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State of UP through Secretary (Excise) & Ors. vs. M/S McDowell and Company Limited

Civil Appeal · 2022 INSC 13Decided 5 Jan 2022
Civil Appeal Nos. 169-170 of 2022

Background

On 10 April 2003, a fire broke out in the godown of McDowell's distillery at Rosa, Shahjahanpur, destroying 35,642 cases of Indian Made Foreign Liquor. The Excise Department demanded over Rs. 6.39 crore in excise duty on the destroyed liquor, holding the company responsible, but McDowell argued it was not negligent and the loss was an accident beyond its control. The Allahabad High Court quashed the demand, holding the fire was an "Act of God" with no negligence shown, and later directed the Excise Commissioner to decide on refunding the amount McDowell had deposited during litigation. The State of UP appealed to the Supreme Court against both High Court orders.

Decision Breakdown

The Supreme Court held that the demand for excise duty was authorised by law under the U.P. Excise Act, 1910, the Excise Manual and the U.P. Bottling of Foreign Liquor Rules, 1969, all of which make the licensee strictly responsible for excisable goods until duty is paid, regardless of departmental supervision of the premises. Examining the record, including pre-fire inspection reports flagging safety deficiencies and an Excise Inspector's written warning that the company would be responsible for any loss caused by its own carelessness. The Court found the fire was not an inevitable, unforeseeable event qualifying as an "Act of God," and that the company had failed to displace the presumption of negligence that arose from the circumstances (res ipsa loquitur). It also noted the company had taken insurance covering only the value of the liquor (not the excise duty), and had already received that insurance payout, which further undercut its claim of blamelessness. The Court accordingly set aside both High Court orders, restored the excise duty demand, and dismissed McDowell's writ petition and refund application.

Lesson Learnt

A business holding a government excise licence bears strict responsibility for licensed goods until duty is paid, and cannot escape that liability merely by labelling an accident an "Act of God". It must affirmatively show it took proper precautions; where safety warnings were ignored and insurance covering only the goods (not the tax) was collected, negligence will ordinarily be inferred against the licensee.

Official source (sci.gov.in)View Judgment (PDF)

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