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S.K Pattanaik (Dead) Through Lrs. v. State Of Orissa And Others
Factual and Procedural Background
The appellant imported Indian-made foreign liquor into the State of Orissa and stored it in a licensed bonded warehouse. A portion of this stock sedimented and became unfit for human consumption and was therefore destroyed. The Excise Department issued a notice demanding countervailing duty of Rs 10,02,182 on the destroyed stock. Challenging the demand, the appellant filed a writ petition before the Orissa High Court, contending that no duty could be levied on liquor that had been destroyed. A Division Bench, doubting the correctness of earlier High Court decisions (P.D. Jain and Mohan Meakins), referred the matter to a Full Bench. The Full Bench rejected the appellant’s challenge. The present appeal was filed in the Supreme Court by special leave against that Full Bench judgment of 2-12-1994.
Legal Issues Presented
- Whether countervailing duty under the Bihar and Orissa Excise Act, 1915 is payable when imported excisable goods (Indian-made foreign liquor) are destroyed in a bonded warehouse before being released for sale.
- Whether the destruction of goods after import but before clearance affects the incidence or only the collection of countervailing duty under Sections 27 and 28 of the Act.
Arguments of the Parties
Appellant's Arguments
- Because the liquor was rendered unfit for human consumption and had been “destroyed” while still in the bonded warehouse, no countervailing duty could be imposed.
- Reliance was placed on the High Court judgments in P.D. Jain v. State of Orissa and Mohan Meakins Ltd. v. State of Orissa, which were said to support the above position.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| P.D. Jain v. State of Orissa | Previously relied on to argue that countervailing duty is not payable on liquor destroyed in a bonded warehouse. | The Supreme Court noted the case only as the basis for the High Court’s reference; it declined to follow the view that duty could be avoided when goods are destroyed after import. |
| Mohan Meakins Ltd. v. State of Orissa | Followed P.D. Jain on the same point regarding non-levy of duty on destroyed stock. | Similarly mentioned and effectively overruled by the Court’s present decision affirming the validity of the duty demand. |
Court's Reasoning and Analysis
The Court distinguished between “excise duty” and “countervailing duty.” Excise duty is levied on the manufacture of excisable goods, whereas countervailing duty is levied on their import into a State to counterbalance excise duty that would have been payable if the goods had been manufactured within that State. The taxable event for countervailing duty is the moment of import.
Section 27 of the Bihar and Orissa Excise Act, 1915 is the charging provision for both excise and countervailing duties. Section 28 prescribes the modes of levying and provides only a facility for postponement of collection of duty in certain situations, such as where goods are stored in a bonded warehouse. The Court emphasised that while “levy” encompasses imposition and quantification of duty, “collection” refers to its actual recovery. Postponement of collection under Section 28 does not alter the fact that the charge is attracted at the point of import.
Accordingly, once the liquor entered the State, the liability for countervailing duty became irrevocably fixed. Destruction of the liquor in the warehouse did not affect the taxable event and could not erase the duty already incurred. The Court therefore upheld the demand raised by the Excise Department.
Holding and Implications
Appeal Dismissed. The Supreme Court affirmed the Full Bench decision and held that the demand for countervailing duty of Rs 10,02,182 was valid. The parties were left to bear their own costs.
Implications: The judgment clarifies that under the Bihar and Orissa Excise Act, liability for countervailing duty crystallises upon import into the State and is not nullified by subsequent destruction of the goods in a bonded warehouse. The decision reinforces the distinction between the incidence of duty (levy) and its collection, but it does not announce any new wider legal doctrine beyond the specific statutory context.
Order
1. This appeal by special leave is directed against the judgment and order of the Full Bench of the High Court of Orissa dated 2-12-1994.
2. Brief facts giving rise to the present appeal are as follows:
The appellant imported into the State of Orissa Indian-made foreign liquor and stored it in a licensed bonded warehouse from where the liquor was to be released for sale. While the liquor was so stored in the warehouse, a portion of the imported stock became sedimented and was rendered unfit for human consumption. That stock was, therefore, destroyed. A notice was issued to the appellant for payment of countervailing duty on the stock to the tune of Rs 10,02,182. The validity of the demand of countervailing duty was challenged by the appellant in a writ petition which was heard by a Division Bench of the High Court. It was asserted that since the stock of liquor had been “destroyed” in the warehouse countervailing duty could not be imposed. Before the Division Bench, reliance was placed on the judgment in the case of P.D Jain v. State of Orissa which had been followed in the case of Mohan Meakins Ltd. v. State of Orissa. The Division Bench felt that the two decisions noticed above needed reconsideration. A reference was accordingly made to the Full Bench and that is how the matter was decided by the Full Bench.
3. Heard learned counsel for the parties.
4. “Excise duty” and “countervailing duty” are well-known concepts and are attracted in different situations. “Excise duty” is essentially a duty on manufacture of goods, and the taxable event is the manufacture of the excisable goods. “Countervailing duty”, on the other hand, is imposed when excisable articles are imported into the State, in order to counterbalance the excise duty, which is leviable on similar goods if manufactured within the State. So far as countervailing duty is concerned, the incidence of the impost is on the import of the excisable articles, i.e, at the time of entry into the State.
5. Section 27 of the Bihar and Orissa Excise Act, 1915 (hereinafter called “the Act”) deals with the powers of the State to impose duty on import, export, transport and manufacture. This section is the charging section both for excise duty as well as countervailing duty. Section 28 of the Act on the other hand provides for the ways for levying the duty which can be imposed under Section 27. Section 28 deals with the manner of levying duty imposable under Section 27 of the Act in different manners. Though countervailing duty or excise duty is required to be assessed and collected as soon as the taxable event arises, a facility for postponement of collection of excise duty is envisaged under Section 28 in case of sale of the excisable article from the bonded warehouse after its import into the State.
6. While the expression “levy” may include both the process of taxation as well as the determination of the amount of tax or duty, the expression “collection” refers to actual collection of the payable duty or the tax, as the case may be. Since the taxable event for attracting excise duty or countervailing duty is the manufacture or import of excisable goods into the State, the charge of incidence of duty stands attracted as soon as the taxable event takes place and the facility of postponement of collection of duty under the Act or the rules framed thereunder, can in no way affect the incidence of duty on the imported goods.
7. In this view of the matter, the demand of countervailing duty from the appellant in the established facts and circumstances of the case was perfectly justified. The fact that the liquor was rendered unfit for human consumption and destroyed after its import, which by itself attracted the levy of duty could not wipe off the liability of the appellant for payment of duty on the excisable goods, after their import, in the bonded warehouse. The Full Bench of the High Court was, therefore, perfectly justified in finding that the challenge to the demand made by the appellant had no merits. This appeal has no merits. It, accordingly, fails and is dismissed but with no order as to costs.
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