JUDGMENT
Sujata Manohar, J.
1. These appeals and writ petitions raise two issues. (1) It is the contention of the appellants and the petitioners, who are before us, that the respondents are seeking to recover supervision charges under Section 58A of the Bombay Prohibition Act, 1949 with retrospective effect and hence their demand for such supervision charges is bad in law. (2) The appellants and the petitioners contend that having regard to Sections 105 and 106 of the Bombay Prohibition Act, 1949, no duty can be levied until the time that foreign liquor is removed for sale from a bonded warehouse. Therefore, the respondents are not entitled to levy duties in respect of breakages or villages which have taken place prior to the removal of goods from the bonded warehouses.
2. Both these questions were raised before Pendse, J., the learned Single Judge from whose Judgment the present appeals are filed. The learned Single Judge negatived both these contentions of the petitioners by his judgment and order dated 19th of June 1986. Both these issues were also raised before a Division Bench of this Court at Nagpur in Writ Petition No. 1168 of 1981 filed at Nagpur in the case of J.E. Bilmoria & Sons v. State of Maharashtra (1990) 2 Bombay Cases Reporter 108 (Nagpur Bench) Bombay (D.B.) decided on August 1, 1989 by M.S. Deshpande and D.J. Moharir JJ.. The Division Bench did not agree with the above decision of Pendse, J. which was brought to its notice and decided both these issues in favour of the petitioners before it. Thereafter the issue relating to “retrospective” supervision charges again came up for consideration before a Division Bench of this Court consisting of Pendse and De Silva, JJ. in Appellate Side Writ Petition No. 940 of 1982 in the case of Gautstad Nayar Irani v. State of Maharashtra (1990)Appellate Side Writ Petition No. 940 of 1982 decided by Pendse and Da Silva JJ. on September 12, 1990 (Unrep). It seems that the judgment of the Division Bench at Nagpur was not brought to the notice of this Division Bench. The Division Bench followed the judgment of Pendse, J. referred to earlier and decided the issue of supervision charges against the petitioners by its judgment and order dated September 12, 1990. There are, thus, two conflicting judgments of the two Division Benches of this Court on the question of supervision charges.
3. When the present Appeal Nos. 847 of 1987, 990 of 1987 and 988 of 1987 came up for hearing before a Division Bench consisting of Bharucha, J. (as he then was) and Saldanha, J., the Division Bench by its judgment and order dated 26th of June 1991 held that as there was a conflict of decisions of two Division Benches of this Court on the issue of supervision charges, the same should be referred to a Full Bench. On the question of duty on breakages and villages, the Division Bench found it difficult to accept the reasoning which found favour with the Division Bench at Nagpur in the case of M/s J.E. Bilmorta & Sons, (supra) It therefore referred this issue also to a Full Bench for consideration. As a result, these appeals and writ petitions have been placed before us.
4. For the sake of convenience, the appellants and the petitioners herein are referred to as the petitioners. The petitioners manufacture Indian made foreign liquor in various factories situated all over India. The petitioners carry on the business of importing, manufacturing, storing and selling Indian made foreign liquor. For this purpose the petitioners hold various licences issued under the Bombay Prohibition Act, 1949 and various Rules framed thereunder. They hold a licence, inter alia, under the Maharashtra Foreign Liquor (Storage in Bond) Rules, 1964 as also the Maharashtra Foreign Liquor (Import and Export) Rules, 1963. The petitioners have been threatened with non-renewal of their licences for the alleged non-payment of supervision charges and duty on breakages and villages which have occurred prior to the goods being issued for sale from bonded warehouses. The petitioners have challenged the non-renewal of their licences.
I. Supervision charges
5. Under Section 58A of the Bombay Prohibition Act, 1949 the State Government may, by general or special order direct that the manufacture, import, export, transport; storage, sale, purchase, etc. of any intoxicant, denatured spirituous preparation shall be under the supervision of such Prohibition and Excise or Police staff as it may deem proper to appoint, and that the cost of such staff shall be paid to the State Government by the person manufacturing, importing, exporting, transporting, storing, selling, etc. the intoxicant, or denatured spirituous preparation.
6. Under Section 143 of the Bombay Prohibition Act, 1949, the State Government may make rules for the purpose of carrying out the provisions of this Act or any other law for the time being in force relating to excise revenues. The State Government has framed the Maharashtra Foreign Liquor (Storage in Bond) Rules, 1964 in the exercise of this power. Under these Rules, any person deciding to store foreign liquor in bond shall make an application for a licence in that behalf to the Commissioner as set out in Rule 3. Rule 3, Sub-rule (2) requires the applicant to give an undertaking to the effect that he shall abide by the provisions of the Act and the Rules, Regulations and Orders made thereunder and the Conditions of the Licence and shall execute a bond in Form B.W.A. for the payment of duty. Under Rule 6, all transactions pertaining to the receipt, transport, storage in bond and issuance of foreign liquor shall be under excise supervision and in accordance with the provisions of the Maharashtra Foreign Liquor (Storage and Supply) Regulation, 1964.
7. Under Rule 7, the Commissioner may appoint such staff at the bonded warehouse for excise supervision as he deemes necessary and the cost of such staff shall be paid to the State Government by the licensee as provided by an order under Section 58A of the Act. The licence under these Rules is issued in Form B.W.I and is subject to the conditions set out therein. Clause (3) of the Conditions of the Licence states that the licensee shall pay to the State Government in advance at the beginning of each quarter commencing from the date of the licence such cost of the staff appointed at the licensed premises for the purpose of excise supervision, as may be fixed by the Commissioner from time to time. As a result all licence holders are statutorily required to pay the cost of the staff appointed at their licensed premises for excise supervision. And this charge is collected in advance every quarter.
8. By a memorandum dated 9th of February 1979, issued by the Superintendent of Prohibition and Excise, Bombay, all the Prohibition and Excise Officers attached, inter alia, to bonded warhouse licensed premises were informed that due to a change in the rate of dearness allowance, leave salary contribution and revision of pay scales as per Government Resolutions dated April 17,1978 and August 17,1978, the rates of supervision charges had been increased from May 5, 1970. Revised statements showing the rates of supervision charges, which as a result, were recoverable from the foreign liquor licensees with effect from May 5,1970, were also enclosed and the Prohibition and Excise Officers were asked to recover the differential amount of supervision charges immediately. Accordingly the respondents have demanded from the petitioners the differential amount of supervision charges from May 5, 1970.
9. The petitioners contend that there is no provision under the Bombay Prohibition Act, 1949 or under any of the Rules for recovery of supervision charges retrospectively. They submit that under Condition No. 3 of Form B.W.I they are required to pay the cost of the staff appointed at the licensed premises in advance at the beginning of each quarter. This they have done. They submit that they cannot now be asked to pay increased charges with retrospective effect from May 5,1970. The petitioners rely in this connection on a decision of the Supreme Court in the case of Income-tax Officer v. M.C. Ponnoose . The Supreme Court has observed in this case that while it is open to a sovereign legislature to enact laws which have retrospective operation, the Courts will not ascribe retrospectivity to new laws unless by express words or necessary implication, it appears that such was the intention of the legislature. The Parliament can delegate its legislative power, but where rules and regulations are made in the exercise of such delegated powers, the authority must have clear statutory powers to make retrospective delegated legislation. Where there is no such clear statutory power, the Courts have held that the person or authority exercising subordinate legislative functions cannot make a rule, regulation or bye-law which can operate with retrospective effect.
10. The ratio of this judgment, however, has no application to the facts of the present case. There is no question here of any delegated legislation which is made effective from a retrospective date without the requisite statutory provision in that behalf. In the present case, under Section 58A, the State Government has the power to recover from a licensee the cost of the staff appointed to supervise the licensed premises for excise purposes. The Maharashtra Foreign Liquor (Storage in Bond) Rules, 1964 also provide that the State Government can recover from the licensees the cost of staff appointed at the licensed premises/bonded warehouse for excise supervision. Condition No. 3 of the Licence requires the petitioners to pay such amount of costs as determined by the respondents in advance before the beginning of every quarter. This condition is merely for administrative convenience. It does not prevent the State Government from recovering the cost of such staff subsequently, especially when both Section 58A as well as Rule 7 do not prescribe any time within which such cost has to be recovered. The circular of 9th of February 1979 sets out that by reason of certain Government Resolutions, dearness allowance and other emoluments payable, inter alia, to such supervisory staff have been increased with effect from May 5, 1970. The cost of supervision charges has proportionately gone up, and this is to be recovered from the licensees. The cost of supervision has gone up only as result of the revision which has been effected around the time when the circular was issued. The increase, however, which has been given, is from May 5,1970. The cost of supervision has therefore gone up in or around 1979. The increased cost, however, has to be determined from May 5,1970 because of the retrospective rise granted to the staff by the Government. The licensees do not have any say in the salary and other emoluments paid to such staff. They have to defray the cost of the staff allocated to them. The demand for additional charges has been made by the respondents from the petitioners when the charges increased. However, the upward revision is with effect from May 5,1970 and hence the increased charges which have been demanded from the petitioners are from May 5, 1970. Under Section 58A and the relevant Rules, there is a clear existing statutory liability on the licensees to pay the cost of the supervisory staff. There is no change in the statutory liability. What is sought to be recovered from the petitioners is the increased cost of such supervision which has taken place in 1979 or thereabouts. The demand is made when the cost increased. However the increase is with retrospective effect from May 5,1970. The petitioners have clearly agreed to bear the entire cost of supervision. If this cost of supervision goes up in 1979, they are required to pay the same whether it is calculated from May 5, 1970 or from any other date.
11. It was also contended by the petitioners that there is a promissory estoppel in their favour to the effect that the entire cost of supervision has already been collected from them by reason of Condition No. 3 in the licence which requires them to pay the cost of supervision in advance every quarter. The petitioners submit that the respondents must be considered as having accordingly informed them that the entire cost of supervision has been recovered from them in advance. The respondents therefore cannot now claim any additional amount from the petitioners. This submission is also not acceptable. Simply because for administrative convenience, the costs are calculated in advance and recovered from the petitioners, it cannot be said that there is any promise held out to the petitioners that they would not be liable to pay any further charges if, later on, the cost of supervision increases. Condition No. 3 of the licence cannot be construed as a representation that no further costs will be recovered when the statutory provision of Section 58A is clearly to the effect that the licensees will have to bear the entire cost of the supervisory staff whatever that maybe. The claim of promissory estoppel must also, therefore be rejected.
12. In our view the Division Bench at Nagpur, with respect, is not right when it says that the cost of the staff which is required to be paid under Section 58A has a reference only to the cost of the staff as obtaining for the period during which the goods are stored in the bonded warehouse. The cost is undoubtedly of the staff who is deployed at the bonded warehouse. But Section 58A does not prescribe any date or period during which such cost should have accrued. If such costs arise at a later date by reason of a retrospective revision in the pay scales of the staff so deployed, the petitioners are bound to pay such revised cost in view of the clear provisions of Section 58A. The claim, therefore, of the petitioners that they a re not laible to pay the additional charges sought to be collected from them under the circular of 9th of February 1979 must be rejected.
13. We may also point out that in Writ Petition No. 352 of 1992, there is a further challenge viz. to a notice dated 9th of February 1991 demanding differential amount of supervision charges with effect from January 1, 1986. It seems that around 1991 the Government adopted for the supervisory staff (inter alia) the pay-scales and dearness allowance recommended by the Pay Commission for the Central Government Employees. Consequently, the State had to pay to the supervisory staff arrears from January 2, 1986 of the increased pay and dearness allowance. Accordingly, the petitioners have been asked by the respondents to pay the differential charges in respect of the cost of supervisory staff allotted to them with effect from January 1, 1986. For the same reasons referred to above, this demand is also valid and is in accordance with the provisions of Section 58A. The petitioners are therefore bound to pay the revised supervision charges.
14. It was submitted by the petitioners that the demand for additional supervision charges is wholly unreasonable and arbitrary and therefore must be struck down. They have pointed out that ordinarily the incidence of excise duty would be passed on by them to their customers. In the present case the stock which was in the bonded warehouse at the relevant time has been sold long back. There is no way in which the petitioners can recover the increased charges from their customers now because they have already sold the stock. This submission also does not deserve to be accepted. In the first place, there can be no presumption that the incidence of excise duty or other costs related to the manufacture and sale of the product in question will be necessarily passed on to the customers in full. This depends upon market conditions and what price the petitioners can charge for their product if their product is to be profitably sold in the market. The profitability or otherwise of marketing the product depends upon various factors. Undoubtedly, the cost of manufacture including all overheads and excise duties have a bearing on the price which the petitioners charge to the customers. Even assuming that the petitioners would have ordinarily passed on this increased cost of supervisory staff to their customers, the petitioners in the present case are not prevented from doing so, from the date when they are required to bear the additional charges. There is no ceiling on the prices which they can charge to their customers for their product. If the petitioners now have to pay certain additional costs, there is no reason why they cannot pass on such costs to their current customers-provided, of course, that the product is marketable at that price. We have no material before us on this aspect. Hence it is not possible to hold that the demand is unreasonable or arbitrary. The first issue must therefore be answered against the petitioners and in favour of the respondents.
II. Excise Duty on Breakages and villages
15. The petitioners import into the State foreign made Indian liquor and transport it to their bonded warehouse from which the liquor is released for sale. In the course of such import, transport and storage in the bonded warehouse, breakages and villages occur and there is consequent loss of liquor. The petitioners contend that the quantity of liquor thus lost cannot be issued for sale from their bonded warehouse. Hence the respondents cannot charge excise duty and/or countervailing duty under the Bombay Prohibition Act, 1949 in respect of such lost quantity of liquor.
16. In fact, prior to 21st of December 1976 the respondents did not claim excise or countervailing duties under the Bombay Prohibition Act, 1949 in respect of such breakages and villages. The Commissioner of Prohibition and Excise, Maharashtra State, Bombay, however, issued a circular dated 29th of May 1979 in connection with the write off of breakages, villages and other losses of foreign liquor. In respect of breakages, the circular stated that breakages occurring in transit should be written off under the orders of the Collector for the recovery of the excise duty and transport fee thereon. This shall apply to transit breakages pertaining to the period prior to 31st of December 1976. The circular stated that the question of how such transit breakages occurring after 1st of January 1977 Should be treated, was under examination. It also said that breakages in foreign liquor stored in the bonded warehouse after completion of the examination of the consignment shall be treated as bond breakages and excise duty at full rate shall be recovered on such breakages. In respect of villages it stated that if the licensee proposed to have the villages destroyed, he may be permitted to do so without payment of excise duty. But if the licensee proposed to clear the alleged bottles of foreign liquor for being sold to known customers, necessary permission may be given, subject to payment of excise duty and transport fees at full rate as if the bottles were full and subject also to an undertaking being given by the licensee that in case of any complaint he shall be liable.
17. A subsequent circular was issued on 19th of April 1980 in modification of the instructions contained in the circular of May 29, 1979. With respect to breakages occurring in transit it stated that excise duty at the prescribed rates should be recovered on all breakages of Indian made foreign liquor in transit, whether such breakages pertain to a period prior to or subsequent to January 1, 1977. Regarding villages, it said that excise duty should be recovered on all alleged bottles whether destroyed or sought to be cleared out of bond for sale to known customers.
18. The petitioners have challenged both these circulars. They contend that under Section 106 of the Bombay Prohibition Act, 1949, excise duty is levied only upon issue of goods for sale from a bonded warehouse. Breakages and villages occur prior to this point of time and hence no excise can be levied on breakages and villages.
19. This submission of the petitioners does not have any merit. Chapter VIII of the Bombay Prohibition Act, 1949 deals with excise duty. Sections 105 to 114 fall under Chapter VIII. Section 105 deals with excise duties. Sub-section (1) of Section 105 states as follows:
Section 105. (I) An excise duty or 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-
(a) any alcoholic liquor for human consumption!,
(b) any intoxicating drug (or hemp),
(c) opium,
(d) any other excisable article,
when imported, exported, transported, possessed, manufactured or sold in or from the State, as the case may be;….
20. Section 106 deals with “Manners of levying excise duties”. The relevant portions of Section 106 are as follows:
Section 106. Subject to any regulations to regulate the time, place and manner of payment made by the Commissioner in this behalf, the duties referred to in Section 105 may be levied in one or more of the following ways:-
(a) In the case of an excisable article imported –
(i) by payment either in the State at the time of its import or in the State or territory of export at the time of its export, or
(ii) by payment upon issue for sale from a warehouse established or licensed under the provisions of this Act;
(b) in the case of an excisable article exported by payment in the State at the time of its export, or in the State or territory of import;
(c) in the case of excisable articles transported –
(i) by payment in the district from which they are transported, or
(ii) by payment upon issue for sale from a warehouse established or licensed under the provisions of this Act;
…
21. Under Section 105 therefore an excise duty or countervailing duty is imposed, inter alia, on any alcoholic liquor for human consumption. Excise duty is essentially a duty on the manufacture of goods while countervailing duty is imposed when the articles are imported into the State in order to counter-balance the excise duty which may be levied on similar goods when manufactured within the State. The act of importation, exportation, transport, possession, manufacture or sale referred to ins. 105, describe the points at which such a duty can be imposed. This is made clear by Section 106 which deals with the manner in which excise duty can be levied. In the case of an excisable article when it is imported, it can be collected either at the time of its import in the State or it can be collected at the point of the issuance of the goods for sale from a licensed warehouse. Similarly in the case of an excisable article which is transported, it can be collected in the district from which the goods are transported or it can be collected at the stage of issuance of such articles for sale from a licensed warehouse. Therefore, there are two stages at which such an excise duty can be collected – either at the time of its import or at the time of its sale from the warehouse. But the duty which is levied is on the goods manufactured or, in the case of countervailing duty, goods which are imported. For administrative convenience collection of such duty may be postponed to a later date namely the date of the issuance of the articles for sale from a licensed warehouse. In the latter case, the proviso to Section 106 states that where payment is made upon issue for sale from a licensed warehouse such payment shall be at the rate of duty in force at the date of issue from the warehouse. Therefore, by an express provision in the statute, when facility of paying at a later date is given to a person liable to pay excise or countervailing duty, he has to pay the rate prevailing at the date when he actually releases the goods from the licensed warehouse for sale, The contention of the petitioners that the excise duty becomes leviable under Section 106 on articles when they are issued from a bonded warehouse for sale does not appear to be correct.
22. In the case of Shroff and Co. v. Municipal Corporation of Greater Bombay (1989) Supp (1) S.C.C. 347, the Supreme Court considered, inter alia, Sections 105 and 106 of the Bombay Prohibition Act, 1949 as also the Maharashtra Foreign Liquor (Storage in Bond) Rules and the Maharashtra Foreign Liquor (Import and Export) Rules. The Supreme Court said that excise duty is in essence a tax on manufacture or production of goods and excise duty can be levied only on such goods as are manufactured or produced within the State. Countervailing duty, on the other hand, is imposed for the purpose of setting off or compensating some other duty so as to place the home producer on an equal footing with the importer of foreign goods. The essence of countervailing duty is to set off the effect of non-payment of tax on manufacture and it is meant to protect the indigenous manufacture. After examining Section 106 of the Bombay Prohibition Act and the Maharashtra Foreign Liquor (Storage in Bond) Rules, as well as the Maharashtra Foreign Liquor (Import and Export) Rules, the Supreme Court said, “it is clear that the charge or incidence has already been attracted on the taxable event taking place, namely, the manufacture or production in the case of excise duty or import in the State in the case of countervailing duty. The fact that a bond has to be executed, means the goods which are to be stored have already been the subject matter of duty or charge. Section 106 of the Bombay Prohibition Act only envisages administrative convenience for the point of levy in the sense of ‘collection’. Administrative facility is thus granted for deferred payment to the assessee”. The Supreme Court also relied upon the definition of “excise duty” and “countervailing duty” under Section 2(14) of the Bombay Prohibition Act, 1949. This section defines “excise duty” and “countervailing duty” to mean such excise duty or countervailing duty, as the case may be, as is mentioned in entry 51 in List II of the VII Schedule of the Constitution. Referring to Section 106 the Supreme Court said that the section clearly envisages administrative convenience for the point of levy in the sense of collection. The charge of incidence co-related to the taxable event is on entry into the State by way of import. Referring to the Maharashtra Foreign Liquor (Storage in Bond) Rules, 1964, the Supreme Court said that the proper reading of Rule 2(2) of these Rules also reinforced this interpretation because the words “without payment of duty” in that rule indicate that duty has become chargeable. If, however, the assessee complies with the rule, he is given a facility to defer payment. Similarly the Maharashtra Foreign Liquor (Import and Export) Rules, 1963 were also referred to by the Supreme Court as clearly showing that the normal rule is pre-payment of the duty at the time or before the import. Ranganathan, J. in his concurring judgment also said, “The language of Section 105 which imposes the charge, of Section 106 which talks of payment and of the Rules leaves no doubt that the duty is attracted at the point of time of import (i.e. physical entry of the goods into taxing territory) and that only the payment of duty is deferred in case the goods imported are removed to a bonded warehouse, to a later point of time, for purposes of convenience of collection. It will not be appropriate to construe the provisions i n such a manner as imposing a liability on some persons (who have no bonded warehouse) at one point of time and on others, at a different point of time. The provision that, where the facility is availed of, the assessee would pay the duty at the rate prevalent at the later point of time (often higher than at the point of import but not necessarily so) is not inconsistent with the above concept but is rather a logical consequence of the privilege of deferment given to the assessee.
(Italics ours) [herein indicated in italics -Ed.]
23. Hence, countervailing duty becomes payable at the stage when goods are imported into the State. The loss which occurs on account of breakages while removing the goods to a bonded warehouse within the State, or villages which occur before the goods are released from the bonded warehouse for sale would all be liable to countervailing duty. Because the goods attract this duty at the point when they are imported into the State. Any subsequent loss cannot affect the collection of duty which has become payable on such goods.
24. The petitioners relied upon two judgments of the Allahabad High Court dealing with the U.P. Excise Act, 1910. The first judgment was in the case of Mohan Meakin Breweries Ltd. v. State of U.P. (1978) 2 I.L.R. All. 72 and the second judgment was also in the case of M/s. Mohan Meakin Breweries v. The State of U.P. . The judgments interpreted the provisions of the U.P. Excise Manual and the various notifications issued as also the practice by the department as clearly indicating that the excise duty is quantified and collected at the point of the issue of the spirit and not at the point of manufacture. The Allahabad High Court, therefore, said that during transmission of the spirit from the distillation plant to the issue vats through pipes, if certain wastages occur, an allowance should be made in respect of such wastage and excise duty cannot be charged on the shortfall. It said that the U.P. Excise Act provides that excise duty is chargeable only on the issue of the spirit and not on the quantity manufactured. The second judgment follows the earlier judgment. Both these judgments turn upon the provisions of the U.P. Excise Act and are not therefore applicable to the Bombay Prohibition Act, 1949 which has been interpreted by the Supreme Court as clearly imposing excise and countervailing duty at the point of manufacture and import respectively. The respondents have also pointed out a decision of the Supreme Court in the case of the State of U.P. v. Delhi Cloth Mills [1991] A.I.R. S.C. 735 where the Supreme Court has considered the U.P. Excise Act of 1910, and its Excise Manual and has said that the excise duty on excess transit wastage was valid in law.
25. The petitioners are therefore not right in contending that duty cannot be levied on breakages in transit or while in storage and on villages. The fact that upto the end of 1976 no duty was in fact charged on breakages and villages does not mean that the State is not entitled to collect or recover duty in respect of breakages which occur in transit after the goods are imported into the State or on villages which occur after the goods are stored in a bonded warehouse. The two circulars, therefore, are valid in law and they cannot be challenged.
26. In the premises, the appeals as well as the writ petitions are dismissed and the Rules are discharged.
27. In the circumstances of the case, however, there will be no order as to coasts.