State
of Punjab & Anr Vs. M/S Devans Modern Brewaries
Ltd. & Anr [2003] Insc 583 (20 November 2003)
Cji.,
R.C. Lahoti & Dr. Ar. Lakshmanan. Dr. Ar. Lakshmanan, J.
I have
had the privilege of perusing the judgment proposed by my learned Brother
Justice B.N. Agrawal. However, with respect, I express my inability to agree
with the same and I propose to write a separate judgment in the following
terms.
As
facts and provisions of the relevant law have been set out in the judgment of
my learned Brother Justice B.N. Agrawal, I do not propose to extract them
again.
Civil
Appeal No. 3017 of 1997 was filed by the State of Punjab against the judgment of the
Division Bench of the Punjab & Haryana High Court dated 17.01.1997 in Writ
Petition (Civil) No. 5358 of 1996. The said writ petition was filed by
Respondent No.1 in this appeal, namely, M/s. Devans Modern Brewaries Ltd., Ludhiana
praying for issuance of a writ in the nature of Certiorari quashing the
imposition of import fee on Beer vide Order 1-D (iii) of the Punjab Excise
Fiscal Orders, 1932, amended from time to time, latest being notification dated
27.03.1996 which is impugned in the writ petition and for other consequential
prayers.
Civil
Appeal Nos. 2696 and 2697 of 2003 were filed by Penguin Alcohols (P) Ltd. and
Another etc. against the State of Kerala and Others against the common judgment of the High Court of Kerala
dated 06.04.2001 in Writ Appeal Nos. 3 and 10 of 2001 dismissing the appeal
filed by them.
The
original petitions were filed by appellants herein against Exhibit P1
notification issued by the State of Kerala enhancing the rate of import fee from Rs. 2/- per proof litre to Rs.5/-
on Indian Made Foreign Liquor (hereinafter referred to as "IMFL").
The import fee was initially levied under Government Order, G.O.(MS) No.
57/92/TD dated 31.12.1992. The learned Single Judge upheld the levy holding
that it is a fee and regulatory in nature.
The
appellants preferred writ appeals, which were dismissed by the Division Bench
by the impugned common order in Writ Appeal Nos. 3 and 10 of 2001.
In
both the appeals, common questions arise for consideration and hence they have
been heard together and are being disposed of by this common judgment.
The
points for consideration in both the appeals are:
a)
Whether the import fee levied is the price for parting with the privilege given
to the respondent to import liquor into the State and, therefore, the same is
within the competence of the State to impose import fee;
b)
Whether the imposition of import fee does not, in any way, restrict trade,
commerce and intercourse among the States.
It is
well settled by a catena of decisions that the trade in liquor is not a
fundamental right. It is a privilege of the State. The State parts with this
privilege for revenue consideration. In Punjab, the Excise Policy of the State is formulated every year. It is also
made known to the licensees much before their licenses for the year comes to an
end. It is also a matter of fact that the licensees have paid the fee on
demand. The fee was first levied in the year 1992. The licensee, in the Punjab case, had been holding the licence
all through this period and never challenged or protested against levy of the
fee.
The
licensees having paid the fee without any protest all through is not entitled
to challenge the same, which does not suit them. The licensee cannot aprobate
and reprobate. In Punjab, the grant of licences are governed
by the Punjab Excise Act, 1914 (for short "the Act") and various
rules and orders framed under it. In the Punjab case, the challenge of the appellant is limited to the imposition of
import fee in addition to the countervailing duty on Beer. It is not disputed
by the appellant that the State is competent and is entitled to impose excise
duty or countervailing duty besides there is no bar on the State to charge any
other fee on account of consideration of the privilege provided to the licensee
to provide them the right to trade in liquor.
A
perusal of the impugned notification shows that the State Government
substituted the existing provision with regard to import fee and increased the
rate of this fee. It is part of the privilege price i.e. consideration amount
on account of which the licence was granted to the licensee. Further, the licensee
had an option to opt out of the business field if such levies were detrimental
to their interest or were to their disadvantage.
The
respondent in Civil Appeal No. 3017 of 1997 carries on wholesale trade in the
State of Punjab. Under the rules, the licensee is required to obtain a licence
in Form L-1, which is valid for one year. In addition to this under the Punjab
Excise Fiscal Orders, 1932, the respondent is liable to pay duty/fee at the
rates mentioned therein. As a result of this, the respondent has to pay excise
duty/import fee as the case may be. Over and above this, there is an import fee
which is levied by the State Government in exercise of its powers under Section
58 of the Act. According to learned counsel for the State of Punjab all these charges and levies are
really a price for the privilege of carrying on the trade under the L-1 license
as far as the privilege of importing alcohol into the State of Punjab. The impugned levy is under the
Punjab Excise act, 1914, which is a pre-Constitution Act. It is this Act which
provides that no intoxicant shall be imported, exported or transported except
after the payment of duty to which it may be liable under the Act. The words
"duty to which it may be liable under this Act" were substituted by
the words "duty of customs or excise to which it may be liable". This
change was also brought about by the Government of India on adaptation of
Indian Laws Order 1937. It was, therefore, argued by the State that the power
is conferred under Section 58(2)(b) to regulate the import, export, transport
and possession of any intoxicant. Therefore, the different imposts have to be
construed in this background. There is, therefore, an excise duty so-called
which is provided for under Rule 5 of the Punjab Excise Fiscal Orders, 1932,
not only on locally produced beer but also on imported beer. The Statutory
Authority for this imposition can be found from the provisions including
Section 16 read with Section 32 of the Act. In addition to the excise duty
under Rule 5, there is also a provision for grant of licence for sale of
intoxicants. To carry on the trade in wholesale, a person has to obtain a L-1 licence
for which an annual pre-determined sum is payable. Similarly, in addition there
are licences for production and for manufacture each of which licence has its
own pre- determined fee which has to be paid for obtaining such a licence.
The modalities
of the levy of fees or the quantum of the fees has no bearing on its legal
pedigree which is that of consideration for the permission to carry on an
activity in the noxious articles. Thus, if a person wants to carry on a
wholesale trade in liquor in Punjab, he will
have to
(a) obtain
a L-1 licence for which he would pay the fees in accordance with the policy
carried on for the period;
(b) On
the liquor purchased by him, he will have to pay duty on all purchases
irrespective of the source of the product. This duty is the duty under Rule 5
of the Punjab Excise Fiscal Orders, 1932, in relation to beer read with Rule 1
of the said Orders in case of IMFL.
In
case, the licensee seeks a permit to bring in imported alcohol, he would have
to pay as a condition of the permission to import under Section 16(b) read with
Section 19 an import pass fee at such sum fixed by the Government. The
respondent in this case/writ petitioner has mixed up these different imposts
and has referred to the duty paid under Rule 5 which is an amount equivalent to
the excise duty and the fee under Rule 1 (d) of Punjab Excise Fiscal Orders,
1932. As already noticed, on imported goods there are two independent imposts,
namely, duty equal to the local excise duty under Rule 5 and an import fee
under Rule 1(d) of the Punjab Excise Fiscal Orders, 1932.
On
31.01.2002, this Court passed an order which read as under:
"In
the course of the argument, it was noticed that the principal argument on
behalf of the respondents before the High Court, which was upheld by the High
Court, was that the import fee, which is the subject matter of these
proceedings, had been imposed by the State of Punjab without authority of law. The response on behalf of the
State of Punjab before the High Court was that the right of the respondents to
import beer into the State was privilege conferred by the State upon the
respondents to which Article 301 had no application because the respondents had
no right to trade in liquor de hors that privilege and that the import fee was
the price for the privilege. In the course of the argument before us, we asked
Mr. K.K. Venugopal, learned counsel for the State, to tell us what the source
of power for the imposition of the import fee was. Mr. Venugopal referred in
reply to Sections 18, 19, 34, 58 and 59 of the Punjab Excise Act, 1914. In
other words, the contention of the State before us is that the import fee is a
fee and the respondents are required to pay such fee to bring beer into the
State." In compliance with the aforesaid order, a detailed additional
affidavit was filed on behalf of the State of Punjab by quoting the relevant
provisions of the Punjab Excise Act, 1914, namely, Section 3(9) - "Excise
Revenue", Section 3(10) - "Export", Section 3(12) -
"Import", Section 16 - "Import, export and transport of
intoxicant", Section 17 - "Power of State Government to prohibit
import, export and transport of intoxicant", Section 18 - Passes necessary
for import, export and transport, Section 19 - Grant of passes for import,
export and transport, Section 31 - Duty on excisable articles, Section 32 -
Manner in which duty may be levied, Section 33 - Payment for grant of leases,
Section 34 - Fees for terms, conditions and form of, and duration of licences,
permits and passes, Section 35 - Grant of lincense for sale, Section 58 - Power
of State Government to make Rules, Section 59 - Powers of Financial
Commissioner to make rules. Along with the additional affidavit, a copy of the
Notification No. 5998 called the Punjab Excise Fiscal Orders and prescribed
levy of rates of duty etc. was filed and marked as Annexure-A-1. It is seen
from the additional affidavit that this notification was republished by the State
of Punjab in the year 1965. The State vide
notification dated 24.03.1986 introduced amendment to the Punjab Excise Fiscal
Orders, 1986 and as per Clause 5 of the notification, Order 1-D was added after
Order 1-C levying an import fee of Rs. 3.20 per proof litre on all imports of
IMFL and rectified spirit into the State of Punjab.
Vide
notification dated 31.03.1992, the Government of Punjab made further amendment
in the Fiscal Order and issued Punjab Excise Fiscal (10th amendment) Orders,
1992 and substituted Order 1-D stating that "All imports of liquor and
spirit shall be subject to the levy of an import fee as prescribed." By
further amendment vide notification dated 27.03.1996, the Punjab Excise Fiscal
Orders, 1932 was amended and the Order 1-D item (iii) was substituted. In
exercise of powers conferred under the Act, the State Government framed rules
which have been marked as Annexure P-2.
Thus,
it is seen from the Punjab Liquor Import, Export Order, 1932, the State
Government is competent and empowered to regulate the import and export of
liquor. Under the Punjab Liquor Licence Rules, 1956, there are 21 types of licences
which are prescribed and are given. The respondent in this appeal is holding
L-1 licence i.e. Wholesale and retail vend of foreign liquor to trade only. The
said licence is given on fixed licence fee, which is subject to variation as
per excise policy of the Government based on year to year. The State Government
has incorporated as one of the terms and conditions on the L-1 holders to pay
import fees also at the prescribed rate as per the Punjab Excise Fiscal Order,
1996. The respondent has been accepting the terms and conditions from 1992
onwards and acted on the same, the licence was renewed on yearly basis.
Similarly,
under the provisions of the Punjab Liquor Permit & Pass Rules, 1932, the
State Government issued permit in form L-32, in the case of import and the
licensees are liable to pay permit fee at the prescribed rate.
As
already stated, the respondent has mixed up two different imposts. The
respondent has referred to the duty paid under Rule 5 i.e. equivalent to Excise
duty and fees under Order (1) (D) of the Punjab Fiscal Orders, 1932.
As
stated above, on imported goods by L-1 holder, there are two different and
independent imposts in the shape of Excise duty under Rule 5 and import fee
under Rule (1) (D) of Punjab Excise Fiscal Orders, 1932. In addition he has to
pay licence fee under the Punjab Liquor Licence Rules, 1956, which is fixed on
yearly basis. Thus, it is seen that as per provisions of Section 58 (D) as well
as Section 59 (D) the State Government, in my opinion, has power to regulate
the import and price of any description of bottle and the scale of the fee and
the manner of the fee payable by any licensee.
It is
stated in the additional affidavit that the word "fee" is not used in
the strict sense to attract the doctrine of quid pro quo. This is the price or
consideration which the State Government charges for parting with this
privilege and granting the same to the vendors. Therefore, in my opinion, the
amount charged is not a fee nor a tax but it is in the nature of price of a
privilege which the purchaser has to pay in any trading and business in noxious
article/goods. The collection of such amount in the shape of import fee does
not form part of the general revenue of the State. As stated above, it is one
of the terms and conditions of the Excise Policy applicable to all L-1 holders
including the respondents herein. In my view, respondents cannot be permitted
to challenge the terms and conditions of the policy if they want to avail the
benefit of the same.
This
Court, in a number of judgments, has held that the State Government has
unfettered powers to regulate the Export/Import sale of intoxicants and in
exercise of its regulatory powers, the import fee has been incorporated as one
of the terms of the Excise Policy on yearly basis. We will refer to the
relevant judgments in the later part of this judgment.
The
learned counsel for the respondent submitted that there is no source of power
for imposition of import fee over and above the countervailing duty and that
the appellant-State was not able to show that under which Authority or
provision of the Punjab Excise Act, 1914, they can impose the import fee over
and above the countervailing duty. It is further submitted that a combined
reading of Section 33A of the Punjab Excise Act, 1914, Articles 301 and 304 of
the Constitution and Entry 51 of List II of Seventh Schedule to the
Constitution makes it clear that the State of Punjab has no authority to impose the import fee over and above
the countervailing duty. This contention, in my opinion, has no force for the
reasons stated and the discussions made in paragraphs supra.
In my
opinion, Articles 302 and 304A of the Constitution of India are not attracted
to the present case as the imposition of import fee does not, in any way,
restrict trade commerce and intercourse among the States. In my opinion, the
permissive privilege to deal in liquor is not a "right" at all. The
levy charged for parting with that privilege is neither a tax nor a fee. It is
simply a levy for the act of granting permission or for the exercise of power
to part with the privilege. In this context, we can usefully refer to Har Shankar
and Others etc. etc. vs. The Deputy Excise and Taxation Commissioner and Others
etc. AIR 1975 SC 1121 and Panna Lal and Others vs. State of Rajasthan and Others (1975) 2 SCC 633. As
noticed earlier, dealing in liquor is neither a right nor is the levy a tax or
a fee. Articles 301-304 will be rendered inapplicable at the threshold to the
activity in question. Further, there is not even a single judgment which
upholds the applicability of Articles 301-304 to the liquor trade. On the
contrary, numerous judgments expressly hold these Articles to be inapplicable
to trade, commerce and intercourse in liquor. We can beneficially refer to the
judgments in The State of Bombay vs. R.M.D. Chamarbaugwala [1957] SCR 874, Har Shankar's
case (supra), M/s. Sat Pal and Co. and Others vs. Lt. Governor of Delhi and
Others (1979) 4 SCC 232 and Khoday's case. The learned counsel for the
respondent submitted that Articles 301-304 are violated or transgressed. In
view of discussions in paragraphs above, it is clearly demonstrated as to how
and why Articles 301-304 are inapplicable to liquor trade in any form.
We
shall now deal with the Kerala matter in Civil Appeal Nos. 2696 and 2697 of
2003.
The
learned counsel for the licensee/appellant in this case also contended that
Part XIII of the Constitution interdicts Parliament and State Legislatures from
enacting laws containing discriminatory measures/taxation in respect of
inter-state trade and commerce and that the said articles in Part XIII impose a
constitutional limitation on the power of the Parliament and the Legislatures
of the States and that the said Part XIII of the Constitution enshrines a
principle of paramount importance that the economic unity of the country cannot
be interfered with by economic protectionism and creation of trade barriers, fiscal
or otherwise. He would further submit the restriction in Part XIII of the
Constitution also apply to Taxation Laws and the provisions of Part XII of the
Constitution are subject to the limitations set out in Part XIII and such
regulatory measures also do not impede the freedom of trade, commerce and
intercourse and compensatory taxes for the use of trading facilities are not
hit by the freedom declared by Article 301. He would also urge that Article
303(1) prohibits Parliament and the Legislature of a State from enacting any
law giving preference to one State over another or from making any
discrimination between one State and another by virtue of any entry relating to
trade and commerce in any of the lists in the Seventh Schedule and that the
obstructions or impediments to the free flow of trade would be violative of the
freedom declared by Article 301. In this context, he referred to the case in
The Automobile Transport (Rajasthan) Ltd. vs. The State of Rajasthan and Others
[1963] 1 SCR 491. It is further submitted that the limitation upon the
Legislative power stipulated in Article 303(1) and Article 304A will apply to
trade in liquor. It is further contended that the discriminatory levy of import
fee is violative of Articles 303(1) and 304A of the Constitution. According to
the learned counsel for the appellant/licensee, the power of the State to levy
a tax or a fee should be traceable to the entries in the Seventh Schedule to
the Constitution. Entry 51 of List II provides for a levy of duty of excise on
alcoholic liquor for human consumption manufactured or produced in the State
and countervailing duties at the same or lower rates of similar goods
manufactured or produced elsewhere in India and, therefore, the State
Legislature has no power to levy any countervailing duty on imported liquor in
excess of the excise duty on liquor manufactured within the State. The State of
Kerala imposes a countervailing duty on
imported liquor which is equivalent to the excise duty paid by the
manufacturers within the State. The State imposes an import fee in addition to
the countervailing duty and the direct and immediate effect of the import fee
is to favour local manufacturers by making the imported liquor costlier.
He
would further contend that Article 303(1) prohibits the State Legislature from
taking discriminatory measures and Article 304A also prohibits the State from
imposing such discriminatory levies. It is also submitted that the State
Legislature has no competence to levy an import fee in addition to countervailing
duty.
The
argument advanced by learned counsel for the licensee was countered by learned
senior counsel appearing for the State of Kerala. The learned counsel submitted
that the import of liquor into the State of Kerala is prohibited under Section 6
of the Abkari Act and, therefore, liquor can be imported only after obtaining
permission from the Government in the form of permit issued under Section 24 of
the Abkari Act. As a matter of fact, it was submitted that the State has not
issued any licence to anybody including the Kerala State Beverages Corporation
to import liquor. The Kerala State Beverages Corporation has licence only for
wholesale and retail of liquor which will not authorise them to import liquor
and that the only licence issued to import liquor into the State is the permit
issued on payment of the import fee and, therefore, it is seen that the levy of
import fee is authorized by Sections 6 and 24 of the Abkari Act, 1977. It is
not excise duty or countervailing duty referable to Entry 51 of List II. It is
a collection falling under Entry 8 of List II. It is the price paid to the
State for parting with its exclusive privilege of dealing in liquor which
includes every fact of it including its import. In my view, the State has the
right to prohibit every form of activity in relation to intoxicants including
its import. Though it is alleged by the appellant that the State has
discriminated against, the same has not been substantiated or established by
any material. The State, in this case, has granted such permit to the Beverages
Corporation on their paying the fee fixed for the purpose as per notification
enabling the Corporation to import liquor from the petitioners/licensees and
others. The import fee so paid is passed on to the consumers. Even in the
Punjab case, we have already noticed, that the right to import liquor is
dependant on the issue of the import permit on payment of the import fee as
consideration for parting with the State's exclusive privilege to import the
liquor. It is purely a contractual dealing between the State and the importer
and, therefore, no question of violation of Article 301 can arise. The importer
had no anterior right to import liquor and hence cannot complain of any
violation of Article 301 at that stage as right to trade in liquor is not a
fundamental right. His right to import is referable to the import permit which
he acquired on payment of the import fee.
No
further impediment has been created in the import of the liquor so that Article
301 is not attracted in relation to the payment of the import fee which was
prior to getting his privilege of importing. The appellant/licensee having
entered into a contractual relationship with the State obtained the privilege
and enjoyed the benefit of it. It is not open to the petitioners to turn round
subsequently and repudiate the obligations subject to which they obtained the
privilege. Regulation in the interest of public health and order takes the case
out of Article 301 and regulation for purpose of Article 301 is not confined to
such regulations alone which will facilitate the trade.
An
affidavit was also filed on behalf of the State of Kerala dated 16.04.2003
stating that the collection of import fee in the State of Kerala while issuing
permit to import IMFL is referable to Sections 6 and 24 of the Abkari Act,
1977, and that it is the price payable by the grantee to the State for parting
with the privilege of importing IMFL which is exclusively that of the State.
Along with the affidavit, Annexure R1 (photocopy of permit issued) and Annexure
R2 (year-wise statement showing the amount of import fee collected by the
State) was filed. It is not in dispute that the Kerala State Beverages
Corporation is the exclusive wholesale distributor of IMFL within the State of Kerala.
Previously, the retail distribution of IMFL in the State was done by 14 shops
of the Kerala State Bevereages Corporation and 231 shops by private individuals
to whom licences were granted by auction conducted every year. However, the
scheme has been changed and the retail distribution of IMFL in the State is now
being carried on by a few shops of the Kerala State Consumer Federation and the
rest of the shops by the Kerala State Beverages Corporation. This is apart from
the sales in bars, clubs, etc.
under licences
issued in relevant Forms under the Foreign Liquor Rules. The Kerala State
Beverages Corporation gets its supply of IMFL from distributors within the
State as also from manufacturers and distributors outside the State.
The Kerala
State Beverages Corporation calls for tenders fixing a floor price for the
supply with a view to ensure quality as also to prevent unhealthy competition
and loss of revenue. Based on these tenders, the Kerala State Beverages
Corporation enters into contracts with the manufacturers/distributors. After
entering into contracts with the manufacturers/distributors, to enable the
import of IMFL to the State, the Kerala State Beverages Corporation applies to
the authorized officer for grant of permit for import of specified quantity of
IMFL after depositing in advance, the countervailing duty and the import fee
payable on the quantity of IMFL sought to be imported. Details of the payments
so made are entered in Column No. 6 of the import permit issued. The name of
the outside manufacturer/distributor from whom the IMFL is being procured is
also mentioned in the permit for identification of the product. The import fee
paid by the Kerala State Beverages Corporation is ultimately passed on to the
consumers by adding to the final selling price of the product. The State has to
deploy its officers at all the check-posts to monitor import of IMFL. Every
consignment, on crossing the border has to be escorted till it reaches the
warehouse of the Kerala State Beverages Corporation to check diversion and
misuse and the State is incurring heavy expenses for regulating import of
liquor into the State. Therefore, the import fee was increased from Rs.2/- per
proof litre to Rs.5/- per proof litre in 1995. Even after the increase in the
import fee, the import of liquor to the State was steadily increasing till
1999- 2000. The affidavit now filed along with the Annexures gives us a clear
picture of the levy of import fee while issuing permit to import IMFL. Before
the High Court, the learned counsel for the appellants therein have raised only
one contention that the imposition of import fee is not in the nature of
regulatory fee. It was contended on behalf of the State that the levy is
permissible and authorized under Sections 6, 7, 17 and 18 of the Act and that
the import fee is the only fee realized from a firm which supplies liquor to
the Kerala State Beverages Corporation to be supplied to other licensees in the
State and that the levy of import fee is also well founded under the Act
basically referable to the legislative Entries 8 and 66 of List III of the
Seventh Schedule to the Constitution. The learned Single Judge and also the
learned Judges of the Division Bench rejected the contention of the licensee
and upheld the levy on import.
At the
time of hearing, many judgments were cited by both sides in regard of their
respective contentions. I feel it is not necessary to deal with or refer to all
the judgments cited, as in my opinion, the real questions in this case as
contended by the licensees are that the State has no authority to impose the
import fee and that it is violative of Articles 301 and 304 of the
Constitution. The real question, in my opinion, is whether Articles 301 and 304
at all apply. In the alternative, it was submitted by learned senior counsel
for the State of Punjab that compensatory or regulatory levies have always been
held to be valid and permissible under Articles 301 and 304. In this context,
he referred to the decisions in the cases of Atiabari Tea Co., Ltd.
Transport
(Rajasthan) Ltd. case (supra), State of Bihar vs. Chambers of Commerce (1996)
(103) STC 1, Godfrey Ltd. vs. State of Rajasthan (2001) (121) STC 54, Jindal
Strips Limited and Others vs. State of Haryana (2002) 19 PHT 299. If that be
so, it is undeniable that regulations deemed necessary and apposite are liable
to be imposed on liquor trade more than any other activity since the former is
considered inherent are noxious, pernicious and res extra commercium.
Regulation is thus the hall-mark of the State action in respect of liquor and
that regulation can be and indeed normally is through the mode of imposition of
levies which levy is also necessary to regulate by keeping out and excluding
persons entering the liquor trade. We have already extracted the provisions of
1914 Act. The contention of the licensee is that once a L-1 wholesale liquor licence
is issued to him, the State's permissive privilege in respect of liquor stands
permanently parted with and thereafter no additional or further levy of any
kind even in respect of activities other than wholesale selling under L-1 licence
can be raised.
This
argument, in my opinion, is completely fallacious and ex-facie unsustainable.
This contention ignores the well-established legal statutory and operational
distinction demarcating and dealing separately with several distinct activities
in relation to liquor, namely, manufacture, possession, sale, transport,
import, export consumption on premises of hotel/restaurant etc.
Each
activity is separately defined and separately itemized and separately dealt
with in statute as also in the rules and involves a diverse range of separate licences,
passes, permits and applications each of differing contained format and ambit.
The import fee levied in the instant case is fully authorized by the 1914 Act
and delegated legislation thereunder and is clearly intra vires. I have already
listed in paragraphs above all the provisions authorizing the levy in question
in the instant case which is mentioned in the additional affidavit of the State
of Punjab. The provisions summarized above confer ample regulatory power upon
the excise authority to regulate several activities related with liquor in any
reasonable manner and in particular to regulate its import. The regulatory
power includes power to levy a monthly fee in that regard such as the impugned
import fee. Indeed levy for such fee to exclude and to keep out certain people
from the liquor trade and to keep the number of persons participating in this
trade within reasonable limits has been recognized by this Court in Har Shankar's
case (supra) relying upon and quoting American decisions.
The
statutory provision in question must be interpreted and read broadly and not
narrowly. The approach must be to uphold the validity of the impugned delegated
legislation by a process of fair and broad reading of the statutory mandate.
Even if the Act does not specifically provide for the levy in question by name
to provide statutory authority for its imposition by delegated legislation and
the levy is actually imposed by the delegated legislation made under that
Statute, the same would be valid and not ultra vires. In the instant case, the
levy has been imposed by the Punjab Fiscal Orders as amended from time to time
under specific statutory authority to issue such orders under Sections 58 and
59 of the Act, in particular, and other provisions of the Act as itemized in
paragraphs supra. Since the rule making power has not been shown to be bad, the
Punjab Fiscal Orders, once made have the effect of the Statute itself and
become part of the Statute since they have been made under valid rule making
power. The statutory provisions of the Punjab Act and the Rules itemized in
paragraphs above amply delineate that regulatory power and the impugned import
fee is nothing but a facet and manifestation of that regulation by the State.
Hence, in my view, the levy in question is valid as a regulatory levy which has
consistently been held on the touchstone of Article 304.
The
conduct of the respondent/licensee in attempting to wriggle out of his
contractual obligations is contrary to the clear and unequivocal principle laid
down in Har Shankar's case (supra). The issuance of liquor licence constitutes
a contract between the parties i.e. between Excise Authorities on the one hand
and the individual applicant contractor on the other. The respondent having
accepted the contracts/licences, having fully exploited the advantage flowing
from the contract to the exclusion of others and having reaped rich commercial
benefits from that activity, it is not open to the contractor to wriggle out
from the contract by challenging, inter alia, any particular condition of that
contract/licence. The respondent herein seeks to do exactly that by challenging
the condition requiring him to pay import fee.
Har Shankar's
case (supra) clearly disentitle the liquor contractor from wriggling out of
contractual obligations solemnly undertaken. Likewise, in Panna Lal's case
(supra), this Court in the specific context of liquor licence had this to say.
"The
licenses in the present case are contracts between the parties.
The
licensees voluntarily accepted the contracts. They fully exploited to their
advantage the contracts to the exclusion of others.
The
High Court rightly said that it was not open to the appellants to resile from
the contracts on the ground that the terms of payment were onerous. The reasons
given by the High Court were that the licensees accepted the license by
excluding their competitors and it would not be open to the licensees to
challenge the terms either on the ground of inconvenient consequence of terms
or of harshness of terms." As a matter of fact, the respondent is the only
and the sole challenger of the instant levy of import fee. It is stated that no
other liquor contractor or beer manufacturer or importer has challenged the
import fee in Punjab at any point of time at any forum. The import fee on IMFL
on rectified spirit was levied from the Year 1986 and at no time the respondent
challenged the levy of import fee from 1986 onwards on IMFL and continued to
import large quantities of beer and paid large sums of fee as per the
prescribed rates. The writ petition was filed only in April, 1996. The
respondent accepted the burden of this contract and obviously did so because he
enjoyed the benefits flowing from this contract. Having done so, in my view, he
cannot and should not be allowed to wriggle out of his contractual and licence
obligation.
In the
case of Government of Maharashtra & Ors. vs. M/s. Deokar's Distillery (V.N.
Khare, CJI and Dr. AR. Lakshmanan,J concurring) reported in (2003) 5 SCC 669,
this Court, in para 32, observed thus:
"The
order of the High Court is bad in law. The High Court, in our view, has erred
in not appreciating that the impugned demand notice was also in the nature of
demanding balance of the price of the exclusive privilege which would become
final only on issue of the notification, order under Article 309, the bulk of
which has already been recovered in advance, which privilege exclusively vests
with the Government considering the effect of provisions especially Section 49
and Section 143 (2)(u) of the Prohibition Act. In our opinion, the
establishment charges demanded are in the nature of price for parting with the
privilege to permit manufacture and sale or liquor, and the privilege
exclusively vests with the Government." Again in para 40, this Court
observed thus:
"As
pointed out by Y.V. Chandrachud, C.J., as he then was, what the respondents
agreed to pay was the price of an exclusive 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 no such duty can be imposed on liquor not lifted or
purchased by them. The respondents, in our view, must fail in their contention
both on account of the objection to the maintainability of the appeals and on
merits concerning the nature of the payment which they are liable to
make." In the above case, the power of the State Government under Section
58 A to recover cost of supervision was challenged. Per majority, this Court
held that the power of the State Government extends to recovering the
differential amount consequent to upward revision of pay-scales and allowances
with retrospective effect and that such differential amount can be demanded
even in exercise of residuary powers of the State Government and that the
liquor licensees having given undertaking in the application in Form PLA
prescribed under the Rules to abide by the orders made under the Act and the
rules could not escape their contractual liability. This Court also further
held that the establishment charges demanded are in the nature of price for
parting with the privilege to permit manufacture and sale of liquor and the
privilege exclusively rests with the Government.
The
same effect is the judgment of this Court in the case of Assistant the context
of a liquor contract, this Court held as under:
".......
We are, therefore, of the opinion that in case of contracts freely entered into
with the State, like the present ones, there is no room for invoking the
doctrine of fairness and reasonableness against one party to the contract
(State), for the purpose of altering or adding to the terms and conditions of
the contract, merely because it happens to be the State. In such cases, the
mutual rights and liabilities of the parties are governed by the terms of the
contracts (which may be statutory in some contracts are entered into pursuant
to public auction, floating of tenders or by negotiation. There is no
compulsion on anyone to enter into these contracts. It is voluntary on both
sides. There can be no question of the State power being involved in such
contracts. It bears repetition to say that the State does not guarantee profit
to the licensees in such contracts. There is no warranty against incurring
losses. It is a business for the licensees. Whether they make profit or incur
loss is no concern of the State. In law, it is entitled to its money under the
contract. It is not as if the licensees are going to pay more to the State in
case they make substantial profits. We reiterate that what we have said
hereinabove is in the context of contracts entered into between the State and
its citizens pursuant to public auction, floating of tenders or by negotiation.
It is
not necessary to say more than this for the purpose of these otherwise than by
public auction, floating of tenders or negotiation, we need not express any
opinion herein." Kalyani Stores vs. The State of Orissa and Others [1966]
1 SCR 865 case was heavily relied on by the respondent/licensee. The
Constitution Bench has not in that cases adverted to the issue of liquor trade
being res extra commercium and has simply considered whether Articles 301/304
are violated or not. The case, in my opinion, would have no relevance to the
instant case.
The
following judgments can be usefully referred for the proposition that the
rights are vested in the State which it may part with for a consideration.
In the
case of Har Shankar and Others etc. etc. vs. The Deputy Excise and Taxation
Commissioner and Others etc. AIR 1975 SC 1121 (paras 44, 46, 47, 50, 51, 53,
55, 57 and 58 dealt with the rights of the State in this regard).
In the
case of Nashirwar and Others vs. State of Madhya Pradesh and Others, 1975 (1)
SCC 29, this Court held that by virtue of Entry 8 of List II, the Government
can hold a public auction to grant lease, the amount representing the
consideration for the grant of such right or privilege.
In the
case of State of Orissa and Others vs. Harinarayan Jaiswal and Others (1972) 2
SCC 36, this Court held that the Government is the exclusive owner of the
privilege to sell the right to sell liquor, reliance on Article 19(1)(g) or
Article 14 of the Constitution becomes irrelevant.
In the
case of State of Andhra Pradesh vs. Prabhakara Reddy AIR 1987 SC 933 held that
all rights in regard to manufacture and sale of intoxicants vest in the State
and it is open to the State to part with those rights for a consideration and
that the consideration for parting with the privilege of the State is neither
excise duty nor licence fee but it is the price of the privilege.
In the
case of State of U.P. and Others vs. Sheopat Rai and Others 1994 Supp (1) SCC 8
held that the term 'licence fee' in the context of the U.P.
Excise
Law connotes the idea of it being the consideration in money received by the
Government from a private person by grant of a licence (contract) for parting
in such person's favour, its exclusive privilege or right of carrying on
certain activities in respect of country liquor or drugs under 'auction system'
in public auctions.
In the
case of State of Haryana and Others vs. Lal Chand and Others, AIR 1984 SC 1326,
this Court has held that the licence fee is a price for acquiring such
privilege and one who makes a bid for the grant of such privilege with a full
knowledge of the terms and conditions attaching to the auction cannot be
permitted to wriggle out of the contractual obligations arising out of the
acceptance of his bid, by a petition under Article 226.
State
of Punjab vs. M/s. Dial Chand Gian Chand & Co. AIR 1983 SC 743 is also a
case arising under the Punjab Intoxicants Licence and Sale Order, 1956. This
Court held that the writ jurisdiction of the High Courts under Article 226 of
the Constitution is not intended to facilitate avoidance of obligations
voluntarily incurred.
In the
case of Khoday Distilleries Ltd. and Others vs. State of Karnataka and Others,
(1995) 1 SCC 574. The Constitution Bench of this Court held that a citizen has
no fundamental right to trade or business in liquor as a beverage and that the
activities which are res extra commercium cannot be carried on by any citizen
and the State can prohibit completely trade or business in potable liquor since
trade or business in liquor as a beverage is res extra commercium and that the
State may also create monopoly in itself for trade or business in such liquor.
It is further held that the State can further place restrictions and
limitations on such trade or business and such restrictions and limitations can
be placed by subordinate legislation as well. It is also further held that the
State is not precluded from regulating the trade and business in potable liquor
merely because it imposes tax or fee on purchase or sale and income is derived
from such liquor.
In the
case of Solomon Antony and Others vs. State of Kerala and Others, (2001) 3 SCC
694, the contractors are required to pay the consideration payable to the State
for sale of liquor for importing designated quantity of rectified spirit in
respect of which the consideration payable is equivalent to excise duty. This
Court justified the order passed by the High Court in holding that the
contractors are bound to pay the amount which is a measured excise duty payable
on the designated quantum of rectified spirit in terms of Rule 8 of the Rules
and which the contractors had undertaken in the agreements executed by them to
pay. This Court further held that the power of the Government to enhance the
rate of excise duty from Rs.5/- per bulk litre to Rs.10/- per bulk of arrack
could not be assailed.
The
Division Bench of the Kerala High Court to which I was a member has also taken
the same view in Kerala Distilleries and Allied Products Limited vs. Assistant
Commissioner (Assessment) (I), Commercial Tax, Special Circle, Palakkad and
Others reported in 2000 (Vol. 117) STC page 553) in the following terms:
"The
manufacture and sale of liquor are the exclusive privilege of the State and the
State, by the process of licensing, is parting with the said privilege and what
is charged by the State is only the privilege price through the process of
licensing and it is not excise duty." "The concept of excise duty on
production and manufacture as understood in the Central Excise Act cannot be
equated in the case of excise duty under the Abkari Act since the manufacture
and the sale of liquor are the exclusive privilege of the State and the State,
by the process of licensing, is parting with the said privilege and what is
charged by the State is only the privilege price through the process of
licensing the price and it is not excise duty." The above rulings are
amongst the catena of cases on the point that the rights are vested in the
State which it may part with for consideration.
I have
already dealt with the concept of contractual relationship between the State
and the licensee whereunder the licensee having obtained a privilege and
enjoyed the benefit of it, it is not open to the licensees to turn round
subsequently and repudiate the obligations attaching with the obtained
privilege. The following are the cases on the point.
In the
case of State of Haryana and Others vs. Jage Ram and Others AIR 1980 SC 2018,
this Court held that the bids in respect of country liquor vends at an annual
auctions and the amounts which bidders agree to pay to State Government under
auction terms is neither fee nor excise duty on undrawn liquor but price of
privilege which State parted in their favour.
In the
case of State of Haryana and Others vs. Lal Chand and Others, (1984) 3 SCC 634,
this Court held that after making bid for grant of exclusive privilege of
liquor vend with full knowledge of terms and conditions of auction, the bidder
cannot wriggle out of the contractual obligations arising out of acceptance of
his bid by filing writ petition.
In the
case of State of Punjab vs. M/s Dial Chand Gian Chand and Company (1983) 2 SCC
503, this Court held that a licensee who participates in the auction
voluntarily and with full knowledge is bound by the bargain and the writ
petition filed under Article 226 by such licensee in an attempt to dictate
terms of the licence without paying the licence fee must fail. The highest
bidder after acceptance of his bid cannot challenge the second auction on
ground of adverse effect on his business.
We
shall now consider the cases on the freedom guaranteed by Article 301 which is
not available to liquor because it is a noxious substance injurious to public
health order and morality. The following cases can be usefully referred:
In the
case of M/s Sat Pal and Co. and Others vs. Lt. Governor of Delhi and Others
(1979) 4 SCC 232, this Court held that the Ordinance does not infringe any
right under Article 19 (1)(g) or Article 301 there being no fundamental right
to trade in liquor and that the ordinance was both a fiscal measure and one for
safeguarding public health and public morals and hence it could validly be made
retrospective and that the test of reasonable restrictions has to be judged in
the light of the purpose for which the restriction is imposed, that is, as may
be required in the public interest and restrictions that may validly be imposed
under Article 304(b) are those which seek to protect public health, safety,
morals and property within the territory and the present levy under the amended
provisions of the Act in its application to Delhi could certainly be said to be
one enacted both with the object of regulating the trade or business in
intoxicants and with a view to realising the goal fixed in Article 47 of the Constitution.
In the
case of The State of Bombay vs. R.M.D. Chamarbaugwala [1957] SCR 874, this
Court held as under:
"Gambling
activities were in their very nature and essence extra- commercium although
they might appear in the trappings of trade.
They
were considered to be a sinful and pernicious vice by the ancient seers and
law-givers of India and have been deprecated by the
laws of England, Scotland, United
States of America and
Australia. The Constitution-makers of India, out to create a welfare State, could
never have intended to raise betting and gambling to the status of trade,
business, commerce or intercourse.
The
petitioners, therefore, had no fundamental right under Art. 19(1)(g) or freedom
under Art. 301 of the Constitution in respect of their prize competitions that
could be violated and the validity of the impugned act, in pith and substance
an Act relating to gambling, did not fall to be tested by Arts. 19(6) and 304
of the Constitution" In the case of M/s Fatehchand Himmatlal and Others
etc. vs. State of Maharashtra (1977) 2 SCC 670, this Court held
as follows:
"A
meaningful, yet minimal analysis of the Debt Act, read in the light of the
times and circumstances which compelled its enactment, will bring out the human
setting of the statute. The bulk of the beneficiaries are rural indigents and
the rest urban workers. These are weaker sections for whom constitutional
concern is shown because institutional credit instrumentalities have ignored
them.
Money
lending may be ancillary to commercial activity and benignant in its effects,
but money-lending may also be ghastly when it facilitates no flow of trade, no
movement of commerce, no promotion of intercourse, no servicing of business,
but merely stagnates rural economy, strangulates the borrowing community and
turns malignant in its repercussions. The former may surely be trade, but the
latter - the law may well say - is not trade. This narrow, deleterious pattern
of money-lending cannot be classed as 'trade'. Hence Article 301 does not
apply." In the case of B.R. Enterprises etc. vs. State of U.P. and Others etc.
(1999)
9 SCC 700, this Court held that this case relates to lottery which is gambling
in nature. This Court held that merely because a lottery transaction is run by
State itself will not change its character as res extra commercium and that
merely because lottery tickets are goods, transaction of sale thereof cannot
constitute trade and while trade contains skill with no chance, gambling
contains the element of chance with no skill and, therefore, ban by any State
on the sale of lotteries of other States within its territory does not violate
Articles 301 and 303.
We
have already noticed that the regulation in the interest of public health and
order takes the case out of Article 301, and Regulation for the purpose of
Article 301 is not confined to regulations which will facilitate the trade.
In the
case of M/s. Bishamber Dayal Chandra Mohan etc. etc. vs. State of U.P. and
Others etc. etc., AIR 1982 SC 33, this Court in paras 36 and 37 observed as
under :
"The
word `free' in Art. 301 does not mean freedom from laws or from regulations.
Art. 301 guarantees freedom of trade, commerce and intercourse throughout the
country from any State barriers. It declares that subject to the other
provisions of Part XIII, trade, commerce and intercourse throughout the territory of India shall be free. The whole object was to bring about the
economic unity of the country under a federal structure, so that the people may
feel that they are members of one nation is to guarantee to every citizen the
freedom of movement and residence throughout the country. That is achieved by
Art. 19(1)(d) and (e). No less important is the freedom of movement or passage
of commodities from one part of the country to another. The progress of the
country as a whole also requires free flow of commerce and intercourse as
between different parts, without any barrier. This freedom of trade, commerce
and intercourse throughout the country without any `State barriers' is not
confined to inter-State trade as well. In other words, subject to the
provisions of Part XIII, no restrictions can be imposed upon the flow of trade,
commerce and intercourse, not only between one State and another, but between
any two points within the territory of India whether any State border has to be
cross or not.
It is
now well settled that the regulatory measures or measures imposing compensatory
taxes do not come within the purview of the restrictions contemplated by Art.
301. The regulatory measures should, however, be such as do not impede the
freedom of trade, commerce and intercourse. It cannot be said that the
instructions conveyed by the State Government by the impugned teleprinter
message imposing the requirement for the making of an endorsement by the Deputy
Marketing Officer or the Senior Marketing Officer or the physical verification
of stocks of wheat during the course of transit, are a `restriction' on the
freedom of trade, commerce and intercourse within the country, i.e., across the
State or from one part of the State to another. These are nothing but
regulatory measures to ensure that the excess stock of wheat held by a
wholesale dealer, commission agent or a retailer is not transported to a place
outside the State or from one district to another. Even if these requirements
are construed to be a `restriction' on the inter-State or intra-State trade the
limitation so imposed on the enjoyment of the right cannot be considered to be
arbitrary or of an excessive nature. Nor can it be said that such restrictions
do not satisfy the test of reasonableness."
The
case of State of Tamil Nadu vs. M/s. Hind Stone etc. etc. reported
in AIR 1981 SC 711 relates to non-renewal of mining lease for black granite. It
was submitted by the counsel in this case, that the impugned rule offends
Articles 301 and 303 of the Constitution. This Court rejected the same as
without force. This Court held as under:
".......The
Mines & Minerals (Regulation and Development) Act is, without doubt a
regulatory measure. Parliament having enacted it for the express purpose of
"the regulation of mines and the development of minerals". The Act
and the rules properly made thereunder are, therefore, outside the purview of
Article 301. Even otherwise, Article 302 which enables Parliament, by law, to impose
such restrictions on the freedom of trade, commerce or intercourse between one
State and another or within any part of the territory of India as may be
required in the public interest also furnishes an answer to the claim based on
the alleged contravention of Article 301.........." The case of State of
Tamil Nadu & Others vs. M/s. Sanjeetha Trading Co. & Others (1993) 1
SCC 236 relates to prohibition of export of timber outside the State to prevent
illicit felling. This Court held that where goods are declared to be essential
commodities/articles and export thereof prohibited with a view to effect
equitable distribution at a fair price the prohibition in the circumstances
would not be an unreasonable restriction.
This
Court further held as follows:
"The
power to impose restrictions conferred on the Parliament under Art. 302 is not
qualified by the word `reasonable' while in Art. 304 (1)(b) which confers such
power on the State legislature the expression `reasonable' precedes
`restrictions' and a further check is provided by the proviso thereto. Therefore,
before Art. 304 comes into play, it has to be held that the prohibition
introduced by the amendment on movement and transport of any particular item
amounts to a restriction. Any prohibition on movement of any article from one
State to another has to be examined with reference to the facts and
circumstances of that particular case - whether it amounts to regulation only,
taking into consideration the local conditions prevailing, the necessity for
such prohibition and what public interest is sought to be served by imposition
thereof." In the case of State of Bihar & Ors. vs. Harihar Prasad Debuka
etc.
AIR
1989 SC 1119, this Court observed thus:
"In
the instant case what is being insisted is a permit disclosing particulars of
the goods to be transported. Art. 304(b) clearly permits the State legislature
to impose such a reasonable restriction on the freedom of trade, commerce and
intercourse with or within that State as may be required in the public interest.
The word `with' involves an element having its sit us in another State. It
cannot be therefore said that the insistence on the disclosure in respect of
goods entering Bihar from another State if otherwise
legitimate would not be protected by Art. 304(b)." The High Court of
Punjab proceeded to decide the case on a total wrong assumption that the import
fee levied is in the nature of duty which cannot be imposed under the Excise
Act, 1984 when, in fact, the import fee levied is the price for parting with the
privilege given to the licensee to import beer into the State and, therefore,
the same is within the competence of the State to impose import fee. I am of
the view that the licensee besides the payment of duty etc. is to comply with
such conditions as the State Government may impose while formulating the excise
policy for the concerned year. The State, in my view, is competent and entitled
to impose excise duty or countervailing duty. Besides there is no bar on the
State to charge any other fees on account of consideration for the privilege
provided to the licensee to trade in liquor which privilege he did not
otherwise have.
Therefore,
the licensee is liable to comply with the other conditions imposed by the State
Government from time to time. As held in many cases referred to supra the levy
in dispute under challenge is an import levy. It is neither duty nor
countervailing duty. It is part of the consideration money i.e. the price of
the privilege given to the licensees for dealing in liquor. The decision of
this Court in the case of Kalyani Stores (supra) is not applicable to the facts
of the present case and that the Punjab Excise Act, 1914 is an existing law
under Clause 10 of Article 366 of the Constitution of India and its continued
application is saved by Article 372 of the Constitution of India. It is also
saved by Article 305 of the Constitution from attack under Articles 301 and 303
of the Constitution. It is well within the legislative competence of the State.
In the
result, Civil Appeal No. 3017 of 1997 filed by the State of Punjab is allowed and the judgment of the
High Court which is impugned in this Civil Appeal stands set aside. Likewise,
the appeals filed by the appellants in Civil Appeal Nos. 2696 and 2697 are
dismissed and the common judgment of the High Court in Writ Appeal Nos. 3 and
10 of 2001 is affirmed. However, there shall be no order as to costs.
Back