STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S MCDOWELL AND COMPANY LIMITED

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A so far as the bottled spirit is concerned, the licencee remains responsible for payment of duty on any kind of wastage in excess of 1%. Coupled with this provision, Rule 709 of the Excise Manual makes it clear that the distillery remains responsible for safe custody of the stock of spirit and remains liable to make good any loss of revenue caused to the Government by their negligence. B

45Copy pinpoint45. Therefore, a plain answer to the legal issue raised on behalf of the respondent company is that the demand in question cannot be said to be unauthorised but, its validity would depend on answer to the question as to whether negligence could be imputed on the respondent company in terms of Rule 709 of the Excise Manual. We shall examine various C features related with this question in the next segment of discussion. Whether respondent company remains liable to pay excise duty on the liquor lost in fire

46Copy pinpoint46. As noticed, the fire incident in question led the Excise D Commissioner to propose recovery of excise duty on the stock of IMFL destroyed in fire from the respondent company and the respondent company maintained that the incident was due to the reasons beyond human control and there was no negligence on its part. However, ultimately, the Excise Commissioner passed the order dated 11.07.2006 holding, inter alia, that the respondent company had not arranged the E fire proof electric equipments of good quality due to which the incident had taken place; and the carelessness of the distillery for the safety of stock cannot be attributed to an act of God. The High Court has, however, held that the inference drawn by the Excise Commissioner was nothing but of conjectures and surmises without any material foundation. The F High Court has also observed that when a fiscal liability was founded on a condition precedent, i.e., negligence on the part of the person concerned, no responsibility could be fixed unless such negligence was shown to be founded on some material. According to the appellants, the incident in question is attributable only to some negligence on the part of the respondent company and it had not been an act of God for having occurred on account of fault in the electrical installation and short circuit; and the incident was avoidable if proper and necessary care was taken by the respondent company. On the other hand, on behalf of the respondent, though the principles relating to an “act of God” have not been invoked as such before us but the contention has been that the fire was not caused by the negligence of the respondent company in maintaining safe

STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S 943 MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]

custody of the stock of spirits; and the incident had been the one which occurred for the reasons beyond the control of human agency. It has also been contended that the entire distillery (including the godown) has been under lock and key of the department; and the department had been exercising complete control and supervision over the distillery and, therefore, no negligence could be imputed on the respondent. B Control of Department over the distillery and godown: effect of

47Copy pinpoint47. In view of rival submissions, we may begin with the issue relating to supervision and control of State Excise Department over the distillery and the godown. The submissions made in this regard on behalf of the respondent company remain baseless and have only been noted to be rejected. In the scheme of the Act of 1910, the Rules of 1969 and the Excise Manual, it is evident that the Government is not liable for destruction, loss or damage of any spirit stored in distillery by fire or theft or any other cause (as per Rule 708 of the Excise Manual). On the other hand, distillery is made responsible for safe custody of the stock of spirit and is also made liable to make good any loss of revenue caused to the Government by their negligence. 47.¹. It has rightly been contended on behalf of the appellants that the purpose of posting Excise Officers in the distillery is for securing the interest of the State by collection of revenue and to put a check over any act of theft, wastage, illegal sale as also to ensure proper implementation of rules. Rule 736 of the Excise Manual makes it clear that the doors of buildings or rooms which are used for storage of spirit are under double locks, where one of the locks is of the Excise Department and other of the distillery. The other provisions of the Rules of 1969 and the Excise Manual further make it clear that as regards general arrangement and management of distilleries, elaborate provisions have been made like as to how the pipes would be laid, fixed and painted, as to how lock fastening would be constructed etc. Even a minor alteration in the distillery arrangement requires previous sanction of the Excise Commissioner (Rule 771) and repairs etc. are to be reported (Rule 772). The rules in their conspectus provide for strict supervision and control of the Excise Department over the working of distillery at every stage but that supervision and control does not correspondingly absolve the distillery of its duty and responsibility towards safe custody of the stock of spirit and towards avoidance of wastage. Any doubt in that regard is effectively quelled by a combined reading of Rules 708 and 709 of the Excise Manual H

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A as also Rule 7(11) of the Rules of 1969. The contentions in this regard as urged on behalf of the respondent company are, therefore, rejected. Negligence

48Copy pinpoint48. Now, for entering into the core of this matter, i.e., as to whether the loss of revenue caused to the Government by destruction of liquor in fire could be attributed to any negligence on the part of the respondent company, we may take note of the legal principles related with the liability arising out of, or due to, negligence as also the exceptions and defences in relation to any claim based on negligence.

49Copy pinpoint49. “Negligence” is one such class of “wrongs” that leads to liability. The fundamental jurisprudential principle of “liability” is crisply defined in Salmond on Jurisprudence9 thus: - “Liability or responsibility is the bond of necessity that exists between the wrongdoer and the remedy of the wrong.” “Liability” arises from breach of duty, which may be in the form of an act or omission. We need not delve, for the present purpose, on the classification of liability into civil or criminal and remedial or penal and various other jurisprudential features of liability. In the present case, we are primarily concerned with the question of liability arising out of negligence. Having regard to the questions involved and the provisions applicable, it would be appropriate to take into comprehension the meaning and connotation of the term “negligence” with reference to the dictionaries, lexicons and decided cases. 49.¹. In Concise Oxford English Dictionary10, the term “negligence” is defined and explained as under: - F “negligence n. failure to take proper care over something. Law breach of a duty of care which results in damage.” The adjective of this expression is “negligent” and its adverb form is ‘negligently’. These expressions, for deeper understanding need to be correlated with the verb ‘neglect’ that has been defined and explained in the same dictionary as under: - G “neglect v. fail to give proper care or attention to. fail to do something. n. the state or process of neglecting or being neglected. failure to do something.” 9 12th Edition, p. 349. 10 H 11th Edition, p. 958.

STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S 945 MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]

49.². In Webster’s Third New International Dictionary,11 the terms A “neglect” and “negligence” are defined and explained as under: - “ne•glect 1 a : to give little or no attention or respect to : consider or deal with as if of little or no importance : DISREGARD, SLIGHT <some of the most significant issues have been ~ed - Bruce Payne> <~ed the real needs of the students> b : to fail to B attend to sufficiently or properly : not give proper attention or care to ….. 2 : to carelessly omit doing (something that should be done) either altogether or almost altogether : leave undone or unattended to through carelessness or by intention : pass lightly over <~ing their obvious duty> <~ed to mention that he was a convict –Bernard Smith>. C

“neg•li•gence 1 a : the quality or state of being negligent b : a failure to exercise the care that a prudent person usu. exercises – opposed to diligence;” 49.³. In Black’s Law Dictionary12, “negligence” and several of its forms and features have been explained. For the present purpose, we may usefully extract the relevant parts as under: - “negligence, n. (14c) 1. The failure to exercise the standard of care that a reasonably prudent person would have exercised in a similar situation; any conduct that falls below the legal standard established to protect others against unreasonable risk of harm, except for conduct that is intentionally, wantonly, or willfully disregardful of others’ rights; the doing of what a reasonable and prudent person would not do under the particular circumstances, or the failure to do what such a person would do under the circumstances….. F active negligence. (1875) Negligence resulting from an affirmative or positive act, such as driving through a barrier. Cf. passive negligence. advertent negligence. (1909) Negligence in which the actor is G aware of the unreasonable risk that he or she is creating; RECKLESSNESS. – Also termed willful negligence; supine negligence.

11 1976 Edition Vol. II p. 1513 12 10th Edition pp. 1196-1198 H

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A casual negligence. (1812) A plaintiff’s failure to (1) pay reasonable attention to his or her surroundings, so as to discover the danger created by the defendant’s negligence, (2) exercise reasonable competence, care, diligence, and skill to avoid the danger once it is perceived, or (3) prepare as a reasonable person would to avoid future dangers. B gross negligence. (16c) 1. A lack of even slight diligence or care. • The difference between gross negligence and ordinary negligence is one of degree and not of quality. Gross negligence is traditionally said to be the omission of even such diligence as habitually careless and inattentive people do actually exercise in avoiding danger to their own person or property. – Also termed willful and wanton misconduct. 2. A conscious, voluntary act or omission in reckless disregard of a legal duty and of the consequences to another party, who may typically recover exemplary damages. – Also termed reckless negligence; wanton negligence; willful negligence; willful and wanton negligence; willful and wanton misconduct; hazardous negligence; magna neglegentia. inadvertent negligence. (18c) Negligence in which the actor is not aware of the unreasonable risk that he or she is creating, but should have foreseen and avoided it. – Also termed simple negligence. passive negligence. (18c) Negligence resulting from a person’s failure or omission in acting, such as failing to remove hazardous conditions from public property. Cf. active negligence.” 49.4. In P. Ramanatha Aiyar’s Advanced Law Lexicon13, various connotations of the expression “negligence” are stated, inter alia, in the following terms: - “Negligence. Failure to use the care that a reasonable and prudent person would have used under the same or similar circumstances. Negligence in law signifies a coming short of the performance of duty.

13 H 5th Edition, Vol. 3, p. 3435

STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S 947 MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]

Failure to use the care that a reasonably prudent and careful person A would use under similar circumstances. Negligence is “the absence of proper care, caution and diligence; of such care, caution and diligence, as under the circumstances reasonable and ordinary prudence would require to be exercised.”

50Copy pinpoint50. Salmond on Jurisprudence14 refers to a terse exposition in B Grill v. General Iron Screw Colliery Co.: (1866) L.R. 1 C.P., that negligence is “the absence of such care as it was the duty of the defendant to use”; and further explains the subtle distinction of inadvertent and advertent negligence in the following: - “It is to be observed, in the second place, that carelessness C or negligence does not necessarily consists in thoughtfulness or inadvertence. This is doubtless the commonest form of it, but it is not the only form. If I do harm, not because I intended it, but because I was thoughtless and did not advert to the dangerous nature of my act, or foolishly believed that there was no danger, I D am certainly guilty of negligence. But there is another form of negligence, in which there is no thoughtlessness or inadvertence whatever. If I drive furiously down a crowded street, I may be fully conscious of the serious risk to which I expose other persons. I may not intend to injure any of them, but I knowingly and intentionally expose them to the danger. Yet if a fatal accident happens, I am liable, at the most, not for wilful, but for negligent homicide. When I consciously expose another to the risk of wrongful harm, but without any wish to harm him, and harm actually ensues, it is inflicted not wilfully, since it was not desired, nor inadvertently, since it was foreseen as possible or even probable, but nevertheless negligently (c). Negligence then is failure to use sufficient care, and this failure may result from a variety of factors…..”

51Copy pinpoint51. Without multiplying the case law on the topic, sufficient it would be to refer to the connotation of the term “negligence” explained succinctly by this Court in the case of State of Maharashtra and Ors. v. Kanchanmala Vijaysing Shirke and Ors.: (1995) 5 SCC 659 as follows: -

14 Ibid p. 380 H

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A “9.…‘Negligence’ is the omission to do something which a reasonable man is expected to do or a prudent man is expected to do...”

52Copy pinpoint52. Therefore, it could be reasonably summarised for the present purpose that failure to exercise that care which a reasonably prudent person would usually exercise under similar circumstances would amount to negligence; it is not necessary that negligence would always be advertent one where the wrongdoer is aware of unreasonable risk being created but it may be inadvertent or passive too, arising for want of foresight or because of some omission. However, the question as to whether the liability because of negligence could be fastened on the respondent company or not cannot be determined without dealing with the other aspects related with exceptions and defence to the allegation of negligence. Act of God

53Copy pinpoint53. In its assertions before the Department as also before the High Court, the respondent company attempted to rely upon the principles related with “act of God” and it was sought to be suggested that if the fire had taken place despite the company having taken all care, it was nothing but an act of God of which, no human agency had any control. The High Court has accepted this part of submissions. Though in the argument before us, learned counsel for the respondent has not laid much stress on this theory but looking to the relevant background, it would be apposite to take note of a few features related with “act of God” and its connotations on the jurisprudential principles of liability.

54Copy pinpoint54. In P. Ramanatha Aiyar’s Advanced Law Lexicon15, variegated connotations of the term “act of God” or Vis major are specified with reference to the treatise and citations. A few relevant aspects for the present purpose could be usefully extracted as under: - “All natural agencies, as opposed to human activities, constitute acts of God, and not merely those which attain an extraordinary degree of violence or are of very unusual occurrence. The distinction is one of kind and not one of degree. The violence or rarity of the event is relevant only in considering whether it could or could not have been prevented by reasonable care : if it could

15 H 5th Edition, p. 83

STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S 949 MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]

not, then it is an act of God which will relieve from liability, A howsoever trivial or common its cause may have been. If this be correct, then the unpredictable nature of the occurrence will go only to show that the act of God in question was one which the defendant was under no duty to foresee or provide against. It is only in such a case that the act of God will provide a defence.” B R.F.V. HEUSTON. Salmond on the Law of Torts 330 (17th ed. 1977). “A natural act such as a storm, floods or an earthquake which cannot be foreseen and usually absolves a person from liability if damage occurs as a result. C Any event so out of the ordinary that it could not have been prevented by any amount of human care and forethought, e.g. lightning, freak tidal waves or floods etc., which relieves a contractor, such as a freight carrier, of any liability for losses suffered as a result of it.” D “…..The expression ‘act of God’ signifies the operation of natural force free from human intervention, such as lightning. It may be thought to include such unexpected occurrences of nature as severe gale, snowstorms, hurricanes, cyclones and tidal-bures and the like. But every unexpected wind and storm does not operate as an excuse from liability, if there is a reasonable possibility of anticipating their happening. An act of God provides no excuse, unless it is so unexpected that no reasonable human foresight could be presumed to anticipate the occurrence, having regard to the conditions of time and place known to be prevailing at…..” 54.¹ The case of Mahadeva Shetty (supra) related to the loss suffered by the claimant due to the injuries sustained in a vehicular accident that rendered him paraplegic. The bus in which he was a passenger plunged into a pit after rolling down from a great height. The stand of the appellant Corporation in opposition to his claim petition was that the accident was not due to rash and negligent driving but was an act of God. In that context, this Court explained the essential features concerning an act of God in contradistinction to an act or omission of human beings in the following words: - “9. The expression “act of God” signifies the operation of natural forces free from human intervention, such as lightening, storm H

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A etc. It may include such unexpected occurrences of nature as severe gale, snowstorms, hurricanes, cyclones, tidal waves and the like. But every unexpected wind and storm does not operate as an excuse from liability, if there is a reasonable possibility of anticipating their happening. An act of God provides no excuse unless it is so unexpected that no reasonable human foresight could be presumed to anticipate the occurrence, having regard to the conditions of time and place known to be prevailing. For instance, where by experience of a number of years, preventive action can be taken, Lord Westbury defined the act of God (damnum fatale in Scotch Laws) as an occurrence which no human foresight can provide against and of which human prudence is not bound to recognize the possibility. This appears to be the nearest approach to the true meaning of act of God. Lord Blancaburgh spoke of it as “an irresistible and unsearchable providence nullifying our human effort”. D 54.². In the case of Vohra Sadikbhai Rajabhai (supra), the water released from a dam constructed by the respondents flooded the land of the appellants and destroyed the plantation therein. As per the respondents, the water had to be released from the dam as it reached alarming level because of heavy rains and non-release would have breached the dam; and that the action was taken in public interest and it was occasioned because of the rains, which was an act of God. The appellants, on the other hand, contended that it was sheer negligence on the part of the respondents in not maintaining low level of the water keeping in mind the ensuing monsoon season and, therefore, the damage which the appellants suffered had direct nexus or causal connection with the aforesaid act of negligence and it could not be attributed to the rains; and hence, the respondents could not term it as an act of God and excuse themselves from tortious liability. The Trial Court and the High Court accepted the case of respondents that they were forced to release the water due to the heavy rains; and that the land of the appellants was situated adjacent to the river bank and, therefore, due to heavy rain, the river could have overflown resulting in entering of the water into the fields of the appellants in any case. 54.².¹. In appeal, this Court, while examining the question as to whether it were a case of gross negligence, observed that the respondents did not properly controvert the allegations of the appellants that water H

STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S 951 MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]

was not maintained at an appropriate level to take care of ensuing monsoons. They had also not supported their plea to the effect that had the water been not released, it would have breached the dam and that act would have caused more public harm. This Court held that since the dam was constructed and maintained by the respondents and the appellants suffered losses as a result of release of water from the said dam, onus was on the respondents to prove that they had taken proper care in maintaining appropriate level of water in the dam. This Court further held that the respondents were the owners of the dam in question; and they were expected to keep the dam in such a condition which avoided any loss or damage of any nature to the neighbours or passersby. This Court observed that merely by saying that the level of water in the dam increased because of monsoon rains and that the water was released in public interest could not be treated as discharging the burden on the part of the respondents in warding off the allegation of negligence. While rejecting the defence of an “act of God”, this Court explained thus: - “22. …. An act of God is that which is a direct, violent, sudden and irresistible act of nature as could not, by any amount of ability, have been foreseen, or if foreseen, could not by any amount of human care and skill have been resisted. Generally, those acts which are occasioned by the elementary forces of nature, unconnected with the agency of man or other cause will come under the category of acts of God. Examples are: storm, tempest, lightning, extraordinary fall of rain, extraordinary high tide, extraordinary severe frost, or a tidal bore which sweeps a ship in mid-water. What is important here is that it is not necessary that it should be unique or that it should happen for the first time. It is enough that it is extraordinary and such as could not reasonably be anticipated……” 54.³. The case of Patel Roadways (supra) essentially related to a common carrier’s liability when goods entrusted to it were destroyed in a fire that took place in the godown of the appellant. As regards the question of negligence vis-a-vis a common carrier’s liability, this Court G referred to a passage from Sarkar on Evidence (15th Edn., 1999) at p. 1724 and observed that as a rule, negligence is not to be presumed; it is rather to be presumed that ordinary care has been used but that this rule does not apply in the case of common carriers, who, on grounds of public policy, are presumed to have been negligent if goods entrusted to their care have been lost or damaged or delayed in delivery. H

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55Copy pinpoint55. The present one had not been a case where anything related with the forces of nature like storm, floods, lightning or earthquake had been in operation or caused the fire. When nothing of any external natural force had been in operation in violent or sudden manner, the event of the fire in question could be referable to anything but to an act of God in legal parlance. The observations of High Court in this regard do not appear sound and are required to be disapproved. Inevitable accident

56Copy pinpoint56. The submissions before this Court on behalf of the respondent company had been that the company had taken all precautions which was expected of it and yet if the fire incident took place, it was something beyond human control for which respondent company cannot be held liable. This line of submission, at best, could be taken into another exception to the rules governing liability, where inevitable accident is generally recognised as a ground of exception. Again, we may refer to the principles stated by Salmond16 thus: - D “Accident, like mistake, is either culpable or inevitable. It is culpable when due to negligence, but inevitable when the avoidance of it would have required a degree of care exceeding the standard demanded by the law. Culpable accident is no defence, save in those exceptional cases in which wrongful intent is the exclusive and necessary ground of liability. Inevitable accident is commonly a good defence, both in the civil and in the criminal law. To this rule, however, there are, at least, in the civil law, important exceptions. These are cases in which the law insists that a man shall act at his peril, and shall take his chance of accidents happening. If he desires to keep wild beasts (f), or to construct a reservoir of water (g), or to accumulate upon his land any substance which will do damage to his neighbours if it escapes (h), he will do all these things suo periculo (though none of them are per se wrongful), and will answer for all ensuing damage, notwithstanding consummate care…..”

57Copy pinpoint57. To accept the case of respondent company about it being an “inevitable accident”, it is to be seen if preventing of the fire in question would have required a degree of care from the respondent company

16 H Ibid p. 399

STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S 953 MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]

beyond or exceeding the standard demanded by law. The question would thus be as to what had been the normal and reasonable requirement for safe custody of the liquor in question and if the respondent company, despite having attended on all such normal and reasonable requirements, could not have prevented the fire in question. While looking for an appropriate answer to this question, we shall have to take an overall view of the material available on record as also all the surrounding factors and circumstances. In this regard, before proceeding further, we could profitably refer to a significant guiding principle embodied in the maxim res ipsa loquitur whereby negligence may be presumed from the mere fact of accident; of course, the presumption depends upon the nature of the accident and the surrounding factors. C Res ipsa loquitur

58Copy pinpoint58. In order to understand the operation of the maxim res ipsa loquitur, we may usefully refer to a couple of the decisions of this Court. Of course, these decisions related with vehicular accidents but the principles therein remain fundamental in operation of res ipsa loquitur. D

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STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S 955 MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]

77, the position is stated thus: “An exception to the general rule A that the burden of proof of the alleged negligence is in the first instance on the plaintiff occurs wherever the facts already established are such that the proper and natural inference arising from them is that the injury complained of was caused by the defendant’s negligence, or where the event charged as negligence B ‘tells it own story’ of negligence on the part of the defendant, the story so told being clear and unambiguous”. Where the maxim is applied the burden is on the defendant to show either that in fact he was not negligent or that the accident might more probably have happened in a manner which did not connote negligence on his part…..” C The respondent company remains liable

59Copy pinpoint59. For what has been discussed hereinabove, this much is apparent that in this case, the warehouse in question indeed got engulfed in fire and that led to destruction of the liquor stored therein. Here, the respondent company could be held liable to pay the excise duty on the D liquor destroyed in fire only if it could be held negligent in not ensuring safe custody of the stored liquor. As regards this aspect, the fact that Department had control and supervision over the distillery and godown would not absolve the respondent of its liability. Further, the fire incident in question cannot be termed as an “act of God”. E

60Copy pinpoint60. The matter then boils down to the question if the fire incident could be said to be an inevitable accident. For that matter, we need to examine as what had been the normal and reasonable requirement for safe custody of the liquor in question and as to what could be deduced from the surrounding factors. F 60.¹. One of the basic factors to be noticed is that the goods in question were not ordinary goods but had been containing alcohol which, by its very nature, is highly inflammable. Therefore, a particular nature of care which might be sufficient as regards ordinary goods may not be adequate or sufficient for the goods in question. G 60.². On 19.09.2002, the Assistant Electricity Inspector who conducted periodical inspection of the premises in question made two observations. One of them was a minor aspect that ‘Caution’ plate was not placed at certain prominent place but the other observation was a significant one that at one point of distribution panel, earth wiring was H

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A found with thin wire; and it was suggested that same should be removed and strip earthing should be done.17 On 01.³.2003, while issuing No Objection Certificate, the Fire Brigade Officer, inter alia, observed that firefighting equipments were at right place and were in working condition but in future, they should be tested in fire station Shahjahanpur before refilling; and it was also suggested that Foam Installation should be provided for better management of firefighting arrangements.18 60.².¹. From the material placed on record, it is not forthcoming if strip earthing had indeed been carried out, though the respondent company generally stated in its letter dated 23.09.2002 that what was pointed out by the Assistant Electricity Inspector had been carried out. As to when strip earthing was done and in what manner is not forthcoming. Further, it is also not forthcoming if Foam Installations were provided, as suggested by the Fire Brigade Officer. In view of extra care required of the highly inflammable material, significance of none of these aspects could be gainsaid. D 60.³. Though it is true that as per the suggestions made in the reports relating to the fire incident in question, exact cause of fire could not be ascertained but there had been indications that the officers, including the Excise Officer and Station House Officer had seen burnt wires; and it was reported that the fire ‘possibly’ took place because of short circuit. E Taking note of these facts as also the other facts that godown was an old one and the roof of the godown was made of asbestos sheets, the Excise Commissioner, in his order dated 11.07.2006, inferred that short circuit could have taken place in old electric wiring in the godown and in that context, observed that the licencee had not arranged the fire proof electric equipments of good quality, which led to the incident in question. F

61Copy pinpoint61. A few words as regards ‘short circuit’ would also be apposite at this juncture. 61.¹. Short circuit is explained in the Dictionary of Technical Terms19 by F.S. Crispin as follows :- G “Short circuit (elec.): A path of low resistance placed across an electrical circuit causing an abnormal flow of current.”

17 vide paragraph 7.¹ supra 18 vide paragraph 7.³ supra. 19 H 11th Edition, p. 369.

STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S 957 MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]

61.². In McGrow-Hill Encyclopedia of Science and Technology20, A the relevant features of short circuit are stated as under: - “An abnormal condition (including an arc) of relatively low impedance, whether made accidentally or intentionally, between two points of different potential in an electric network or system. SEE CIRCUIT (ELECTRICITY); ELECTRICAL IMPEDANCE. B Common usage of the term implies an undesirable condition arising from failure of electrical insulation, from natural causes (lightning, wind, and so forth), or from human causes (accidents, intrusion, and so forth). From an analytical viewpoint, however, short circuit represent a severe condition that the circuit designer must consider C in designing an electric system that must withstand all possible operating conditions. The short circuit thus is important in dictating circuit design parameters (wire size and so on) as well as protective systems that are intended to isolate the shorted element. SEE ELECTRIC PROTECTIVE DEVICES; ELECTRICAL INSULATION; LIGHTNING AND SURGE PROTECTION.” D

61.³. In the present case, even when the exact cause of fire could not be ascertained, the indications in the reports like that of Assistant Excise Commissioner dated 02.08.200321 that burnt cables were seen in the debris and possibility had been of short circuit, the only inference could be about some fault or shortcoming in electric installations E (equipments and/or wiring) which led to the abnormal flow of current and thereby, to the fire incident in question.

62Copy pinpoint62. As noticed, the fire incident in question had not taken place due to operation of any forces of nature. It has also not been the case that the fire was a result of any mischief by any person. Noticeably, the F fire that started around 12:55 p.m. on 10.04.2003 could be brought under control by the firefighters only by 5:00 a.m. on 11.04.2003. When all the relevant factors are cumulatively taken into account, we find it difficult to accept that the fire and the resultant loss had been beyond the control of human agency so as to be termed as inevitable accident. Obviously, G the fire had not generated on its own and, with appropriately laid fire proof electrical installations as also firefighting measures, the incident was an avoidable one or at least the loss could have been minimised. 20 6th Edition, volume 16, p 387. 21 vide paragraph 11 supra. H

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63Copy pinpoint63. As noticed, the fault of “negligence” need not always be of active negligence or of gross negligence, but it may also be of an inadvertent negligence or of a passive negligence. It does not require much of discussion to say that the goods in question, being highly inflammable, required extra and excessive care for their safe custody; and any laxity or slackness in that regard was impermissible. To put it differently, what was required for ensuring safe custody of the goods in question was that of heightened safeguard measures with foresight. When the respondent had not been able to protect the goods in question from fire within the warehouse and when all other factors, as noticed above, are taken into account, the negligence as contemplated in Rule 709 of the Excise Manual is directly attributable to the respondent company. In other words, even if the present case is taken to be that of inadvertence or of unintentional omission on the part of the respondent company, it would fall within the definition of “negligence” for the purpose of Rule 709 of the Excise Manual. D 63.¹. In the given set of facts and circumstances, we are unable to endorse the approach and views of the High Court, where it had basically proceeded on the premise as if the incident in question was referable to an ‘act of God’. As noticed, the incident in question had not been because of any forces of nature and cannot be said to be an ‘act of E God’. The criticism of Excise Commissioner’s order dated 11.07.2006 by the High Court, while taking the observations and findings therein being of surmises and conjectures, is also required to be disapproved. What the Excise Commissioner had observed in the order dated 11.07.2006 had been of his inferences, which were deduced out of the facts and circumstances of the case and in true application of the F principles of res ipsa loquitur.

64Copy pinpoint64. Hence, we have no hesitation in disapproving the order of the High Court and in endorsing the views of the Excise Commissioner in the order dated 11.07.2006.

G Insurance coverage only of the value of liquor: effect of

65Copy pinpoint65. Before concluding on the matter, it would also be appropriate to deal with yet another feature of this case relating to the insurance coverage taken by the respondent company only of value of liquor and not that of excise duty payable thereupon. H

STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S 959 MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]

66Copy pinpoint66. Admittedly, the respondent company had taken insurance coverage of the value of liquor and indeed received such value of liquor from the insurer. However, respondent company did not take insurance coverage of the excise duty payable over such value of liquor. The appellants contend that when the distiller has received value of liquor, on the principles of equity and fair play, the corresponding excise duty ought to be made available to them. It has also been contended that omission on the part of the respondent company to take insurance coverage of value of excise duty, while taking coverage of the value of liquor, itself amounts to negligence. On the other hand, the respondent would submit that the claim received from the insurer cannot be termed as consideration because there was no transfer of property in goods and there was no sale. It has also been submitted that there was no such requirement in law that the respondent company was to take insurance coverage of the excise duty too. Yet further, it has also been submitted that clearance of insurance claim by the insurer itself shows that there was no negligence on the part of the respondent. The Excise Commissioner in its order dated 11.07.2006 has observed that the distiller had taken insurance of the value of goods and for this reason too, it remained rather lax in taking all care against fire.

67Copy pinpoint67. Having examined the matter in its totality, we are clearly of the view that the liability of the respondent company in this matter is rather fortified from the facts that it had taken insurance coverage of the value of liquor and indeed received such claim from the insurer. Further, failure to insure the risk of excise duty liability cannot extricate the respondent from that liability.

68Copy pinpoint68. As noticed, in the scheme of law applicable, when duty of excise is upon the goods and the taxable event is the production or manufacture of the liquor, the liability to pay excise duty had arisen as soon as the liquor was manufactured. Thereafter, when the liquor got destroyed in fire but its value was recovered from the insurer, in our view, these events shall answer to the broad expression “issue of an excisable article for sale from a warehouse” for the purpose of proviso to Section 29(e) of the Act of 1910. Putting it differently, receiving of insurance claim over the value of goods by the respondent related back to the date of fire and the respondent became liable to pay excise duty at the rate which was in force on the date of fire, which would be deemed to be the date of “issue” from the warehouse. H

p. 960 Copy page pinpoint

A 68.¹ In the given set of facts and circumstances, we are not dilating on the decision of CESTAT in the case of Dharampal Satyapal (supra) wherein remission of duty on account of damage of pan masala in rain water was disallowed, when it was found that the assessee had been compensated by the insurance company with an amount which was much more than the duty involved but, the submissions in the present B case that the goods had not been sold and duty has not been recovered from consumers, do not take the case of respondent company any further. It was for the respondent company to take necessary measures and care to ensure that payable excise duty would reach the appellants once the goods had been manufactured. C

69Copy pinpoint69. Another facet of this part of matter remains, and we agree with the appellants, that not taking of insurance coverage of the excise duty while taking such coverage on the value of liquor itself amounts to negligence on the part of the respondent company. As noticed, “negligence” has different connotations and any particular act or omission, which may not be negligence in a particular set of facts may still amount to negligence in another set of facts. In the facts of the present case, where excise duty became payable on manufacture of liquor, it was obviously expected of the respondent company, as a reasonable and prudent distiller, to take all necessary steps to safeguard not only the liquor and value thereof but also the corresponding interest of the Government, i.e., the excise revenue. The Excise Commissioner had been rather justified in drawing inference that the respondent company, after having secured the value of goods for its purpose, might not have been conscious and alert in taking all the necessary care to guard against any loss to the Government due to any mishap like fire. F

70Copy pinpoint70. The submission, that insurer would not have made payment of insurance claim if there was any negligence on the part of the respondent company, has its own shortcomings. The terms of fire insurance policy have not been placed on record and it cannot be deduced as to what were the terms and conditions of that policy under which insurer had G acted in accepting the claim of the respondent company. Secondly, what was not treated as negligence by the insurer for the purpose of insurance claim would not ipso facto become a proposition binding on the appellants as regards loss of revenue because of loss of liquor in fire. Such a contention of the respondent could only be rejected. H

STATE OF UP THROUGH SECRETARY (EXCISE) & ORS. v. M/S 961 MCDOWELL AND COMPANY LTD. [DINESH MAHESHWARI, J.]

Summation A

71Copy pinpoint71. In summation of what has been discussed hereinabove, we hold, - (i). The demand raised by the appellants against the respondent company, of excise duty on the liquor lost in fire, is authorised by law and has rightly been raised as per the applicable provisions of the Act of B 1910, the Excise Manual and the Rules of 1969. (ii). The fire incident in question cannot be said to be that of an event beyond human control and the High Court has been in error in holding that no negligence could be imputed on the respondent company. C (iii). The fact that the respondent company had taken insurance coverage only of the value of liquor (and not that of excise duty thereupon) and then, had received the insurance claim towards the value of liquor also operates against the respondent company and fortifies the conclusion about negligence of the respondent company. D 71.¹. Upshot of the discussion foregoing is that this appeal deserves to succeed and the writ petition filed by the respondent company deserves to be dismissed. As a necessary corollary, the miscellaneous application filed by the respondent company, for consideration of its refund application, is rendered redundant and deserves to be dismissed as such. E Conclusion

72Copy pinpoint72. Accordingly, and in view of the above, this appeal is allowed; the impugned orders dated 10.04.2017 in Misc. Bench No. 4493 of 2006 and dated 06.11.2019 in C.M. Application No. 90936 of 2019 are set aside; and the writ petition as also the miscellaneous application filed by F the respondent company are dismissed but with no order as to costs.

Devika Gujral Appeal allowed. (Assisted by : Shevali Monga, LCRA)