- (1.) Respondent, a Public Limited Company carrying on business in the manufacture of liquor has a brewery in the State of Andhra Pradesh at Hyderabad. It was served with a notice dated 19-12-1984 by the Commissioner of Excise raising a demand for "differential excise duty" on the basis of variation of strength in liquor pursuant to an audit objection raised by the Accountant General. The demand pertained to the excise years 1978-79 to 1982-83. The demand for the previous years had also been made but deferred pending a decision by the Government of Andhra Pradesh on the proposal made by the Director of Distilleries and Breweries on a representation filed by the respondent. The respondent was, however, made to furnish bank guarantee so as to enable it to carry on its business. On 12th January, 1990, G.O.Ms. No. 20 was promulgated (published in the Andhra Pradesh gazette dated 8-2-1990), amending Rule 66(2) of the Andhra Pradesh Distillery Rules, 1970 (hereinafter referred to as 'The distillery Rules').
(2.) The amendment made to the Rule reads thus : "(2) Liquor shall be bottled at the strength specified by the Commissioner from time to time. A tolerance of plus minus 0.5 PS is allowed in manufacture of IML with the following conditions : (a) The tolerance will be purely for the purpose of administering the Acts and Rules and for the convenience of the manufacturers but not for the purpose of calculation of Excise Duty. (b) If the strength of IML is observed to be weaker than 25 degrees UP up to 25.5 degrees the licensee shall not be eligible for any refund of Excise Duty. (c) If the IML is observed to be stronger than 25 degrees UP up to 24.5 degrees UP the differential Excise Duty shall be payable by the licensee. (d) Sample of IML from each batch sent to the Chemical Examiner will be passed by the Chemical Examiner if it is within the tolerance limit of 24.5 degrees UP to 25.5 degrees UP. Samples falling beyond the above tolerance limit, will not be passed by the Chemical Examiner."
(3.) The respondent filed Writ Petition No. 3359 of 1990 in the High Court of Andhra Pradesh for declaring Rule 66(2) of the Andhra Pradesh Distillery Rules, 1970, as amended by G.O.Ms. No. 20, as illegal and arbitrary. It was also the case projected by the respondent that the amendment made on 12-1-1990 could not have retrospective operation and, therefore, the demand made for the differential excise duty for the years 1987-88, 1988-89 and for the period from 1977-78 to 1985-86 were illegal and un-sustainable.;