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PETITIONER: STATE OF MADHYA PRADESH & ORS.

       Vs.

RESPONDENT: TIKAM DAS

DATE OF JUDGMENT22/04/1975

BENCH: KRISHNAIYER, V.R. BENCH: KRISHNAIYER, V.R. SARKARIA, RANJIT SINGH GUPTA, A.C.

CITATION:  1975 AIR 1429            1975 SCR  234  1975 SCC  (2) 100

ACT: Madhya Pradesh Excise Act (2 of 1915)-General conditions  of Licence  made under the Act, r. 26 and Foreign Liquor  Rules made  under  the  Act, r. 4-Balance of stock  on  expiry  of licence-Enhancement of licence fee for next year-If  balance of stock liable to enhanced fee. Delegated legislation-When rule can be made retrospective.

HEADNOTE: The  respondent  had a licence for sale  of  foreign  liquor issued under the Foreign Liquor Rules made under the  Madhya Pradesh Excise Act, 1915.  On the date of the expiry of  the licence (March 31, 1964), he had a large quantity of  unsold foreign  liquor, which had to be surrendered by him  to  the authorities.  As the Government was contemplating  enhancing the  licence  fee.  he  gave  an  undertaking  to  pay   the difference and he was allowed to keep the excess stock.   He also  obtained  a fresh licence for one year  commencing  on April 1, 1964. On  April 25, 1964, the Foreign Liquor Rules  were  amended. The  scale of licence fees was enhanced  with  retrospective effect  from April 1, 1964; and r. IV was amended  providing that  the licensee shall be liable to pay the difference  in the  event  of the enhancement of the scale of fees  on  the balance  of stocks during the currency or on the  expiry  of the licence. But  the State’s demand for the difference was  successfully challenged  by  the respondent, in the High  Court,  on  the ground  that  the balance of stocks on March 31,  1964,  was covered  by  the licence fee already paid and could  not  be subjected to enhanced levy. Allowing the appeal to this Court, HELD : (1) Subordinate legislation made by a delegate cannot have  retrospective effect unless the rule-making  power  in the concerned statute expressly or by necessary  implication confers  power  in this behalf.  But s. 63 of the  Act  does contemplate not merely the power to make rules but to  bring them into force from any previous date.  It states that  all rules made under the Act shall have effect from the date  of publication in the official gazette or from inch other  date as may be specified in that behalf.  Therefore, the enhanced

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levy  of licence fees operates from April 1, 1964. [236F,  H 237A] (2)Rule  XXVI of the General Licence  Conditions  provides that if there is enhancement of duty, the licensee shall pay the difference of duty on the ’balance of stocks’ as on  the date  preceding  the expiry of the licence.  The  rule  also provides for refund by the State if there is a reduction  of duty.   Reading  this  rule with the amended r.  IV  of  the Foreign Liquor Rules, the ’balance of stocks’ is the surplus stock held by the licensee immediately before the expiry  of his licence.  Therefore the quantity held over on March  31, 1964, became liable to the enhanced licence fee on April  1, 1964. [238E-F] (3)(a) If the respondent’s contention is accepted  persons who  have  huge stocks left over will not have  to  pay  the enhanced  licence  fee  while fresh licensees  would  be  so liable ; and [238-G] (b)If  the  respondent  had surrendered his  stock  as  he should have but for his undertaking he would have had to pay the enhanced rate for such left-over stock. [238H]                             235

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 668 of 1968. From  the  Judgment and Order dated 2nd March  1965  of  the Madhya  Pradesh  High Court in Misc.  Petition  No.  348  of 1964. Ram  Panjwani,  I.  N. Shroff and H. S.  Parithar,  for  the appellants. B. N. Lokur and A. G. Ratnaparkhi, for the respondent. The Judgment of the Court was delivered by KRISHNA  IYER, J.-The claim of the appellant, the  State  of Madhya Pradesh, to leavy enhanced license fee on the  spill- over  stock of intoxicating liquor held as on April 1,  1964 by   the  respondent  who  runs  a  bar,  was   successfully challenged  in the High Court.  So the State has come up  in appeal,  by  certificate, under Art. 133  and  disputes  the correctness of the view accepted by the High Court. As  is obvious, the facts are brief and beyond dispute,  the issue  of  law straight and simple and our  decision,  on  a careful  study  of  the  alternative  constructions  of  the relevant provision, is that the State is entitled to collect the fee on the revised scale.  The respondent runs a cafe at Indore  and a foreign liquor bar booths expensive sales  and attracts  affluent  addicts.   Naturally,  as  a  profitable proposition  the respondent obtained a licence for the  sale of foreign liquor (in Form F. L. 3) issued under the Foreign Liquor  Rules  framed under the Excise  Act,  1915(1).   The licence which he held was for one year from April 1, 1963 to March  31, 1964.  At that time, under the extant  rules  the fee payable was 37 paise per quart bottle of malt liquor and different  rates for other kinds of foreign liquor.  On  the date  of expiry of the licence, viz., 31st March 1 964,  the respondent  had with him a large quantity of  unsold  liquor which  was  already in the licensed  premises,  having  been brought earlier.  He obtained a fresh licence for a  further period of one year commencing from April 1, 1964.  Meanwhile Government was entertaining the idea of enhancing the scales of licence fee for the various kinds of foreign liquor.  The balance  quantity left over with the respondent at the  end of the licensed period, viz., March 31, 1964 was checked  by the  concerned Excise Officials and a panchnama prepared  in that  behalf.   Ordinarily,  the surplus  stock  has  to  be

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surrendered  by the licensee but, on an undertaking  to  pay the difference in the event of an enhancement of the  rates, the  bar  owner was permitted to keep on  his  premises  the balance  quantity  so  ascertained.   Apparently  the  State Government had decided on the increased rate because we find from Annexure B a demand being made by the Excise  Inspector on the licensee to pay the difference of fees consequent on the  enhancement of the scale of fees, as worked out on  the stock  which remained in hand with the owner of the  bar  on the night of March 31, 1964.  Despite the undertaking  given to  comply with such enhanced demand, the hotelier  resisted it and took up the stand that the balance stock had  already been  subjected  to licence fee when it was brought  in  and that the subsequent raising of the rate of licence (1)  Madhya Pradesh Excise Act, 1915 (Act 11 of 1915).                             236 fee could not be applied validly to such stocks.  Since  the State  insisted  on levying at the larger rate even  on  the balance  stock held on March 31, 1964 the  respondent  moved the  High  Court  for the issuance of a  writ  quashing  the demand as illegal.  The legality of the levy depends oil the applicability of the enhanced scales of licence fee to  tile balance of foreign liquor stock held by the licensee on  the midnight of 31/3-1/4/1964. The  facts being thus plain, we will straight go to the  law relied on by the State in support of its claim.  The  Excise Act  and  the Foreign Liquor Rules  made  thereunder  govern sales  of these intoxicants and Form F.L.3 applies  to  bars which sell foreign liquor for consumption. on the premises. On  April 25, 1964, the Government, by virtue of its  powers under  the  Act,  amended in certain  respects  the  Foreign Liquor Rules.  One such amendment concerns the scale of fees in  respect  of licence in Form F.L.3,  an  upward  revision having been effected.  The rule itself. although promulgated on  April  25, 1964 was given  effect  retrospectively  from April  1, 1964.  Apart from raising the rates, Rule  IV  was also  amended by the addition of the following provision  at the end of it :               "The  licensee  shall  be liable  to  pay  the               difference  of fees per bottle on the  balance               of  stocks of foreign liquor in the  event  of               the  enhancement of the scale of  fees  during               the currency or on expiry of the licence." Based on this modification of the rules, the State made  the demand for the difference. Let us examine the rival contentions and test the  soundness of  each  briefly.  First of all, we have to  ascertain  the scope  and area of the rule-making powers,  the  limitations thereon and the retroactive operation of such rules.   There is  no  doubt that unlike legislation made  by  a  sovereign legislature,  subordinate  legislation made  by  a  delegate cannot  have  retrospective effect  unless  the  rule-making power  in  the concerned statute expressly or  by  necessary implication confers power in this behalf.  Our attention has been  drawn to ss.62 (g) and (h) and 63 in this  connection, by  counsel  for the State.  The State Government  may  make rules for the purpose of carrying out the provisions of  the Act  (s.62). Such rules may regulate the amount of fee.  the terms  and conditions of licences and the sale of  fees  and the  manner  of fixing the fees payable in respect  of  such licences [62 (g) and (h) 1. This provision, by itself.  does not expressly grant power to make retrospective rules.   But s.63   specifically  states  that  ‘  all  rules  made   and notifications  issued under this Act shall be  published  in the Official Gazette, and shall have effect from the date of

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such publication or from such other date as may be specified in  that behalf.’ Clearly the Legislature has empowered  its delegate, the State Government, not merely to make the rules but  to  give  effect  to them from  such  date  as  may  be specified   by  the  delegate.   This  provision   regarding subordinate  legislation  does contemplate  not  merely  the power  to make rules but to bring them into force  from  any previous date. 237 Therefore antedating the effect of the amendment of Rule  IV is not obnoxious to the scheme nor ultra vires s.62. The  focus  must  now turn on the disposal  of  the  balance stocks with licensees held on the expiration of the  period. Rule  XXV(1)  regulates  the disposal  of  such  balance  of intoxicants left with vendors after the expiration of  their licences; if they get new licences on the expiry of the  old in respect of the same premises, they are allowed to  retain the  balance of stock for the purposes of the new licence  [ r. XXV (a)].  In the event of the fee or duty being enhanced or  reduced,  r. XXVI makes such change applicable-  to  the balance of stock.  It is useful to reproduce r. XXVI here :               "XXVI.  Procedure to be followed when duty  is               enhanced or reduced.               If  it is notified by the Collector that  from               any  particular date the duty leviable on  any               intoxicants  is to be enhanced,  all  licensed               vendors  in  possession  of  such  intoxicants               shall,  on  the evening preceding  that  date,               deposit  their stock with such persons as  the               District  Excise Officer may appoint  for  the               purpose.  Such stocks shall remain in  deposit               until verified and the District Excise Officer               may  order  that  the difference  of  duty  be               levied  on the balance of the stocks, and  the               licensee  shall  then  pay  such  duty  within               thirty days of the date on which the  enhanced               rate of duty comes into force :               (a)   Provided that if such stock, or part  of               such  stock, be destroyed, the  difference  of               duty   shall  not  be  levied  on  the   stock               destroyed; and               (b)   Provided  also  that if the  balance  of               stock  so deposited is transferred to  another               licensed vendor, the difference of duty  shall               be  levied  from  the  transferee  before  the               transfer is completed.               The above procedure regarding the deposit  and               verification    of   stock   of    intoxicants               consequent  on the enhancement of  duty  shall               also  apply when duty leviable on any  intoxi-               cants is reduced.  Refund of the difference in               ditty consequent on the reduction in its  rate               may  be sanctioned by the Excise  Commissioner               on receipt of an application from the licensee               through the Collector of the district." A  fair  reading of this rule yields only one  result.   The licensed vendor in possession of surplus intoxicants on  the Late  preceding  expiry  of his  licence  should  ordinarily deposit  such stock with the appointed Excise  Officer.   On verification  of  the  actual quantity of  such  stock,  the District  Excise Officer ’may order that the  difference  of duty  be levied on the balance of stocks, and  the  licensee shall  then  pay  such duty........  of  course,  the  above procedure  primarily visualizes enhancement of duty  but  is made applicable to reduction of duty when

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(1)  Under the General Licence Conditions under s. 62.                             238 refund  of  duty  shall  be made  by  the  State.   Rule  IV virtually  extends  this  kind of dealing  with  balance  of stocks   when   the  subject  matter  is  license   fee   as distinguished  from duty.  Moreover, licensees are bound  by the general licence conditions (vide condition No. 6 of  the license)  and the general licence conditions with  which  we are  concerned  are  set out in rr.  XXV  and  XXVI  already adverted to. In this background of the law, the short question is whether the  respondent is liable to pay enhanced fee brought  about by amendment of the rules on April 25, 1964. The first contention that has been raised by the  respondent in support of the judgment of the High Court is that in  any case subordinate legislation cannot be retrospective and the State Government cannot therefore make rules and give effect to  them  retroactively.   We  have  already  set  out   the provisions of ss. 62 and 63 bearing on the subject and  have no  doubt  that,  in  the present  case,  the  statute  does authorise  the State, as its delegate, to  make  retroactive rules.   Therefore  we  negative  the  contention  that  the enhanced levy of licence fee cannot operate as from April 1, 1964. The  second contention which has found favour with the  High Court  is  that  the balance on hand on March  31,  1964  is covered by the license fee already paid and cannot therefore be  subjected to the enhanced levy on April 1, 1964.   There is  a  measure  of absurdity in the rule,  if  this  be  the construction.   Indeed, the High Court itself  notices  that the words used to tax at a higher rate the balance of stocks would  become  redudant in r. XXVI.  A fair reading  of  the rule giving full effect to the words used in r. XXVI of  the Excise  rules  and the explanation added to r.  IV  (of  the Foreign Liquor Rules already extracted) leave us in no doubt that the  balance of stocks envisioned by  the  rules  and subjected  to  enhancement  or reduction  of  duty  is  such surplus  stock as is held immediately before the  expiry  of the  previous  license.   So construed,  in  this  case  the quantity  held  over  on March 31, 1964  becomes  liable  to enhancement  of  license fee on April 1, 1964  and  that  is precisely what the State has claimed. Indeed,  commonsense suggests no  alternative  construction. For,  otherwise,  some  persons who by  accident  have  huge stocks  left over will not have to pay the enhanced rate  of licence  fee  while others with ’virgin’ licences  for  that year and begin with no stock-on-hand have to pay at a higher rate.   Again, if only the respondent had  surrendered  his surplus stocks on 31-3-1964, as ordinarily he would have had to,  had  he not been permitted to retain that  quantity  in view  of his getting a fresh licence for the same  premises, he  would have had to pay the enhanced rate for  such  left- over stock.  Thus, both law and logic, correct  construction and  commonsense, coincide in the conclusion that the  Eagle Cafe Bar owner (the respondent) had to pay the higher fee on the  balance of stock as on April 1, 1964.  The  High  Court erred  in its interpretation of the rules as applicable  to the present situation.                             239 We allow the appeal but, having regard to the fact that  the sum  involved  is  unsubstantial  although  the  High  Court regards  the  question of law involved  as  substantial,  we direct that the parties do bear their costs. V.P.S.                                   Appeal allowed. 240

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