Reportable  IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs. 4708-4709 OF 2002

State of U.P. & Ors. … Appellants

Vs.

M/s Mohan Meakin Breweries Ltd. & Anr. … Respondents

With

Civil Appeal No.4710 of 2002 Civil Appeal No.4711 of 2002 Civil Appeal No.4712 of 2002 Civil Appeal No.4713 of 2002

J U D G M E N T

R. V. Raveendran J.

Civil Appeal 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 Court allowing CMWP No.3968 of 1978 and CMWP No.4043 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  

imposition of duty and additional duty on excess wastage in the brewery.  

The appeals by the Breweries relate to imposition of duty and additional  

duty on excess bottling wastage.  

Civil Appeal No.4708 of 2002

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 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  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 that the actual  

quantity of beer in stock in the brewery was less than the quantity shown in  

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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 submit a report  

of the result to the Excise Commissioner in that behalf. The Excise Inspector  

in-charge,  was  accordingly  sending  reports  to  the  Excise  Commissioner  

whenever  there  was  excess  wastage  in  the  case  of  the  first  respondent  

brewery.  The  Excise  Commissioner  issued  show-cause  notice  giving  

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  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 state government by order dated  

12.4.1978 dismissed the revision petition and upheld the demands by the  

Excise Commissioner.   

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4. The  first  respondent  challenged  the  orders  of  the  Excise  

Commissioner  and  the  state  government  in  Civil  Misc.  Writ  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 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  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 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.  

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Contention of Parties

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  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  fermentation  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 “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 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 of excise duty, but the validity of measures  

introduced to identify the unauthorised or illegal diversion of beer resulting  

in evasion of excise duty.  

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6. The case of the state government as put forth in the counter affidavit  

to the writ petition is extracted thus: Wort 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 is entered in the resister  

in Form B-4. In the said register in Form-B4 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 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 from 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 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 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.  

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7. The  Brewery  contended  that  the  stage  for  levy  and  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/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  (beer)  is  received  in  the  storage/bottling  tanks,  after  

filtration  and  not  at  any  earlier  stage  of  manufacturing  process.  It  is  

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  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 excise duty or additional duty equal to  

excise  duty,  in regard to wastage which occurs with reference a material  

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which is not ‘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 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 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.  

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 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].

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(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 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  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]

(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].  

(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 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)]”

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Questions for consideration  

9. On the contentions urged, the following two questions arise for our  

consideration:  

(i) At what stage does the beer manufactured is exigible to duty?

(ii) Whether  the  procedure  adopted  by  the  appellants  for  ascertaining  excess manufacturing wastage (excess deficiency) is proper?

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.  

Process of manufacture of Beer

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 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.”  

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  

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(http://en.wikipedia.  org/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 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 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 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 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 hopback, 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  

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strength  of  the  beer.  In  addition  to  producing  alcohol,  fine  particulate  matter  suspended  in  the  wort  settles  during  fermentation.  Once  fermentation is complete, the yeast also settles, leaving the beer clear.  

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 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) :  

“Beer defined – The term ‘beer’ as used in the Indian 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”.  

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 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 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.  

Manufacture  of  beer  may  be  considered  under  the  following  five  stages :  

(a) Preparation of the malt from Barley. (b) Infusion of the ground malt  or ‘grist’ and straining the resultant  

extract or wort.

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(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.  Yeast  food, if any is needed is in a few hours is at its height as can be seen by the  maximum temperature reached and is allowed to continue for 5 to 8 days.

The following description of the practice in India is of interest:  

Pitching of the wort – The fermentation vats usually have a capacity of  3,000 gallons, which is equivalent to 140 bushels of malt (having a sugar  content of 40 per cent). The cooled hopped wort from the malt is mixed at  this stage with 300 lb. of sugar and ½ lb. of ammonium sulphate followed  by 60 lb.  of yeast  in suspension (containing 85 per cent moisture)  and  allowed to ferment for 5-6 days. The peak of the fermentation is reached  in 36 hours. At the end of the fermentation, the vats are slowly aerated by  ‘Sterilized  air’.  Fermentation  of  beer  is  conducted  by  employing  top  fermentation yeast. This and the atmosphere of CO on the top of the vat  prevent any bacteria gaining access to the beer. The fermentation is carried  on until the gravity of the wort falls down to 1.042, when the wort is run  off  into  fining  vessels  so  as  to  settle  and  clarify.  Throughout  the  fermenting stage the temperature of the wort is regulated by coils of piping  called at temperature through which cold water is passed.

Fermentation of lager beers. – Bottom fermentation processes used for  lager  beer  differ  from  top  fermentation  adopted  for  ales  in  that  the  temperature  ranges  between  41  degree  Fahrenheit  and  56  degree  Fahrenheit, while the yeast settles as a firm black cover at the bottom of  the fermenting vessel. The primary fermentation also lasts for 7 to days at  the higher temperature or 12 to 14 days at lower temperatures as the rate  of fermentation is considerably slower than in top fermentation systems.  Bottom fermentation beer is usually lagered or stored for periods varying  from  1  to  9  months  (generally  6  to  8  weeks)  after  this  primary  fermentation  during  which  slow changes  called  ‘maturation’  occur  and  this gives the name to the beer. Fermentation in the storage stage is due to  primary yeasts carried down with the beer from the fermenting vessel.

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Gasing, Racking and Bottling – Although lager beer is ultimately filtered  before  racking  into  casks,  clarification  is  an  essential  function  of  the  storage.  

Uncarbonated top fermentation beers, which include the bulk of British  draught  ales  are  either  racked  directly  from  the  fermenting  vessel  or  settling back to which they are run down from Fermenting vessels. The  settling back provides a means of further clarification by sedimentation  during 2 to 12 hours. This is also used for addition of primings, colourings  and sometimes finings though these are  sometimes  added to individual  casks. The beer loses carbon dioxide and gets aerated. Dry hops are also  sometime added to the settling backs. Racking in cylinders and counter  pressure racking is also followed.”      

12. The first respondent describes (in Annexure-I to the writ petition) the  

process of manufacturing beer in its brewery thus:

“The Process of Manufacturing of Beer – Coarsely crushed barley malt  termed “grist”  added with cooked maize  and rice clakes  is  boiled at  a  specific  temperature  in  treated  water  in  the  vessel  called  mashtun  by  which  the  starches  present  in  the  grain  are  converted  into  sugars.  The  extract  from the  grain  called  wort  is  drawn into  another  vessel  called  ‘copper’ to which hops flowers and sugar is added and boiled with the  purpose of sterilizing the wort, separating wastable proteins in the form of  precipitate,  dissolving  bittering  constitutents  of  hops  and  imparting  aromatic flavour of hops flowers. The spent hops are separated from the  boiled wort which is cooled and passed into fermentation vats.  

Brewers yeast  is “pitched” to initiate  fermentation.  The fermentation is  carried on at low temperature. Lot of frothing takes place, the yeast cells  multiply and bring up dirty heads with resins of hops etc., at the top which  are cleared out, the convertible sugars are decomposed into alcohol and  carbon dioxide gas; the hanging particles in the wort settled down with  coagulated albuminous substances and yeast cells  during the process of  fermentation which is carried on for 8 to 10 days.  

The fermented wort is racked into settling tanks or storage tanks leaving  the sullage or sludge at the bottom of fermentation vats. At this stage also  (i.e. in storage vats) some yeast cells are present in the fermented wort and  secondary fermentation takes place besides some residuary particles in the  bulk of fermented wort settling at the bottom of the storage vats.  

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To  eliminate  secondary  fermentation  and  haze  from  this,  it  is  passed  through filter machines in which 100 to 150 filter sheets are fixed. The  filterate  is  transferred  to  bottling  tanks  for  bottling  beer  in  a  separate  bonded  warehouse,  which  is  carried  on  under  the  supervision  of  the  officer-in-charge of the warehouse.”  

13. It is thus evident that 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. 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 processes to remove impurities, improve  

the clarity, taste and increase shelf life.

Relevant provisions of the Act and the Rules

14. The relevant  provisions  of  the  UP Excise  Act,  1910  are  extracted  

below :  

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

Section 3 (10). "Beer" includes ale, stout, porter and all other fermented  liquor made from malt;  

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Section 3 (22a). "Excisable article" means - (a) any alcoholic liquor for  human consumption; or  (b). any intoxicating drug;

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

(a) imported in accordance with the provisions of Section 12 (1); or (b) exported in accordance with the provisions of Section 13; or (c) transported; or (d) manufactured,  cultivated  or  collected  under  any licence  granted  

under Section 17; or (e) manufactured  in  any  distillery  established  or  any  distillery  or  

brewery licensed, under Section 18:

x  x x x x x  

Section  28A  -  Imposition  of  additional  duty  in  certain  cases -  (1)  Where the quantity of spirit or beer in a brewery is found, on examination  by such officer  of the Excise Department  as may be authorised by the  Excise  Commissioner  in  this  behalf  to  exceed  the  quantity  in  hand as  shown in the stock account, the brewery shall be liable to pay duty on such  excess at the ordinary rates fixed under Section 28.

(2) Where the quantity of spirit or beer is less than that shown in the stock  account  on  such  examination  and  deficiency  exceeds  ten  per  cent;  (allowance to that extent being made to cover losses due to evaporation,  sullage and other contingencies within the brewery, and also to cover loss  in bottling and storage) the Excise Commissioner shall levy an additional  duty at the rate of one hundred per cent of ordinary rates of duty in respect  of such deficit as exceeds ten per cent over and above the ordinary rates of  duty.”

Section 29.  Manner in which duty may be levied -  Subject to Such  rules, as the Excise Commissioner may prescribe to regulate to the time,  place and manner of payment, such duty may be levied in one or more of  the following ways as the State Government may by notification direct:

(a) to (d) ...(omitted as not relevant)

(e) in the case of spirit or beer manufactured in any distillery established  or any distillery or brewery licensed under Section 18 -

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(i) by a rate charged upon the quantity produced or issued from the  distillery  or  brewery,  as  the  case  may  be,  or  issued  from  a  warehouse established or licensed , under Section 18 (d);

(ii) by a rate charged in accordance with such scale  of equivalents,  calculated on 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 :

Provided that, where payment is made upon issued of an excisable article  for sale from a warehouse established or licensed under Section 18(d), it  shall be at the rate of duty which is in force on that article on the date  when it is issued from the warehouse.”

15. Rule 53 of the UP Brewery Rules, 1961 (Paragraph 912 of the Excise  

Manual) as it stood prior to substitution of the rule on 19.7.1975 provided  

for quarterly examination of stock and read as follows:  

“912. Quarterly Examination of Stock. - The accounts of a brewery and  the stock of beer in hand in the brewery shall be examined by the Assistant  Excise commissioner once a quarter. If the quantity of the beer in stock in  the brewery on such examination be found to exceed the quantity shown  as in hand in the stock account, the brewer shall be liable to pay duty on  such excess at double the rate prescribed for ordinary issue. If the quantity  be  found  less  than  that  shown  in  the  stock  account,  the  cause  of  the  deficiency  shall  be  inquired  into  and  the  result  reported  to  the  Excise  Commissioner, who may direct the levy of a fee not exceeding double the  amount  represented  by the  duty  on  such deficiency.  Provided  that  any  deficiency not exceeding 10. per cent, shall be disregarded, allowance to  the extent being made to cover loss in bulk due to evaporation, sullage and  other contingencies within the brewery. This allowance Shall be calculated  upon the amount represented by the actual ascertained balance in hand at  the  date  of  the last  stock taking,  together  with  the total  quantity  since  manufactured or received, as shown in column 2 and 3 of the register of  manufacture and issue (form B-16).

Rule 53 of the Brewery Rules (para 912 of the Excise Manual) as substituted  

on 19.7.1975 reads as under:

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“912. On the last working day of every calendar month after all the issues  for that day are made, the Officer-in-charge shall examine the accounts of  brewery and take the stock of beer in hand in the brewery. if the quantity  of  the  beer  in  stock  in  the  brewery  on  such  examination  be  found  to  exceed the quantity shown as in hand in the stock account the brewer shall  be liable to pay duty on such excess at the rate prescribed for ordinary  issue if the quantity be found less than that shown in the stock account and  such deficiency does not exceed nine per cent of the total stock of beer in  the month the same may be disregarded allowances to that extent being  made to cover losses due to evaporation, sullage and other contingencies  within the brewery. But if the deficiency in stock be found to exceed nine  per cent the cause shall  be enquired into and the result  reported to the  Excise Commissioner who may direct the levy of duty on such deficiency  as  may  be  found  in  excess  of  nine  percent  at  the  rate  prescribed  for  ordinary issue. This nine per cent free allowance shall be calculated up on  the quantity represented by the actual ascertained balances in hand at the  close  of  the  last  stock  taking  together  with  the  total  quantity  since  manufactured or received, as shown in columns 2 and 3 of the register of  manufacture and issue (Form B-1).

Rule 37 of the Brewery Rules (para 896 of the Excise Manual) reads thus:  

“896. Worts  to be drawn off in the order of production: All worts shall  be removed successively,  and in the customary order of brewing to the  under  back,  coppers,  coolers  and  fermenting  vessels,  and  shall  not  be  removed from the last named vessel until an account has been taken by the  officer incharge or until  after  the expiry of twenty four hours from the  time at which the worts are collected in these vessels.”

Rule 41 of the Brewery Rules (para 900 of Excise Manual) deals with issue  

of beer and is extracted below:  

“900.  Beer  not  to  be  issued  until  duty  paid  or  bond  executed –  [Rule  41].  No  beer  shall  be  removed  from  a  brewery  until  the  duty  imposed under section 28 of the UP Excise Act, 1910 (Act No.IV of 1910)  has been paid or until a bond under section 19 of the Act in Form B-7 or  B-8 has been executed by the brewer for export of beer outside the State,  direct from the brewery.

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Legal position enunciated by this Court

16. We may next refer to the decisions of this Court bearing on the issue  

in R.C. Jall Parsi  vs. Union of India [AIR 1962 SC 1281], this court held :

“Excise  duty  is  primarily  a  duty  on  the  production  or  manufacture  of  goods produced or manufactured within the country. It is an indirect duty  which the manufacturer or producer passes on to the ultimate consumer,  that is, its ultimate incidence will always be on the consumer. Therefore,  subject always to the legislative competence of the taxing authority,  the  said tax can be levied at a convenient stage so long as the character of the   impost, that is, it is a duty on the manufacture or production, is not lost.   The method of collection does not affect the essence of the duty, but only   relates  to  the  machinery  of  collection  for  administrative  convenience.  Whether in a particular case the tax ceases to be in essence an excise duty,  and the rational connection between the duty and the person on whom it is  imposed ceased to exist,  is  to be decided on a fair  construction  of the  provisions of a particular Act.”

(emphasis supplied)     

17. In  Synthetics  and Chemicals  Ltd.  vs.  State  of  U.P.  [1990 (1)  SCC  

109],  this  Court  held  that  the  expression  “alcoholic  liquor  for  human  

consumption”  must  be understood in its  common and normal  sense.  The  

expression “consumption” must  also be understood in the sense of  direct  

physical intake by human beings and not utilisation in some other forms for  

the ultimate benefit of human consumption and the expression is intended to  

mean “liquor which as it is, could be consumed, in the sense of capable of  

being taken by the human beings as such as a beverage or drink”.

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18. In State of U.P. vs. Delhi Cloth Mills [1991 (1) SCC 454], this Court  

dealing with section  28 of  UP Excise Act,  1910 considered the question  

whether  the  excise  authorities  were  entitled  to  levy  excise  duty  on  the  

wastage  of  liquor  (military  rum)  in  transit  and  held  that  the  levy  of  

differential  duty  (that  is  charging  up  the  duty  on  the  report  of  excess  

wastage)  did  not  cease  to  be  an  excise  duty  even  if  it  was  levied  on  

declaration of excess wastage. The taxable event was still the production or  

manufacture. This Court observed:  

“A  duty  of  excise  under  Section  28  is  primarily  levied  upon  a  manufacturer  or  producer  in  respect  of  the  excisable  commodity  manufactured or produced irrespective of its sale. Firstly, it is a duty upon  excisable  goods,  not  upon sale  or  proceeds  of  sale  of  the  goods.  It  is  related to production or manufacture of excisable goods. The taxable event  is the production or manufacture of the liquor. Secondly, as was held in A.  B. Abdulkadir  v. The State of Kerala  - AIR1962SC922, an excise duty  imposed on the manufacture and production of excisable goods docs not  cease to be so merely because the duly is levied at a stage subsequent to  manufacture or production.  That was a case on Central  Excise,  but the  principle is equally applicable here. It does not cease to be excise duty  because it is collected at the stage of issue of the liquor out of the distillery  or at the subsequent stage of declaration of excess wastage. Legislative  competence under entry 51 of List II on levy of excise duty relates only to  goods  manufactured  or  produced  in  the  State  as  was  held  in  Bimal   Chandra Banerjee v. State of Madhya Pradesh  - 1970 (2) SCC 467. In the  instant  case  there  is  no  dispute  that  the  military  rum  exported  was  produced  in  the  State  of  U.P.  In  State  of  Mysore  and Ors.  v.  M/s  D.   Cawasji & Co. - 1970 (3)  SCC 710, which was on Mysore Excise Act, it  was held that  the excise duty must  be closely related  to  production  or  manufacture of excisable goods and it did not matter if the levy was made  not at the moment of production or manufacture but at a later stage and  even if it was collected from retailer. The differential duty in the instant  case, therefore, did not cease to be an excise duty even it was levied on the  exporter after declaration of excess wastage. The taxable event is still the  production or manufacture…………

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……Rules  636  and  814  are  also  of  regulatory  character  and  they  are  precautionary against perpetration of fraud on the excise revenue of the  exporting state. If out of the quantity of military rum in a consignment, a  part of portion is claimed to have been wastage in transit and to that extent  did  not  result  in  export,  the  State  would,  in  the  absence  of  reasonable  explanation, have reason to presume that the same have been disposed of  otherwise than by export and impose on it the differential excise duty. A  statute  has  to  be construed in  light  of  the mischief  it  was  designed to  remedy. There is no dispute that excise duty is a single point duty and may  be levied at one of the points mentioned in Section 28.”

19. In  Mohan Meakin  Ltd.  vs.  Excise  & Taxation Commissioner,  H.P.  

[1997 (2) SCC 193], this Court examined the question as to when beer is  

exigible  to  excise  duty  under  the  Punjab  Excise  Act,  1914  and  Punjab  

Breweries Rules 1932. This Court  held that  Beer  would mean fermented  

liquor from malt, when it is potable or in consumable condition as beverage.  

The state of levying excise duty upon alcoholic liquor arises when excisable  

article  is  brought  to  the  stage  of  human  consumption  with  the  requisite  

alcoholic strength thereof and it is only the final product which is relevant.  

In that case, the levy of excise duty at the stage when the manufacturing of  

the beer was at wort stage was challenged. This Court posed the question:  

Whether  the levy of  excise  duty,  on beer  when it  was in  the process  of  

manufacture is correct? This Court answered the question thus :  

“The levy of excise duty is on alcoholic liquor for human consumption,  manufacture or production. At what stage beer is exigible to duty is the  question. The process of manufacture of beer is described as under:

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The  first  stage  brewing  process  is  the  feeding  of  Malt  and  adjuncts into a vessel known as Mash Tun. There it is mixed with  hot water and maintained at certain temperature. The objective of  this process is to convert the starches of the malt into fermentable  sugar.

The extract  is  drawn from the Mash Tun and boiled  with the  addition  of  hops  for  one  to  two  hours  after  which  it  is  contrifuged, cooled and received in the receiving wats. At this  stage, it is called "Wort" and contains only fermentable sugars  and no alcohol.  After this  it  is  transferred to the fermentation  tanks where Yeast is added and primary fermentation is carried  out at controlled temperature. After attenuation (Diminution of  density of "Wort" resulting from its fermentation) is reached for  fermented wort is centrifuged and transferred to the storage vats  for secondary fermentation. After secondary fermentation is over  in  the  storage  vats,  it  is  filtered  twice-first  through the  rough  filter press and then through the fine filter press and received in  the  bottling  tanks.  It  is  in  bottling  tanks  that  the  loss  of  the  Carbon  Dioxide  Gas  is  made  up  and  bulk  beer  is  drawn for  bottling.  It  is  filed  into  the  bottles  and  then  last  process  of  pasteurisation  is  carried out  to  make it  ready for  packing and  marketing.  Till  the  liquor  is  removed  from  the  vats  and   undergoes  the  fermentation  process  as  mentioned  above  the   presence of alcohol is nil.

Excisable article would mean any alcoholic liquor for human consumption  or any intoxicating drug. The levy or impost of excise duty would be only  on alcoholic liquor for human consumption or for being produced in the  brewery. Beer would mean fermented liquor from malt, when it is potable  or in consumable condition as beverage. It is seen that the levy is in terms  of entry 51 of List II of the Seventh Schedule which envisages that duties  of  excise  on  the  goods  manufactured  or  produced  in  the  State  and  countervailing  duties  at  the  same  or  lower  rates  on  similar  goods  manufactured or produced elsewhere in India.

Thus, the final product of the beer is relevant excisable article exigible to  duty under Section 31 of the Act  when it passes through fine filter press  and received in the bottling tank. The question is : at what stage the duty is  liable to be paid? Section 23 specifically envisages that until the payment  of duty is made or bond is executed in that behalf as per the procedure and  acceptance by the Financial Commissioner, the finished product, namely,  the beer in this case, shall not be removed from the place at which finished  product  was  stored  either  in  a  warehouse  within  factory  premises  or  precinct or permitted place of usage. Under these circumstances, the point  at  which excise duty is  exigible  to  duty is  the time when the finished  

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product, i.e., bear was received in bottling tank or the finished product is  removed from the place of storage or warehouse etc.”

(emphasis supplied)

20. In  Government  of  Haryana  vs.  Haryana  Brewery  Ltd.  [2002  (4)  

SCC 547], this Court held :

“We agree with the contention of Mr. Divan, and this is also not disputed  by Mr. Anand, that the State  has jurisdiction to levy excise duty only on   beer after it has been brewed and has become fit for human consumption.  This is the settled position as laid down by this Court in  Mohan Meakin  and Modi Distillery  cases. The only question which, to our mind, really  arises for consideration is how to determine the quantity of beer which is  manufactured on which the excise duty is to be levied. Section 32 gives an  answer to this question. The first part of the Section states that subject to  the rules which may be made by the Financial Commissioner, Excise Duty  is  to  be  levied,  inter  alia,  on the  excisable  article  manufactured  in  or  issued from a distillery, brewery or warehouse.  A reading of this Section   leaves  no manner of doubt that the stage at which excise duty can be   levied is only after the process of manufacture has been completed and in   fact,  it  is to be levied when it is issued from the distillery,  brewery or   warehouse.”

(emphasis supplied)  

Re: Question No. (i)

21. The  High  Court  has  held  that  the  point  at  which  the  liquor  

manufactured by the brewery is exigible to excise duty is the stage when the  

finished product (beer) capable of being consumed by human beings as a  

beverage  or  drink,  comes  into  existence  that  is,  after  the  process  of  

fermentation  and filtration.   In  Synthetics  and Chemicals  Ltd & Ors.  vs.   

State  of  U.P.  & Ors.   –  1990 (1)  SCC 109 and  State  of  U.P.  vs.  Modi   

Distillery & Ors. - 1995 (5) SCC 753, this Court held that having regard to  

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Entry 51 of List II of Seventh Schedule to the Constitution, the State would  

be  authorized  to  impose  excise  duty  on  alcoholic  liquor  for  human  

consumption which meant that the liquor, as itself, was consumable in the  

sense  that  it  was  capable  of  being taken  by  human  beings  as  such  as  a  

beverage  or  drink.  This  Court  in  Government  of  Haryana  vs.  Haryana  

Breweries Ltd. & Anr.. – 2002 (4) SCC 547, held that State has jurisdiction  

to levy excise duty on beer only after it has been brewed and has become fit  

for  human  consumption;  and  having  regard  to  section  32  of  the  Punjab  

Excise Act, 1914, the stage at which excise duty could be levied on beer was  

after the process of manufacture was complete and when it is issued from the  

brewery or warehouse.  

22. This Court also reiterated the said position in Mohan Meakin Ltd. vs.   

Excise  & Taxation Commissioner,  H.P. -  1997 (2)  SCC 193 but  further  

observed that beer would be exigible to duty when it passes through the fine  

filter  press  (after  fermentation)  and is  received  in  the  bottling  tank.  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  

exigible  to  excise  duty  only  when it  passes  through the  fine  filter  press  

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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. 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 fermentation beer, which include  

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, 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.

23. Section 29 (e)(i)  of the Act makes it  clear that in the case of beer  

manufactured in a brewery, excise duty 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 process when it is received in storage/bottling tanks or when it is  

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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 or when it  

is issued from the brewery.

Re: Question No.(ii)

24. The High Court rejected the Brewery’s contention that only such beer  

which  comes  to  the  ‘bottling  tank’  after  filtration,  can  be  treated  as  

‘manufactured  beer’  and  exigible  to  excise  duty  and  wastage  allowance  

could be given only with reference to such beer which has become a finished  

product. But the High Court allowed the writ petition of the Brewery and  

directed  that  validity  of  the  demand  should  be  decided  afresh,  “after   

calculating the stock  of  beer for  the purpose  of  original  Rule 53 of  UP   

Brewery Rules, 1961 (Para 912 of UP Excise Manual as it then existed) and   

section 28A of UP Excise Act, when after filtration the same assumes the   

shape as a finished product which is normally consumed by human beings   

as a  beverage or drink”. The real question arising for consideration in this  

case  is  not  about  the stage  at  which beer  is  exigible  to  excise  duty,  but  

whether the procedure adopted by the appellant for ascertaining the excess  

26

wastage  (or  shortage  in  quantity)  and  levying  duty  and  additional  duty  

thereon, is legal and valid.

25. The contention which ultimately found favour with the High Court,  

was based on legislative competence. The brewery contended that section  

28A provided for levy of ‘excise duty’ and an equal amount as additional  

duty  on  ‘excess  wastage’  or  shortage  in  quantity  manufactured;  that  the  

legislative competence to levy excise duty is derived from Entry 51 of List II  

of  Seventh  Schedule  to  the  Constitution  :  “Duties  of  excise  on …….(a)  

alcoholic liquors for human consumption”; that therefore, if excise duty or  

additional duty is to be levied under section 28A, the article that could be  

subjected to duty should be ‘an alcoholic liquor for human consumption’;  

that  the  term  ‘alcoholic  liquor  for  human  consumption’  means  a  liquor  

which could be taken by a human being ‘as it is’ without the need for any  

further process; and that in regard to beer, that stage is reached only after  

fermentation and filtration processes are completed.  It was submitted that  

before  filtration,  the  product-in-process  was  not  an  alcoholic  liquor  for  

human consumption and therefore there was no legislative competence to  

levy excise duty or additional duty on such product-in-process.

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26. This contention ignores the fact that 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. This Court in Baldeo Singh  

vs. CIT – 1961 (1) SCR 482, held as under :  

“……Under Entry 54 a law could of course be passed imposing a tax on a  person on his own income. It is not disputed that under that entry a law  could also be passed to prevent a person from evading the tax payable on  his own income. As is well known the legislative entries have to be read   in a very wide manner and so as to include all subsidiary and ancillary   matters. So Entry 54 should be read not only as authorizing the imposition   of  a  tax  but  also  as  authorizing  an  enactment  which  prevents  the  tax   imposed being evaded. If  it  were not  to  be so read,  then  the admitted  power to tax a person on his own income might often be made infructuous  by ingenious contrivances. Experience has shown that attempts to evade  the tax are often made.”  

(emphasis supplied)

27. In this context,  we may also consider the decision of this Court in  

Union of India vs. A. Sanyasi Rao and others – 1996 (3) SCC 465, this Court  

considered  the  constitutionality  of  the  provisions  for  presumptive  tax  in  

sections 44-AC and 206-C of the Income Tax Act, 1961 for collecting tax on  

profits and gains from trading in alcoholic liquor for human consumption  

(and other goods specified therein) at the stage of purchase on a presumptive  

basis.  The  respondents  therein  contended  that  the  said  sections  lacked  

legislative competence as income tax was a tax on income, while the levy  

under section 44-AC was one on purchase when no income had occurred  

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and that the tax was on a hypothetical income and not real income. This  

Court  held that  the object  in enacting sections 44-AC and 206-C was to  

enable  the  Revenue  to  collect  the  legitimate  dues  of  the  State  from the  

persons  carrying on particular  trades,  in  view of  the  peculiar  difficulties  

experienced in the past and the measure was so enacted to check evasion of  

substantial revenue due to the state.  Trade or business, results in or produce  

income,  which can be brought to tax.  In order to prevent evasion of  tax  

legitimately due on such ‘income’, section 44-AC and section 206-C were  

enacted,  so as  to facilitate  the collection of  tax on that  income which is  

bound to arise or accrue, at the very inception itself or at an anterior stage  

and  therefore  one  cannot  contend  that  the  aforesaid  statutory  provisions  

lacked legislative competence.  After all, statutory provisions obliging to pay  

‘advance tax’ were not new and sections 44-AC and 206-C were similar.  

The standard by which the amount of tax was measured, being the purchase  

price,  would not in  any way alter the nature and basis of  the  levy  viz.,   

that  the tax  imposed  was  a tax  on income  and  it  could not  be labelled  

as  a  tax  on  purchase of goods.  The  charge for the  levy of the income that   

accrued or arose is laid  by the charging  sections viz., sections  5 to 9  and   

not  by  virtue of section  44-AC or section 206-C.  The fact  that the  income   

was  levied  at  a  flat  rate  or  at  an  earlier  stage  will  not   in  any way   

29

alter the nature or character of the levy since such matters are completely in   

the realm of legislative wisdom. What is brought to tax, though levied with  

reference to the purchase price and at an earlier point is nonetheless income  

liable to be taxed under the Income Tax Act. This Court referring to the  

argument about absence of legislative competence to levy tax before accrual  

of income, referred to Entry 82 of List I of Seventh Schedule (“Taxes on  

income other than agricultural income”) and held as under :    

“…the  word  ‘income  occurring  in  Entry  82  in  List  I  of  the  Seventh  Schedule should be construed liberally and in a very wide manner and the  power to legislate will take in all incidental and ancillary matters including  the  authorization  to  make  provision  to  prevent  evasion  of  tax,  in  any  suitable manner.”  

28. 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 being evaded, though it is leviable at the stage of issue from the  

brewery.  The  beer  brewing  process  shows  once  the  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 evasion of excise duty by diversion of beer (excisable  

article) before it  becomes a finished product,  section 28A of the Act has  

been enacted and that is implemented by Rule 53 of the Brewery Rules, and  

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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 in a month from July 1975)  

by dip and gravity of the quantities in the fermentation vessels.  We may  

illustrate  the  method  adopted  to  ascertain  whether  there  is  any  excess  

manufacturing wastage (or illegal siphoning of beer) before it reaches the  

bottling tanks :  

a. The opening balance (actual quantity) 1000 Litres

b. Quantity brewed during the month under survey 2600 Litres

c. Total stock of beer  (a + b) in the brewery 3600 Litres

d. Quantity of beer issued during the month 2600  Litres

e. Balance quantity in hand as per stock account (c – d) 1000 Litres

f. Actual balance found on physical examination   600 Litres  

g. Wastage in manufacture (difference between quantity shown in stock account and actual quantity in the brewery) 400 Litres

h. Wastage allowable at 9%* of the total stock of  beer in the month(3600 litres) under Rule 53 of Brewery 324 Litres

*(9% is  the  allowance  towards  losses  due  to  evaporation,  sullage  and other   contingencies within the brewery).  

i. Excess wastage chargeable to duty & addl. duty (g + h) 76  Litres  

31

29. It should be noted that 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  show  evasion  of  excise  duty. The  

standard procedure of 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 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  

Bottling Rules and levied double the amount of excise duty (excise duty plus  

equal amount as additional duty) 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  

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 9%,  

the difference was ignored. Only if the difference exceeded 9%, the quantity  

in excess of 9% was treated as the excess wastage and excise duty and an  

equal amount as additional duty was charged in regard to such excess. For  

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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 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 provided to cover losses on account of  

sullage etc.  

30. The Act provides that levy of excise duty on beer can not only be with  

reference to the quantity produced 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 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. 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  

33

manufactured  rather  than  the  actual  quantity  manufactured.  Such  a  

procedure has been in vogue in 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 and it is extracted below:

“42.  The attenuation method of charging duty on beer. – In the United  Kingdom, the duty is levied on beer in proportion to the original gravity of  the wort. Really speaking, the Excise  control of breweries is much less  stringent  than in the case of distilleries.  No excise locks are used.  The  constant presence of an officer is only considered necessary in the case of  every large breweries  working continuously.  The safety of  the revenue  depends on notices  of all  essential  operations  which are required to be  given  to  the  Excise.  The length  of  notice  to  be  given depends  on  the  importance of the particular operation and on the facility with which the  local officer can attend. One officer is, in general, in charge of a group of  the smaller breweries.  

A brewer must give timely notice of –  

(1) his attention to brew;  (2) the nature and amount of materials to be used;  (3) the time at which he expects his mash-tun to be drained (this is to  

enable the officer to take a dip of the drained grains which must lie  for two hours after draining or until the officer arrives).  

(4) his intention to mix the products of one or more brewings; (5) any modification in his routine methods of brewing; (6)  any alterations  he  proposes  to  make in  the position  etc.,  of  his  

brewing vessel;  (7) Finally and most important of all, the brewer is required to give  

notice to the officer of his intention to ‘collect beer’, ie., he must  intimate as closely as possible the time when the wort will be ready  for  pitching  with  yeast.  When  the  wort  is  collected  for  fermentation the brewer must  forthwith take the specific  gravity  with his saccharometer and also the dip, in order that the density  and gallonage may be recorded in case the officer does not attend.  In  cases  where  the  officer  attends  before  fermentation  has  materially affected the gravity he is able to verify these figures and  above  all  to  see  that  they  have  been  recorded  properly  by  the  brewer.  

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In order that his control may be effective, the officer must time his visits  to the brewery so as to arrive when fermentation has not advanced too far  for check and so that  the brewer has had reasonable time to make his  entries of gravity and gallonage. If having had reasonable time, the brewer  has failed to make his entry this omission is treated as a serious excise  offence.  

It may be asked why stress is not laid on the necessity for the attendance  of the officer at the time of pitching the wort. This, bowever, is generally  impracticable seeing that usually brewers ‘collect’ at the same hour and  that the presence  of the officer at more than one brewery is impossible.  This being so, his visits must be unexpected, the responsibility for honest  declaration of gravity and dip being imposed on the brewer. The brewer’s  records, if confirmed by the officer, are thus the basis on which the duty is  levied.”  

31. This Court in Haryana Brewery Ltd. (supra) recognized the alternative  

method of calculating the quantity of beer manufactured to be valid. This  

Court held:  

“The proviso to Section 32 uses the expression "provided that duty may be  levied....." Clause (b) of the proviso state that the calculation of the beer  manufactured would be according to such scale or equivalents calculated  on the quantity of materials used or by the degree of attenuation of the  wash or wort. The opening part of Clause (b) of the proviso indicates as to  how the beer manufactured is  to  be determined.  The proviso is  only a  manner of computing the end-product with reference tot he raw material  which has been used in the input. The tax is on the end-product and not on  the raw material.  What this proviso read with Rule 35 indicates that in  order to determine what is the quantity of beer manufactured which is fit  for human consumption, after all the processes have been gone through,  you seen what is the quantity of raw material which has been utilised for  the  manufacture  of  beer  and  in  the  process  of  manufacturing  give  an  allowance for wastage of 7 per cent. After doing this, you determine the  quantity of beer manufactured. An example which has been given is that a  1000 kgs. Of malt should ordinary yield 6500 litres of beer. By giving an  allowance  of  wastage  which  must  occur  during  the  process  of  the  manufacture of the end-product and limiting that allowance to 7 per cent,  the quantity of beer manufactured on which excise duty would be levied  would be 6500 litres less 7 per cent.  

35

14. It appears to us that the proviso to Section 32 read with Rule 35 does  nothing more than to give a rough and ready method of calculating the  quantum of  beer  which  should  have  been  manufactured  in  the  normal  process which is  calculated on the basis  of the raw material  used.  The  idea,  perhaps,  is  that  full  quantity  of  beer  which  is  manufactured  is  accounted  for.  It  will  be  seen  that  registers  are  maintained  by  the  manufacturer and the figures are taken from there. From the records of the  manufacturer, excise authorities will be able to ascertain the quantum of  raw material used. It is open to the excise authorities to accept the figure  indicated in the records of the manufacturer of the total quantity of beer  manufactured. Duty can be levied on this and this would be inconsonance  with the first part of Section 32. It is, perhaps, only to cross-check whether  the figure which is indicated in the books of the manufacturer is correct  that a formula can be used for determining the amount of beer which could  or should or must have been manufactured. This is by taking into account  the quantity of raw material used, the quantity which is in the process and  as entered in the brewing book and from there giving an allowance of 7  per cent for wastage. It appears to us that the allowance of 7 per cent has  to be in arriving at the figure of the manufactured beer as loss of quantity  during  the  process  of  manufacture.  It  cannot  be  that  on  the  figure  of  manufactured beer, arrived at on the basis of the books of the respondent,  an allowance of 7 per cent has then to be given. If the figure taken for the  purpose of calculating the excise duty is only of the end-product, viz., the  beer  produced,  and  not  the  quantity  of  raw  material  used  in  the  manufacture of beer during which loss of some quantity as wastage would  have occurred, there cannot be a deduction of any sum or proportion as  wastage from the quantity of end-product in order to arrive at the quantity.  The excisable product is the quantity of beer produced and not the quantity  produced, and thus excisable, minus 7 per cent.”

Therefore there is nothing wrong in adopting the procedure prescribed in  

section  28A  and  Rule  53  of  Brewery  Rules  to  determine  the  excess  

manufacturing wastage.

32. The  Brewery  wants  the  wastage  allowance  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  

36

filtration  process)  when the  manufacturing  process  is  complete  and  only  

bottling remains. The argument of the respondent is 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  finished.  But  this  contention  ignores  the  fact  that  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%  

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 fermentation vessels or  

by the filtration process and there will also be certain amount of evaporation  

during the process of filtration, racking and storage etc. In fact, the Brewery  

specifically  admits  this  position  in  Annexure-I  to  the  writ  petition while  

describing the process of manufacturing beer :  

“From the above brief  description  of manufacturing  process,  it  will  be  observed that  the  deficiency between the  quantity  of  wort  to  the point  when  beer  is  ready  for  bottling,  occurs  because  of  elimination  of  impurities” viz., yeast cells and dirty heads brought up in fermentation at  top,  evaporation  taking place;  carbon dioxide  evolved out;  and sullage  settled at the bottom. The quantity of these impurities accounting for the  said deficiency in the process of manufacture cannot be taken as beer and  excisable article for purposes of levy of duty.  For culmination of these  

37

impurities and other contingencies mentioned of in rule 912, an allowance  of 10% is fixed.”  

33. 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, evaporation etc., there will be no need for granting  

any allowance because once it have passed the filtration 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  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. As noticed above, a combined reading  

of rules 37 and 53 of Breweries Rules, 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 storage/bottling tanks after filtration.  

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34. We may now consider the contention on behalf of brewery that they  

are entitled to allowance upto 9% towards such wastage from the quantity  

measured in the storage/bottling tanks after fermentation and filtration. We  

extract  below the  contention  of  the  Brewery in  this  behalf  from its  writ  

petition:  

“(X) That  section  28A(2)  in  so  far  as  it  purports  to  provide  for  permissible  wastage  could  operate  only  from  the  stage  the  State  Government became competent to impose excise duty/additional duty and  till  beer  is  brought  to  such  a  stage  that  it  is  rendered  fit  for  human  consumption, the State Legislature has no legislative competence to levy  excise duty/additional  duty and hence the State  Legislature cannot take  into consideration for the purposes of levy of excise duty/additional duty  any wastage prior to the stage when the liquor/beer becomes fit for human  consumption.”

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 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 method.  

39

35. In fact, the brewery describes the nature of these losses in the brewery  

in Annexure I to the writ petition (in the connected WP No.1375/1978) as  

under:

“MANUFACTURING LOSSES

(i) Varying constituents of Malt viz. percentage of proteins etc. produced  sludge or sullage in more or less quantity. Thus sullage to be removed will have  differing percentages.

(ii) Depending on the process – top and bottom fermentation etc.  there  may be more or less of scum and dirty heads containing yeast cells to be removed,  thus losses will be variable at this stage.

(iii) The removal of solids is continuously carried on at different stages in  the manufacturing  process.  With frequency of the centrifugal  machines  or  the  Filtration Plants having to be opened depending upon the quantity and turbidity of  the fermented wort or green beer to be cleared off to be sparklingly clear, the  losses will be more or less. With the banking of import of quality filter sheets, the  indigenously made filter sheets have to be used which are to be more frequently  changed then the imported ones. There are losses in absorption in filter sheets and  leakage at ends of plates.

(iv) Some quantity of fermenting wort is lost in removal of scum and dirty  heads and in removal of sullage from the bottom of the tanks.

(v) Every  time  the  fermenting  or  fermented  wort  or  green  beer  is  transferred by means of pipes, what is left over in pipes has to be drained off,  water  and  steam  is  run  in  pipes  to  sterilize  them,  so  that  there  may  be  no  contamination to spoil beer.

The varying losses at each stage in the manufacturing process are natural and  unavoidable. With the above mentioned variable losses, accidental, off chance  occurrence or those losses which are incidental to the process of manufacture  are provided for in rule 912 under “Contingencies”.

The contingent losses, a few of which are given below, make the losses in  manufacturing process vary and erratic.

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(a) Due  to  failure  of  electricity  and  refrigeration,  there  may  be  brisk  fermentation and wild bacterial infection, which may make it sour to be turned  into vinegar, or if more spoilt, may have to be destroyed.

(b) By sudden leakage of brine coiled pipes, the fermenting wort may be  mixed up with brine which becomes unpalatable and has to be destroyed.  

(c) With haziness persisting after filtration once, it may have to be treated  with approved chemicals and refiltered.

(d) Bursting of transfer pipes, leakage of valves etc.”

36. 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 that stage (that is  

completion of manufacture) and the allowance under Section 28A of the Act  

will become redundant, except for the small percentage provided for wastage  

during bottling and storage.  

37. The Brewery  placed strong reliance upon the decision of this Court in  

State  of  U.P.  vs.  Modi  Distillery  & Ors.  -  1995  (5)  SCC 753.   In  that  

decision, this Court was considering the validity of demand for excise duty  

on the wastage of high strength spirit (80% to 85%) during transportation in  

containers  from distillery  to  warehouse  (referred  to  as  ‘Group B’  cases).  

This Court held :  

41

“In other words, ethyl alcohol (95 per cent) was not an alcoholic liquor for  human consumption but could be used as a raw material or input, after  processing  and  substantial  dilution  in  the  production  of  whiskey,  gin,  country  liquor  etc. In  the light of  experience  and  development,  it  was  

necessary to state that ‘intoxicating liquor’ meant only that liquor which  was consumable by human beings as it was.   

What the State seeks to levy excise duty upon in the Group 'B' cases is the  wastage of liquor after distillation, but before dilution; and, in the Group  'D' cases, the pipeline loss of liquor during the process of manufacture,  before  dilution.  It  is  clear,  therefore,  that  what  the State  seeks  to  levy  excise duty upon is not alcoholic liquor for human consumption but the  raw material or input still in process of being rendered fit for consumption  by human beings. The State is not empowered to levy excise duty on the  raw material or input that is in the process of being made into alcoholic  liquor for human consumption.”

The said decision will not assist the first respondent – brewery as that was a  

case of levy of excise duty on raw materials or inputs which were still in  

process. That matter related to distilled alcohol and not fermented beer. The  

wastage considered by this Court was all with reference to alcohol that had  

not  been  diluted  and  therefore  was  not  ‘alcoholic  liquor  for  human  

consumption’. This Court held that the State is not empowered to levy duty  

on the raw material or inputs that is in the process of being made into an  

alcoholic  liquor  for  human  consumption.  The  position  is  different  here.  

When the quantity of the liquid in the fermentation vessels were measured,  

on  account  of  fermentation,  the  liquid  was  already  in  the  process  of  

42

conversion into an ‘alcoholic liquor for human consumption’, though had  

not become a finished product 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 duty and additional duty in regard to such excess wastage.

Re : CA No.4709 of 2002 :

38. The question arising in this appeal is the same as in CA No.4708 of  

2002 and the facts are also similar to the facts of CA Nos.4708 of 2002. The  

only difference in facts is that the demand in this case related to the period  

3.6.1970  to  5.9.1972  and  the  amount  of  duty/additional  duty  that  was  

demanded was Rs.1,40,596.89. For the reasons stated in CA No.4708/2002,  

this appeal is also allowed.

Re : CA Nos.4710, 4711, 4712, 4713 of 2002

39. All these four appeals relate to demands made upon the breweries for  

duty on excess wastage in bottling and storage of beer. The first appellant  

brewery has described the process of bottling of beer thus (in Annexure P2  

to the writ petition – WP No.1375/1978):

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“Before carbonated beer is conveyed to the automatic bottling machine  through pipes, the whole line is cleaned and sterilized to ensure that there  are no wild bacteria which may spoil the beer passed through these pipes.

Bottles  which  are  cleaned  and  sterilized  in  Automatic  Bottle  Washing  Plant, are fed by conveyors to the beer bottling machine. While the bottles  are filled, some quantity of beer is spilt by foaming which takes place and  with pressure of Co2 gas bottles burst in the process of bottling. The beer  which is spilt is mixed with broken glass pieces, oil etc. on the conveyor  belts. It is contaminated and has to go waste.

To  increase  the  shelf  life  of  beer,  the  filled  bottles  are  placed  in  pasteurization tanks and the water in which these bottles are immersed is  gradually raised to temperature of 65O and after keeping these bottles for a  fixed time in hot water, these are cooled down.  

With the expansion of Co2 gas during this process some bottles burst and  the beer contained therein gets mixed up with water.  

Leaky bottles are also taken out from the pasteurization tanks, which are  decanted for reprocessing of their contents. Some wastage occurs in the  process of decanting.

After pasteurization of filled bottles,  capsuling,  labeling and packing is  done, in which some bottles break. During the process of bottling what  goes waste in  spilling  as mentioned above,  in unavoidable.  It  does not  exist in the form of goods for sale and human consumption. Thus being  not an excisable article is not leviable with duty.”

The Breweries have also described the various instances of bottling wastages  

in the writ petition as under :   

“BOTTLING WASTAGES

The wastages occur at different stages in bottling process as under:  

(a) Loss  of  beer  in  transfer  pipe  from  Bottling  Tank  to  bottling  machine, which has to be washed away to sterilize pipes before bottling  operations are began every day.

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(b) There being pressure of CO2  gas in beer there is loss by bursting of  bottles in filling and capping machines. With the pressure of gas foaming  takes place and there is spillage of beer between the bottling and capping  machines. The spilt beer cannot be recovered as it gets mixed up with oil  on the conveyor belts and is contaminated.

(c) There are some breakages on conveyors between capping machine  and pasteurization tanks.

(d) During pasteurization the filled bottles are immersed in water and  the temperature of water is gradually raised to about 65°C after keeping  for a fixed time, it is gradually colled, with the expansion of gas the bottles  burst to a varying percentage depending on the varying quality of bottles  from mould to mould and batch to batch and beer is mixed with water in  the tanks.  

(e) Some breakages do occur in capsuling, labelling and packing of  filled bottles.  

(f) Sometimes rebottling may have to be done and loss on this account  may occur.

40. The appellant breweries are holding bottling licences in form No.FL3  

to bottle beer, governed by the U.P. Bottling of Foreign Liquor Rules, 1969  

(‘Bottling Rules’ for short). Rule 6 provides that every licence granted in  

Form No. FL3 shall be subject to the conditions enumerated therein. Rule 7  

enumerates the additional special conditions applicable to bottling of India  

made liquor in bond under FL3 licence. Sub-rules (10) and (11) of Rule 7  

are relevant for our purpose and they are extracted below :

“7.  Following  additional  special  conditions  will  be  applicable  to  bottling of Indian Made Foreign liquor in bond under F.I.-3 licence: (1) to (9)  x x x x x  omitted as not relevant  

(10) On the last working, day of every calendar month, after all the  transactions for that day are made, the Excise Inspector Incharge shall  

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take the stock of unbottled and bottled  spirit  3rd beer/stored in  the  bottling warehouse, enter into the prescribed registers and ascertain the  wastage of spirit in the bottling operations and storage in the bonded  warehouse.

(11) (a) An allowance up to one per cent may be made on the total  quantity  of spirit  and beer  stored during a month for actual  loss in  bottling and storage. The licensee shall be responsible for the payment  of duty on wastage in excess of one per cent,

(b) when the wastage does not exceed the prescribed limit, no action  need be taken by the Excise Inspector  Incharge but if  an excess is  found at the time of monthly stock taking the Excise Inspector shall  submit a statement to the Collector by the fifth day of the month in  Form F.L.B. 10 showing the quantity of actual wastage and the duty to  be  paid  by  the  licensee  on  the  excess  wastage.  On  receipt  of  the  statement the Collector shall recover the duty from the licensee at the  full rate of duty leviable on Indian made foreign spirit and beer.”

41. The appellants contended that section 28A provides for an allowance  

of 10% to cover losses due to evaporation, sullage and other contingencies  

within the brewery and also to cover losses in bottling and storage. Rule 53  

of the Brewery Rules as amended on 19.7.1975 (Rule 912 of the Excise  

Manual) provides for an allowance of 9% of the total stock of beer in the  

month to cover losses due to evaporation, sullage and other contingencies  

within  the  brewery.  Rule  7(11)(a)  of  the  Bottling  Rules  provides  for  an  

allowance up to one per cent of the total stock of spirit during a month, for  

actual loss in bottling and storage. The appellants submitted that section 28A  

did not make such a division of  10% allowance,  into 9% for loss in the  

brewery   and  one  percent  for  loss  in  bottling;  and  that  therefore  it  is  

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impermissible  to  divide  the  wastage  under  two  separate  heads  of   9%  

wastage to cover losses due to evaporation, sullage and other contingencies  

within the brewery under rule 53 of the Brewery Rules, (para 912 of U.P.  

Excise Manual) and only one percent for losses in bottling and storage under  

the Bottling Rules. According to them the wastage in bottling can itself go to  

an extent  of 10%. At all  events,  if  the total  wastage due to evaporation,  

sullage  and  other  contingencies  in  the  brewery  and  the  total  wastage  in  

bottling and storage, together did not exceed 10%, no duty or additional duty  

could be levied on the assumption that the losses in bottling and storage was  

restricted only to one percent, as such division would be contrary to section  

28A of the Act.

42. 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 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 and storage. On  

19.7.1975, Rule 53 (para 912 of Excise manual)  was substituted and the  

allowance  to  cover  losses  due  to  evaporation,  sullage  and  other  

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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 (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 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  

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. As noticed above, Rule 53 of the  

Brewery Rules and Rule 7(11) of the Bottling Rules when read conjointly  

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(11) of Bottling Rules is under challenge. Be  

that as it may.

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43. The brewery having obtained the bottling licence subject to 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  

the above there is no merit in the contention of the 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. The appeals are therefore  

liable to be dismissed.

Conclusion :

44. CA Nos.4708-4709/2002 are allowed and the order of the High Court  

in Civil Misc. WP Nos.3968/1978 and 4043/2008 are set aside and the said  

writ petitions are dismissed.

45. CA Nos.4710, 4711, 4712 & 4713/2002 are dismissed affirming the  

decision  of  the  High  Court  dismissing  C.M.  W.P.  Nos.1375/1978,  

3690/1979,  4136/1978  and  4157/1978,  though  for  reasons,  somewhat  

different from the reasoning of the High Court.  

………………………..J (R. V. Raveendran)

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………………………..J (P. Sathasivam)

New Delhi;  September 23, 2011.    

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