http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 11  

PETITIONER: NASHIRWAR ETC.  ETC.

       Vs.

RESPONDENT: THE STATE OF MADHYA PRADESH

DATE OF JUDGMENT27/11/1974

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) MATHEW, KUTTYIL KURIEN UNTWALIA, N.L.

CITATION:  1975 AIR  360            1975 SCR  (2) 861  1975 SCC  (1)  29  CITATOR INFO :  F          1975 SC1121  (52,53)  F          1975 SC2008  (20)  RF         1976 SC 633  (5)  RF         1976 SC1913  (15,19)  R          1977 SC 722  (17,29,32)  R          1978 SC1457  (63,64)  F          1980 SC 614  (6,7,11,15,16,35)  RF         1988 SC 771  (5)  RF         1990 SC1927  (23,28,29)  RF         1992 SC1393  (4)

ACT: Central  Provinces  Exercise Act,  1915--S.  18-Whether  the State  has  the  power to grant liquor  licences  by  public auction-Whether   violates  fundamental  right  under   Art. 19(1)(g) of the Constitution. Constitution of India, 1950-Art. 19(1)(g)-Entry 8, List II.

HEADNOTE: Under the Central Provinces Excise Act, 1915 (which was  the Act  applicable to the State of Madhya Pradesh)  the  excise authorities  granted  licences for  selling  foreign  liquor under a system of fee per bottle.  From the year 1964-65 the State  Government decided that licences for  foreign  liquor should  be  disposed  of by public  auction  The  appellants unsuccessfully   challenged  before  the  High   Court   the authority of the State to hold public auctions for grant  of licences  for foreign liquor.  In 1964 the Act was  amended, as a result of which the State could grant leases in respect of  both country and foreign liquor.  By a notification  the State Government declared that it would grant foreign liquor licences  by public auction.  Similarly the impugned Act  of Kerala  State places restrictions on the manufacture.  sale, import  and export of liquor.  The appellants in the  Madhya Pradesh  case  and the petitioners in the Kerala  case  have questioned  the constitutional validity of the  restrictions on  the  ground that they deprive them  of  the  fundamental right  to carry on trade in liquor.  It was  contended  that the  right  to  trade  in liquor was  not  declared  by  the legislature  to be a monopoly of the State to exclude  trade in  liquor  from  the  operation  of  Art.  19(1)(g)  as   a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 11  

fundamental right to trade. Dismissing the appeals and writ petitions HELD  : 1(a) The State has exclusive right or  privilege  of ‘manufacturing  and selling liquor.  The State  grants  such right  or  privilege in the shape of a licence or  a  lease. The State has power to hold public auction for grant of such right   or  privilege  and  accept  payment  of   money   in consideration of grant of lease. [872-B] (b)  The State legislature is authorised to make a provision for public auction by reason of the power contained in Entry 8,  List  II of the Constitution.  That entry  empowers  the State  Government to legislate with regard  to  intoxicating liquor, that is to say, production, manufacture, possession. transport, purchase and sale of intoxicating liquor. [865-F] (2)  (a)  There  are three principal reasons  to  hold  that there is no fundamental right of citizens to carry on  trade or  to do business in liquor.  First, there is the  police power  of the State to enforce public morality, to  prohibit trades  in  noxious or dangerous goods.   Second.  there  is power  of  the State to enforce an absolute  prohibition  of manufacture  or  sale of intoxicating liquors.   Article  47 states  that  the  State  shall  endeavour  to  bring  about prohibition of the consumption, except for medical purposes, of  intoxicating   drinks and drugs which are  injurious  to health.   Third,  the history of excise law in  India  shows that  the  State  has the exclusive right  or  privilege  of manufacture or sale of liquor. [868E-F] (b)  Trade in liquor has historically stood on  a  different footing  from  other  trades.  Restrictions  which  are  not permissible  with other ides are lawful and  reasonable so far as the trade in liquor is concerned.  That is why even prohibition  of the trade in liquor is not only  permissible but  is  also reasonable The reasons  are   public  morality public  interest and harmful and dangerous character of  the liquor.   The State possesses the right of complete  control over   all  aspects  of  intoxicants   viz.,,   manufacture, collection.  sale and consumption.  The State has  exclusive right  to manufacture and sell liquor and to sell  the  said right in order to raise revenue. [871D-E] 862 (c)  The nature of the trade is such that the State  confers right to vend liquor by farming out either in auction or  on private  treaty.   Rental  is  the  consideration  for   the privilege  granted  by the Government for  manufacturing  or vending  liquor.   Rental  is neither a tax  nor  an  excise dirty.   Rental is the consideration for the  agreement  for grant of privilege by the Government. [871F] (d)  The grant of a lease either by public auction or for  a sum  is  a  regulation pertaining to  liquor.   One  of  the purposes  of  regulation is to raise  revenue.   Revenue  is collected  by  the grant of contracts to carry on  trade  in liquor.   These contracts are sold by auction.  The  grantee is given licence on payment of auction price. [872A] Krishna Kumar Narula etc. v. The State of Jammu and  Kashmir and  Ors.  [1967] 3 S.R. 50; Coovarjee B.  Bharucha  v.  The Excise Commissioner and the Chief Commissioner,Ajmer  [1954] S.C.R.  873; Crowley v. Christensen 34 L.Ed. 620;  State  of Assam  v.  A N. Kidwai, Commissioner of Hills  Division  and Appeals,.Shillong [1957] S.C.R. 295; State of Bombay &  Anr. v.  F.  N. Balsara [1951] S.C.R. 682; M/s Guruswamy  &  Co., etc. v. State of Mysore & Ors. [1967] 1 S.C.R. 548; State of Orissa & Ors. v. Hari Narayan Jaiswal & Ors. [1972] 3 S.C.R. 748;  Amar  Chandra  Chakraborty  v.  Collector  of   Excise Government of Tripura and Ors. [1973] 1 S.C.R. 533; State of Bombay v. R. M. D. Chamarbaugwalla [1957] S.C.R. 874 and  A.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 11  

B.  Abdulkadir v. State of Kerala [1962] 2 Supp.  S.C.R. 741 referred to.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal Nos.  1711  to 1721, 7123, 1699, 1706 & 1744 of 1974. From  the Judgment and Order dated the 24th April,  1974  of the Madhya Pradesh High Court in Misc.  Petitions Nos.  391, 392, 395, 394, 412, 401, 405, 430, 400, 399, 403, 390,  409, 417 and 407 of 1970 respectively.                Civil Appeal No. 1267 of 1970. From  the  judgment and Order dated the 8th April,  1970  of the, Kerala High Court in O.P. No. 995 of 1970. Writ Petitions Nos. 436 of 1971 and 26 and 133 of 1972. Petitions under Art. 32 of the Constitution of India. B.   Sen,  S.  Balakrishnan  and  N.  M.  Ghatate,  for  the appellants  (In  CAs.   Nos. 1711-1721,  1723/74),  for  the appellants. S.   S.Khanduja  and S. K. lain (In CAs.  Nos.  1699,  1706, 1744 and 1715/74), for the appellants. S.   N.  Andley  (In  CA. 1723/70) R. P.  Kapur  and  I.  N. Shroff, for the respondents in all the appeals. D.   V.  Patel (In CA 1267/70) Y. S. Chitale, (WP.  436/71), N.  K. Shreedharan (In WPNo. 133 /72), V. Bhaskaran  Nambuar (CA.  1267/70  and  WP. 436/71) P.  K.  Sreedharan  (In  WP. 133/72).   P. Sankaran Kutty (In WP. 436/71 and 133/72)  and A.  S. Nambiar, for the appellants (In CA No.  1267/70)  and petitioners (In WPs.  Nos. 436/71 and 133/72). D.   V. Patel and S. Gopalakrishnan, for the petitioner  (In WP 26/72).                             863 K.   T. Harindernath (In CA No. 1267/70 and WP., 436/71) and K.   M.  K. Nair, for the respondents (In CA.  No.  1267/70) and WPs.  Nos, 436/71 and 26/72. Lily Thomas, for the Intervener (K.  J, Joseph). The Judgment of the Court was delivered by- RAY, C.J. The principal question in these civil appeals  and writ  petitions is whether it is permissible for  the  State Government to auction licences for carrying on the business of selling foreign liquor which is neither manufactured  nor imported  by  the State Government.  Some of  these  appeals relate to State of Madhya Pradesh and others relate to State of Kerala. The Madhya Pradesh appeals are governed by the Central  Pro- vinces and Berar Excise Act 1915 which became applicable  to Madhya  Pradesh as the Central Provinces Excise  Act,  1915. This will be referred to as the Madhya Pradesh Act. The Kerala Appeals are governed by the Abkari Act (Act No. 1 This will be referred to as the Abkari Act. Prior  to 1 April, 1964 licences for sale of foreign  liquor in  Madhya  Pradesh were granted by the  excise  authorities under  the  fee  per bottle system.  In  1964-65  the  State decided  that licences for foreign liquor would be  disposed of by public auction to the highest bidder.  The  appellants then  challenged  in  the  Madhya  Pradesh  High  Court  the authority,  of the State Government to hold  public  auction for  grant of licences for foreign liquor.   The  appellants did  not succeed because the Act was amended in  1964.   The result of the amendment was that whereas formerly the  State Government  could  grant lease only in  respect  of  country liquor,  the Amending Act empowered the Government to  grant lease in respect of any liquor which meant both foreign  and country  liquor . After the amendment, public auctions  were

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 11  

held  under section 18 of the Madhya Pradesh Act in  respect of foreign liquor is well.  In 1956-66 public auctions were held in respect of foreign liquor.  The leases were  renewed up  to  1969-70.  In 1967-68 prohibition  was  withdrawn  in certain areas of Madhya Pradesh And new foreign liquor vends were  opened.   These  vends  were  disposed  of  by  public auction.   In  1968 the State Government by  a  notification dated 29 March, 1968 ordered that with effect from 1  April, 1965 foreign liquor licence shall be disposed of on  payment of extra fee of Rs. 1000 in addition to the payment of a fee per  bottle  at specified rates.  The  notification  further directed  that  where new shops were required to  be  opened licences would be disposed of by public auction in  addition to a fee per bottle.  In 1970 there was a notification dated 14 August, 1970 where the State Government would dispose  of foreign   liquor   licences   by   public   auction.    This notification  is  the subject matter of the  Madhya  Pradesh appeals. The Madhya Pradesh Act by sections 8 and 9 confers power  on the  State  to prohibit import, export or transport  of  any intoxicant.  "Intoxicant" under the Act means any liquor  or intoxicating drug.  The State Government has power to impose restrictions on import, export 864 or  transport of intoxicant in the shape of payment of  duty and  compliance  with other conditions.  Chapter IV  of  the Madhya Pradesh Act consisting of sections 13 to 24 deal with manufacture, possession and sale of intoxicants.  Section 13 requires licence for manufacture, collection, possession  of intoxicants and materials for manufacturing intoxicants. Sections, 17 and 18 of the Madhya Pradesh Act are  important for  the purposes of these appeals.  Section 17  deals  with licences  for sale of intoxicants.  Section 18  states  that the  State  Government  may  lease to  any  person  on  such conditions and for such period as it may think fit the right (a)  of  manufacturing or of supplying by wholesale,  or  of both, or (b) of selling by wholesale or by retail, or (c) of manufacturing or of supplying by wholesale, or of both,  and selling  by retail any liquor intoxicating drug  within  any specified area. The Abkari Act which governs the Kerala Appeals in  sections 6 to 11 deal with import, export and transport of liquor  or intoxicating   drugs.   Permission  of  the  Government   is required  for  import, export of liquor.  Section 9  of  the Abkari  Act  confers power on the  Government  to  prohibit, transport  of liquor from any local area to any other  local area.   Sections  12  to 15C of the  Abkari  Act  deal  with manufacture,  possession and sale of liquor or  intoxicating drug.  Manufacture is prohibited except under the provisions of the Act, viz., licence granted by the Commissioner.   The establishment   and  control  of  distilleries,   breweries, warehouse etc. is by grant of a licence.  Sections 17 to  23 of  the  Abkari  Act deal with  duties  taxes  and  rentals. Section  17  of the Abkari Act speaks of duty on  liquor  or intoxicating  drugs.  Section 18A of the Abkari Act  confers power on the Government to grant, on such conditions and for such period as the Government may deem fit the exclusive  or other privilege (i) of manufacturing or supplying by  whole- sale;   or   (ii)  of  selling  by  retail;  or   (iii)   of manufacturing  or  supplying  by wholesale  and  selling  by retail  any  liquor or intoxicating drugs within  any  local area on his or their payment to the Government of an  amount as  rental in consideration of the grant of such  privilege. The  Act  further states that the amount of  rental  may  be settled  by auction, negotiation or by any other  method  as

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 11  

may be determined by the Government, from time to time,  and may be collected to the exclusion of, or in addition to, the duty  or tax leviable under sections 17 and 18.  No  grantee of any privilege under section 18A of the Act shall exercise the same until he has received a licence in that behalf from the  Commissioner.  Rule 13(1) ’under the Abkari Act  states that the privilege under the licence will be sold in  public auction  subject  to  conditions of  the  sale  notification published by Government from time to time. The contention on behalf of the appellants is that it is the fundamental  right  of  the citizens to carry  on  trade  in liquor.  It is said that the right to trade in liquor is not declared by the legislature to be a monopoly of the State to exclude  trade  in  liquor from  the  operation  of  Article 19(1)(g) as a fundamental right to trade.  The appellants                             865 challenge  that the State has any right or privilege in  the matter of manufacture or sale of liquor which can be granted as a right or privilege to the citizens. On  behalf  of the State it is said that the  State  is  not claiming  monopoly  in foreign liquor.  The State  does  not contend  that the auction of licences is either a fee  or  a tax.  The State contends that the highest bid represents the consideration  for the lease under section 18 of the  Madhya Pradesh Act or section 18A of the Abkari Act.  It is said on behalf  of the State that the State has the exclusive  right or  privilege  to manufacture, possess and  sell  intoxicant liquor  and  these provisions in the Act confer a  right  or privilege  on  the  highest bidder at the  auction  to  vend foreign liquor in specified areas. The Madhya Pradesh Act as well as thE Abkari Act states that ciTizens  cannot have the right to carry on trade in  liquor except  to the extent and subject to such conditions as  may be  imposed by the legislature under its regulatory  powers. The  Acts  deal  with four  principal  forms  of  activities pertaining  to  liquor.   First,  the  import,  export   and transportation  of  liquor  is regulated  by  providing  for passes on terms and conditions mentioned in the Act.  A  fee is also prescribed for such passes.  Second, the manufacture of  liquor is dealt with by providing for licences from  the State Government and fees are prescribed for such  licences. Third,  the possession of liquor requires a permit from  the Government  and a fee therefor.  Fourth, the sale of  liquor ,is  dealt with by sections 17 and 18 of the Madhya  Pradesh Act  and section 18A of the Abkari Act.  The Acts  speak  of the  grant  of privilege or right to sell liquor  by  lease. The  Government  can hold a public auction to  grant  lease. The   State   Government  accepts  payment  of  a   sum   in consideration of the grant of any lease.  The amount of  bid at  a  public auction represents the consideration  for  the grant of such right or privilege. The State Legislature is authorised to make a provision  for public  auction, by reason of power contained in Entry 8  of List II of the Constitution.  That Entry empowers the  State Government to legislate with regard to intoxicating  liquor, that   is  to.  say  production,  manufacture,   possession, transport, purchase and sale of intoxicating liquor. Counsel  on behalf of the appellants relied on the  decision of  this Court in Krishna Kumar Narula etc. v. The State  of Jammu   and  Kashmir  and  Ors. [1967] 3  S.C.R.  50  as  an authority   for  the  proposition  that  a  citizen  has   a fundamental right to do business to deal in liquor. This   Court  in  Cooverjee  B.  Bharucha  v.   The   Excise Commissioner and of Chief Commissioner, Ajmer [1954]  S.C.R. 873 held that the grant of a lease either by public  auction

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 11  

or  for a sum is a regulation pertaining to liquor.  It  was contended  on  behalf  of the  citizen  in  Bharucha’s  case (supra) that every person has an inherent right to carry  on trade  in  intoxicating liquors and that the  State  has  no right  to  create a monopoly in them.   In  Bharucha’s  case (supra) the auction sale of country liquor shop under Excise Regulation  1 of 1915 was challenged on the ground that  the provisions of the Excise 866 Regulation  and the auction rules were ultra  vires  because the  same  purported  to grant monopoly to trade  to  a  few persons.   The Excise Regulation 1915 in that case  provided that  the Chief Commissioner might lease to any  person  the right  of  manufacturing or of supplying or  of  selling  by wholesale or retail any country liquor or intoxicating  drug within  any  special  area.   This  Court  said  that   laws prohibiting  trades in noxious or dangerous goods cannot  be held to be illegal as enacting a prohibition and not a  mere regulation. In  Bharucha’s  case (supra) this Court concurred  with  the observations in Crowely v. Christensen 34 L.Ed. 620.   Those observations  indicate that the sale of liquor has  been  at all  times considered as the proper subject  of  legislative regulation.   A licence may be exacted and restrictions  may be  imposed  as to sale of liquor.  There  may  be  absolute prohibition  of  sale of liquor.  At the  root  lies  public expediency and public morality.  The sanction is the  police power  of  the State to regulate business  and  to  mitigate evils. The  observations in Crowely’s case (supra) which were  laid down  as a ruling of this Court in Bharucha’s  case  (supra) are these.  "There is no inherent right in a citizen to sell intoxicating  liquors by retail; it is not a privilege of  a citizen  of the State or of a citizen of the United  States. As  it is a business attended with danger to the  community, it may, as already said, be entirely prohibited, or be  per- mitted under such conditions as will limit to the utmost its evil.   The  manner  and extent of regulation  rest  in  the discretion  of  the governing authority".   Bharucha’s  case (supra)  negatived  the  contention  of  inherent  right  of citizens to carry on trade in intoxicating liquors. Bharucha’s  case  (supra)  lays  down  three   propositions. First, that there is no inherent right of citizens to  carry on trade in intoxicating liquors.  Second, the auction  sale of  liquor shop is a method by which carrying on  particular trade  in  liquor is regulated and one of  the  purposes  of regulating  is  to  raise revenue.  Third, there  can  be  a monopoly only when a trade which could be carried on by  all persons is entrusted to one or more persons to the exclusion of  the  general  public.  That is not  the  case  with  the business of liquor. This Court in Narula’s case (supra) referred to the decision in Bharucha’s case (supra) and the concurrence of this Court in Bharucha’s case (supra) with Crowley’s case (supra)  that there is no inherent right in a citizen to sell intoxicating liquor.   In  Narula’s  case (supra)  this  Court  read  the observations  of  this Court in Bharucha’s case  (supra)  to have  conceded  the  inherent and  fundamental  right  of  a citizen to carry on business in sale of intoxicating liquor. Bharucha’s  case (supra) in no uncertain terms repelled  the citizens  contention of inherent right to sell  intoxicating liquor.  Bharucha’s  case (supra) is  a  Constitution  Bench decision.  Narula’s  case  is  also  a  Constitution   Bench decision.   Narula’s  case (supra) cannot be  said  to  have overruled Bharuchas case (supra).

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 11  

There is an earlier decision of this Court in State of Assam v. A.     N.  Kidwai,  Commissioner of  Hills  Division  and Appeals, Shillong                             867 [1957]  S.C.R. 295 where it is said that no person  has  any absolute,  right to sell liquor.  In Kidwai’s  case  (supra) this Court said that the purpose of the Act and the Rules is to  control  and restrict the  consumption  of  intoxicating liquor.  Such control and restriction is said by this  Court to  be necessary for the preservation of public  health  and morals and to raise revenue. In Narula’s case (supra) it was held that dealing in  liquor is  business  and a citizen has a right to do  business  and that  a  State can make a law imposing restrictions  on  the rights in public interest.  In Narula’s case (supra) it  was also  said  that unless dealing in liquor is  not  trade  or business  a citizen has a fundamental right to deal in  that commodity.   It  is  not correct to  read  the  decision  in Narula’s  case (supra) that there is a fundamental right  to do business in liquor The decision is that dealing in liquor is  business  and a citizen has a. right to do  business  in that   commodity  and  the  State  can   impose   reasonable restrictions on the right in public interest.  If the  State can  prohibit  business  in liquor as is held  in  State  of Bombay  and  Anr. v. F. N. Balsara [1951]  S.C.R.  682  this establishes that the State has exclusive right of  privilege of manufacture, possession, sale of intoxicating liquor  and therefore  the  State grants such a right  of  privilege  to persons in the shape of licence or lease. The auction of the privilege of selling liquor was upheld by this Court in M/s.  Guruswamy & Co. etc. v. State of  Mysore and  Ors.  [1957] 1 S.C.R. 548.  This Court  said  that  the licensee  pays for the exclusive privilege of selling  toddy from certain shops.  The licensee pays what be considers  to be equivalent to the value of the right.  It has no relation to  the  production  or  manufacture  of  toddy.   The  only relation  it has to the production or manufacture of  toddy, is  that it enables the licensee to sell it.  The  privilege of  selling  is auctioned welt before the  goods  come  into existence.   The  levy  is in respect  of  the  business  of carrying on the sale of toddy. Narula’s case (supra) was explained by this Court in a Bench decision  in State of Orissa & Ors. v. Hari Narayan  Jaiswal and  Ors.  [1972] 3 S.C.R. 784 with considered  whether  the sale by public auction of the exclusive privilege of selling by  retail  country  liquor  in  8  shops  was  valid.   The respondent  was  the  highest bidder  there.   His  bid  was rejected.   The Government was of the view  that  inadequate prices  had  been offered because of collusion  between  the bidders.  Fresh tenders were called for.  The State accepted the  tender in respect of one shop and rejected the  others. The  remaining seven shops were sold by private  negotiation for  substantially  higher  prices.   The  respondent  whose highest  bid  was rejected applied to the High Court  for  a direction to the Government to confirm his bid.  Section  22 of  the  Orissa Excise Act which governed that  case  stated that "the State Government may grant to any person, on  such conditions  and  for such period as it may  think  fit,  the exclusive  privilege  (e)  of  manufacturing  and  supplying wholesale  and  selling retail, any country  liquor  or  in- toxicating  drug within any specified local area".   Section 29(2)  of the Orissa Excise Act dealt with the  payment  for grant  of  exclusive privilege.  Section 29(2)  of  the  Act stated that the sum payable shall be- 868

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 11  

determined  by calling tenders or by auction  or  otherwise. In  Hari  Naryana’s case (supra) this Court  held  that  the right  to  trade  in  intoxicating  liquor  is  subject   to regulations  and restrictions and upheld the public  auction of the right or privilege of selling liquor ’as an attribute of collection of State revenue. In  the  recent  decision in  Amar  Chandra  Chakraborty  v. Collector  of Excise, Government of Tripura & Ors. [1973]  1 S.C.R.  533 under the Tripura Excise Rules fees for  licence for the wholesale vend of country spirit were required to be fixed  by  tender-cum-auction.   Section 22  of  the  Bengal Excise Act 1909 conferred power on the Chief Commissioner to grant  exclusive  privilege of manufacturing  and  supplying country liquor.  No grantee of any privilege could  exercise the  same  without  a licence.  The  Constitution  Bench  in Chakraborty’s  case (supra) held that trade or  business  in country liquor has from its inherent nature been treated  by the  State and the society as a special  category  requiring legislative control.  This trade or business is treated as a class  by itself and cannot be treated on the same basis  as other trades while considering Article 14.  A contention was raised  in Chakraborty’s case (supra) that the  business  of selling   liquor  is  protected  under  Article  19   as   a fundamental right and reliance was placed on the decision in Narula’s  case (supra).  This Court held that the State  can make  a  law  imposing  reasonable  restrictions  in  public interest on the right to deal in liquor by public auction of the right of selling liquor. There  are three principal reasons to hold that there is  no fundamental  right  of citizens to carry on trade or  to  do business in liquor.  First, there is the police power of the State  to  enforce  public morality to  prohibit  trades  in noxious  or dangerous goods.  Second, there is power of  the State  to enforce an absolute prohibition of manufacture  or sale  of  intoxicating liquor.  Article 47 states  that  the State  shall  endeavour to bring about  prohibition  of  the consumption  except  for medicinal purpose  of  intoxicating drinks  and of drugs which are injurious to health.   Third, the  history  of excise laws shows that the State has  the exclusive  right  or  privilege of manufacture  or  sale  of liquor. In Balsara’s case (supra) this Court referred to Article  47 and  said  that the idea of prohibition was  connected  with public health.  The challenge to a prohibition law under our Constitution  was made under Article 14 and 19 in  Balsara’s case.    This  Court  held  that  absolute  prohibition   of manufacture  or gale of liquor is permissible and  the  only exception  can be for’ medicinal preparations.  The  concept of  inherent  right of citizens to do business in liquor  is antithetical  to  the    power  of  the  State  to   enforce prohibition laws in respect of liquor. Das,  C. J. in State of Bombay v. R. M.  D.  Chamarbaugwalla [1957] 874 said that gambling could not be regarded as trade or business within the meaning of Article 19 (1) (f) and (g) and  Article 301.  ’Inherently vicious activities cannot  be treated  as  entitling citizens to do business or  trade  in such activities.  No one can deal  in                             869 counterfeit  coins or currency notes, Das, C. J.  held  that activities.  which are criminal, or dealing in  articles  or goods which are res extra co commercium could not have  been intended  to  be  permitted  by  Article  19(1)(f)  and  (g) relating to fundamental rights to trade or business. In  our  country  the  history  of  excise  shows  that  the regulations issued between 1790-1800 prohibited  manufacture

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 11  

or  sale of liquors without a licence from a Collector..  In 1808  a regulation was introduced in the  Madras  Presidency which provided that the exclusive privilege of manufacturing and  selling  arrack should be farmed in each  district.  in 1820 the law was amended to authorise the treatment of toddy and  other fermented liquors in the same way as  spirits  by allowing Collectors to retain the manufacture and sale under direct management if deemed preferable to farming.  In  1884 a Committee was appointed to investigate the excise  system. The  recommendations of the Committee were  adopted.   Under the   new  system  the  monopoly  of  manufacture  was   let separately  from  that of sale.  The former was  granted  on condition of payment of a fixed duty per gallon.  The  right of  sale was given on payment of a fee per shop or a  number of shops, or on payment of a fee determined by auction.   In the  Bombay  Presidency the monopoly of the retail  sale  of spirits  and the right to purchase spirits was  farmed.   In 1857  the  Government declared its future policy to  be  the letting by auction of each shop, with its still, separately. In  1870-71  a change was made.  The rule at that  time  was that the Collector would fix the number and locality of  the different shops and determine their letting value  according to  the advantages possessed by each.  It was  not  intended that   they  should,  as  a  rule,  be  put  up  to   public competition;  but  competition might be resorted to  by  the Collector  and taken into account in determining the sum  at which each would be leased.  This rule remained in force for many years.  The practice of putting the shops up to auction was,   thereafter   followed.    The   history   of   excise administration in our country before the Independence  shows that there was originally the farming system and  thereafter the  central distillery system for manufacture.  The  retail sale was by auction of the right and privilege of sale.  The Government  of India appointed an Excise Committee in  1905. The measures recommended- by the Committee were the advances of taxation, the concentration of distillation, the extended adoption  of the contract distillery system.  The  Committee suggested  among  other things the replacement of  the  then existing excise law by fresh legislation on the lines of the Madras Abkari Act. (See Dr. Pramatha Nath Banerjee : History of Indian Taxation p. 470 seq.). Reference  may be made to the Taxation Enquiry  Commissioner Report  1953-54  Vol. 3. At page 130 following  there  is  a discussion  of  State excises.  Among the major  sources  of revenue which are available to the State Government there is a duty on alcoholic liquors for human consumption.  At  page 132  of  the  Report it is stated that in  addition  to  the excise  duties, licence fees are charged for manufacture  or sale of liquor or for tapping toddy trees etc.  Similarly, 870 several   it  fees,  vend fees,  outstill  duties  are  also levied.Manufacture  or  sale of liquor is  forbidden  except under licences which are generally granted by auction to the highest bidders.  The manufacture of country spirit is  done in  Government distilleries or under the direct  supervision of the excise staff.  All supplies are drawn from Government warehouses which ensures that the liquor is not more than of the prescribed strength.  The licensed sellers have to  sell the country spirit between fixed hours and at fixed  selling rates.   As  in  the case of country spirit,  the  right  of tapping and selling toddy is also auctioned.  In addition to the  licence, in some States the licensee has to pay a  tree tax to Government. Traditionally  tobacco, opium and intoxicating liquors  have been  the subject matter of State monopoly. (See section  IV

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 11  

of  the Madras Regulation XXV of 1802 relating to  permanent settlement  of  land revenue).  Section IV states  that  the Government having reserved to itself the entire exercise  of its  discretion in continuing or abolishing, temporarily  or permanently, the articles of revenue included, according  to the  custom and practice of the country, under  the  several heads  inter  alia  of the abkary, or tax  on  the  sale  of spirituous liquors and intoxicating drugs, of the excise  on articles   of  consumption,  of  all  taxes   personal   and professional, as well as those derived from markets,  fairs, or  bazais,  of  lakhiraj lands (or lands  exempt  from  the payment  of public revenue), and of all other  lands  paying only favo urable quit rents, the permanent assessment of the land-tax shall be made exclusively of the said articles  now recited. This was followed by section XXXII of Regulation II of  1803 in  the  Madras  Presidency.   That  section  provided  that Collectors  shall  collect the reyenue arising  from  sayer, salt,  spirituous  liquors  or from other  sources,  in  the manner prescribed by the regulations. Regulation I of 1813 in the Madras Presidency provided  that the licensed retail dealer shall be supplied exclusively  by the  Collector of Madras with the quantity of  liquor  which they may require, at such price as may be from time to  time determined. Regulation  1  of 1820 of the Madras Presidency  inter  alia provided that the Board of Revenue was authorised to empower the  Collectors either to retain the exclusive privilege  of manufacturing  country  arrack, toddy, and  other  fermented liquors,  as well as the retail sale of foreign  or  country manufactured  spirits, toddy and other fermented liquors  in their respective districts, under their own immediate  rmana gement,  on  account  of Government; or to  rent  out  those privilges, jointly or separately, for such periods as may be deemed eligible. The  Board  of Revenue is aforesaid was also  authorised  to alter, amend and enlarge rules for regulating the  exclusive manufacture  and  sale of country arrack,  toddy  and  other fermented  liquors,  and  the  exclusive  sale  of   foreign spirits.   The  other  provisions  were  that  licences  for renting  out  the exclusive privilege  of  manufacturing  of country,  arrack,  toddy or other fermented liquor,  and  of retailing spirituous liquors would be prepared by the Board of Revenue.                             871 Act  XXIII of 1841 of the Madras Presidency, Act  XXXII  of 1845  of the Madras Presidency, Sections XLIII to  XLVII  of Regulation VII of 1932 of the Madras Presidency all indicate that it is the right and privilege of/ the State  Government to manufacture, sell intoxicant liquors and the State grants lease  of  such  rights  by  public  auction  on  rental  in consideration of the grant of such right. The  excise revenue arising out of manufacture and  sale  of intoxicating  liquors  is one of the sources  of  the  State Exchequer.  One of the principal sources of State revenue is customs and excise.  In England sale of intoxicating liquors although  perfectly  lawful  at common  law  is  subject  to certain  statutory  restrictions.   These  restrictions  are primarily  of  two  kinds; those designed  for  the  orderly conduct  of  the retail trade and those designed  to  obtain revenue from the trade whether wholesale or retail. Trade  in  liquor  has historically  stood  on  a  different footing  from  other  trades.  Restrictions  which  are  not permissible  with other trades are lawful and reasonable  so far  as the trade in liquor is concerned.  That is why  even

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 11  

prohibition  of the trade in liquor is not only  permissible but  is also reasonable.  The reasons are  public  morality, public  interest and harmful and dangerous character of  the liquor.   The State possesses the right of complete  control over   all  aspects  of  intoxicants,   viz.,   manufacture, collection,  sale and consumption.  The State has  exclusive right  to manufacture and sell liquor and to sell  the  said right in order to raise revenue-.  That is the view of  this Court in Bharucha’s case (supra) and Jaiswal’s case (supra). The  nature of the trade is such that the State confers  the right to vend liquor by farming out either in auction or  on private  treaty.   Rental  is  the  consideration  for   the privilege  granted by the Government for   manufacturing  or vending liquor.  Rental is neither a tax nor an excise duty. Rental  is the consideration for the agreement for grant  of privilege by the Government. This  Court in A. B. Abdulkadir v. State of Kerala [1962]  2 Supp.   S.C.R. 741 said that in British India there used  to be  public  auction  of  the  right  to  possess  and   sell exciseable  goods like country liquor, ganja and  bhang  and the amount realised was excise revenue.  The auction  system which  was in force was said by this Court  in  Abdulkadir’s case (supra) to be only a method of realising duty from  the grant  of licences to those who made the highest bid at  the auctions. The  grant of a lease either by public auction or for a  sum is a regulation pertaining to liquor One of the purposes  of regulation 872 is  to raise revenue.  Revenue is collected by the grant  of contracts to carry on trade in liquor.  These contracts  are sold by auction.  The grantee is given a licence on  payment of auction price. [See Bharucha’s case (supra)]. For  these reasons we hold that the State has the  exclusive right or privilege of manufacturing and selling liquor.  The State  grants  such  right or privilege in the  shape  of  a licence  or  a  lease.  The State has the power  to  hold  a public  auction  for grant of such right  or  privilege  and accept payment of a sum in consideration of grant of lease. The   appeals  and  the  writ  petitions   are,   therefore, dismissed.  Parties will pay and bear their own costs. P.B.R.                 Appeals and petitions dismissed. 873