V.P. Tyagi, J.
1. Since common question of law is involved in all these 37 writ petitions, I propose to dispose them of by one judgment.
2. Petitioners in all these cases were the licensees who obtained licences from the Exercise Department for the sale of country liquor under the provisions of the Rajasthan Excise Rules, 1956 (hereinafter called the rules of 1956) under the two different systems, namely, 'the guarantee system' as prescribed under Chapter VIIA and the 'exclusive privilege system' as prescribed under Chapter VII-B of the rules.
3. In the year 1964 the State Government by introducing Chapter VII-A initiated a new system of granting licence for the retail sale of the country liquor which is commonly known as the 'guarantee system'. Under this system the licensees for retail shops of country liquor had to give guarantee to to the Government to draw liquor from the Government warehouses for the purpose of sale of a specified value during a particular financial year for which a licence has been obtained and that specified value was called the amount of guarantee, Under Rule 90 of the rules of 1956 a form C.L.L.E. was prescribed for the grant of licence under Chapter Chapter VII-A wherein term No. 1 (ka) reads as follows;
The licenesee guarantees to the State Government (hereinafter called the Government) to draw during the financial year country liquor for the purpose of sale of which the issue price shall be Rs.... This issue price shall be known as a guarantee money in this licence.
4. In the year 1967 it appears that the political parties raised certain objections to continue the guarantee system for the grant of licences in the State for a retail sale of country liquor and, therefore, the State Government switched on to a new system which is commonly known as the 'exclusive privilege system.' In order to grant licences under this system a new Chapter VII-B was added in the rules which contains Rules 67-I to 67-L. Under Rule 67-I licence for exclusive privilege of selling by retail of country liquor within any local area under Section 24 may be granted on condition of payment of such lump sum instead of, or in addition to excise duty, as may be determined by the Excise Commissioner and subject to such other terms and conditions as may be laid down by him. The form that was prescribed for the grant of licence under this system contained condition No. 1 as follows:
The licence-holder will have to deposit annual licence fee of Rs...for exclusive privilege. The amount of excise duty paid as component of the issue price for the supply of the country liquor should be adjusted in the amount of the exclusive privilege subject to the condition that this adjustment of the excise duty paid as component of the issue price would be done only upto the limit of the exclusive privilege amount is available. The licence holder will have to deposit the above amount in monthly instalments and such monthly instalment should be paid by the 10th of the next month. The excise duty paid as component of the issue price in that month would be adjusted in the instalment of the licence-fees due for that month.
5. The grievance of the petitioners in these petitions is that they could not fulfil the condition of paying the guarantee money to the Government and, therefore, the Government raised demand against each one of them to pay the short-fall in the guarantee money. According to the petitioners, the demand so raised by the State Government contains an amount of excise duty which the State Government is entitled to realise from the licensees only when the liquor is sold to them from the bonded warehouses of the State Government Since the petitioners did not draw the liquor from the warehouse which could have completed the guarantee amount under any of the aforesaid two systems the State Government cannot ask the licensees to pay the issues price of the liquor for the undraun quantity of liquor as it contains therein the excise duty which the Government is not entitled to realise from the petitioners unless the liquor is actually sold to the petitioners under the licence obtained by them.
6. It is, therefore, prayed in each of these petitions that the demands raised by the State Government against the petitioners for the payment of the amount of complete guarantee given by the petitioners while obtaining licence either under Chapter VII-A or Chapter VII-B be quashed and it may be declared that the State Government cannot realise from the petitioners that part of the guarantee money which is attributable to the excise ducy as the liquor was not drawn by the petitioners from the warehouse under the licence granted to them.
7. The petitioners have also challenged the contract under Chapter VII-A and VII-B as violative of Article 47 of the Constitution and on that 1 ground they have prayed that the entire contract must be declared as void being violative of the directive principles embodied in the said Article but this question need not be decided in this case as the petition can be disposed of by deciding the first objection raised by the petitioners.
8. No reply has been filed by the respondents. Learned Advocate General has, however, put in his appearance on behalf of the respondents and has contended that the guarantee amount under Chapter VII-A (guarantee system) is nothing but the value of the liquor which the licensee undertakes to sell within the financial year for which the licence has been granted to him and therefore, that amount cannot be attributed towards the payment of excise duty. So also, it is contended that under Chapter VII-B the licensee is required to pay the 'licence fee' as the guarantee amount which does not contain in itself any ingredient which can be attributed towards the payment of exercise duty to the Government. The argument of learned Advocate-General is that the provisions of Sections 24 and 30 of the Rajasthan Excise Act, 1950 (hereinafter called the Act) empower the Commissioner of Excise to fix a lump sum for the issue of a licence under the 'exclusive privilege system' and it is that lump sum which is to be paid by the licensees and that guaranteed amount is termed in the licence as a 'licence fee'. His further contention is that if the licensee fails to pay the guaranteed amount then he is required to make good the amount which was guaranteed by him to the extent of the short-fall which, according to him, does not contain the excise duty. He, therefore, prays that the demand raised in each of the cases cannot be said to be illegal or against the provisions of the law.
9. It is, however, admitted by learned Advocate-General that excise duty is charged by the State Govt. on manufacture or production of liquor and such duty is realised by the State Govt. from the retail seller when he goes to purchase the liquor from the bonded warehouse of the State; but according to him the question of charging excise duty from the licensee under Chapter VII-A and VII-B of the rules does not arise, as the licensee when he draws liquor from the warehouse, pays the 'value' of the liquor under the guarantee system and the 'licence fee' under the exclusive privilege system.
10. These rival contentious of the parties raise an important question for the determination of this Court and it is whether the amount paid by a licensee when he draws liquor from the bonded warehouse of the State Government under the licence granted to him either under Chapter VII-A or Chapter VII-B of the rules contains in it an element of the excise duty as fixed by, the State Government under the provisions of the Act and the rules, and as such the licensee is required to pay the excise duty to the State Government when he is asked to make good the shortfall in the guarantee amount without actually purchasing the liquor.
11. The State Government issued the Rajasthan Issue and Sale Prices of Country Liquor Rules, 1964 whereby the issue price of different varieties of country liquor were fixed by the Government While doing so the Government appended a note under Rule 2 and that note, which throws light on this question reads as follows:
Note. - The rates of issue prices are exclusive of the prices of containers, but inclusive of excise duties levied under Government Notification No. F.4(25)FD/Ex.68 dt. 15-11-1968.
12. Under Rule 67-A the term 'value' of the liquor had been clarified by putting an explanation to this rule. That explanation reads as follows:
'Value' for the purpose of the above rule shall be the total issue price at a Government warehouse calculated at the rate of such price current on the first day of January preceding the financial year to which the guarantee relates.
13. While explaining the term 'Value' the rule making authorities have used the term 'issue price'. This issue price has been fixed from time to time by the State Government and every time when the issue price was fixed, a note was appended clarifying that the rates of issue prices are exclusive of the prices of containers, but inclusive of excise duties levied under the Government notification.
14. From these provisions of the law, it is clear that under the guarantee system the licensee guarantees the payment of the specified value of the liquor in a particular financial year which is called under that system the amount of guarantee whereas under the exclusive privilege system the licensee guarantees the payment of such lump sum instead of, or in addition to excise duty as is determined by the Excise Commissioner and subject to such other terms and conditions as may be laid down by him. The condition No. 1 in the licence under the exclusive privilege system, as reproduced above, makes it abundantly clear that the licence-holder is required to deposit annually the lump sum which has been fixed by the Commissioner and is termed under the licence as 'licence fee'. It further clarifies that amount has to be paid in 12 monthly instalments by drawing liquor from the State warehouse and paying the issue price for the amount of the liquor so drawn by him. This condition further states that the amount of excise duty given as component of the issue price for the supply of the country liquor would be adjusted in this amount of exclusive privilege subject to the condition. that the adjustment of the excise duty paid as component of the issue price would be done only upto the limit of the exclusive privilege amount. This condition No. 1 makes it clear beyond any manner of doubt that while paying the price of the liquor under the exclusive privilege system, the licensee pays towards the amount so guaranteed by him that component part of the issue price which is attributable towards the payment of the excise duty.
15. From the study of these provisions of the law and the condions of licence, it is clear that under guarantee system the licensee is required to pay the value of the liquor to the extent to which he guarantees the payment and and that value of the liquor contains certain portion which can easily be attributed towards the payment of excise duty as a licensee pays that amount by drawing liquor from the warehouse of the State Government and paying the issue price thereof. Under the 'exclusive privilege system' that component of the issue price which is attributable to payment of excise duty is adjusted towards the guaranteed amount which a licensee is required to pay during a financial year under the licence issued under Chapter VII-B of the rules which means that licensee under the exclusive privilege system guarantees the payment of excise duty to the extent the lump sum is determined by the Commissioners for the payment of that guaranteed amount he has to purchase from the bonded warehouse of the State Government liquor of such value which may go to pay the entire amount guaranteed by him under the system.
16. A close comparison of the two systems reveals that the 'exclusive privilege system' is nothing but on old wine in a new bottle. Under the guarantee system the licensee is required to pay the amount guaranteed by him in the shape of the liquor whereas under the exclusive privilege system he is required to pay the excise duty as lump sum fixed by the Commissioner under Section 30 of the Act read with Rule 67-1 of the rules by drawing liquor of the value which may be sufficient to pay off the guaranteed part of the issue price which is attributable to the payment of excise duty.
17. In this view of the provisions of the two systems under which these petitioners had obtained licences for the retail sale of liquor I have to see whether the Government can compel a licensee under both these systems to pay the issue price of the un drawn liquor to make good the short-fall of the guaranteed amount and thus require a licensee to indirectly pay the excise duty on that quantity of liquor which the licensee had failed to draw from the Government warehouse under the terms of his licence.
18. Chapter V of the Act deals with the levy of duties and fees. Section 28 of the Act reads as follows
Section 28. Duty on excisable articles. - An excise duty or a countervailing duty as the case may be at such rate or rates as the State Government shall direct, may be imposed either generally or for any specified local area, or any excisable articles imported or exported or transported or manufactured cultivated or collected under any licence granted under this Act, of manufactured in any distillery, pot-still brewery established of licensed under this Act.
Explanation. - Duty may be imposed under this section at different rates according to the places to which any excisable articles or intoxicating drug is to be removed for consumption or according to the varying strength and quality of such articles.
19. By issuing notification No. F.4(25)FD/Ex/68 dated 15th November, 1968, the State Government in exercise of the powers conferred under Section 28 of the Act fixed different rates of excise duty per LP litre on different strength of varaties of country liquor. It is admitted by parties that while fixing the issue price the State Government takes into consideration the duty so imposed by the Govt. on different varieties of country liquor according to their strength and the amount of duty to be paid on different varieties on country liqure is added in the issue prices. It is also admitted by Learned Advocate-General that the Government realises the amount of duty from the retail seller when he for the first time goes to warehouse to draw liquor under the terms of his licence. The liquor is issued to the licensee when he deposits the issue price of the liquor in the treasury and presents the challans to the incharge of the warehouse and it is in this manner that the excise duty imposed under Section 28 read with the notification referred to above is realised by the State Government. But learned Advocate-General argues that in the case when a licence is issued under Chapter VII-A or Chapter VII-B of the rules, the State Government does not realise the excise duty from the retail seller but simply realises the 'value' of the liquor and the liceace fee as determined under the terms of the licence and, therefore, when the licensee draws liquor the terms of his licence he does not pay the issue price in that form in which it has been described under the Rajasthan Issue and Sale Prices of Country Liquor Rules, 1964, but instead of issue price he pays 'value' of the liquor under the 'guarantee system' and the 'licence fee' under the 'exclusive privilege system'.
20. I regret, I cannot accept this contention of learned Advocate General. The amount of 'value' which a licensee has guaranteed under the guarantee system has been explained by putting an explanation under Rule 67-A and it clearly shows that the value for the purpose of the above rule shall be the total issue price at a Government warehouse calculated at the the rate of such price current on the first day of January preceding the financial year to which the guarantee relates. It means that the value which the licensee guarantees to pay contains therein the ingredient of the excise duty which is a component part of the excise duty which the Government fixes for the sale of country liquor at the warehouse. This means that the licensee guarantees to pay under this system the excise duty which is a component part of the issue price which he has to pay at the time of drawing liquor from the State warehouse. Under the exclusive privilege system, the condition No. 1 of the licence is very clear and though the amount guaranteed has been termed as licence fee, but actually the licensee guarantees to draw from the State warehouse liquor for which he pays so much of issue price, that that component of the issue price which is attributable to excise duty, must be of such an amount which may be equal to the amount guaranteed by the licensee. The words used in condition No. 1 of the licence viz., 'the amount of excise duty given as competent of the issue price for the supply of the country liquor would be adjusted in the amount of the exclusive privilege' show that whatever is guaranteed under this licencing system is the payment of the excise duty by the licensee. When we read the provisions of Section 24 along with Section 30 of the Act, the meaning is automatically clarified. Section 24 of the Act empowers the Excise Commissioner to grant a licence to any person for the exclusive privilege of telling by retail any country liquor in any area of the State of Rajasthan and Section 30 further empowers him to fix a lump sum instead of in addition to any duty leviable under the Act which is guaranteed by the licensee for the grant of licence for exclusive privilege under Section 24 of the Act. Though lump sum has been termed in the licence as 'licence fee' but I will Bay that the use of this term 'licence fee' is misnomer as the licence fee can be charged by the State Government only under the provisions of Chapter VIII of the rules.
21. The next question for determination is whether the amount of guarantee which a licensee could not pay can be realised from him even though the licensee has not drawn liquor from the warehouse under the terms of the licence. Learned Advocate-General admitted before me that the State Government is not entitled to realise the excise duty on the unsold liquor because the duty is paid to the State Government only at the point when the sale of liquor takes place and is drawn by a licensee from the warehouse under the terms of his licence. He also agrees to this proposition of law that if the liquor has not been drawn by the purchaser from the warehouse, the State Government cannot ask a man, who is under obligation to purchase liquor from the State Government, to pay the excise duty. Supreme Court in Bimal Chandra Banerjee v. State of Madhya Pradesh : 81ITR105(SC) , while considering the provisions of the Madhya Pradesh Excise Act, held that the notification of the State Government issued under Section 63 of the Act imposing duty on liquor, which has not been lifted by the contractors, under the terms of the licence, was invalid. In Shinde Brothers v. Deputy Commissioner, Raichur and Ors. : 1SCR548b their Lordships of the Supreme Court discussed at length the nature of the duty that can be imposed on excisable article and have held that the duties of excise levied as an excisable article partake of the nature of indirect taxes as known to standard work on economic and are to be distinguished from the direct tax like tax on property etc. Their Lordships further observed that if a duty has been levied on an excisable article but if that duty is collected from a retailer it will retain its character of excise duty and would not necessarily case to be the indirect tax.
22. In view of these observations of Supreme Court, a retailer when draws liquor under the terms of his licence and pays the issue price to the State Government, then under the definition of the term 'issue price' such a retailer pays the excise duty to the State Government as the issue price is composed of the price of the liquor and the excise duty imposed on it. It matters little whether that part of the duty is termed as 'value' under Chapter VII-A or 'licence fee' under Chapter VII-B of the rules.
23. How the Government has understood the term 'licence fee' becomes clear from the notice Ex. 7 issued by the Excise Department to the petitioner licensee in Writ Petition No. 1595 of 1969, That notice reads as follows:
You were given a licence of liquor for Partapgarh for 1969 70 for Rs. 2,61,820/- as licence fee for the year. As per condition No. 1 of the licence, you were required to purchase & draw liqur for of which the duty cum licence fee chargeable should have been Rs. 1,50,908/- but the quantity of the liquor which you have purchased or drawn is less to the extent of Rs. 72,398.32 duty-cum licence fee. You are required to deposit this amount by 10-10-69.
24. This notice was issued by the Excise Department to make good the short-fall in the guaranteed amount upto October, 1969. The language of this notice clearly shows that the guaranteed amount, which is termed as 'licence fee' has been treated by the Department as the amount of the excise duty to be paid by the licensee. Another notice Ex. 8 was issued the Department to the licensee in that case after the licence period, The language of that notice also shows that the amount of licence fee has been treated by the Department as the amount towards the payment of excise duty by the licensee.
25. A Division Bench of the Punjab High Court in Kanhaiyalal Bhatia & Co. v. The State of Haryana and Ors. Writ Petition No. 343 of 1969, decided on 23rd July, 1969, after discussing certain provisions of the Haryana State Excise Act. has held that by applying the theory of piths substance 'licence fee' in the present case is not only a different name for excise duty but, according to the learned Judges, if the Government is permitted to realise licence fee and not excise duty in such circumstances, then in their opinion, it would be equal to saying that the Government is entitled to recover something which it is not legally allowed to recover by merely giving an innocuous name to that amount. Their Lordships said 'to allow such an argument to prevail appears to me to be preposterous.'
26. While coming to this conclusion, the learned Judges took support for the said view from the Supreme Court judgment in the Corporation of Calcutta v. Liberty Cinema : 2SCR477 . The proposition of law in that case was to this effect that the import described as a fee does not decisively determine that it is not a tax. Their Lordships of the Supreme Court were of the view that nothing turns on the calling the impost a licence fee and it is open to the Court to scratch the lable and to see for itself as to what in fact is the nature of the impugned demand.
27. In the present case, the demand raised under the first system to pay the value of the liquor, which has not been drawn, does contain there in the excise duty which is an indirect tax and which under the provisions of the law cannot be realised unless liquor is drawn by a licensee under the terms of his licence from a warehouse. Under the exclusive privilege system whatever is demanded from the licensee to complete the guarantee amount is nothing but excise duty and such a duty cannot be charged unless the licensee has purchased from the Government the liquor under the terms of his licence.
28. This brings me to another question raised by learned Advocate-General that the demand which is raised from the licensee under the guarantee system (Chapter VII-A) does not wholly contain the excise duty and therefore, to that extent to which the demand pertains to the price of the liquor cannot be quashed. Learned Counsel for the petitioners, on the other hand, submits that it is very difficult for the Excise Commissioner to separate the value of the liquor from the excise duty in the demand because the determination of excise duty depends upon the variety of the liquor by the licensee and also upon the strength of the liquor to be supplied under the terms of the, licence. Learned Advocate-General could not point out arty formula which can be applied to separate the value of the liquor front the exercise duty in the demand raised by the State Government against the licensee who had obtained licence under the guarantee system. In Dr. Shamlal Narula v. The Commr. of Income Tax, Punjab, Jammu & Kashmir, Himanchal Pradesh : 53ITR151(SC) , a question came up before the Supreme Court that if a demand contain an illegal portion and if that illegal portion is difficult to be, separated from the legal portion of the demand, then the entire demand must be declared to have been vitiated because that contains certain portion which in the eye of law cannot be realised from the person against whom such a demand was raised. Their Lordship in that connection observed as follows:
Necessity for doing so is, however, obviated by reason of the fact that the assessment is one composite whole relating to the pre-Constitution as well as to the post-Constitution portion and is invalid in whole.
29. In the present case, the demand raised by the State Government contains two elements (i) the excise duty, and (ii) the value of the liquor Learned Advocate-General-General agrees that unless an order is specifically placed by the licensee to supply under the terms of his licence a particular quality of lquor from the warehouse, it cannot be said as to what amount can be apportioned to excise duty and as such there is no possibility of separating the component parts of the issue price into the excise duty and the value of the liquor. If the part of the demand raised by the State Government is illegal & the State Government is not entitled to realise that demand under the provisions of the Act and the legal portion thereof is difficult to be separated from the illegal portion, then in that event the entire demand shall stand vitiated. In such circumstances, I am constrained to hold that even under the guarantee systems the demands raised by the State Government for the payment of the short-fall of the guarantee amount cannot be raised from the petitioners, to the extent to which the demands relate to the price of the liquor.
30. For the reasons mentioned above, the demands raised by the respondents under the guarantee system so also under the exclusive privilege system are quashed.
31. Learned Counsel for the petitioners urged that the respondents have adjusted the securities deposited by the licensees against the demands raised by the State Government and, therefore, to that extent the demands have been reduced by the Excise Authorities. The argument of learned Counsel for the petitioners is that the security amount has, therefore, been illegally confiscated by the respondents to pay the demands which are illegal. He, therefore, pressed that the respondents be directed to refund the securities which have been adjusted by the respondents towards the demand which are wholly illegal. The contention raised by the petitioner' counsel appears to be quite sound. If the demands cannot be realised then the respondents have no authority to adjust the securities against such demands.
32. All these writ petitions, except Writ Petition No. 1797 of 1970 Balmukand v. State of Rajasthan which has become in fructuous, are accordingly allowed. The Writ Petition No. 1797 of 1970 is, however, rejected. The demands raised by the respondents in all these cases are, therefore, quashed. The parties shall bear their own costs.