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Judgment
D. Reddeppa Reddi, J.—The Petitioners in these three writ petitions are manufacturers of Indian Made Foreign Liquor, having their factories in Ranga Reddy District, Andhra Pradesh. They have filed these writ petitions for a declaration that the provision in Rule 12-A of A.P. Indian Liquor and Foreign Liquor Rules, 1979 (for short ''the Rules'') prescribing the time limit for production of excise verification reports is only directory and not mandatory and for a consequential direction to the respondents not to invoke the bank guarantee furnished by them as contemplated under Rule 12(1) of the Rules.
The Rules made by the Government of Andhra Pradesh in exercise of powers conferred u/s 72 r/w Sections 9, 11, 12, 13, 14, 15 and 28 of the A.P. Excise Act, 1968 and published in A.P. Gazette (BO) RS to Pt.II dated 14-9-70, inter alia, provide for export of Indian Liquor by the manufacturers of Liquor or Brewers within this Stale to the importers in other States including the Military Canteen Stores Department situate in far off places in the Country, Rules 11 to 14 deal with the procedure for application of the export permits and their issuance. Rule 11 provides that the application shall be in Form (I.L)4(A) and the applicant shall remit label approval fee of Rs.25,000/- for each variety of label sought to be approved and exported. Rule 12 deals with issuance of an export permit in Form (IL)4 by the Commissioner subject to fulfilment of conditions (1) and (2) specified therein. Condition No. 1 which is relevant for our purpose reads as under :
"1. That the applicant has paid and produced the challan in original in token of having credited into the Government treasury the excise duty at the rates in force for the Indian Liquor proposed to be exported; or that he has furnished a suitable bank guarantee from a Scheduled Bank situated in Andhra Pradesh State preferably at the place where the guarantee has to be tendered, covering the entire excise revenue due on the consignment to the satisfaction of the authority competent to grant such permit.''''
Condition No.2 relates to payment of export fee at the rates specified therein. Rule 13 provides that the export permit shall be issued by the Commissioner of Excise in Form (IL)5. Rule 12-A with which we are directly concerned provides that "the exporter shall obtain a verification report from the Excise Officer at the destination of the consignment and furnish it to the authority who issued the export permit within 21 days after expiry of the validity of the export permit, failing which the excise duty paid shall accrue to the Government or the bank guarantee furnished shall be invoked and encashed amount adjusted towards Government revenue and no new permit shall be issued until verification reports for the previous consignments are furnished." Rule 12-B provides that in case the officer incharge of the importing Slate makes a report of short receipt in the consignment in his verification report, the authorities issuing export permits shall collect excise duly at the prevailing rate on short receipt of consignment and if the excise duty is not paid within 3 days the same may be collected by invoking the bank guarantee before issuing fresh permits. Rule 14 provides that the export of liquor shall be from and to any particular place or premises and through the route mentioned in the export permit and the consignment of liquor shall not be disposed of in transit or exported otherwise than authorised in the export permit.
In the present cases, export permits were issued to the petitioners only on their fulfilment of Conditions (1) and (2) specified in Rule 12. We are not concerned with the export fee paid by them as prescribed under Condition No.2. We are only concerned with the bank guarantees furnished by them as contemplated under Condition No.1 for the sums payable towards excise duty on the quantities of liquor permitted to be exported. In this regard, it is stated across the bar that in the matter of collecting excise duty a consensus has been reached by the States or a convention is followed so that the same quantity of liquor manufactured in one State need not be subjected to duty twice, once in the exporting State and another in the importing State. Thus the liquor manufactured in this State and exported to other States is not subjected to excise duty payable in this State provided excise duty is paid thereon in the importing States at the rates prevailing in those States. It is admitted before us that the Condition No. 1 specified in Rule 12 providing for payment of excise duty at the rates in force for Indian Liquor sought to be exported or furnishing bank guarantee for an equal sum is to ensure that the quantity of liquor permitted to be exported is actually exported and received in the importing States and the excise duly is paid thereon in the importing States.
In the light of the above, let us see whether the provision in Rule 12-A prescribing a time limit of 21 days for furnishing verification reports from the date of expiry of the validity of the export permit is directory or mandatory. Sri P. Sitarama Raju, learned Counsel for the petitioners places strong reliance on judgment dated 23-2-1989 of a Division Bench of Kerala High Court comprising the Hon''ble the Chief Justice V.S. Malimath and Justice V. Bhaskaran Nambiar in W.A.No.891/88, to drive home his submission that the said provision is only directory and not mandatory. Infact, the petitioner in W.P.No.2850/94 was the respondent in the said appeal, which was filed against the decision of a learned Judge in OP No.841/84, questioning the demand and me proceedings for recovery of excise duly by virtue of a provision similar to Rule 12-A issued by way of notification by the Government of Kerala under Kerala Abkari Act. In the appeal, it was the submission of the learned Advocate General appearing for the State of Kerala that "there can be no ambiguity in a taxing statute; there cannot be any doubt about the inlendment of a taxing statute and there can be no equity in a taxing measure". In opposition, Sri K.K. Venugopal, senior Counsel appearing for the exporter of liquor, the petitioner in OP No. 841 /84 and the respondent in the appeal, formulated his submissions as under :
"The insistence of the production of a verification certificate is a mandatory provision, for, without the said certificate, the most conclusive evidence available, it will be difficult for the State to decide whether liquor has been actually exported, and if so, what was the quantity so exported. But ... the time limit for production of the certificate prescribed is only directory, that it requires only substantial compliance. There may be several reasons, some beyond the control of the exporter, for not producing the verification certificates within the time. If none of these reasons can be looked into and an assessment was to follow without having the necessary particulars, the assessment and the demand are likely to be labelled as arbitrary and unjust. A construction which leads to such absurd results has to be avoided...... while there can be no intendment, no equity in a taxing statute, that principle only applies to the charging sections and not to the procedural provisions leading to the recovery of tax. The procedural formalities provided in the notification are merely directory intended to effectuate the object of the Act, to collect the duty..... therefore.... the time fixed for production of verification certificate was only directory.''''
Dealing with these submissions, Justice V. Bhaskaran Nambiar, speaking for the Division Bench formulated two aspects for consideration - (i) What are the principles to be followed for deciding whether a particular provision in a statute is mandatory or not; and (ii) Whether those principles can be applied to a taxing statute; after referring to the following principle enunciated by the Privy Council in Viscount Maugham in Punjab Co-op. Bank v. Income Tax Commissioner, 1940 PC 230.
"..... It is a well settled general rule that ''an absolute enactment must be obeyed or fulfilled exactly, but it is sufficient if a directory enactment be obeyed or fulfilled substantially."
The two aspects were elaborately considered in the light of the principles enunciated in Montreal Street Railway Company v. Dormand 1917 PC 142, Raza Buland Sugar Co. Ltd. Vs. Municipal Board, Rampur, , A.V. Fernandez Vs. The State of Kerala, and Gursahai Saigal Vs. Commissioner of Income Tax, Punjab, and answered as under :
"A provision in a statute or notification is mandatory or directory is dependent on the intent of the Legislature. This intention can be gather from the object of the statute, the purpose of which the provision has been inserted, the setting in which it appears, and the consequences which would follow by adopting a construction one way or the other. This is thus an ordinary rule of construction which, without doing violence to the language used, achieves the object sought to be realised.
A distinction for the purpose of interpretation, has to be made between the charging provisions in a taxing statute and the provisions relating to the machinery for quantification and collection of tax. The charging section has to be construed with reference only to the language employed in the statute, for, "there is no room for intendment; there is no equity about a tax; there is no presumption as to a tax" and ''''nothing is to be read in and nothing is to be implied". Different considerations however arise when the machinery provisions in a taxing measure have to be construed, when the Court is not bound to adopt a strict interpretation confining the application of the provision to the letter of the law, but can traverse beyond the language used and ascertain whether the machinery is workable to effectuate the enforcement of the charge created under the Act The ordinary rules of construction apply to the machinery provisions in a taxing statute and it is open to the Court to consider whether any or all the provisions relating to the procedure and the machinery for collection of tax are mandatory or directory."
Applying the above principles to the provisions of the notification in question, it was concluded that the provision regarding the production of the verification certificate was mandatory and the provision prescribing time limit for production of the verification certificates could be construed only as directory.
The ratio decidendi of the above case, in our considered opinion, will squarely apply to the present case, the facts of which are as follows : The petitioner in W.P.No.2850/94 obtained 32 export permits and exported IMFL to various Military Canteen Stores Department located at Pathankot, Srinagar, Baribrahamana, Leh, Udhampur, Bihar, Assam, Nagaland etc., The petitioner in W.P.No.28368/95 obtained 8 export permits and exported IMFL to various Military Canteen Stores Department located at Port Blair (Andaman), Assam, Nagaland, Rajasthan, New Delhi and Bombay. The petitioner in W.P.No.3236/94 obtained 7 export permits and exported IMFL to Kerala Sewerage Corporation Depots located at Cannonore, Calicut, Palghat, Trichur, Ernakulam, Quilon and Attingal. True, they could not obtain the excise verification certificates within the time specified under Rule 12-A and submit the same to the Commissioner of Excise, Andhra Pradesh, Hyderabad. But, they have satisfactorily explained the delay. Infact, the respondents without insisting for production of verification reports, issued fresh export permits to the petitioners after obtaining an undertaking from them to submit the same within the time extended. It is not the case of the respondents that the petitioners mis-used the export permits and the quantity of liquor permitted to be exported did not reach the destinations and the excise duly was not paid in the importing Slates. On the other hand, it is admitted that by the time the respondents sought invoking bank guarantees the petitioners furnished excise verification reports issued by the competent authorities of the importing States. No short consignment is attributed in any case.
In the light of the above facts and in view of our conclusion that the provision in Rule 12-A prescribing time limit of 21 days for production of excise verification certificates is merely directory, we have no option but to hold that the impugned action of the respondents to invoke the bank guarantees furnished by the petitioners is totally unsustainable and liable to be quashed. It is, accordingly, quashed.
In the result, the writ petitions are allowed. No costs.