TMI Blog1996 (9) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... et aside and the writ petitions filed by the respondents writ petitioners are dismissed with costs. Advocate's fee Rs.. 5,000/-in each appeal. - C.A. 11509 OF 1996 - - - Dated:- 3-9-1996 - JEEVAN REDDY, B.P. AND PARIPOORNAN, K.S., JJ. JUDGMENT B.P.JEEVAN REDDY, J. 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 exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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] W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid 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 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 succ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimany 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 obnoxi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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