, nothing has
happened by natural forces like storm, floods, lightning or
earthquake - Hence, the fire incident in question cannot be termed
as an act of God - Even when the exact cause of fire could not be
ascertained, the only inference by considering the reports of
Assistant Excise Commissioner could be about some fault or
shortcoming in electric installations which led to the abnormal flow
of current and thereby, to the fire incident in question - It is difficult
to accept that the fire and the resultant loss had been beyond the
control of human agency so as to be termed as inevitable accident
- When the respondent had not been able to protect the goods in
question from fire within the warehouse and when all other factors,
as noticed above, are taken into account, the negligence as
contemplated in Rule 709 of the Excise Manual is directly
attributable to the respondent company - Further, the fact that the
respondent company had taken insurance coverage only of the value
of liquor (and not that of excise duty thereupon) and then, had
received the insurance claim towards the value of liquor also
operates against the respondent company and fortifies the conclusion
about negligence of the respondent company.
Allowing the appeal, the Court
HELD: 1. In terms of Article 265 of the Constitution, both
levy and collection of tax must be authorised by

## Text

_Characters 0–39,936 of 149,656. This is a partial read: ask again with offset=39936 for what follows._

A
B
C
D
E
F
G
H
899
[2022] 3 S.C.R. 899
899
STATE OF UP THROUGH SECRETARY (EXCISE) & ORS.
v.
M/S MCDOWELL AND COMPANY LIMITED
(Civil Appeal Nos. 169-170 of 2022)
JANUARY 05, 2022
[A. M. KHANWILKAR, DINESH MAHESHWARI AND
KRISHNA MURARI, JJ.]
Uttar Pradesh Excise Act, 1910: Uttar Pradesh Excise Manual
- Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 - In the
instant case, fire incident took place in godown of distillery of the
respondent company in which liquor got destroyed - Excise
Department raised demand of excise duty on the liquor destroyed
from the respondent company - Whether the demand in question is
authorised by law - Held: s.19 of the Act 1910 states that no
intoxicant can be removed from the distillery unless duty leviable
thereupon has been paid - Liquor that was lying stored in the bonded
warehouse had already become subject to the excise duty - Taxable
event was production or manufacture and not sale - r.7(11) of the
Rules of 1969 is required to be taken into account for the legal
consequences that so far as the bottled spirit is concerned, the
licencee remains responsible for payment of duty on any kind of
wastage in excess of 1% - Rule 709 of the Excise Manual makes it
clear that the distillery remains responsible for safe custody of the
stock of spirit and remains liable to make good any loss of revenue
caused to the Government by their negligence - Therefore demand
of excise duty cannot be said to be unauthorized by law -
Constitution of India - Art.265.
Uttar Pradesh Excise Act, 1910: Uttar Pradesh Excise Manual
- Uttar Pradesh Bottling of Foreign Liquor Rules, 1969 - Fire
incident took place in godown of distillery of the respondent
company in which liquor got destroyed - Whether respondent
company remains liable to pay excise duty on the liquor lost in fire
- Held: In the scheme of the Act of 1910, the Rules of 1969 and the
Excise Manual, it is evident that the Government is not liable for
destruction, loss or damage of any spirit stored in distillery by fire
or theft or any other cause - Distillery is made responsible for safe
A
B
C
D
E
F
G
H
900
SUPREME COURT REPORTS
[2022] 3 S.C.R.
custody of the stock of spirit and is also made liable to make good
any loss of revenue caused to the Government by their negligence
- The rules provide for strict supervision and control of the Excise
Department over the working of distillery at every stage but that
supervision and control does not correspondingly absolve the
distillery of its duty and responsibility towards safe custody of the
stock - The warehouse in question indeed got engulfed in fire and
that led to destruction of the liquor stored therein - The respondent
company could be held liable to pay the excise duty on the liquor
destroyed in fire only if it could be held negligent in not ensuring
safe custody of the stored liquor -In the present case, nothing has
happened by natural forces like storm, floods, lightning or
earthquake - Hence, the fire incident in question cannot be termed
as an act of God - Even when the exact cause of fire could not be
ascertained, the only inference by considering the reports of
Assistant Excise Commissioner could be about some fault or
shortcoming in electric installations which led to the abnormal flow
of current and thereby, to the fire incident in question - It is difficult
to accept that the fire and the resultant loss had been beyond the
control of human agency so as to be termed as inevitable accident
- When the respondent had not been able to protect the goods in
question from fire within the warehouse and when all other factors,
as noticed above, are taken into account, the negligence as
contemplated in Rule 709 of the Excise Manual is directly
attributable to the respondent company - Further, the fact that the
respondent company had taken insurance coverage only of the value
of liquor (and not that of excise duty thereupon) and then, had
received the insurance claim towards the value of liquor also
operates against the respondent company and fortifies the conclusion
about negligence of the respondent company.
Allowing the appeal, the Court
HELD: 1. In terms of Article 265 of the Constitution, both
levy and collection of tax must be authorised by law. By virtue of
Entry 51 of List II, the State has been authorised to impose duty
of excise on alcoholic liquors for human consumption
manufactured or produced in the State. As per Section 19, no
intoxicant can be removed from the distillery or the place of
A
B
C
D
E
F
G
H
901
storage unless the duty leviable thereupon has been paid or a
bond has been executed for the payment thereof. Considering
the overall scheme of the Act and the Rules, it may not be out of
place to interpret the expression "removal" in Section 19 to
include wastage in excess of permissible limit of total quantity of
spirit produced or manufactured and stored. A comprehensive
look at the scheme of Sections 17 to 19 and 28 and 29 of the Act
of 1910 and the enunciations of this Court leave nothing to doubt
that in respect of the liquor that had undergone the process of
distillation, exigibility to excise duty had occurred at the end of
the distillation process or when it was issued from the distillery.
The point of quantification of this duty, even if linked in point of
time to the date of issue for sale in terms of proviso to Section
29, does not relate to the 'event of chargeability' that had occurred
as soon as the liquor was distilled and received in the bottling
tank or had been otherwise issued from distillery. In other words,
the liquor that was lying stored in the bonded warehouse had
already become subject to the excise duty, with postponement of
actual charging of the duty as per the rate applicable on the date
and time of issue for sale from the warehouse. It gets perforce
reiterated that taxable event was production or manufacture, and
not sale, of the liquor. In this view of the matter, the submission
that the levy in question is not authorised by law, and is hit by
Article 265 of the Constitution of India, remains untenable. [Paras
39, 41] [937-E-F; 940-B-F]
2.1 Rule 7(11) of the Rules of 1969 is required to be taken
into account for the legal consequences that so far as the bottled
spirit is concerned, the licencee remains responsible for payment
of duty on any kind of wastage in excess of 1%. Coupled with this
provision, Rule 709 of the Excise Manual makes it clear that the
distillery remains responsible for safe custody of the stock of
spirit and remains liable to make good any loss of revenue caused
to the Government by their negligence. Therefore, the demand
in question cannot be said to be unauthorised but, its validity
would depend on answer to the question as to whether negligence
could be imputed on the respondent company in terms of Rule
709 of the Excise Manual. [Paras 44, 45][941-H; 942-A-C]
STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S
MCDOWELL AND COMPANY LTD.
A
B
C
D
E
F
G
H
902
SUPREME COURT REPORTS
[2022] 3 S.C.R.
2.2 The present one had not been a case where anything
related with the forces of nature like storm, floods, lightning or
earthquake had been in operation or caused the fire. When
nothing of any external natural force had been in operation in
violent or sudden manner, the event of the fire in question could
be referable to anything but to an act of God in legal parlance.
The observations of High Court in this regard do not appear sound
and are required to be disapproved. [Para 55][952-A-B]
2.3 The warehouse in question indeed got engulfed in fire
and that led to destruction of the liquor stored therein. Here, the
respondent company could be held liable to pay the excise duty
on the liquor destroyed in fire only if it could be held negligent in
not ensuring safe custody of the stored liquor. As regards this
aspect, the fact that Department had control and supervision over
the distillery and godown would not absolve the respondent of
its liability. Further, the fire incident in question cannot be termed
as an "act of God". [Para 59][955-D-E]
3. The fault of "negligence" need not always be of active
negligence or of gross negligence, but it may also be of an
inadvertent negligence or of a passive negligence. It does not
require much of discussion to say that the goods in question,
being highly inflammable, required extra and excessive care for
their safe custody; and any laxity or slackness in that regard was
impermissible. To put it differently, what was required for
ensuring safe custody of the goods in question was that of
heightened safeguard measures with foresight. When the
respondent had not been able to protect the goods in question
from fire within the warehouse and when all other factors, are
taken into account, the negligence as contemplated in Rule 709
of the Excise Manual is directly attributable to the respondent
company. In other words, even if the present case is taken to be
that of inadvertence or of unintentional omission on the part of
the respondent company, it would fall within the definition of
"negligence" for the purpose of Rule 709 of the Excise Manual.
[Para 63][958-A-D]
A
B
C
D
E
F
G
H
903
4. The liability of the respondent company in this matter is
rather fortified from the facts that it had taken insurance coverage
of the value of liquor and indeed received such claim from the
insurer. Further, failure to insure the risk of excise duty liability
cannot extricate the respondent from that liability. Hence, this
Court agreed with the appellants, that not taking of insurance
coverage of the excise duty while taking such coverage on the
value of liquor itself amounts to negligence on the part of the
respondent company. [Paras 67, 69][959-A; 960-A-D]
Somaiya Organic (India) Pvt. Ltd. and Anr. v. State of
U.P. and Anr. (2001) 5 SCC 519 : [2001] 3 SCR 33;
State of U.P. & Ors. v. Delhi Cloth Mills & Anr. (1991)
1 SCC 454 : [1990] 2 Suppl. SCR 168; State of U.P.
and Ors. v. M/s Mohan Meakin Brewery Ltd. and Anr.
(2011) 13 SCC 588 : [2011] 14 SCR 98; Vohra
Sadikbhai Rajakbhai & Ors. v. State of Gujarat and
Ors: (2016) 12 SCC 1 : [2016] 2 SCR 772; Patel
Roadways Limited v. Birla Yamaha Limited (2000) 4 SCC
91 : [2000] 2 SCR 665 - relied on.
Divisional Controller, KSRTC v. Mahadeva Shetty and
Ors. (2003) 7 SCC 197: [2003] 2 Suppl. SCR 14; Har
Shankar and Others v. Deputy Excise & Taxation
Commissioner and Others (1975) 1 SCC 737 : [1975]
3 SCR 254; State of U.P. and Others v. M/s Modi
Distillery Etc. (1995) 5 SCC 753 : [1995] 3 Suppl. SCR
119; Dharampal Satyapal v. Commissioner of Central
Excise, Noida (2004) 167 ELT 291; Grill v. General
Iron Screw Colliery Co. (1866) L.R. 1 C.P; State of
Maharashtra and Ors. v. Kanchanmala Vijaysing Shirke
and Ors. (1995) 5 SCC 659 : [1995] 3Suppl. SCR 1;
Shyam Sunder and Ors. v. The State of Rajasthan (1974)
1 SCC 690 : [1974] 3 SCR 549; Scott v. London & St.
Katherine Docks (1865) 3 H&C 596, 601; Pushpabai
Purshottam Udeshi and Ors. v. M/s. Ranjit Ginning &
Pressing Co. (P) Ltd. and Anr. (1977) 2 SCC 745 :
[1977] 3 SCR 372 - referred to.
STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S
MCDOWELL AND COMPANY LTD.
A
B
C
D
E
F
G
H
904
SUPREME COURT REPORTS
[2022] 3 S.C.R.
Case Law Reference
[2003] 2 Suppl. SCR 14
referred to
Para 19
[2016] 2 SCR 772
relied on
Para 19
[2000] 2 SCR 665
relied on
Para 19
[1975] 3 SCR 254
referred to
Para 21
[1995] 3 Suppl. SCR 119
referred to
Para 21
[2011] 14 SCR 98
relied on
Para 22
[2001] 3 SCR 33
relied on
Para 27
[1990] 2 Suppl. SCR 168
relied on
Para 39.1
[1995] 3 Suppl. SCR 1
referred to
Para 51
[1974] 3 SCR 549
referred to
Para 58.1
[1977] 3 SCR 372
referred to
Para 58.2
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 169170 of 2022.
From the Judgment and Order dated 10.04.2017 of High Court of
Judicature at Allahabad, Lucknow Bench, Lucknow in Misc. Bench No.
4493 of 2006.
Ms. Aishwarya Bhati, ASG, Samar Vijay Singh, Ms. Celeste
Agarwal, Ms. Prabjot Kaur, Advs. for the Appellants.
Dinesh Dwivedi, Sr. Adv., Niraj Gupta, Mrs. Anshu Gupta, Advs.
for the Respondent.
The Judgment of the Court was delivered by
DINESH MAHESHWARI, J.
Contents*
Preliminary and brief outline.......................................................2
Relevant factual aspects and background: The fire incident
and demand of excise duty on the liquor destroyed...................6
Before the fire...........................................................................6
The fire incident and relevant reports.........................................8
Demand of excise duty on the liquor lost in fire.......................11
*Ed. Note : The pagination in the contents is as per the original judgment.
A
B
C
D
E
F
G
H
905
Writ petition in the High Court and interim order therein........17
Impugned orders dated 10.04.2017 and 06.11.2019:
High Court allowed the writ petition and passed
consequential orders.................................................................18
Rival submissions......................................................................21
Questions for determination......................................................33
Relevant statutory provisions....................................................34
Whether the demand in question is authorised by law?................41
Whether respondent company remains liable to pay excise
duty on the liquor lost in fire.....................................................49
Control of Department over the distillery and godown: effect of...50
Negligence..............................................................................52
Act of God.............................................................................56
Inevitable accident...................................................................61
Res ipsa loquitur.....................................................................63
The respondent company remains liable....................................65
Insurance coverage only of the value of liquor: effect of...........70
Summation..................................................................................74
Conclusion.....................................................................................75
Preliminary and brief outline
1. Leave granted.
2. By way of these appeals, the State of Uttar Pradesh and its
officers related with the Excise Department as also the District
Magistrate, Shahjahanpur have essentially questioned the order dated
10.04.2017 in Misc. Bench No. 4493 of 2006, whereby the High Court
of Judicature at Allahabad, Lucknow Bench, Lucknow1 quashed the
demand raised against the writ petitioner company (respondent herein)
towards loss of excise revenue because of destruction of liquor in fire.
The appellants have also questioned the order dated 06.11.2019 in C.M.
Application No. 90936 of 2019, whereby the High Court directed the
1 Hereinafter also referred to as 'the High Court'.
STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S
MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]
A
B
C
D
E
F
G
H
906
SUPREME COURT REPORTS
[2022] 3 S.C.R.
appellant No. 2 (Excise Commissioner, Uttar Pradesh2) to expeditiously
take a final decision on theapplication for refund of the amount that was
deposited by the writ petitioner pursuant to the interim order passed in
the said writ petition.
3. Before dilating on the issues raised in this case, we may draw
a brief outline of the matter to indicate the contours of forthcoming
discussion.
3.1. The genesis of the present litigation had been in a fire incident
that took place in a godown of the distillery of the respondent company
on 10.04.2003. As many as 35,642 cases of Indian Made Foreign Liquor3
of different brands got destroyed in this fire. After receiving the initial
reports that the fire possibly took place due to short circuit of electricity,
the department proposed to recover the amount of excise duty lost, due
to such destruction of liquor, from the respondent company. The
respondent maintained that there was no negligence on its part and,
therefore, no case for recovery of the alleged loss of excise duty was
made out under Rule 7(11) of the Uttar Pradesh Bottling of Foreign
Liquor Rules, 19694 and Rule 709 of the Uttar Pradesh Excise Manual5.
3.4. However, the Excise Commissioner, by his order dated
11.07.2006, rejected the submissions of the respondent and raised a
demand to the tune of Rs. 6,39,32,449.44 towards loss of excise revenue
on account of destruction of liquor. Accordingly, the District Magistrate,
Shahjahanpur asked the respondent to deposit the amount within one
week.
3.3. Assailing the demand and recovery steps aforesaid, the
respondent-company preferred a writ petition6 wherein, the High Court,
by way of an interim order dated 25.07.2006, stayed the recovery
proceedings, subject to the respondent company (writ petitioner)
depositing an amount of Rs. 3 crores. A petition seeking special leave to
appeal against this interim order was rejected by this Court on 14.08.2006.
Thereafter, on 21.08.2006, the respondent company deposited the said
amount of Rs. 3 crores with the District Magistrate, Shahjahanpur.
2 Hereinafter also referred to as 'the Excise Commissioner'.
3 'IMFL' for short
4 Hereinafter also referred to as 'the Rules of 1969'.
5 Hereinafter also referred to as 'the Excise Manual'.
6 Misc. Bench No. 4493 of 2006
A
B
C
D
E
F
G
H
907
3.4. The writ petition so filed by the respondent company was
allowed by the High Court in its impugned order dated 10.04.2017,
essentially with findings that Rule 7(11)(a) of the Rules of 1969 was not
applicable in the matter because there was no wastage in handling
operations of bottling and storage of IMFL; that Rule 709 of the Excise
Manual was attracted for which negligence was required to be shown;
that the order passed by the Excise Commissioner was based on
conjectures and without any cogent evidence about negligence on the
part of the writ petitioner; and that the 'incident was nothing but an
act of God. The High Court, accordingly, set aside the impugned orders
of demand and recovery towards the alleged loss of excise revenue.
Thereafter, for the department having failed to refund the amount
deposited pursuant to the interim order in the writ petition, the respondent
company moved an application before the High Court whereupon, by
the order dated 06.11.2019, the High Court directed the Excise
Commissioner to take a decision on the application for refund within
four weeks.
3.5. As noticed, the aforesaid orders dated 10.04.2017 and
06.11.2019 passed by the High Court are questioned in these appeals.
The appellants maintain that the High Court was not justified in its findings
that the incident in question was an act of God and not that of negligence
on the part of the respondent. The appellants rely upon Rule 7(11)(a)
of the Rules of 1969 and Rules 708 and 709 of the Excise Manual to
contend that the respondent company is absolutely liable to pay the
excise duty payable on the stock of IMFL destroyed in fire. An ancillary
aspect relating to the effect of insurance coverage, only of the value
of liquor, and receiving of insurance claim by the respondent company
have also been raised. Per contra, it submitted that the claim of excise
duty in the present case cannot be enforced, for being not authorised
by law; and that the respondent is not liable to pay excise duty on the
IMFL destroyed in fire, particularly when there was no negligence on
its part.
4. The foregoing outline would indicate that the focal point in this
case is, as to whether the appellants are entitled to levy, and
correspondingly, the respondent is liable to pay, the excise duty on the
liquor destroyed in fire? As regards this focal point, three principal
questions would require determination, as noticed infra.
STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S
MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]
A
B
C
D
E
F
G
H
908
SUPREME COURT REPORTS
[2022] 3 S.C.R.
Relevant factual aspects and background: The fire incident
and demand of excise duty on the liquor destroyed
5. Having regard to the questions involved, we may briefly take
note of the relevant factual and background aspects, particularly those
relating to the functioning of the respondent company and setup of the
distillery and godown in question as also the fire incident and the demand
of excise duty, leading to the present litigation.
Before the fire
6. The respondent company had been engaged in the business of
distillation, bottling and vending of different brands of IMFL. For the
purpose of these activities, the respondent was granted license in Form
PD-2 to establish and run a distillery for distillation and manufacture of
potable alcohol at Distillery Unit Rosa, Shahjahanpur; and was also
granted license for wholesale vend of IMFL in Form FL-3 and FL-3A
under the Rules of 1969. The respondent company had been functioning
at the licensed premises since the year 1994.
7. We need not elaborate on various features of the processes of
distillation, bottling and storage but, a few facts placed on record by the
parties, relating to the electrical installations and firefighting measures in
the premises in question could be usefully noticed.
7.1. On 19.09.2002, the Assistant Electricity Inspector, Government
of Uttar Pradesh, Shahjahanpur Zone, Shahjahanpur, after having
conducted a periodical inspection of the said premises of the respondent
company, made the following observations pertaining to the electrical
installations: -
"(a) Except the endorsement made herein the relevant rules of
Indian Electricity Rules, 1956 was being complied with.
(b) The details mentioned in the subsequent page are not according
to Indian Electricity Rules, 1956
Hence, in the interest of Safety, you are requested that you
should rectify the deficiency by engaging any of the authorized
electrician and sent a report within one month after compliance in
accordance with the Indian Electricity Rules,1956.
xxx
xxx
xxx
Rule 35: It is found that CAUTION place is not placed at certain
prominent places. The same should be placed/installed.
A
B
C
D
E
F
G
H
909
Rule 61(2): At one point of Turbine's Distribution Board Panel,
earth wiring has been done with a thin wire. Hence the same
should be removed and strip earthing should be done."
(underlining supplied)
In response to the aforesaid, the respondent company stated, in
its letter dated 23.09.2002, that the work pointed out in the report had
been completed.
7.2. Apart from the above, it appears that certain modification/
upgradation work was undertaken at the production plant in the distillery
and in that regard, the Excise Inspector, Production Section, Rosa
Distillery, Shahjahanpur, in his letter dated 26.12.2002, advised the
respondent that electrical and gas wielding jobs be performed carefully
with full safety, while ensuring standard methods of fire safety and the
required firefighting devices. The said Excise Inspector cautioned the
respondent that "You will be responsible for any loss of revenue/
other loss if that occurs due to your carelessness."
7.3. On 01.03.2003, the office of Fire Brigade Officer, Shahjahanpur
issued a No Objection Certificate of Fire Fighting Department for the
period between 06.02.2003 to 30.09.2003 after carrying out inspection
of the premises in question. In this inspection, the Fire Brigade Officer
took note of the fact that different types of fire extinguishers and other
firefighting instruments were at the right place and were in working
condition, which were refilled by the Chief Engineer of the respondent
company. However, a direction was given with regard to the refilling
and testing of the instruments; and Foam Installation was also suggested
for better firefighting arrangements in the following terms: -
"You are directed that, in future Fire Fighting Instruments (Fire
Extinguisher) should be tested in Fire Station Shahjahanpur before
refilling. It is also suggested that, for better management of fire
fighting arrangements, Foam Installation should be done in
Distillation Plant. With this suggestion, NO objection Certificate
of Fire Fighting Department is granted for a period between
06.02.2003 to 30.09.2003, because the said firm has deposited
the Testing Fee to the Fire Brigade Department on 06.02.2003."
The fire incident and relevant reports
8. The aforesaid had been the position of record in relation to the
electrical installations and firefighting measures in the premises in
STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S
MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]
A
B
C
D
E
F
G
H
910
SUPREME COURT REPORTS
[2022] 3 S.C.R.
question. However, on 10.04.2003, a fire incident did take place in a
godown of the respondent company, which resulted in 35,642 cases of
manufactured IMFL getting destroyed.
8.1. It has been the case of the respondent company that the
godown in question was locked for lunch at 12:00 noon on 10.04.2003
under joint lock and key of the Excise Inspector in-charge of the distillery
and the company's representative and at that time, nothing objectionable
was noticed and the stocks were in safe condition. However, at about
12:55 p.m., smoke was noticed emitting from the godown. Thereupon,
the Excise Inspector in-charge of the distillery was immediately informed
and the joint locks were opened; and it was noticed that the stocks of
IMFL were on fire. The information about this fire was given to the
Police Department and also to the Fire Department and other Excise
Authorities. As per the averments and the material on record, it appears
that the firefighters could bring the fire under control only by 5:00 a.m.
on 11.04.2003.
9. It is borne out that upon receiving information about the incident
in question, the Deputy Excise Commissioner, Bareilly, reached the
distillery at about 06:30 p.m. on 10.04.2003 and carried out spot inspection
with other officers of the department and the Manager Personnel of the
respondent company. In his initial report drawn on spot inspection, the
said Deputy Excise Commissioner took note of the efforts being made
for controlling and dousing the fire as also damage to a substantial quantity
of liquor; and also indicated that upon enquiring about the possible reasons
of this fire, he was informed that the same took place, probably, due to
short circuit in the electricity supply. According to the appellants, even
the Station House Officer concerned opined in his investigation report
dated 11.04.2003 that the reason for fire was short circuit of electricity.
10. On 13.04.2003, the Fire Brigade Officer of Uttar Pradesh
Fire Service also drew up the report about the incident and the efforts
made for controlling the fire. He, however, indicated that the reason of
fire was unknown. The relevant part of this report, counter signed by
the Deputy Superintendent of Police, as placed on record by the
respondent, reads as under: -
"ON receiving information about Fire, Fire Service Unit rushed to
the Place of Incident. On arriving, it was seen that the front part
of Godown of Indian Made Foreign Liquor was burning in fire
A
B
C
D
E
F
G
H
911
badly, which is situated in Rosa Kothi, M/s Mcdowell Company
Ltd. Thana- R. , District- Shahjahanpur, and fire was in a horrible,
which was being doused by the Staff of M/s Mcdowell & Company
Ltd. with the help of available instrument but the fire was out of
control for them. After seeing the horrible condition of fire,
immediately started the work to control fire by laying two lines in
one motor fire engine, immediately thereafter second motor fire
engine was brought from Kasba- Tilhar. In dousing the Fire other
unit Oswal Chemical Fertilizer and O.C.F. also helped, and after
enough hard work, process of dousing was started and after putting
the life at risk and after several hours, fire was doused/controlled.
On investigation/inspection of fire, it was found that, due to fire,
Liquor kept in Go-down was destroyed. Hence, in this fire after
adding building and Liquor, in total, according to station officer,
approximately a damage worth Rs. 2 crore has been assessed
and Rs. 1 crore value of property was saved. Reason of fire was
unknown.
Therefore, after finishing the entire work, the fire Service unit
returned to the Fire Station after giving instructions that in case
again the Fire shows up again, the Fire Station should be informed
immediately. We came back to the Fire Station."
(underlining supplied)
11. Another report dated 02.08.2003 was submitted by the Assistant
Excise Commissioner, Rosa Distillery, Shahjahanpur to the Excise
Commissioner, detailing out the statements of stock of liquor saved as
also the stock destroyed in fire and his comments on the cause of fire.
The relevant part of this report could be usefully extracted as under: -
"(f) Cause of Fire : A detailed enquiry and Investigation was
done by me in the distillery after the fire incident. All the Officers
mentioned in para (d) have also made inquiries and investigated
the matter in detail. All the Investigating Officers have also reached
to the conclusion that undisputedly the cause of fire was unknown.
During my Investigation and calculation work also, no fact or
evidence came to my knowledge, which indicates that there was
any negligence either on the part of Distiller or on the part of
Excise Staff deputed in the Distillery. It also does not appear that
the said incident was deliberately done by any of them. In fact,
STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S
MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]
A
B
C
D
E
F
G
H
912
SUPREME COURT REPORTS
[2022] 3 S.C.R.
the Distiller and the Excise Staff have worked jointly with great
efficiency and hard work during and after the fire Incident. Thereby
stock was saved from the damaged stock.
This fact was confirmed by, Joint Excise Commissioner
Investigation dated 30.04.2003, Deputy Excise Commissioner,
Bareilly Incharge, Bareilly , investigation dated 10.04.03, Fire
Brigade Officer, Investigation report dated 13.04.03 and Station
House Officer's Final Report dated 11.04.03, also with copies
annexed. In the report of Station House Officer reason of incident
is possibly due to short circuit in Electricity. I had also seen the
burned cable in debris, but in my opinion Nothing can be confirmed.
It can be such an incident, in which reason is Unknown.
On the Distiller level, in the month of December, Instrument
according to Fire safety standard, were installed and safety orders
were ordered in respect of Letter No. 39/ dated 26.12.02 by the
distillery Fire Brigade Officer, Shahjahanpur; Letter No. Memo/
F.S./ date 1.03.03, and received the certificate regarding the
Instrument in good condition. The Distillery also produced certificate
by U.P. Electricity Department, regarding Electricity cabel
Establishment.
In accordance, with letter sent by me dated 14.04.03 and
21.04.03 in view of the aforementioned points before the Fire
Incident, during the Fire Incident and after that, the calculation of
the damaged stock and possible reason of Fire incident was
discussed."
(underlining supplied)
Demand of excise duty on the liquor lost in fire
12. In view of the fact that a substantial quantity of the stored
liquor got destroyed in the fire and that had the consequence, inter alia,
of loss of excise revenue, the Excise Department proposed to recover
this loss from the respondent company.
12.1. In the first place, on 24.09.2003, a show-cause notice No.
463/CAA/Rosa Distillery/Shahjahanpur was issued by Assistant Excise
Commissioner, Rosa distillery to the respondent company seeking
explanation regarding the recovery of excise duty in view of Rule 7(11)
of the Rules of 1969, as the respondent allegedly failed in its responsibility
A
B
C
D
E
F
G
H
913
to keep the stock of liquor safe and secure. In its response letter dated
01.10.2003, the respondent company stated that there was no negligence
on its part in regard to the said fire incident; that Rule 7(11) of Rules of
1969 was of no application; and that Rule 709 of the Excise Manual
would apply only in case of negligence, which was not proved.
12.2. The Excise Commissioner, however, proposed to recover
excise duty from the respondent company and sent a letter dated
27.11.2003 to the Principal Secretary to the Government seeking
directions. The said Principal Secretary, in his response letter dated
17.02.2004, stated that the provision regarding imposition of excise duty
on the stock of IMFL destroyed in fire was laid down in Rule 709 of the
Excise Manual and on the basis thereof, the Excise Commissioner was
competent enough to proceed. The Principal Secretary, inter alia, stated
as under: -
"Please refer to your letter No. G-43/9-alcohol/Rosa- Fire incident
dated 27th November, 2003 regarding directions to be given to the
District Magistrate Shahjahanpur with regard to imposition of
excise duty on the stock of IMFL destroyed in fire incident dated
10.04.2003 at M/s McDowell & Co. Ltd., Rosa, Shahjahanpur.
1. In this Connection I have been advised to ask you that the
provision regarding imposition of excise duty involved in the
stock of IMFL destroyed in the above fire incident at McDowell
& Co Ltd., Rosa Shahjahanpur on 10.04.2003 is laid down in
rule 709 of Excise Manual, on the basis of which you are
competent enough to proceed in the matter.
2. Your proposal regarding levy of excise duty on the stock of
IMFL destroyed in the above fire incident is in Order. Please
take necessary steps at the earliest and inform the same to the
Government within 15 days."
12.3. Proceeding on the letter so received from the Principal
Secretary, the Excise Commissioner, on 23.02.2004, asked the District
Magistrate to quantify the excise duty leviable under Rule 7(11) of the
Rules of 1969. Having noticed such steps on the part of the authorities,
the respondent company remonstrated in its letter dated 08.06.2004
addressed to the Excise Commissioner and requested that the competent
authority must first determine as to whether excise duty could at all be
levied on IMFL destroyed due to fire before the point of issue of liquor
STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S
MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]
A
B
C
D
E
F
G
H
914
SUPREME COURT REPORTS
[2022] 3 S.C.R.
for sale was reached. It was also submitted that the directions may be
given only to proceed in terms of Rule 709 of the Excise Manual and not
Rule 7(11) of the Rules of 1969. The Excise Commissioner, in his letter
dated 12.05.2005, sought a point-wise reply from the respondent company
and this letter was replied on 16.05.2005, wherein the respondent company
maintained that fire incident was due to the reasons beyond human control
and there was no negligence on the part of the company.
12.4. Yet further, the respondent company stated in its letter dated
05.06.2005 that they had a certificate issued by Fire Department, valid
up to 03.09.2003; that appropriate fire protection equipments were
installed; that electricity safety certificate was also given on 19.09.2002;
that MCBs were installed; that there was no material to show that it
was an accident due to negligence on part of the company; and that
there was no compulsion to get insurance with respect to excise duty.
The aforesaid reply was forwarded by the Excise Commissioner to the
Principal Secretary, Excise with his letter dated 29.06.2005. Thereafter,
the State Government, in its letter dated 27.12.2005, observed that excise
duty on the rates prevailing should be imposed on the respondent company
in the interest of revenue.
13. The aforesaid exchange of communications culminated in the
impugned order dated 11.07.2006 by the Excise Commissioner, seeking
to recover a sum of Rs. 6,39,32,449.44 from the respondent company
towards the loss of excise revenue. The Excise Commissioner, inter
alia, relied upon the inspection reports and held that the respondent was
responsible for the safety of the alcohol but failed to ensure such safety;
had been careless in not providing fire-proof electric equipments of good
quality; and had taken insurance of liquor but not of excise duty. This
order dated 11.07.2006, being the bone of contention in the present matter,
could be reproduced in extenso as under:
"OFFICE OF EXCISE COMMISSIONER, UTTAR PRADESH,
ALLAHABAD
No. 7244/9-Alcohol/131/Rosa/Fire Incident Allahabad
Dated - 11.07.2006
ORDER
M/s McDowell & Company Ltd., Rosa, District Shahjhanpur
is a PD-2 Licensed distillery. The abovementioned distillery has
A
B
C
D
E
F
G
H
915
been granted FL-3 and FL 3A license under the Uttar Pradesh
Bottling of Foreign Liquor Rules, 1969 and has been doing the
bottling of Indian Made Foreign Liquor of their brand and brand
of Harbartsons Ltd. respectively. On 10.04.2003, due to fire
incident in the FL-3 and FL3A godown of the distillery, 35,642
(Thirty five thousand six hundred forty two) cases of Indian Made
Foreign Liquor of different brands got destroyed. During
investigation, it is revealed that the McDowell and company ltd.
had taken the insurance of the Indian Made Foreign Liquor kept
in the sealed godown. The distillery has also received the claim
for that. A Show cause Notice no. 463/CAA/Rosa Distillery/
Shahjahanpur dated 24.09.2003 was given to the M/s. McDowell
and Company ltd. in relation to the burning of the alcohol kept in
the sealed godown. It has been stated by the M/s Mcdowell and
Company Ltd. in its explanation dated 01.10.2003 to the
abovementioned Show Cause Notice that the fire incident is an
act of god and they have no control over this. On 10.04.2003,
during the spot inspection conducted by Deputy Excise
Commissioner Bareilly, Manager Personnel Shri Anurag Dhawan
who was present has stated that possibly fire took place due to
short circuit in the electricity supply. The Station officer Shri Ram
Chandra Mishan, District Shahjahanpur has stated in his
investigation report dated 11.04.2003 that the reason for fire is
the short circuit of electricity. The inspection of the M/s McDowell
and Company Ltd. was conducted by Joint Excise Commissioner
(Task Force) and Deputy Excise Commissioner (Law). It has
been found in the inspection that the godown is very old and its
repair has also not been done. It is also necessary to mention that
M/s Mcdowell and Company Ltd. in the distillery from the time of
British period and the distillery & sealed godown has been running
in the old building. The roof of the godown was made of asbestos
sheet. The short circuit can take place due to old electric wiring in
the godown.
In this relation District Officer, Shahjahanpur vide his letter
no. 689/OSD/Camp/2004 dated 01.04.2004 has requested for
guidance/instruction on the incident. The Excise Commissioner,
Uttar Pradesh, vide his letter no. G-43/9-alcohol/Rosa fire incident
dated 17.11.2003 has referred this incident to the government in
which the government vide letter no. 3763 E-2/13-03 dated
STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S
MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]
A
B
C
D
E
F
G
H
916
SUPREME COURT REPORTS
[2022] 3 S.C.R.
17.02.2004 has directed that the excise duty may be charged on
the class of alcohol prevalent at that time on the class of alcohol
destroyed and it was also directed that Excise Commissioner is
capable to act in this incident.
In perspective to the direction made by Government, the case
is that the M/s Mcdowell and Company Ltd., Rosa Shahjhanpur
had taken license of FL-3 and FL 3A under UP Bottling of Foreign
Liquor Rules, 1969. According to Rule 7 (11) (a) of the
abovementioned rules, the licensee is liable to pay excise duty on
the wastage of more than 1%. It was responsibility of the license
holder to take remedy /precautions for the safety of the alcohol
kept in the godown but proper safety of the alcohol kept in the
godown was not taken up. The licensee had taken the insurance
of the price of alcohol, bottle, label, etc.