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State of Rajasthan Vs. Balmukand - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtRajasthan High Court
Decided On
Case NumberD.B. Special Appeal No. 430 of 1970
Judge
Reported in1974WLN367
AppellantState of Rajasthan
RespondentBalmukand
Cases ReferredMonkland v. Jack Barclay Ltd.
Excerpt:
question - question of legally levying excise duty is a question of law.;the question of legally levying excise duty is essentially a question of law and that is basic and important for the consideration of the arguments advanced in these cases. any vague admission made by the former advocate general mr. kasliwal cannot possibly bind the state of rajasthan, that being a concession on the point of law.;(b) civil procedure code - amendment--prejudice to opposite party not caused--amendment of plea allowed.;it can neither be said in fairness that the question whether the excise duty was duly levied or not prior to march 6, 1965 is irrelevant question in these appeals, nor can it be said in the face of the mass materials produced by the respondents that they are being taken by surprise on.....1. this appeal and 107 other appeals detailed in annexure a' and the 10 writ petitions detailed in annexure! 'b' to this judgment, raise common questions of law relating to the rajasthan excise act, 1950 (hereinafter railed 'the act') and can be conveniently disposed of together. the respondents in these appeals were the petitioners before the learned single judge who had licences from the excise department for the retail sale of country liquor and we shall call them for the sake of convenience 'liquor contractor'. they challenged by their petitions under article 226 of the constitution that the state of rajasthan was unjustified in law in demanding from them moneys which amounted to the excise duty in respect of the liquor which they had not drawn. the state of rajasthan filed no written.....
Judgment:

1. This appeal and 107 other appeals detailed in Annexure A' and the 10 writ petitions detailed in Annexure! 'B' to this judgment, raise common questions of law relating to the Rajasthan Excise Act, 1950 (hereinafter railed 'the Act') and can be conveniently disposed of together. The respondents in these appeals were the petitioners before the learned Single Judge who had licences from the Excise Department for the retail sale of country liquor and we shall call them for the sake of convenience 'liquor contractor'. They challenged by their petitions under Article 226 of the Constitution that the State of Rajasthan was unjustified in law in demanding from them moneys which amounted to the excise duty in respect of the liquor which they had not drawn. The State of Rajasthan filed no written answer but it was contended on their behalf that the liquor contractors had to pay certain guarantee amount of money and if they failed to perform their obligations in terms of their licences the State was entitled to recover that amount. It was contended by Mr. Kasliwal, former Advocate General, appearing before the learned Single Judge, that what was being collected from the liquor con- tractors had a component of excise duty but what was being realised from the liquor contractors was the licence-fee. Accepting the reasoning, given in Kanniya Lal Bhatia & Co. v. The State of Haryana and Ors. Writ Petition No. 343 of 1969--decided on 23rd July, 1969 by the High Court of Punjab and other cases, the learned Single judge came to the conclusion that the State was not entitled to raise demands against the liquor contractors under the guarantee system because, in essence, it was realising excise duty on undrawn liquor. He accordingly quashed the demands made by the State and allowed the writ petitions The leading judgment is in the case of Balmukand v. The State of Rajasthan and Ors. S.B Civil Writ Petition No. 1596 of 1969-decided on July 27, 1971. The reasoning in Balmukand's case was accepted in other cases decided on various dated. Dis-satisfied against those judgments, the State of Rajasthan has come up in appeal.

2. Certain liquor contractors filed revisions before the Board of Revenue for Rajasthan at Ajmer who had failed to draw the requisite quantity of liquor during the year 1962-63 against the demands made by the State. It was submitted before the Board of Revenue that as Chapter VIIA was introduced in the Rules on February 2,1963. the guarantee system envisaged thereby could not govern the contracts prior to it. It was also submitted that forcing the liquor contractors to lift the minimum supply of liquor amounted to their being compelled to sell a minimum quantity and such a compulsion was hit by Article 19(1)(6) of the Constitution of India. Lastly, it was urged that any system which encouraged the increased consumption of liquor, was contrary to the directive principles of the State policy contained in Article 47 of the Constitution of India The Board of Revenue rejected all the three contentions & dis-satisfied, the petitioners have filed the writ petitions detailed in Annexure 'B'. The seven writ petitioners in these petitions formed a firm jointly & bad taken lice- aces for the nine snaps at Ajmer for the retail sale of country liquor for the financial year 1962 63 There were certain negotiations and eventually, they were governed by guarantee system and demands were raised against them regarding the unlifted country liquor which they challenged by means of an appeal before the Excise Commissioner and then by a revision before the Board of Revenue raising the points we have already noticed above The challenge before us is that the liquor contractors are required to pay fixed amount by purchase of liquor from the warehouse the major part whereof is excise duty and where they failed to lift even then they were required to pay excise duty on the short fall which was illegal because it was calling upon a party to pay the tax without the event. Further, the system encouraged alcoholic habit and was hit by Article 47 of the Constitution of India.

3 The 108 appeals and the 10 writ petitions can be divided into three convenient compartments in the light of the arguments urged before us:-

(A) Those pertaining to country liquor licences for years 1962-63 and 1963-64

(B) Those relating to the licences for the sale of country liquor for the year 1967-68

(C) Those relating to country liquor licences for the years 1968-69 and 1969-70 & 1970 71

4. Prior to the financial year 1962 63 the system which obtained broadly speaking was 'auction system' We are not concerned with it. By an order No. F. 1 (47) E & T/61 dated March 31,1962 the Government introduced the following system which they have labelled as 'guarantee system' namely:

1. An offer shall be made to every person holding licence for retail sale of country liquor as on 1st April, 1962 that he shall guarantee in respect of the year 1962 63 income to Government on account of the issue price of country liquor issued for sale at his shop during the year J 962-63 at the issue price applicable on 31 3.62 of the amount worked out in the following manner, namely:

(i) that to the highest yearly issue price paid for the liquor issued to the shop during any of the three years 1959-60, 1960 61 and 1961-62 shall be added, the highest licence money offered for shop for any of the three years 1960-61, 196162 and 1962-63, and the total of the two shall be increased by 10%;

(ii) that if this guarantee is fulfilled no licence money shall be payable by the licensee;

(iii) that for the sales upto the limits needed to make up the guar' anteed amount the licensee shall be paid commission at the following rates:

Kesar Kastoori 0.77 np per litreOrange 0.47 ' -do-Plain 0.44 ' -do-Plain (lightcaramel colour)COUP. 0.16, -do- (iv) tha if issue price of the liquor issued to the shop worked out as in (i) above exceeds the guaranteed amount, commission for the excess quantity of liquor sold by him shall be paid to the licensee at double the rate mentioned above;

(v) that in case the amount of issue price for liquor issued in 1962- 63 worked out at the rates prevalent on 31st March, 1962 falls short of the guaranteed amount, the licensee shall make good the difference between the price calculated at the issue price prevalent on 31st March, 1962, and the guaranteed amount;

(vi) that to secure fulfilment of the guarantee the licensee shall de- posit with the Government by way of security an amount equal to 1/10th of the amount of guarantee. In addition to this deposit, he shall furnish a personal security to the satisfaction of the Assistant Commissioner equal to double the amount of security.

2. If the licensee accepts the offer as above a fresh licence shall be granted to him on the condition agreed to, such conditions being incorporated in an agreement.

3. If the licensee does not accept the offer, the licence held by him shall be cancelled and the licence shall be auctioned to the person bidding for the highest guarantee.

5. By a notification No. F.I (47) E & T/61 dated February 2, 1963 the Rajasthan Excise Rules were amended and a new Chapter V-A was introduced for grant of licences under the guarantee system.

6 By an amendment in the Rules, Chapter VII-B was introduced for grant of licences on payment of lump sum instead of, or in addition to the excise duty, and Sub-rules 67-1 to 67-L were added. According to this system which is called 'the exclusive privilege system' of selling by retail country liquor within any local area under under Section 24 of the Act 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.

7. Form 'C.L. (i) H' was introduced. The important term of the licence according to this was, as translated by the learned Single Judge, as follows:

The licence holder will have to deposit annual, licence fee of Rs. ...for exclusive privilege. The amount of excise duty given as component of the issue price for the supply of the country liquor would 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 12 monthly instalments and each 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....

8. We, would have now come straight away to (trips with the questions raised before us but for an amendment application moved by the State of Rajasthan for amending the grounds in the memorandum of appeal arising from the decision of the learned Single Judge and vehement opposition to it. The application is dated April 19, 1973. Apart from the argumentative amendments of the grounds of appeal the important amendment or introduction of a new ground sought is that prior to March 6, 1965 the Rajasthan State; had not levied any excise duty in respect of country liquor. There is no doubt, that a general concession without specific period was made by Mr. Kasliwal on behalf of the State before the learned Single Judge to the effect that excise duty was charged by the Stare Government on manufacture or production of liquor and such duty was realised by the State from the retail dealer when he went to purchase liquor from the bonded warehouse, but according to him, the question of charging excise duty from the licensee under Chapter VII-A and VII-B of the rules never arose because what was being collected from him was. value for the licence fee. The short question which we have to answer in this connection is whether we should allow the amendment sought by the State of Rajasthan.

9. The principles governing for the consideration of an application for amendment are well settled. In Pirgonda Hongonda Patil v. Kalgonda Shidgonda Patil and Ors. : [1957]1SCR595 it was laid down that all amendments are to be allowed if they satisfy two conditions:

(a) not working injustice to the other side, and

(b) being necessary for the purpose of determining the real questions in controversy between the parties.

Their Lordships approved the dictum of Batchelor, J. laid down in 33 Bombay 644:

That doctrine, as I understand it, is that amendment should be refused only where the other party cannot be placed in the same position as if the pleading had been originally correct, but the amendment would cause him an injury which could not be compensated in costs. It is merely a particular case of this general rule that where a plaintiff' seeks to amend by setting up a fresh claim in respect of a cause of action which since the institution of the suit had become barred by limitation, the amendment must be refused; to allow it would be to cause the defendant an injury which could not be compensated in costs by depriving him of a good defence to the claim. The ultimate test therefore still remains the same : can the amendment be allowed with- out injustice to the other side, or can it not

10 In Jai Ram Manohar Lal v. National Building Material Supply, Gurgaon : [1970]1SCR22 their Lordships of the Supreme Court laid down the law as under:

Rules of procedure are intended to be a hand maid to the administration of justice. A party cannot be refused just relief merely because of some mistake, negligence, inadvertence or even infraction of the rules of procedure. The Court always gives leave to amend the pleading of a party, unless it is satisfied that the party applying was acting mala fide, or that by his blunder, he had caused injury to his opponent which may not be compensated for by an order of costs. However negligent or careless may have been the first omission, and however, late the proposed amendment, the amendment may be allowed if it can be made without injustice to the either side.

11. Leraned Counsel for the respondents invited our attention to New Marine Coal Co. (Bengal) Private Ltd. v. The Union of India : [1964]2SCR859 , Municipal Corporation of the City of Jabalpur v. State of Madhya Pradesh and Anr. : [1963]2SCR135 , Biswanath Banerjee v. State of West Bengal : [1971]3SCR897 , Shanhaggakannu v. Muthu Bhattar and Anr. : AIR1971SC2468 and Ram Swarup v. The District Land Acquisition Officer, Aligarh and Ors. : AIR1972SC2290 . We have examined these cases and we do not find any new or different principles being laid down than those which we have already extracted from the Supreme Court judgments and it is, therefore, unnecessary to examine them in detail.

12 We might mention that after the application for amendment was moved by the learned Advocate General before us the leraned Counsel for the respondents had an opportunity of producing before us material to show whether the State of Rajasthan had levied excise duty under the Act prior to March 6, 1965. That opportunity, the leraned Counsel for the respondents utilised in ample measure by placing a mass of material before us except a specific notification levying the duty as such prior to March 6, 1965 The effect of the material, it is not necessary for us to examine at this stage. Suffice it to say firstly, that the question of legally levying excise duty is essentially a question of law and that is basic and important for the consideration of the arguments advanced in these cases. Any vague admission made by the former Advocate General Mr. Kasliwal cannot possibly bind the State of Rajasthan. that being a concession on the point of law. It can neither be said in fairness that the question whether the excise duty was duly levied or not prior to March 6, 1065 is irrelevant question in these appeals, nor can it be said in the face of the mass materials produced by the respondents that they are being taken by surprise, on account of this legal plea. The purpose of the procedural laws primarily is to serve the noble end of justice and not to frustrate it. We cannot conceive of any prejudice being caused to the respondents in these appeals on account of this amended plea and, therefore, we allow the amendment application.

A/ PERTAINING TO COUNTRY LIQUOR LICENCES

FOR THE YEARS 1962-63 and 1963-64:

13. In regard to the cases covered by this period, the learned Advocate General urged that there was no levy of excise duty prior to March 6,1965 and, therefore, no question of its realisation could arise. His submission was that excise duty being a tax it could not be levied by implication, analogy or intendment and whatever was being collected during the period aforesaid was excise revenue and not excise duty The submission of Mr. Bhargava appearing on behalf of the petitioners in the ten writ petitions was that under Section 28 of the Act excise duty could be imposed under licences granted under the Act and no separate notification was necessary for the purpose. The other arguments flowing from the aforesaid premise we shall deal else where. Mr. Guman Mal Lodha appearing for the respondents in special appeals, however, argued that Section 28 and 29 of the Act are distinct and their field pf operation is also separate and distinct. His contention was that the State Government by its directions imposed excise duty and determined rates thereof and once the excise duty was imposed by the direction of the State Government under Section 28 then 'the way or ways' of collection thereof could be by at notification. Leraned Counsel produced for our examination the following documents in support of his argument that excise duty was levied by the State of Rajasthan:

(1) The Annual Report on the Administration of Excise and Taxation for the year 1958-59 column no 4 whereof shows that excise duty on different varieties of country liquor was realised This is published by the Government Press of Rajasthan Government.

(2) Communication of the Excise Commissioner dated 9 8 1988 (Ex. 6) in which the expression 'duty' has been mentioned.

(3) Forms required to be submitted by the liquor contractors every quarter (Ex 7) in the column 'kh' whereof the word 'duty' has been mentioned. '

(4) Copies of the cash challans (Ex. 8 and Ex. 9) in which the amount deposited has been split up as ''cost price' and duty'.

(5) Notification dated March 26, 1967 (Ex. 10) issued by the Excise Commissioner in which reference to increase in duty has been mentioned. -

(6) Another Gazette Notification dated May 30, 1967 (Ex. 11) in which it is mentioned that increased rate of duty will be recoverable on the stock in balance from the date of enhancement.

(7) Letters dated March 23, 1961 (Ex. 12), dated April, 1961 (Ex. 13), and dated April 19, 1962 (Ex 14).

None of these three letters contains reference to excise duty at such.

(8) Ex.15 is a copy of the Government order Ex. F(16)E and T/68 dated March 20,1962 increasing the selling price of the country liquor where in the Governor has said that there will be corresponding in the excise duty.

(8) Extract from the memorandum explanatory to the budgets for the years 1952-63, 1953-54, 1955 56,1963 64 and 1964-65 in which heading 'S' indicates that 'State excise' or 'State Excise Duty' or 'still head duty' and various figures have been mentioned.

(10) Statement showing the rate of different varieties of country liquor for the year 1962-63 in which duty for liquor has been shown in column No. 5.

etc.

14. On behalf of the Government Shri R. Ramakrishna, Special Secretary to Government, Finance (Excise) Department, Rajasthan, Jaipur, has submitted an affidavit which is to the effect that do excise duty notification has issued before March 6,1966 imposing or levying Excise Duty on country liquor under Section 28 and 29 of the Act according to the official records closely examined by him.

15. The question which awaits an answer is how could excise duty be legally levied in Rajasthan. Section 28 of the Act berefts of superfluities for our present purposes reads:

'An excise duty...at such rate or rates as the State Government shall direct, may be imposed...on any excisable article imported or exported, or transported or manufactured, cultivated or collected under any licence granted under this Act.

Explanation....

Station 29 of the Act reads as follows:

Manner of levying duty--Subject to such rules regulating the time, place and manner of payment, as the State Government may prescribe, such duty may be levied in such one or more ways as the State Government may by notification in the Official Gazette direct.

16. The excise duty according to the tenor of Section 28 of the Act can be imposed on any excisable article if it is imported or exported or transported or manufactured or cultivated or collected under any licences granted under this Act. Section 29 provides that the State Government may prescribe such excise duty in such one or more ways as the State Government may by notification in the Official Gazette direct, but this is subject to such rules regulating time, place and the manner of payment as the State Government may prescribe. While Section 28 authorises the imposition of excise duty Section 29 prescribes the procedure for levying the same namely, by notification in the Official Gazette. Reference to some other provisions of the Act would make the position perfectly clear. Section 11 prohibits the import of any excisable article unless the duty (if any) imposed under Section 28 has been paid or a bond has been executed for the payment thereof. Certain proesses are therefore prohibited such as import, export, transport, manufacture, cultivation or collection unless the excise duty It vied has been paid or promised. These processes can also be not performed unless there is a licence. Mr. Bhargava's argument that the words 'under any licence granted under this Act' in Section 28 refer to the imposition of the excise duty, is unsound. Licences are for the purposes mentioned above, and they can be performed only on payment of excise duty, if any. Process of levying it is indicated in Section 28 which can be only by means of a notification in the Official Gazette. As regards the time, place and the manner of payment, the said duty has to be prescribed by means of rules. In our opinion, therefore, the imposion of excise duty on excisable articles cannot be levied by means of a notification in the Official Gazette as envisaged by Section 29. Further Section 28 and 29 should be read as integrated scheme relating to the event when the excise duty can be levied and collected. This conclusion of ours also disposes of the argument of Mr. Lodha that these two sections are independent of one another.

17. Some of the documents submitted by Mr. Lodha and enumerated by us earlier do make reference to the Excise Duty. Learned Advocate General contended that it was for domestic accounting that reference to excise duty was made. However, ingenious the explanation it leaves us unimpressed.

The question still persits whether these references are enough for the levy of excise duty? Could excise duty be levied and exacted by reference to these documents? Our answer is plainly in the negative and therefore while we appreciate the efforts made by Mr. Lodha in resurrecting so many diverse documents after research but they are 'mighty bloodless substitutes' for a notification envisaged by Section 29 of the Act.

18. Same is our argument in regard to clause 22 in the agreement form CL (1) A where the increase in 'duty' has been permitted. It we could hold or had held that excise duty was leviable by the terms of a licence clause 22 could be of assistance to the leraned Counsel for the respondents. In the absence of a proper levy of excise duty according to law clause 22 remains a thoughtless clause in the licence.

19. Article 265 of the Constitution lays down that no tax shall be levied or collected except by authority of law. After considering the provisions of Section 28 and 29 of the Act the manner of imposition of excise duty in our opinion is that it must be by means of a notification published by the State Government in the Official Gazette. Thus, the levy of duty under the Act could not be in any other manner excepting the one provided by the Act. The excise duty could not be imposed either by means of a contract or by executive order or direction. It is a well settled proposition of law that intention to tax cannot be assumed otherwise than by express words. If a new burden by way of tax is to be imposed it must be stated in plain language and indirect reference however eminent the source, is not adequate to impose a tax. No tax' can be levied by inference or analogy. The dictum of Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioner (1921) 1 K.B. 64 at page 71 may be usefully reproduced:

It simply means that in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.

Viscount Simon in Canadian Eagle Oil Co, Ltd. v The King 1927 Tax Cases 64 at page 248 approved the aforesaid dictum of Rowlatt J. paying great tribute to the out- standing knowledge of Rowlatt J. on this subject coupled with a happy concise- ness of phrase employed by him in laying down the general principles under- lying the taxing statutes. The same principle has been laid down by their Lordships of the Supreme Court in A.V. Fernandes v. The State of Kerala : [1957]1SCR837 where Biagwati J. made the following observations:

It is no doubt true that in construing fiscal statutes and in deter- mining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. We must of necessity, therefore, have regard to the actual provisions of the Act and the rules made thereunder before we can come to the conclusion that the appellant was liable to assessment as contended by the Sales Tax Authorities.

We may also refer to a decision of the Supreme Court in State of Kerala v. P.J. Joseph : AIR1958SC296 . Section 18 of the Cochin Abkari Act which was under consideration of their Lordships provided for the levy of duty of excise in one or more of the ways prescribed therein and Section 69 of that Act required that all rules made or notifications issued shall be made and issued by publication in the Cochin Sarkar Gazette and upon such publication such rules and notifications shall have the force of law. The State Government made an endorsement on a referance made to it by the Board of Revenue to the effect that it accorded sanction for extra quota of foreign liquor being allowed to wholesale licensees in Cochin on payment by them of a commission at '20% of the price of the liquor. This order of the State Government was not published in the Gazette. Their Lordships of the Supreme Court held that the aforesaid endorsement was not statutory order passed by the State Government. Nor it was a rule or notification prescribing the levy of duty. As it was not published in the gazette it had no force of law. It was argued before the Supreme Court that Section 18 being a machinery section for working out the imposition of tax under Section 17 of the endorsement was an order but their Lordships replied the contention and held that even if the said endorsement could be considered to be an order passed by the State Government it could have no legal effect without its publication in the official gazette and that the impost could not be levied by executive Order. It is thus clear that the order of the State Government dated March 31, 1962 or the licence C. L (1) A issued by the Excise Commissioner by his notifications or documents submitted by Mr. Lodha indicating rates of retail sale of country liquor could not amount to levy of excise duty in accordance with the provisions of Section 28 and 29 of the Act. In this connection, we may also refer to the decision of their Lordships of the Supreme Court in Bimal Chandra Banerjee v. State of Madhya Pradesh etc. : [1971]81ITR105(SC) . The case also related to the realisation of excise duty on sale of liquor. The contention in that case was that the notification issued by the State Government prescribing the conditions to be inserted in licences for the sale of liquor which inter alia provided that the excise contractor shall be liable to make good every month the deficit of monthly average of total minimum duty of the previous month was invalid as no tax could be levied on the basis of a contract nor could tax be levied by executive order. Their Lordships accepted this contention and observed:

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 transgressed 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.

Thus, the Supreme Court in the aforesaid case firmly lays down that tax could only be levied by the legislature or if the power has been delegated to the executive even then the tax could be levied only in the manner prescribed by the legislature We are therefore satisfied that tax could not be levied either by means of licences or executive orders or notifications or budget heads fixing the rates of the retail sale of country liquor nor could tax be assumed to have been levied merely because of the motion thereof in the annual financial statement, challans and documents of the like nature. As the first notification imposing excise duty on the manufacture of country liquor was issued by the State Government on March 6, 1965 and was published in the Rajasthan Gazette of the same time, there is no doubt that no excise duty on manufacture of country liquor was imposed any time prior to the aforesaid date. It is perhaps for that reason that the issue price notifications published by the Excise Commissioner from time to time contain no reference to any duty notification prior to March 6, 1965 and a note inserted in such notifications after mentioning the issue price and or sale price fixed for various varieties of country liquor mentioned that 'the rates of issue price and or sale price are exclusively of prices of containers.' But, it is significant to observe that similar note inserted in the notification dated March 6, 1965 varying the issue prices of country liquor stated that ''the rates of issue price are exclusive of the price of containers but inclusive of excise duty levied under Government notification No. F. 1 (.26) FD/Ex/ 65. Similarly, issue price notification issued subsequent thereto also contained identical note giving reference to the notification which was in force at the relevant time. Here, we may refer to an argument which was advanced before the learned Single Judge and which prevailed with him, that while fixing the issue price of different varieties of country liquor the State Government appended a note clarifying that the rates of issue prices were exclusive of the prices of containers but inclusive of excise duties levied under the Government notifications. We have can-fully examined the issue price notifications published by the Excise Commissioner from time to tune and have found that the note making a reference to the inclusion of excise duty in the issue price came into existence only from and after March 6, 1965 while the earner notifications did not contain any such reference to the inclusion of excise duty. The Rajasthan Issue & Sale Prices of Country Liquor Rules, 1964 as printed in Siui M.L. Jindal's book on the Rajasthan Excisa Act, at page 151, was placed before the learned Single Judge which contained a note having reference to the Government notification levying excise duty dated November 15, 1968 though the issue price rules were published in the Rajasthan Gazette dated April 1, 1964 vide notification dated March 31, 1964 We have examined the original notification dated March 31, 1964 published in the Rajasthan Gazette dated April 1, 1964 and are satisfied that no such note occurs in the aforesaid notification. It appears that the learned Single Judge was misled by the incorrect notification contained in Jindal's book.

20. In the absence of any legal levy of excise duty the relationship between the liquor contractors and the State of Rajasthan prior to March 6, 1965 was obviously being regulated by licences issued to them. The Ace further authorises the recovery of amounts covered by licences duly entered into between the licensee and the State under the the canvass of excise revenue which is defined in Section 3(8) of the Act as follows:

'Excise revenue' means revenue derived or derivable from any payment, duty, fee, fine (other than a fine imposed by a court of law) or confiscation imposed or ordered under the provisions of this Act or of any other law for the time being in force relating to liquor or intoxicating drugs.

When the liquor contractors were granted licences for the retail sale within a specified area by the State of Rajasthan they were certainly entitled to receive payments thereunder as agreed upon for the giant of temporary monopoly for the. retail sale of country liquor The expression 'any payment' is wide enough to include payments under these licences and the State is perfectly justified in recovering such payments in accordance with the terms of the contract. Section 40 further authorises the State Government for the recovery of excise revenue including all amounts due to the State Government by any per- son on account of contract relating to excise revenue In this view of the matter, the recovery sought to licences granted prior to March 6, 1965 is no recovery of the excise duty because none legally existed.

21. It would be appropriate to examine another argument advanced by Mr. Bhargava at this stage. His submission was that the licences under guarantee system granted to his clients were void ab initio and illegal because guarantee system was introduced in the Rules with effect from February 2, 1963 by the introduction of Chapter VII-A and prior to that a licence of guarantee system could not be granted. His contention in other words was that under Section 31 a licence shall be granted only in such form and for such purposes as the State Government may prescribe by rules either generally or for any class of licences, permits or passes. Under Section 41 the State Government may make rules for the purpose of carrying out the provisions of the Act and may make Rules (e) regulating the period and localities for which and the persons to whom licences for the vend by wholesale or by retail of any excisable article may be granted, and because the words 'for inctance the guarantee system' in Rule 57(3) of the Rajasthan Excise Rules, 1950 (hereinafter called 'the Rules') were added only on February 2, 1963, the licences granted to his clients on such system were void for the period 1962-63.

22. The argument of Mr. Bhargava suffers from two infirmities The first is that it pre-supposes that excise duty could be levied by the terms of a licence itself. We have already said that it cannot be. The second infirmity is that licences envisaged by Rule 57 (3) bereft of the words added by notification dated February 2, 1963 (namely 'for instance the guarantee system') were wide enough to include this system. The words of Rule 57 (3) 'any other system, sanctioned by the Government from time to time' are elastic and in contrast to the earlier two systems of 'auction'' and 'commission' contemplate a residue of all systems other than the first and second subject to the sanction of the Government. Addition of the words in 1963 was by way of an illustration and abundant caution. We may also add that having worked under that licence for the full term thereof it is not open to the writ petitioners to challenge it when its non-compliance results in inconvenient consequences. If the terms were onerous the liquor contractor could decline to accept the licence and it could have been given to his competitor. After excluding his competitor and taking the licence and enjoying its monopoly could he challenge its validity? Reference in this connection may be made to observations in Basheshar Nath v. Commissioner of Income-tax, Delhi and Rajasthan and Anr. AIR 1959 SC 169:

Suppose a man obtains a permit or a licence for running a motor vehicle or an excise shop Having enjoyed the benefit of the permit for several years, is it open to him to say when action is proposed to be taken against him to terminate the licence, that the law under which the permit was granted to him was not constitutionally valid? Having derived all the benefit from the permit granted to him, is it open to him to say that the very Act under which a permit was granted to him in not valid in law?

23. Mr. Bhargava next contended that the form C.L (1) A in which the. licence was issued to the petitioners in the writ petitions, Was not authorised by the State Government by means of a rule framed under Section 31 or Section 41 of the Act and as such, it was invalid and did not have the force of law. He further argued that the only levy permissible under the Act was of licence fee or excise duty and both must be prescribed by the Rules and incorporated in the conditions of the licences. But, as this was not done, the State Government was not entitled to realise the guarantee amount or such part thereof which remained unpaid by the petitioners. There is no doubt that the form in which the licence for sale of country liquor is to be issued as also the restrictions subject to which and the conditions on which such licences are to be granted, have to be prescribed by the State Government by rules in accordance with the provisions of Section 31 of the Act, But, under Section 42(e) the Excise Commissioner subject to the previous sanction of the State Government is authorised to make rules prescribing the restrictions under and the conditions on which any licence may be granted and under Section 72 of the Act all rules made and notificaiions issued under the Act including the rules made by the Excise Commissioner under the aforesaid power under Section 42(e) on publication in the official gazette have effect as if enacted in the Act. Under Section 41, the State Government is empowered to make the rules and Rule 93 made by the State Government under the aforesaid power provides that the Excise Commissioner may prescribe forms for any licence to be issued under the rules. Thus, a combined reading of the aforesaid provisions of Section 31, 41, 42(e) and 72 of the Act show that the power of prescribing the form for granting licences as also the power to lay down the restrictions therein and the conditions on which such licences may be issued may be delegated by the State Government to the Excise Commissioner, and under Rule 93 of the Rules such power to prescribe forms for licences has actually been delegated. The form C.L (1) A was issued by the Excise Commissioner vide notification dated 12th April, 1962 with the sanction of the State Government and in accordance with the order of the State Government dated 31st Match, 1962. The rules were published in the Rajasthan Gazette dated 31-1-57 and in accordance with Section 72, on such publication, they had the effect as if enacted in the Act There is thus no inconsistency between Section 31 of the Act and Rule 93 of the Rules as the State Government could itself prescribe the forms and licences and lay down the restrictions or conditions in respect thereof or may delegate the power to the Excise Commissioner who could exercise the same with the sanction of the State Government. In this view of the matter, the submission of the leraned Counsel that from C.L. (1) A was not prescribed by the State Government and that was issued by the Excise Commissioner in breach of Section 31 of the Act cannot be accepted. The Excise Commissioner was duly authorised to prescribe the form C.L. (1) A and the contract entered into by the petitioners with the State Government on the aforesaid form, is not illegal or invalid in any manner.

(B) THOSE RELATING TO THE LICENCES

FOR THE SALE OF COUNTRY LIQUOR

FOR THE YEAR, 1967-68

24. During the year 1967-68 licences were granted in accordance with the terms of the Form C.L. (1) E. the relevant term whereof, as translated by the learned Single Judge, reads:

The licensee guaranteed to the State Govt. (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.

The law relating to the guarantee system is contained in Chapter VII A where- under Rule 67-A to Rule 67-H are directly relevant. Rule 67-A authorises that licences for retail shop of country liquor under the guarantee system may be granted to persons guaranteeing to draw from a Government warehouse and sell, in a financial year or part thereof, country liquor of a specified value, hereinafter called the 'amount of guarantee'. The term 'value' has been defined in the Explanation to Rule 67A In exercise of the powers conferred by Clause (e) of Section 42 of the Rajasthan Excise Act the Excise Commissioner with the previous sanction of the State Government made the Rajasthan Issue and Sale Prices of Country Liquor Rules, 1964 A table is given in which variety of liquor, the strength and issue price per bulk litre have been indicated A note appended to the said table shows that the rate of issue prices are exclusive of the prices of containers, but inclusive of excise duties levied under Government notification...The guarantee system during the period of 1967-68 in essence is the same as we have discussed earlier. The learned Single Judge has observed that it was clear under the guarantee system that the licensee was required to pay the value of the liquor to the extent to which he guaranteed the payment and that value of the liquor contained certain component which could easily be called payment of excise duty as the licensee pays that amount by drawing liquor from the warehouse of the State Government & pays the issue price thereof. The argument of the learned Advocate General is that the amount which was being realised from the respondents was not the excise duty at ail but is was the contract amount called the guaranteed amount and it was in the nature of excise revenue as distinguished from excise duty. Repeating the argument adopted by the learned Single Judge leraned Counsel for the respondents urged that under the Issue Prices Rules the value as envisaged by Rule 67 A bad included an element of excise duty and when the Government enjoins upon the liquor contractor to make good the guaranteed amount then in the short fall demanded there is essentially an element of excise duty which ia being charged in respect of unlifted liquor.

25. We have already noticed that under Rule 67A the Explanation defines 'value'. In the interest of exactitude first us reproduce it. It reads:

Explanation.--'Value' for the purpose of the above rule shall be the total issue price at a Government Warehouse calculated at the sate of such price current on the first day of January preceding the financial year to which the guarantee relates

The value for the purposes of Rule 67A, namely, under the guarantee system what the liquor contractors guarantees is that he shall sell in a financial year, for instance, in 1967-68, liquor of the fixed value. For the purposes of calculating that value the explanation would come into operation and the measure would be the price which was prevailing on 1st January, 1967. The price of the liquor may increase or decrease, the excise duty may also fluctuate during the financial year 1967-68 yet for the purpose of calculating the guarantee amount the measure of value would be as it obtained on the 1st day of January, 1067. It is correct that the value did contain a component of excise duty and in case of a given variety it is certainly capable of being separated from the cost price thereof. But when the State insisted on the fulfilment of the guarantee, shall we say that it was collecting excise duty or excise revenue? The argument urged by the learned Advocate General was that in every price there was always a component of excise duty provided that the item was subjected to excise duty and when a guarantee was being enforced which was entered into as a matter of voluntary contract between the two parties it could not be said that what was being realised was excise duty on the said article.

26. In order to appreciate the rival contentions it would be necessary at this juncture to appreciate whit excise duty is. Excise is stated in the Webster Third New International Dictionary, 1966 Edition, page 792, as 'duty', toll tax (b) an internal fax, duty or impost levied upon the manufacture, sale or consumption of a commodity within a country and usually forming an indirect tax that falls on the ultimate consumer....'According to the Oxford Dictionary the word 'excise' was originally acacias, a word derived through the Dutch from the late Latin-accensare, which meant to tax. In England since the 17th century the word 'excise' has acquired a particular, though not a precise connotation. The primary meaning of 'excise duty' as used in England is that of a tax on certain at ticks of luxury such as spirits, beer or tobacco produced or manufactured in that country and is used in contradistinction to customs duty on articles imported into the country from elsewhere. The primary and the fundamental meaning of excise duty as pronounced by Gwyer, C.J. in re C.P. Motor Spirit Act AIR 1939 FC 1 is that it is a tax on the articles produced or manufactured in the taxing country and intended for home consumption. Thus the duty of excise may be construed as a duty leviable upon the manufacturer or producer of excisable articles or at least at the stage of or in connection with manufacture of them. In the aforesaid case the learned Chief Justice made an exhaustive survey of the law on the subject and after examining various legislative measures relating to excise duty made the following pertinent observations at page 12 of the report:

After examining various Provincial Acts relating to the control of alcohol, I have been unable to find any case of excise duties payable otherwise than by the producers or manufacturers or persons corresponding to them; I am speaking, of course, only of alcohol manufactured or produced in the Province itself. The Advocate General of India referred us to an Act of the Central Provinces Excise Act (No. 2 of 1915) which was said to make provision for the imposition of an excisable duty on retail sales. I have been unable to find any such provision in the Act; it provides, it is true, as do other Provincial Acts, for lump sum payments in certain cases by manufacturers and retailors, which may be described as payments either for the privilege of selling alcohol or as consideration for the temporary grant of a monopoly; but these are clearly not excisable duties or anything like them

Again Gwyer, C.J. speaking for the Federal Court in The Province of Madras v. Boddu Paidanna and Sons AIR 1942 FC 33 relied on the earlier decision and observed that the duties of excise are duties levied upon the manufacturer or producer in respect of the manufacture or production of the commodity. He observed that the tax on the sale of goods is a tax levied on the occasion of the sale of goods and is levied qua seller and not qua manufacturer or producer though in the case of 6rat sale the two imposts may be overlapping yet they are distinct.

27. In Governor-General in Council v. Province of Madras AIR 1945 PC 98 their Lordships of the Privy Council observed that the valuable assistance could be had from the aforesaid judgment of the Federal Court AIR 1942 FC 33. Agreeing with Gwyer, C.J. Lord Simonds speaking for the Privy Council held that a duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax upon goods are not upon sales or the proceeds of sale of goods. The Privy Council further observed, 'The two taxes, the one levied upon a manufacturer in respect of his goods, the other upon a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time upon the occasion of its sake.'

28. The aforesaid three cases were considered by the Supreme Court in R.C Jail v. Union of India : AIR1962SC1281 and Subba Rao, J. as he then was, speaking for the Court observed:

With great respect, we accept the principles laid down by the said three decisions in the matter of levy of an excise duty and the machinery for collection thereof Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, 'hat is, its ultimate incidence will always be on the consumer. Therefore, subject always to be legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on fair construction of the provisions of a parti- cular Act.

29. In Shinde Brothers v. Dy. Commissioner, Raichur : [1967]1SCR548b Sikri, J. as he then was, observed that the nature of the excise duty was considered in the above mentioned decisions of the Federal Court and the Privy Council and by the Supreme Court in R.C. Jail's case : AIR1962SC1281 and that these cases establish that in order to be an excise duty (a) the levy must be on 'goods ' and (b) the taxable event must be the manufacture or production of goods. The levy need not b imposed at the stage of the manufacture but may be imposed liter.

30. According to the guarantee system when the liquor contractor premised to purchase liquor of the value entered in his licence he had to fulfil this condition and should there be a short fall in the purchase in the course of the financial year for which the licence subsisted then the liquor contractor was required to make good the deficiency. According to the learned Advocate General what remained to be realised in the event of there being a short fall was an 'excise revenue' & according to the leraned Counsel for the respondents what was sought to be recovered did contain an element of 'excise duty' which could not be recovered and as the two were inextricable in a guarantee system the learned Single Judge found that nothing was recoverable. A number of authorities have been cited before us by the learned Advocate General and the leraned Counsel for the respondents. Before we come to express our opinion on this vital issue it will be appropriate if we briefly discuss these cases.

31. The first case to which the learned Advocate Geueral invited our attention was of Shinde Brothers v. Dy. Commissioner, Raichur : [1967]1SCR548b . In this case an excise contractor had been given the licence of the Bangalore Urban group of 26 shops. The contractor paid shop rent or the 'kist' for this group of toddy shops amounting to Rs. 3,61,116 a month which was later on increased to Rs. 4,41,216/- per month The 'kist' amount was determined at the tender-cum auction sale of the exclusive privilege of vending toddy in the shops. The contractor paid amount equal to two months 'kist' as initial and security deposit for each of these years. The notification by which the tenders were invited inter alia said that the sales tax on the prescribed rate and the other taxes that may be levied on any other law that shall also be payable. The contractor paid education and Health Cess on the prescribed rate pursuant to the conditions He challenged the vires of the Mysore Health Cess Act and it was urged that even if the Act was valid it did rot empower the levy of health cess on shop rent because shop rent did not fall within Schedule A of the impugned Act or Entry 51 of List II. One of the arguments urged before the Supreme Court was that the shop rent or 'kist' collected from the excise contractor wag not a duty of excise and did not fall within Entry 61 of List II or Schedule A of the Mysore Health Cess Act. Examining the connotation of the term 'excise ' Sikri, J, as he then was, laid down certain conditions in paragraph 22 of the judgment to test whether a certain demand amounted to excise duty or not. In order to be exact let us reproduce paia 22 of the judgment:

What is the true character or nature of the levy in this case? First, it is a payment for the exclusive privilege of selling toddy from certain shops. The licensee pays what he considers to be equivalent to the value of the right. Secondly, it has no close relation to the production or manufacture of toddy Thirdly, the only relation it has to the production or manufacture of toddy is that it enables the licensee to sell it Bat he may sell little less or more than he anticipated, depending on various factors. Fourthly, toddy has already paid one excise duty in the form of tree tax If the petitioner taps toddy he pays tree-tax, but he need not tap himself. Fifthly, the duty is not uniform in incidence because the amount collected has no relation to the quantity or quality of the product but has only relation to what the petitioner thought be could recoup by the sale of the excisable article s. What he recoups would depend upon the amount of sales and the conditions prevailing during the licensing year. Sixthly, there are no express words showing that what is being realised from the petitioner is an excise duty. Li fact what Section 16 of the Mysore Excise Act says is that a privilege has been granted to him for selling by retail Section 28 refers specifically to an amount due to the Government by any grantee of the privilege and the legislature apparently did not think that this amount would be covered by the expression 'all duties, taxes, fines and fees payable to the Government' occurring in Section 28. Seventhly, the privilege of selling is auctioned well before the goods come into existence. In this case it would be noticed that the second notification, dated April 27, 1964, was for the sale during the next two years.

Tested in the aforesaid light, we are inclined to take he view that the guaranteed amount in our cases appear to us to be equivalent to be a 'kist' of the Mysore Act, being price paid for the exclusive privilege of selling country liquor in retail and excepting test No. 4 mentioned in the bove passage the rest of the conditions are almost similar to those with which we are concerned We shall revert to it again a little later.

32. Now, let us refer to the cases cited by the leraned Counsel for the respondents. The first case is the decision of the Supreme Court in Bimal Chandra Banerjee v. State of Madhya Pradesh AIR 1959 SC 169. In this case clause 2(C) was inserted It reads:

The minimum quantity for taking issues from the Warehouse for sale is fixed at 3213 p. litres spiced spirit and 25940 p litres plain spirit. You shall be liable to make good every month the deficit of mothly average of the total minimum duty on or before the 10th day of each month following the month to which the deficit duty relates.

The aforesaid condition relating to payment of deficit duty as such does not exist in our case In fact what was sought to be collected in the Madhya Pradesh case was the deficit of total duty and their Lordships held that this could be done by any bye-law or rule etc. The case is thus clearly distinguishable & does not help the respondents.

33. The next case is Murli Prasad v. Excise Commissioner, U.P. ILR 1968 (2) All. 468. In this case, which is clearly distinguishable, still head duty was demanded from the licence holders in respect of country liquor not issued to them and was not lifted by them. The learned Judges came to the conclusion that the excisable event did not happen and as such the excise duty did not become leviable.

34. Strong reliance was placed by the leraned Counsel for the respondents on the three decisions of the Punjab and Haryana High Court and one of which was relied upon by the learned Single Judge also. These cases are : (1) Bhajan Lal Saran Singh & Co v. The State of Punjab and Ors. decided on 6th February, 1967, reported in 1967 Current Law Journal, 460; (2) Jage Ram v. The State of Haryana decided on 12 3 1968 and (3) Kanhiya Lal Bhatia & Co. v. The Sfate of Haryana and Ors. decided on 23 7 1969. In Bhajan Lal's case the argument was based upon clauses 7 and 8 of the licence. Clause 7 in that case provided that there would be a fixed minimum quota for each vend which would be an amount of licence. Clause 8 of the licence insisted that the licensee would lift each month the proportionate quota for the month fixed for his vend or deposit still-head duty realisable thereupon and in the event of any deficiency in the amount of still-head duty realisable from the lifting of the full proportionate quota due to the short lifting of the quota by the licensee the deficiency may be realised from the amount of security deposit by him at the time of the grant of the licence. It was conceded by the leraned Counsel appearing for the State that the still-head duty was excise duty. What was sought to be realised under clause 8 and Rule 36 (23A) of the Punjab Rules was the deficiency in the excise duty on account of short lifting of proportionate monthly quota by the licensee. No clause of the contract or rule in identical terms obtains in the cases before us.

35. In Jage Ram's case the Punjab Rules were amended in 1960 and again in the year 1937. In this case it was held that the amended rule was merely a device to ensure the minimum quantity of excise duty or still-head duty which could be recovered for the exclusive right to vend liquor at a particular place. It was also held that if the licenses failed to lift the specified quota of liquor for a specified period he had still got to pay the still-head duty and thus what the State exchequer obtained by the auction of country liquor licence was merely collecting still-head duty. It will be seen that this is clearly distinguishable from the cases before us because what is sought to be realised in the case before us is the guaranteed amount or the unpaid portion thereof.

36. The third case is Kanhiyalal Bhatia and Co. v. State of Haryana and Ors. and it followed Jage Ram's case, which we have already found is distinguishable The learned Judges observed in this case as follows:

The present cases appear to fall in the category of the two earlier cases, as the mixing up of the licence fee with the still-head duty inextricably has continued in the present cases mspite of the amendments made by the Haryana Excise authorities with effect from April 1, 1968.

Even if certain observations in this case support the contentions of the respondents, we regret, with great respect, we are unable to agree with the observations to the extent they are inconsistent with our conclusions hereinafter.

37. Now, in the cases before us it is common ground that the country liquor is manufactured at Sri Ganganagar Sugar Mills, which is a limited liability company, the majority shares whereof are owned by the Rajasthan State. According to Rule 85, the duty on manufacture imposed on country liquor is payable before the issue of such liquor from the distillery, brewery, warehouse or godown (as the case may be) except where the issue is under a bond for the payment of duty, B nded warehouse has been defined in Rule 2 (a-1) as 'any warehouses or part of a distillery appointed by the Excise Commissioner as a bonded warehouse for the storage of excisable articles brought there under bond for the payment of duty when issued from such warehouse.'

38. We have already seen in detail what excise duty is. Its relation- ships, generally speaking, is with the manufacturer so far as we are concerned. There is no relationship established between the Sri Ganganagar Sugar Mills and the liquor contractors. The liquor contractors worked under a distinct licence given to them by the State Government. What they guaranteed was a fixed amount of money calculated on the basis of the issue price obtaining on the 1st of January preceding the grant of the licence and had no connection with the manufacture or production of specified goods. Merely because the price had a component of the excise duty we cannot characterise it as recovering excise duty from the liquor contractor. A deep analysis of the price structure of a commodity may lend generally into ascertaining the price of the raw material, the price of the labour, the cost of management, the interest on capital and any impost levied on such process of manufacture. Whenever a contract is entered into in regard to the total price merely because there is a component of excise on the non-fulfillment of the terms of the contract, it can not be said that what was sought to be realised was tax Right from a motor car to a match box, each unit has an element of excise and it cannot be said that in case of a breach of an agreement relating to the price what is sought to be enforced is the payment of the excise duty. The harsh reality of economic life is that all impost and duties are ultimately borne by the consumer.

39. The demand made by the State from the; liquor contractors is for the guaranteed amount in the original fixation whereof the issue price formed the basis. Merely because the issue prices had a component of excise duty it will be wrong to say that the demand for the guaranteed amount or deficiency therein was a demand for the excise duty. In essence what is sought to be recovered is the short fall occasioned on account of the failure on the part of the liquor contractor to fulfil the terms of his licence and it squarely falls within the definition of the term excise revenue, which we have examined in detail in earlier part of the judgment. The learned Single Judge has observed that enforcement of the payment of the guaranteed amount by the State against a liquor contractor was equal to the enforcement of the issue price and because the issue price contained an element of excise, therefore, it amounted to compelling the payment of the excise duty. We regret that at the time of the granting of the licence what was in the mind of the State and the liquor contractor was the totality of the value calculated in regard to the period anterior to the grant of the licence and not to the current excise duty component thereof

(C) THOSE RELATING TO THE

COUNTRY LIQUOR LICENCES

FOR THE YEARS 1968-69, 1969-70 & 1970 71

40. The system during the aforesaid period has been labelled as Exclusive Privilege System. Chapter VII- B of the Rules is captioned as Licence on payment of lump sum instead on or in addition to duty. Rule 67-1 reads as under:

67-1. Licence on payment for exclusive privilege --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 rum 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 procedure adopted in issuance of the licences under this Chapter is contained in Rule 67-J (2), which reads:

(2) Subject to such general or special directions as may be issued by the Excise Commissioner from time to time, the District Excise Officer may, before the commencement of the financial year, make an offer to the existing licensee of the shop in the form laid down by the Excise Commissioner for the grant of licence for the ensuing year, indicating therein the amount of payment for exclusive privilege payable by him under Rule 67 I, and the conditions of licence. Such an offer shall give not less than five days, within which he may communicate to the District Excise Officer his acceptance or otherwise of the offer in the form laid down by the Excise Commissioner. The acceptance shall be accompanied with proof of payment of such security and in such manner as may be indicated in the offer.

The two sections, which are relevant for the appreciation of this system, deserve to be recalled. They are Section 24 and 30. They read as under:

24. Grant of exclusive privilege of manufacturers, etc.--Subject to the provisions of Section 31, the Excise Commissioner may order the grant to any person of a licence for the exclusive privilege:

(1) of manufacturing or of supplying by wholesale, or of both, or

(2) of selling by wholesale or by retail, or

(3) of manufacturing or of supplying by wholesale, or of both, & of selling by retail,

any country liquor or intoxicating drug within any local area of those parts of the State of Rajasthan to which this Act extends.

30. Payment for exclusive privilege.--Instead of or in addition to any duty leviable under this Chapter, the Excise Commissioner may accept payment of a sum in consideration of the grant of the licence for exclusive privilege under Section 24.

The licences issued for the aforesaid system is Form CL(1)H, condition 1 (Ka) thereof roughly translated reads:

That the licensee is granted exclusive privilege under Section 24 of the Act and the amount fixed by 'he Exciser Commissioner is in the sum of Rs. ...which has to be deposited by the licensee The amount of excise duty given as the component of the issue price for the supply of the country liquor would 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 issue price. The licence-holder will have to deposit the above amount in 12 monthly instalments and each monthly instalment should be pail 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-fee due for that month.

41. The grievance of the petitioners before the learned Single Judge; was that because they failed to lift the requisite quantity of liquor as agreed upon in the licences, they were being called to make good the loss. According to this systew a certain sum was fixed for the grant of exclusive privilege. If the liquor contractor purchased liquor of the value the excise duty whereof equalled the price for the exclusive privilege he was to be given credit there- for. In the event of his failing to lift the liquor the excise duty whereof fell short of the agreed price of the exclusive privilege the liquor contractor was to be called upon to pay the deficit. The interpretation put by the learned Single Judge was that the remission given to the liquor contractor to the extent of the excise duty meant when there was a short fall in the purchase the State was claiming recovery of excise duty from the liquor contractor on the unlifted quantity of liquor. The submission of the learned Advocate General is that the price for the exclusive privilege was remitted to liquor con- tractor and the excise duty was merely a measure for giving him the concession or discount.

42. In our opinion, Section 24 read with Section 30 authorises the Excise Commissioner to grant a licence for the exclusive privilege of selling by retail country liquor in the State of Rajsthan and under Section 30 instead of. or in addition to any duty leviable under this Chapter the Excise Commissioner may accept payment of a sum in consideration of the grant of the licence for exclusive privilege under Section 24. The words 'instead of any duty' the Commissioner may accept payment of a sum in consideration of the grant of licence for exclusive privilege are significant. What was agreed between the liquor contractor and the State was that the contractor shall have an exclusive privilege to sell country liquor in a specified area for the period fixed in the licence and the contractor was to pay a certain sum of money for enjoying this exclusive privilege. If he did not sell even an ounce of liquor then too he was liable to pay the said amount but if he showed enthusiasm in his sales then he was given the benefit of remission in the price of the exclusive privilege, the measure for which was the excise duty leviable to the extent that the liquor contractor could neutralise the entire amount of exclusive privilege in the excise duty payable by him. Could we say in these circumstances that when the liquor contractor failed to lift adequate quantity of liquor and thereby failed in neutralising the entire price of exclusive privilege he was being called upon to pay the excise duty? Our answer is clearly in the negative and the reason is that it is a simple transaction of giving a concession to a liquor con- tractor who showed enthusiasm in increasing the sales and such remission is clearly authorised by the language of Section 24 and 30 of the Act and the measure for the remission was excise duty and we find nothing wrong in this scheme.

43. The last argument, which was urged by Mr. Bhargava in regard to these systems was that these licences were invalid b cause they were directly contrary to the Directive Principles contained in Article 47 of the Constitution of India inasmuch as they encouraged the liquor contractors to boost their sale and injure the community and its morals by increased alcoholic consumption. Mr. Bhargava relied on Firm Nusserwanji Balsara v. State of Bombay : AIR1951Bom210 and Om Prakash Dhri and Ors. v. The State of Punjab AIR 1951 Pun 93. The decision of the Bombay High Court : AIR1951Bom210 was set aside in appeal by the Supreme Court in the State of Bombay and Anr. v. P.N. Balsara AIR 1951 SC 318. The Punjab case AIR 1951 Pun 93 however, dissented with the Full Bench of the Madras High Court in Champakam Dorairajan v. State of Madras : AIR1951Mad120 . The decision of the Madras High Court : AIR1951Mad120 was later confirmed on appeal by their Lordships of the Supreme Court in the State of Madras v. Sm. Champakam Dorairajan and Anr : [1951]2SCR525 . Their Lordships observed in the last mentioned case:

Indeed, the learned Advocate General of Madras even contends that the provisions of Article 48 over ride the provisions of Article 29(2). We reject the above noted contentions completely. The directive principles of the State Policy, which by Article 37 are expressly made unenforceable by a Court cannot override the provisions found in Part III which, notwithstanding other provisions, are expressly made enforceable by appropriate writs, orders or directions under Article 32'....'The directive principles of State policy have to conform to and run as subsidiary to the Chapter of Fundamental Rights, In our opinion, that is the correct way in which the provisions found in Part III & IV have to be understood.

44. Article 37 of the Constitution clearly provides that provisions contained in Pan IV of the Constitution shall not be enforceable in any Court, although it has been provided that it shall be the. duty of the State to apply the directive principles of State policy in making laws. Thus according to the very language of Article 37 the directive principles, are not enforceable in a Court of law In the case of Mohd Hanif Quereshi and Ors. v. State of Bihar : [1959]1SCR629 their Lord- ahips considered the directive principles of State policy as contained in Article 48, 18 it was pursuant to those directive principles regarding the preservation and improvement of the breeds and for prohibition of slaughter of cows and calves that the three Acts, the validity of which was under challenge before their Lordships, were made by the respective legislature. Their Lordships observed that these directive principles, it is true, are not enforceable by any court of law and held that harmonious interpretation is to be placed on the Constitution with regard to the Directive Principles and the fundamental rights

45. In re The Kerala Education, Bill 1957 AIR 1958 SC 956 the question was of exercise of legislative power under Articles 245 and 246 of the Constitution by the Kerala Legislative Assembly and there was no question in that case of enforcement of directive principles in a Court of law. It was observed by their Lord- ships that a harmonious construction should be adopted. In this case they observed at page 966:

While our fundamental rights are guaranteed by Part III of the Constitution, Part IV of it, on the other hand, lays down certain directive principles of State policy. The provisions contained in that Part are not, enforceable by any Court, but the principles therein laid down are, nevertheless fundamental in the governance of the country arid it shall be the duty of the State to apply these principles in making laws.

Thus in both the aforesaid decisions of the Supreme Court relied upon by the leraned Counsel for the petitioners, it has been emphasised that although the State has to apply the directive principles while making laws in respect of matters allotted to it under the Constitution, yet the directive principles are not enforceable by a Court of law. It is, therefore, not possible to accept the contention of the leraned Counsel for the liquor contractors that the contracts entered into either under the guarantee system or under the exclusive privilege system by them with the State Government were void and they were opposed to the directive principles of the State policy contained in Article 47 of the Constitution.

46. The further submission of the leraned Counsel that the contracts entered into by them should be struck down under Section 23 of the Contract Act being opposed to public policy cannot also be accepted. Where the validity of an agreement is impeached on the ground that it is opposed to public policy under Section 23 of the Act, the parties setting up the plea must prove by clear and satisfactory evidence that the contract was supported by a prohibited consideration. In Ghorulal Prakash v. Mahadeodas Maiya and Ors. : AIR1959SC781 Subba Rao, J speaking for the Court, quoted with approval the following observations of Asquith LJ in Monkland v. Jack Barclay Ltd. 1951(1) All. E.R. 714:

The Courts have again and again said that where a contract does not fit into one or other of these pigeonholes but lies outside the char- med circle, the courts should use extreme reserve in holding a contract to be void as against public policy, and should only do so when the contract is incontestably and on any view inimical to the public interest.

The Supreme Court Summarised the doctrine of public policy thus:

Public policy or the policy of law is an illusive concept; it has been described as 'untrustworthy guide' 'variable quality', 'uncertain one', 'unruly noise', etc; the primary duty of a Court of law is to enforce a promise which the parties have made and to uphold the sanctity of contracts which form the basis of society, but in certain cases, the Court may relieve them of their duty on a rule founded on what is called the public policy; for want of better words Lord Atkin describes that something done contrary to public policy is a harmful thing, but the doctrine is extended not only to harmful cases but also to harmful tendencies; this doctrine of public policy is only a breach of common law, and, just like any other breach of common law, it is governed by precedents; the principles have been crystallized under different heads and though it is permissible for Courts to expound and apply them to different situation it should only be invoked in clear & incontestable cases of harm to the public; though the heads are not closed & though theoretically it may be permissible to evolve a new head under exceptional circumstances of changing world, it is advisable in the interest of stability of society Dot to make any attempt to discover new heads in these days.

47. It may be correct to say that certain old views may in some cases deserve a reconideration but the question is by whom? Is it the business of the chosen representatives of the people to give content to the ideology contained in the Directive Principles or is it for us to comment when they do not We are afraid, it is not our business to say that a deliberate legislative enactment passed by the chosen representatives shall not be enforced because it runs- ideological contrary to the aspirations contained in Article 47 of the Constitution.

48. One more argument in this context deserves mention. The liquor contractor having enjoyed exclusive monopoly for the retail sale of the country liquor for many years suffered from no murmours of conscience while carrying on this business, Article 47 of the Constitution notwithstanding When they failed in performing their part of the licence for whatever reason, they are invoking the wisdom of prohibition to justyfy their non-performance of their obligations. It ill lies in the mouth of the person who thrives on alcoholic consumption to proclaim the virtues of prohibition.

49. The learned Advocate General also argued in the same strain when he urged that discount on the increased sale of liquor was intended to exclude sales of sub-standard or illicit liquor to save the health of the people. We decline to comment on this submission either. For us the touch stone is whether the demands of the State Government are correct in law and as we have already held that as they are, they are not opposed to Section 23 of the Contract Act and are not vitiated on that account.

50. No other point was urged before us. The result is that the appeals detailed in Annexure 'A' are allowed and the writ petitions detailed in Annexure 'B' are dismissed. There will be no orders as to costs in the circumstances of these cases.


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