# HAR SHANKAR & ORS. ETC. ETC v. THE DY. EXCISE & TAXATION COMMR. & ORS

- **Citation:** [1975] 3 S.C.R. 254
- **Court:** Supreme Court of India
- **Decided:** 1975-01-21
- **Case number:** Civil Appeals Nos. 485 and 2205 of 1969
- **Bench:** A. N. Ray, K. K. MArnEw, Y. v. CHANDRAcHuo, A. ALAGIRISWAMl, A. C. Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/har-shankar-ors-etc-etc-v-the-dy-excise-taxation-commr-ors-6714
- **Pages:** 30

## Headnote

B
Constitution of India, 1950, Art. 226-Petition under reciprocal righrs and
obligatiol!S arising out of contract, if could be enforced.
Constitution of India, 1950, Art. 226 and P1111jab Excise Act, 1914 and Punjab
Liquor Licence Rules, 1956-Appellants applying for and accepting licences to
vend foreign. liquor Appella11ts, if co11ld question tlze validity of Rules while
a11empti111? to exploit lice11ces,
Constit11tio11 of India, 1950, Art. 19(1) (g)·-Business i11 i11toxicants-~·Cirize11,
C
if has a fundamental right to trade i11 i11toxicants-State, if has power to prohi·
bit absolutely el'ery form of activity relating to intoxicants.
The Pu11jab Acr. 1 of 1914, Sections 27 and 34-Levy of 'licc11ce fe.~' and
·'fixed fee' 011 traders in liquor-'fee', if fee in technical sense of the expressio11,
Pu11jab Excise Act, 1 of 1914, S. 34 and Punjab Liquor Licence Rules, 1956,
Rules 35 and 59(d)-Grant of licence to the sale of liquor-Fee, if can be fixed
by auction.
D
Punjab Excise Act, 1 of 1914, Ss. 3(9), 34, 59(d) and 60 and l'u11jab Liq11or
Licence Rules, 1956, Rules 11, 12 and 31-Levy of 'fixed fee' and additional fee
on persons lwlding licences for sole of foreign liquor, if illegal.
The appellants are retail vendors of country liquor holding licences for the
sale of liquor in specified vends. Those licences were granted to them on acceptance of their bids, in the auctions held by the Excise Department, Government
of Punjab. The appellants in Civil Appeals Nos. 485 and 2205 of 1969 held
E
licences for the retail sale of foreign liquor for consumption on the premises of
their respective establishments.
Facts in Civil Appeal: No. 365 of 1971 are as follows :
Consequent on the judgment dated March 12, 1968 of the High Court of Pun·
jab and Haryana in Civil Writ No. 1376 of 1967 (!age Ram and Ors. v. State of
Haryana & Ors.), holding that the auctions for granting the right tci ·sell country
liquor for the year 1968-69 had become ineffective, the first respondent held on
March 23, 1968 an auction for granting the right to sell coμntry liquor at the
'Town Hall Vend' and 'Kailash Cinema Chowk Vend', Ludhiana. The appellants
gave bids in the sum of Rs. 34,01,000 and Rs. 12,02,000 respectively for two
vends, and those bids were duly accepted by the first respondent. The appellants
were then granted licences in Form L. 14-A of the Punjab Liquor Licence Rules,
1956.
The appellants
deposited Rs. 1,41,708 for the Town Hall Vend aPd
Rs. 50,091 for the Kailash Cinema Chowk Vend being 1 /24th of the licence fee
required to be deposited by way of security. They were, however, unable f[O meet
their obligations uniler the conditions of auction and fell in arrears. The State
Government demanded the payment, threatened to cancel the licen~s gra:nted to
the appellants and declared its· intention to resell the vends at the risk of the
appellants. On August 22. 1968, the appellants filed their writ petition in the
High Court of Punjab and Haryana. They prayed for a direction quashing the
auction held on Murch 23, 1968 and secondly, they asked that the respondents
be
restrained form
enforcing the
obfigations
arising under the terms
and
conditions of the auction.
The High Court held that the State Legislature was competent to regu'late the
business of vending intoxicating liquors, that various provisions of the Act showed
that the State Government had the exclusive right to manufacture or sell intoxi·
cants, that the Financial Commissioner held the jurisdiction to determine the
method of disposal of country liquor vends, that the rules under which the
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HAR SHANK.AR v. DY. EXCISE OFFICER (Chandrachud, J.)
255
impugned auctions were held are substantially different from those under which
the auctions challenged in !age Ram's case were held, that s. 34 of the Act is
not an instance of delegated legislation and that the fixation of the maximum
price of country liquor was a part of the power to regulate the trade in liquor.
On the main c

## Text

_Characters 0–39,272 of 92,902. This is a partial read: ask again with offset=39272 for what follows._

254
HAR SHANKAR & ORS. ETC. ETC.
A
v.
THE DY. EXCISE & TAXATION COMMR. & ORS.
January 21, 1975
[A. N. RAY, c.:r., K. K. MArnEw, Y. v. CHANDRAcHuo,
A. ALAGIRISWAMl AND A. C. GUPTA, JJ.]
B
Constitution of India, 1950, Art. 226-Petition under reciprocal righrs and
obligatiol!S arising out of contract, if could be enforced.
Constitution of India, 1950, Art. 226 and P1111jab Excise Act, 1914 and Punjab
Liquor Licence Rules, 1956-Appellants applying for and accepting licences to
vend foreign. liquor Appella11ts, if co11ld question tlze validity of Rules while
a11empti111? to exploit lice11ces,
Constit11tio11 of India, 1950, Art. 19(1) (g)·-Business i11 i11toxicants-~·Cirize11,
C
if has a fundamental right to trade i11 i11toxicants-State, if has power to prohi·
bit absolutely el'ery form of activity relating to intoxicants.
The Pu11jab Acr. 1 of 1914, Sections 27 and 34-Levy of 'licc11ce fe.~' and
·'fixed fee' 011 traders in liquor-'fee', if fee in technical sense of the expressio11,
Pu11jab Excise Act, 1 of 1914, S. 34 and Punjab Liquor Licence Rules, 1956,
Rules 35 and 59(d)-Grant of licence to the sale of liquor-Fee, if can be fixed
by auction.
D
Punjab Excise Act, 1 of 1914, Ss. 3(9), 34, 59(d) and 60 and l'u11jab Liq11or
Licence Rules, 1956, Rules 11, 12 and 31-Levy of 'fixed fee' and additional fee
on persons lwlding licences for sole of foreign liquor, if illegal.
The appellants are retail vendors of country liquor holding licences for the
sale of liquor in specified vends. Those licences were granted to them on acceptance of their bids, in the auctions held by the Excise Department, Government
of Punjab. The appellants in Civil Appeals Nos. 485 and 2205 of 1969 held
E
licences for the retail sale of foreign liquor for consumption on the premises of
their respective establishments.
Facts in Civil Appeal: No. 365 of 1971 are as follows :
Consequent on the judgment dated March 12, 1968 of the High Court of Pun·
jab and Haryana in Civil Writ No. 1376 of 1967 (!age Ram and Ors. v. State of
Haryana & Ors.), holding that the auctions for granting the right tci ·sell country
liquor for the year 1968-69 had become ineffective, the first respondent held on
March 23, 1968 an auction for granting the right to sell coμntry liquor at the
'Town Hall Vend' and 'Kailash Cinema Chowk Vend', Ludhiana. The appellants
gave bids in the sum of Rs. 34,01,000 and Rs. 12,02,000 respectively for two
vends, and those bids were duly accepted by the first respondent. The appellants
were then granted licences in Form L. 14-A of the Punjab Liquor Licence Rules,
1956.
The appellants
deposited Rs. 1,41,708 for the Town Hall Vend aPd
Rs. 50,091 for the Kailash Cinema Chowk Vend being 1 /24th of the licence fee
required to be deposited by way of security. They were, however, unable f[O meet
their obligations uniler the conditions of auction and fell in arrears. The State
Government demanded the payment, threatened to cancel the licen~s gra:nted to
the appellants and declared its· intention to resell the vends at the risk of the
appellants. On August 22. 1968, the appellants filed their writ petition in the
High Court of Punjab and Haryana. They prayed for a direction quashing the
auction held on Murch 23, 1968 and secondly, they asked that the respondents
be
restrained form
enforcing the
obfigations
arising under the terms
and
conditions of the auction.
The High Court held that the State Legislature was competent to regu'late the
business of vending intoxicating liquors, that various provisions of the Act showed
that the State Government had the exclusive right to manufacture or sell intoxi·
cants, that the Financial Commissioner held the jurisdiction to determine the
method of disposal of country liquor vends, that the rules under which the
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HAR SHANK.AR v. DY. EXCISE OFFICER (Chandrachud, J.)
255
impugned auctions were held are substantially different from those under which
the auctions challenged in !age Ram's case were held, that s. 34 of the Act is
not an instance of delegated legislation and that the fixation of the maximum
price of country liquor was a part of the power to regulate the trade in liquor.
On the main contention that the levy in th.e shape of licence fee was unconstitutional, the High Court held that licences granted for regulating trade in
intoxicating liquors stand in a class by themselv~s and that the consideration
which governs licence fees charged in return for services rendered cannot apply
to licences issued to the successful bidders at auctions of liquor vends.
The
High Court further held that Entry 66 in the State List is not confined to foes
levied for services rendered but extends to all kinds of fees and therefore the
imposition of the licence fee was within the ambit of that Entry.
In these appeals founded on certificates of fitness granted by the High Court
of Punjab and Haryana under Arts. 132(1) and 133(1)(a) and (c) of the Constitution, it was contended on· behalf of the appellants that ( 1) the Financial Commissioner has no power to frame rnles so as to authorise the grant of liquor licences by holding auctions; (2) under s. 34 of the Punjab Excise Act, 1914, the
Financial Commissioner has no right to authorise the levy or collection of any
amount which, strictly, is not a fee; an auction bid for fixing 'fees' is a contrndiction in terms; (3) The licence fee bears no relationship with the services rendered
to the licensees and is therefore not 'fee' in the true sense. Nor can the licence
fee be justified as an 'excise duty' as it is not levied on the manufacture or production of liquor; ( 4) The real character of the levy imposed on licensees through
the medium of auctions is that it is in the nature of a tax; and the Financial Com.
missioner who is a!l independent statutory authoritv having powers which are distinct and different from those of the Government, has no authority lo im;)ose the
tax; nor indeed, has the State Government the power to impose such a rnx; (5)
The Government cannot under a contract impose a levy which it has no power to
impose by law; (6) The new terms and conditions of auctions are. basically and
in substance, similar to those which were stru.ck down by the Punjab High Court
in .Tage Ram's case which decision was affirmed in appeal by the Supreme Court;
and (7) The demand made by the Government for payment of large sums of
money by hoteliers and bar-keepers who supply foreign liquor for consumption on
their premises is arbitrary, without the authority of law and otherwise illegal.
The respondents raised a preliminary objection to the maintainability of the writ
petitions filed by the appellants and to the grant of reliefs claimed by them on
the ground that such of the appellants who offered their bids in the auctions
did so with a full knowledge of the terms and conditions attaching to the auctions
and they cannot by their writ petitions, be permitted to wriggle out of the
contractual obligations arising out of the acceptance of their bins.
Dismissing the appeals,
HELD; (On the preliminary objection raised by the respondents). The bids
given by the appellants constitute offers and upon their acceptance by the Government a binding agreement came into existence between the parties.
Th~ conditions of auction became the terms of the contract and it is on those terms that
licences are granted to the successful bidders in Form L 14-A of the Rules. The
licensees exploited the respective licences for a portion of the period of their currency, presumably in expectation of a profit. Commercial considerations may have
revealed an error of judgment in the initial assessment of profitability of the
adventure but that is a normal incident of all trading transacEons. Those who
contract with open eyes must accept the burdens of the contract along with its
benefits. The powers of the Financial Commissioner to grant liquor li:ences by
m1ction and to collect licence fees through the medium of auctions cannot by writ
petitions be questioned by those who, had their venture succeeded, would have
relied upon those very powers to found a legal claim.
Reciprocal rights and
obligations arising out of contract do not depend for their enforceabilitv upon
whether a contracting party finds if prudent to abide by the terms of the contract.
By such a test no contract could ever .have a binding force. [265B: 2630-E]
Lekhraj Satramdas Lalvani v. Deputy
Custodian-cum-Mwwging Officer
&
Ors., [196qj I S.C.R. 120, relied on.
256
SUPREME CoURT REPORTS
[1975] 3 s.c.R.
Eashes/lar Nath v. The Commissioner o/ Income-tax, Delhi, and Ra/asthan ~
Anr. [l9S9] Supp. l S.C.R. 528, referred to.
Just as country liquor contractors offered bids voluntarily on terms and con·
ditirms governing the auctions, the appellants in Civil Appeills Nos. 485 ~ncl 2:;.JS
of 1969 who hold licences in Form Nos. L-3, L-4 and L·5 for the retail vt;nJ of
foreign liquor, 11oluntarily applied for and accepted the licences knowiufl fully
well that the Financial Commissioner had the power to frame rules governinr. the
lic.ences.
The I ice.nces, ill a large measure, owe their existence and vulidity to
the rule-muKing power of the Financial Commissioner. One of the relief~ which
the appellants ask for is that Rules 27 A, 30 and 31 be declared ullra vim und un·
constitutional and consequently the respondents be directed to refund the as1.esseci
fees already recc>vered.
Ely attempting to exploit the licences ·without the burden
of assessed fees originally attachinP. to them under the rules framed by the Finan·
cial Commissioner, the appellants arc seeking to work the licences 011 such terms
as they find convenient. The writ jurisdiction of High Courts under t\Tt. ~~26 of
the Constitution is not intended to facilitate avoidance of obligations volulltal'il)'
incurl'lld. [26S H; 266 A"B)
Hald f11rt/1er, (i) Thc1 true position gov!rnin11 dealings in intoxicants i~ as
stated and reflected in the Constitution Bencl1 decisions of this Court in The Stare
of Bom~n" and Anr. v, F. N. Ba/sara, [1951) S.C.R. 682, Cooverjee B. Blumisha
v. The .. ~ ••. ' Commissio11er and the Chie · Commls.rioner, A/mer & Ors. 1.1954]
S.C.R. 875, Slate of Assam v. A. N. K/dw.11, Commissioner of Hills Division and
Appeals, Sl1il/ong (1957] S.C.R. 295, Nagendra Nath Bora & Anr:v. The Commis·
. stoner of Hills Division a11d Appeals, As.iam and Ors. (1958] S.C.R. 1240, Amar
Chandra Chakrabarty
v. Collector of Excise, Government of Tripura &: Ors.
(1973] 1 S.C.R. 633 aod State of Bombay v. R. M. D. Cltamarbaugwa/a, 11957]
S.C.R. 874 as interpreted in State of Orissa and Ors. v. Harinarayan lalswal and
Ors. (1972] S.C.R. 784 and Nashirwar etc. v. State of Madhya Pradesh &. Ors.
Civil Appeals :to(os. 1711-1721 and 1723 of 1974 decided on November 27. 1974.
There is no fundamental right to do trade or business in intoxicants. The State,
under its regulator).' powers, has the right to prohlbit absolutely every form of
activitv in relation to intoxicants-its manufacture, storage, export, import, s~le
and nossmion. In all their manifestations, th1:se rights are vested in the State
and indeed without such vesting there can be no effective regulation of various
form$ of activities in relation to intoxicants. (277 F·G]
Krishna Kumar Narufa etc. v. The State of lammu and KaJhmir & Ors. [1967]
3 S.C.R. SO, discussed and explained.
Crowley v. Christamrn,
S4 Law, Ed. 620, 623 and Russel v. The Queen 7
A.C. 829, referred to.
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(ii) The distinction whi.ch the Constitution mnk.~s for legislative purpose1; bet·
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ween a 'tax' and a 'fee' :ind the characteristic> 0f th~sc two as also of 'excise dut~ ·
are well known. The amour.ts charged to th~ 1kensccs in ;he instant c~se: are,
1evidently, neither in the natur» 0f a tax nor of excise duty. But then, the 'licence
:fee' which the State Govrron:ent charged to the licensees through the medium of
auctions or the 'fixed foe' vhich it charged to the vendors of foreign liquor hold·
ing licen:es in Form5. L-3, L-4 and L-5 need bear no quid pro quo to the services
rendered to the licensees. The word 'fee' is .iot used in the Act or the Rufos in
1the technical sense of the cxpre.ssion. By 'licence fee' or '.fii;:<ld fee'-,is mearit the
price or consideration whicn the Government charges to· ilie licensees for p:1rting
G
with its privileges and granting them to the licensees. As !tie State can carry on
a trade or business, such a charge is the normal incident of a trading or business
transaction. [278 H; 279 B-C]
Mathews v. Chickory Marketing Board, 60 C.L.R. 263, 276, The Commissioner, Hinda Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swa·
miar of Sri Shirur Mutt; [1~!541 S.C. 1005. 1041 and Mis. Gu~uswamy & Co. Etc.
v. Slate of Mysore & Ors., (1967] 1 S.C.R. 548, referred to.
H
Gundbing v. Chi~ap,o, 44 T .ed. 725,
Philiips v. Mobile, 52, L.ed. 578 and
Richard v. Mobile, 52 i:ed. 581, referred to.
(iii) The position· obtaining under the Rules as amended on March 22, 1968
is in principle different ai the still-bead dnty is now only 0.64 Paise as against
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HAR SHANKAR v. DY. ·EXCISE OFFICER (Chandrachud, !.) 257
Rs. 17·60 per litre \1-hich was in force under the old rules and excise duty as such
is no longer payable on unlifted quota. The principles governing the deci~ions
in Bhajan La/'s case C.A. Nos. 1642 and 1643 of 1968 decided on August 21,
1972) and Jage Ram's case cannot, therefore, apply any longer. [281 E·F]
(iv) As the amount payable by the licensees on the basis of the bids offered
by them in auction and on the basis of Fixed and Assessed Fees' is neither a fee
in the technical sense nor a tax but is in the nature of the price of a privilege, there
is no question of the Financial Commissioner lacking power to organize auctions so
as to authorize the recovery of any amount which is not a fee properly so-called.
111e Financial Commissioner, under s. 34 of the Act read with rule 59 ( d), has
the power to direct that licences may be granted on payment of such fees, that is,
such consideration as he may by rules prescribe. It is open to him to frame a
rule, as he has in fact framed Rule 35, directing that any class of licences may be
granted on payment of fees fixbd by auction. Once it is appreciated that auc·
tions are only a mode or medium for ascerta·ining the best price obtainable for
the grant of privilege to sell liquor, there would be no 'contradiction in terms' in
· directing, as r. 35 does, that a class of "licences may be granted on the fee fixed
by auction''. [281 F·H]
( v) It is true that the amendments under which the appellants (holding licen·
ces for sale of Foreign liquor) have been called upon to pay fixed fees were made
after the licences were renewed. But the licences, though renewed in January
1968, were to be effective from April 1, 1968. The amendments having come
into force before April !, would govern the appellants' licences and they are, there·
fore, liable to pay the fixed fees under the amended rules. Licences are granted
under s. 34 of the Act subject to the payment of such fees as the Financial Com·
missioner may direct. Tl\e rules made under s. 59(d) authorize the imposition
of additional fees and such authorization would operate on all licences to be effec·
tive thereafter. Such payments demanded from the appellants are "excise re·
venue' within the meaning of s. 3(9) and 60(1) (a) of the Act and it. is, therefore, open to the Government to recover its dues in the manner authorised by
s. 60 of the Act, [282 E-F]
C1v1L APPELLATE JURISDICTION : Civil Appeals Nos. 365, 366,
485, 1102, 1260 to 1263, 1385, 1537, 1548 to 1551, 1553 to 1555,
1557 to 1560, 1566 to 1573, 1588, 1588, 1589, AND 2205 of 1969.
Appeals from the Judgment- & Order dated the 18th November,
1968/6th/10th/24th January, 1969 of the Punjab & Haryana High
Court m C.W. Nos. 37 /69, 2646)68, 2582/68, 1818, 2343, 2875,
2754, 2254, 2256, 2629, 2630, 2753 & 2911/68 91/69, 2706-2708,
3084, 2460, 2461, 2644, 2652, 2580, 2581, 2549, 2699, 2501,
2694, 1277 and 2514 of 1968, fqr the appellants (In C. As. Nos. 365,
366,
1102, 1537, 1548-1551, 1553-1555, 1557-1560,
1566-1573,
1588 & 1589/69).
I
V. M. Tarkunde (In C.A. Nos. 1566, 485/69), A. K. Sen (In
C.A. Nos. 1559 & 1588/69) Tirdth Singh Munjral,
(In all the
258
SllPREME COURT REPORTS
ll~75J 3 S.C:.R.
appeals) except C.As. Nos. 1537, 1554, 1557 and 1558/69) P. C.
Bhartari and O. C. Mathur (In all the appeals and B. P. Jhai (In all
the appeals except C.As. Nos. 1566, 485, 1559 & 1588/69).
S. K. Mehta, K. R. Nagaraja and M. Qamaruddi11, for the appel1a,1ts. In C.As. Nos. 1260-1263/693.
K.. B. Rohtagi and Tarachand Sharma, for the appellants, (In
C.A. No. 1385/69).
Tirath Singh Munjral and H. K. Puri, for the appellants On C.A;
No. 2205/69).
F. S. Nariman, Additional Solicitor General of India, C In C.A.
No. 365/69) v. C. Mahajan (In C.A. No. 1102/69), H. S. Dhillon
(In C.A. Nos. 1588-1589/69) K. S. Chawla (In C.A. No. 2205/69)
S. S. Jauhar (ln C.A. No. 1537 /69), S. K. Gambhir (In C.As. Nos.
1548-1551/69) N. S. Das. Behl (In C.As. Nos.· 1553-1555/69),
Bishamber Lal,
(In C.
As.
Nos.
1557-1560/69)
Harbans
Singh,
(In C.
As.
Nos.
1566-1573/69), N.
N.
Goswami
(In C.A. Nos. 1588-1589/69) K. S. Chawla (In C.A. No. 2205/69)
0. P. Sharma, (In all the matters), for the respondents (In C.As. Nos.
366, 1260-1263, 1385, 1537, 1548-1551, 1553-1555, 15571560, 1566-1.567 1573 & 2205/69) and respondent Nos. l-'-3 (In
C.As. Nos. 365, 1102, 1568-1572, 1588 and 1589/69).
0. P. Shanna, for respondents (In C.As. Nos. 485/69).
The· Judgment of the Court was delivered by
CHANDRACHUD, J.-This is a group of appeals founded on certificates of fitness granted by the High Court of Punjab and Haryana
under Articles 132(1) and 133(1) (a) and (c) of the Constitution.
The appeals arise out of a common judgment dated November 18,
1968 rendered by the High Court in a batch ,of 152 writ petitions
under Article 226 of the Constitution. Those petitions were filed by
liquor contractors and hoteliers to challenge the demands made upon
them by the Department of Excise and Revenue,
Government
of
Punjab.
The appellants are mostly retail vendors of country liquor holding licences for the sale of liquor in specified vends. Those licences
were granted to them on acceptance of their bids in the auctions held
by the Excise Department, Government of Punjab.
The
'licence
fees' realised through bids made in the auction are said to be in the
neighbourhood of Rs. 29 crores.
·
In Civil Appeals Nos. 485 and 2205 pf 1969, the appellants held
licences for the reta:il sale of foreign liquor for consumption on the
premises of their respective establishments.
'
Civil Writ No. 264-5 of 1968 out of which Civil Appeal No. 365
of
~ 971 arises, may be t~ken to be typical of the petitions filed by
retail vendors of country ltquor. For understanding the points in controversy it would be enough to refer to the facts of that petition.
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HAR SHANKAR v. DY. EXCISE OFFICER (Chandrachud, J,.) 2 5 9
Auctio,ns for granting the right to sell country liquor for the year
1968-69 were initially held in various districts of Punjab on or about
March 8, 1968 in pursuance of conditions of auction
framed
on
FebruJry 19, 1968. Those auctions became ineffective by rea:son of
n judgment dated March 12, 1968 of a Division Bench of the High
Court of Punjab and Haryana in Civil Writ No. 1376 of 1967 (Jage
Ram and Ors. "S. State of Harya1~a & Ors.). Following an earlier
judgment in Bhajan Lal vs. State of Punjab (Civil Writ No. 528 of
J 966 decided on February 6, 1967), the High Court took the view
that the licence fee ~ealised through the medium of
auctions
was
really in the nature of "still-head duty
and that licences could· not
be called upon by the Government to pay still-head duty
on the
liquor quota which, un,<ler the terms of auctions, they were
bound
to lift but which in fact was not lifted by them.
On March 21, 1969 a meeting of the State Excise. Officers was
. held under the cha'irmanship of the Financial Commissioner to evolve
a new formula for leasing the right to sell liquor so as to meet the
judgment in' Jage Ram's case. The new policy containing fresh terms
· and conditions of auction was announced on the
22nd and the
impugned auctions in pursuance of that policy were held immediately
thereafter.
On March 23, 1968 the first respondent-the Deputy Excise and
Taxation Commissioner, Jullundur-held an auction for granting the
right to sell country liquor at the Town Hall Vend' and the 'Kailash
Cinema Chowk Vend', Ludhiana. The appellants gave bids in the sum
of Rs. 34,01,000 and Rs. 12,02,000 respectively for the two vends
and those bids were duly accepted by the first respondent. The appel·
!ants were then granted licences in Form L.
14-A of the Punjab
Liquor Licence Rules, 1956 (herein called "the Rules"), Forlll L.
14-A is prescribed under the Rules for the grant of
licences
for
"retail vend of country spirit for consumption off the premises".
The conditions governing auctions were notified through announcements made at the time of auctions. Condition No .. l provides that
all licences for sale of country spirit, foreign liquor, Beer, etc. shall
be granted subject to the provisions of the Punjab Excise Act, 1 of
1914, (hereinafter called "the Act") and the rules framed
thereunder. By Condition 14 (1), licences for retail vend of country spirit
are granted on the basis of "licence fee" fixed by auction. Condition
14(ii) requires that the quota of country liquor fixed for each vend
must be announced before the vend is put to auction. Under Condition 15(i) the successful bidder has to deposit security equivalent to
1 /24th of the amount of the annual lice\1ce fee within the stated
period. The security is refundable to the licensee at the end of the
year unless it is liable to be. forfeited or adjusted against any amount
due from him in respect of the licence. aause (ii) of condition 15
requires the successful bidder to pay the whole amount of licence fee
in 24 equal instalmen~ spread over the year. aause (iii) of Condition 15 authorises the Collector to resell the ve.nd if the
successful
bidder fails to deposit the security or refuses to accept the licence.
260
SUPREME C.O'!JRT REPORTS
(1975] 3 !l.C.R,
In the event of such resale, any deficiency in the; licence fee i:s
reA
coverable from the defaulter in the manner laid down in section 60
of the Act which provides by clauses (a) and ( c) that all ",excise
revenue" and all amounts due to the Government on account c1f any
contract relating to the excise revenue may be recovered from the
person lia'ble to pay the same by any process for the recevery of
arrears of land revenue. By Condition 15(iv), a similar right is conD
ferred on the: Collector to resell vend in the event of the cancellation of a licence. By Condition 17, the still-head duty on ordinary
spiced co.untry spirit is l(lViable at the rate of Rs. 0.64 per proof
. litre. Condition 18(i) entitles the licensee to the refund of the proportionate part of the licence fee if there is a shortfall in the supply
of liquor to him but he is not entitled to any compensation or
damages for the short supply. By Condition No. 24, the maximum
price at which the spiced country liquor may be sold by the licensee
C
is fixed at Rs. 10.00 per Quart, Rs. 5.25 per Pint and Rs. 2.7:5 per
Nip.
The Town Hali Vend was auctioned on the basis of the fixed
quota of 1,50,560 proof litres which is equivalent to 4,01,000 bottles
per year. The Kailash Cinema Chowk Vend was auctionl:d on the
basis of the fixed quota of 50,506 proof litres which is equivalent to
D
1,34,685 bottles per year.
The appellants deposited Rs. 1,41,708 for the Town Hall Vend
and Rs. 50,091 for the Kailash Cinema. Chowk Vend being 1/24th
of the licence fee required to be deposited by way of security. They
were, however, unable to meet their obligations under the condiitions
of auction and fell in arrears. The State Government demanded the
E
payment, threatened to cancel the licences granted to the appellants
and declared its intention to resell the vends a tthe risk of the appellants.
On August 22, 1968 the appellants filed their writ petition in
the High Court of Punjab and Haryana. They prayed for three reliefs
out of which only twc> were pressed at the hearing. They asked for
a direction quashing the auctions held on March 23,
1968
and
I'
secondly they asked that the respondents be restrained from enfom.
ing the obligations aris.ing under the terms and i::om:litions of the auctions. The Deputy Excise and Taxation Commissioner, Jullundur, is
the first respondent to the petition; the. Excise and Taxation Commissioner Punjab, Patiala, is the second respondent; and the State
of PunJab is the third respondent. The relief sought against the fourth
respondent-a private firm-was not pressed.
G
Though several contentions-factual and legal were raised in the
petitic'"'• the appellants restricted their challenge
in: the High Court
to the following points : -·-
.
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'
(1) The Excise and Taxation Commissioner (who in the
Pun.iab exercised the powers of a Financial Commissioner under the Act) had no jurisdiction to
H
determine the method of disposal of the country
liquor vends;
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(2) The power conferred on the Financial Commissioner under section 34 of the Act to grant a
licence, permit or pass on_]!IY,~nt....oLsuch fees, if ..
,my, as he may direct did-not extend to cli~osi,ng of
the coiiiltry liqu()r. vends by «iuctio~; ·
-.... -:-;;··
(3) The
impugned
auctions
conducted
uader
the
amended Rule 36 on the basis of estimated quota in
JJIOOf litres was in substance foμnded on the same
system which had been struck down by the
High
. Court in Jage Ram's oase where it was held that the
levy impost:4..Jbrongb-1he .. medium ol'aiictions ·~
a tax . .;md nQtaJicence fee;
( 4) The State Government alone was competent
to
impose a tax or an excise duty under the Act; that
power could not be delegated to the Financial Commissioner or any other officer.
(5) Section 34 of the.Act which empowered the Financial
Commissioner to levy fees was not a charging section; but if it is construed as containing a delegation
to him of the power of the state to levy taxes, no
guidelines were laid down; and thus the delegation
was excessive.
( 6) \r~ which could lle.J!!!nosed by the. Financial
Comm1sSiO!iCr under Section 34 of the Act could
bnly be.justified if it.had a...I.ll.a.§IDl!l~~e!aJi~!l}f-@i
eryj.£~_r"'nclered to the licensei:s. H 1t was !IDposei:l
olely or maiiil:f for··rne 'purpose of collecting reveue, it was outside the ambit of Item 66 of List II of
he Seventh
Schedule of
the
Constitution. ~
mou'tlts._realised in the. auctions in the guise of.lic.eJ!.Ce
feeLnI~ so .. exorbitant that they co~l<;i ng\ .. ~i,Q!y
be _histified ·under iteni' . .66 .
. """~~-.... ,,,,,_.,. ... , ... ,.,.._.,_
~
(7) The rule fixing the: maximum price at which a licence
could sell a bottle of liquor was ultra vires of the
rule--making powers of the Financial Commissioner
under Section 59 of the Act.
The High Court negatived all of these contentions. It held that
the State Legislature was competent to regulate the business of vending rotoxicating liquors, that various . provisions of. the Act showed
that the State Government had the exclusive right to manufacture or
sell intoxicants, that the Financial Commissioner had the jurisdiction
to determine the method of disposal of country liquor vends, that the
rules under which the impugned auctions were held are substantially
different from th.ose under which the auctidt1S challenged in Jage Ram's
case were held, that section 34 of the Act is not an instance of delegated legislation and that the fixation of the maximum price of country
liquor was a part of the power to regula~e the trade in liquor.
On
the main contention that the levy in the snape of licence fee was unconstitutional, the High Court held that licences granted for regulating
262
SUPREME COURT REPORTS
[1975] 3 s.c.R.
trade in intoxicating liquors stand in a class by themselves and that
the consideration which govems licence fees charged in return
for
set vices rendered cannot apply to licences issued to the successful
bidders at auctions of liquor vends.
The High Court further held
that Entry 66 in the State List is not confined to fees levied for servic.::s rendered but extends to al! kinds of fees and therefore the imposition of the licence fee was within the ambit of that Entry.
Gefore us, the controversy was limited to the following contrnlions :
I. The Financial Commissioner has no power to frame
rules sc as to authorise the grant of liquor licences by
holding au.ctions;
2. Under section 34 of the Punjab Excise Act, 1914, the
Firnrticial Commissioner has no right to authorise the .
levy or collection of any •amount which, strictly, is not
a fee; an auction bid for fixing 'fec.>' is a contradiction
in terms;
3. The licence fee bears no relationship with the services
rendered to the licensees and is therefore not a 'fee'
in the true sease.
Nor can the licence fee be justified
as an 'excise duty' as it is not levied on the manufacture or production of liquor;
4. The real character of the levy imposed on licensees
through the
medium of -auctions is that it is in the
nature of a tax: and the Financial Commissioner who
is an independent statutory authority haviag powers
which arc di-;tinct and diffcrerit from those
of
the
Government, has no authority to impose the tax; nor,
indeed, has the State Government the power to impos·e
suc:h a tax.
5. The Government cannot under a contract impose a
lc\y which it has ·,10 power to impose by law;
6. The new terms and conditions of aw.:tions are, basic:il!y
and in substance. similar to those which were strncL
down by the Punjab High Court in Jage Ram's ca;e
and which decision w~s aftirmcd i'.i appeal by the Supreme Conrt; and
7. The demand made by the GoYernment for payment 01:
large sums of money by hoteliers and bar-keepers wlm
supply foreign liquor for consumption on their premises
is arbitrary, without the authority of law and othcrwis~:
illegal.
Learned counsel for the respondents raised a prelill'inary objc:ction
to the maintainability of the writ petitions filed by the appellatit; and
to the grant of reliefs claimed by them.
He contends that such of
the appellants who offered their bids in the auctions did so with a full
knowledge of the terms and conditions attaching to the auctions and
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HAk SHANKAR v.
DY. EXDISE OFFICER ( Chandrachud, !. ) 2 6 3
they cannot by their writ petitions, be permitted to wriggle out of the
contractual obligations •arising out of the acceptance of their bids. This
objection is well-founded and must be accepted.
Those interested in running the country liquor vends' offered their
bids voluntarily in the auctions held for granting licences for U1e sale
of country liquor.
The terms and conditions of auctions were announced before the auctions were held and the bidders participated i11 the
auctions without a demur und with full knowledge of the commitments
·..vhich the bids involved.
The announcement Of condit10ns governing
the auctions were in the nature of an invitation to an offer tu those
who were interested in the sale of country liquor.
The bids given in
Lhe auctions were offers made by prospective vendors to the Government.
The Government's acceptance of those bids was the acceptance
of willing offers made to it.
On such acceptance, the contract betwee1.1
Lhe bidders and the Government became concluded and a . binding
a2reement came into existence between them. The successful bidders
were then granted licences evidencing the terms of contract between
them and the Go'1ernment, under which they became entitled to sdl
liquor.
The licensees exploited the respective licences for a portion
of the period of their currency, presumably in expectation of a profit.
Commercial considerations may have revealed an error of ju'dgment in
the inifral assessment of profitability of the adventure but that is a
normal incident of the tracljng transadions.
Those who contract
\~ i th open eyes must accept the burdens of the contract along with
its h~nefits. The powers of the Financiql_ Commissioner to grant
liquor licencees by auction and to collect licence fees through the
medium of auctions connot by writ petitions be questioned by those
who, had their venture succeeded, would have relied upon those very
pow~rs to found a legal claim. ·Reciprocal rights and obligations
ari:;ing out of contract do not depend for their enforceability upon
whether a contracting party -finds it prudent to abide by the terms
of the contract.
By such a test no contract could ever have a binding
force.
.
ln Lekhraj Satramdas La/vani v. Deputy Custodian-cum-Managing
Officer & Ors.( 1), the appellant who was removed from the managership ef certai•a evacuee properties filed a petition in the ,Kcrala High
Court under Article 226 of ·tire' Constitution praying for a writ of
mJndamus against the Deputy Custodian and others. This Court held
that the appellant's appointment was coutractual in its na~ure and·
the duti-~s or obligations arising out of contract could not be enforced
by the machinery of a writ under f\.rticle 226.
There was some discussion before us as to whether FunJamental
Rights could be waived and in answer to the preliminary contention
cf the r.espondents it was urged on bel"i"alf of the appellants that they
nre entitled to enforce their fundamental rights, no matt r whether
they agreed to waive those rights while entering into contraCLS with the
Government.
In support of the contention that the1e can be no·
wai .·e:· of fundamental rights, reliance was placed by the appdlants on
the well-known decision of this Court in Basheshar Nath v. Tlte Commissioner of Income-Tax, Delhi & Rajasthan & Anr. (').
(I) [1966] 1 S.C.R. 120.
(2) [1959] Supp. l S.C.R. 528.
'
264
SUPREME COURT REPORTS
[1975] 3 s.c.R.
The writ petitions filed by the appellants in the High Court are
·wholly directed to showing that the Financial Commissioner lacked
the power to grant liquor licences through auctions and to levy through
the medium of auctions a sum which was not a 'fee' in the stric:t sease
·Of the term. The two reliefs which the appellants asked for in the writ
petitions are that the •auctions held by the Government for granting
liquor licences and the bids offered therein by the prospective lkensees
should be quashed and secondly that a direction should be 1ssued to
the respondents restraining them from e.;iforcing the obligations arising
unC:er the bids.
It is interesting that except in the title of the petition
showing that it was filed "Under Article 226 of the C<ms'.itction of
India", the rnpresentative Writ Petition (No. 2646 of 1968) does not
even refer to so much as 11ny provision of the Constitution, much less
to the infringement of any Constitutional rights.
Apart from this, in
the view whi.ch we a.re disposed to take o•a the main contention, no·
·question of the waiver of a "fundamental right" can arise.
The appellants objected to the preliminary contention of
the
re~pondents on the ground that in their counter affidavit filed in the
High Court, respondents had not pleaded that there was any contract
between the parties or that the writ jurisdiction of the High Court
was inappropriate for the enforcement of contractual rights.
This
:summission overlooks the matnial averments contained in the respondents' counter aflidavit.
This is what the respondent say : _
"The allegatia,1s with respect to the policy arc not rekvant inasmuch as the petitioner's liability arises from the terms
and conditions of the Excise contract granted in his favour.
"I further submit that the petitioners voluntarily and of
their own free volition offered themselves as bidders at the
time of auction. Th.: petitioners were aware of the business
that they were likely to do as a result of grant of licence iin
their favour.
Since theirs was the highest bid they were also
11ware of the cost that they were likely to incur for obtaining
a bottle of country liquor."
"I submit that the ".Onditions regarding the sale price of
country liquor were duly announced before the commencement of the auction of the vend.
Th.:l petitioners gave bid
-0f their ·own accord knowing all the implications thereof.
The petitioners having taken the licence with open eyes
and understanding the law on the subject have no cause
of action.
No constitutional provision has been infringed."
Towards the end of the counter affidavit it is stated that the appellants had made contradictory allegations "with a view to confusing the
real issue in an attempt to wriggle out of their contractual obligations."
It is thus clear that in the High Court, the respondents had raised the
·contention which is taken before us by their counsel in the form of
a preliminary objection.
On the preliminary objection it was· finally urged by the appellants
that the objection was misconceived because there was, in fact, no
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PY. EXDISE OFFICER (Chandrachud, J.) 265·
contract between the parties and therefore they were not attempting:
to enforce any co';1tractual rights or to wriggle out of contractual obligations.
The short answer to this contention is that the bids. given
by the appellants constitute offers and upon their acceptance by the
Government a binding agreement caI)le into existe,1ce between
the
parties.
The conditions of auction become the terms of the contract
and it is on those terms that licences are granted to the successful
bidders in Form L. 14-A of the Rules.
As sl'ated in Cheshire and
Fifoot's 'Law of Contract' (Eighth Ed., 1972; P. 24),
"In order to determine whether, in ~my given case, it is
reasonable to infer the existence of an agreement, it has long
been usual to employ the language of offer and acceptance.
In other words, the court examines all the circumsi;ances to
see if the one party may be assumed to have made a firm
"offer" and if the other may likewise be taken to have
"accepted" that offer.
These complemeatary ideas present
a convenient method of analysing a situation, provided that
they are not applied too literally and that facts are not sacrificed to phrases."
AnaJ:'sing the situation here, a concluded contract must be held to
have come into existence between the parties.
The appellants have
displayed ingenuity in their search for invalidating circumstances b11t
a writ petition is not an appropriate remedy.for impeaching contractual
obligations.
·
In Civil Appeals Nos. 485 and 2205 of 1969, filed respectively by
Northern India Caterers (P) Ltd., and M/s. Green Hotel, Bar antl Restaurant and Others, the appellants hold licences in Form Nos. L-3,
L-4 and L-5 for the retail vead of foreign liquor in a hotel, restaurant
and in a bar attached to a restaurant.
No auctions were held
i:or
granting these licences and therefore the reasoning that acceptance
of bids brought into existence a concluded contract between
the
successful bidders and the Governme•at will not apply to the cases of
these appellants.
But they alsO accepted .