# STATE OF ORISSA AND ORS v. NARAIN PRASAD AND ORS

- **Citation:** [1996] Supp. 5 S.C.R. 465
- **Court:** Supreme Court of India
- **Decided:** 1996-09-03
- **Case number:** Civil Appeal Nos. 11509-12 of 1996
- **Bench:** B.P. Jeevan Reddy, K.S. Paripoornan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-orissa-and-ors-v-narain-prasad-and-ors-14607
- **Pages:** 24

## Headnote

Excise Law:
Orissa Excise (Exclusive Privilege) Rules, 1970: Rules 6A and 6.
Liquor licence-Under contract-Considerations for grant of-Licensee
required to lift 'minimum guaranteed quantity' ( MGQ) every month-As well
A
B
c
as to remit excise duty twice every month-While licensee obliged to remit
excise duty in case tlie full M.G.Q. was not lifted, Collector could.pennit
deficit to be lifted in subsequent n01th-Licensee as per tenns of contract
unde1took to remit excise duty plior to lifting of liquor-However, licensee D
failed to lift M.G.Q. as well as to remit excise du{JWl1en demand for
payment of excise duty was made, licensee filed wlit petition challenging the
Rules obliging payment of excise duty even p1ior to lifting and sale of
liquo1~Held : Rules valid-Payment of excise duty was independent obligation unrelated to lifting of M.G.Q.-Licensee obliged to remit excise duty E
whether or not he lifted full M.G.Q.-Licensee was bound by tem1s of
contract-Bihar and Olissa Excise Act, 1915, Ss. 27, 28 and 29.
Constitution of India, 1950 : Anicle 226.
Extraordinary jwisdiction-Invoking of-Person who entered into conF
tract could not later be allowed to challenge validity of tenns of that contract
by invoking extraordinary julisdiction of High Coult.
Words and Phrases :
''Plivilege''-Meaning of-In the context of grant of liquor licence.
G
The respondents were the highest bidders in respect of the various
liquor shops in the State. Their bids were accepted. They executed agree·
ments in the prescribed form and were issued licences. Each of them had
undertaken under the agreement/contract to lift a particular specified
quantity of liquor every month during the relevant excise year as well as H
465
466
SUPREME COURT REPORTS [1996] SUPP. 5 S.C.R.
A to remit the excise duty as specified in the Orissa Excise (Exclusive
Privilige) Rules, 1970. They did the business under the said licences for
the entire excise year. They failed to lift the agreed Minimum Guaranteed
Quantity (M.G.Q.) They also failed to remit the excise duty as provided by
Rule 6-A of the Rules. And when notices were served calling upon them to
B remit the appropriate amount, they approached the High Court by way of
writ petitions questioning the demand notices. The High Court allowed the
writ petitions. Being aggrieved, the appellants preferred the present ap·
peal.
The main contention of the respondents-licensees was that the
C
demand for payment of excise duty on unlifted quantity of liquor amounted
to levy of duty and that such levy was not warranted by the Bihar and
Orissa Excise Act, 1915. They contended that Rule 6-A(3) of the Rules was
ultra vires the rule-making power or the Government and was outside the
purview of the Act. They contended that if there was a sale of liquor, duty
could be collected on the liquor sold but that seeking to collect the duty
D even in the absence of sale amounted to levy of duty contrary to the
provisions of the Act. While the respondents-licensees looked at the impugned demand as an instance of levy of excise duty, the State looked at
it as a case of enforcing the undertakings contained in the agreement/contract executed by the licensees.
E
Allowing the appeal, this Court
HELD : 1. A person who enters into certain contractual obligations
with his eyes open and works the entire contract, cannot be allowed to turn
round, and question the validity of those obligations or the validity of the
F
Rules which constitute the terms of the contract. The extra-ordinary
jurisdiction of the High Court under Article 226, which is of a discretionary nature and is exercised only to advance the interests of justice, cannot
certainly be employed in aid of such persons. Neithl-<" justice nor equity is
in their favour. [ 480-C-D]
G
2.1. A reading of Rule 6-A of the Orissa Excise (Exclusive Privilege)
Rules, 1970 makes it clear that the licensee shall have to undertake to lift the
Minimum Guaranteed Quantity (M.G.Q.) ofliquor every month. Clause (3)
of

## Text

_Characters 0–39,611 of 56,966. This is a partial read: ask again with offset=39611 for what follows._

STATE OF ORISSA AND ORS.
v.
NARAIN PRASAD AND ORS.
SEPTEMBER 3, 1996
[B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.]
Excise Law:
Orissa Excise (Exclusive Privilege) Rules, 1970: Rules 6A and 6.
Liquor licence-Under contract-Considerations for grant of-Licensee
required to lift 'minimum guaranteed quantity' ( MGQ) every month-As well
A
B
c
as to remit excise duty twice every month-While licensee obliged to remit
excise duty in case tlie full M.G.Q. was not lifted, Collector could.pennit
deficit to be lifted in subsequent n01th-Licensee as per tenns of contract
unde1took to remit excise duty plior to lifting of liquor-However, licensee D
failed to lift M.G.Q. as well as to remit excise du{JWl1en demand for
payment of excise duty was made, licensee filed wlit petition challenging the
Rules obliging payment of excise duty even p1ior to lifting and sale of
liquo1~Held : Rules valid-Payment of excise duty was independent obligation unrelated to lifting of M.G.Q.-Licensee obliged to remit excise duty E
whether or not he lifted full M.G.Q.-Licensee was bound by tem1s of
contract-Bihar and Olissa Excise Act, 1915, Ss. 27, 28 and 29.
Constitution of India, 1950 : Anicle 226.
Extraordinary jwisdiction-Invoking of-Person who entered into conF
tract could not later be allowed to challenge validity of tenns of that contract
by invoking extraordinary julisdiction of High Coult.
Words and Phrases :
''Plivilege''-Meaning of-In the context of grant of liquor licence.
G
The respondents were the highest bidders in respect of the various
liquor shops in the State. Their bids were accepted. They executed agree·
ments in the prescribed form and were issued licences. Each of them had
undertaken under the agreement/contract to lift a particular specified
quantity of liquor every month during the relevant excise year as well as H
465
466
SUPREME COURT REPORTS [1996] SUPP. 5 S.C.R.
A to remit the excise duty as specified in the Orissa Excise (Exclusive
Privilige) Rules, 1970. They did the business under the said licences for
the entire excise year. They failed to lift the agreed Minimum Guaranteed
Quantity (M.G.Q.) They also failed to remit the excise duty as provided by
Rule 6-A of the Rules. And when notices were served calling upon them to
B remit the appropriate amount, they approached the High Court by way of
writ petitions questioning the demand notices. The High Court allowed the
writ petitions. Being aggrieved, the appellants preferred the present ap·
peal.
The main contention of the respondents-licensees was that the
C
demand for payment of excise duty on unlifted quantity of liquor amounted
to levy of duty and that such levy was not warranted by the Bihar and
Orissa Excise Act, 1915. They contended that Rule 6-A(3) of the Rules was
ultra vires the rule-making power or the Government and was outside the
purview of the Act. They contended that if there was a sale of liquor, duty
could be collected on the liquor sold but that seeking to collect the duty
D even in the absence of sale amounted to levy of duty contrary to the
provisions of the Act. While the respondents-licensees looked at the impugned demand as an instance of levy of excise duty, the State looked at
it as a case of enforcing the undertakings contained in the agreement/contract executed by the licensees.
E
Allowing the appeal, this Court
HELD : 1. A person who enters into certain contractual obligations
with his eyes open and works the entire contract, cannot be allowed to turn
round, and question the validity of those obligations or the validity of the
F
Rules which constitute the terms of the contract. The extra-ordinary
jurisdiction of the High Court under Article 226, which is of a discretionary nature and is exercised only to advance the interests of justice, cannot
certainly be employed in aid of such persons. Neithl-<" justice nor equity is
in their favour. [ 480-C-D]
G
2.1. A reading of Rule 6-A of the Orissa Excise (Exclusive Privilege)
Rules, 1970 makes it clear that the licensee shall have to undertake to lift the
Minimum Guaranteed Quantity (M.G.Q.) ofliquor every month. Clause (3)
of Rule 6-A of the Rules, read with clauses (1) and (2) means that the
obligation to lift the M.G.Q. of liquor and the obligation to remit the excise
H duty payable for the month are two distinct obligations. While the obligation
STATEv. NARAIN PRASAD
467
to lift the M.G.Q. is to be discharged before the end of the month, the A
obligation to remit the excise duty for the month is to be discharged in two
equal instalments, viz., first instalment by the fifth and the second instal·
ment by the fifteenth of the month. The consequences of not remitting the
excise duty in the manner specified are set out in clauses (3) and (4), which
make the said obligation mandatory and emphatic. The Rule also makes it B
clear that if a given month, the full M.G.Q. is not lifted, the Collector can
permit the deficit to be lifted in the subsequent month but this has nothing
to do with the obligation to remit excises duty for the month on the dates
specified. Thus the payment of excise duty under the Rules is made an
independent obligation unrelated to lifting of M.G.Q. It is, in truth and
effect, the consideration for the grant of privilege/licence alongwith the C
amounts specified in Rule 6. In this sense, the Rules are clear on the point
that the rental and excise duty (payable under Rules 6 and 6-A) together
constitute the consideration for the grant oflicence. (473-E-F; 485-F-G]
2.2. What all the licensee paid is nothing but consideration for the D
grant of licence and the mere fact that the total consideration fixed
comprises several elements (including excise duty), it cannot be said that
excise duty is levied upon the licensee. The amounts mentioned in Rules 6
and 6-A, as also the undertakings contained therein, together constitute
the consideration for grant of privilege/licence, determined by auction, as
contemplated by Section 29 of the Bihar and Orissa Excise Act, 1915. The E
obligation to remit the excise duty is independent of the sale/purchase of
liquor; it is payable on or before the specified dates every month; it is an
addition to the monthly instalment payable under Rule 6; its remittance is
not tied up to the purchase of M.G.Q. except to the extent that the licensee
has to pay the prescribed instalment of excise duty prior to the lifting of F
the liquor. It, therefore, cannot be said that there is any levy of excise duty
upon the licensee. The concept here is altogether different. It is a case
where the consideration payable by the licensee for grant of licence is made
up of monthly rental plus excise duty besides the obligation to purchase the
M.G.Q. The licensee pays the rental and excise duty as undertaken by him
under the agreement/contract executed by him and as required. by condiG
tions of the licence under which he is doing business, i.e., as and by way
of consideration. Indeed, the Rules could have provided that the entire
amount provided under Rules 6 and 6-A should be paid in advance before
the issuance of licence in which event it could not have been contended that
it is not in consideration of grant of licence. Merely because, the Rules H
468
SUPREME COURT REPORTS [1996] SUPP. 5 S.C.R.
A
provide a concession and provide for collection of the said amounts in
convenient instalments spread over the year, the nature and character of
the payments cannot charge. [486-B-G]
Panna Lal v. State of Rajasthan and Ors., [1976] 1 SCR 219; State of
Andhra Pradesh '" Y. Prabhakara Rao, [1987] 2 SCR 513; Har Shankar v.
B Deputy Excise and Taxation Commissioner, AIR (1975) SC 1211; State of
Haryana and Others v. !age Ram and Others, AIR (1980) SC 2018 and
Nashilwar v. Sate of Madhya Pradesh, [1975] 2 SCR 861, relied on.
Bimal Chandra Banerjee v._ State of Madhya Pradesh, [1971] 1 SCR -
844; State of Madhya Pradesh v. Finn Gappulal, [1976] 2 SCR 1041 and
c Excise Commissioner, U.P. Allahabad v. Ram Kumar, [1976] Supp. SCR
D
532, held inapplicable,
Central Provinces and Berar Sales of Motor Spirit and Lubricants
Taxation Act, 1938 (1939) F.C.R. 18, referred to.
3. The expression "privilege" in the context of intoxicating liquor is
not defined in the Act. In the context of excise enactments, the expression
"privilege" really means the licence permit granted by the State. The State
is entitled to prohibit the trade in intoxicating liquors altogether; it can
impose a total ban; no citizen can claim any fundamental right to manufac·
E
_ture or to trade in these liquors; it is, however, open to the State to lift the
ban partially and allow the trade in liquor to be carried on in the manner
prescribed; the State says that a citizen can trade in liquor only under a
licence- to be granted by it for the consideration specified in that behalf
and that the trade therein can be carried on only in accordance with the
F
regulatory provisions prescribed by it in that behalf. It is this grant of
licence/permit, which is called or is described sometimes as grant of
"privilege". It cannot be said that the theory of "privilege" has been ex·
ploded in Synthetics and chemicals case, and that it could ~o longer be
invoked. [487-G-H; 488-A·B; 486-H; 487-A]
G
Synthetics and Chemicals Limited and Others v. State of U.P. and
Others, [1990] 1 SCC 109, held inapplicable.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 11509-12
of 1996 Etc. Etc.
H
From the Judgment and Order dated 22.12.94 of the Orissa High -_
STATE V'.°'NARAIN PRASAD [B.P.JEEVANREDDY,J.]
469
Court in O.J.C. No. 279, 827, 1359 and 1361 of 1992.
Indrajeet Roy, Genl. for State of Orissa, P.N. Misra and Raj Kumar
Mehta for the Appellants.
Soli Sorabjee and V.A. Mohta, Vinoo Bhagat, Ashok Kr. (Jupta, J.K.
A
Das and S.K. Sinha for the Respondents.
B
The Judgment of the Court was delivered by
B.P. JEEVAN REDDY, J. Leave granted.
Having voluntarily entered into contracts with the Government of C
Orissa, undertaking to lift a particular quantity of liquor every month and
also to remit the monthly excise duty in two equal instalments on the fifth
an fifteenth of the month, the respondents - licencees committed default
on both counts and when the amount of excise duty is sought to be
recovered from them, they have turned round and are contending that the D
said undertaking in the contract is not enforceable in law. They invoked
the extra-ordinary jurisdiction of the High Court under Article 226 of the
Constitution for the purpose. The High Court has upheld their contention.
Hence, these appeals by the State of Orissa.
The grant of excise licences in the State of Orissa is governed by the E
Bihar and Orissa Excise Act, 1915 (the Act) and the rules made thereunder. Section 22 provides for grant of exclusive privilege of sale of country
liquor, whether wholesale or retail. Section 27 empowers the State Government to impose excise duty or countervailing duty, as the case may be, at
such rate as it may direct on any of the activities specified therein. It would F
be appropriate to set out sub-section (1) of Section 27 :
"27. Power to impose duty on import, export, transport and manufacture. {1) An excise duty or countervailing duty, as the case may be,
at such rate or rates as the State Government may direct, may be
imposed, either generally or for any specified local area, onG
(a) any excisable article imported, or
{b) any excisable article exported, or
( c) any excisable article transported, or
H
470
A
B
c
SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R.
( d) any excisable article (other than tari) manufactured under
any licence ganted in respect of Cl. (a) or S. 13, or
(e) any hemp plant cultivated, or any portion of such plant
collected, under any licence granted in respect of Cl. (b) or
Cl. ( c) of S.13, or
(t) any excisable article manufactured in any distillery or
brewery licen~ed, established, authorized or continued under
this Act.
Explanation : Duty may be imposed on any article under this
sub-section at different rates according to the places to which such
article is to be removed for consumption, or according to the
varying strengths and quality of such article."
Section 28 empowers the levy of excise duty/countervailing duty in
D any of the several ways provided therein. Section 28, insofar as is relevant,
reads:
E
F
G
H
"28. Ways oflevying such duty. - Subject to any rules made under
S.90, CL (12), any duty imposed under S. 27 may be levied in any
of the following ways :
( c) on an excisable article transported, -
(i) ............. .
(ii) by .payment upon issue for sale from a warehouse established, authorized or continued under this Act;"
Section 29 is particularly relevant to the controversy herein. It
reads:
29. Payment for grant of exclusive privilege. (1) Instead of or in
addition to, any duty leviable under this Act, the State Government
may accept payment of a sum in consideration of the grant of any
exclusive privilege under S. 22.
(2) The sum payable under sub-S. (1) shall be determined as
follows:
STATE v. NARAIN PRASAD (B.P. JEEV AN REDDY, J.)
471
(a) by auction or by calling tenders or otherwise as the State A
Government may, in the interest of excise revenue, by general
or special order direct; and
(b) by such authority and subject to such control as may be
specified in such order.
(3) The sum determined under sub-S. (2) shall be final and shall
be binding on the party making the offer by way of tender, bid or
otherwise once such offer is accepted by the authority referred to
in CL (b) of that sub-section."
B
c
A reading of Section 29 shows that the State Government may accept
payment of a sum in consideration of the grant of any exclusive privilege
under Section 22. This may be instead of or in addition to any duties
leviable under the Act. Sub-section (2) clarifies that the sum payable under
Sub-section (1) shall be determined by auction or by calling for tenders or
otherwise; sub-section (3) declares that the sum determined under sub-sec- D
tion (2) shall be final and binding upon the party making the offer once
the offer is accepted by the appropriate authority.
Section 89 empowers the State Government to make rules to carry
out the objects of the Act. Sub-section (2) specifies the several heads in E
respect of which rules can be made. Clause (i) of sub-section (2) empowers
the State Government to make rules "for regulating the procedure to be
followed and prescribing the matters to be ascertained before any licence
for the wholesale or retail vend of any intoxicant is granted for any locality."
In exercise of the power conferred by Section 89, the Government of F
Orissa has made rules governing the grant of licences, viz., 'The Orissa
Excise Exclusive Privilege Rules, 1970'. Rule 6 of these Rules prescribes
the manner in which the consideration determined for grant of exclusive
privilege shall be paid. Rule 6(A), as sub.stituted by SRO No. 215/89,
provides for monthly minimum guaranteed quota, the obligation of the G
licencee to lift it before the end of the month and the further obligation to
remit the monthly excise duty in two equal instalments, i.e., on the 5th and
15th of every month. Clauses (1), (2), (3) and (4) of the said Rules read
thus:
"6(A)(i) Minimum guaranteed quantity of Country spirit : Every H
472
A
B
c
])
E
F
G
H
SUPREME COURT REPORTS [1996] SUPP. 5 S.C.R.
successful bidder qf Country Spirit shop shal~ before obtaining
licence, guarantee the sale of the minimum guaranteed quantity of
Country spirit as fixed by the Collector. The bidder shall before
obtaining licences submit monthly distribution of st~tement to the
concerned Collector. The licensee before the 30th June, may revise
and resubmit the monthly distribution statement for the portion of
the Excise Year from August to March. The Collector, shall be
competent to revise and approve such revised statement. There
shall be no further changes in the distribution statement so approved.
(2) The licensee shall lift the monthly minimum guaranteed quantity
approved for that month before 5.00 p.m. on the last working day of
that month. The right to lift the monthly minimum guaranteed
quantity approved for that month and left unlifted if any by 5.00
p.m. on the last working day of the month shall be forefeited, unless
specially permitted to be lifted in the subsequent month or months
by the Collector.
Provided that :
(i) The Collector, may for any special reasons permit the
licensee to lift the short drawn minimum guaranteed quantity
of the previous month in the succeeing month except for the
months of February and March. The Collector shall however,
obtain the order of the Commissioner of Excise in case of
default and for any special reasons if the period exceeds over
one month.
(ii) The Commissioner, may, wherever if he deems it necessary, permit the licence to lift the short down minimum
guaranteed quantity of any month other than that month of
March in any subsequent month or months.
(iii) No unlifted quantity of the Country Spirit shall be permitted to be lifted beyond the lest day of February.
(3) Subject to provisions of sub-rule (1) no licensee shall lift less
than the specified minimum guaranteed quantity of country spirit
in any month. The excise duty of country spirit for the month as
STATEv. NARAIN PRASAD [B.P.JEEVANREDDY,J.)
473
approved in the distribution statement under sub-rule ( 1) Shall be A
remitted in two equal instalments by the licensee into the Government
Treasury of the District in which the shop is situated. The first
instalment shall be remitted by fifth of the month and the second
instalment by fifteenth of that month. Where due date or subsequent
day happens to be a holiday the instalment shall be remitted on
the next working day. If in any month, the first or second instalment
of the excise duty of country spirit for that month is not remitted as
required above, the excise duty to the extent of deficit payment
without prejudice to any other mode of recovery shall be deducted
first from the Bank Guarantee, if any, and the balance from the
advance deposits furnished or paid under rule 6 and the licensee
shall be called upon to indemnify the amounts so adjusted in the
case of first instalment by fifteenth of that month and in the case
of second instalment by twentyfifth of that month in which deficit
payment of instalment of excise duty had expired.
( 4) Where a licensee fails to indemnify the advance amount adjusted
under sub-rule (3) in the case of first instalment of fifteenth of that
month and in the case of seco~d instalment by twentyfifth of that
month, the license is liable for cancellation and the right acquired
by the defaulting licensee shall be liable for redisposal subject to
B
c
D
provisions of sub-section (1) of Section 22 of the Act."
E
A reading of Rule 6-A makes the following matters clear : the
licencee shall have to undertake to lift the M.G.Q. of liquor every month.
Clause_ (3) of the Rules, read with clauses (1) and (2) means that the
obligation to lift the M.G.Q. of liquor and the obligation to remit the excise F
duty payable for the month are two distinct obligations. While the obligation
to lift the M.G.Q. is to be discharged before the end of the month, the
obligation to remit the excise duty for the month is to be discharged in two
equal instalments, viz., first instalment by the fifth and the second instalment by the fifteenth of the month. The consequences of not remitting the
excise duty in the manner specified are set out in clauses (3) and (4), which G
make the said obligation mandatory and emphatic. The Rule also makes
its clear that if in a given month, the full M.G.Q. is not lifted, the Collector
can permit the deficit to be lifted in the subsequent month but this has
nothing to do with the obligation to remit excise duty for the month on the
dates specified. It is relevant to point out that the several consequences H
474
SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R.
A provided in clauses (3) and (4) follow the non-deposit of excise duty on
specified dates - and not the non-.Jifting of M.G.Q. which is an independent
obligation. It is necessary to bear this aspect in mind.
B
c
D
E
F
Every person whose bid/tender has been accepted is required to
execute an agreement/contract in the prescribed form. Under this agreement, the contractor/licencee agrees to abide by the rules and conditions
relating to retail vend of country spirit (liquor) as stipulated in the licence
as also the general conditions of licence. The said conditions shall be
treated as part of the agreement. Clause (2) obliges the contractor to draw
a particular quantity of liquor every month from the specified warehouse.
Under Clause (3) the contractor "undertakes to pay the duty at the
prescribed rate at the Warehouse prior to lifting the stock." This condition
provides that excise duty shall be remitted p1ior to lifting; it does not say
it shall be remitted at the time of lifting. Under Clause (7), the contractorlicencee agrees to abide by all the provisions of the Act and the Rules and
instructions as may be issued from time to time.
Conditions 1 and 2 of the licence, as amended in 1989, repeat and
reiterate the provisions contained in Rule 6-A aforesaid in their entirety.
The respondents were the highest bidders in respect of the various
liquor shops in Orissa. Their bids were accepted. They executed agreements in the prescribed form and were issued licences. Each of them had
undertaken under the agreement/contract to lift a particular specified
quantity of liquor every month during the relevant excise year (1990-1991)
as well as to remit the excise duly as specified in the Rules. They did the
business under the said licences for the entire excise year. They failed to
lift the agreed M.G.Q. They also failed to remit the excise duty as provided
by Rule 6-A. And when notices were served calling upon them to remit the
appropriate amount, they rushed to the Orissa High Court by way of writ
petitions questioning the demand notices.
The main contention of the respondents (writ petitioners) was that
G the demand for payment of excise duty on uitlifted quantity of arrack
amounts to levy of duty and that such levy is not warranted by the Act.
They submitted that Rule 6-A(3) is ultra vires the rule-making power of
the Government and is outside the purview of the Act. They submitted
that if there is a sale of liquor, duty can be collected on the liquor sold
H but that seeking to collect the duty even in the absence of sale amounts
,,
STATE v. NARAIN PRASAD (B.P. JEEV AN REDDY, J.)
475
to levy of duty contrary to the provisions of the Act. They placed reliance A
upon the decisions of this Court in Bimal Chandra Banerjee v. State of
Madhya Pradesh, (1971] 1 S.C.R. 844 and the subsequent decisions following it. According to them, their case did not fall within the ratio of the
decisions of this Court in Panna Lal v. State of Rajasthan and Ors., (1976]
1 S.C.R. 219 and State of Andhra Pradesh v. Y. Prabhakara Rao, [1987] 2 B
S.C.R. 513.
The State of Orissa disputed the several contentions of the writ
petitioners. In particular, they relied upon the Agreement and the undertakings contained therein. Their case is set out in the impugned judgment
in the following words :
C
"It is further contended that the fixation of M.G.Q. was made
considering the. potentiality of sale and by taking other relevant
factors into consideration, and the petitioner and other contractors
were aware of the M.G.Q. at the time when they participated in D
the auction-cum-tender. ...... the petitioner having accepted the contract cannot now turn around and challenge the fixation of M.G.Q.
for the year 1991-92 ..... the demand was justified being the duty
towards shortfall of the M.G.Q., the challenge of the petitioner to
Annexure-3 is untenable. Sub-rule (3) of Rule 6-A of the Orissa
Excise (Exclusive Privilege) Rules, 1970 ..... .is valid and has been E
framed in exercise of powers under sub-section (i) of Section 89
of the Bihar & Orissa Excise Act, 1915 which empowers the State
Government to make rules to carry out the objects of the Act, or
any other low for the time being in force relating to the excise
revenue and also by Section 89(2) of the Act which empowers the F
State Government to make rules for regulating the import, export
or transport of any intoxicant... ..... under Section 22(i) of the Act,
an exclusive privilege can be granted to any person on such terms
and conditions and for such period as the State Government may
think fit. The M.G.Q. being one of the conditions for grant of a G
licence, the Government was fully empowered in framing rules
which related to fixation of M.G.Q. and also for providing the
consequences which would follow on reach of such condition. This
power.. ..... flows from a combined reading of Sections 22, 27, 29
and 89 of the Act... .. the provisions relating to the M.G.Q. ought
to be considered as a condition of licence, and that being a H
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condition subject to which the licence was issued and accepted.by
the petitioner, the petitioner cannot, after operating the licence,
challenge the same. He is bound by the conditions and is, therefore,
liable to pay the amount demanded to compensate the State for
the loss sustained by it for failure on the part of the petitioner to
lift the M.G.Q ...... The petitioners having entered into an agreement
for sale of country liquor and having been granted an exclusive
privilege on certain terms and conditions, cannot now, after entering into a contract, wriggle out of their contractual obligation and
contend that the amount demanded for shortfall of M.G.Q. is
invalid ...... the sum sought to be realised is damages for breach of
contract namely, failure to lift M.G.Q. It is in the granting of
damages being the duty on the shortfall, and as such, is in the
nature of a penalty and can be realised on a breach being committed. Strong reliance is placed on Hari Shankar and Others Etc.
v. Deputy Excise & Taxation Commissioner, AIR (1975) SC 1121,
Panna Lal v. State of Rajasthan, AIR (1975) SC 2008 and State of
Hatyana v. !age Ram & Others, AIR (19SO) SC 2018."
The High Court, however accepted the contentions of the respondents-writ petitioners and quashed the demand notices impugned in the
writ petitions.
It is evident from the contentions urged by both the sides that while
the respondents-licensees look at the impugned demand as an instance of
levy of excise duty, the State looks at it as a case of enforcing the undertakings contained in the agreement/contract executed by the licensees. AcF
cording to the licencees no excise duty can be levied unless there is a sale.
Demand for excise duty where there is no sale of liquor, according to them,
is unsustainable in law. The State's case, however, is that the
licence/privilege was granted to the respondents in consideration of payment of several items of money, all of which together constitute the
consideration for the grant of licence. The State says that it is merely
G seeking to recover the amount due to it under the contract and that such
a course does not amount to levy of excise duty. Both sides rely upon
certain decisions of this Court in support of their respective points of view.
It would be appropriate to notice them.
H
In Bimal Chandra Banerjee v. State of Madhya Pradesh, [1971] 1
STATEv. NARAINPRASAD(B.P.JEEVANREDDY,J.)
477
S.C.R. 844, one of the conditions of the licence stipulated that :
"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 (Iicencees) shall be liable to make good every month
the deficit of monthly average of the total minimum duty on or
before the 10th day of each month following the month to which
the deficit duty relates."
A
B
Since the licencee failed to remit the duty as stipulated, the State
made a demand for the same. The contention of the licencee was that the
excise duty is a tax, that it can be levied only on the basis of a valid law C
and that no tax can be levied on the basis of a contract or pursuant to
executive orders. Tax, it was submitted, can be levied only by the legislature. It was contended that the aforesaid condition of licence is ultra vires
the powers of the Government. In other wards, the contention was that the
Government had no power to amend the Rules so as to include the D
aforesaid clause in the conditions of licence. Section 25 of the Madhya
Pradesh Act provided for the levy of duty on any of the events specified
therein, namely, import, export transport, manufacture and cultivation
while Section 26 provided for levy for duty inter alia on liquor issued from
distillery or warehouse. No provision of the Act, however, empowered levy
of duty even where there was no issue of liquor from distillery or E
warehouse. This Court upheld the Iicencee's contention on the following
reasonmg:
"Neither s. 25 or s. 26 or s. 27 or s. 62(1) or els. ( d) and (h) of s.
62(2) empower the rule making authority viz., the State GovernF
ment to levy tax on excisable articles which have not been either
imported, exported, transported, manufactured, cultivated or collected under any licence granted under s.13 or manufactured in
any distillery established or any distillery or brewery licensed under
the Act. The legislature has levied excise duty only on those articles G
which come within the scope of s.25. The rule making authority
has not been conferred with any power to levy duty on any articles
which do not fall within the scope of s.25 therefore it is not
necessary to consider whether any such power can be conferred
on that authority. Quite clearly the State Government purported
to levy duty on liquor which the contractors failed to lift. In so H
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SUPREME COURT REPORTS (1996] SUPP. 5 S.C.R.
doing it was attempting to exercise a power which it did not
possess.
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.
We are of the opinion that the impugned rule as well as the
demands are not authorised by law."
The ratio of the said decision is that inasmuch as the Act does not
empower levy of excise duty on unlifted liquor, no such levy can be created
D by a rule made under the Act. It was also observed that inasmuch as the
Act does not empower the rule-making authority to impose tax on unlifted
liquor, the rule-making authority (the Government of Madhya Pradesh)
had no power to add the aforesaid clause in the conditions of the licence.
It is significant to notice that this decision approached the question from
E
F
the point of view of levy of excise duty. No argument appears to have been
put forward - as was done in later decisions - that the State is merely
seeking to recover the consideration for the grant of privilege/licence as
per the terms and conditions of, and as undertaken in, the Agreement. The
decision, therefore, does not advert to that aspect at all - an aspect which
came to be highlighted in some of the later decisions. This decision was
followed in State of Madhya Pradesh. v. Finn Gappulal Etc., (1976) 2 S.C.R.
1041 and in Excise Commissioner, U.P., Allahabad v. Ram Kumar,(1976)
Supp. S.C.R. 532. Gappulal was again a case from Madhya Pradesh. In this
case, an attempt was no doubt made by the State to bring its case within
the ratio of Panna /al v. State of Rajasthan (which was decided meanwhile),
G but it-was repelled by the Court holding that the facts of the case before
them placed the case within the ratio of Bimal Chandra Banerjee and not
within the ratio of Panna Lal. In Ram Kumar, a case arising under the U.P.
Excise Act, one of the conditions of the licence provided that in case the
licencee failed to lift the minimum guaranteed quota, "he shall be liable to
H pay to the State Government compensation at the rate equal to the rate of
STATE v. NARAIN PRASAD [B.P.JEEV AN REDDY, J.)
479
stillhead duty per liter by spiced spirit ....... ". In this case too, the State tried A
to bring its case within the ration of Panna Lal but the Court did not agree.
It preferred to apply the ratio of Bimal Chandra Banerjee. It held that
none of the provisions of the U.P. Act authorised the levy of the duty even
where there was no sale. The Court held further that though disguised as
compensation, the demand is in reality a demand for excise duty on the B
unlifted quantity of liquor, which is not authorised by the provisions of the
Act.
The licencees-respondents submit that the present cases, having
regard to the language of the enactment, Rules and conditions of the
licence fall within the ratio of the above decisions while the State of Orissa C
submits that these cases properly fall within the ratio of the decisions in
Pamra Lal and Prabhakara Reddy. Before referring to these decisions, it
would be appropriate, in our opinion, to refer to the decision of the
Constitution Bench in Her Shankar v. Deputy Excise and Taxation Commissioner, AIR (1975) SC 1211. In Har Shankar, one of the objections raised D
by the State to the maintainability of the writ petitions filed by the
licencees was that the writ petitioners were seeking to enforce contractual
rights thereby. This was denied by the writ petitioners therein. They said,
they were merely seeking to vindicate their legal rights. The contention of
the writ petitioners was repelled by this Court in the following words :
E
,,
"The short answer to this contention is that the bids given by the
appellants constitute offers and upon their acceptance by the
Government a binding agreement came into existence between the
parties. The conditions of auction become the terms of the contract
and it is on those terms that licences are granted to the successful
bidders in Form L. 14-A of the Rules."
The Court further observed :
F
"One of the reliefs which the appellants ask for is ·that Rules 27-A, G
30 and 31 be declared ultra vires and unconstitutional and consequently the respondents be directed to refund the assessed fees
already recovered. By attempting to exploit the licences without the
burden of assessed fees originally attaching to them under the rules
framed by the Financial Commissioner, the appellants are seeking H
480
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SUPREME COURT REPORTS [1996] SUPP. 5 S.C.R.
to work the licences on such tenns as they find convenient. The writ
jurisdiction of High Courts under Article 226 of the Constitution is
not intended to facilitate avoidance of obligations voluntarily incwred. That, however will not estop the appellants from contending
that the amended Rules are not applicable as their licences were
renewed before the amendments were made".
(emphasis added)
The approach adopted in this decision has to be borne in mind in
every such case. It is also to be kept in mind that while the decisions
C referred to hereinbefore are by smaller Benches, this decision is by a
Constitution Bench. A person who enters into certain contractual obligations with his eyes open and works the entire contract, cannot be allowed
to turn round according to this decision, and question the validity of those
obligations or the validity of the Rules which constitute the terms of the
D contract. The extra-ordinary jurisdiction of the High Court under Article
226, which is of a discretionary nature and is exercised only to advance the
interests of justice, cannot certainly be employed in aid of such persons.
Neither justice nor equity is in their favour.
E
F
Panna Lal arose under the Rajasthan Excise Act. The licences were
given to contractors under a guaranteed system; there was a total guaranteed amount. When the contractors failed to pay the guaranteed amount
as per the contract, demand notices were issued. The contention urged by
the licencees was that the demand for shortfall in truth amounted to levy
of excise duty on unlifted quantity whereas the State's case was that they
were demanding the amount guaranteed by the contractor and payable in
accordance with the agreement. Another argument of the contractors was
that the demand for issue price of unlifted quantity was in effect a demand
for excise duty inasmuch as one of the components of issue price was excise
duty. This Court rejected the contention relying upon the decisions of this
Court in Nashirwar v. State of Madhya Pradesh, [1975] 2 S.C.R. 861 and
G Har Shankar. It was held that rental is the consideration for the privilege
granted by the Government for manufacturing or vending liquor, that
rental is neither a tax nor excise duty and that it is the consideration for
grant of privilege by the Government. The Court referred to the decision
of the Federal Court in the Central Provinces and Berar Sales of Motor
H Spirit and Lubricants Taxation Act, 1938 (1939) F.C.R. 18 and observed :
STATE v. NARAIN PRASAD [B.P. JEEVAN REDDY, J.)
481
"Many Acts provide for lump sum payments in certain cases by A
manufacturers and retailers, which may be described as payments
either for privilege or as consideration for the temporary grant of
a monopoly, but these are clearly not excise duties or anything like
them".
(See 1939 F.C.R. 18 at pp. 53 and 54)
After referring to certain other decisions of this Court, it was held :
B
"171e decisions of this Court establish that the lump sum amount
voluntarily agreed to by the appellants to pay to the State are not C
levies of excise duty but are in the nature of lease money or rental
or lump sum amount for the exclusive privilege of retail sales granted
by the States to the appellants.
There is no levy of excise duty in enf arcing the payment of the guaran-
. teed sum or the stipulated lump sum mentioned in the licences, for these D
reasons. First, the licences were granted to the appellants after .offer and
acceptance or by accepting their tenders or auction bid. The appellants
stipulated to pay lump sum amounts as the price for the exclusive privilege
of vending country liquor. The appellants agreed to pay what they considered to be equivalent to the value of the right. Second, the stipulated E
payment has no rel~tion to the production or manufacture of country liquor
except that it enables the licensee to sell it. The country liquor is produced
by the distilleries .. Under section 28 of the Act and under the relevant duty
notifications the excise levy is on the manufacture and not on the sale or
retail of liquor: Under the duty notifications no excise duty is levied or
collected from the liquor contractors who are liable only to pay the price of F
liquor. 17ie taxable event is not the sale of liquor to the contractors but the
manufacture of liquor. What the liquor contractors pay in consideration of
the license is a payment for the exclusive privilege for selling country liquor.
171e liability for excise is on the distillery and the liquor contractors are not
concerned with it."
Dealing with the argument that recovery of issue price is in effect a
recovery of excise duty for the reason that excise duty forms a component
of the issue price, this Court observed :
G
"Thtlump sum amount payable for the exclusive privilege is not H
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SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R.
to be confused with the issue price.