J.E. Bilimoria and Sons, Nagpur vs Corporation of City of Nagpur

B.A. Masodkar, J.—Few facts need be stated to appreciate the grievance of the petitioner. The petitioner deals in liquor and for that purpose holds foreign liquor licence for the sale of foreign liquor in the District of Nagpur. The said licence is granted under the provision of the Bombay Prohibition Act, 1949, hereinafter called ''The Act'' and in accordance with the rules framed thereunder, hereinafter called ''The Rules''. Further petitioner holds Foreign Liquor Import Trade Licence as a wholesale dealer in foreign liquor and imports foreign liquor from outside the State of Maharashtra.

In the year 1970, petitioner applied to the Director of Prohibition and Excise through the Collector, Nagpur, for the purpose of licence for storing in a bonded warehouse the foreign liquor brought within the limits of Nagpur city. Such licence was granted with regard to the premises called ''Assa House, Nagpur'' initially on 14-5-1971 and it was not disputed at the hearing that petitioner holds such a licence, presently, the initial licence having been renewed every year.

The said bonded warehouse licence granted under the provisions of section 26 (d) of the Act and is subject to the provisions of the Maharashtra Foreign Liquor (Storage in Bond) Rules, 1964 and the Maharashtra Foreign Liquor (Storage and Supply) Regulations, 1964. The provisions of clause (d) of section 26 of the Act enables the State Government to establish or to licence a warehouse wherein any intoxicant hemp, mhowra flowers or molasses may be deposited and kept without payment of duty. The goods like the foreign liquor which can be bonded under the licence in a warehouse established u/s 26 (d) of the Act, it is obvious, can be deposited and kept in the bonded state without requiring to pay the duty prescribed by the provisions of section 105 of the said Act. We are here concerned with the duty imposed under the provisions of sub-section (1) of section 105 with regard to alcoholic liquor for human consumption. Section 106 of the Act deals with the manner of levying excise duties so imposed u/s 105. Clause (a) (ii) of section 106 of the Act states that in the case of an excisable article imported the duty imposed has to be discharged by payment upon issue for sale from a warehouse established or licensed under the provisions of the Act. Similarly, clause (c) (ii) of section 106 of the Act shows that in the case of excisable articles transported, the manner of payment of the duty is by payment upon issue for sale from a warehouse established or licensed under the provisions of the Act. Even with regard to intoxicating drugs, clause (e) of section 106 of the Act shows that if such drugs are warehoused, then the liability has to be discharged by payment at the time of issue from a warehouse established or licensed under this Act. Along with this, reference may be made to the provisions of the Maharashtra Foreign Liquor (Storage in Bond) Rules, 1964 and the Maharashtra Foreign Liquor (Storage and Supply) Regulations, 1964. The Rules define ''bonded warehouse'', meaning a place in respect of which a licence for the storage of foreign liquor without payment of duty is granted under Rules 2 (2). The term "to store foreign liquor in bond" means to store, deposit or keep foreign liquor in a bonded warehouse without payment of excise duty or countervailing duty or other fees payable thereon under Rules 2 (9). Further the bond required to be executed by a licensee of the foreign liquor warehouse and the terms thereof indicate that such a licensee cannot remove for issue from the licensed premises any foreign liquor unless the proper duty and fee have been paid except otherwise provided by the rules. The form of licence authorising storage of foreign liquor lays down conditions with regard to the removal by the licensee of the bonded foreign liquor.

With regard to these provisions, the petitioner complains that inspite of the fact that he has been licensed to have a bonded warehouse wherein he can store or deposit foreign liquor without payment of excise duty at the time of bringing in or storing within the limits of Nagpur city, for the purpose of calculating octroi the Corporation insists and in fact threatens to recover octroi duty by calculating the amount of excise duty in the incidental charges so as to make up ad valorem value of the liquor so bonded though in fact at the time of the entry of the goods within the Corporation limit, the petitioner was not required to pay the same as incidental charges while importing the goods within the limits of the City of Nagpur.

According to the petitioner octroi rules of 1966 framed for this purpose having its source in section 115 (6) read with section 114 (1) (e) of the City of Nagpur Corporation Act, 1948, does not permit any such inclusion of the prospective charge upon the goods that will be debonded for the purpose of sale or consumption. Reliance is placed on Rule 10 (a) of the Octroi Rules and the provisions of the Act and the rules relating to bonded warehouse to which we have already made a reference.

As against this, the learned Counsel appearing for the Corporation submits that it is irrelevant to refer to the provisions of the Prohibition Act, the Rules and the Regulations with regard to the bonded warehouse and the goods that can be stored or deposited therein. It is strenuously urged that upon proper interpretation of Rule 10 of the Octroi Rules, it is plain that the value of the goods imported or brought within the city of Nagpur for the purpose of use, consumption or sale has to be determined with reference to the costs of the article and adding to it the incidental charges which clearly includes the charge of excise duty. It is submitted that looking to the law of State Excise with regard to liquor and the provisions of section 105 of the Act the bonded warehouse goods carry with it the impost of excise as the incidental charge only difference being its collection u/s 106 deferred to a particular point of time. It is further suggested that at the most in case eventually the excise duty is not recovered with regard to certain goods under particular contingencies permissible by the rules then that would at the most be a case of seeking refund from the Corporation authorities of the amount of octroi duty paid including the impost of excise duty.

This analogical debate can best be resolved by looking to the plain terms of the Octroi assessment rule with which we are concerned. That rule reads as follows:

10(a). Where the duty is chargeable on weight, gross weight including that of the packages or container shall be adopted. When the duty is chargeable ad valorem, the value thereof shall be the costs price to the importer plus all incidental charges such as custom duty, insurance, excise duty, sales tax and freight and such other charges incurred by the importer, till the arrival of the goods at the entrance Naka, if these have not already been included in the cost price.

(Italics ours)

It is apparent that rule 10 is not a charging rule. The liability and the charge is imposed under the provision of section 114 (1) (e) read with rule 2 of the rules that direct that octroi duty shall be levied on animals and goods specified in the Schedule brought within the octroi limits of City of Nagpur for sale, consumption or use at the rates mentioned against each in the Schedule annexed and specified thereinafter. The Schedule enumerates the goods and the ad valorem rates of octroi duty; and the "liquors" are at Serial No. 57 chargeable at 5 percent ad valorem rates. The rules styled as "octroi rules for the assessment, collection and refund of the octroi" are independently framed referred to assessment rules under the same said provisions of the Act. These firstly provide the Municipal limits and entrance Nakas or the Octroi Nakas and lay down the procedure how the duty has to be collected. Of these assessment rules, rule 10 (a) forms the part For working out the liability to duty the value of the goods so brought within the limits of Corporation is required to be found out. Underlined portions (in italics) of Rule 10 (a) supra directs that the value may be arrived at by taking the cost price paid by the importer and adding to that the incidental charges incurred by the importer till the goods arrived at the entrance Naka of the city. Value for ad valorem charge is price paid plus incidental charges incurred. What are incidental charges ? Rule purports to indicate by providing an illustrative list of such items. Advisedly it being illustrative the same is net exhaustive and items similar could be added to the cost price to arrive at the value. Further the charges are incidental to import of goods and are incurred by the importer till the arrival of the goods at the entrance Naka and cannot conceivably have any reference thereafter. The illustrative items of charge like that custom duty, insurance, excise duty, sales-tax, freight, all indicate that importer is out of pocket by that sum at the point of time the goods have entered the city in the sense that expenses are all pre-paid or pre-incurred. The incidence of goods for the imposition of octroi is the fact of bringing of the same within the limits of the city of Nagpur for use, sale or consumption and that incidence has relevance to the entry and cost or value of the goods at that time. There is explicit mention in the body of the rules of the time factor indicated by the use of the phrase "till the arrival of the goods at the Naka" If, therefore, for the purpose of import of the goods within the city limits of Nagpur a person has paid apart from the cost price of the articles or goods customs or excise duty, sales tax or any other freight it is reasonably taken into account for calculating the value of the goods. Similar is the position with regard to other incidental charges like that of insurance of goods where liability is already incurred. The very concept of incidental charges as distinct from price is indicative of such other charge which is impressed on the goods and without payment of which the import of it would not have been possible. The rule does not, therefore, operate upon other liabilities that may be attached to the imported goods that may arise by operation of law or by virtue of other acts inter vivos after the goods have entered the limits of city of Nagpur for use, consumption or for sale. It is thus the value at the entry that is all relevant for the purpose of calculation of the octroi and not its appreciation or depreciation thereafter. Prepaid or pre incurred though not paid duties before the goods are imported within the city would clearly enter, constitute and partake in the nature of incidental charges and as such be part of the value. However, that would not be the position of duties or charges which are not so incurred at the time of the entry of the goods within the city but would be charged when the goods are dealt with after such entry or deposit within city limits.

The scheme of the provisions of section 26 (d) of the Bombay Prohibition Act indicates that not only the bonded warehouse can be licensed for the benefit of the private dealer but the State Government is enabled to establish such a warehouse wherein the intoxicants could be deposited and kept without payment of duty. Assuming that it was the State Government who were to establish such a warehouse permitting the dealers to deposit their goods in such a warehouse in a bonded state, it is obvious that the entry of the goods within the city limits would be without payment of duty. No doubt at the time of debonding for the purpose of sale or consumption because of section 106 read with section 105 of the Prohibition Act to the extent the goods are sold or consumed they would be required to be cleared after payment of the duties. It is pertinent however to merely allude to condition 10 of the bond to which we have already made a reference that indicates a possibility of the movement of the bonded goods in a bonded state to another bonded warehouse after obtaining necessary pass from the Collector and without payment of duty. That itself shows that in the bonded state, the goods are kept without payment of the duty and even can be moved or transported to another bonded premises without such payment. If we were to accept the argument of the Corporation then inspite of such a position of law permitting import within the city of Nagpur of the bonded goods without payment of excise duty as per section 105, and its exports in the same condition the importer would have to pay by including in the value the incidental charges nationally working out the excise duty not at all incurred and adding it to the cost price of the article for the purpose of paying the octroi duty to the Corporation. Such a position cannot be conceived by the plain terms of Rule 10 (a) of the octroi Rules. We are conscious that in the matter of tax, levy and its imposition there is little scope for ethical consideration and the plain terms of the impost statute have to be given its meaning and effect irrespective of the hardship, inconvenience of so-called injustice; but where there are two possible constructions, one indicating fairness and just result and the other even upon the exceptional area indicating injustice we will be right in leaning in favour of the first.

Putting the terms, therefore, of rule 10 (a) before us the words "incidental charges incurred by the importer, till the arrival of the goods at the entrance Naka" appear to us conveying as pre-entry expenditure incurred by the person bringing the goods within the City of Nagpur and nothing else and it would not be proper to include within the word "incurred" the charges to be incurred after the import and because of certain other post-import events.

That being the position, we are satisfied that the Octroi rule can be consistently interpreted in this manner and with justice. So interpreting, we direct the Corporation not to collect octroi duty upon the bonded-warehouse liquor goods of the petitioner brought within the city limits without payment of any excise duty under the provisions of section 105 read with section 106 of the Bombay Prohibition Act, by adding the excise payable in the incidental charges as contemplated by rule 10 (a) of the Octroi Assessment Rules. Rule absolute in these terms. No costs.