- 1 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12TH DAY OF DECEMBER, 2025 BEFORE THE HON'BLE MRS. JUSTICE K.S. HEMALEKHA WRIT PETITION NO.20478 OF 2022 (EXCISE) BETWEEN: M/S. SPR SPIRTS PVT. LTD., (EARLIER KNOWN AS M/S. SPR GROUP HOLDINGS PVT. LTD.,) REGISTERED UDNER COMPANIES ACT, 1956 MANCHANAYAKANAHALLI VILLAGE, BIDADI HOBLI, RAMANAGAR TLAUK, RAMANAGARA DISTRICT REPRESENTED BY ITS MANAGING DIRECTOR SRI M.T. THIMMEGOWDA. …PETITIONER (BY SRI VIVEK HOLLA, ADVOCATE FOR SRI SHARATH S. GOGI, ADVOCATE) AND: 1. THE COMMISSIONER EXCISE EXCISE COMMISSIONER OFFICE, 2ND FLOOR, TTMC ‘A’ BLOCK, BMTC, SHANTHINAGAR, BENGALURU-560 027. 2. THE DEPUTY COMMISSIONER OF EXCISE, RAMANAGARA SUB-DIVISION, RAMANAGAR-562159. …RESPONDENTS (BY SRI REUBEN JACOB, AAG A/W SRI RAJ KUMAR M., AGA) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO CALL FOR THE ENTIRE RECORDS IN FILE NO.ECS/40/REV/RAMNAGAR/2016-17 ON THE FILE OF FIRST RESPONDENT; QUASH THE IMPUGNED ORDER Digitally signed by MAHALAKSHMI B M Location: HIGH COURT OF KARNATAKA - 2 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 DATED 25.08.2022 PASSED BY THE FIRST RESPONDENT IN NO.ECS/40/REV/RAMNAGAR/2016-17 ANNEXURE-A AND ETC. THIS PETITION COMING ON FOR DICTATING ORDERS, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MRS. JUSTICE K.S. HEMALEKHA ORAL ORDER The principal issue that arises for consideration is whether, under the Excise Act and Rules, Excise duty becomes leviable at the stage of manufacture or only upon the stage of “issue of liquor from the distillery”, and whether the impugned order suffers from jurisdictional and legal infirmities. 2. The petitioner has called in question the impugned order dated 25.08.2022, passed by the Excise Commissioner, whereby, a cumulative demand of 15,21,64,591.04/-, has been confirmed against it, together with consequential directions for recovery as arrears of land revenue and re-imposition of charge/boza over petitioner's immovable properties. - 3 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 3. The petitioner is a distillery and bottling unit holding licence under the Karnataka Excise Act, 1965 (‘Act’ for short). During 2016-17 audit staff of the accountant general noted shortages of malt spirit. On 06.02.2017, when the unit was not operational, a leakage incident occurred and shortages of various categories of unfinished and finished spirit were recorded. Samples drawn thereafter were found unfit for consumption. On 27.12.2017, 16,30,916 cases of bottled Indian Made Liquor (IML) were found stored without issue and chemical analysis reported deterioration. 4. Based on audit, shortage reports and deterioration of bottle stock, the commissioner estimated loss of the revenue of 15.21 crores and by the impugned order confirmed the liability and directed coercive recovery. Objection by respondent Nos.1 and 2: 5. Respondent Nos.1 and 2 submit that the petitioner is responsible for leakage, shortage and - 4 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 deterioration of spirit, resulting in heavy loss to the State and under Section 22 of the Act, duty is leviable on manufactured and Rule 22 and 23 of the Karnataka Excise (Distillery and Warehouse) Rules 1967 (‘Rules’ for short), imposes responsibilities for shortages. Further, Rule 18 absolves the State from any loss of spirit. Deterioration of 16,30,916 IML cases, cost loss of potential duty of 4.30 crore, and the audit objections are binding and conclusive and that the commissioner acted within its jurisdiction. 6. Heard Sri Vivek Holla, learned counsel for Sri Sharath S Gogi, learned counsel for the petitioner, Sri Reuben Jacob, learned AAG along with Sri Raj Kumar M., learned AGA for State. 7. Learned counsel for the petitioner contends that the excise duty becomes leviable only upon issue, not at manufacturer, by virtue of Rule 2 (b) of Karnataka Excise (Excise Duties and Fees) Rules 1968 (‘Rules, 1968’ for short) and this position has been conclusively affirmed in - 5 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 Sree Balaji Enterprises, Bangalore Vs. Excise Commissioner, Karnataka and Others1 (Balaji Enterprises). 8. It is admitted that no portion of the liquor was ever issued to Karnataka State Beverages Corporation Limited (KSBCL) or any other agency, hence the charge never crystallized. Further, it is contended that Rule 22 and 23 of the Rules are regulatory and cannot override the charging rule. Further, it is submitted that no negligence can be attributed where the premises were under lock and seal of Excise Department and deterioration of stored liquor before issue, does not attract duty and the audit objections cannot create an independent liability. 9. Having heard the learned counsel for the parties, the point that arises for consideration is: Whether in the absence of any “issue of liquor” from the distillery, the Excise 1(2007) 2 Kant LJ 372 - 6 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 Commissioner was justified in leaving Excise duty and confirming liability of 15,21,64,591.04/- on the petitioner and whether impugned order is legally sustainable? 10. This Court has given the anxious consideration to the contentions urged by the parties and perused the material on record. 11. Under Section 23 of the Karnataka Excise Act, the stage of levy is to be prescribed by Rules, which reads thus: “23. Ways of levying such duties.-Subject to such rules regulating the time, place and manner, as may be prescribed, excise duty and countervailing duty under Section 22 shall be levied in one or more of the following ways as may be prescribed, namely:- (a) rateably on the quantity of any excisable article produced in or manufactured in or issued from a distillery, brewery, manufactory or warehouse, or imported into the State; (aa) by fees (called litre fees) on the quantity of excisable article imported by any person or - 7 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 received by any person when issued form a distillery, brewery, manufactory or warehouse, as the case may be; Xxx xxx.” Emphasis supplied 12. Rule 2(b) of the Rules, 1968 expressly prescribes that duty is leviable at the time of “issue”, which reads thus: “2. Manner of levying Excise Duties:- (1) x x x (a) x x x (b) issued from any Distillery, Warehouse or other place of storage established or licensed in the State under any of the Provisions of the Karnataka Excise Act, 1965: Provided that no such duty shall be imposed on the excisable articles,- (i) Which have been imported into India and liable for such import duty under the Indian Tariff Act, 1934 (Central Act 32 of 1934) or - 8 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 the Customs Act, 1962 (Central Act 52 of 1962) OR (ii) Which have been previously imported, transported or manufactured on payment of excise duty at rates not less than those specified in the Schedules-A.” Emphasis supplied 13. Admittedly, no portion of the liquor in question was ever issued from distillery. There is an interplay between Rule 22 and 23 of the Rules and Rule 2(a) and Rule 2(b) of the Rules, 1968. Rule 22, 23 and 18 of the Rules relate only to regulation, custody, wastage and they do not create or shift the charging event. A harmonious reading of Rule 22, 23 and 2(b) makes it clear that although manufacture is taxable event, the levy becomes operative only at the stage of “issue”. Rule 23 mandates that the stage and manner of collection shall be prescribed by Rules and Rule 2(b) prescribes “issue as the stage of levy”. - 9 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 14. The Commissioner's reliance on Rule 22, 23, and Rule 18 is misplaced. These provisions regulate storage, accounting, and responsibility, but do not determine when the excise duty becomes leviable. The ratio in Balaji Enterprises squarely applies here as duty cannot be imposed on a liquor that is never issued. Deterioration of storage does not attract excise duty. The impugned order's distinction of Balaji Enterprises is erroneous. 15. The decision relied upon by the learned AAG that in Government of Haryana Vs. Haryana Brewery ltd. and Another2 (Haryana Brewery ltd.) is not applicable to the present facts, as in the State of Haryana, Section 23 as in Karnataka mandates that the stage and manner of collection shall be prescribed by Rules and Rule 2(b) has been incorporated in Karnataka is not available in the Government of Haryana and hence not applicable to the present facts. Other judgment relied on Mohan 2 (2002) 4 SCC 547 - 10 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 Meakin ltd. Vs. Excise and Taxation Commissioner H.P and Others3 (Mohan Meakin ltd.). To support his contention of the AAG that the point at which Excise duty is excisable to duty is the time when the finished product i.e., Beer was received in bottling time. A finished product is recovered from the place of storage or warehouse. The said decision is not applicable to the present facts and since the statutory charging event never occurred, the commission lacked jurisdiction, the levied duty or to compute the alleged revenue loss. Consequently, recovery proceedings and re-imposition of a charge cannot stand. The ratio in Balaji Enterprises squarely applies as duty cannot be imposed on liquor that is never issued. Deterioration after storage does not attract excise duty. The impugned order suffers from perversity, warranting interference by this Court and point framed for consideration is answered accordingly. This Court pass the following: 3 (1997) 2 SCC 193 - 11 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 ORDER i. The writ petition is allowed. ii. The impugned order dated 25.08.2022 passed by the Excise Commissioner is hereby quashed. iii. The show cause notices dated 15.07.2022 and 27.07.2022 and all the consequential recovery proceedings including the re-imposition of boza/charge over the petitioner's plants are set aside. iv. It is declared that in the absence of any “issue” of liquor from the distillery, no excise duty can be levied under Section 23 of the Karnataka Excise Act, 1965 read with Rule 2(b) of the Karnataka Excise (Excise Duties and Fees) Rules 1968. v. Respondents are restrained from taking any coercive steps pursuant to the quashed proceedings. - 12 - HC-KAR NC: 2025:KHC:53186 WP No. 20478 of 2022 vi. Liberty is reserved to the respondents to proceed afresh, if permissible in law, without being influenced by the impugned order. Sd/- _____________________ JUSTICE K.S. HEMALEKHA AT List No.: 1 Sl No.: 95