9911796707
TMI Blog1975 (1) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by the High Court in a batch of 152 writ petitions under Article 226 of the Constitution. Those petitions were filed by liquor contractors and hoteliers to challenge the demands made upon them by the Department of Excise and Revenue, Government of Punjab. The appellants are mostly retail vendors of country liquor holding licences for the sale of liquor in specified vends. Those licences were granted to them on acceptance of their bids in the auctions held by the Excise Department, Government of Punjab. The 'licence fees' realised through bids made in the auction are said to be in the neighborhood of Rs. 29 crores. In Civil Appeals Nos. 485 and 2205 of 1969, the appellants held licences for the retail sale of foreign liquor for consumption on the premises of their respective establishments. Civil Writ No. 2645 of 1968 out of which Civil Appeal No. 365 of 1971 arises, may be taken to be typical of the petitions filed by retail vendors of country liquor. For understanding the points in controversy it would be enough to refer to the facts of that petition. Auctions for granting the right to sell country liquor for the year 1968-69 were initially held in various districts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnounced before the vend is put to auction. Under Condition 15(i) the successful bidder has to deposit security equivalent to 1/24th of the amount of the annual licence fee within the stated period. The security is refundable to the licensee at the end of the year unless it is liable to be forfeited or adjusted against any amount due from him in respect of the licence. Clause (ii) of condition 15 requires the successful bidder to pay the whole amount of licence fee in 24 equal installments spread over the year. Clause (iii) of Condition 15 authorises the Collector to resell the vend if the successful bidder fails to deposit the security or refuses to accept the licence, In the event of such resale, any deficiency in the licence fee is recoverable from the defaulter in the manner laid down in section 60 of the Act which provides by clauses (a) and (c) that an "excise revenue" and all amounts due to the Government on account of any contract relating to the excise revenue may be recovered from the person liable to pay the same by any process for the recovery of arrears of land revenue. By Condition 15(iv), a similar right is conferred on the Collector to resell vend in the event of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (2) The power conferred on the Financial Commissioner under section 34 of the Act to grant a license, permit or pass on payment of such fees, if any, as he may direct did not extend to disposing of the country liquor vends by-auction; (3) The impugned auctions conducted under the amended Rule 36 on the basis of estimated quota in proof litres was in substance, founded on the same system which had been struck down by the High Court in Jage Ram's case where it was held that the levy imposed through the medium of auctions was a tax and not a licence fee; (4) The State Government alone was competent to impose a tax or an excise duty under the Act; that power could not be delegated to the, Financial Commissioner or any other officer. (5) Section 34 of the Act which empowered the Financial Commissioner to levy fees was not a charging section; but if it is construed as containing a delegation to him of the power of the state to levy taxes, no guidelines were laid down and thus the delegation was excessive. (6) The fee which could be imposed by the Financial Commissioner under Section 34 of the Act could only be justified if it had a reasonable relation to the services rendered to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and is therefore not a 'fee' in the true sense'. Nor can the licence fee be justified as an 'excise duty' as it is not levied on the manufacture or production of liquor; 4. The real character of the levy imposed on licensees through the medium of auctions is that it is in the nature of a tax; and the Financial Commissioner who is an independent statutory authority having powers which are distinct and different from those of the Government, has no authority to impose the tax; nor, indeed, has the State Government the power to impose such a tax. 5. The Government cannot under a contract impose a levy which it has no power to impose by law; 6. The new terms and conditions of auctions are, basically and in substance, similar to those which were struck down by the Punjab High Court in Jage Ram's case and which decision was affirmed in appeal by the Supreme Court; and 7. The demand made by the Government for payment of large sums of money by hoteliers and bar-keepers who supply foreign liquor for consumption on their premises is arbitrary, without the authority of law and otherwise illegal. Learned counsel for the respondents raised a preliminary objection to the maintainability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ever have a binding force. In Lekhraj Satramdas Lalvani v. Deputy Custodian-cumManaging Officer & Ors.( [1966] 1 S.C.R. 120), the appellant who was removed from the manager-ship of certain evacuee properties filed a petition in the Kerala High Court under Article 226 of the Constitution praying for a writ of mandamus against the Deputy Custodian and others. This Court held that the appellant's appointment was contractual in its nature and the duties or obligations arising out of contract could not be enforced by the machinery of a writ under Article 226. There was some discussion before us as to whether Fundamental Rights could be waived and in answer to the preliminary contention of 'he respondents it was urged on behalf of the appellants that they are entitled to enforce their fundamental rights, no matter whether they agreed to waive those rights while entering into contracts with the Government. In support of the, contention that there can be no waver of fundamental rights, reliance was placed by the appellants on the well-known decision of this Court in Basheshar Nath v. The Commissioner of Income-Tax, Delhi & Rajasthan & Anr.( [1959] Supp. 1 S.C.R. 528). The writ petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The petitioners gave bid of their own accord knowing all the, implications thereof. The petitioners having, taken the licence with open eyes .and understanding the law on the subject have no cause of action. No constitutional provision has been infringed." Towards the end of the counter affidavit it is stated that the appellants had made contradictory allegations "with a view to confusing the real issue in an attempt to wriggle out of their contractual obligations." It is thus clear that in the High Court, the respondents had raised the contention which is taken before us by their counsel in the form of a preliminary objection. On the preliminary objection it was fin-ally urged by the appellants that the objection was misconceived because there was, in fact, no contract between the parties and therefore they were not attempting to enforce any contractual rights or to wriggle out of contractual obligations. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees. Just as country liquor contractors offered bids voluntarily on terms and conditions governing the auctions, so in these two appeals the appellants voluntarily applied for and accepted the licences knowing fully well that the Financial Commissioner had the power to frame rules governing the licences. Whether the amendments made to the Rules after the appellants' licences were renewed are applicable is another matter but the appellants cannot question the power of the Financial Commissioner to frame those rules. The licences, in a large measure, owe their existence and ,validity to the rule-making power of the Financial Commissioner. One of the reliefs which the appellants ask for is that Rules 27A, 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 less 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 fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The appeals before us require consideration .of both sets of points. The provisions of the Punjab Excise Act 1914, like the provisions ,of similar Acts in force in other States, reflect the nature and the A width of the power which the State Governments are empowered to exercise in the matter of liquor licensing. We will notice first the relevant provisions of the Act under consideration. Section 5 of the Act empowers the State Government to regulate the maximum or minimum quantity of any intoxicant which may be sold by retail or wholesale. Section 8(a) vests the general superintendence and administration of all matters relating to excise in the Financial Commissioner, subject to the control of the State Government. Section 16 provides that no intoxicant shall be imported, exported or transported except after payment of the necessary duty or execution of a bond for such payment and in compliance with such conditions as the State Government may impose. Section 17 confers upon the State Government the power to prohibit the import or export of any C intoxicant into or from Punjab or any part thereof and to prohibit the transport of any intoxicant. By section 20(1) no intoxicant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial Commissioner by clause (a) to regulate the manufacture, supply, storage or sale of any intoxicant. By clause (d) of section 59 the Financial Commissioner is authorised to make rules "prescribing the scale of fees or the manner of fixing the fees payable in respect of any licence, permit or pass or in respect of the storing of any intoxicant." Section 60(1) provides that "all excise revenue", any loss that may accrue, by reason of the resale of a grant and all amounts due to the Government on account of any contract relating to the excise revenue may be recovered by any process for the recovery of arrears of land revenue. In pursuance of section 59(d) the Excise and Taxation Commissioner on whom the powers of the Financial Commissioner are conferred by the State Government framed the Punjab Liquor Licence Rules, 1956. Since the appellants have challenged the legality of some of these rules and as the rules also indicate the large powers which are attempted to be exercised under the Act, it is essential to set out the relevant rules. Rule I contains a Table which. is divided into six parts, the first two of which are called "Foreign Liquor" and "Country Spirit". The classe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules a new rule-rule 27A was introduced whereby licensees in Forms L-3, L-4 and L-5 became liable to pay a fixed annual fee of Rs. 10,000. The second part of the Table under Rule 1. which deals with country spirit, refers, inter alia, to licences in Form L-14-A for "Retail vend of country spirit for consumption off the premises". Barring the two appellants referred to above the other appellants hold licences in Form L-14-A. The Table describes the mode of grant of the licence as by "Auction". Rule 36 prescribes the procedure for the grant of licences by auction. Before the annual auctions are held the Collector is required to determine the quantum of probable sales during the period for which the licence is to be auctioned. The quota of country liquor thus fixed for each vend is then to be announced by the Collector before the vend is put to auction. The notice of auction has to specify, among other things, the conditions to which the auction is subject and the prices for retail vend of country Liquor. Rule 23 provides for the payment of security deposit and Rule 24 for the resale of licence on the cancellation of an existing licence. The conditions of auction which we have set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade. The recovery of large licence fees through public auctions was also attacked on the ground that the amount was not a fee but was in the nature of a tax and the same could not be recovered by recording to legislative powers saved by Article 19(6) of the Constitution. Mahajan C.J., delivering the unanimous judgment of a Constitution Bench observed. "It can also not be denied that the State has the power to prohibit trades which are illegal or immoral or injurious to the health and welfare of the public. Laws prohibiting trades in noxious or dangerous goods or trafficking in women cannot be held to be illegal as enacting a prohibition and not a mere regulation." This position was not disputed but is was urged that the sale of intoxicating liquors by retail in small quantities should be without restriction because every person had a right which interred in him, that is, a natural right to carry on trade in intoxicating liquors and that the State had no right to create a monopoly in them. This contention was repelled on the reasoning contained in the judgment of Field J. in Crowley vs. Christensen(3 4 Law. Ed. 620, 623) Field J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; "These observations have our entire concurrence and they completely negative tile contention raised on behalf of the petitioner. The provisions of the Regulations purport to regulate trade in liquor to all its the different spheres and are valid." The contention that the effect of some of the provisions of the Regulation was to enable Government to confer monopoly rights on One or more persons to the exclusion of others and that the creation of such monopoly rights could not be sustained under Article 19(6) was repelled on the ground that: "Elimination and exclusion from business is inherent in the nature of liquor business and it will hardly be proper to apply to such a business principles applicable to trades which all could carry. The provisions of the regulation cannot be attacked merely on the ground that they create a monopoly. Properly speaking, there can be a 'monopoly only when a trade which could be. carried on by all persons is entrusted by law to one or more persons to the exclusion of the general public. Such, however, is not the case with the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial customs and standards of 'public morality. A new factor of growing importance since the middle of the 19th century has been the rapid urbanisation, industrialization, and mechanization of our modern everyday life in the leading nations of the world, and the consequent wider recognition of the advantages of sobriety in safeguarding public order and physical efficiency.-, This passage was treated as lending some support to the contention of the State Government that the Prohibition Act fell within the subject of "Public Order" but the matter was not pursued further as the particular entry had a remote bearing on the object and scope of the Act In Nagendra Nath Bora & Anr. v. The Commissioner of Hills Division and Appeals, Assam, and Ors.([1958] S.C.R. 1240) the decisions in Cooverjee case and Kidwai's case were cited by a Constitution Bench as laying down the proposition that there was no inherent right in a citizen to sell liquor and that the control and restriction over the consumption of intoxicating liquors was necessary for the preservation of public health and morals and to raise revenue. In Amar Chandra Chakraborty v. Collector of Excise, Government of Tripura & Ors.,( [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.C.R. 50) The appellant therein who was doing business in liquor in a hotel, under an annual licence issued under the Jammu and Kashmir Excise Act, 1958, challenged an order of the Excise and Taxation Commissioner asking him to shift the licensed premises to some other approved locality. Four contentions were raised in that case on behalf of the appellant, the first of which was that if section 20 of the Act of 1958 was construed as conferring an absolute discretion on the Excise and Taxation Commissioner in the matter of granting licences to do business in liquor, it was void on the ground that it infringed Article 19 of the Constitution. This point was not allowed to be raised in this Court on the ground that the constitutional validity of section 20 was not challenged in the High Court. It would, however, appear that the learned Judges of the High Court had differed on the question whether the appellant had a fundamental right to do business.in liquor and this Court desired "to make the position clear" in order to "avoid further confusion in the matter". The decisions in Cooverjee's case, Kidwai's case and Nagendra Nath's case were cited before the Court but it took the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... level of country's trade or business or commerce and to guarantee to its citizens, the right to carry on the same. It was said that "there can be only one answer to the question" and the answer was that the prize competition being of a gambling nature could not be regarded as trade or commerce and therefore the respondents could not claim any fundamental right under Article 19(1)(g) in respect of such competitions. It was observed "It will be abundantly clear from the foregoing observations that the activities which have been condemned in this country from ancient times appear to have been equally discouraged and looked upon with disfavor in England, Scotland, the United States of America and in Australia in the cases referred to above. We find it difficult to accept the contention that those activities which encourage a spirit of reckless propensity for making easy gain by lot or chance which lead to the loss of the hard earned money of the undiscerning and improvident common man and thereby lower his standard of living and drive him into a chronic state of indebtedness and eventually disrupt the peace and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ileges there was no basis for contending that the owner of the privileges could not decline to accept the highest bid if he thought that the price offered was inadequate. Hegde J., speaking for the Division Bench observed "The fact that the Government was the seller does not change the legal position once its exclusive right to deal with those privileges is conceded. If the Government is the exclusive owner of those privileges, reliance on Art. 19(1)(g) or Art. 14 becomes irrelevant. Citizens cannot have any fundamental right to trade or carry on business in the properties or rights belonging to the Government nor can there be any infringement of Art. 14, it the Government tries to get the best available price for its valuable rights." In a recent judgment delivered on November 27, 1974 (Nashirwar etc. vs. State of Madhya Pradesh & Ors., Civil Appeals Nos. 17111721 and 1723 of 1974) it was held on a review of various authorities including the decision in Krishna Kumar Narula's case that the State had the exclusive right or privilege of manufacturing and selling liquor, that it had the power to hold a public auction for granting the right or privilege to sell liquor, that traditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearing on the constitutional validity of the provision impugned therein was not permitted to be raised as it was not argued in the High Court. The discussion of the question whether a citizen has a fundamental right to do trade or business in liquor, proceeded in that case, avowedly, from a desire to clear the confusion arising from the "different views" expressed by the two Judges of the High Court. This may explain why the Court restricted its final conclusion to holding that dealing in liquor is business and the citizen has a right to do business in that commodity. The court did not say, though such an implication may arise from its conclusion. that the citizen has a fundamental right to do trade or business in liquor. If we may repeat, Subba Rao C. J. said "We, therefore, hold that dealing in liquor is business and a citizen has a right to do business in that commodity; but the State can make a law imposing reasonable restrictions on the said right, in public interests." It is significant that the judgment in Krishna Kumar Narula's case does not negate the right of the State to prohibit absolutely all forms. of act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (2). Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country(). The amounts, charged to the licensees in the instant case are, evidently, neither nature of tax nor excise duty. But then, the 'Licence fee' which the State government charged to the licensees through the medium of auctions or the 'Fixed fee' which it charged to the vendors of foreign. liquor holding licences in Forms L-3, L-4 and L5 need bear no, quid pro quo to the services rendered to the licencees. The word 'fee' is not used in the Act or the Rules in the technical sense of the expression. By 'licence fee' or 'fixed fee' is meant the price or consideration which the Government charges to the licensees for parting with its privileges and granting them to the licensees. As the State can carry on a trade or business, such a charge is the normal incident of a trading, or business transaction. While on this question, we may with advantage cite a passage from. "American Jurisprudence" (Vol. 30 pages 642, 645) which is based on the decisions Gundling vs. Chicago, (4) Phillips vs. Mobile (5) and. Richai-d vs. Mobile (6) It says : "the familiar principle that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y trading or business transaction. This answers the main and the more important arguments urged ,on behalf of the appellants. What remains to be considered is the contention in regard to the scope and extent of the powers of the Financial Commissioner and the legality, otherwise, of the demand for the payment of 'Fixed Fees' made on vendors of foreign liquor holding licences in Forms L-3, L-4 and L-5. Before adverting to these contentions it is necessary to refer to two decisions on which the appellants laid some stress. In Laxmi Kant Sahu v. Supdt. of Excise, Behrampur (C.A. 1415 of 1966 decided on 10--4-1967) it was held by this Court that section 38 of the Bihar and Orissa Excise Act, 1915 did not empower the board to levy a tax and since the charge for the grant of a privilege for the retail 'off' vend of foreign liquor under the system of auctioning introduced by the amended rule 103(1) was a tax, the rule was beyond the scope of section 38 and therefore void. It was expressly conceded in that case on behalf of the State of Orissa that the charge for the grant of a privilege for the 'off' vend of foreign liquor under the system of auctioning was a tax and not a fee. The deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise as against Rs. 1.760 per litre which was in force under the old Rules and excise-duty as such is no longer payable on unlifted quota. The principle governing the decisions in Bhajan Lal's case and Jage Ram's case cannot, therefore, apply any longer. As the amount payable by the licensees on the basis of the bids offered by them in auctions and on the basis 'of 'Fixed and Assessed Fees' is neither a fee in the technical sense nor a tax but is in the nature of the price of a privilege, there is no question of the Financial Commissioner lacking power to organize auctions so as to authorize the recovery of any amont which is not a fee properly so-called. The Financial Commissioner; under section 34 of the Act read with rule 59(d), has the power to direct that licences may be granted on pay-, ment of such fees, that is, such consideration as he may by rules prescribe. It is open to him to frame a rule, as he has in fact framed Rule 35, directing that any class of licences may be granted on payment of fees fixed by auction. Once it is appreciated that auctions are only a mode or medium for ascertaining the best price obtainable for the grant of privilege to Sell liquor, there would ..... 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