Court Rules Non-Association of Required Police Officer in Inspection Team as Material Defect, Orders Renewal of Licences for M/s K.M. Distillery Pvt. Ltd.
In a significant judgment dated September 29, 2026, the Himachal Pradesh High Court set aside the cancellation of multiple excise licences held by M/s K.M. Distillery Pvt. Ltd., ruling that the inspection which formed the basis for the cancellation was conducted in violation of statutory requirements. The Court held that the non-inclusion of a police officer of the rank of Deputy Superintendent of Police, as mandated by a state government notification under the Himachal Pradesh Excise Act, 2011, was not a mere procedural lapse but a material defect that vitiated the entire inspection and all consequential proceedings.
Background:
The petitioner, M/s K.M. Distillery Pvt. Ltd., a licensed manufacturer and bottler of country liquor in Parwanoo, Himachal Pradesh, had its BWH-2 licence along with subsidiary licences L-13C, L-15, and L-16 cancelled by the Financial Commissioner (Excise) following a surprise inspection conducted on June 2, 2025. The inspection allegedly revealed discrepancies in stock and irregularities including unaccounted liquor and non-functioning CCTV cameras. Subsequently, a show cause notice was issued under Sections 29(b) and (c) of the Himachal Pradesh Excise Act, 2011, leading to cancellation of licences.
Petitioner's Contentions:
The distillery challenged the cancellation order through a writ petition under Article 226 of the Constitution of India. Key grounds included:
- The inspection was conducted without the presence of required senior police officer as mandated by a Notification dated April 26, 2025, issued under Section 8 of the Excise Act.
- The licensed premises were sealed with revenue locks at the time of inspection, with no production activity ongoing.
- Alleged recovery of materials was disputed and affidavits of purported employees denied presence or recovery.
- The Additional Commissioner of State Taxes and Excise leading the inspection was not authorized by the Collector as required.
- The Financial Commissioner acted as both the adjudicator and the complainant, violating principles of natural justice.
Legal Provisions and Court's Analysis:
The Court examined relevant provisions of the Himachal Pradesh Excise Act, particularly Sections 6, 8, 10, and 29, along with the April 26, 2025 Notification. The Notification mandated that inspections under Section 8 must be conducted by an Officer defined under Section 6(1)(ii) accompanied by:
(i) An officer of the Department of State Taxes and Excise not below the rank of Assistant State Taxes and Excise Officer having jurisdiction; and
(ii) A police officer defined under Section 6(1)(iii) not below the rank of Deputy Superintendent of Police having jurisdiction.
The Court emphasized the mandatory nature of the requirement using the legal principle that where a statute prescribes a specific manner for performing a function, it must be strictly adhered to or not done at all. Reliance was placed on the Privy Council precedent in Nazir Ahmad v. King Emperor (AIR 1936 PC 253).
The Court found that the inspection team, constituted by the Additional Commissioner of State Taxes and Excise via an office order dated May 31, 2025, did not include any police officer of the requisite rank. This was admitted by the State in its reply. The Court held that the presence of such a police officer is intended to ensure fairness, prevent bias, and protect the interests of the licence holder during inspections.
Judgment:
The High Court quashed the entire inspection proceedings and consequential show cause notice and cancellation order on the ground of the material defect in the constitution of the inspection team. The Court directed the respondents to renew the petitioner's BWH-2 licence and restore subsidiary licences L-13C, L-15, and L-16 for the year 2026-27, subject to compliance with all conditions.
The Court declined to consider other grounds raised by the petitioner, finding the foundation of the inspection itself illegal due to non-compliance with mandatory statutory requirements.
Significance:
This judgment underscores the strict adherence required in administrative inspections under excise laws and highlights the protective framework intended for licence holders by involving multiple agencies during inspections. It clarifies that procedural irregularities, especially those affecting the constitution of the inspection team, can invalidate enforcement actions including cancellation of licences.
The ruling is expected to guide excise authorities to ensure compliance with statutory mandates and procedural fairness in future inspections.
Bottom Line:
Excise law - Inspection of licensed distillery premises under Section 8 of the Himachal Pradesh Excise Act, 2011 must be conducted strictly in accordance with Notification dated 26.04.2025 - Non-association of police officer not below the rank of Deputy Superintendent of Police, as mandated by the notification, is not a mere procedural irregularity but a material defect vitiating the inspection and all consequential proceedings including cancellation of licences.
Statutory provision(s):
Himachal Pradesh Excise Act, 2011 Sections 6, 8, 10, 29; Notification dated 26.04.2025 under Section 8 of the Himachal Pradesh Excise Act, 2011; Indian Penal Code Section 21 (Public Servant); Bharatiya Nyaya Sanhita, 2023 (Section 173); Bharatiya Nagarik Suraksha Sanhita, 2023 (Sections 318(4), 336(3), 340(2)); Bharatiya Sakshya Adhiniyam, 2023 Section 39(2)(a).
M/s K.M. Distillery Pvt. Ltd. v. State of Himachal Pradesh, (HP) : Law Finder Doc Id # 2995774
