of Punjab and Anr Vs. M/S. Devans Modern Brewaries
& Anr  Insc 581 (20 November 2003)
Agrawal B.N. Agrawal,J.
Appeal (civil) 2696-2697 of 2003
question involved in this batch of appeals, arising out of an order of
reference made by a three Judge Bench of this Court, is as to whether Article
301 of the Constitution of India (hereinafter referred to as "the
Constitution") will have any application in relation to potable liquor the
business whereof is said to be res extra commercium; in view of the
Commissioner & The Chief Commissioner, Ajmer, & Ors., [(1954) SCR
Commissioner & Ors., [(1975) 1 SCC 737] and Khoday Distilleries Ltd.
appeals arise out of judgements and orders passed by Punjab and Haryana High Court and Kerala
High Court. The State of Punjab imposed tax on import of potable
liquor manufactured in other States. The State of Kerala also imposed a similar levy. The
Punjab and Haryana High Court by its judgment dated 17.01.1997 passed in Writ
Petition (Civil) No. 5358 of 1996 quashed the notification dated 27.03.1996
imposing levy of import duty by the State of Punjab in exercise of its powers
conferred upon it under Sections 31, 32 and 58 of the Punjab Excise Act, 1914
(hereinafter referred to as "the Punjab Act') on two grounds viz.;
State has no power to levy such tax under the Punjab Act and
in view of the of Orissa and others [1966(1) SCR 865], the imposition of duty
is ultra vires Article 301 of the Constitution.
as challenge to imposition of import duty on potable liquor by the State of Kerala
under Abkari Act, 1077 (hereinafter referred to as "the Abkari Act")
is concerned, the Kerala High Court has dismissed the writ application on
grounds, inter alia, that such duty, being regulatory in nature, is not ultra vires
the Abkari Act. The High Court did not enter into the question of applicability
of Article 301 of the Constitution vis-`-vis effect of imposition of such
import duty on potable liquor.
learned Senior Counsel appearing on behalf of the appellant - State of Punjab
in the Punjab matter having regard to several provisions of the Punjab Act
submitted that the High Court committed a manifest error in holding that the
State has no power to impose such a tax.
regards applicability of Article 301 of the Constitution, the learned counsel
contended that as the State has the exclusive privilege to deal in potable
liquor in any manner it likes, it has the concomitant requisite power to impose
such tax by way of restriction on import. The learned counsel further contended
that as no trader can claim any fundamental right in carrying on trade or
business in potable liquor, question of applicability of Article 301 of the
Constitution would not arise. It may not be out of place to mention that at the
stage of reply Dr. A.M. Singhvi, learned Senior Counsel filed written
submissions on behalf of the State of Punjab more or less reiterating the contentions raised by Mr. P.N. Misra.
T.L.V. Iyer, the learned senior counsel appearing on behalf of State of Kerala submitted that it is within the
province of the State to impose restrictions on import of potable liquor by
imposing import duty.
to learned counsel such a duty has not been imposed by the State in exercise of
its statutory power conferred upon it in terms of Entry 51, List II of the
Seventh Schedule to the Constitution but regulatory powers as envisaged in
Entry 8 thereof. In other words, Mr. Iyer contended that the import duty has
been levied not as a measure of tax but as a part of regulation on the trade.
The learned counsel further contended, although such a stand has not been taken
by the State before the High Court, but having regard to the well-settled
principle of law as laid down by this Court and referred to hereinafter, the
State can impose such duty as a price for parting with its exclusive privilege.
support of the contentions the learned senior counsel appearing for the State
of Punjab and that of Kerala relied upon the decisions of this Court Madhya
Pradesh and Others (1975) 1 SCC 29, State of Orissa and Kerala and Others
(2001) 3 SCC 694, Khoday Distilleries Ltd. and Deokar's Distillery JT 2003 (3)
Mohan Jain, learned counsel appearing on behalf of the respondents-licensees of
the State of Punjab and Mr. R.Venkataramani, learned
Senior Counsel, appearing on behalf of the intervenor, on the other hand,
contended that power to impose tax by the State of Punjab is circumscribed by Sub-section 3
of Section 33A of the Punjab Act. It was submitted that power to impose
countervailing duty being statutorily restricted, the State cannot be permitted
to achieve the same object indirectly by taking recourse to 'exclusive
H. Desai and Mr. R.F. Nariman, learned senior counsel appearing on behalf of
the licensees - appellants in the Kerala matter raised the following
Levy of import duty having been expressly conferred by the statute, the State
cannot justify such a levy on the spacious ground of having exclusive privilege
of dealing in potable liquor.
The State of Kerala having specifically raised a plea
that such a levy was justified by way of a fee and/or as a regulatory measure
cannot now turn round and contend that the levy was imposed by way of a price
for parting with the exclusive privilege of the State.
State of Kerala has not granted any licence to the
appellants, the question of parting of any privilege in their favour does not
arise. Pointing out to the admitted fact that Kerala State Beverages Corporation
has been granted the monopoly to deal in liquor and the appellants and other
traders having been selling liquor to the Corporation, the question of
rendition of any service by the State of Kerala to the licensees so as to
justify imposition of a fee or regulatory tax therefor does not arise.
Any fee regulating trade by grant of a licence would amount to 'tax' within the
meaning of clause (28) of Article 366 of the Constitution. Reliance in this
connection has been placed on D.C. Cinema [1965(2) SCR 477].
The applicability of the doctrine of "res extra commercium" and/ or
the concept of privilege theory on the part of the State would be attracted
only in a 'no right' situation. Once a right to trade has been conferred by the
State, it cannot take umbrage under the privilege doctrine. Even the State, at
the time of grant of licence by way of exclusive privilege, is bound by its own
action, which in a given case, may attract the wrath of Article 14 of the
Constitution. Reliance in this behalf has been placed on State of
The Constitution Bench of this Court in Krishna Kumar Narula having clearly
laid down that trade in liquor would come within the purview of Article 19(1)(g)
of the Constitution, the State can only impose a reasonable restriction in
terms of Clause (6) of Article 19 thereof. In Khoday Distilleries Ltd. (supra),
this Court having clearly held that when a licence is granted, persons
similarly situated cannot be discriminated against which would clearly lead to
the conclusion that not only a fundamental right in terms of Article 14 of the
Constitution but also other constitutional rights including those contained in
Part XIII of the Constitution are available in relation to trade in liquor.
Bhai & Ors. 1964(6) SCR 261 this Court having clearly held that Article 301
of the Constitution would be applicable also in relation to obnoxious trade,
there is no reason as to why the said decisions shall be departed from.
Keeping in view the decisions of this Court in Atiabari Tea State of Rajasthan
and Others [1963 (1) SCR 491] the purpose of Article 301 of Constitution being
to maintain economic unity of the entire country, the State cannot by
imposition of a tax infringe upon the provisions contained in Part XIII of the
Constitution which is a self-contained part.
The phraseology, used in Article 301 of the Constitution, namely, trade,
commerce and intercourse being of wide amplitude, the right to carry on trade
and business as envisaged in Article 19(1)(g) or Article 298 of the Constitution
cannot restrict the scope and ambit thereof.
view of the rival contentions, as noticed hereinbefore, the following questions
arise for consideration:
Whether the impugned notifications issued by the State of Punjab and that of Kerala are illegal
being fraud on the Constitution.
Whether the import duty can be said to have been validly imposed having regard
to the doctrine of 'exclusive privilege' of the State to deal in obnoxious
Whether dealing in liquor which is said to be 'res extra commercium' would
nonetheless attract Part XIII of the Constitution? Re: Question (i) The
impugned notifications issued by the State of Punjab and that of Kerala read as under:
"Government of Punjab Department of Excise and Taxation
27th March, 1996 No.
G.S.R. 28/P.A.I./14/Ss. 31, 32 and 58/Amd. (118)/96 In exercise of powers
conferred by sections 31, 32 and 33 of the Punjab Excise Act, 1914 (Punjab Act
1 of 1914) and all other powers enabling him in this behalf, the Governor of
Punjab is pleased to make the following order, without previous publication,
further to amend the Punjab Excise Fiscal Orders, 1932, namely:-
These orders may be called the Punjab Excise Fiscal (Second Amendment) Orders,
They shall come into force on and with effect from the first day of April,
the Punjab Excise Fiscal Orders, 1932 (hereinafter referred to as the said
Orders),in order 1, in the table, under column "Rate of duty per proof litre"
item (1), against sub item (c) for the figures "4.00" the figures
"3.00" shall be substituted;and
item (3) against sub-item (b) for the figures "3.50" the figures
"3.00" shall be substituted.
the said Orders in order 1-B - (a) for the words "rupees three" the
words "rupees two" shall be substituted; and (b) for clause (iii) to
the proviso, the following clause shall be substituted namely:- "(iii) the
Indian Made Beer shall be at the rate of thirty- eight paise per bulk litre."
the said orders in order 1-D, for item (iii), the following item shall be
substituted namely:- "(iii) rupees four and sixty paise per bulk litre."
II. "S.R.O. No. 330/96. In exercise of the powers conferred by sections 6,
7, 17 and 18 of the Abkari Act, 1 of 1077 and in modification of notification
issued under G.O. (p) No. 24/94/TD dated 3rd March, 1994 and published as
S.R.O. No. 256/94 in the Kerala Gazette Extraordinary No. 180 dated 3rd March,
1994, as subsequently amended, the Government of Kerala hereby direct that the
import and export fees, the excise duty and luxury tax under the said sections
shall be levied on the following kinds of liquors manufactured in the State and
exported outside the State under bond in force or manufactured elsewhere in
India and imported into the State by land, air, or sea under bond, at the rates
mentioned against each kind of liquor.
excise duty, import fee or luxury tax on liquor manufactured elsewhere in India
and imported into the State by land, air or sea otherwise than under bond shall
be equal to the duty to which such liquor manufactured in the State are liable
under the Act such as import fee, excise duty or luxury tax namely:- Kind of
Liquor Rate of excise duty Rate of luxury tax Rate of import fee Rate of export
Indian Made Foreign Liquor including beer except those consumed by Defence
When exported by distilleries/ Foreign Liquor (compounding, Blending and
(Bottling) Units/ Breweries to other State and not reimported into this State,
in cases where the following terms and conditions are satisfied namely:- Rs. 5
(Rupees five only) per proof litre in the case of Indian Made Foreign Liquor
and Rs. 2 (Rupees two only) per bulk litre in the case of beer
The export is under bond to cover the duty at the rate of an amount equal to
200 per cent of the value of Indian Made Foreign Liquor and gallonage fee at
the rate of Rs. 3 per bulk litre in the case of beer.
No objection certificate for import certificate from the excise authorities of
the importing State is produced by the Distilleries/ Foreign Liquor
(Compounding, Blending and Bottling) Units/ breweries.
Excise duty, luxury tax and export fee paid to Kerala Government before export.
The verification certificate from the Excise Authorities of the importing State
is produced before the Excise officers in charge of the Distilleries/ Foreign
Liquor (Compounding, Blending and Bottling) Units/ Breweries within 42 days of
dispatch or within such further time as the Excise Commissioner may allow for
The duty at the rate of an amount equal to 200 per cent of the value of Indian
Made Foreign Liquor and gallonage fee at the rate of Rs. 3 per bulk litre in
the case of Beer is paid on all quantities unaccounted for;and
Export is through air, rail road or ship.
the case of:-
Indian Made Foreign liquor other than beer imported (bond or under bond) Rs. 5
per proof litre
Beer imported (bond or under bond) Rs. 2 per bulk litre
imported (duty paid or under Bond) Rs. 2 per bulk litre (3) In other cases:
Indian Made Foreign Liquor (excluding beer and wine) An equal amount to 100 per
cent of its value
Beer Rs. 3 per bulk litre
Wine Rs. 3 per bulk litre IV. Medicated wine and similar preparations but not
including preparations on which duty is leviable under the Medicinal and toilet
preparations (Excise Duties) Act, 1955 Rs. 12 (Rupees twelve only) per proof litre
Published in K.G. Ex. No. 379 dt. 29.3.1997 as S.R.O.No. 210/97
Explanation:-Where any liquor is chargeable with duty at a rate depending on
the value of the liquor, such value shall be the value at which the Kerala
State Beverages (Manufacturing and Marketing) Corporation Ltd., purchases such
liquor from the suppliers and in case any such liquor is not purchased by the Kerala
State Beverages (Manufacturing and Marketing) Corporation, such value shall be
the value fixed by the Commissioner.
notification shall come into force on 1st day of April, 1996." Before
embarking upon the questions raised in these appeals, the relevant provisions
of the Punjab Act may be noticed which run thus:- S.3.(9) "Excise
revenue" means revenue derived or derivable from any payment, duty fee,
tax, confiscation, or fine imposed or ordered under the provisions of this Act,
or of any other law for the time being in force relating to liquor or
intoxicating drugs, but does not include a fine imposed by a court of law.
"Import" (except in the phrase "import into India") means to bring into Punjab and Haryana otherwise than across a
custom frontier as defined by the Central Government.
Import, export and transport of intoxicants:- No such intoxicant shall be
imported, exported or transported except –
payment of any duty to which it may be liable under this Act or execution of a
bond for such payment, and
compliance with such condition as the State Government may impose.
Power of State Government to prohibit import, export and transport of
intoxicants:- The State Government may by notification:- (a) prohibit the
import or export of any intoxicant into or from Punjab, Haryana or any part thereof; or (b) prohibit the transport
of any intoxicant.
Pass necessary for import, export and transport:- Except as otherwise provided by
any rule made under this Act, no intoxicants exceeding such quantity as the
State Government may prescribe by notification shall be imported or transported
except under a pass issued under the provision of the next following section;
that in the case of duty paid foreign liquor such passes shall be dispensed
with unless the State Government shall by notification otherwise direct;
further, that no such conditions as may be determined by the Financial
Commissioner, a pass granted under the excise law in force in another State may
be deemed to be a pass granted under this Act.
Grant of passes for import, export and transport:-Passes for the import, export
and transport of intoxicants may be granted by the Collector.
that passes for the import and export of such intoxicant as the Financial
Commissioner may from time to time determine shall be granted only by the
Duty on excisable articles:- An excise duty or a countervailing duty as the
case may be at such rate or rates as the State Government shall direct, may be
imposed either generally or for any specified local area, on any excisable
exported or transported in accordance with the provisions of section 16; or
or cultivated under any licence granted under section 23; or
in any distillery established or any distillery or brewery licensed under
shall not to be so imposed on any article which has been imported into India and was liable on importation to
duty under the Indian Tariff Act, 1894, or the Sea Customs Act, 1878.
Explanation:- Duty may be imposed under this
section at different rates according to the places to which any excisable
article is to be removed for consumption, or according to the varying strength
and quality of such article.
Manner in which duty may be levied:- Subject to such rules regulating the time,
place and manner as the Financial Commissioner may prescribed such duty shall
be levied rateably, on the quantity of exciseable article imported, exported,
transported, collected or manufactured in or issued from a distillery brewery
that duty may be levied:-
intoxicating drugs by an acreage rated levied on the cultivation of the hemp
plant or by a rate charged on the quantity collected.
spirit or beer manufactured in any distillery established or any distillery or
brewery licensed, under this Act in accordance with such scale of equivalents calculated
on the quantity of materials used or by the degree of attenuation of the wash
or wort, as the case may be as the State Government may prescribe.
tari, by a tax on each tree from which the tari is drawn;
further that, where payment is made upon issue of an exciseable article for
sale from a warehouse established or licensed under section 22(a) it shall be
the State Government by notification so directs, at the rate of duty which was
in force at the date of import of that article; or
the absence of such direction by the State Government, at the rate of duty
which is in force on that article on the date when it is issued from the
Payment for grant of leases: - Instead of or in addition to any duty leviable
under this chapter the State Government may accept payment of a sum in
consideration of the lease of any right under section 27.
Saving for duties being levied at commencement of the Constitution:-
Until provision to the contrary is made by Parliament, the State Government may
continue to levy any duty which it was lawfully levying immediately before the
commencement of the Constitution under this Chapter as then in force.
The duties to which this section applies are:-
duty on intoxicants which are not exciseable articles within the meaning of
this Act; and
duty on exciseable article produced outside India and imported into Punjab/Haryana whether across a customs frontier as
defined by the Central Government or not.
Nothing in this section shall authorize the levy by the State Government of any
duty which as between goods manufactured or produced in the State and similar
goods not so manufactured or produced discriminates in favour of the former or
which in the case of goods manufactured or produced outside the State
discriminates between goods manufactured or produced in one locality and
similar goods manufactured or produced in another locality.
Fees for terms, conditions and form of, and duration of licences, permit and
Every licence, permit or pass granted under this Act shall be granted:-
payment of such fees, if any.
Subject to such restrictions and on such conditions,
such form and containing such particulars,
such period, as the Financial Commissioner may direct.
Any authority granting a licence under this Act may require the licensee to
give such security for the observance of the terms of his licence, or to make
such deposit in view of security, as such authority may think fit.
Power of State Government to make Rules:
particular and without prejudice to the generality of the foregoing provision,
the State Government may make rules:- (d) regulating the import, export,
transport or possession of any intoxicant or Excise bottle and the transfer,
price or use of any type or description of such bottle.
regulating the period and localities for which and the persons or classes of
persons to whom licenses, permits and passes for the vend by wholesale or by
retail of any intoxicants may be granted and regulating the number of such licences
which may be granted in any local area;
the procedure to be followed and the matters to be ascertained before any licence
is granted for the retail vend for consumption on the premises.
Powers of Financial Commissioner to make rules:- The Financial Commissioner may
by notification make rules:- (d) prescribing the scale of fees or the manner of
fixing the fees, payable in respect of any licence, permit or pass or in
respect of the storing of any intoxicant;
from provisions of the Punjab Act, it would also be necessary to notice
Sections 17 and 18 of the Abkari Act occurring in Chapter V dealing in
"Duties, Taxes and Rentals" applicable in the State of Kerala which
Duty on liquor or intoxicating drugs:- A duty of excise or luxury tax or both
shall, if the Government so direct, be levied on all liquor and intoxicating
to be imported under Section 6; or
to be exported under Section 7; or
under Section 11 to be transported; or
under any licence granted under Section 12; or
at any distillery, brewery, winery or other manufactory established under
Section 14; or
issued from a distillery, brewery, winery or other manufactory or warehouse
licensed or established under Section 12 or Section 14; or
sold in any part of the State;
that no duty or gallonage fee or vend fee or other taxes shall be levied under
this Act on rectified spirit including absolute alcohol which is not intended
to be used for the manufacture of potable liquor meant for human consumption.
Explanation:- For the purpose of this section and
Section 18, the expression "duty of excise", with reference to liquor
or intoxicating drugs, include countervailing duty on such goods manufactured
or produced elsewhere in India and brought into the State.
How duty may be imposed:- (1) Such duty of excise may be levied:
the case of spirits or beer, either on the quantity produced in or passed out
of a distillery, brewery or warehouse licensed or established under Section 12
or Section 14 as the case may be or in accordance with such scale of
equivalents, calculated on the quantity of materials used or by the degree of
attenuation of the wash or wort or on the value of the liquor as the case may
be, as the Government may prescribe;
the case of intoxicating drugs on the quantity produced or manufactured or
issued from a warehouse licensed or established under Section 14;
xxx (d) xxx (e) in the case of toddy, or spirits manufactured from toddy, in
the form of a tax on each tree from which toddy is drawn, to be paid in such instalments
and for such period as the Government may direct; or (f) by import, export or
transport duties assessed in such manner as the Government may direct; or xxx
(2) The luxury tax on liquor or intoxicating drugs shall be levied:-
the case of any liquor in the form of a fee for licence for the sale of the
liquor and in the form of a gallonage fee or vending fee, or in any one of such
the case of an intoxicating drug, in the form of a fee for licence for the sale
of the intoxicating drug.
The duty of excise under sub-section (1) and the luxury tax under sub-section
(2) shall be levied at such rates as may be fixed by the Government, from time
to time, by notification in the Gazette, not exceeding the rates specified
below:- (1) Duty of excise Maximum rates
Duty of excise on liquors (Indian made) Rs. 200 per proof litre or an amount
equal to 200 per cent of the value of the liquor.
Duty of excise on intoxicating drugs Rs. 1 per gram or Rs. 933.10 per seer.
Duty of excise in the form of tax on trees tapped for toddy Rs. 50 per tree per
half-year or part thereof (2) Luxury tax:
When levied in the form of a fee for licence for sale of foreign liquor –
For licence for sale of foreign liquor in wholesale Rs. 15000 for a year or
For licence for sale of foreign liquor in hotels or restaurants Rs. 12000 for a
year or part thereof
For licence for sale of medicated wines Rs. 1000 for a year or part thereof
For licence for sale of foreign liquor in non- proprietory clubs to members Rs.
1500 for a year or part thereof
When levied in the form of gallonage fee Rs. 10 per bulk litre or Rs. 45.46 per
When levied in the form of a fee for licence for the sale of foreign liquor
wholesale Rs. 25,00,000 (Rupees Twenty Five lakhs) for a year or part thereof
In retail Rs. 10,00,000 (Rupees Ten lakhs) for a year or part thereof
In hotels or restaurants Rs. 25,00,000 (Rupees Twenty Five lakhs )for a year or
In non-proprietory clubs to its members Rs. 10,00,000 (Rupees Ten lakhs) for a
year or part thereof
Seamen's and Marine Officer's clubs to its members Rs. 10,00,000 (Rupees Ten lakhs)
for a year or part thereof
When levied in the form of gallonage fee
Foreign Liquor (Foreign made) other than beer and wine Rs. 200 (Rupees Two
hundred) per bulk litre
For foreign made beer and wine Rs. 25 (Rupees Twenty Five) per bulk litre
Provided that where there is a difference of duty of excise or luxury tax as
between two licence periods, such difference may be collected in respect of all
stocks of Indian made foreign liquor or intoxicating drugs held by licensees at
the close of the former period.
Note: The expression 'Foreign Liquor
(Foreign made) means any liquor produced, manufactured, or blended and
compounded abroad and imported into India by land, air or sea.
Explanation:- Where any liquor is chargeable with
duty at a rate depending on the value of the liquor, such value shall be the
value at which the Kerala State Beverages (Manufacturing and Marketing)
Corporation Limited purchases such liquor from the suppliers and in case any
such liquor is not purchased by Kerala State Beverages (Manufacturing and
Marketing) Corporation limited such value shall be the value fixed by the
Commissioner." Provision to grant licence is contained in Chapter VI of
the Abkari Act, Section 24 whereof is as under:
Forms and conditions of licenses, etc:-Every license or permit granted under
this Act shall be granted:-
payment of such fees, if any;
to such restrictions and on such conditions; and
be in such form and contain particulars - as the Government may direct either
generally, or in any particular instance in this behalf." The State of Kerala
raised a contention that the imposition of levy is referable to Entry 66 of
List II of the Seventh Schedule to the Constitution.
additional affidavit was filed before the Kerala High Court wherein it was
averred that such a levy has been imposed also by way of a regulatory fee. No
plea whatsoever has been raised that such a levy is towards a price or a part
of price for parting with exclusive privilege. The High Court accepted plea of
the State that the levy is by way of regulatory fee in relation whereto
doctrine of 'quid pro quo' has no application.
the High Court of Punjab and Haryana although a plea was raised that the impost
was by way of a price for parting with the exclusive privilege but in its
impugned judgment the High Court rejected the same having regard to the
provisions contained in Section 33A of the Punjab Act.
Excise Acts referred to hereinbefore seek to regulate trade and business in
liquor. They have their origin before coming into force of the Government of
India Act, 1935 or the Constitution and, thus, being pre- constitutional laws,
validity thereof and/or any statutory impost levied thereunder would be subject
to Articles 372 and 305 of the Constitution vis- `-vis Article 13 thereof. The
statutory rights and obligations created by reason of the aforementioned Acts,
after coming into force of the Constitution, would, therefore, be subject to
the extent saved by the Constitution itself and, thus, the provisions thereof, the
rules made thereunder and actions taken must conform to the limitations imposed
thereby. The said Acts, therefore, must be construed keeping in view Entries 8
and 51 of List II of the Seventh Schedule to the Constitution. Before dealing
with the matter further, it may be noticed that in the instant case I am not
concerned with validity or the interpretation of a pre-constitutional law but a
post-constitutional one. The impugned levy, therefore, must be justified having
regard to the relevant entries made in List II of the Seventh Schedule to the
Constitution. Section 6 of the Abkari Act permits import of liquor on payment
of duties, taxes, fees and such other sums as are due to the Government and
Section 7 thereof provides for export. Section 17 provides for levy of a duty
of excise or luxury tax or both on liquor permitted to be imported under
Section 6 thereof. Section 18 deals with the manner in which such duty should
be imposed. Sections 31 and 32 of the Punjab Act are in pari materia with
Section 17 and Section 18 respectively of the Abkari Act.
question arises as to what is "excise duty". An excise duty can be
imposed on manufacturer of goods only in terms of statute made by the
Parliament. An exception thereto has been made in the case of liquor in terms
whereof the State Legislature has been empowered to levy excise duty by reason
of Entries 8 and 51 of List II of the Seventh Schedule to the Constitution
which read thus:
8: Intoxicating liquors, that is to say, the production, manufacture, possession,
transport, purchase and sale of intoxicating liquors.
51. Duties of excise on the following goods manufactured or produced in the
State and countervailing duties at the same or lower rates on similar goods
manufactured or produced elsewhere in India :-
liquors for human consumption;
Indian hemp and other narcotic drugs and narcotics; but not including medicinal
and toilet preparations containing alcohol or any substance included in
sub-paragraph (b) of this entry."
competence of the State to levy any fee is, therefore, limited to levy of
countervailing duty. In other words, any levy on import can not exceed the
excise duty levied on the manufacturers of the State. The State, therefore,
cannot levy any duty in addition to the countervailing duty.
notification refers to excise duty and countervailing duty, which in terms of
Section 3(6-B) of the Punjab Act mean any such excise duty or countervailing
duty as the case may be, as is mentioned in Entry 51 of List II of the Seventh
Schedule to the Constitution. The State, therefore, cannot levy any import fee
over and above the excise duty/countervailing duty, having regard to the said
definition. Sections 17 and 18 of the Abkari Act, which are in pari materia
with Sections 31 and 32 of the Punjab Act, are referable to Entry 51 alone. As
Entry 51 puts an embargo on the State to make a legislation, there cannot be
any gainsaying that any levy in terms of Sections 17 and 18 of the Abkari Act
would be subject thereto.
the levy be said to be valid if thereby regulatory licencee fees have been
imposed? The answer to the said question must be rendered in the negative.
(28) of Article 366 reads as under:
includes the imposition of any tax or impost, whether general or local or
special, and "tax" shall be construed accordingly;
regulatory impost would, thus, come within the purview of the tax.
in terms of the constitutional schemes may be either a regulatory licence fees
or a fee in lieu of rendition of service. When no service is rendered a fee can
be justified only by way of licence fees. Such impost, however, would be a tax
and, thus, would clearly be referable to Entry 51 of List II to the
Constitution and not Entry 66 thereof. (See
Liberty Cinema State of U.P. and Anr., JT 2002 (9) SC
the State while imposing import duty has exercised its power under the statute.
The impugned notifications in no uncertain terms and unequivocally refer to the
source of power therefor. The functions of the State to impose a fee or tax in
terms of the provisions of the statute is a legislative function. Such
legislative function must be attributed to the source of the State's power in
terms of Entry 51 of List II to the Constitution and not otherwise. If the
legislations in question are found to be unreasonable in nature or fraud on the
Constitution, would it still be permissible for the State to turn round and
contend that such imposts are not being levied in exercise of its taxation power
but attributable to its regulatory power? In other words, can the State turn
round and contend that what it sought to do was not in terms of legislative
function but merely by way of executive action? Answer to the said question
again must be rendered in the negative. It is a well-settled principle of law
that a thing which cannot be done directly cannot be done indirectly. (See Priyanka
Supp (1) SCC 102). In relation to an administrative act, it is well-settled
that a statutory authority is not permitted to support its decision on a ground
d'hors the ground stated in the order. (See Commissioner of Police, others, AIR
1978 SC 851). On the same analogy, a legislation which is found to be fraud on
the Constitution, cannot, inter alia, be upheld on any other ground. Entry 8 of
List II of the Seventh Schedule to the Constitution does not permit the State
to levy a fee on import of liquor. It deals only with production, manufacture,
possession, transport, purchase and sale of intoxicating liquors and nothing else.
Entry 8 of List II, thus, does not speak of import or export. Its purpose is to
regulate and not impose any statutory impost. The State in exercise of its
delegated powers cannot do what would constitutionally be impermissible.
subsidiary question which arises for consideration is as to whether the State
of Punjab, having regard to Section 33A of the Punjab Act, could levy such
duty. In Sub-Section (1) of Section 33A provision has been made permitting the
State to continue to levy any duty which it had lawfully been levying
immediately before the commencement of the Constitution. The said provision is
in tune with Article 305 of the Constitution, therefore, the same calls for a
strict construction. Sub-section (3) of Section 33A is couched in negative language
by reason whereof power of the State to levy any duty has been taken away in
the event thereby any discrimination is made in favour of goods manufactured or
produced in the State and similar goods manufactured or produced in another
locality. Clearly such a provision is in consonance with Article 304 of the
Constitution. If by reason of a statute an embargo has been placed on the
State's power to levy any fee, it is beyond any cavil of doubt that such a levy
cannot be held to be justified by reason of an executive action or otherwise.
trite that even a term of the contract cannot be in violation of an express
provision contained in a statute. By reason of provisions of the Abkari Act or
the Punjab Act, no power has been conferred upon the State to impose any import
fee over and above the excise duty/countervailing duty. It is not disputed that
such countervailing duty has been levied and the licensees pay the same. The
power to levy fee and the power to grant licences, permits and passes occur in
different chapters of the Acts. The powers under different chapters are
required to be exercised for different purposes. One is legislative in
character and the other refers to executive action. Furthermore, under the
Punjab Act fees for grant of licences, permits and passes are required to be
paid on the terms as the Financial Commissioner may direct. Having regard to
the fact that the Financial Commissioner is the statutory authority in relation
thereto, the State cannot be said to have any jurisdiction thereover,
particularly, in the matter of levy of import fee which clearly is referable to
Chapter V of the Punjab Act and has nothing to do with grant of licence
occurring in Chapter VI.
matter may be considered from another angle. Having regard to Article 265 of
the Constitution a tax must be imposed by a statute. Even such impost is
impermissible by any bye-law or rule. (See Bimal Chandra 897.
(1990) 1 SCC 109 at page 158, a Seven-Judge Bench of this Court has equated
excise duty with the price for privileges. In the matter of interpretation of
Constitution, the said decision has been referred to with Gohil & Ors. [JT
2003 (2) SC 335]. In the said seven Judge Bench decision, this Court observed
an analysis of the various Abkari Acts and Excise Acts, it appears that various
provinces/States reserve to themselves in their respective States the right to
transfer exclusive or other privileges only in respect of manufacture and sale
of alcohol and not in respect of possession and use. Not all but some of the
States have provided such reservation in their favour. The price charged as a
consideration for the grant of exclusive and other privileges was generally
regarded as an excise duty. In other words, excise duty and price for
privileges were regarded as one and the same thing. So-called privilege was
reserved by the State mostly in respect of country liquor and not foreign
liquor which included denatured spirit." In view of the foregoing
discussions, I am of the opinion that the impugned levy cannot be sustained.
Questions (ii) and (iii) What is Res-Extra-Commercium:
Black's Law Dictionary, Fifth Edition, 'Res' has been defined as follows:
"res", according to the modern civilians, is meant everything that
may form an object of rights, in opposition to "persona," which is
regarded as a subject of rights. "Res", therefore, in its general
meaning, comprises actions of all kinds;
in its restricted sense it comprehends every object of right, except
actions." In Trayner's Latin Maxims, Fourth Edition, 'Extra Commercium' is
stated as "Beyond Commerce. This is said of things which cannot be bought
or sold, such as public roads, rivers, titles of honour, etc." In Words
and Phrases, Volume 15 A, it has been stated:
once dedicated to public use is "extra commercia", and inalienable by
seizure and sale under execution against a municipal corporation, unless it is
made affirmatively and clearly to appear that its use had been abandoned or
lost by nonuser." In Bouvier's Law Dictionary, Volume I, Third Edition, at
page 531, it is stated:
has been frequently said by the Supreme Court that commerce includes
intercourse, though usually the term is qualified as "commercial
intercourse"; Gibbons v. Ogden, 9 Wheat. (U.S.) 1, 6 L.Ed 23; U.S. v. E.C.
Knight Co., 156 U.S. 1, 15 Sup. Ct. 249, 39 L. Ed. 325; Welton v. Missouri, 91
U.S. 275, 280, 23 L.Ed. 347; Pensacola Telegraph Co. v. Western Telegraph Co.,
96 U.S. 1, 9, 24 L.Ed. 708; Mobile County
v. Kimball, 102 U.S. 691, 702, 26 L.Ed. 238 (where the phrase is
"intercourse and traffic"); Addyston Pipe & Steel Co. v. U.S.,
175 U.S. 211, 241, 20 Sup. Ct. 96, 44 L.Ed. 136; Lindsay & P. Co. V. Mullen
176 U.S. 126, 20 Sup. Ct. 325, 44 L.Ed.400;
Interstate Commerce Commission v. Brimson, 154 U.S. 447, 470, 14 Sup Ct. 1125,
38 L.Ed. 1047; Lottery Case, 188 U.S. 321, 346, 23 Sup. Ct. 321, 47 L.Ed. 492. The first expression of this was
by Marshall, C.J., in Gibbons v. Ogden, 9 Wheat (U.S.) 1, 6 L.Ed. 23; quoted by Fuller,
C.J., in U.S. v. Knight Co., 156 U.S. 1, 15 Sup. Ct. 249, 39 L.Ed. 325; and
characterized by White, J., as a "luminous definition" in Northern
Securities Co. v. U.S., 193 U.S. 197, 24 Sup. Ct. 436, 48 L.Ed. 679, to the
effect that commerce is something more than traffic; "It is intercourse;
it describes the commercial intercourse between nations and parts of nations in
all its branches, and is regulated by prescribing rules for carrying on that
has been practically, if not literally, quoted in all the cases cited. There is
nothing in the decisions to define or limit so broad a term as intercourse,
except the word commercial, usually attached to it. As it is hardly likely that
the courts intended to say that commerce is intercourse in the sense in which
it is defined "communication between persons or places"; Cent. Dict.:
it is probable that the word was not intended to be used to express more than
such intercourse as is connected with traffic and transportation with foreign
countries or between the States." Dealing in liquor or for that matter in
lottery, tobacco is not prohibited under the Constitution. On the other hand,
in the constitutional schemes itself Parliament or the State Legislature has
been conferred power to regulate the said trade like any other trade. In fact
India has entered into trade agreements to deal in liquor with other sovereign
countries. India has entered into International treaties in the matter of
foreign investment in liquor. Trade in liquor finds place in World Trade
Organization (WTO) and General Agreement on Trade and Tariff (GATT). In terms
of the WTO and GATT guidelines have been laid down as regards import and export
of potable liquor. India, as a signatory to WTO and GATT, is expected to follow
the said guidelines. It is expected to remove all trade barriers subject to the
other provisions contained therein. It is also supposed to levy taxes/
countervailing duties in terms of such international treaties.
constitutional provision or statute prohibits trade in liquor. Article 47 of
the Constitution empowers the State to impose prohibition. Once a prohibition
is imposed by any State in exercise of said powers, indisputably no person will
have any right to deal in potable liquor.
of Res-extra commercium is a judge made law.
does not provide for it. Even if Entries 8, 51 and 54 of List II, on the other
hand, lead to the conclusion that the State has the legislative power to make
regulatory enactment in the spheres provided for them, the State indisputably
may exercise its right to prohibit dealings in liquor either wholly or
partially but if it allows trade and business in liquor by parting with its
exclusive privilege; a presumption will arise unless contrary intention is
shown in the statute or licence granted therefor that it has not retained unto
itself a right to deal with a part of the trade itself or through its agency.
As has been noticed in the Kerala matter the State has given the monopoly to
trade in liquor in favour of the Kerala State Beverages Corporation. Nowhere it
is stated either by way of counter-affidavit or under the statute that the
State has reserved unto itself any right in the matter relating to carrying on
trade or business in potable liquor. As soon as a licence is granted upon
receipt of a fee fixed by it, the State would be presumed to part with its
entire privilege. To say that while exercising its regulatory power for the
purpose of controlling the trade and business in potable liquor, it has
reserved unto itself a part of its exclusive privilege would not be correct
unless the same is explicitly pleaded and proved.
measures in the matter of trade and business in potable liquor have been taken
by reason of a statute. All regulations on the trade, thus, must be governed by
the statutes operating in the field and not by way of executive action. The
provisions of the statute or the contracts made thereunder must scrupulously be
followed by all concerned as they are bound by the same. When a legislation
referable to Entries 8, 51 and 66 etc.
occupied the field, the State, in absence of any provision contained in the
statute, cannot turn round and contend that it will exercise its power of
exclusive privilege even though it had granted licence in terms of the statute.
regard to the constitutional scheme the power of the State to undertake trade
and business is referable to Article 298 of the Constitution.
duties, functions and responsibilities of a Government in a democracy are
different from monarchism. Rights and privileges of a monarch cannot be equated
with an elected Government in a democratic set-up. If the power of the
Government in other words to deal in trade or commerce, be it liquor or any
other commodity, can only be traced to Article 298 of the Constitution, it goes
without saying that the same would be subject to all constitutional limitations
applicable in relation thereto. The State while exercising its constitutional
power under Article 298 of the Constitution cannot itself be an extra
constitutional authority so as to violate the constitutional provisions. It
like any other trader must confine itself within the four corners of the
statutes governing the field which are enacted in terms of one entry or the
other made in any of the three lists to the Seventh Schedule of the
State, therefore, may be entitled to either completely prohibit a trade or
business in liquor and create monopoly either in itself or in any other agency
and furthermore it can for the purpose of selling the licence adopt any mode
with a view to maximize its revenue but while doing so it must, having regard
to a large number of decisions of this Court, not act arbitrarily. The State
while carrying on business by way of parting with its privilege or distribution
of largess must conform to the equality clause enshrined in Article 14 of the
Constitution. It has been so held in Nandlal Jaiswal (supra) at pages 604-605
in the following terms:
before we do so, we may at this stage conveniently refer to a contention of a preliminary
nature advanced on behalf of the State Government and respondents 5 to 11
against the applicability of Article 14 in a case dealing with the grant of
liquor licences. The contention was that trade or business in liquor is so
inherently pernicious that no one can claim any fundamental right in respect of
it and Article 14 cannot therefore be invoked by the petitioners. Now, it is
true, and it is well settled by several decisions of this Court including the
decision in Har Shanker v. Deputy Excise & Taxation Commissioner [(1975) 3
SCR 254 : (1975) 1 SCC 737 : AIR 1975 SC 1121] that there is no fundamental
right in a citizen to carry on trade or business in liquor. The State under its
regulatory power has the power to prohibit absolutely every form of activity in
relation to intoxicants - its manufacture, storage, export, import, sale and
possession. No one can claim as against the State the right to carry on trade
or business in liquor and the State cannot be compelled to part with its
exclusive right or privilege of manufacturing and selling liquor. But when the
State decides to grant such right or privilege to others the State cannot
escape the rigour of Article 14. It cannot act arbitrarily or at its sweet
will. It must comply with the equality clause while granting the exclusive
right or privilege of manufacturing or selling liquor. It is, therefore, not
possible to uphold the contention of the State Government and respondents 5 to
11 that Article 14 can have no application in a case where the licence to
manufacture or sell liquor is being granted by the State Government. The State
cannot ride roughshod over the requirement of that article." Privilege,
thus, can be claimed by a State in a 'no right' situation, namely, when citizen
is not permitted to carry on trade. But once the State takes a decision to part
with its privilege, it cannot make any discrimination whatsoever. Dealing in
liquor by the persons in whose favour licences have been granted in terms of
the statutory enactments derive a right therefor which cannot be said to be
"Res-Extra Commercium" Now comes the question as to how far and to
what extent, if any, the fundamental and other rights of a citizen could be
available in the matter of trade in potable liquor. Article 19(1)(g) guarantees
that all citizens shall have the right to practice any profession or to carry
on any occupation, trade or business. However, in terms of Article 19(6) this
right can be restricted by a statute imposing reasonable restrictions. A
combined reading of clauses (1) and (6) of Article 19 makes it clear that a
citizen has a fundamental right to carry on any trade or business and the State
can make a law imposing reasonable restrictions on the said right in the
interest of the general public.
therefore, obvious that unless dealing in liquor is excluded from `trade or
business', a citizen has a fundamental right to deal in that commodity.
right was recognized in the The State of Bombay and Another that "we hold
that to the extent to which the prohibition Act prevents the possession, use
and consumption of non-beverages and medicinal and toilet preparations
containing alcohol for legitimate purposes the provisions are void as offending
against Art. 19(1)(f) of the Constitution even if they may be within the
legislative competence of the provincial legislature," But in Cooverjee B.
Bharucha (supra) a Constitution Bench of this Court held that there is no
inherent right in a citizen to sell intoxicating liquors. This decision was
rendered relying on P.Crowley, Chief of Police Christenses [(1890) 34 Law. Ed.620(A)].
this exclusive privilege theory was rejected by a U.P. & Ors. [AIR 1954 SC
728] stating that this doctrine has no place under Indian Constitution. It was
observed that establishment of a monopoly does not create a reasonable
restriction. The observations made in Cooverjee B. Bharucha (supra) stating
that the general observations occurring in the judgment have to be taken with
reference to the facts of that case were duly explained. It was reiterated that
the State has a right to prohibit trade which is illegal or immoral or
injurious to the health and welfare of the public by taking recourse to
regulating legislation contemplated by Article 19(6).
fundamental right to trade in intoxicant liquor was recognized in Government of
Travancore and Cochin imposed 20% commission for sanction of extra quota of
Foreign Liquor to wholesale licencees. The said impost was challenged before
the High Court of Judicature for Travancore Cochin, which was struck down by
said High Court. On Appeal by State this Court while upholding the judgment of
High Court observed "an impost not authorised by law cannot possibly be
regarded as a reasonable restriction and must, therefore, always infringe the
right of the respondent to carry on his business which is guaranteed to him by
Article 19(1)(g) of the Constitution." It was held that an impost in terms
of an executive order having no authority of law would be illegal imposition.
principle has been affirmed by a Constitution Bench of this Court 1967(3) SCR
50. After discussing all previous decisions, Subba Rao, C.J., held that "a
scrutiny of these decisions does not support the contention that the court held
that dealing in liquor was not business or trade. They were only considering
the provisions of the various Acts which conferred a restricted right to do
business. None of them held that a right to do business in liquor was not a
fundamental right". It was observed that "If the activity of a dealer,
say, in ghee is business; then how does it cease to be business if it is in
liquor. Liquor can be manufactured, brought or sold like any other commodity.
It is consumed throughout the World though some countries restrict or prohibit
the same on economic or moral grounds". It was further held that
"dealing in liquor is business and a citizen has a right to do business in
that commodity; but the State can make a law imposing reasonable restrictions
on the said right, in public interests." In R.M.D. Chamarbaugwala(supra)
S.R. Das, C.J. observed that the American Congress have no power to control
gambling and like spurious transactions under its power over 'inter-State
commerce' if they were not held to be 'commerce'.
in Har Shankar (supra) Chandrachud, J. (as the learned Chief Justice then was)
held that the right to trade in liquor is not absolute and it is to be treated
as a separate class. But therein also it has not been held that despite
fulfilling the regulatory measures, the trade would be illegal. The point that
arose for consideration therein was the State's power to prohibit trade. In
that case, this Court had no occasion to consider the question involved in the
large number of decisions, as noticed hereinbefore, have been cited at the Bar
for the proposition that by reason of grant of licence, the licensee is merely
granted a permissive privilege subject to the degree of regulatory control as
may be deemed necessary and appropriate having regard to the fact that nobody
has any constitutional right to trade in liquor in view of its inherently
pernicious and noxious nature. I may deal with some of the decisions cited at
the bar a little later but the principles which emerge from the various
decisions of this Court and particularly by Constitution Benches of this Court
Trade in liquor is against public morality and thus res extra commercium. No
citizen has any Fundamental Right to carry on business in liquor. [See R.M.D. Chambarbaugwala
(supra)]. As there does not exist any right to carry on trade, Article 301
shall not apply.
Right to trade in liquor is a Fundamental Right within the meaning of Article
19(1)(g) of the Constitution subject, of course, to the reasonable restrictions
in terms of Clause (6) of Article 19. [See Krishna Kumar Narula (supra)]
Right of the State to deal exclusively in liquor is its own privilege.
does not matter as to whether such right is restricted while parting with
privilege by reason of a statute in terms of Article 19(6) of the Constitution.
The equality clause even in the matter of carrying on trade is not available.
The right of the State to part with its privilege being a superior right, the
inferior right of a citizen to carry on trade, shall give way to State's
State while carrying on any trade or business itself cannot make any
discrimination and its acts must be fair and reasonable.
The State's right is absolute when a complete prohibition is imposed and at
that stage the State can part with its exclusive privilege in any manner it
likes and it is also entitled to take any measures for having the best price.
[See Har Shankar (supra)].
Distilleries Ltd. (supra) at pages 608-609, a Constitution Bench referred to
some of the decisions as referred to hereinbefore and summed up its findings [para
The rights protected by art. 19(1) are not absolute but qualified. The
qualifications are stated in cls. (2) to (6) of art. 19. The fundamental rights
guaranteed in art. 19(1)(a) to (g) are, therefore, to be read along with the
said qualifications. Even the rights guaranteed under the Constitutions of the
other civilized countries are not absolute but are read subject to the implied
limitations on them.
implied limitations are made explicit by cls.
(6) of art. 19 of our Constitution.
The right to practise any profession or to carry on any occupation, trade or
business does not extend to practising a profession or carrying on an
occupation, trade or business which is inherently vicious and pernicious, and
is condemned by all civilised societies. It does not entitle citizens to carry
on trade or business in activities which are immoral and criminal and in
articles or goods which are obnoxious and injurious to health, safety and
welfare of the general public, i.e., res extra commercium, (outside commerce).
There cannot be business in crime.
For the same reason, the State can create a monopoly either in itself or in the
agency created by it for the manufacture, possession, sale and distribution of
the liquor as a beverage and also sell the licences to the citizens for the
said purpose by charging fees. This can be done under art. 19(6) or even
For the same reason, again, the State can impose limitations and restrictions
on the trade or business in potable liquor as a beverage which restrictions are
in nature different from those imposed on the trade or business in legitimate
activities and goods and articles which are res commercium. The restrictions
and limitations on the trade or business in potable liquor can again be both
under art. 19(6) or otherwise. The restrictions and limitations can extend to
the State carrying on the trade or business itself to the exclusion of and elimination
of others and/or to preserving to itself the right to sell licences to do trade
or business in the same, to others.
When the State permits trade or business in the potable liquor with or without
limitation, the citizen has the right to carry on trade or business subject to
the limitations, if any, and the State cannot make discrimination between the
citizens who are qualified to carry on the trade or business." The
decisions of this Court including those rendered by the Constitution Benches struck
different notes. They at times stand poles apart.
and contradictions in the said decisions are galore. Some latter Constitution
Bench decisions although took note of the earlier Constitution Bench decisions,
but only sought to distinguish the same and not referred the matter to a larger
Bench for consideration of correctness of one view or the other. I may,
therefore, proceed on the premise that some of the principles in Khoday (supra)
are correct, although one may have strong reservations even in this behalf. In Khoday
(supra) expressly or by necessary implication fundamental right to deal in any
goods is accepted.
exception which was made are those commodities, business of which is inherently
noxious and pernicious and is condemned by the civilized society. It has sought
to lay down the law that there cannot be a business in crime.
in a commodity which is governed by a statute cannot be said to be inherently
noxious and pernicious. A society cannot condemn a business nor there exists a
presumption in this behalf if such business is permitted to be carried out
under statutory enactments made by the legislature competent therefor. The
legislature being the final arbiter as to the morality or otherwise of the
civilized society has also to state as to business in which article (s) would
be criminal in nature. The society will have no say in the matter. The society
might have a say in the matter which could have been considered in a Court of
law only under common law right and not when the rights and obligations flow
out of statutes operating in the field. Health, safety and welfare of the
general public may again be a matter for the legislature to define and prohibit
or regulate by legislative enactments. Regulatory statutes are enacted in
conformity with clause (6) of Article 19 of the Constitution to deal with those
trades also which are inherently noxious and pernicious in nature and
furthermore thereby sufficient measures are to be taken in relation to health,
safety and welfare of the general public. The courts while interpreting a
statute would not take recourse to such interpretation whereby a person can be
said to have committed a crime although the same is not a crime in terms of the
statutory enactment. Whether dealing in a commodity by a person constitutes a
crime or not can only be subject matter of a statutory enactment.
Excise Acts enacted by the States mandate the licensees to carry on their
activities in terms of the conditions of licence and the provisions contained
therein. So long as the business activities of the licensees are within the
four-corners of the conditions of the licence and the provisions of the
Licensing Act, they, without any obstruction whatsoever, are entitled to carry
on their trade, business or commerce. They would be liable to be proceeded
against for commission of an offence only in the event they violate the
statutory provisions wherefor the statute itself provides for imposition of
when a person has been granted a licence strictly in conformity with the Excise
Act to carry on his business activities in terms of the statute operating in
the field, the same can neither be termed as pernicious, obnoxious and
injurious to health, safety and welfare of the general public.
public interest can be inferred by any court of law by going beyond the
statutory provisions. Even monopoly of the State either in itself or in any
agency created by it for manufacture, possession, sale and distribution of
liquor can be created only by a statute which must conform to the provisions of
clause (6) of Article 19 of the Constitution, i.e., by making a valid law, by
way of a regulatory legislative enactment.
the analysis of decisions rendered by this Court in Cooverjee B. Bharucha,
R.M.D. Chambarbaugwala, Har Shankar or Khoday Distilleries, it will appear that
a person cannot claim any right to deal in any obnoxious substance on the
ground of public morality. The State, therefore, is entitled to completely
prohibit any trade or commerce in potable liquor. Such prohibition, however,
has not been imposed. Once a licence is granted to carry on any trade or
business can it be said that a person is committing a crime in carrying on
business in liquor although he strictly complies with the terms and conditions
of licence and the provisions of the statute operating in the field? If the
answer to the said question is to be rendered in affirmative it will create
havoc and lead to anarchy and judicial vagaries. When it is not a crime to
carry on such business having regard to the fact that a person has been
permitted to do so by the State in compliance with the provisions of the
existing laws, indisputably he acquires a right to carry on business. Even in
respect to trade in food articles or other essential commodities either
complete prohibition or restrictions are imposed in the matter of carrying on
any trade or business, except in terms of a licence granted in that behalf by
the authorities specified in that behalf. The distinction between a trade or
business being carried out legally or illegally having regard to the
restrictions imposed by a statute would have, therefore, to be judged by the
fact as to whether such business is being carried out in compliance of the
provisions of the statute(s) operating in the field or not. In other words, so
long it is not made impermissible to carry on such business by reason of a
statute, no crime can be said to have been committed in relation thereto. The
doctrine of res extra commercium, thus, would not be attracted, whence a person
carries on business under a licence granted in terms of the provisions of the
case and in particular the decisions relied upon by the learned counsel
appearing on behalf of the State of Punjab and that of Kerala had evolved a
principle that despite paying a large amount of licence fees and despite
fulfillment of terms and conditions of licence and other statutory provisions,
the trade or business carried out by the licensee shall be at an eternal peril,
which may at any point of time be determinated or a new tax imposed or they be
proceeded against at the whims or caprice of the executive wing of the State.
In our constitutional scheme such a situation is unthinkable. The country is
governed by rule of law and despite existence of a valid legislation operating
in the field, executive whims or caprice cannot be permitted to have any role
to play. Validity of a tax imposed by the State Legislature, thus, must be
determined on the constitutional anvil of the legislative competence and not on
any other basis. The decisions of this Court which had no occasion to consider
these aspects of the matter can be of no assistance and would not constitute
binding precedents. [See Bhavnagar University vs. Palitana Sugar Mill (P) Ltd. and
Others - (2003) 2 SCC 111] The right of the State to carry on trade or business
under Article 298 of the Constitution would be subject to the same
constitutional limitations in the matter of carrying on trade or business in
liquor as in other cases. The distinction being only that the State has a
monopoly to do so. Once the State does not exercise the said right and
considers it expedient to allow the citizens to carry on the business or trade,
it cannot be said that the licensees do not derive any right whatsoever. Even
when the State exercises such right by creating a monopoly in itself, it would
be subject to the same constitutional limitations as envisaged, inter alia,
under Articles 14 and 301 of the Constitution. Articles 14 and 301 of the
Constitution protect from the maladies of discrimination. Such discrimination
may be in between persons and persons, persons and State and State and State.
State which exercises its right to create monopoly, prevent another State to
export or import its product? If in between two States such discriminations are
not possible, a discrimination inter se between licensees of two States would
also not be permissible. Such discrimination would also not be permissible
between a State and a person carrying on similar trade or commerce in one State
vis-`-vis a person or State carrying on business in another State.
the regulations restricting the right to carry on business in potable liquor is
attributed to reasonable restrictions and public interest clause, contained in
clause (6) of Article 19 of the Constitution, the fundamental right to carry on
trade under Article 19 is conceded. Once such a right is conceded, it cannot be
said that although a person has a Fundamental Right to carry on trade or
business for the purpose of Article 19(1)(g), subject to imposition of
reasonable restrictions by a law made in terms of clause (6) of Article 19, he
does not have such a right in terms of Article 301 of the Constitution or for
that matter Article 14 thereof. Articles 303 and 304 of the Constitution also
provide for imposition of restrictions and thus even a freedom guaranteed to a
person under Article 301 is not an absolute one, but subject to the
constitutional limitations provided therefor.
301 confers freedom but not a licence. The protection from discrimination as
envisaged in Khoday Distilleries (supra) [para 60(g)] would not only operate
against the State which is the licensor but having regard to the constitutional
goals to be achieved by the commerce clause contained in Article 301, must be
extended to another State which seeks to impose restrictions on import.
raise a hypothetical question. If some States intend to exercise their right/
privilege/ monopoly in the trade in potable liquor - can such imposition of tax
be still justified? Answer thereto must be rendered in the negative. Now the
question is with regard to the applicability of Article 301 of the Constitution
in the matter of trade, commerce and intercourse in potable liquor. The
preamble to the Constitution speaks of unity and integrity of India in terms
whereof India is required to be treated country as a whole. This theory of
unity and integrity of India may have to be found out while considering the
economic integrity of the country vis-`-vis the economic barriers which may be
put by the States. For the purpose of considering the question as regards the
interpretation of Article 301, one has to notice the sources thereof. It is now
beyond any cavil of doubt that except a part of Part XIII of the Constitution
the major part of the concept thereof was borrowed from Sections 92 and 99 of
the Australian Constitution as also Section 297 of the Government of India Act,
17 of the draft as introduced before the Drafting Committee by Sir. B.N. Rau in
October, 1947 is in the following terms:
to the provisions of any Federal Law, trade, commerce and intercourse among the
units shall, if between the citizens of the Federation, be free:
that nothing in this section shall prevent any unit from imposing on goods
imported from other units any tax to which similar goods manufactured or
produced in that unit are subject, so, however, as not to discriminate between
goods so imported and goods so manufactured or produced:
further that no preference shall be given by any regulation of trade, commerce
or revenue to one unit over another:
also that nothing in this section shall preclude the Federal Parliament from
imposing by Act restrictions on the freedom of trade, commerce and intercourse
among the units in the interests of public order, morality or health or in
cases of emergency." The marginal note appended to Sir B.N. Rau's clause
17 to the effect "Freedom of trade, commerce and intercourse among the
units" is clearly suggestive of the fact that Section 92 of the Australian
Constitution provided for a comparable provision vis-a-vis other Constitutions.
It is also beneficial to notice that Sections 92 and 99 of the Australian
Constitution confer different rights and the same are independent of each
other. Trade, commerce and intercourse as noticed hereinbefore are of wide
term "commerce" is wider than trade.
word "commerce" is undoubtedly, in its usual sense, a larger word
than "trade", in its usual sense. Sometimes "commerce" is
used to embrace less than "trade", and sometimes "trade" is
used to embrace as much as "commerce".
inhibition by Article 301 has been provided to the effect that the Legislature
shall not interfere in the commerce between the State and State as also to the
effect that the Legislature of a State shall not give any preference to one
State over the other. Article 301 of the Constitution in no uncertain terms
provides for a freedom in the matter of trade, commerce and intercourse. Such
trade, commerce and intercourse are inter-State as also intra-State. By reason
of Part XIII of the Constitution, the Constitution makers sought to evolve a
high policy. On a comparison made between Section 297 of the Government of
India Act, 1935 with Part XIII of the Constitution, it will be found that the
latter is wider than the former. The said part of the Constitution is a
self-contained part. Several improvements made in Part XIII of the Constitution
as compared to Section 297 are worth taking note of. By reason of the said
provisions, the entire country has been considered to be one economic unit. It
now embraces within its fold both 'commerce and trade' and not 'trade' alone.
'Commerce' was provided for in Entry 27 of List II only under the 1935 Act.
Part XIII, however, refers to the relevant entries contained in all the Lists
of Seventh Schedule to the Constitution. The limitation of power as regards
legislative competence of the State and the Parliament having regard to clause
2 of Article 303 and sub-clauses (a) and (b) of Clause (1) of Article 304 is
clear pointer of the new dimension given to Article 301 of the Constitution.
Even if a comparison is made between the terminologies used in Article 301 on
the one hand and Articles 19 and 298 on the other, it would be evident that
whereas in the former 'trade, commerce and intercourse' have been used but in
the latter only the words 'trade or business' have been used. Such trade,
commerce and intercourse is in relation to entire territory of India whether
inter-State or intra-State unlike Section 297 of the Government of India Act.
301 makes a declaration that 'trade, commerce and intercourse throughout the
territory of India shall be free', which in turn must mean that it shall be free
from control of Executive and Legislature. I may, however, hasten to add that
by reason thereof although a liberty has been granted but such liberty cannot
be equated with a licence inasmuch it would be subject to restrictions.
Articles 302 and 303 categorically state that there shall be no discrimination
between one State and the other but restrictions inhere in such liberty as
would appear from clause 2 of Article 303 of Constitution, if a situation
stipulated therein arises for consideration. In other words, discrimination is
at the heart of this Chapter. By reason of the said provision, the State is
prohibited from imposing a tax without making any discrimination whatsoever so
as to impede free flow of inter-State or intra- State trade. The State, however,
is entitled to impose reasonable restrictions as also levy tax in public
interest. But the same indisputably would be subject to the conditions laid
down in Articles 303 and 304 of the Constitution.
precise question which arises for consideration is as to whether a trade in
liquor would come within the purview of trade, commerce and intercourse, within
the meaning of Article 301 of the Constitution. In the earlier part of this
judgment I have considered the difference between a trade to which a citizen
has an absolute right and a trade where no such absolute right exists being
dangerous or obnoxious; but once such trade is permitted in terms of a
regulatory statute, the same cannot be said to be per se illegal.
I have considered the difference between a trade which is not prohibited under
any law and a trade carrying whereof although is of dangerous or obnoxious
subjects but is permitted in law and subject to the regulatory statute. For the
purpose of invoking Part XIII of the Constitution, one may safely proceed on
the assumption that a citizen of India may not have a Fundamental Right in
terms of Article 19(1)(g) of the Constitution to carry on a trade or business
but there could be little difficulty in upholding the right to carry on such trade
on the ground that the same has been permitted by the State, although a citizen
but for such permission would not have a right to deal in the commodity in
question. It may be noticed that in Article 303 of the Constitution the
terminology used is "relating to".
words are of wide amplitude. These expressions relate to all entries relating
to trade or commerce and not one entry in one of the Lists. It, thus, refers to
all such entries which are referable to trade and commerce occurring in any of
the three lists.
is one of the goods which would otherwise come within the purview of the
doctrine of "Res extra commercium", if the meaning thereof as
judicially defined is held to be good. Dealing in tobacco is regulated by the
Tobacco Act, a Parliamentary Act. It is universally acknowledged that
cigarettes cause cancer but having regard to the Tobacco Act and other statutes
it cannot be contended that the State can prohibit business in cigarette
without any legislation, i.e., only through executive instructions. In terms of
Article 303 of the Constitution, Tobacco Act which is made in terms of Entry 52
of List I of the Seventh Schedule to the Constitution would prohibit the States
from making any discriminatory legislation. It is, therefore, difficult to
understand as to how a prohibition can be imposed in respect of liquor in
relation whereto also a legislative power has been conferred upon the State
specifically in terms of Entries 8 and 51 in List II of the Seventh Schedule to
this juncture, it is useful to refer to the decision of this Court in Atiabari
Tea Company Limited (supra) wherein this Court in no uncertain terms laid
emphasis upon the economic unity of the country. In that case before the
Constitution Bench an argument was advanced to the effect that Article 301 is
circumscribed by Article 303 but the same was not accepted.
J. (as he then was) held at pages 843-844 as follows:
drafting the relevant Articles of Part XIII the makers of the Constitution were
fully conscious that economic unity was absolutely essential for the stability
and progress of the federal policy which had been adopted by the constitution
for the governance of the country. Political freedom which had been won, and
political unity which had been accomplished by the Constitution, had to be
sustained and strengthened by the bond of economic unity. It was realised that
in course of time different political parties believing in different economic
theories or ideologies may come in power in the several constituent units of
the Union, and that may conceivably give rise to local and regional pulls and
pressures in economic matters. Local or regional fears or apprehensions raised
by local or regional problems may persuade the State Legislatures to adopt
remedial measures intended solely for the protection of regional interests
without due regard to their effect on the economy of the nation as a whole. The
object of Part XIII was to avoid such a possibility. Free movement and exchange
of goods throughout the territory of India is essential for the economy of the
nation and for sustaining and improving living standards of the country. The
provision contained in Art. 301 guaranteeing the freedom of trade, commerce and
intercourse is not a declaration of a mere platitude, or the expression of a
pious hope of a declaratory character; it is not also a mere statement of a
directive principle of state policy; it embodies and enshrines a principle of
paramount importance that the economic unity of the country will provide the
main sustaining force for the stability and progress of the political and
cultural unity of the country." In Automobile Transport (Rajasthan) Ltd.
(supra), the validity of the tax impugned therein was upheld only on the ground
that it was compensatory in nature. There had been a cleavage of opinion
amongst the Hon'ble Judges in the said matter; three Hon'ble Judges holding
that such impost was ultra vires and three Hon'ble Judges holding the same to
be intra vires. Subba Rao, J. upheld the constitutionality of the impost by
agreeing with other three Hon'ble Judges on the ground that the impost was
compensatory in nature. The Bench not only accepted the constitutional
principles laid down by this Court in Atiabari (supra) but made a clear
distinction between the regulatory measures which can be adopted by a State and
imposition of a tax. It, further, struck a note of caution that a geographical
barrier cannot be set up by a State for the purpose of earning revenue or for
the benefit of the people thereof. It was held that Article 301 covers a wide
J. elaborated as to what is the nature of a compensatory tax. The learned
Judge, further, emphasized the concept of freedom in the following terms at
pages 564-565 of the Report:-
Article 301 declares a right of free movement of trade without any obstructions
by way of barriers, inter-State, or intra-State or other impediments operating
as such barriers.
The said freedom is not impeded, but, on the other hand, promoted, by
regulations creating conditions for the free movement of trade, such as, police
regulations, provision for services, maintenance of roads, provision for
aerodromes, Wharfs etc., with or without compensation.
Parliament may by law impose restrictions on such freedom in the public
interest; and the said law can be made by virtue of any entry with respect
where of Parliament has power to make a law.
The State also, in exercise of its legislative power, may impose similar
restrictions, subject to the two conditions laid down in Article 304(b) and
subject to the proviso mentioned therein.
Neither Parliament nor the State Legislature can make a law giving preference
to one State over another or making discrimination between one State and another,
by virtue of any entry in the Lists, infringing the said freedom.
This ban is lifted in the case of Parliament for the purpose of dealing with
situations arising out of scarcity of goods in any part of the territory of India and also in the case of a State under Article 304(b),
subject to the conditions mentioned therein. And
The State can impose a non-discriminatory tax on goods imported from other
States or the Union territory to which similar goods
manufactured or produced in that State are subject.
and intercourse' include trade in all its manifestations.
or impediments to the free flow of trade would be violative of the freedom
declared by Article 301. Subba Rao, J., in the said case held at page 548 as
next question is, where is it free ? The second, expression "throughout
the territory of India" demarcates the extensive field of operation of the
said freedom. The said intercourse shall be free throughout the territory of India. The use of the words 'territory of India" instead of
'among the several States" found in the American Constitution or
"among the States" found in the Australian Constitution, removes all
inter-State or intra-State barriers and brings out the idea that for the
purpose of the freedom declared, the whole country is one unit. Trade cannot be
free through-out the territory of India, if there are barriers in any part of India, be it inter-State or intra-State.
So long as there is impediment to that freedom, its nature or extent is irrelevant.
The difference will be in degree and not in quality. The freedom declared under
Article 301 may be defined as a right to free movement of persons or things,
tangible or intangible, commercial or non-commercial, unobstructed by barriers
inter-State or intra-State or any other impediment operating as such barriers.
To State it differently all obstructions or impediments whatever shape they may
take, to the free flow or movement of trade, or non-commercial intercourse,
offend Article 301 of the Constitution except in so far as they are saved by
the succeeding provisions." It is beyond any cavil of doubt that Part XIII
of the Constitution contains a principle of importance as regards economic
sovereignty and integrity of India by doing
away the trade barriers as also an attempt by the State to provide economic
protection to the States. Once, it is held that the limitation upon the
legislative power stipulated in Article 303(1), 304(a) would apply to trade in
liquor, there cannot be any doubt in view of several Constitution Bench
decisions of this Court that Article 301 will also apply thereto. [See Kalyani
Stores (supra), H. Anraj (supra) and Bhailal Bhai (supra)].
Court, when the validity of a luxury tax (in the nature of excise duty) on
tobacco was challenged as violative of Article 304(b), proceeded on the basis
that the business was protected by Article 301 but rejected the plea, on the
merits, holding that the restrictions imposed were reasonable and in the public
case (supra) this Court considered Entry 34 of List II in terms whereof the
State Legislature has been conferred power to enact Statutes on gambling. In
M/s. Maruthi Agencies, Bangalore rep. by its was held that in the event
lotteries are organized by a State, sale of tickets thereof cannot be
prohibited in other States on the ground that it is gambling and prohibited by
List II. If trade in liquor like gambling or betting were not to be regulated
by statutes it is difficult to comprehend as to why entries in respect thereof
have been made in the Seventh Schedule to the Constitution.
American decisions relied upon before this Court may not be held to have any
application having regard to the fact that trade in liquor in the United States
of America was completely prohibited at one point of time but the same was
modified by reason of Constitution Twenty-first Amendment.
now take the case of 21st Amendment in US Constitution. In the Constitution of
the United States, an express provision guaranteeing
freedom from inter-State trade and commerce does not exist. There only the
Congress is empowered to regulate commerce. In the States freedom on trade and
commerce clause only provides for a limitation upon the power of the State
Legislature but not Congress and the freedom is confined to the inter-State
a hundred years it has been accepted constitutional doctrine that the commerce
clause, without the aid of congressional legislation, thus affords some
protection from state legislation inimical to the national commerce, and that
in such cases, where Congress has not acted, this Court, and not the State
legislature, is under the commerce clause the final arbiter of the competing
demands of state and national interests".
Commerce Clause is a grant of authority to Congress, and not a restriction on
the authority of that body." In the United States, the inter-State restraint trade as such is prohibited but
a State is not denuded of its power imposing general taxes under its taxing
power. The state has also the power to regulate such aspects of commerce which
do not require a new form of national control. (See Bob- US 28). Furthermore,
in United States a complete prohibition was imposed.
The said prohibition was sought to be relaxed by 21st Amendment which is in the
1. The eighteenth article of amendment to the Constitution of the United States is hereby repealed.
2. The transportation or importation into any State, Territory, or possession
of the United States for delivery or use therein of
intoxicating liquors, in violation of the laws thereof, is hereby prohibited.
3. This article shall be inoperative unless it shall have been ratified as an
amendment to the Constitution by conventions in the several States, as provided
in the Constitution, within seven years from the date of the submission hereof
to the States by the Congress." In the United States of America, the State has the requisite power to impose general
taxes. Despite the same, an exemption granted in favour of local manufacturers vis-`-vis
the exporters was frowned upon by the American Courts.
challenge was to the following effect:
Appellants challenge the constitutionality of the Hawaii liquor tax, which is a 20% excise
tax imposed on sales of liquor at wholesale.
at issue are exemptions from the tax for certain locally produced alcoholic
Supreme Court of Hawaii upheld the tax against challenges based upon the Equal
Protection Clause, the Import-Export Clause, and the Commerce Clause. In re
Bacchus Imports, Ltd., 65 Haw 566, 656 P2d 724 (1982). We noted probable
jurisdiction, 462 US 1130, 77 L.Ed 2d 1365, 103 S Ct
3109 (1983), and now reverse." White, J. speaking for the majority stated
the law thus:
A cardinal rule of Commerce Clause jurisprudence is that "no State,
consistent with the Commerce Clause, may 'impose a tax which discriminates
against interstate commerce...by providing a direct commercial advantage to
local business.'" Boston Stock Exchange v State Tax Comm'n, 429 US 318,
329, 50 L Ed 2d 514, 97 S Ct 599 (1977)(quoting Northwestern States Portland
Cement Co. v Minnesota, 358 US 450, 458, 3 L Ed 2d 421, 79 S ct 357, 67 ALR2d
1292 (1959)). Despite the fact that the tax exemption here at issue seems
clearly to discriminate on its face against interstate commerce by bestowing a
commercial advantage on okolehao and pineapple wine, the State argues - and the
Hawaii Supreme Court held - that there is no improper discrimination." The
5) Much of the State's argument centers on its contention that okolehao and
pineapple wine do not compete with the other products sold by the wholesalers.
The State relies in part on statistics showing that for the years in question
sales of okolehao and pineapple wine constituted well under one percent of the
total liquor sales in Hawaii. It also relies on the statement by
the Hawaii Supreme Court that "we believe we can safely assume these
products pose no competitive threat to other liquors produced elsewhere and
consumed in Hawaii," In re Bacchus Imports, Ltd., 65 Haw, at 582, n 21,
656 P2d, at 735, n 21, as well as the court's comment that it had "good
reason to believe neither okolehao nor pineapple wine is produced
elsewhere." Id., at 582, n 20, 656 P 2d, at 735, n
20. However, neither the small volume of sales of exempted liquor nor the fact
that the exempted liquors do not constitute a present "competitive
threat" to other liquors is dispositive of the question whether
competition exists between the locally produced beverages and foreign
beverages; instead, they go only to the extent of such competition. It is well
settled that "we need not know how unequal the Tax is before concluding
that it unconstitutionally discriminates." Marryland v. Louisiana, 451 US 725, 760, 68 L Ed 2d 576, 101 S Ct 2114 (1981).
State's position that there is no competition is belied by its purported
justification of the exemption in the first place. The legislature originally
exempted the locally produced beverages in order to foster the local industries
by encouraging increased consumption of their product. Surely one way that the
tax exemption might produce that result is that drinkers of other alcoholic
beverages might give up or consume less of their customary drinks in favor of
the exempted products because of the price differential that the exemption will
permit. Similarly, nondrinkers, such as the maturing young, might be attracted
by the low prices of okolehao and pineapple wine.
stipulated facts in this case, we are unwilling to conclude that no competition
exists between the exempted and the nonexempted liquors." As regards the
State's right on economic protectionism it was said:
finding that state legislation constitutes "economic protectionism"
may be made on the basis of either discriminatory purpose, see Hunt v
Washington Apple Advertising Comm'n, 432 US 333, 352-353, 53 L Ed 2d 383, 97 S
Ct 2434 (1977), or discriminatory effect, see Philadelphia v New Jersey, supra.
See also Minnesota v Clover Leaf Creamery Co., supra,
at 471, n 15, 66 L Ed 2d 659, 101 S Ct 715. Examination of the State's purpose
in this case is sufficient to demonstrate the State's lack of entitlement to a
more flexible approach permitting inquiry into the balance between local
benefits and the burden on interstate commerce. See Pike v Bruce Church, Inc.,
397 US 137, 142, 25 L Ed 2d 174, 90 S Ct
Hawaii Supreme Court described the legislature's motivation in enacting the
exemptions as follows:
legislature's reason for exempting 'ti root okolehao' from the 'alcohol tax'
was to 'encourage and promote the establishment of a new industry,' S.L.H.
1960, c 26; Sen Stand Comm Rep No. 87, in 1960 Senate Journal, at 224, and the
exemption of 'fruit wine manufactured in the State from products grown in the
State' was intended 'to help' in stimulating 'the local fruit wine industry'. S.L.H.
1976, c 39; Sen Stand Comm Rep No. 408-76, in 1976 Senate Journal, at
1056." In re Bacchus Imports, Ltd. supra at 573-574, 656 P2d, at 730.
we need not guess at the legislature's motivation, for it is undisputed that
the purpose of the exemption was to aid Hawaiian industry.
the effect of the exemption is clearly discriminatory, in that it applies only
to locally produced beverages, even though it does not apply to all such
products. Consequently, as long as there is some competition between the
locally produced exempt products and non-exempt products from outside the
State, there is a discriminatory effect." The Learned Judge proceeded to
one disputes that a State may enact laws pursuant to its police powers that
have the purpose and effect of encouraging domestic industry.
the Commerce Clause stands as a limitation on the means by which a State can
constitutionally seek to achieve that goal. One of the fundamental purposes of
the Clause "was to insure ...against discriminating State
legislation." Welton v Missouri, 91 US 275, 280, 23 L Ed 347 (1876). In Welton, the Court
struck down a Missouri statute that "discriminated in
favor of goods, wares, and merchandise which are the growth, product, or
manufacture of the State, and against those which are the growth, product or
manufacture of other states or countries..." Id., at 277, 23 L Ed 347. Similarly, in Walling v
Michigan, 116 US 446, 455, 29 L Ed 691, 6 S Ct 454 (1886), the Court struck
down a law imposing a tax on the sale of alcoholic beverages produced outside
the State, declaring:
discriminating tax imposed by a State operating to the disadvantage of the
products of other States when introduced into the first mentioned State, is, in
effect, a regulation in restraint of commerce among the States, and as such is
a usurpation of the power conferred by the Constitution upon the Congress of
the United States." See also I.M. Darnell &
Son Co. v Memphis, 208 US 113, 52 L Ed 413, 28 S Ct 247 (1908)." It was held:
also find unpersuasive the State's contention that there was no discriminatory
intent on the part of the legislature because "the exemptions in question
were not enacted to discriminate against foreign products, but rather, to
promote a local industry." Brief for Appellee Dias 40. If we were to
accept that justification, we would have little occasion ever to find a statute
unconstitutionally discriminatory. Virtually every discriminatory statute
allocates benefits or burdens unequally;
can be viewed as conferring a benefit on one party and a detriment on the
other, in either an absolute or relative sense. The determination of
constitutionality does not depend upon whether one focuses upon the benefited
or the burdened party. A discrimination claim, by its nature, requires a
comparison of the two classifications, and it could always be said that there
was no intent to impose a burden on one party, but rather the intent was to
confer a benefit on the other.
it is irrelevant to the Commerce Clause inquiry that the motivation of the
legislature was the desire to aid the makers of the locally produced beverage
rather than to harm out- of-state producers." The learned Judge explained
the application of 21st Amendment by posing the question:
the interests implicated by a state regulation are so closely related to the
powers reserved by the Twenty-first Amendment that the regulation may prevail,
notwithstanding that its requirements directly conflict with express federal
policies." and answered the same :
the case in this light, we are convinced that Hawaii's discriminatory tax cannot stand. Doubts about the scope
of the Amendment's authorization notwithstanding, one thing is certain: The
central purpose of the provision was not to empower States to favor local
liquor industries by erecting barriers to competition. It is also beyond doubt
that the Commerce Clause itself furthers strong federal interests in preventing
Timber, Development, Inc. v Wunnicke, 467 US 82, 81 L Ed 2d 71, 104 S Ct 2237
(1984); Hughes v Oklahoma, 441 US 322, 60 L Ed 2d 250, 99 S Ct 1727 (1979);
Baldwin v G.A.F. Seelig, Inc., 294 US 511, 79 L Ed 1032, 55 S Ct 497, 101 ALR
55 (1935). State laws that constitute mere economic protectionism are therefore
not entitled to the same deference as laws enacted to combat the perceived
evils of an unrestricted traffic in liquor. Here, the State does not seek to
justify its tax on the ground that it was designed to promote temperance or to
carry out any other purpose of the Twenty-first Amendment, but instead
acknowledges that the purpose was "to promote a local industry."
Brief for Appellee Dias
Consequently, because the tax violates a central tenet of the Commerce Clause
but is not supported by any clear concern of the Twenty-first Amendment, we
reject the State's belated claim based on the Amendment." The minority
opinion, however, proceeded on the basis that by reason of Twenty-first
Amendment, the State has the power to create a monopoly.
constitutional permissibility is absent from our constitutional scheme.
be noticed that the same principles as in Atiabari (supra) or Automobile
(supra) have been applied by the Privy Council and the Australian Courts while
interpreting Section 92 of the Australian Constitution to hold that even for
any purpose for which the State has acted the legislation would not be relevant
criteria for declaring it ultra vires if it is Commonwealth of Australia (1936)
A.C.578, North Eastern Dairy Co. Wales & Ors. (1949) 79 C.L.R. 497).
124 interpreted Section 92 of the Australian Constitution in the following terms:
section does not in terms speak of the private right of the individual to
engage in trade, commerce, and intercourse among the States; it refers to
trade, commerce and intercourse among the States as an entire and total concept
and provides that it is to be 'absolutely free' in the sense in which this
expression has been discussed in the decided cases. In saying so much the
section protects the right of the individual to engage in inter-State trade,
commerce and intercourse but it needs to be recognized that this protection is
incidental to, and in a sense consequential upon, the protection which is given
to the entire concept of inter-State trade, commerce and intercourse, including
the various acts and transactions by which it is constituted." Reference
in this connection may also be made to North Eastern 1975) 134 C.L.R. 559, at
In India, the constitutional guarantee under
Article 301 of the Constitution is more extensive than either in United States or Australia. The decisions of United States Supreme Court and
Australian Supreme Court as also the Privy Council, as referred to
hereinbefore, clearly demonstrate that in these countries, although States have
more constitutional freedom but despite the same Commerce Clause received ample
protection at the hands of the Judiciary.
J. in Automobile case (supra) observed:
freedom declared under Article 301 may be defined as a right to free movement
of persons or things, tangible or intangible, commercial or non- commercial,
unobstructed by barriers, inter-State or intra-State or any other impediment
operating as such barriers. To state it differently, all obstructions or
impediments, whatever shape they may take, to the free flow or movement of
trade, or non-commercial intercourse, offend Article 301 of the Constitution
except in so far as they are saved by the succeeding provisions." The
public character theory although is an important, but has a limitation on the
individual right which is guaranteed; having regard to the fact that legislative
restriction ultimately permits the individual State to go ahead, only subject
to the reasonable restriction. The rule against enacting protectionist measures
has also been noticed by the High Court of Australia debate.
(1996) 11 SCC 39 at pages 53-54, this Court while rejecting an argument of
justification of exemption from sales tax of small scale industrial units
within the State of J&K on the ground that the commodity produced within
the State and that produced in other States and sold in J&K, constitute
different classes, has held as under:- "The States are certainly free to
exercise the power to levy taxes on goods imported from other States/Union
Territories but this freedom, or power, shall not be so exercised as to bring
about a discrimination between the imported goods and the similar goods
manufactured or produced in that State. The clause deals only with
discrimination by means of taxation; it prohibits it. The prohibition cannot be
extended beyond the power of taxation.
means in the immediate context that States are free to encourage and promote
the establishment and growth of industries within their States by all such
means as they think proper but they cannot, in that process, subject the goods
imported from other States to a discriminatory rate of taxation, i.e., a higher
rate of sales tax vis-a-vis similar goods manufactured/produced within that
State and sold within that State. Prohibition is against discriminatory
taxation by the States. It matters not how this discrimination is brought
find it difficult to appreciate how can the concept of classification be read
into clause (a) of Article 304 to undo the precise object and purpose
underlying the clause. Shri Verma repeatedly stressed that the object underlying
the impugned measure is a laudable one and that it seeks to serve and promote
the interest of the State of Jammu and Kashmir which is economically and industrially an undeveloped State, besides
being a disturbed State.
agree on this score but then the measures necessary in that behalf have to be
taken by the appropriate authority and in the appropriate manner. Part XIII of
the Constitution itself contains adequate provisions to remedy such a situation
and there is no reason why the necessary measures cannot be taken to protect
the edible oil industry in the State in accordance with the provisions of the
said Part." It is thus evident that any manner of extension of protection
to trade or business within the frontiers of State, at the cost of free
inter-State trade or commerce will not stand the test of Article 301. The
scheme of compensatory taxes, operate in an entirely different sphere. They
cannot be confused with measures which are both in form and substance
in the context of the competence of the States to enact and impose a duty on
imports or exports has held that the power to regulate inter state commerce in
non-discriminatory fashion and "to break down or to eliminate barriers to
trade amongst the States" is an essential federal power. It has,
therefore, been said that in the absence of such a power "local interest
exerting powerful influences in State Legislatures would, in the long run,
prefer home industries over those that are out of state, establish tariff
barriers, or employ other means tending to Balkanize the nation into hostile
trade areas." [See also William O. Doughlas J: From Marshall to Mukherjea:Tagore
Law Lectures 1956 P. 169].
McArthur's case 28 CLR 530 it was held:
is now convenient to examine the actual language of the Constitution so far as
relevant, in order to ascertain its true construction. The first question is
what is meant by "absolutely free" in s.
may be that the word "absolutely" adds nothing. The trade is either
free or it is not free.
may perhaps be regarded as merely inserted to add emphasis. The expression
"absolutely free" is generally described as popular or rhetorical. On
the other hand, 'absolutely' may have been added with the object of excluding
the risk of partial or veiled infringements. In any case, the use of the
language involves the fallacy that a word completely general and undefined is
most effective. A good draftsman would realize that the mere generality of the
word must compel limitation in its interpretation. "Free" in itself
is vague and indeterminate. It must take its colour from the context. Compare,
for instance, its use in free speech, free love, free dinner and free trade.
speech does not mean free speech; it means speech hedged in by all the laws
against defamation, blasphemy, sedition and so forth; it means freedom governed
by law, as was pointed out in McArthur's case. Free love, on the contrary,
means licence or libertinage, though, even so, there are limitations based on
public decency and so forth. Free dinner generally means free of expense, and
sometimes a meal open to any one who comes, subject, however, to his condition
or behaviour not being objectionable. Free trade means, in ordinary parlance,
freedom from tariffs.
in s. 92 cannot be limited to freedom in the last mentioned sense. There may at
first sight appear to be some plausibility in that idea, because of the
starting-point in time specified in the section, because of the sections which
and because the proviso to s. 92 relates to customs duties. But it is clear
that much more is included in the term; customs duties and other like matters
constitute a merely pecuniary burden; there may be different and perhaps more
drastic ways of interfering with freedom, as by restriction or partial or
complete prohibition of passing into or out of the State.
does "free" necessarily connote absence of discrimination between
inter-State and intra-State trade. No doubt conditions restrictive of freedom
of trade among the States will frequently involve a discrimination; but that is
not essential or decisive.
may contravene s.92 though it operates in restriction both of intra-State and
of inter-State trade." However, in India Part XIII of the Constitution
relates both to inter- State trade and commerce as also intra-State trade.
92 of the Constitution does not reframe State Acts by making new affirmative
legislation not contemplated by the State Parliament. It prevents adverse
discrimination from being lawful; so far as the Act can be effectively worked
in conformity with the constitutional requirement it still stands;
as it cannot it simply ceases to operate." Once it is held that the
principle of res-extra commercium is not applicable, the decisions in Kalyani
Stores (supra), H. Anraj (supra) and Bhailal Bhai (supra) having been rendered
by a Constitution Bench would constitute binding precedents. Once it is held
that the Legislature has no power to levy any excise duty on imported liquor in
excess of the countervailing duty within the State, having regard to the
constitutional limitation imposed in terms of Entry 51, List II of Seventh
Schedule to the Constitution, such discriminatory levy must be held to be violative
of Article 303(1) and 304(a) of the Constitution. As import fee is an impost,
thus, levy thereof in addition to countervailing duty would clearly attract the
wrath of Article 304(a) of the Constitution. It has not been and could not have
been contended that the tax is compensatory in nature as was the case in
Automobile (supra). I am, therefore, of the opinion that the impugned impost
cannot be upheld.
parting, however, I may notice the submission made by Mr. Iyer on behalf of the
State of Kerala that the licensees, having obtained
a privilege and enjoyed the benefit out of it, cannot, turn round subsequently
and repudiate the obligations subject to which they obtained the privilege.
submission of Mr. Iyer is wholly mis-conceived for more than one reason. The manufacturers
of liquor outside the State of Kerala did not
obtain any privilege from the State. The decisions relied upon by the learned
counsel, namely, Har Shankar (supra), Jage Ram (supra), Lal Chand (supra), M/s.
Dial Chand Gian Chand and Company (supra), thus, cannot be said to have any
application in the instant case. The decisions in these cases were rendered in
the fact situation obtaining therein. The licensees therein questioned the
power of the State to hold auction by the State and/or they refused to comply
with the terms and conditions of licence.
fact in Harshankar (supra) the Court on the factual matrix obtaining therein
clearly came to the conclusion that the writ petition was not maintainable as
thereby the licensees sought avoidance from compliance of contractual terms and
licensing conditions and, thus, they were not entitled to any relief. The writ
petitioners before the High Court had not questioned any of the terms and
conditions of the licence. In Kerala case they are not even licensees at all.
They are manufacturers of potable liquor, licences wherefor had been granted by
other States. The State of Kerala has not
parted any privilege in their favour. Even otherwise when the legislative
competence of a State is in question, the same goes to the root of the
jurisdiction. Once it is found that the State Legislature has exceeded its
jurisdiction in imposing the impugned levy, the same being a fraud on the
Constitution cannot be sustained on the procedural doctrine of estoppel or
the reasons aforementioned, Civil Appeal No. 3017 of 1997 is dismissed and
impugned judgment rendered by the Punjab and Haryana High Court quashing the Notification impugned before it is
upheld. On 23.7.1998 when prayer for grant of interim relief was being
considered, a prayer was made by Shri Harish N. Salve, learned Senior Counsel,
appearing on behalf of the State of Punjab, to the effect that operation of
impugned judgment rendered by the High Court may be stayed as the State was
ready to undertake before this Court to refund the amount that would be
realized by way of import duty together with interest thereon @ 15% per annum
to the respondents in the event of dismissal of State's appeal by this Court
and the said prayer having been acceded to, this Court stayed the operation of
the judgment rendered by the High Court upon the aforesaid undertaking. In view
of this, the State of Punjab is hereby directed to refund the
amount that has been realized by it by way of import duty to the respondents
together with interest thereon @ 15% per annum from the date of its realization
till payment, which must be made within a period of three months.
Appeal Nos. 2696-2697 are allowed and the Notification impugned before the Kerala
High Court is quashed.
shall be no order as to costs.