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PETITIONER: STATE OF ORISSA & ORS.

       Vs.

RESPONDENT: NARAIN PRASAD & ORS.,ETC.ETC.

DATE OF JUDGMENT:       03/09/1996

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) PARIPOORNAN, K.S.(J)

CITATION:  JT 1996 (8)    50

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P.JEEVAN REDDY,J.      Leave granted.      Having voluntarily  entered  into  contracts  with  the Government of  Orissa,  undertaking  to  lift  a  particular quantity of liquor every month and also to remit the monthly excise duty  in two  equal installments  on  the  fifth  and fifteenth of the month, the respondents- licencees committed default on  both counts and when the said undertaking in the contract is not enforceable in law.  They invoked the extra- ordinary jurisdiction of the High Court under ARTICLE 226 of the Constitution for the purpose.  The High Court the upheld their contention.   Hence,  these appeals  by the  State  of Orissa.      The grant  of excise licences in the State of Orissa is governed by  the Bihar  and Orissa Excise Act,1915 [the Act] and the  rules made  thereunder.   Section 22  provides  for grant of  exclusive privilege  of sale  of  country  liquor, whether wholesale  or retail.  Section 27 empowers the State Government to  impose excise  duty or countervailing duty,as it may  direct on  any of  the activities specified therein. It would  be appropriate  to  set  out  sub-section  [1]  of Section 27:      "27.  Power   to  impose   duty  on      import,   export,   transport   and      manufacture.  [1] An excise duty or      countervailing duty,  as  the  case      may be,  at such  rate or  rates as      the State  Government  may  direct,      may be imposed, either generally or      for any specified local area, on -      [a] any excisable article imported,      or      [b] any excisable article exported,      or      [c]    any     excisable    article

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    transported, or      [d] any  excisable  article  [other      than   tari] manufactured under any      Cl.[a] of S.13,or      [e] any  hemp plant  Cultivated, or      any   portion    of   such    plant      collected,   under    any   licence      granted in  respect of  Cl. [b]  or      Cl.of S. 13, Or      [f]       any   excisable   article      manufactured in  any distillery  or      brewery   licensed,    established,      authorized or  continued under this      Act.      Explanation: Duty may be imposed on      any article  under this sub-section      at different rates according to the      places to  which such article is be      removed   for    consumption,    or      according to the article."      Section   28    empowers    the    levy    of    excise duty/countervailing duty in any of the several ways provided therein. Section 28, insofar as in relevant, reads:      "28. Ways  of levying  such duty. -      Subject   to any  rules made  under      S.90, Cl.  [12], any  duty  imposed      under S.27  may be levied in any of      the following ways:      [c]   On   an   excisable   article      transported, -      [i]...........................      [ii]by payment  upon issue for sale      from   a   warehouse   established,      authorized or  continued under this      Act:      Section 29  is particularly relevant to the controversy herein. It reads:      "29. payment for grant of exclusive      privilege. [1]  Instead  of  or  in      addition  to,   any  duty  leviable      under   this    Act,   the    State      Government may  accept payment of a      sum in  consideration of  the grant      of any  exclusive  privilege  under      S.22      [2] The  sum payable under sub- [1]      shall be determined as follows:           [a] by  auction or  by calling           tenders or otherwise the State           Government may  by general  of           special order direct; and           [b]  by   such  authority  and           subject to such control as may           be specified in such order .      [3] The sum determined under sub-S.      [2] shall  be final  and  shall  be      final  and  shall  be  binding  the      party making  the offer  by way  of      tender, bid or other wise once such      offer  is  accepted  by  that  sub-      section."      A reading of Section 29 shows that the State Government may accept payment of a sum in consideration of the grant of any exclusive  privilege  under  Section  22.  This  may  be instead of  or in  addition to any duties leviable under the

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Act. Sub-section  [2) clarifies  that the  sum payable under sub-section  1) shall be determined by auction or by calling for tenders  or otherwise; sub-section [3] declares that the sum determined  under sub-sub-section [2] shall be final and binding upon  the party  making the  offer once the offer is accepted by the appropriate authority.      Section 89 empowers the State Government to  make rules to carry  out the  objects of  the  Act.    Sub-section  [2] specifies the several heads in respect of which rules can be made. Clause  [1] of  sub-section  [2]  empowers  the  State Government to make rules "for regulating the procedure to be followed and  prescribing  the  matters  to  be  ascertained before any  licence for  the wholesale or retail vend of any intoxicant is granted for any locality."      In exercise  of the  power conferred by Section 89, the Government of  Orissa has  made rules governing the grant of licences, viz., The Orissa Excise Exclusive Privilege Rules, 1970’. Rule  6 of these Rules prescribes the manner in whish the  consideration   determined  for   grant  of   exclusive privilege shall  be paid.  Rule 6[A],  as substituted by SRO No. 215/89,  provides for  monthly minimum guaranteed quota, the obligation  of the licencee to lift it before the end of the month  and the  further obligation  to remit the monthly excise duty  in two  equal instalments, i.e., on the 5th and 15th of  every month.  Clauses [1],  [2], [3] and [4] of the said Rules read thus:      "6   [A][1]    Minimum   guaranteed      quantity of  Country spirit:  Every      successful bidder of Country Spirit      shop   shall,    before   obtaining      licence, guarantee  the sale if the      minimum  guaranteed   quantity   of      Country  spirit  as  fixed  by  the      Collector. The  bidder shall before      obtaining licences  submit  monthly      distribution of  statement  to  the      concerned Collector.  The  licensee      before the  30th June,  may  revise      and    resubmit     the     monthly      distribution  statement   for   the      portion of  the  Excise  Year  from      August  to  March.  The  Collector,      shall be  competent to  revise  and      approve  such   revised  statement.      There shall  be no  further changes      in the  distribution  statement  so      approved.      [2] The  licensee  shall  lift  the      monthly minimum guaranteed quantity      approved for that month before 5.00      P.m. on  the last  working  day  of      that month.  The right  to lift the      monthly minimum guaranteed quantity      approved for  that month  and  left      unlifted if any by 5.00 p.m. on the      last working day of the month shall      be  forefeited,   unless  specially      permitted  to   be  lifted  in  the      subsequent month  or months  by the      Collector.      Provided that:-      [i]  The  Collector,  may  for  any      special reasons permit the licensee      to lift   the  short drawn  minimum      guaranteed quantity of the previous

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    month  in   the  succeeding   month      except for  the months  of February      and  March.   The  Collector  shall      however, obtain  the order  of  the      Commissioner of  Excise in  case of      default and for any special reasons      if  the  period  exceeds  Over  one      month.      [ii]  THE   Commissioner   ,   may,      wherever if  he deems it necessary,      permit the  licencee  to  lift  the      short   down   minimum   guaranteed      quantity of  any month  other  than      that  month   of   March   in   any      subsequent month or months.      [iii] No  unlifted quantity  of the      Country Spirit  shall be  permitted      to be lifted beyond the last day of      February.      [3] Subject  to provisions  of sub-      rule [1]  no  licensee  shall  lift      less than   the  specified  minimum      guaranteed  quantity   of   country      spirit in  any month.   The  excise      duty  of  country  spirit  for  the      month   as    approved    in    the      distribution statement  under  sub-      rule [1]  shall be  remitted in two      equal instalments  by the  licensee      into the   Government  treasury  of      the District  in which  the shop is      situated.  The   first   instalment      shall be  remitted by  fifth of the      second instalment  by fifteenth  of      that  month.   where  due  date  or      subsequent  day   happens   to   be      holiday  the  instalment  shall  be      remitted on  the nest  working day.      If  in  any  month,  the  first  or      second  instalment  of  the  excise      duty of  country  spirit  for  that      month is  not remitted  as required      above,  the   excise  duty  to  the      extent of  deficit payment  without      prejudice  to  any  other  mode  of      recovery shall  be  deducted  first      from the  Bank Guarantee,  if  any,      and the  balance from  the  advance      deposits furnished  or  paid  under      rule 6  and the  licensee shall  be      called  upon   to   indemnify   the      amounts so  adjusted in the case of      first instalment  by  fifteenth  of      that month   and  in  the  case  of      second instalment by twentyfifth of      that month in which deficit payment      of instalment  of excise  duty  had      expired.      [4]  Where   a  licensee  fails  to      indemnify   the    advance   amount      adjusted under  sub-rule [3] in the      case   of   first   instalment   of      fifteenth of  that month and in the      case  of   second   instalment   by      twentyfifth  of   that  month,  the

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    license is  liable for cancellation      and  the   right  acquired  by  the      defaulting licensee shall be liable      for    redisposal     subject    to      provisions of  sub-section  [1]  of      Section 22 of the Act."      A reading  of Rule  6-A  makes  the  following  matters clear: the  licencee shall  have to  undertake to  lift  the M.G.Q. of  liquor every month. Clause (3) of the Rules, read with clauses  (1) and  (2) means that the obligation to lift the M.G.Q.  of liquor and the obligation to remit the excise duty payable  for the  month are  two distinct  obligations. While the  obligation to lift the M.G.Q. is to be discharged before the  end of  the month,  the obligation  to remit the excise duty  for the  month is to be discharged in two equal instalments, viz.,  first instalment  by the  fifth and  the second  instalment  by  the  fifteenth  of  the  month.  The consequences of  not remitting the excise duty in the manner specified are set out in clauses (3) and (4), which make the said obligation  mandatory and emphatic. The Rule also makes it clear  that if  in a  given month, the full M.G.Q. is not lifted, the Collector can permit the deficit to be lifted in the subsequent  month but  this has  nothing to  do with the obligation to  remit excise  duty for the month on the dates specified. It  is relevant  to point  out that  the  several consequences provided in clauses (3) and (4) follow the non- deposit of excise duty on specified dates - and not the non- lifting of  M.G.Q. which is an independent obligation. It is necessary to bear this aspect in mind.      Every person  whose bid/tender  has  been  accepted  is required to  execute an agreement/contract in the prescribed form. Under  this agreement,  the contractor/licencee agrees to abide by the rules and conditions relating to retail vend of country  spirit (liquor)  as stipulated in the licence as also the  general conditions of licence. The said conditions shall be  treated as  part  of  the  agreement.  Clause  (2) obliges the  contractor to  draw a  particular  quantity  of liquor every  month  from  the  specified  warehouse.  Under Clause (3) the contractor "undertakes to pay the duty at the prescribed rate  at  the  Warehouse  prior  to  lifting  the stock". This  condition provides  that excise  duty shall be remitted prior  to lifting  ; it  does not  say it  shall be remitted at  the time  of lifting.  Under  Clause  (7),  the contractor-licencee agrees to abide by all the provisions of the Act and the Rules and instructions as may be issued from time to time.      Conditions 1  and 2 of the licence, as amended in 1989, repeat and  reiterate the  provisions contained  in Rule 6-A aforesaid in their entirety.      The respondents  were the highest bidders in respect of the  various   liquor  shops  in  Orissa.  Their  bids  were accepted. They  executed agreements  in the  prescribed form and were  issued licences.  Each of  them had undertaken the agreement/contract to  lift a  particular specified quantity of liquor every month during the relevant excise year (1990- 1991) as  well as  to remit  the excise duty as specified in the Rules. They did the business under the said licences for the entire  excise year.  They failed  to  lift  the  agreed M.G.Q. They also failed to remit the excise duty as provided by Rule  6-A. And when notices were served calling upon them to remit  the appropriate  amount, they rushed to the Orissa High Court  by way  of writ petitions questioning the demand notices.      The  main   contention   of   the   respondents   (writ petitioners) was  that the demand for payment of excise duty

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on unlifted  quantity of  arrack amounts to levy of duty and that such  levy is  not warranted by the Act. They submitted that Rule 6-A(3) is ultra vires the rule making power of the Government and  is outside  the purview  of  the  Act.  They submitted that  if there  is a  sale of  liquor, duty can be collected on  the liquor  sold but  that seeking  to collect duty even  in the  absence of  sale amounts  to levy of duty contrary to  the provisions of the Act. They placed reliance upon the  decisions of  this Court in Bimal Chandra Banerjee v. State  of Mahdya  Pradesh [ 1971 (1) S.C.R. 844 ] and the subsequent decisions  following it. According to them, their case did  not fall within the ratio of the decisions of this Court in Panna Lal v. State of Rajasthan and Ors. [ 1976 (1) S.C.R. 219 ] and State of Andhra Pradesh v. Y.Prabhakara Rao [ 1987 (2) S.C.R. 513 ].      The State of Orissa disputed the several contentions of the writ  petitioners. In  particular, they  relied upon the Agreement and the undertakings contained therein. Their case is set out in the impugned judgement in the following words:      "It is  further contended  that the      fixation   of   M.G.Q.   was   made      considering  the   potentiality  of      sale and  by taking  other relevant      factors into consideration, and the      petitioner  and  other  contractors      were aware  of the  M.G.Q.  at  the      time when  they participated in the      auction-cum-tender.....the      petitioner  having   accepted   the      contract cannot now turn around and      challenge the  fixation  of  M.G.Q.      for  the   year  1991-92......  the      demand was justified being the duty      towards shortfall of the M.G.Q.,the      challenge  of   the  petitioner  to      Annexure-3 if  untenable.  Sub-rule      (3)  of  Rule  6-A  of  the  Orissa      Excise   (   Exclusive   Privilege)      Rules, 1970.....is  valid  and  has      been framed  in exercise  of powers      under sub-section (1) of Section 89      of the  Bihar &  Orissa Excise Act,      1915  which   empowers  the   State      Government to  make rules  to carry      out the  objects of the Act, or any      other law  for the  time  being  in      force  relating   to   the   excise      revenue and  also by  Section 89(2)      of the Act which empowers the State      Government  to   make   rules   for      regulating  the   import,export  or      transport          of           any      intoxicant....under  Section  22(1)      of the  Act, an exclusive privilege      can be  granted to  any  person  on      such terms  and conditions  and for      such period as the State Government      may think  fit. The  M.G.Q..  being      one of  the conditions for grant of      a licence, the Government was fully      empowered in  framing  rules  which      related to  fixation of  M.G.Q. and      also for providing the consequences      which would follow on reach of such      condition.  This  power.....  flows

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    from a combined reading of Sections      22,27,29 and  89 of the Act.....the      provision relating  to  the  M.G.Q.      ought  to   be  considered   as   a      condition  subject   to  which  the      licence was  issued and accepted by      the  petitioner,   the   petitioner      cannot,   after    operating    the      licence, challenge  the same. He is      bound by  the  conditions  and  is,      therefore, liable to pay the amount      demanded to  compensate  the  State      for the  loss sustained  by it  for      failure  on   the   part   of   the      petitioners having  entered into an      agreement  for   sale  of   country      liquor and  having been  granted an      exclusive  privilege   on   certain      terms and  conditions, cannot  now,      after  entering  into  a  contract,      wriggle out  of  their  contractual      obligation  and  contend  that  the      amount demanded  for  shortfall  of      M.G.Q.  is   invalid......the   sum      sought to  be realized  is  damages      for  breach   of  contract  namely,      failure to  lift M.G.Q...It  is  in      the granting  of damages  being the      duty on the shortfall, and as such,      is in  the nature  of a penalty and      can be  realised on  a breach being      committed.   Strong   reliance   is      placed on  Hari Shankar  and others      etc. V.  Deputy Excise  &  Taxation      Commissioner  AIR   1975  SC  1121,      Panne Lal  V. State  of  Rajasthan,      AIR  1975  SC  2008  and  State  of      Harvang V.  Jage Ram  & others, AIR      1980 SC 2018."      The High  Court, however,  accepted the  contentions of the respondents-writ  petitioners  and  quashed  the  demand notices impugned in the writ petitions.      It is  evident from  the contentions  urged by both the sides that  while  the  respondents-licencees  look  at  the impugned demand  as an  instance of levy of excise duty, the State looks  at is  as a  case of enforcing the undertakings contained  in   the  agreement/contract   executed  by   the licencees According  to the licencees. no excise duty can be levied unless  there is a sale. Demand for excise duty where is  no   sale  of   liquor,  according   to  them,   is  [4] unsustainable in law. The State’s case, however, is that the licence/privilege  was   granted  to   the  respondents   in consideration of  payment of  several items of money, all of money, all  of which  together constitute  the consideration for the  grant of  licence. The State says that it is merely seeking to  recover the  amount due to it under the contract and that  such a  course does  not amount  to levy of excise duty. Both  sides rely  upon certain decisions of this Court in support  of their  respective points of view. It would be appropriate to notice them.      In Bimal  Chandra Banerjee  v. State  of Madhya Pradesh [1971(1) S.C.R.  844], one  of the conditions of the licence stipulated that:      "The minimum  quantity  for  taking      issues from  the Warehouse for sale

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    is fixed  at 3213  p. liters spiced      spirit and  25940 p.  liters  plain      spirit. You  ( licencees ) shall be      liable to make good every month the      deficit of  monthly average  of the      total minimum duty on or before the      10th day  of each  month  following      the month to which the deficit duty      relates."      Since  the   licencee  failed  to  remit  the  duty  as stipulated, the  State made  a  demand  for  the  same.  The contention of  the licencee  was that  the excise  duty is a tax, that  it can be levied only on the basis of a valid law and that  no tax can be levied on the basis of a contract or pursuant to  executive orders, Tax, it was submitted, can be levied only  be the  legislature. It  was contended that the aforesaid condition  of licence is ultra vires the powers of the Government.  In other  words, the  contention  was  that Government had  no power to amend the Rules so as to include the aforesaid  clause in  the conditions of licence. Section 25 of  the Madhya Pradesh  Act provided for the levy of duty on any  or the  events specified  therein,  namely,  import, export transport,  manufacture and cultivating while section 26 provided  for levy  of duty  inter alia  on liquor issued from distillery  or warehouse.  No  provision  of  the  Act, however, empowered  levy of  duty even  where there  was  no issue of  liquor from  distillery or  warehouse, This  Court upheld the licencee’s contention on the following reasoning:      "Neither s.25  or s.26  or s.27  or      s.62(1) or  cls.  (8)  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.      manufactured,     cultivated     or      collected under any licence granted      under s.13  or manufactured  in any      distillery   established   or   any      distillery  or   brewery   licensed      under the  Act. The legislature has      levied excise  duty only  on  those      articles  which   come  within  the      scope  of   s.25  The  rule  making      authority has  not  been  conferred      with any  power to levy duty on any      articles which  do not  fall within      the scope  of s.25. Therefore it is      not necessary  to be  conferred  on      that  authority.  Quite  which  the      contractors failed  to lift.  In so      doing it was attempting to exercise      a power which it did not possess.      No tax  can be  imposed by any bye-      law or  rule or  regulation  unless      the   statute   under   which   the      subordinate  legislation   is  made      specially authorises the imposition      even if  it  is  assumed  that  the      power to  tax can  be delegated  to      the executive.  The  basis  of  the      statutory power  conferred  by  the      statute cannot  be transgresses  by      the rule  making authority.  A rule      making  authority  has  no  plenary

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    power. It  has to  act  within  the      limits of the power granted to it.      We are  of  the  opinion  that  the      impugned  rule   as  well   as  the      demands are not authorised by law."      The ratio  of the said decision is that inasmuch as the Act does  not empower  levy of  excise  of  excise  duty  on unlifted liquor,  on such levy can be created by a rule made under the  Act. It  was also observed that in as much as the Act does not empower the rule-making authority to impose tax on  unlifted   liquor,  the   rule-making   authority   (the Government of  Madhya Pradesh)  had  no  power  to  add  the aforesaid clause  in the  conditions of  the licence.  It is significant to  notice that  this  decision  approached  the question from  the point  of view of levy of excise duty. No argument appears  to have  been put  forward-as was  done in later decisions-that  the State is merely seeking to recover the consideration  for the grant of privilege/licence as per the terms  and conditions  of, and  as  undertaken  in,  the Agreement. The  decision, therefore, does not advert to that aspect at all-an aspect which came to highlighted in some of the later  decisions. This decision was followed in State of Madhya Pradesh  v. Firm Gappulal etc. [1976 (2) S.C.R. 1041] and in  Excise Commissioner,  U.P., Allahabad v. Ram Kumar [ 1976 Supp.  S.C.R. 532].  Gappulal was  again  a  case  from Madhya Pradesh.  In this  case, an attempt was no doubt made by the State to bring its case within the ratio of Panna Lal v. State of Rajasthan [ which was decided meanwhile], but it was repelled by the Court holding that the facts of the case before them  placed the  case within the ratio of Panna Lal. In Ram  Kumar, a case arising under the U.P. Excise Act, one of the  conditions of  the licence provided that in case the licencee failed  to lift  the minimum  guaranteed quota, "he shall be  liable to  pay to the Sate Government compensation at the rate equal to the rate of stillhead duty per litre by spiced spirit ..........". In this case too, the State tried to bring  its case  within the  ratio of  Panna Lal  but the Court did  not agree.  It preferred  to apply  the ration of Bimal Chandra  Banerjee. It held that none of the provisions of the  U.P. Act  authorised the levy of the duty even where there was  no sale.  The  Court  held  further  that  though disguised as compensation, the demand is in reality a demand for excise duty on the unlifted quantity of liquor, which is not authorised by the provisions of the Act.      The  licencees--respondents  submit  that  the  present cases, having regard to the language of the enactment, Rules and conditions  of the licence fall within the ration of the above decisions while the State of Orissa submits that these cases properly  fall within  the ratio  of the  decisions in Panna Lal  and Prabhakara  Reddy. before  referring to these decisions, it would be appropriate, in our opinion, to refer to the  decision of the Constitution Bench in Har Shankar V. Deputy Excise  and Taxation Commissioner [AIR 1975 SC 1211]. In Har Shankar, one of the objections raised by the State to the maintainability  of the  writ  petitions  filed  by  the licencees was  that the  writ petitioners  were  seeking  to enforce contractual  rights thereby.  This was denied by the writ  petitioners  therein.  This  said,  they  were  merely seeking to  vindicate their  legal rights. The contention of the writ  petitioners was  repelled by  this  Court  in  the following words:      The short answer to this contention      is  that  the  bids  given  by  the      appellants  constitute  offers  and      upon  their   acceptance   by   the

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    Government a binding agreement came      into existence between the parties.      The conditions  of  auction  become      the terms of the contract and it is      on those  terms that  licences  are      granted to  the successful  bidders      in Form L. 14-A of the Rules."      The Court further observed:      "One  of   the  reliefs  Which  the      appellants ask  for is  that  Rules      27-A 30  and 31  be declared  ultra      vires  and   unconstitutional   and      consequently  the   respondents  be      directed  to  refund  the  assessed      fees    already    recovered.    By      attempting to  exploit the licences      without the burden of assessed fees      originally attaching  to them under      the rules  framed by  the financial      Commissioner,  the  appellants  are      seeking to  work  the  licences  on      such terms as they find convenient.      The  writ   jurisdiction  of   High      Courts under  Article  226  of  the      Constitution  is  not  intended  to      facilitate avoidance of obligations      voluntarily incurred.  That however      will not  estop the appellants from      contending that  the amended  Rules      are   not   applicable   as   their      licences were  renewed  before  the      amendments were made."                         (emphasis added)      The approach  adopted in  this decision has to be borne in mind  in every such case. It is also to be kept mind that while the  decisions referred to hereinbefore are by smaller Benches, this  decision is by a Constitution Bench. A person who enters  into certain  contractual obligations  with  his eyes open  and works  the entire contract, cannot be allowed to turn  round, according to this decision, and question the validity of  those obligations of the Rules which constitute the terms  of the  contract. The extra-ordinary jurisdiction of  the  High  Court  under  Article  226,  which  is  of  a discretionary nature  and is  exercised only  to advance the interests of justice, cannot certainly be employed in aid of such persons. Neither justice nor equity is in their favour.      Panna Lal  arose under  the Rajasthan  Excise Act.  The licences  were  given  to  contractors  under  a  guaranteed system; there  was  a  total  guaranteed  amount.  When  the contractors failed  to pay  the guaranteed amount as per the contract, demand  notices were  issued. The contention urged by the  licencees was that the demand for shortfall in truth amounted to  levy   of  excise  duty  on  unlifted  quantity whereas the  State’s case  was that  they were demanding the amount  guaranteed   by  the   contractor  and   payable  in accordance with  the  agreement.  Another  argument  of  the contractors was  that the demand for issue price of unlifted quantity was  in effect a demand for excise duty inasmuch as one of  the components  of issue price was excise duty. This Court rejected  the contention relying upon the decisions of this  Court   rejected  the   contention  relying  upon  the decisions of  this Court  in Nashirwar  V. State  of  Madhya Pradesh [1975  (2) S.C.R.  861]and Har  Shankar. It was held that rental  is the  consideration for the privilege granted by the  Government for manufacturing or vending liquor, that

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rental is  neither a  tax nor excise duty and that it is the consideration for  grant of privilege by the Government. The Court referred  to the  decision of the Federal Court in the Central Provinces  and  Berar  Sales  of  Motor  Spirit  and Lubricants  Taxation   Act.  1938  [(1939)  F.C.R.  18]  and observed:      "Many Acts  Provide  for  lump  sum      payments  in   certain   cases   by      manufacturers and  retailers, which      may be described as payments either      for privilege  or as  consideration      for  the   temporary  grant   of  a      monopoly, but these are clearly not      excise  duties   or  anything  like      them."      (See 1939  F.C.R. 18  at pp. 53 and      54).      After referring  to certain  other  decisions  of  this Court, it was held:      "The  decisions   of   this   Court      establish that  the lump sum amount      Voluntarily  agreed   to   by   the      appellants to  the  State  are  not      levies of  excise duty  but are  in      the nature of lease money or rental      or  lump   sum   amount   for   the      exclusive privilege of retail sales      granted  by   the  States   to  the      appellants.      There is  no levy of excise duty in      enforcing  the   payment   of   the      guaranteed sum  or  the  stipulated      lump sum mentioned in the licences.      for  these   reasons.  First,   the      licences  were   granted   to   the      appellants    after    offer    and      acceptance or  by  accepting  their      tenders   or   auction   bid.   The      appellants stipulated  to pay  lump      sum amounts  as the  price for  the      exclusive  privilege   of   vending      country  liquor.   The   appellants      stipulated to  pay lump sum amounts      as  the  price  for  the  exclusive      privilege   of    vending   country      liquor. The  appellants  agreed  to      pay  what  they  considered  to  be      equivalent to     the value  of the      right.   Second,   the   stipulated      payment  has  no  relation  to  the      production   or    manufacture   of      country  liquor   except  that   it      enables the licensee to sell it The      country liquor  is produced  by the      distilleries. Under  section 28  of      the Act and under the relevant duty      notifications the excise levy is on      the manufacture and not on the sale      or retail of liquor. Under the duty      notifications  on  excise  duty  is      levied or collected from the liquor      contractors who  are liable only to      pay  the   price  of   liquor.  The      taxable event  is not  the sale  of      liquor to  the contractors  but the

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    manufacture  of  liquor.  What  the      liquor    contractors     pay    in      cosideration of  the license  is  a      payment for the exclusive privilege      for  selling  country  liquor.  The      liability  for  excise  is  on  the      distillery    and     the    liquor      contractors are  not concerned with      it."      Dealing with  the argument that recovery of issue price is in  effect a  recovery of excise duty for the reason that excise duty forms a component of the issue price, this Court observed:      "The lump  sum amount  payable  for      the exclusive  privilege is  not to      be confused  with the  issue price.      In essence  what is  sought  to  be      recovered    from     the    liquor      contractors  is     the   shortfall      occasioned on account of failure on      the pant  of liquor  contractor  to      fulfil the terms of license.      Having  regard   to  the  particular  stipulations  and conditions of  the contracts  concerned therein,  the  Court observed further:      "The  agreements  give  the  liquor      contractors an  exclusive privilege      to  sell   country  liquor   in   a      specified area for the period fixed      for a  stipulated sum  of money for      enjoying  the   privilege.  If  the      Contractors do  not sell any liquor      they  are  Yet  bound  to  pay  the      stipulated sum. If they sell liquor      they  are   given  the  benefit  of      remission  in   the  price  of  the      exclusive  privilege.  The  measure      for this  remission is  the  excise      duty leviable  to the  extent  that      the    liquor    contractors    can      neutralise  the  entire  amount  of      exclusive privilege  in the  excise      duty  payable   by  them.   If  the      contractors fail  to lift  adequate      quantity of liquor and thereby fail      in neutralising the entire price of      exclusive privilege the contractors      are not  called upon  to pay excise      duty.      The decision  in Har  Shankar was  followed in State of Harvana and  others V.  Jage Ram and others [A.I.R.1980 S.C. 2019]. This Court observed:      "In view  of these  decisions.  the      preliminary objection raised by the      learned Solicitor  General  to  the      maintainability   of    the    writ      petitions filed  by the respondents      has   to   be   upheld.   We   hold      accordingly that  High Court was in      error  in   entertaining  the  writ      petitions  for   the   purpose   of      examining whether  the  respondents      could   avoid   their   contractual      liability by  challenging the Rules      under which  the  bids  offered  by

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    them were accepted to conduct their      business can  work out  the licence      if he finds it profitable to do so;      and he can challenge the conditions      under which  he agreed  to take the      licence,    if    he    finds    it      commercially inexpedient to conduct      his business."      Dealing with  the nature  of the amounts payable by the licencee  in   respect  of  a  liquor  contract,  the  Court observed:      "The respondents  agreed to  pay  a      certain sum  under the terms of the      auction   and    the   Rules   only      prescribe a convenient mode whereby      their liability was spread over the      entire year by splitting it up into      fortnightly instalments  The  Rules      might as  well have  provided   for      payment of  a lump sum and the very      issuance of  the licence could have      been made  to depend on the payment      of such  sum. If  it could  not  be      argued in  that event that the lump      sum  payment   represented  excise.      duty. it cannot be so argued in the      present event  merely  because  the      quota  for  which  the  respondents      gave their  bid is  required to  be      multiplied by  a certain figure per      proof liter and further because the      respondents were given the facility      of paying  the paying the amount by      instalments while lifting the quota      from   time    to   time   .   What      respondents agreed  to pay  was the      price of   a  privilege  which  the      State parted  with in their favour.      They cannot. therefore. avoid their      liability   by contending  that the      payment which they were called upon      to make  is truly  in the nature of      excise duty  and that  no such duty      can be imposed on liquor not lifted      or purchased by them...........      These  decisions  cannot  help  the      respondents   because    the   true      position, as  stated   earlier,  is      that   the    amount   which    the      respondents are  called upon to pay      is  not   excise  duty  on  undrawn      liquor  but   is  the  price  of  a      privilege for  which they   offered      their bid  at the  auction  of  the      vend  which      they   wanted   to      conduct."      Finally, we  may refer to the decision in Y. Prabhakara Reddy. Rule  15 of  the Andhra  Pradesh (Arrack, Retail Vend Special  Conditions  of  Licences  )  Rules,  1969  read  as follows:      "15. Minimum guaranteed quantity of      arrack--      (1)  No   licensee  shall  purchase      arrack  less   than  the  specified      minimum guaranteed  quantity in any

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    month. If  in any  month,  quantity      less than  the  minimum  guaranteed      quantity in  any month.  If in  any      month,  quantity   less  than   the      minimum guaranteed  quantity  fixed      for that month is drawn, at the end      of that  month issue  price to  the      extent of deficit purchase shall be      deducted  from  the  advance  money      paid  by  the  licensee  under  the      minimum    quantity    of    arrack      guaranteed by  him and the licensee      shall be  called upon  to indemnify      the amount  so adjusted  by the end      of the  succeeding month  in  which      short drawn quantity had occurred.      Provided    that     the     Excise      Superintendents  may   permit   the      licensee to  lift the  short  drawn      minimum guaranteed  quantity of the      previous month  in  the  succeeding      month for  special  reasons  expert      for the  month of September, unless      the licensee  has committed default      in lifting  the minimum  guaranteed      quantity for two successive months;      Provided  further  that  Where  the      Commissioner deems  it necessary to      permit a  shop keeper  to draw  the      deficit quantity short drawn in any      month in  the subsequent,  he shall      obtain the  prior approval  of  the      Government   for    granting   such      permission.      (2) Where  a licensee fails to lift      the  arrack  as  permitted  by  the      Excise   Superintendent    or    to      indemnify  the  advance  amount  so      adjusted  by   the   end   of   the      succeeding month in which the short      drawn of quantity had occurred, the      right acquired  by  the  defaulting      licensee   shall   be   reauctioned      forthwith."      Rule 17 Provided that "every licensee shall be bound by the provisions  of Andhra  Pradesh Excise Act, 1968, and the rules and orders made thereunder from time to time."      Inasmush as  the licencees  failed to  lift the minimum guaranteed quota,  the total  issue price  of  the  unlifted quantity was  sought to  be recovered  from him,  which  was questioned by  the licencee in a writ petition. The argument of the  licencee based  upon Bimal Chandra Banerjee was that the State is really levying excise duty in the name of issue price and that it has no power to do so. Basing upon certain observations in  Panna Lal, it was contended by the licencee that issue  price can  only relate  to liquor  drawn by  the contractor and  that it  cannot pertain  to undrawn  liquor. This Court  repelled the  contention based upon observations in Panna Lal in the following words:      "There  can  be  on  question  that      issue price  must generally  relate      to liquor  which is  drawn  by  the      Contractors but  it does not follow      therefrom that  issue price  cannot      be adopted by agreement between the

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    parties    as    a    measure    of      compensation to be paid in the case      of undrawn  liquor. In fact. It may      not be  quiet correct  even to view      it  as  compensation  as  we  shall      presently see. It is no more and no      less  than   the  price  which  the      contractor agrees  to pay  for  the      grant of  the privilege    to  sell      liquor drawn or undrawn."      The Court  then  referred  to  the  provisions  of  the A.P.Excise Act  and the  Rules made  thereunder and observed that according to these provisions "the Privilege of selling liquor .....and  the licence  to sell  liquor herein  may be granted by  the State  by public  auction  subject  to:  (1) payment of  rental being  the highest  bid  at  the  auction ........  (ii)the   requirement  that   the  licensee  shall Purchase arrack  at the  issue price  and (iii)  the further requirement that  the  licencee  shall  purchase  a  minimum guaranteed quantity  of arrack  which he has to make good in case  of  shortfall  The  consideration  for  the  grant  of privilege to  sell liquor  is not merely the rental to be by paid by  the lessee  but also  the issue price of the arrack supplied or  treated as  supplied in case of shortfall which is also  to be  paid by  the lessee-licencee.  There  is  no question of  the licencee-lessee  having to  pay the  excise duty though  it may  be that  the issue  price is  arrive at after taking to account the excise duty payable."      The above  statement of law was based upon & reading of Sections 17  and 23  of the A.P. (Arrack Retail Vend Special Condition Supply  Service) Rules  as also  the definition of ‘rental’ in  the A.P.  (Lease of  Right to  Sell  Liquor  in Retail) Rules,  1969. The  provisions of  the Orissa Act and Rules are  no  different.  section  22  of  the  Orissa  Act corresponds in  material particulars  to Section  17 of  the A.P. Act whereas Section 29 of the Orissa Act corresponds to section 23  of the  A.P. Act.  Rule 6-A. of the Orissa Rules corresponds   to Rule  15 of  the A.P. Rules while Rule 3 of the Orissa  Rules corresponds  to Rule  3 of the A.P. Rules. The only  difference is that while Rule 15 of the A.P. Rules provides for  payment of  issue price in case of the failure of the  licencee to  lift the M.G.Q.,  the payment of excise duty under  the Orissa  Rules is made in made an independent obligation unrelated  to lifting  of M.G.Q.  It is, in truth and   effect,   the   consideration   for   the   grant   of privilege/licence alongwith the amounts specified in Rule 6. In this  sense, the  Orissa Rules  are clearer  on the point that rental  and excise duty (Payable under Rules 6 and 6-A) together constitute the consideration the grant of licence.      A review  of the  decided cases  of this  Court on  the subject indicates  a clear  shift in the way this matter has been looked  at.Initially, the matter was looked at from the point of  view of the levy of excise duty. On that basis, it was held  that unless  there is  a  sale,  on  duty  can  be collected (Bimal Chandra Banerjee. Gappu Lal and Ram Kumar). But  then   a  different   view  point   emerged  with   the Constitution Bench decision in Har Shankar which was carried forward in  Panna Lal. Jageram and Y.Prabhakara Reddy. These decisions look  at the  matter from the point of view of the several payments  being, in  truth and effect, consideration for the  grant of Privilege/licence. They point out that the excise duty on manufacture of production and not on sale. It was a case, they said, where the duty was being passed on to the licencee  who in turn passed it on to the consumer. What add  the   licencee  paid,   they  held,   is  nothing   but

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consideration for  the grant  of licence  and the  mere fact that  the   total  consideration   fixed  comprises  several elements (including  excise duty),  it cannot  be said  that excise duty is levied upon the licencee. In our opinion, the Orissa matters  fall  under  the  ratio  of  Panne  Lal  and Y.Prabhakara Reddyand  not under  the ratio of Bimal Chandra Banerjee. Gappu  Lal and Ram Kumar. The amounts mentioned in Rules 6 and 6-A, as also the undertakings contained therein, together constitute the consideration for grant of privilege licence, determined by auction,as contemplated by Section 29 of the  Act. As  explained hereinbefore,  the obligation  to remit the excise duty is independent of the sale/purchase of liquor; it is payable on or before the specified dates every month; it is an addition to  the monthly  instalment payable under Rule  6; its remittance is not tied up to the purchase of M.G.Q.extent  that the licencee has to pay the prescribed instalment of  excise duty  prior  to  the  lifting  of  the liquor. It, therefore, cannot be said that there is any levy of excise  duty upon  the  licencee.  The  concept  here  is altogether different.  It is  a case where the consideration payable by  the licencee  for grant of licence is made up of monthly rental  plus excise  duty besides  the obligation to Purchase  the M.G.Q. The licencee pays the rental and excise duty as  undertaken  by  him  under  the  agreement/contract executed by him and as required by conditions of the licence under which  he is  doing business,1.e.,as  and  by  way  of consideration. Indeed,  the rules  could have  provided that the entire  amount provided  under Rules 6 and 6-A should be paid in  advance before  the issuance  of licence  in  which event it  could not  have been  contended that  it is not in consideration of grant of licence. Merely because, the Rules Provide a  concession and provide for collection of the said amounts in  convenient instalments spread over the year, the nature and character of the payments cannot change.      Mr.  Sorabjee,   learned  counsel  for  the  theory  of "Privilege" has  been exploded in the decision of this Court in Synthetrics  and Chemicals Limited And Others V. State of U.P. AndOthers  [1990 (1)  S.C.C.109] and  can no  longer be invoked. In  support of  his submission, Mr. Sorabjee relied upon certain  observations  in  the  concurring  opinion  of G.L.Oza,J. at  page 164  of the  Report. The  learned  judge referred to Article 47 of the Constitution and observed:      "This  article   appears   in   the      chapter of  directive principles of      State  Policy.  Inclusion  of  this      article  in  this  chapter  clearly      goes to show that it is the duty of      the  State  to  do  what  has  been      enacted in  Article 47  and in fact      this article starts with the phrase      "Duty of the State" and the duty is      toimprove public  health and  it is      further provided  that this duty to      improve  publec   health  will   be      dicharged   by    the   State    by      endeavouring   to    bring    about      prohibltion.       It        sounds      contradictory for  a State which is      duty bound  to protect  human life,      which  is  duty  bound  to  improve      bublic health  and for that purpose      is   expected   to   move   towards      prohibition claims  that it has the      privilege of  manufacture and  sale      of alcoholic  beverages  which  are

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    expected tobe  dangerous  to  human      health, transferring this privilege      of  Selling   this   privilege   on      consideration to  earn huge revenue      without thinking that this trade in      liquor   ultimately    results   in      degradation  of   human  life  even      endangering  human   life  and   is      nothing but  moving contrary to the      duty  cast under Articles 21 and 47      and ideal  of prohibition enshrined      in Article  47. In view of Articles      21 and  47 with  all respect to the      learned Judges who so far  accepted      the privilege  doctrine it  is  not      possible to accept any privilege of      the State having the right to trede      in goods obnoxious and injurious to      health."      It is  difficult to  agree with  Mr. Sorabjee. Firstly, these observation  are found in the opinion of Oza,J. alone. The majority  opinion does  notexpress any  opinion on  this aspect. Secondly,  what does the expression "privilege" mean in the  context of  intoxicating liquors.  The  expressionis not defined in the Act. In the context of excise enactments, the expression  "Privilege"  really  means  the  licence  or permit granted  by the  State. We  may explain: the State is entitled to  prohibit  the  trade  in  intoxicating  liquors altogether; it  can impose  a  total  ban;  no  citizen  can claimany fundamenta  right to  manufacture or  to  trade  in these liquors;  it is,  however, open  to  the State to lift the ban  partially and  allow the  trade  in  liquor  to  be carried on  in the  manner prescribed;  the State  says that that a  citizen can  trade in liquor only under a licence to be granted  by it  for tahe  consideration specified in that behalf and  that the trade therein can be carried on only in accordance with  the regulatory  provisions prescribed by it in that  behalf.It is this grant of licence/permit, which is called or  is descried sometimes as grant of "privilege". We do not think that the observations  of Oza,J. relied upon by Mr. Sorabjee  can be  understood as disabling the State from granting  licences   and  permits   for  trading  in  and/or manufacture of intoxicating liquors for a consideration. Nor can they be understood as precluding the State from carrying on the trade or manufacture of said liquors by itself or its agents. The learned Judge seems to have looked at the matter from an  idealistic and  moralistic angle. The learned Judge observed that  in the light of Articles 47 and 21 "it is not possible to  accept any  privilege of  the State  having the right to trade in goods obnoxious and injurious health."      Lastly we  may also  invoke the  holding in Har Shankar and Jageram  that the  writ petitioners, having entered into agreements voluntarily,containing  the conditions  aforesaid and having  done the business under the licences obtained by them, cannot  be  allowed  to  either  wriggle  out  of  the agreements nor can they be allowed to challenge the validity of the Rules which constitute the terms of the contract. The High Court  should not  have  exercised  its  extra-ordinary discretionary  jurisdiction   under  Article   226  of   the Constitution in aid of such licencees.      For the  above reasons,  the appeals  are allowed,  the judgments and  orders of the High court under appeal are set aside and  the writ  petitions filed by the respondents writ petitioners are  dismissed with  costs. Advocate’s  fee Rs.. 5,000/-in each appeal.

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    Before parting  with these  matters, we may refer to an additional argument  in Civil  Appeal  No..  11518  of  1996 (arising out of S.L.P.(C) No. 1122 of 1996). It is submitted that there  was a  default on  the part of the Government in supplying the  liquor and that non-lifting of M.G.Q. was not on account  of any   default  on the  part of  the licencee. Firstly, we  have held  hereinabove that obligation to remit the excised  duty is  independent of  the obligation to lift the M.G.Q. every month and that the remitting of excise duty is not  dependent upon  or co-related  to lifting  of M.G.Q. Secondly, the  judgment of  the High Court does not refer to this submission. In the circumstances, we decline to express any opinion on the submission.