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CASE NO.: Appeal (civil)  2381 of 2006

PETITIONER: STATE OF MAHARASHTRA AND ORS.

RESPONDENT: NAGPUR DISTILLERS, NAGPUR AND ANR.

DATE OF JUDGMENT: 01/05/2006

BENCH: S.B. SINHA & P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T  (Arising out of SLP(C) No.13997 of 2005)

P.K. BALASUBRAMANYAN, J.

                1.              Leave granted. 2.              This appeal by the State of Maharashtra and the  Officers of the State Excise Department challenges an  interim order passed by the Division Bench of the High  Court of Bombay, Nagpur Bench, in a Writ Petition filed by  the respondents herein.   Respondent No.1 is a  partnership firm and respondent No.2 is a partner therof.    Respondent No.1 is engaged in the business of  manufacture and sale of Indian made foreign liquor  (hereinafter described as "IMFL") and holder of a wholesale  licence under the State Government in Form PLL as per  the Maharashtra Distillation of Spirit and Manufacture of  Potable Liquor Rules, 1966.  The said Rules are made  under the Bombay Prohibition Act, 1949.  Respondent  No.1 did not own a distillery and was not manufacturing  rectified spirit and extra neutral alcohol which it required  for manufacture of IMFL.  Respondent No. 1 had to  purchase rectified spirit and extra neutral alcohol from  distilleries owned by others. For possession and use of  rectified spirit including the extra neutral alcohol, license  was required in Form R.S.II prescribed under the Bombay  Rectified Spirit Rules, 1951.  The manufacture and sale of  IMFL is supposed to take place under the supervision of  the staff of the State Excise Department as provided in  Rule 12(2) of the Bombay Rectified Spirit Rules, 1951.  As  per Rule 17 (12) of the Maharashtra Distillation of Spirit  and Manufacture of Potable Liquor Rules, 1966 and as per  condition No. 1 of the PLL license obtained thereunder,  Respondent No.1 as licensee, had to pay the cost of the  supervisory staff to the State in terms of Section 58A of  the Bombay Prohibition Act.  

3.              As it is elsewhere, in the State of Maharashtra  also, under Section 12 of the Bombay Prohibition Act,  manufacture of liquor, construction or working of a  distillery or brewery, import, export, transport, possession,  sale or purchase of liquor are banned.  Though, under  Section 13 of the Act, the bottling of liquor for sale,  consumption or use of liquor is prohibited; under Section  11, the State has taken upon itself the right to permit any  of the aforesaid activities in the manner and to the extent  provided for, by the provisions of the Act or any Rules,

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Regulations or Orders made in that behalf.  Under Section  49 of the Act, the State has the exclusive privilege of  importing, exporting, transporting, manufacturing,  bottling, selling, buying, possessing or using any  intoxicant.  For consideration, the State farms out the  right to the concerned licensee.  The State has made rules  in terms of Section 143 of the Act prescribing fees  including rent or consideration payable in respect of any  privilege, license, permit, pass or authorization granted or  issued under the Act.  

4.              In view of the relevant provisions in the Bombay  Rectified Spirit Rules, 1951, the Bombay Rectified Spirit  (Transport in Bond) Rules 1951 are made applicable for  rectified spirit.  The issue of a transport pass is  contemplated for the transport of rectified spirit from the  distillery to the factory of the user subject to payment of  the fee prescribed under Rule 5(2) of the Bombay Rectified  Spirit (Transport in Bond) Rules 1951.  According to the  State, the first respondent was to pay the fee at the rate of  Rs.2 per litre for rectified spirit and Rs.3 per litre for extra  neutral alcohol obtained by it for manufacture of IMFL.   The respondents filed Writ Petition No. 2417 of 2004 in  the High Court challenging the notification dated  12.7.1999, impugning rule 5 of the Bombay Rectified Spirit  (Transport in Bond) Rules 1951 and the fee prescribed  imposed on them under the Bombay Rectified Spirit  (Transport in Bond) Rules 1951.  The challenge was  mainly based on a decision of the Bombay High Court in  Vam Organic Chemicals Limited Vs. State of  Maharashtra, Writ Petition No. 2275 of 2000.  It was their  plea that the decision in Vam Organic Chemicals  Limited covered the position regarding the fee sought to  be collected from the Respondent No.1 and the demand  was liable to be quashed for the reasons stated in Vam  Organic Chemicals Limited.  The respondents also  sought an interim order of stay of the demand pending  disposal of the Writ Petition.  They pointed out that in a  number of other cases including a case of their own  relating to a previous demand, interim orders of stay had  been granted and that even in the petition for special leave  to appeal against the decision in Vam Organic Chemicals  Ltd. (supra) being SLP (C) No. 12180 of 2001, filed in the  Supreme Court, the Supreme Court has ordered Vam  Organic Chemicals Limited, a licensee similarly situated,  only to file an undertaking that in case the appeal is  allowed by the Supreme Court, Vam Organic Chemicals  Limited would satisfy the liability as per law and as  determined by the Supreme Court within the time fixed by  the Supreme Court.  The prayer was opposed by the State.   The High Court granted an interim order staying the  recovery of the fee on the strength of the decision in Vam  Organic Chemicals Limited and the interim order  granted by this Court in the appeal from that decision.

5.              In its counter affidavit, the State had indicated  that the position of the first respondent who does not  manufacture rectified spirit for its own consumption was  different from the case of Vam Organic Chemicals  Limited and that the decision therein or the interim order  made in appeal therefrom, does not enable the  respondents herein to contend that an interim order as  sought for by them should be granted by the Court.  It  was also submitted by the State that there was a stay as  regards earlier years and if during the pendency of the

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Writ Petition  the liability to pay the fee now challenged is  kept stayed or suspended, in case the Writ Petition were to  be dismissed, the accumulated liability of respondent No.1  would be huge and the interests of the State would remain  unprotected and in such a situation, the balance of  convenience was not in favour of the grant of an interim  order of stay, that too unconditional, as has been done by  that Court in some cases.  The High Court declined to  accept the distinction sought to be made by the State  between the present case and the case of Vam Organic  Chemicals Limited and granted a stay of recovery, merely  on an undertaking by the respondents.   The appellants  have challenged that order of the Division Bench of the  High Court dated 20.7.2004 in this appeal.

6.              Learned Senior Counsel appearing for the  appellants submitted that the case of Vam Organic  Chemicals Limited was one where the licensee was a  manufacturer of rectified spirit and such manufactured  rectified spirit was being used by the manufacturer  himself.  Learned counsel submitted that the view taken  by the High Court in that decision was not correct and  that there was every chance of this Court allowing the  appeal.  But learned counsel submitted that even  assuming that the decision in Vam Organic Chemicals  Limited case was correct, the same would not cover the  case of the respondents since the first respondent did not  have a license to manufacture rectified spirit and  respondent No.1 was not a licensee which manufactured  rectified spirit and consumed it for its own purpose of  manufacturing IMFL.  Learned counsel submitted that the  fact that the first respondent purchased rectified spirit or  extra neutral alcohol from others and transported it to its  premises for the purpose of manufacturing IMFL was a  clear distinguishing feature and the first respondent had  necessarily to pay the fee under the Bombay Rectified  Spirit (Transport in Bond) Rules 1951.  The State had the  power to make the relevant Rules and to impose the  impugned fee.  There was no prima facie case made out by  the respondents for the grant of an unconditional order of  stay in respect of the fee to be paid by the first  respondent.   Learned counsel reminded the Court of the  observations of this Court that a Government cannot run  on securities and that in cases involving revenue, interim  orders should be passed with care and caution and only  on appropriate conditions.   Learned counsel submitted  that the right to trade in IMFL was a mere privilege  granted to the licensee by the State.

7.              Learned counsel for respondents, on the other  hand, submitted that the case put forward by the  respondents was squarely covered by the decision in Vam  Organic Chemicals Limited and there was no  justification in interfering with the interim order passed by  the High Court especially in the context of the order  passed by this Court in the appeal from the decision in  Vam Organic Chemicals Limited.  Learned counsel  submitted that the undertaking to be given by the  respondents was adequate to protect the interests of the  State.  It is submitted that the fee impugned was not an  impost on potable alcohol, but on rectified spirit and the  State has no competence to impose such a levy.  Learned  counsel submitted that various Writ Petitions were  pending in the High Court and their final disposal was  being delayed only because of the attempt of the State to

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stall their hearing.   There was no justification in filing an  appeal only against the interim order in their case when  similar orders have been passed in various other writ  petitions filed in the High Court.    

8.              In reply, learned counsel for the State submitted  that substantial amounts are outstanding from such  licensees and it would be appropriate if this Court passes  an order that protects the interests of both sides.   The  State can then move the High Court for vacation of the  orders in similar cases that are distinguishable from the  case of Vam Organic Chemicals Limited.

9.              Prima facie, we find some merit in the argument  that the decision in Vam Organic Chemicals Limited    may be distinguishable from cases where the licensee  himself does not manufacture the rectified spirit.  Here,  rectified spirit is not manufactured by the first respondent  and such spirit is not being used captively in its own  premises for manufacture of IMFL.  Respondent No.1 is  purchasing rectified spirit or extra neutral alcohol from  other manufactures and getting it transported to its own  premises for manufacturing and bottling IMFL.  This  factual distinction apart, we have to keep in mind that the  right to trade in liquor is only a privilege farmed out by the  State.    Article 47 of the Constitution of India clearly casts  a duty on the State at least to reduce the consumption of  liquor in the State gradually leading to prohibition itself.   It appears to be right to point out that the time has come  for the States and the Union Government to seriously  think of taking steps to achieve the goal set by Article 47  of the Constitution of India.  It is a notorious fact, of which  we can take judicial notice, that more and more of the  younger generation in this country is getting addicted to  liquor.  It has not only become a fashion to consume it but  it has also become an obsession with very many.  Surely,  we do not need an indolent nation.  Why the State in the  face of Article 47 of the Constitution of India should  encourage, that too practically unrestrictedly, the trade in  liquor is something that it is difficult to appreciate.    The  only excuse for the State for not following the mandate of  Article 47 of the Constitution is that huge revenue is  generated by this trade and such revenue is being used for  meeting the financial needs of the State. What is more  relevant here is to notice that the monopoly in the trade is  with the State and it is only a privilege that a licensee has  in the matter of manufacturing and vending liquor.    

10.             It is pointed out by learned counsel for the  appellants that even in the conditions attached to the  license, there is an undertaking by the licensee to pay the  fees as demanded.  It is his submission that there was no  reason to water down that obligation by way of an interim  order when an attempt is made to challenge the very  imposition of the fee which a licensee had agreed to pay in  the first instance.  We see some force in the submission,  but have to balance it with the plea that the State has no  power to impose such a levy.  We have also to take note of  the fact that after all, any amount paid to the State, could  be adjusted either towards future liability or directed to be  refunded by the State in case the challenge of the licensee  succeeds in the Writ Petition when it is finally heard and  decided.  The only purpose for which the State undertakes  liquor trade, notwithstanding the mandate of Article 47 of  the Constitution of India, is the revenue that it generates.  

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This aspect also cannot be lost sight of while considering  the balance of convenience in cases where a liquor  licensee seeks an interim order staying the fulfillment of  his obligation to pay all the fees or other charges  demanded from him as such a licensee.  There is also  merit in the submission that in view of the long years it  takes for a Writ Petition to be decided finally, the licensee  himself would find it an onerous burden to pay the fees for  years together in case his challenge to the levy is  ultimately rejected.  We are therefore satisfied that the  High Court was not justified in passing in practical terms,  an unconditional interim order of stay as sought for by the  respondents.  The High Court should have paid a little  more attention to the interests of the State and the  consequences arising out of its order staying the payment  of the fee merely on an undertaking by the licensee to pay  it in case at a future point of time he is found liable to pay  the same.  It is trite that Government cannot run on  undertakings.  It has, therefore, become necessary to  interfere with the order of the High Court, though  normally, this Court would be reluctant, in exercise of its  jurisdiction under Article 136 of the Constitution of India,  to interfere with interim orders made in pending writ  petitions.   

11.             Then the question is what can be an appropriate  order in the case on hand.  We feel that the interests of  both would be protected if we were to order that the  licensee is to pay 50 per cent of the license fee payable  and that it should give an undertaking to pay the balance  50 per cent in case ultimately the Writ Petition is decided  against it, within the time fixed by the High court.  This,  as we see it, would balance the equities and afford  protection to the interests of the State and the interests of  the licensee.  It would save the licensee from meeting the  entire liability here and now pending disposal of his  challenge to the levy and at the same time would not make  his obligation too onerous, in case ultimately, he is found  not entitled to succeed in his challenge in the Writ  Petition.  This would also enable the Government to realize  a part of the revenue which alone appears to be the motive  in permitting the trade in liquor notwithstanding the  mandate of Article 47 of the Constitution of India.  Thus,  on a balancing of the interests of both parties in the  background of the nature of the trade and the directive  principle of State Policy in that behalf, we are satisfied  that the order of the High Court calls for interference.   

12.             We therefore allow this appeal and setting aside  the order of the High Court order that if the respondents  pay one-half of the license fee payable by the respondents  and as demanded of them and give an undertaking that  they will pay the balance 50% of the levy within the time  fixed by the High Court, if the writ petition were to be  dismissed, the recovery of the licence fee payable as per  the impugned notification will be kept in abeyance until  the disposal of the writ petition by the High Court. The  respondents are given three months time from today to file  a modified undertaking and to deposit 50 per cent of the  license fee payable for the Excise Year 2005-2006.  The  respondents would be liable to pay 50 per cent of the  license fee for the subsequent years on or before the  thirty-first of December of that year and to file  undertakings in the subsequent years until the Writ  Petition is heard and finally decided by the High Court.   If

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the respondents fail to make the deposit and to file the  undertaking as indicated above, the appellants will be free  to take all steps that are permissible under law for  recovery of the entire fee due from the respondents as may  be demanded from them in accordance with the relevant  rules.   In case the respondents succeed in their challenge  in the writ petition, the State will be liable to refund the  amount paid with interest thereon at the rate of 9% per  annum from the date of payment till the date of refund.   The amount will be refunded within two months of the  allowing of the writ petition unless otherwise agreed to by  the parties, regarding the adjustment of that sum.