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TMI Blog1996 (9) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... censee 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 twenty fifth 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., fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Oris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 entert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth. 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 inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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