No Excise Duty On Liquor Destroyed In Accidental Fire Without Negligence: Madhya Pradesh High Court

The Madhya Pradesh High Court on 4 August held that excise duty cannot be levied on foreign liquor destroyed in an accidental fire where the loss occurred due to an unavoidable cause and there is no evidence of negligence or deliberate wrongdoing by the licensee.

A Single Judge Bench of Justice Milind Ramesh Phadke dismissed the State's writ petition and upheld the Board of Revenue's order setting aside the Rs. 38.41 lakh excise duty demand, finding that the factual conclusions were supported by the evidence on record and did not suffer from any perversity or jurisdictional error warranting interference under Article 226 of the Constitution. He held:

“..No material has been placed on record by the Department suggesting that the fire was deliberately caused, that the respondent had violated any mandatory safety requirement, the electrical system had remained unattended despite known defects, or that the destruction of liquor resulted from any omission attributable to the respondent…”

The dispute arose after a fire at the bottling plant of Som Distillery Pvt. Ltd. in June 2007 destroyed 20,993.22 proof litres of foreign liquor.

Following an audit objection raised by the Comptroller and Auditor General (CAG), the Excise Commissioner demanded Rs. 38.41 lakh in excise duty, holding that the Madhya Pradesh Foreign Liquor Rules did not provide any exemption. The Board of Revenue later set aside the demand after finding that the loss resulted from an accidental fire beyond the manufacturer's control.

Assailing the Board's order, the State argued that exemption provisions under fiscal statutes must be interpreted strictly and contended that the manufacturer had failed to establish due diligence by producing records relating to electrical inspections, maintenance and fire safety measures.

The High Court rejected the contention, holding that while exemption provisions require strict interpretation, a writ Court cannot reappreciate factual findings recorded by the statutory appellate authority. Once the Board, on the basis of the material before it, found that the fire was accidental and not attributable to any negligence, there was no ground for interference.

Further, the Bench noted that the Board had concluded that the fire was caused by an accidental short circuit. It found that the Excise Department had produced no material to show that the fire resulted from negligence, breach of safety norms or any deliberate act by the manufacturer. The loss therefore fell within the expression “unavoidable causes” under Rule 19(2) of the Madhya Pradesh Foreign Liquor Rules (which provides relief where liquor is lost due to unavoidable causes).

Accordingly, the High Court dismissed the State's writ petition and upheld the Board of Revenue's order setting aside the Rs. 38.41 lakh excise duty demand.

For State: Shiraj Qureshi, Advocate

For respondent: Vinod Kumar Bhardwaj - Senior Advocate with Anand V. Bhardwaj, Advocate