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PETITIONER: LILASONS BREWERIES (PVT.) LTD.

       Vs.

RESPONDENT: STATE OF MADHYA PRADESH AND ORS.

DATE OF JUDGMENT21/04/1992

BENCH: PUNCHHI, M.M. BENCH: PUNCHHI, M.M. RAY, G.N. (J)

CITATION:  1992 AIR 1393            1992 SCR  (2) 595  1992 SCC  (3) 293        JT 1992 (3)   236  1992 SCALE  (1)834

ACT:   Madhya  Pradesh Excise Act, 1915: Sections  13,18,25,27,28 and 62(2)(h). Madhya Pradesh Brewery Rules, 1970: Rule 22- Nature of  levy under and validity of -Breweries-Appointment of Excise Offi- cers  as  Incharge of breweries- Provision for pay  of  such Officers-  Rule  providing that their pay should be  met  by State but when the charges exceed five per cent of the  duty leviable  the excess shall be realised from the  brewer-Rule 22  held  ultra vires and beyond the Rule  making  power  of state-Levy under Rule 22 held as additional excise duty  not actually due and not authorised by section 25.

HEADNOTE:      Rule  22  of  the Madhya Pradesh  Brewery  Rules,  1970 empowers  the Excise Commissioner to appoint  an  officer-in -charge of the brewery and to appoint such other officers of the  excise department as he may deem fit to be incharge  of the brewery with the object of exercising a control over the breweries.  It  further provides that the pay  of  all  such officers  shall  be met by the  Government but in  case  the annual  charges  and pay of such officers exceed 5%  of  the duty  leviable  on the issue made from the  brewery  to  the districts within the State then the excess shall be realised from the brewer.      Demands  raised under the said Rule on  the  appellant- brewery  were challenged by it and a Division Bench  of  the Madhya  Pradesh High court upheld the same holding that  (i) the demand under Rule 22 was in the nature of a condition of licence  for brewery: and (ii) Section 62 (2)(h)  read  with Section  28 of the Madhya Pradesh Excise Act, 1915 was  wide enough  to enable the State Government to make the  impugned rule as a condition of the licence.      In appeal to this Court, it was contended on behalf  of the  appellant-brewery that the excise duty  leviable  under the Act was a tax imposed by the State Legislature in  exer- cise of its plenary powers and there cannot be                                                        596 a  further demand, which is in the nature of  an  additional duty, by means of a rule.      On behalf of the State it was contended that the demand

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under  Rule 22 was nothing but a further fee  or  additional consideration,  apart from Licence fee, which was neither  a further duty nor a further tax and the demand was  referable to sections 27 and 28 of the Excise Act.      Allowing  the appeal and setting aside the judgment  of the High Court, this Court,     HELD:  1. Rule 22 of the Madhya Pradesh  Brewery  Rules, 1970 to the extend it permits raising a demand, which in sum and  substance is additional excise duty, without its  being actually  due  is ultra vires the act and  beyond  the  rule making power of the State. [604 E]      2. The excise duty collected goes to the coffers of the State. The pay of officers have to come out from coffers  of the State. Under Rule 22 five per cent of the duty  leviable is  assessed  to meet the pay of such  officers,  which  the Government,  but  for  the Rule, is  otherwise  supposed  to meet.This  part of the rule is purely internal  between  the Government and its officers. The licensee is least concerned as to how the excise duty leviable would be appropriated. It is only in the case of a shortfall when the excess is sought to  be realised from the brewer that he gets  affected.  The excess  is obviously the sum which falls short of  the  duty leviable.  It  cannot for a moment be  suggested  that  when there is a shortfall, the demand is as if of an  "additional fee or consideration" and not additional excise duty. It  is obvious  from the language of Rule 22 that in the  event  of the excise duty leviable falling short of the expected  five per  cent  to meet the pays of the officers  cannot  be  met therefrom,  the state has all the same to pay.  The  measure under  Rule  22 goes to recoup the state of the  charges  by demanding  a sum equal to the duty leviable to  that  extent without  lifting exciseable articles. On this  understanding arrived  at the demand cannot be sustained and  is  quashed. [603 C-H;604 E]     3.   Though under Section 28 of the Excise Act  licences are  issued on the prescribed forms and on payment  of  such fee  as prescribed and licences containing such  particulars as  the  State Government may direct etc.  this  power  even though  wide is yet confined within its frame and can in  no event  assume  the power to impose or levy a tax  or  excise duty by                                                     597 means of a rule without the sanction of the Act. The payment asked,  on  the contingency of events,  cannot  partake  the character  of  a  fee so as to come within  the  purview  of Section  28.  And  if it does not  the  support  of  Section 62(2)(h) is sterile. Seeking help from Section 27 would also be  of no avail because the additional payment conceived  of therein  is also a payment over and above the duty  leviable and  as a part consideration towards the grant of any  lease under section 18. The additional consideration conceived  of in  Section 27 is a consideration over and above the  excise duty.  The  terms of Section 27 do not go  to  retrieve  the situation [604 A-D]      Bimal  Chandra  Banerjee v. State  of  Madhya  Pradesh, [1971]  ISCR 844; State of M.P. V. Firm Gappulal  etc;[1976] 2SCR  1041;Excise Commissioner, U.P. etc. etc. v. Ram  Kumar etc.etc;[1976]Supp. 532, relied on.      Panna  Lal  &  Ors.etc.etc.v. State  of  Rajasthan  and Ors;[1976] 1 SCR 219 distinguished.      Nashirwar  v. State of M.P. {1975] 2 SCR 861,  referred to.

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JUDGMENT:  CIVIL  APPELLATE  JURISDICTION : Civil Appeal No.  1265  of 1981 From  the  judgment  and Order dated 4.9.80  of  the  Madhya Pradesh High Court in Misc. Petition No.48 of 1978. S.K.  Mehta, Dhruv Mehta, Aman Vachher and Arvind Verma  for the Appellants. B.Y. Kulkarani and S.K. Agnihotri for the Respondents. The judgment of the Court was delivered by PUNCHHI, J. This appeal is directed against the judgment and order dated September 4,1980 of a Division bench of the High Court  of Madhya Pradesh at Jabalpur in Miscellaneous  Peti- tion No.48 of 1978.      Vires  of  rule  22  of  the  Madhya  Pradesh   Brewery Rules,1970  framed  under Section 62 of the  Madhya  Pradesh Excise Act, 1915  stands questioned. That Rule says: "22. EXCISE COMMISSIONER TO APPOINT OFFICER IN-CHARGE OF BREWERY: Every brewery shall be placed                                                    598 by  the  Excise Commissioner under the charge of  an  Excise Inspector  to  be  designated as  officer-in-charge  of  the brewery.  The Excise Commissioner will further appoint  such other officer of the Excise Department as he may deem fit to the charge of breweries. The pay of all such officers  shall be  met  by the Government; provided that  when  the  annual charges  exceed  five per cent of the duty leviable  on  the issue  made from the brewery to districts within  the  State excess shall be realised from the brewer".      The  roots of the Rule, through the provisions  of  the Madhya Pradesh Excise Act, require to be traced, as well  as the nature of the exaction provided in it. A broad framework of the working of the Act would thus be necessary.      The  State  has  the exclusive right  or  privilege  of manufacture or sale of liquor. There is no fundamental right of  any  citizen to carry on trade and business  of  liquor. This is the Settled position of law. See in this  connection Nashirwar v. State of M.P. [1975] 2 SCR 861,a case under the Madhya  Pradesh  Excise  Act and other  cases  of  the  same strand.  It is open to the State through its  Government  to part  with those rights in regard to liquor and  intoxicants for a consideration. Any citizen wanting to do the  business in liquor or intoxicants in the State of madhya Pradesh  has to  seek  permission under the Madhya  Pradesh  Excise  Act, 1915.  Section  13 of the Act provides inter  alia  that  no intoxicant  shall  be manufactured or  collected  no  liquor shall be bottled for sale, no distillery or brewery shall be constructed or worked and no person shall use or have in his possession  any  materials,  still,  utensil,  implement  or apparatus  whatsoever for the purpose of  manufacturing  any intoxicant  other than tari, except under the authority  and subject  to the terms and conditions of a licence granted in that  behalf.  Section 18 empowers the State  Government  to lease  to any person on such conditions and for such  period as  it may think fit, the right of manufacturing,  supplying or  selling  of any liquor or intoxicating drug  within  any specified area. For the purpose there is a duty leviable and other  fees collectable. chapter v of the Act  is  earmarked for  the  purpose. Therein Section 25 provides  that  Excise Duty is payable on all excisable  articles imported, export- ed, transported, manufactured, cultivated or collected under any  licence or manufactured in any distillery  established, or any distillery or brewery licensed under the Act. In  the same  Chapter is Section 27 which enables the government  to get payment for grant of                                                          599

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leases. It says:      "27. PAYMENT FOR GRANT OF LEASE Instead of or in  addi- tion  to  any duty leviable under this  Chapter,  the  state Government  may accept payment of a sum in consideration  of the grant of any lease under section 18".     It  is  evident  from a bare reading  of  the  aforesaid provision  that  two situations are  envisaged.   The  first situation  is  when duty is leviable under  Chapter  V,  the Government  may accept instead a sum in substitution of  the duty, in consideration of the grant of a lease under Section 18.  The second situation is that the government may  accept payment  of an additional sum over and above the duty  levi- able  under chapter V, in consideration  of the grant  of  a lease under section 18. Section 28 in the following  Chapter then  provides for the forms and conditions of licences  and fees charged thereon. It provides that every licence, permit or pass granted under the Act shall be granted on payment of such fees, if any, for such period, subject to such restric- tions, and on such conditions, and shall be in such form and contain such particulars as the State Government may  direct either  generally by Rules made under Section 62 or  in  any particular  instance.  Section 62 Contains the  Rule  making power of the Government on the usual pattern. Sub-section(i) of section  62 vests the power for the purpose in the  State Government,  and  sub-section (2) enumerates  specific  sub- jects, in particular and without prejudice to the generality otherwise of the rule making power. In particular Clause (h) of sub-section(2)of section 62 permits the State  Government to prescribe the authority by, the form in which, and  terms and  conditions subject to which any licence, permit or pass shall  be granted. It is in its rule making power, that  the State  Government framed the Madhya Pradesh  Brewery  Rules, 1970, from amongst which Rule 22 stands above-quoted,  vires of which was challenged before the High Court, though unsuc- cessfully, for which purpose effort stands  renewed.     The  appellant is a company carrying on business in  the manufacture  and  sale  of  beer. For  the  purpose  it  has established  a brewery in the industrial area at Bhopal.  It has  obtained  three  licences in the  requisite  forms  for manufacturing,  bottling and sale of beer. It  is  aggrieved against  the recovery of annual charges relating to the  pay of the officer-in-charge etc. of the brewery from the brewer to the extent such charges exceed 5                                                          600 per  cent  of the duty leviable on the issue made  from  the brewery  to  the districts within the state.  The  appellant claims relief of quashing of the demand notice in respect of those  charges.  The High Court negatived the  plea  of  the appellant  taking the view that the licences in Form  B-1-A, which  is a licence to work a brewery in  private  premises, issued to the appellant is specifically in terms subject  to the  Madhya Pradesh Brewery Rules . And since there  was  an obligation laid on the brewer under Rules 22, that if annual pay of the officers-in-charge etc. of the brewery exceeded 5 percent of the duty leviable, the excess had to be  realised from the brewer. It was viewed as a condition of licence for working  the brewery and well within the rule  making  power conferred under Section 62(2)(h read with Section 28 of  the Act,  whereunder the State Government could lay  down  terms and  conditions subject to which licence could  be  granted. Support  for the view was taken by the High court  from  the first part of Rule 22 empowering the Excise Commissioner  to appoint  an officer-in-charge of the brewery and to  appoint such other officers of the excise department as he may  deem fit  to be incharge of the brewery with the object of  exer-

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cising a control over the breweries, as also perform  duties assigned  to  these officers under Rules 23 to 26  which  by themselves  were reasonable . And since those were  reasona- ble,  the provision made in the latter part of Rule 22  that in case the annual charges and pay of such officers exceeded 5  per cent of the duty leviable on the issue made from  the brewery  to  districts within the state, the  excess  to  be realised from the brewer was also reasonable. The High court in conclusion expressed itself as follows:      "It is true that the Act provides for payment of excise duty  as  consideration for grant of licence  and  does  not specifically  provide for realisation of charges in  respect of  pay of officers posted for control of breweries. But  in our  view  Section 62 (2)(h) read with section  28  is  wide enough  to enable the state Government to make the  impugned rule as a condition of the licence".      The  appellant  maintains that though the  excise  duty leviable  under  the  Act is a tax  imposed  by   the  State Legislature in exercise of its plenary power there cannot be a further demand, which is the nature of an additional duty, by  means  of  a  rule. On the basis of  Section  18  it  is contended that a lease is granted subject to payment of duty leviable  only under Chapter V and not otherwise. The  State Government under Section                                                        601 27,  may forego the excise duty and accept payment of a  sum in consideration of the grant of any lease under Section  18 in  its stead. The State Government while keeping  the  duty leviable  under  Chapter V intact may accept  an  additional payment  of a sum in consideration of the grant of  a  lease under  Section 18. The appellant maintains that the  instant demand raised is not referable at all to Sections 27 and 18. The  stand of the State is based on the literal  reading  of Rule  22. The State terms the additional payment as "a  fur- ther  fee apart from licence fee on the brewer in  case  the charges  of supervision exceed 5 per cent of the duty  levi- able on the issue made from the brewery to various districts in  the State." It has also been maintained that the  charge created under Rule 22 is nothing but a further fee or  addi- tional consideration, which is neither a further duty nor  a further tax. The exaction is suggestive of roots is Sections 27 and 28.      Now  is the demand a further duty and hence  a  further tax or is it a further fee or consideration for transferring the right is the pointed question. In Bimal Chandra Banerjee v.  State of Madhya Pradesh, [1971]1 SCR 844 this Court  had the  occasion to examine some of the provisions of  the  Act inclusive  of Sections 27 and 62 (2) (h). Under  the  condi- tions  of licence of the then appellants they were  required to make compulsory payment of excise duty on the quantity of liquor  which they failed to take delivery of,  since  those conditions  prescribed the minimum quantity of liquor  which they  had  to purchase from the Government.  Releasing  them from such obligation, this Court ruled as follows:          "Neither  s.  25 s. or 26 s. 27 or s.  62   (1)  or          cls.  (d)  and (h) of s. 62 (2)  empower  the  rule          making  authority viz the State Government to  levy          tax  on  excisable  articles which  have  not  been          either   imported, exported, transported,  manufac-          tured,  cultivated or collected under  any  licence          granted under s. 13 or manufactured in any distill-          ery  established  or  any   distillery  or  brewery          licensed under the Act. The legislature has  levied          excise  duty  only  on those  articles  which  come          within the scope of s. 25. The rule making authori-

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        ty  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 doing it was                                                           602           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."      The ratio in Banerjee’s case (supra) was followed in State  of M. P.v. Firm Gappulal etc., [1976] 2 SCR 1041  and then  again in a case from Uttar Pradesh in  Excise  Commis- sioner,  U.  P.  etc. etc. v. Ram Kumar  etc.  etc.,  [1976] (Supp.) 532 Now if the exaction under Rule 22 of the Brewery Rules is an exaction not authorised under Section 25 and  is being  made  as if additional excise duty, the  three  cases afore-quoted would nip the demand outright. But if it is  an additional payment under Section 27 as consideration for the grant of licence, or a further fee or condition of  licence, as contended by the respondent-State then it may have to  be sustained.  It  would be relevant to take note  of   another decision  of  this Court in Panna Lal & Ors.  etc.  etc.  v. State of Rajasthan and Ors., [1976] 1 SCR 219 at this  stage in  which the contractual obligation of the licensee to  pay the  guaranteed or stipulated sum mentioned in  the  licence was  held not to be dependent on the quantum of liquor  held by him and no excise duty was held charged or chargeable  on undrawn liquor under the licence. The aforesaid case  cannot advance  the  defence of the State for there is  no  lumpsum payment  stipulated  as  such in the  instant  licence.  The licence  only mentions that the licensee would be  bound  by the Brewery Rules. The High Court in that situation went  on to lean on Sections 62 (2) (h) and 28 when discovering there was  no  express  provision in the Act  for  realisation  of charges in respect of pay of officers posted for control  of breweries.  But when we analyse the latter part of Rule  22, the following position emerges:-              (i)   the pay of all such officers shall be met          by     the     Government;     [the      government          owns the responsibility]          (ii)   if  the  annual  charges  do  not  exceed  5          per   cent   of   the   duty   leviable   on    the          issue made from the brewery to districts                                                            603          within    the   State,   nothing   is    realisable          from the brewer;          (iii)   5 per cent of the duty has been  considered          enough  from which to reimburse the  Government  of          the pay of such officers; and           (iv) in case the annual charges exceed 5 per  cent          of  the  duty  leviable then the  excess  shall  be          realised  from the brewer, i. e., to reimburse  the          Government for the pay of all such officers.

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     The  excise duty collected goes to the coffers of  the State. The pay of officers have to come out from coffers  of the State. Five per cent of the duty leviable is assessed to meet the pay of such officers, which the Government, but for the  Rule, is otherwise supposed to meet. This part  of  the rule  is  purely  internal between the  Government  and  its officers.  The  licensee is least concerned as  to  how  the excise  duty leviable would be appropriated. It is  only  in the  case  of a shortfall when the excess is  sought  to  be realised from the brewer that he gets affected. Now what  is this  excess? It is obviously the sum which falls  short  of the duty leviable. In other words it is this for the brewer: "You have not lifted enough quantities of beer and sent them to distincts within the State. Thus the State has not earned enough excise duty resulting in a short fall in its 5%. That does  not go to  meet the annual expenses of  the  officers. Therefore  you  meet  the  shortfall,  without  lifting  the goods." Therefore the shortfall partakes the same colour and content. It cannot for a moment be suggested that when there is a shortfall, the demand is as if of an "additional fee or consideration" and not additional excise duty. It is obvious from  the  language  of the Rule that in the  event  of  the excise duty leviable falling short of the expected five  per cent  to meet the pays of the officers cannot be met  there- from,  the State has all the same  to pay. The measure  goes to recoup the State of the charges by demanding a sum  equal to the duty leviable to that extent without lifting  excise- able articles. On this understanding arived at the demand is hit  in  our view, by the ratio of  Bannerjee’s  case,  firm Gappulal’s case and Ram Kumar’s case (supra), and cannot  be sustained. Rule 22 to that extent is ultra vires the Act and beyond the rule making power of the state.      Now with regard to the suggested wide amplitude Section 62 (2) (h)                                                          604 and Section 28 and condition of licence, all we need to  say is that though  under Section 28 licences are issued on  the prescribed  forms and on payment of such fee  as  prescribed and  licences containing such particulars as the State  Gov- ernment  may direct etc. this power even though wide is  yet confined  within  its frame and can in no event  assume  the power  to impose or levy a tax or excise duty by means of  a rule  without the sanction of the Act. As we  have  analysed earlier,  the  payment asked on the contingency  of  events, cannot  partake the character of a fee so as to come  within the purview of Section 28. And if it does not the support of Section 62 (2) (h) is sterile. Seeking help from Section  27 would  also  be of no avail because the  additional  payment conceived  of therein is also a payment over and  above  the duty leviable and as a part consideration towards the  grant of any lease under Section 18. The additional  consideration conceived of in Section 27 is a consideration over and above the excise duty. The way we have analysed Rule 22, the terms of Section 27 do not go to retrieve the situation.      For the aforesaid reasons, this appeal is allowed,  the judgment  and order of the High court of Madhya  Pradesh  is set  aside,  declaring  Rule 22 to  the  extent  it  permits raising  a demand, which in sum and substance is  additional excise duty, without its being actually due; as ultra  vires the  Act and beyond the rule making power of the State.  The demand  raised against the appellant is  therefore  quashed. The appellant shall have his costs. T.N.A.                                       Appeal allowed.                                                           605

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