REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6896 OF  2002

KESAR ENTERPRISES LTD. —    APPELLANT

VERSUS

STATE OF U.P. & ORS. — RESPONDENT S

J U D G M E N T

D.K. JAIN, J.:

1.Challenge in this appeal, by special leave, is to the judgment and order  

dated 18th January, 1996, delivered by the High Court of Judicature at  

Allahabad in C.W.P. No.599 of 1994.  By the impugned judgment, the  

High  Court  has  come  to  the  conclusion  that  although  the  State  

Government had no authority to levy Excise duty under Section 28 of the  

U.P. Excise Act, 1910 (for short “the Act”) on rectified spirit (industrial  

alcohol) in question but it could impose penalty on the appellant under  

Rule 633(7) of the Uttar Pradesh Excise Manual, (for short “the Excise  

Manual”).

2.The background facts,  essential for disposal of the instant appeal, in  

brief,  are  that  on 15th October,  1988,  the  Excise  Commissioner,  Uttar  

Pradesh,  issued  an  order  authorising  nine  distilleries  in  the  State,  

including M/s Daurala Sugar Works, to export rectified spirit (industrial  

alcohol), outside India.  Since the export consignment was to be routed  

through the appellant, as handling agent as also the owner of the bonded  

warehouse  at  Kandla  Port,  where  the  spirit  was  to  be  stored  before  

export, the appellant was required to furnish an indemnity bond, in the  

prescribed form, in favour of the Excise Commissioner as the authorised  

nominee of the exporter.  On 20th December 1988, the appellant executed  

an indemnity bond in favour of the Governor of Uttar Pradesh in relation  

to permission for removal by rail 67.77 lac bulk litres of rectified spirit of  

any strength ranging between 91.68% V/V @ 15.60C to 95% V/V @  

15.60C. One of the conditions in the indemnity bond was that if the said  

quantity of rectified spirit, after deducting such allowance for dryage  and  

wastage,  as  may  be  sanctioned,  is  not  delivered  at  the  warehouse  at  

Kandla, the authorised nominee, the appellant herein, shall indemnify the  

Governor for any loss of duty, which the Governor may suffer by reason  

of such non delivery or short delivery, by paying him on demand the duty  

@  `40/- per alcoholic litre, on spirit not so delivered, after making the  

allowances aforesaid.   

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3.On 8th January, 1989, M/s Daurala Sugar Works consigned a rake of 15  

tank wagons,  loaded with 3,54,413 bulk litres  of rectified spirit  under  

PD-25 pass for export against order dated 15th October, 1988. The said  

consignment  was  dispatched through the  Northern  Railway  to  Kandla  

Port.  However, out of 15 tank wagons only 14 tank wagons reached the  

Kandla Port.  On 16th January, 1989, it was discovered that the 15th tank  

wagon was lying empty at Gandhi Dham Railway Station.

4.On 2nd October, 1992, a notice was issued by the Excise Commissioner  

to the appellant alleging that since the pass in form PD-25, issued to the  

appellant by the concerned Collector in terms of Rule 633 of the Excise  

Manual  had  not  been  received  back  along  with  certificate  from  the  

Collector for due delivery, they were liable to deposit  in the Government  

Treasury, Excise duty on the rectified spirit @ `40/- per alcoholic litre,  

which amounted to  `8,71,744/- along with interest at the rate of 18% per  

annum (`5,49,199/-).  

5.The appellant having failed to deposit the said amount, another notice  

was issued by the Commissioner requiring them to show cause as to why  

their name be not black-listed and in future, permission for export may  

not  be  granted,  on  account  of  default  on  their  part  in  not  depositing  

Excise duty as demanded earlier.   

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6.The appellant responded to the said show cause notice by their letter  

dated 11th February, 1993, in which it was stated that since the reason for  

non receipt of the said rectified spirit was being investigated, the matter  

may be deferred till 30th June, 1993.  Finally, vide their letter dated 29th  

April,  1994, the appellant replied to the show cause notice,  contesting  

Excise Commissioner’s claim for payment of Excise duty on account of  

non-receipt of full quantity of rectified spirit at the Kandla Port.  It was  

pleaded that since the entire rake of 15 tank wagons was handed over to  

the Railway authorities at Daurala station for its  delivery at Kandla Port,  

it  was the responsibility  of the Railways to make safe delivery of the  

goods  at  the  destination  and,  therefore,  the  appellant  was  in  no  way  

responsible for the disappearance of rectified spirit contained in one of  

the tank wagons.  It was, thus, urged that no Excise duty was payable by  

the appellant as the State Government had not suffered any loss of duty  

by reason of non delivery or short delivery of the rectified spirit.

7.Not being satisfied with the explanation furnished by the appellant,  

vide letter dated 6th April, 1994, the Excise Commissioner directed the  

District  Excise  Officer,  Bareilly  to  issue  recovery  certificate  and take  

appropriate steps against the appellant for the recovery of Excise duty  

amounting to `8,71,744/- and interest thereon.  By letter dated 22nd June,  

1994, the Bank of Baroda, Mandwi Branch, informed the appellant that  

pursuant to an order dated 22nd June, 1994, issued by the Sub-Divisional  

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Magistrate,  their  bank  account  had  been  attached  and  a  sum  of  

`12,00,000/-  had  been  earmarked  from  their  account  for  payment  of  

Excise duty.

8.Being aggrieved,  the appellant  filed a writ  petition before the High  

Court,  seeking  quashing  of  notice  of  demand  dated  6th April,  1994.  

Relying on the decision of a Bench of seven Judges in  Synthetics And  

Chemicals Ltd. & Ors.  Vs.  State of U.P. & Ors.1, wherein it was held  

that the States are not competent  to impose a tax or charge imposts in  

respect of rectified spirit for industrial purposes, having  a strength not  

less  than  95% by  volume  of  ethyl  alcohol,  the  High  Court  held  that  

though the State of U.P. did  not have jurisdiction to levy and demand  

Excise duty on the rectified spirit (industrial alcohol), which disappeared  

during transit, but Rule 633  of the Excise Manual empowered the State  

to impose penalty at the same rate at which the Excise duty was payable  

for breach of conditions in the Bond.  The High Court also held that it  

could be presumed that the appellant had diverted the rectified spirit into  

potable alcohol on which penalty and penal interest could be levied and,  

therefore, it  was not a fit case where it should exercise its jurisdiction  

under Article 226 of the Constitution of India and quash demand notice  

dated  6th April,  1994.   Accordingly,  the  writ  petition  was  dismissed.  

Being dissatisfied, the appellant is before us in this appeal.

1 (1990) 1 SCC 109

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9.We have heard learned counsel for the parties.

10.Assailing the decision of the High Court, Mr. D.K. Agarwal, learned  

senior counsel appearing for the appellant, strenuously urged that in light  

of decision of this Court in  Synthetics  And Chemicals (supra),  which  

was duly noticed in the impugned judgment, the High Court exceeded its  

jurisdiction in converting the levy of Excise duty into penalty and interest  

under Rule 633 of the Excise Manual.  It was argued that the High Court  

misread  the  Rule  inasmuch  as  Rule  633(7)  contemplates  recovery  of  

penalty under the bond in order to indemnify the Governor of the State  

for loss of  Excise duty but  when admittedly no Excise duty could be  

levied by the State Excise Commissioner on the entire consignment of  

rectified spirit, covered under the bond, there was no question of loss of  

Excise  duty  on  that  account,  for  which  the  Governor  was  to  be  

indemnified.  It  was  asserted  that  in  any event  imposition  of   penalty  

under the said Rule was ex-facie illegal as neither any show-cause notice  

was issued to the appellant before such levy nor any amount by way of  

penalty on account of the alleged non-compliance with the conditions of  

the bond was quantified  and communicated to the appellant.  It was thus,  

asserted that since an order under Rule 633, entails serious consequences  

the elementary principles of natural justice and fair play are required to  

be  observed  and   consequently,  an  opportunity  of  hearing  has  to  be  

afforded  before  an  order  under  the  said  Rule  is  made,  which  was  

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admittedly not done in the instant case.        In fact, the said Rule was  

invoked for the first time by the High Court.  

11. Mr. Ravi Prakash Mehrotra, learned counsel appearing for the State,  

on  the  other  hand,  supporting  the  view  taken  by  the  High  Court,  

submitted that Rule 633, does not postulate a show-cause notice before  

levy of penalty or interest because penalty or interest being compensatory  

in  nature  because  of  infringement  of  condition  of  an  indemnity  bond  

furnished by the appellant to the Collector or the Excise Inspector, the  

liability  under  the  Bond  is  absolute.  It  was  argued  that  since  in  

the present  case, admittedly, the discharge certificate in terms of Rule  

633 had not been furnished by the appellant within the stipulated time,  

penalty under the said Rule was clearly exigible.

12.The precise question at issue is whether sub-rule (7) of Rule 633 of  

the Excise Manual postulates the requirement of hearing before steps for  

recovery of penalty under the said Rule are initiated?

13.Before addressing the issue, it is necessary to bear in mind the fact  

that in so far as the question of levy of Excise duty on the high strength  

rectified spirit in 15 tank wagons is concerned, parties are ad-idem that in  

view of the judgment of this Court in Synthetics And Chemicals (supra),  

the  State  was  not  empowered  to  levy  Excise  duty  on  the  said  

consignment.  In the said decision, while interpreting Entry 84 of List I,  

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Entry 8 and 51 of List II and Entry 33 of List III of the Seventh Schedule  

to the Constitution of India, it was held that the State legislature has no  

power to enact law levying duty on the spirit,  which is not meant for  

human consumption.  It  was also held that the State has the power to  

impose  duty  only  on   spirit,  which  is  meant  for  human consumption  

under Entry 51 of List II of the Seventh Schedule.  In light of the said  

decision, it is clear that under Section 28 of the Act, the charging Section,  

an Excise  duty or  a  Countervailing duty,  as  the  case may be,  can be  

imposed by the State on alcoholic liquor only when it reaches the stage of  

human consumption and not on high strength rectified spirit (industrial  

alcohol), a Central subject.  Therefore, the High Court is correct in law in  

holding that the State did not have the jurisdiction to levy Excise duty on  

rectified spirit, loaded in 15 tank wagons.

14.However, Rule 633 of the Excise Manual, which has been pressed into  

service  by  the  High  Court  to  sustain  the  demands  raised  against  the  

appellant, reads as follows :

“633.   Any  person may export  in  bond foreign  liquor  manufactured at a distillery in Uttar Pradesh to any place  in India under a pass in form P.D.25 granted as provided  in the following rules:

(1) When any person desires to export in bond spirit  manufactured  at  a  distillery  in  Uttar  Pradesh,  he  shall  present  a  written  application  in  form  P.D.  58  to  the  Collector  of  the  district  in  which  the  distillery  of  manufacture is situate.

The application must specify— 8

(i) the name of the consignor; (ii) the name of the consignee; (iii) the  description,  quantity  and  strength  of  the  

spirit to be exported.

(2) Every application must be accompanied by— (i) a  permit  from  the  Collector,  Deputy  Commissioner, or other officer specially appointed in this  behalf  of  the  district  to  which  the  spirits  are  to  be  exported authorizing the import of spirit; and (ii) a duly executed special bond in form P.D. 16 or a  reference to a general bond in form P.D. 15. (3) The pass granted by the Collector of the exporting  

district  or  the  Excise  Inspector  to  whom  the  Collector  may  have  delegated  his  power  vide  paragraph  58(c)  of  this  Manual,  shall  be  in  triplicate in form P.D.-25.

One  copy  of  the  pass  shall  be  delivered  to  the  exporter, the second forwarded to the Collector, Deputy  Commissioner, or *other* officer specially appointed in  this behalf of the district to which the spirits are to be  taken, and the third retained for record.

*NOTE-This will usually be the officer-in-charge  of the bonded warehouse to which the spirit is consigned.

An advance in form P.D. 26 must also be sent by  the officer-in-charge direct to the authority granting the  import permit who will return the same duly filed in as  soon  as  possible  after  receipt  and  verification  of  the  consignment.

Within  a  reasonable  time  to  be  fixed  by  the  Collector  of  the  exporting  district  and specified  in  the  bond  or  pass  the  importer  shall  produce  before  the  Collector  of the exporting district  his copy of the pass  endorsed  with  a  certificate  signed  by  the  Collector,  Deputy  Commissioner  or  other  officer  specially  appointed  in  this  behalf,  of  the  importing  district  certifying the due arrival or otherwise of the spirit at its  destination;

(4) On each cask or other vessel containing spirit for  export there shall be legibly cut or painted:

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(i) the name and mark of the exporting distillery; (ii) the  number  of  the  cask  or  other  vessel  and  its  capacity; (iii) the nature, quantity and strength of its contents.

These particulars shall correspond with those entered in  the pass.

(5) On  a  written  application  being  made  to  the  Collector of the exporting district establishing sufficient  cause  for the  grant  of  an extension of  time,  or  on the  production before him of  a certificate from the Collector,  Deputy  Commissioner,  or  other  officer  specially  appointed in this behalf, of the district of destination, to  the effect that there are good and sufficient reasons for  extending the currency of the pass or bond, it  shall  be  competent for the Collector of the exporting district, if he  thinks fit, to extend the time specified in the pass or bond  for the due arrival of the spirit at its destination.

(6) In the case of spirit  exported under special  bond  the Collector of the exporting district shall discharge the  bond  on  receipt  of  the  pass  in  form  P.D.-25  and  certificate mentioned in clause (3), provided that none of  the conditions of the bond have been infringed.  The duty  on  consignment  issued  under  a  general  bond  shall  be  written  off  on  receipt  of  the  pass  and  certificate  mentioned  in  clause  (3),  provided  that  none  of  the  conditions of the bond have been infringed.

(7) If  the  certificate  be not  received within the time  mentioned  in  the  bond or  pass,  or  if  on receipt  of  the  certificate  it  appears  that  any  of  the  conditions  of  the  bond have been infringed the Collector of the exporting  district or the Excise Inspector who granted the pass shall  forthwith take necessary steps to recover from executant  or his surety the penalty due under the bond.”

15.It is manifest that the said Rule, made in exercise of the rule-making  

power  of  the  State  under  the  Act,  would  apply  only  in  relation  to  

manufacture, import, export and transport of potable liquor, i.e. the liquor  

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which is capable of being consumed by human beings.  Precisely for the  

aforesaid reason, in order to bring appellant’s case within the scope of  

Rule 633, High Court went on to observe that it could be presumed that  

rectified spirit  in the missing tank wagon was diverted for conversion  

into potable alcohol.  Rule 633 is of regulatory character meant to ensure  

that the liquor being exported under a  bond reaches its destination and is  

not  misused or  misutilized  in  transit.  It  contemplates  that  if  the  bond  

along with certificate signed by the Collector or other named officers of  

the importing district, certifying due arrival or otherwise of the liquor at  

its destination, is not furnished to the Collector of the exporting district,  

he  would be entitled to presume that  the liquor  has  been disposed of  

otherwise  than  by  export  and  can  proceed  to  take  necessary  steps  as  

postulated in sub-rule (7) of Rule 633 of the Excise Manual. The said  

Rule provides for imposition of penalty, which may be equivalent to the  

Excise duty, leviable under the charging Section 28 of the Act on potable  

liquor. Bearing in mind the scope of Rule 633, we may now advert to the  

moot question, viz. whether the principles of natural justice demand that  

an opportunity of hearing should be afforded before an order under Rule  

633(7) of the Excise Manual is made?  

16.Before we deal with the question, it would be necessary to understand  

and appreciate the concept of natural justice and the principles governing  

its application.

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17.Rules  of  “natural  justice”  are  not  embodied  rules.  The  phrase  

“natural  justice”  is  also  not  capable  of  a  precise  definition.  The  

underlying principle of natural justice, evolved under the common law, is  

to  check arbitrary exercise  of  power  by the  State  or  its  functionaries.  

Therefore, the principle implies a duty to act fairly i.e. fair play in action.  

As observed by this Court in A.K. Kraipak & Ors.  Vs. Union of India &  

Ors.2  the aim of rules of natural justice is to secure justice or to put it  

negatively to prevent miscarriage of justice.  These rules can operate only  

in areas not covered by any law validly made.  They do not supplant the  

law but supplement it. (Also see  Income Tax Officer & Ors.   Vs.  M/s  

Madnani Engineering Works Ltd., Calcutta3).

18.In  Swadeshi Cotton Mills   Vs. Union of India4  R.S. Sarkaria, J.,  

speaking for the majority in a three-Judge Bench, lucidly explained the  

meaning and scope of  the concept  of “natural  justice”.  Referring to a  

catena of decisions, his Lordship observed thus:

“Rules  of  natural  justice  are  not  embodied  rules.  Being means to an end and not an end in themselves,  it is not possible to make an exhaustive catalogue of  such rules.  But there are two fundamental maxims of  natural  justice  viz.  (i)  audi  alteram partem and (ii)   nemo judex in re sua.   The audi alteram partem rule  has many facets, two of them being (a) notice of the  case to be met; and (b) opportunity to explain.  This  rule cannot be sacrificed at the altar of administrative  convenience   or  celerity.   The  general  principle--as  distinguished  from  an  absolute  rule  of  uniform  

2 (1969) 2 SCC 262 3 (1979) 2 SCC 455 4 (1981) 1 SCC 664  

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application—seems  to  be  that  where  a  statute  does  not,  in terms,  exclude this rule  of prior hearing but  contemplates a post-decisional hearing amounting to a  full review of the original order on merits, then such a  statute  would  be  construed  as  excluding  the  audi  alteram  partem   rule  at  the  pre-decisional  stage.  Conversely if the statute conferring the power is silent  with regard to the giving of a pre-decisional hearing  to the person affected and the administrative decision  taken by the authority involves  civil consequences of  a grave nature, and no full review or appeal on merits  against  that  decision  is  provided,  courts  will  be  extremely  reluctant  to  construe  such  a  statute  as  excluding   the  duty  of  affording  even  a  minimal  hearing, shorn of all its formal trappings and dilatory  features  at  the  pre-decisional  stage,  unless,  viewed  pragmatically,  it  would  paralyse  the  administrative  process or frustrate the need for utmost promptitude.  In short, this rule of fair play must not be jettisoned  save  in  very  exceptional  circumstances  where  compulsive  necessity  so  demands.   The  court  must  make every effort to salvage this cardinal rule to the  maximum  extent  possible,  with  situational  modifications.   But,  the  core  of  it  must,  however,  remain,  namely,  that  the  person affected  must  have  reasonable opportunity of being heard and the hearing  must be a genuine hearing and not an empty public  relations exercise.”

          (Emphasis added)

19.In  Canara Bank  Vs. V.K. Awasthy5 the concept,  scope, history of  

development and significance of principles of natural justice have been  

discussed in extenso, with reference to earlier cases on the subject.  Inter   

alia, observing that the principles of natural justice are those rules which  

have been laid down by the courts as being the minimum protection of  

the rights of the individual against the arbitrary procedure that may be  

5 (2005) 6 SCC 321  

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adopted by a judicial,  quasi-judicial and administrative authority while  

making an order affecting those rights, the court said:

“Concept of natural justice has undergone a great deal of  change in recent years.  Rules of natural justice are not  rules embodied  always expressly in a statute or in rules  framed  thereunder.   They  may  be  implied   from  the  nature of the duty to be performed under a statute.  What  particular  rule of natural  justice should be implied and  what its context should be in a given case must depend to  a great extent on the fact and circumstances of that case,  the framework of the statute under which the enquiry is  held.”  

20.The question  with  regard to  the  requirement  of  an  opportunity  of  

being heard in a particular case, even in the absence of provisions for  

such hearing,  has been considered by this  Court  in a  catena of  cases.  

However, for the sake of brevity, we do not propose to refer to all these  

decisions.  Reference to  a recent decision of this Court in Sahara India  

(Firm), Lucknow Vs. Commissioner of Income Tax, Central-I & Anr.6  

would  suffice. In that case,  the question for adjudication was whether in  

the absence of a provision in the Income Tax Act, 1961, an opportunity  

of hearing  was required to be given to an assessee before an order under  

Section 142(2-A) of the said Act, directing special audit of his accounts  

was passed?  A Bench of  three Judges, speaking through one of us (D.K.  

Jain, J.),  explaining the concept of “natural  justice” and the principles  

governing its application,  summed up the legal position as under :

6 (2008) 14 SCC 151

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“Thus,  it  is  trite  that  unless  a  statutory  provision  either  specifically  or  by  necessary  implication  excludes  the  application of principles of natural justice, because in that  event the court would not ignore the legislative mandate,  the requirement of giving reasonable opportunity of being  heard before an order is made, is generally read into the  provisions  of  a  statute,  particularly  when  the  order  has  adverse  civil  consequences  for  the  party  affected.  The  principle will hold good irrespective of whether the power  conferred on a statutory body or tribunal is administrative  or quasi-judicial.

We may, however, hasten to add that no general  rule of  universal  application  can  be  laid  down  as  to  the  applicability  of  the  principle  audi  alteram  partem,  in  addition to the language of the provision.  Undoubtedly,  there can be exceptions to the said doctrine.  Therefore, we  refrain from giving an exhaustive catalogue of the cases  where the said principle should be applied.  The question  whether  the  principle  has  to  be  applied  or  not  is  to  be  considered bearing in mind the express language and the  basic scheme  of the provision conferring the power; the  nature of the power conferred and the purpose for which  the power is conferred and the final effect  of the exercise  of that power.  It is only upon a consideration of all these  matters  that  the  question  of  application  of  the  said  principle can be properly determined.”  

21.Having  considered  the  issue,  framed  in  para  12  supra,  on  the  

touchstone  of  the  afore-noted  legal  principles  in  regard  to  the  

applicability of the principles of natural justice, we are of the opinion that  

keeping in view the nature, scope and consequences of direction under  

sub-rule (7) of Rule 633 of the Excise Manual, the principles of natural  

justice  demand  that  a  show-cause  notice  should  be  issued  and  an  

opportunity of hearing should be afforded to the person concerned before  

an order under the said Rule is made, notwithstanding the fact that the  

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said Rule does not contain any express provision for the affected party  

being given an opportunity of being heard.  Undoubtedly, action under  

the said Rule is a quasi-judicial function which involves due application  

of mind to the facts as well as to the requirements of law. Therefore, it is  

plain that before raising any demand and initiating any step to recover  

from the executant of the bond any amount by way of penalty, there has  

to be an adjudication as regards the breach of condition(s) of the bond or  

the failure to produce the discharge certificate within the time mentioned  

in the bond on the basis of the explanation as also the material which may  

be adduced by the person concerned denying the liability to pay such  

penalty.  Moreover, the penalty amount has also to be quantified before  

proceedings for recovery of the amount so determined are taken.  In our  

view, therefore, if the requirement of an opportunity to show-cause is not  

read into the said Rule, an action thereunder would be open to challenge  

as violative of Article 14 of the Constitution of India on the ground that  

the power conferred on the competent authority under the provision is  

arbitrary.  

22.Thus tested, in the instant case, vide his letter dated 2nd October 1992,  

the Excise Commissioner called upon the appellant to deposit an amount  

of `14,20,943/- towards Excise duty and interest on account of default on  

their part to furnish PD-25 pass duly certified by the competent authority  

at Kandla Port.  The letter /notice does not indicate the exact quantity of  

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rectified  spirit  on  which  duty  @  `40/-  per  alcoholic  litre  has  been  

charged,  though  the  total  amount  of  duty  payable  is  mentioned.  

Similarly, in the final show-cause notice dated 6th April 1994, threatening  

action for black listing for future exports on account of non-payment of  

the aforenoted amount, there is not even a whisper as to how and why  

rectified  spirit  in  question was being subjected  to  Excise  duty by  the  

State.  As stated above, this Court having categorically held in Synthetics   

And Chemicals  (supra) and in catena of subsequent decisions that the  

State Legislature had no legislative competence to impose Excise duty on  

rectified spirit (industrial alcohol), the Commissioner of Excise could not  

demand  Excise  duty  on  rectified  spirit  contained  in  the  tank  wagon  

which, later on, was found to be empty, without returning a finding that  

the said spirit had been  diverted/converted into potable alcoholic liquor  

fit  for  human  consumption,  on  which  the  State  was   empowered  to  

impose duty.  It bears repetition that such a finding could not be recorded  

by the Commissioner without affording due opportunity to the appellant  

to explain its  stand in this regard for which, the onus lay on them as  

transporter and the executant of the bond. We may, however, add that in  

the  absence  of  any reasonable  explanation regarding disappearance  of  

rectified spirit, the Commissioner would have reason to presume that the  

same has been disposed of otherwise than by way of export outside the  

country, for which purpose it was being transported.  We are convinced  

that in the present case, before imposing the impugned demand of penalty  1

and interest,  there was absolutely  no adjudication by any authority  as  

regards the breach committed by the appellant, except the allegation that  

the  appellant  had  failed  to  furnish  the  PD-25  pass  certified  by  the  

Collector.  In our opinion, therefore, the action of the respondents for the  

recovery of penalty and interest, being violative of principles of natural  

justice, is null and void.

23.In  the  afore-said  premises,  we  allow  the  appeal;  set  aside  the  

impugned demand  raised  by  the  Commissioner  of  Excise  vide  notice  

dated  2nd October  1992,  as  well  as  the  judgment  of  the  High  Court,  

sustaining the demand by invoking Rule 633 of the Excise Manual and  

remit the matter to the jurisdictional Excise Commissioner to decide the  

question of levy of Excise duty and/or  penalty and interest on the subject  

consignment of rectified spirit, after  affording adequate opportunity of  

hearing  to the  appellant.

24.In the facts and circumstances of the case, the parties are left to bear  

their own costs throughout.

…………………………….J. (D.K. JAIN)

                              …………………………….J.  (H.L. DATTU)

NEW DELHI; JULY 6, 2011.

RS

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