State
of Orissa & Ors Vs. Narain Prasad &
Ors [1996] INSC 1067 (3
September 1996)
Jeevan
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Paripoornan, K.S.(J) B.P. Jeevan Reddy,J.
CITATION:
JT 1996 (8) 50
ACT:
HEAD NOTE:
Leave
granted.
Having
voluntarily entered into contracts with the Government of Orissa, undertaking
to lift a particular quantity of liquor every month and also to remit the
monthly excise duty in two equal installments on the fifth and fifteenth of the
month, the respondents- licencees committed default on both counts and when the
said undertaking in the contract is not enforceable in law. They invoked the
extra- ordinary jurisdiction of the High Court under ARTICLE 226 of the
Constitution for the purpose. The High Court the upheld their contention. Hence,
these appeals by the State of Orissa.
The
grant of excise licences in the State of Orissa is governed by the Bihar and Orissa
Excise Act,1915 [the Act] and the rules made thereunder. Section 22 provides
for grant of exclusive privilege of sale of country liquor, whether wholesale
or retail. Section 27 empowers the State Government to impose excise duty or
countervailing duty,as it may direct on any of the activities specified
therein.
It
would be appropriate to set out sub-section [1] of Section 27:
"27.
Power to impose duty on import, export, transport and manufacture. [1] An
excise duty or countervailing duty, as the case may be, at such rate or rates
as the State Government may direct, may be imposed, either generally or for any
specified local area, on - [a] any excisable article imported, or [b] any
excisable article exported, or [c] any excisable article transported, or [d]
any excisable article [other than tari] manufactured under any Cl.[a] of
S.13,or [e] any hemp plant Cultivated, or any portion of such plant collected,
under any licence granted in respect of Cl. [b] or Cl.of S. 13, Or [f] any
excisable article manufactured in any distillery or brewery licensed,
established, authorized or continued under this Act.
Explanation:
Duty may be imposed on any article under this sub-section at different rates
according to the places to which such article is be removed for consumption, or
according to the article." Section 28 empowers the levy of excise
duty/countervailing duty in any of the several ways provided therein. Section
28, insofar as in relevant, reads:
"28.
Ways of levying such duty. - Subject to any rules made under S.90, Cl. [12],
any duty imposed under S.27 may be levied in any of the following ways:
[c] On
an excisable article transported, - [i]...........................
[ii]by
payment upon issue for sale from a warehouse established, authorized or
continued under this Act:
Section
29 is particularly relevant to the controversy herein. It reads:
"29.
payment for grant of exclusive privilege. [1] Instead of or in addition to, any
duty leviable under this Act, the State Government may accept payment of a sum
in consideration of the grant of any exclusive privilege under S.22 [2] The sum
payable under sub- [1] shall be determined as follows:
[a] by
auction or by calling tenders or otherwise the State Government may by general
of special order direct; and [b] by such authority and subject to such control
as may be specified in such order .
[3]
The sum determined under sub-S.[2] shall be final and shall be final and shall
be binding the party making the offer by way of tender, bid or other wise once
such offer is accepted by that sub- section." A reading of Section 29
shows that the State Government may accept payment of a sum in consideration of
the grant of any exclusive privilege under Section 22. This may be instead of
or in addition to any duties leviable under the Act. Sub-section [2) clarifies
that the sum payable under sub-section 1) shall be determined by auction or by
calling for tenders or otherwise; sub-section [3] declares that the sum
determined under sub-sub-section [2] shall be final and binding upon the party
making the offer once the offer is accepted by the appropriate authority.
Section
89 empowers the State Government to make rules to carry out the objects of the
Act. Sub-section [2] specifies the several heads in respect of which rules can
be made. Clause [1] of sub-section [2] empowers the State Government to make
rules "for regulating the procedure to be followed and prescribing the
matters to be ascertained before any licence for the wholesale or retail vend
of any intoxicant is granted for any locality." In exercise of the power
conferred by Section 89, the Government of Orissa has made rules governing the
grant of licences, viz., The Orissa Excise Exclusive Privilege Rules, 1970'.
Rule 6 of these Rules prescribes the manner in whish the consideration
determined for grant of exclusive privilege shall be paid. Rule 6[A], as
substituted by SRO No. 215/89, provides for monthly minimum guaranteed quota,
the obligation of the licencee to lift it before the end of the month and the
further obligation to remit the monthly excise duty in two equal instalments,
i.e., on the 5th and 15th of every month. Clauses [1], [2], [3] and [4] of the
said Rules read thus:
"6
[A][1] Minimum guaranteed quantity of Country spirit: Every successful bidder
of Country Spirit shop shall, before obtaining licence, guarantee the sale if
the minimum guaranteed quantity of Country spirit as fixed by the Collector.
The bidder shall before obtaining licences submit monthly distribution of
statement to the concerned Collector. The licensee before the 30th June, may
revise and resubmit the monthly distribution statement for the portion of the
Excise Year from August to March. The Collector, shall be competent to revise
and approve such revised statement.
There
shall be no further changes in the distribution statement so approved.
[2]
The licensee shall lift the monthly minimum guaranteed quantity approved for
that month before 5.00 P.m. on the last working day of that month. The right to
lift the monthly minimum guaranteed quantity approved for that month and left unlifted
if any by 5.00 p.m. on the last working day of the month shall be forefeited,
unless specially permitted to be lifted in the subsequent month or months by
the Collector.
Provided
that:-
[i]
The Collector, may for any special reasons permit the licensee to lift the
short drawn minimum guaranteed quantity of the previous month in the succeeding
month except for the months of February and March. The Collector shall however,
obtain the order of the Commissioner of Excise in case of default and for any
special reasons if the period exceeds Over one month.
[ii]
THE Commissioner , may, wherever if he deems it necessary, permit the licencee
to lift the short down minimum guaranteed quantity of any month other than that
month of March in any subsequent month or months.
[iii]
No unlifted quantity of the Country Spirit shall be permitted to be lifted
beyond the last day of February.
[3]
Subject to provisions of sub- rule [1] no licensee shall lift less than the
specified minimum guaranteed quantity of country spirit in any month. The
excise duty of country spirit for the month as approved in the distribution statement
under sub- rule [1] shall be remitted in two equal instalments by the licensee
into the Government treasury of the District in which the shop is situated. The
first instalment shall be remitted by fifth of the second instalment by
fifteenth of that month. where due date or subsequent day happens to be holiday
the instalment shall be remitted on the nest working day.
If in
any month, the first or second instalment of the excise duty of country spirit
for that month is not remitted as required above, the excise duty to the extent
of deficit payment without prejudice to any other mode of recovery shall be
deducted first from the Bank Guarantee, if any, and the balance from the
advance deposits furnished or paid under rule 6 and the licensee shall be called
upon to indemnify the amounts so adjusted in the case of first instalment by
fifteenth of that month and in the case of second instalment by twentyfifth of
that month in which deficit payment of instalment of excise duty had expired.
[4]
Where a licensee fails to indemnify the advance amount adjusted under sub-rule
[3] in the case of first instalment of fifteenth of that month and in the case
of second instalment by twentyfifth of that month, the license is liable for
cancellation and the right acquired by the defaulting licensee shall be liable
for redisposal subject to provisions of sub-section [1] of Section 22 of the
Act." A reading of Rule 6-A makes the following matters clear: the licencee
shall have to undertake to lift the M.G.Q. of liquor every month. Clause (3) of
the Rules, read with clauses (1) and (2) means that the obligation to lift the
M.G.Q. of liquor and the obligation to remit the excise duty payable for the
month are two distinct obligations.
While
the obligation to lift the M.G.Q. is to be discharged before the end of the
month, the obligation to remit the excise duty for the month is to be
discharged in two equal instalments, viz., first instalment by the fifth and
the second instalment by the fifteenth of the month. The consequences of not
remitting the excise duty in the manner specified are set out in clauses (3)
and (4), which make the said obligation mandatory and emphatic. The Rule also
makes it clear that if in a given month, the full M.G.Q. is not lifted, the
Collector can permit the deficit to be lifted in the subsequent month but this
has nothing to do with the obligation to remit excise duty for the month on the
dates specified. It is relevant to point out that the several consequences
provided in clauses (3) and (4) follow the non- deposit of excise duty on
specified dates - and not the non- lifting of M.G.Q. which is an independent
obligation. It is necessary to bear this aspect in mind.
Every
person whose bid/tender has been accepted is required to execute an
agreement/contract in the prescribed form. Under this agreement, the
contractor/licencee agrees to abide by the rules and conditions relating to
retail vend of country spirit (liquor) as stipulated in the licence as also the
general conditions of licence. The said conditions shall be treated as part of
the agreement. Clause (2) obliges the contractor to draw a particular quantity
of liquor every month from the specified warehouse. Under Clause (3) the
contractor "undertakes to pay the duty at the prescribed rate at the
Warehouse prior to lifting the stock". This condition provides that excise
duty shall be remitted prior to lifting ; it does not say it shall be remitted
at the time of lifting. Under Clause (7), the contractor-licencee agrees to
abide by all the provisions of the Act and the Rules and instructions as may be
issued from time to time.
Conditions
1 and 2 of the licence, as amended in 1989, repeat and reiterate the provisions
contained in Rule 6-A aforesaid in their entirety.
The
respondents were the highest bidders in respect of the various liquor shops in Orissa.
Their bids were accepted. They executed agreements in the prescribed form and
were issued licences. Each of them had undertaken the agreement/contract to
lift a particular specified quantity of liquor every month during the relevant
excise year (1990- 1991) as well as to remit the excise duty as specified in
the Rules. They did the business under the said licences for the entire excise
year. They failed to lift the agreed M.G.Q. They also failed to remit the
excise duty as provided by Rule 6-A. And when notices were served calling upon
them to remit the appropriate amount, they rushed to the Orissa High Court by
way of writ petitions questioning the demand notices.
The
main contention of the respondents (writ petitioners) was that the demand for
payment of excise duty on unlifted quantity of arrack amounts to levy of duty
and that such levy is not warranted by the Act. They submitted that Rule 6-A(3)
is ultra vires the rule making power of the Government and is outside the
purview of the Act. They submitted that if there is a sale of liquor, duty can
be collected on the liquor sold but that seeking to collect duty even in the
absence of sale amounts to levy of duty contrary to the provisions of the Act.
They placed reliance upon the decisions of this Court in Bimal Chandra Banerjee
v. State of Mahdya
Pradesh [ 1971 (1)
S.C.R. 844 ] and the subsequent decisions following it. According to them,
their case did not fall within the ratio of the decisions of this Court in Panna
Lal v. State of Rajasthan and Ors. [ 1976 (1) S.C.R. 219 ]
and State of Andhra
Pradesh v. Y.Prabhakara
Rao [ 1987 (2) S.C.R. 513 ].
The
State of Orissa disputed the several contentions of
the writ petitioners. In particular, they relied upon the Agreement and the
undertakings contained therein. Their case is set out in the impugned judgement
in the following words:
"It
is further contended that the fixation of M.G.Q. was made considering the
potentiality of sale and by taking other relevant factors into consideration,
and the petitioner and other contractors were aware of the M.G.Q. at the time
when they participated in the auction-cum-tender.....the petitioner having
accepted the contract cannot now turn around and challenge the fixation of
M.G.Q. for the year 1991-92...... the demand was justified being the duty
towards shortfall of the M.G.Q.,the challenge of the petitioner to Annexure-3
if untenable. Sub-rule (3) of Rule 6-A of the Orissa Excise ( Exclusive
Privilege) Rules, 1970.....is valid and has been framed in exercise of powers
under sub-section (1) of Section 89 of the Bihar & Orissa Excise Act, 1915
which empowers the State Government to make rules to carry out the objects of
the Act, or any other law for the time being in force relating to the excise
revenue and also by Section 89(2) of the Act which empowers the State
Government to make rules for regulating the import,export or transport of any
intoxicant....under Section 22(1) of the Act, an exclusive privilege can be
granted to any person on such terms and conditions and for such period as the
State Government may think fit. The M.G.Q.. being one of the conditions for
grant of a licence, the Government was fully empowered in framing rules which
related to fixation of M.G.Q. and also for providing the consequences which
would follow on reach of such condition. This power..... flows from a combined
reading of Sections 22,27,29 and 89 of the Act.....the provision relating to
the M.G.Q.
ought
to be considered as a condition subject to which the licence was issued and
accepted by the petitioner, the petitioner cannot, after operating the licence,
challenge the same. He is bound by the conditions and is, therefore, liable to
pay the amount demanded to compensate the State for the loss sustained by it
for failure on the part of the petitioners having entered into an agreement for
sale of country liquor and having been granted an exclusive privilege on
certain terms and conditions, cannot now, after entering into a contract,
wriggle out of their contractual obligation and contend that the amount
demanded for shortfall of M.G.Q. is invalid......the sum sought to be realized
is damages for breach of contract namely, failure to lift M.G.Q...It is in the
granting of damages being the duty on the shortfall, and as such, is in the
nature of a penalty and can be realised on a breach being committed. Strong
reliance is placed on Hari Shankar and others etc. V. Deputy Excise &
Taxation Commissioner AIR 1975 SC 1121, Panne Lal V. State of Rajasthan, AIR
1975 SC 2008 and State of Harvang V. Jage Ram & others, AIR 1980 SC
2018." The High Court, however, accepted the contentions of the
respondents-writ petitioners and quashed the demand notices impugned in the
writ petitions.
It is
evident from the contentions urged by both the sides that while the
respondents-licencees look at the impugned demand as an instance of levy of
excise duty, the State looks at is as a case of enforcing the undertakings
contained in the agreement/contract executed by the licencees According to the licencees.
no excise duty can be levied unless there is a sale. Demand for excise duty
where is no sale of liquor, according to them, is [4] unsustainable in law. The
State's case, however, is that the licence/privilege was granted to the
respondents in consideration of payment of several items of money, all of
money, all of which together constitute the consideration for the grant of licence.
The State says that it is merely seeking to recover the amount due to it under
the contract and that such a course does not amount to levy of excise duty.
Both sides rely upon certain decisions of this Court in support of their
respective points of view. It would be appropriate to notice them.
In Bimal
Chandra Banerjee v. State of Madhya Pradesh
[1971(1) S.C.R. 844], one of the conditions of the licence stipulated that:
"The
minimum quantity for taking issues from the Warehouse for sale is fixed at 3213
p. liters spiced spirit and 25940 p. liters plain spirit. You ( licencees )
shall be liable to make good every month the deficit of monthly average of the
total minimum duty on or before the 10th day of each month following the month
to which the deficit duty relates." Since the licencee failed to remit the
duty as stipulated, the State made a demand for the same. The contention of the
licencee was that the excise duty is a tax, that it can be levied only on the
basis of a valid law and that no tax can be levied on the basis of a contract
or pursuant to executive orders, Tax, it was submitted, can be levied only be
the legislature. It was contended that the aforesaid condition of licence is
ultra vires the powers of the Government. In other words, the contention was
that Government had no power to amend the Rules so as to include the aforesaid
clause in the conditions of licence. Section 25 of the Madhya Pradesh Act
provided for the levy of duty on any or the events specified therein, namely,
import, export transport, manufacture and cultivating while section 26 provided
for levy of duty inter alia on liquor issued from distillery or warehouse. No
provision of the Act, however, empowered levy of duty even where there was no
issue of liquor from distillery or warehouse, This Court upheld the licencee's
contention on the following reasoning:
"Neither
s.25 or s.26 or s.27 or s.62(1) or cls. (8) and (h) of s.62(2) empower the rule
making authority Viz., the State Government to levy tax on excisable articles
which have not been either imported, exported, transported.
manufactured,
cultivated or collected under any licence granted under s.13 or manufactured in
any distillery established or any distillery or brewery licensed under the Act.
The legislature has levied excise duty only on those articles which come within
the scope of s.25 The rule making authority has not been conferred with any
power to levy duty on any articles which do not fall within the scope of s.25.
Therefore it is not necessary to be conferred on that authority. Quite which
the contractors failed to lift. In so doing it was attempting to exercise a
power which it did not possess.
No tax
can be imposed by any bye- law or rule or regulation unless the statute under
which the subordinate legislation is made specially authorises the imposition
even if it is assumed that the power to tax can be delegated to the executive.
The basis of the statutory power conferred by the statute cannot be
transgresses by the rule making authority. A rule making authority has no
plenary power. It has to act within the limits of the power granted to it.
We are
of the opinion that the impugned rule as well as the demands are not authorised
by law." The ratio of the said decision is that inasmuch as the Act does
not empower levy of excise of excise duty on unlifted liquor, on such levy can
be created by a rule made under the Act. It was also observed that in as much
as the Act does not empower the rule-making authority to impose tax on unlifted
liquor, the rule-making authority (the Government of Madhya Pradesh) had no
power to add the aforesaid clause in the conditions of the licence. It is
significant to notice that this decision approached the question from the point
of view of levy of excise duty. No argument appears to have been put forward-as
was done in later decisions-that the State is merely seeking to recover the consideration
for the grant of privilege/licence as per the terms and conditions of, and as
undertaken in, the Agreement. The decision, therefore, does not advert to that
aspect at all-an aspect which came to highlighted in some of the later
decisions. This decision was followed in State of Madhya Pradesh v. Firm Gappulal etc. [1976 (2)
S.C.R. 1041] and in Excise Commissioner, U.P., Allahabad v. Ram Kumar [ 1976 Supp. S.C.R. 532]. Gappulal was again a
case from Madhya Pradesh. In this case, an attempt was no doubt made by the
State to bring its case within the ratio of Panna Lal v. State of Rajasthan [
which was decided meanwhile], but it was repelled by the Court holding that the
facts of the case before them placed the case within the ratio of Panna Lal.
In Ram
Kumar, a case arising under the U.P. Excise Act, one of the conditions of the licence
provided that in case the licencee failed to lift the minimum guaranteed quota,
"he shall be liable to pay to the Sate Government compensation at the rate
equal to the rate of stillhead duty per litre by spiced spirit
..........". In this case too, the State tried to bring its case within
the ratio of Panna Lal but the Court did not agree. It preferred to apply the
ration of Bimal Chandra Banerjee. It held that none of the provisions of the
U.P. Act authorised the levy of the duty even where there was no sale. The
Court held further that though disguised as compensation, the demand is in
reality a demand for excise duty on the unlifted quantity of liquor, which is
not authorised by the provisions of the Act.
The licencees--respondents
submit that the present cases, having regard to the language of the enactment,
Rules and conditions of the licence fall within the ration of the above
decisions while the State of Orissa submits
that these cases properly fall within the ratio of the decisions in Panna Lal
and Prabhakara Reddy. before referring to these decisions, it would be
appropriate, in our opinion, to refer to the decision of the Constitution Bench
in Har Shankar V. Deputy Excise and Taxation Commissioner [AIR 1975 SC 1211].
In Har
Shankar, one of the objections raised by the State to the maintainability of
the writ petitions filed by the licencees was that the writ petitioners were
seeking to enforce contractual rights thereby. This was denied by the writ
petitioners therein. This said, they were merely seeking to vindicate their
legal rights. The contention of the writ petitioners was repelled by this Court
in the following words:
The
short answer to this contention is that the bids given by the appellants
constitute offers and upon their acceptance by the Government a binding
agreement came into existence between the parties.
The
conditions of auction become the terms of the contract and it is on those terms
that licences are granted to the successful bidders in Form L. 14-A of the
Rules." The Court further observed:
"One
of the reliefs Which the appellants ask for is that Rules 27-A 30 and 31 be
declared ultra vires and unconstitutional and consequently the respondents be
directed to refund the assessed fees already recovered. By attempting to
exploit the licences without the burden of assessed fees originally attaching
to them under the rules framed by the financial Commissioner, the appellants
are seeking to work the licences on such terms as they find convenient.
The
writ jurisdiction of High Courts under Article 226 of the Constitution is not
intended to facilitate avoidance of obligations voluntarily incurred. That
however will not estop the appellants from contending that the amended Rules
are not applicable as their licences were renewed before the amendments were
made." (emphasis added) The approach adopted in this decision has to be
borne in mind in every such case. It is also to be kept mind that while the
decisions referred to hereinbefore are by smaller Benches, this decision is by
a Constitution Bench. A person who enters into certain contractual obligations
with his eyes open and works the entire contract, cannot be allowed to turn
round, according to this decision, and question the validity of those
obligations of the Rules which constitute the terms of the contract. The
extra-ordinary jurisdiction of the High Court under Article 226, which is of a
discretionary nature and is exercised only to advance the interests of justice,
cannot certainly be employed in aid of such persons. Neither justice nor equity
is in their favour.
Panna Lal
arose under the Rajasthan Excise Act. The licences were given to contractors
under a guaranteed system; there was a total guaranteed amount. When the
contractors failed to pay the guaranteed amount as per the contract, demand
notices were issued. The contention urged by the licencees was that the demand
for shortfall in truth amounted to levy of excise duty on unlifted quantity whereas
the State's case was that they were demanding the amount guaranteed by the
contractor and payable in accordance with the agreement. Another argument of
the contractors was that the demand for issue price of unlifted quantity was in
effect a demand for excise duty inasmuch as one of the components of issue
price was excise duty. This Court rejected the contention relying upon the
decisions of this Court rejected the contention relying upon the decisions of
this Court in Nashirwar V. State of Madhya Pradesh [1975 (2) S.C.R. 861]and Har
Shankar. It was held that rental is the consideration for the privilege granted
by the Government for manufacturing or vending liquor, that rental is neither a
tax nor excise duty and that it is the consideration for grant of privilege by
the Government. The Court referred to the decision of the Federal Court in the Central Provinces and Berar Sales of Motor Spirit and
Lubricants Taxation Act. 1938 [(1939) F.C.R. 18] and observed:
"Many
Acts Provide for lump sum payments in certain cases by manufacturers and
retailers, which may be described as payments either for privilege or as
consideration for the temporary grant of a monopoly, but these are clearly not
excise duties or anything like them." (See 1939 F.C.R. 18 at pp. 53 and
54).
After
referring to certain other decisions of this Court, it was held:
"The
decisions of this Court establish that the lump sum amount Voluntarily agreed
to by the appellants to the State are not levies of excise duty but are in the
nature of lease money or rental or lump sum amount for the exclusive privilege
of retail sales granted by the States to the appellants.
There
is no levy of excise duty in enforcing the payment of the guaranteed sum or the
stipulated lump sum mentioned in the licences.
for
these reasons. First, the licences were granted to the appellants after offer
and acceptance or by accepting their tenders or auction bid. The appellants
stipulated to pay lump sum amounts as the price for the exclusive privilege of
vending country liquor. The appellants stipulated to pay lump sum amounts as
the price for the exclusive privilege of vending country liquor. The appellants
agreed to pay what they considered to be equivalent to the value of the right.
Second, the stipulated payment has no relation to the production or manufacture
of country liquor except that it enables the licensee to sell it The country
liquor is produced by the distilleries. Under section 28 of the Act and under
the relevant duty notifications the excise levy is on the manufacture and not
on the sale or retail of liquor. Under the duty notifications on excise duty is
levied or collected from the liquor contractors who are liable only to pay the
price of liquor. The taxable event is not the sale of liquor to the contractors
but the manufacture of liquor. What the liquor contractors pay in cosideration
of the license is a payment for the exclusive privilege for selling country
liquor. The liability for excise is on the distillery and the liquor
contractors are not concerned with it." Dealing with the argument that
recovery of issue price is in effect a recovery of excise duty for the reason
that excise duty forms a component of the issue price, this Court observed:
"The
lump sum amount payable for the exclusive privilege is not to be confused with
the issue price.
In
essence what is sought to be recovered from the liquor contractors is the
shortfall occasioned on account of failure on the pant of liquor contractor to fulfil
the terms of license.
Having
regard to the particular stipulations and conditions of the contracts concerned
therein, the Court observed further:
"The
agreements give the liquor contractors an exclusive privilege to sell country
liquor in a specified area for the period fixed for a stipulated sum of money
for enjoying the privilege. If the Contractors do not sell any liquor they are Yet
bound to pay the stipulated sum. If they sell liquor they are given the benefit
of remission in the price of the exclusive privilege. The measure for this
remission is the excise duty leviable to the extent that the liquor contractors
can neutralise the entire amount of exclusive privilege in the excise duty
payable by them. If the contractors fail to lift adequate quantity of liquor
and thereby fail in neutralising the entire price of exclusive privilege the
contractors are not called upon to pay excise duty.
The
decision in Har Shankar was followed in State of Harvana and others V. Jage Ram and others [A.I.R.1980 S.C.2019].
This Court observed:
"In
view of these decisions. the preliminary objection raised by the learned
Solicitor General to the maintainability of the writ petitions filed by the
respondents has to be upheld. We hold accordingly that High Court was in error
in entertaining the writ petitions for the purpose of examining whether the
respondents could avoid their contractual liability by challenging the Rules
under which the bids offered by them were accepted to conduct their business
can work out the licence if he finds it profitable to do so; and he can
challenge the conditions under which he agreed to take the licence, if he finds
it commercially inexpedient to conduct his business." Dealing with the
nature of the amounts payable by the licencee in respect of a liquor contract,
the Court observed:
"The
respondents agreed to pay a certain sum under the terms of the auction and the
Rules only prescribe a convenient mode whereby their liability was spread over
the entire year by splitting it up into fortnightly instalments The Rules might
as well have provided for payment of a lump sum and the very issuance of the licence
could have been made to depend on the payment of such sum. If it could not be
argued in that event that the lump sum payment represented excise. duty. it
cannot be so argued in the present event merely because the quota for which the
respondents gave their bid is required to be multiplied by a certain figure per
proof liter and further because the respondents were given the facility of
paying the paying the amount by instalments while lifting the quota from time
to time . What respondents agreed to pay was the price of a privilege which the
State parted with in their favour.
They
cannot. therefore. avoid their liability by contending that the payment which
they were called upon to make is truly in the nature of excise duty and that no
such duty can be imposed on liquor not lifted or purchased by them...........
These
decisions cannot help the respondents because the true position, as stated
earlier, is that the amount which the respondents are called upon to pay is not
excise duty on undrawn liquor but is the price of a privilege for which they
offered their bid at the auction of the vend which they wanted to
conduct." Finally, we may refer to the decision in Y. Prabhakara Reddy.
Rule 15 of the Andhra Pradesh (Arrack, Retail Vend Special Conditions of Licences
) Rules, 1969 read as follows:
"15.
Minimum guaranteed quantity of arrack-- (1) No licensee shall purchase arrack less than the
specified minimum guaranteed quantity in any month. If in any month, quantity
less than the minimum guaranteed quantity in any month. If in any month,
quantity less than the minimum guaranteed quantity fixed for that month is
drawn, at the end of that month issue price to the extent of deficit purchase
shall be deducted from the advance money paid by the licensee under the minimum
quantity of arrack guaranteed by him and the licensee shall be called upon to
indemnify the amount so adjusted by the end of the succeeding month in which
short drawn quantity had occurred.
Provided
that the Excise Superintendents may permit the licensee to lift the short drawn
minimum guaranteed quantity of the previous month in the succeeding month for
special reasons expert for the month of September, unless the licensee has
committed default in lifting the minimum guaranteed quantity for two successive
months;
Provided
further that Where the Commissioner deems it necessary to permit a shop keeper
to draw the deficit quantity short drawn in any month in the subsequent, he
shall obtain the prior approval of the Government for granting such permission.
(2)
Where a licensee fails to lift the arrack as permitted by the Excise
Superintendent or to indemnify the advance amount so adjusted by the end of the
succeeding month in which the short drawn of quantity had occurred, the right
acquired by the defaulting licensee shall be reauctioned forthwith." Rule
17 Provided that "every licensee shall be bound by the provisions of
Andhra Pradesh Excise Act, 1968, and the rules and orders made thereunder from
time to time." Inasmush as the licencees failed to lift the minimum
guaranteed quota, the total issue price of the unlifted quantity was sought to
be recovered from him, which was questioned by the licencee in a writ petition.
The argument of the licencee based upon Bimal Chandra Banerjee was that the
State is really levying excise duty in the name of issue price and that it has
no power to do so. Basing upon certain observations in Panna Lal, it was
contended by the licencee that issue price can only relate to liquor drawn by
the contractor and that it cannot pertain to undrawn liquor.
This
Court repelled the contention based upon observations in Panna Lal in the
following words:
"There
can be on question that issue price must generally relate to liquor which is drawn
by the Contractors but it does not follow therefrom that issue price cannot be
adopted by agreement between the parties as a measure of compensation to be
paid in the case of undrawn liquor. In fact. It may not be quiet correct even
to view it as compensation as we shall presently see. It is no more and no less
than the price which the contractor agrees to pay for the grant of the
privilege to sell liquor drawn or undrawn." The Court then referred to the
provisions of the A.P.Excise Act and the Rules made thereunder and observed
that according to these provisions "the Privilege of selling liquor .....and
the licence to sell liquor herein may be granted by the State by public auction
subject to: (1) payment of rental being the highest bid at the auction ........
(ii)the requirement that the licensee shall Purchase arrack at the issue price
and (iii) the further requirement that the licencee shall purchase a minimum
guaranteed quantity of arrack which he has to make good in case of shortfall
The consideration for the grant of privilege to sell liquor is not merely the
rental to be by paid by the lessee but also the issue price of the arrack
supplied or treated as supplied in case of shortfall which is also to be paid
by the lessee-licencee. There is no question of the licencee-lessee having to
pay the excise duty though it may be that the issue price is arrive at after
taking to account the excise duty payable." The above statement of law was
based upon & reading of Sections 17 and 23 of the A.P. (Arrack Retail Vend
Special Condition Supply Service) Rules as also the definition of `rental' in
the A.P. (Lease of Right to Sell Liquor in Retail) Rules, 1969. The provisions
of the Orissa Act and Rules are no different. section 22 of the Orissa Act
corresponds in material particulars to Section 17 of the A.P. Act whereas
Section 29 of the Orissa Act corresponds to section 23 of the A.P. Act. Rule
6-A. of the Orissa Rules corresponds to Rule 15 of the A.P. Rules while Rule 3
of the Orissa Rules corresponds to Rule 3 of the A.P. Rules.
The
only difference is that while Rule 15 of the A.P. Rules provides for payment of
issue price in case of the failure of the licencee to lift the M.G.Q., the
payment of excise duty under the Orissa Rules is made in made an independent obligation
unrelated to lifting of M.G.Q. It is, in truth and effect, the consideration
for the grant of privilege/licence alongwith the amounts specified in Rule 6.
In
this sense, the Orissa Rules are clearer on the point that rental and excise
duty (Payable under Rules 6 and 6-A) together constitute the consideration the
grant of licence.
A
review of the decided cases of this Court on the subject indicates a clear
shift in the way this matter has been looked at.Initially, the matter was
looked at from the point of view of the levy of excise duty. On that basis, it
was held that unless there is a sale, on duty can be collected (Bimal Chandra Banerjee.
Gappu Lal and Ram Kumar).
But
then a different view point emerged with the Constitution Bench decision in Har
Shankar which was carried forward in Panna Lal. Jageram and Y.Prabhakara Reddy.
These decisions look at the matter from the point of view of the several
payments being, in truth and effect, consideration for the grant of Privilege/licence.
They point out that the excise duty on manufacture of production and not on
sale. It was a case, they said, where the duty was being passed on to the licencee
who in turn passed it on to the consumer. What add the licencee paid, they
held, is nothing but consideration for the grant of licence and the mere fact
that the total consideration fixed comprises several elements (including excise
duty), it cannot be said that excise duty is levied upon the licencee. In our
opinion, the Orissa matters fall under the ratio of Panne Lal and Y.Prabhakara Reddyand
not under the ratio of Bimal Chandra Banerjee. Gappu Lal and Ram Kumar. The
amounts mentioned in Rules 6 and 6-A, as also the undertakings contained
therein, together constitute the consideration for grant of privilege licence,
determined by auction,as contemplated by Section 29 of the Act. As explained
hereinbefore, the obligation to remit the excise duty is independent of the
sale/purchase of liquor; it is payable on or before the specified dates every
month; it is an addition to the monthly instalment payable under Rule 6; its
remittance is not tied up to the purchase of M.G.Q.extent that the licencee has
to pay the prescribed instalment of excise duty prior to the lifting of the
liquor. It, therefore, cannot be said that there is any levy of excise duty
upon the licencee. The concept here is altogether different. It is a case where
the consideration payable by the licencee for grant of licence is made up of
monthly rental plus excise duty besides the obligation to Purchase the M.G.Q.
The licencee pays the rental and excise duty as undertaken by him under the
agreement/contract executed by him and as required by conditions of the licence
under which he is doing business,1.e.,as and by way of consideration. Indeed,
the rules could have provided that the entire amount provided under Rules 6 and
6-A should be paid in advance before the issuance of licence in which event it
could not have been contended that it is not in consideration of grant of licence.
Merely because, the Rules Provide a concession and provide for collection of
the said amounts in convenient instalments spread over the year, the nature and
character of the payments cannot change.
Mr. Sorabjee,
learned counsel for the theory of "Privilege" has been exploded in the
decision of this Court in Synthetrics and Chemicals Limited And Others V. State
of U.P. AndOthers [1990 (1) S.C.C.109] and can no longer be invoked. In support
of his submission, Mr. Sorabjee relied upon certain observations in the
concurring opinion of G.L.Oza,J. at page 164 of the Report. The learned judge
referred to Article 47 of the Constitution and observed:
"This
article appears in the chapter of directive principles of State Policy.
Inclusion of this article in this chapter clearly goes to show that it is the
duty of the State to do what has been enacted in Article 47 and in fact this
article starts with the phrase "Duty of the State" and the duty is toimprove
public health and it is further provided that this duty to improve publec
health will be dicharged by the State by endeavouring to bring about prohibltion.
It sounds contradictory for a State which is duty bound to protect human life,
which is duty bound to improve bublic health and for that purpose is expected
to move towards prohibition claims that it has the privilege of manufacture and
sale of alcoholic beverages which are expected tobe dangerous to human health,
transferring this privilege of Selling this privilege on consideration to earn
huge revenue without thinking that this trade in liquor ultimately results in
degradation of human life even endangering human life and is nothing but moving
contrary to the duty cast under Articles 21 and 47 and ideal of prohibition
enshrined in Article 47. In view of Articles 21 and 47 with all respect to the
learned Judges who so far accepted the privilege doctrine it is not possible to
accept any privilege of the State having the right to trede in goods obnoxious
and injurious to health." It is difficult to agree with Mr. Sorabjee.
Firstly, these observation are found in the opinion of Oza,J. alone.
The
majority opinion does notexpress any opinion on this aspect. Secondly, what
does the expression "privilege" mean in the context of intoxicating
liquors. The expressionis not defined in the Act. In the context of excise
enactments, the expression "Privilege" really means the licence or
permit granted by the State. We may explain: the State is entitled to prohibit
the trade in intoxicating liquors altogether; it can impose a total ban; no
citizen can claimany fundamenta right to manufacture or to trade in these
liquors; it is, however, open to the State to lift the ban partially and allow
the trade in liquor to be carried on in the manner prescribed; the State says
that that a citizen can trade in liquor only under a licence to be granted by
it for tahe consideration specified in that behalf and that the trade therein
can be carried on only in accordance with the regulatory provisions prescribed
by it in that behalf.It is this grant of licence/permit, which is called or is
descried sometimes as grant of "privilege". We do not think that the
observations of Oza,J. relied upon by Mr. Sorabjee can be understood as
disabling the State from granting licences and permits for trading in and/or
manufacture of intoxicating liquors for a consideration. Nor can they be
understood as precluding the State from carrying on the trade or manufacture of
said liquors by itself or its agents. The learned Judge seems to have looked at
the matter from an idealistic and moralistic angle. The learned Judge observed
that in the light of Articles 47 and 21 "it is not possible to accept any
privilege of the State having the right to trade in goods obnoxious and
injurious health." Lastly we may also invoke the holding in Har Shankar
and Jageram that the writ petitioners, having entered into agreements voluntarily,containing
the conditions aforesaid and having done the business under the licences
obtained by them, cannot be allowed to either wriggle out of the agreements nor
can they be allowed to challenge the validity of the Rules which constitute the
terms of the contract. The High Court should not have exercised its
extra-ordinary discretionary jurisdiction under Article 226 of the Constitution
in aid of such licencees.
For
the above reasons, the appeals are allowed, the judgments and orders of the
High court under appeal are set aside and the writ petitions filed by the respondents
writ petitioners are dismissed with costs. Advocate's fee Rs.5,000/-in each
appeal.
Before
parting with these matters, we may refer to an additional argument in Civil
Appeal No.. 11518 of 1996 (arising out of S.L.P.(C) No. 1122 of 1996). It is
submitted that there was a default on the part of the Government in supplying
the liquor and that non-lifting of M.G.Q. was not on account of any default on
the part of the licencee.
Firstly,
we have held hereinabove that obligation to remit the excised duty is
independent of the obligation to lift the M.G.Q. every month and that the
remitting of excise duty is not dependent upon or co-related to lifting of
M.G.Q.
Secondly,
the judgment of the High Court does not refer to this submission. In the
circumstances, we decline to express any opinion on the submission.
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