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CASE NO.: Appeal (civil)  3017 of 1997 Appeal (civil)  2696-2697 of 2003

PETITIONER: State of Punjab and Anr.                                                 

RESPONDENT: M/s. Devans Modern Brewaries and Anr.                    

DATE OF JUDGMENT: 20/11/2003

BENCH: B.N. Agrawal  

JUDGMENT: J U D G M E N T

B.N. AGRAWAL,J.

       The  question involved in this batch of appeals, arising out of an order  of reference made by a three Judge Bench of this Court, is as to whether  Article 301 of the Constitution of India (hereinafter referred to as "the  Constitution") will have any application in relation to potable liquor the  business whereof is said to be res extra commercium; in view of the  decisions of this Court in Cooverjee B. Bharucha Vs. The Excise  Commissioner & The Chief Commissioner, Ajmer, & Ors.,  [(1954) SCR  873]; The State of Bombay Vs. R.M.D. Chambarbaugwala [(1957) SCR  874]; Har Shankar & Ors. Vs. The Deputy Excise & Taxation  Commissioner & Ors., [(1975) 1 SCC 737] and Khoday Distilleries Ltd.  & Ors., Vs. State of Karnataka & Ors. [(1995) 1 SCC 574].         These appeals arise out of judgements and orders passed by Punjab  and Haryana High Court and Kerala High Court.           The State of Punjab  imposed tax on import of potable liquor manufactured in other States.  The  State of Kerala also imposed a similar levy.    The Punjab and Haryana High  Court by its judgment dated 17.01.1997 passed in Writ Petition (Civil) No.  5358 of 1996 quashed the notification dated 27.03.1996 imposing levy of  import duty by the State of Punjab in exercise of its powers conferred upon  it under Sections 31, 32 and 58 of the Punjab Excise Act, 1914 (hereinafter  referred to as "the Punjab Act’) on two grounds viz.; (i)       the State has no  power to levy such tax under the Punjab Act and (ii) in view of the  Constitution Bench decision of this Court in  Kalyani Stores Vs. The State  of Orissa and others [1966(1) SCR 865], the imposition of duty is ultra  vires Article 301 of the Constitution.         So far as challenge to imposition of import duty on potable liquor by  the State of Kerala under Abkari Act, 1077 (hereinafter referred to as "the  Abkari Act") is concerned, the Kerala High Court has dismissed the writ  application on  grounds, inter alia,  that such duty, being regulatory in  nature, is not ultra vires the Abkari Act.  The  High Court did not enter into  the question of applicability of Article 301 of the Constitution vis-‘-vis  effect of imposition of such import duty on potable liquor.         Mr. P.N.Misra, learned Senior Counsel appearing on behalf of the  appellant - State of Punjab in the Punjab matter having regard to several  provisions of the Punjab Act  submitted that the High Court committed a  manifest error in holding that the State has no power to impose such a tax.   As regards applicability of Article 301 of the Constitution, the learned  counsel  contended that as the State has the exclusive privilege to deal in  potable liquor in any manner it likes, it has the concomitant requisite power  to impose such tax by way of restriction on import.  The learned counsel   further contended that as no trader can claim any fundamental right in  carrying on trade or business in potable liquor, question of applicability of  Article 301 of the Constitution would not arise.  It may not be out of place to  mention that at the stage of reply Dr. A.M. Singhvi, learned Senior Counsel

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filed written submissions on behalf of the State of Punjab more or less  reiterating the contentions raised by Mr. P.N. Misra.           Mr. T.L.V. Iyer, the learned senior counsel appearing on behalf of  State of Kerala  submitted that it is within the province of the State to  impose restrictions on import of potable liquor by imposing import duty.   According to  learned counsel such a duty has not been imposed by the State  in exercise of its statutory power conferred upon it in terms of Entry 51, List  II of the Seventh Schedule to the Constitution but regulatory powers as  envisaged in Entry 8 thereof.  In other words, Mr. Iyer  contended that the  import duty has been levied not as a measure of tax but as a part of  regulation on the trade.  The learned counsel  further contended, although  such a stand has not been taken by the State before the High Court, but  having regard to the well-settled principle of law as laid down by this Court  and referred to hereinafter, the State can impose such duty as a price for  parting with its exclusive privilege.   In support of the  contentions the learned senior counsel appearing for  the State of Punjab and that of Kerala relied upon the decisions of this Court  in the cases of Har Shankar (supra), Nashirwar and Others Vs. State of  Madhya Pradesh and Others (1975) 1 SCC 29, State of Orissa and  Others Vs. Harinarayan Jaiswal and Others (1972) 2 SCC 36, State  Bank of Haryana and Others Vs. Jage Ram and Others (1980) 3 SCC  599, State of Andhra Pradesh Vs. Y. Prabhakara Reddy (1987) 2 SCC  136, State of U.P. and Others Vs. Sheopat Rai and Others 1994 Suppl.  (1)SCC 8, State of Haryana and Others Vs. Lal Chand and Others  (1984) 3 SCC 634, State of Punjab Vs. M/s. Dial Chand Gian Chand and  Company (1983) 2 SCC 503, Solomon Antony and Others Vs. State of  Kerala and Others (2001) 3 SCC 694, Khoday Distilleries Ltd. and  Others (supra) and Government of Maharashtra and Ors. Vs. M/s.  Deokar’s Distillery  JT 2003 (3) SC 86.         Mr. Mohan Jain, learned counsel appearing on behalf of the  respondents-licensees  of the State of Punjab and Mr. R.Venkataramani,  learned Senior Counsel, appearing on behalf of the intervenor, on the other  hand, contended that power to impose tax by the State of Punjab is  circumscribed by Sub-section 3 of Section 33A of the Punjab Act.  It was  submitted that  power to impose countervailing duty being statutorily  restricted, the State cannot be permitted to achieve the same object indirectly  by taking recourse to ’exclusive privilege’ theory.         Mr. Ashok H. Desai and Mr. R.F. Nariman, learned senior counsel  appearing on behalf of the licensees - appellants  in the Kerala matter raised  the following contentions:

(1)     Levy of import duty having been expressly conferred by the  statute, the State cannot justify such a levy on the spacious ground  of having exclusive privilege of dealing in potable liquor. (2)     The State of Kerala having specifically raised a plea that such a  levy was justified by way of a fee and/or as a regulatory measure  cannot now turn round and contend that the levy was imposed by  way of a price for parting with the exclusive privilege of the State.   As the State of Kerala has not granted any licence to the  appellants,  the question of parting of any privilege in their favour  does not arise.  Pointing out to the admitted fact that Kerala State  Beverages Corporation has been granted the monopoly to deal in  liquor and the appellants and other traders having been selling  liquor to the Corporation, the question of rendition of  any service  by the State of Kerala to the licensees so as to justify imposition of  a fee or regulatory tax therefor does not arise. (3)     Any fee regulating trade by grant of a licence would amount to  ’tax’ within the meaning of clause (28) of Article 366 of the  Constitution. Reliance in this connection has been placed on D.C.  Gouse & Co.etc. Vs. State of Kerala and Anr. etc. [1980(1) SCR  804] and Corporation of Calcutta and Anr., Vs. Liberty  Cinema [1965(2) SCR 477]. (4)     The applicability of the doctrine of "res extra commercium" and/  or the concept of privilege theory on the part of the State would be  attracted only in a ’no right’ situation.  Once a right to trade has

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been conferred by the State, it cannot take umbrage under the  privilege doctrine.  Even the State, at the time of grant of licence  by way of exclusive privilege, is bound by its own action, which in  a given case, may attract the wrath of Article 14 of the  Constitution. Reliance in this behalf has been placed on State of  M.P.& Ors., Vs. Nandlal Jaiswal & Ors., [1986(4) SCC 566].   (5)     The Constitution Bench of this Court in Krishna Kumar Narula  Vs. The State of Jammu and Kashmir & Ors.1967(3) SCR 50  having clearly laid down that trade in liquor would come within  the purview of Article 19(1)(g) of the Constitution, the State can  only impose a reasonable restriction in terms of Clause (6) of  Article 19 thereof.  In Khoday Distilleries Ltd. (supra), this Court  having clearly held that when a licence is granted, persons  similarly situated cannot be discriminated against which would  clearly lead to the conclusion that not only a fundamental right in  terms of Article 14 of the Constitution  but also other constitutional  rights including those contained in Part XIII of the Constitution   are available in relation to trade in liquor. (6)     In Kalyani Stores (supra), H. Anraj Vs. Government of Tamil  Nadu (1986) 1 SCC 414 and State of Madhya Pradesh Vs.  Bhailal Bhai & Ors. 1964(6) SCR 261 this Court having clearly  held that Article 301 of the Constitution  would be applicable also  in relation to obnoxious trade, there is no reason as to why the said  decisions shall be departed from.   (7)     Keeping in view the decisions of this Court in Atiabari Tea  Company Limited Vs.The State of Assam & Ors., [1961(1) SCR  809] and  The Automobile Transport (Rajasthan) Ltd. Vs. The  State of Rajasthan and Others [1963 (1) SCR 491] the purpose  of Article 301 of Constitution  being to maintain  economic unity  of the entire country, the State cannot by imposition of a tax  infringe upon the provisions contained in Part XIII of the  Constitution  which is a self-contained part. (8)     The phraseology, used in Article 301 of the Constitution, namely,  trade, commerce and intercourse being of wide amplitude, the right  to carry on trade and business as envisaged in Article 19(1)(g) or  Article 298 of the Constitution  cannot restrict the scope and ambit   thereof.         In view of the rival contentions, as noticed hereinbefore, the following  questions arise for consideration: (i)      Whether the impugned notifications issued by the State of Punjab  and that of Kerala are illegal being fraud  on the Constitution. (ii)    Whether the import duty can be said to have been validly imposed  having regard to the doctrine of ’exclusive privilege’ of the State to  deal in obnoxious matters? (iii)   Whether dealing in liquor which is said to be ’res extra  commercium’ would nonetheless attract Part XIII of the  Constitution?

Re: Question (i)

       The impugned notifications issued by the State of Punjab and that  of  Kerala read as under: I               "Government of Punjab Department of Excise and Taxation NOTIFICATION

The 27th March, 1996

No. G.S.R. 28/P.A.I./14/Ss. 31, 32 and 58/Amd. (118)/96

       In exercise of powers conferred by sections 31, 32  and 33 of the Punjab Excise Act, 1914 (Punjab Act 1 of  1914) and all other powers enabling him in this behalf,   the Governor of Punjab is pleased to make the following

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order, without previous publication, further to amend the  Punjab Excise Fiscal Orders, 1932, namely:-

ORDERS

1.      (1)     These orders may be called the Punjab  Excise Fiscal (Second Amendment) Orders, 1996.

       (2)     They shall come into force on and with  effect from the first day of April, 1996.

2.      In the Punjab Excise Fiscal Orders, 1932  (hereinafter referred to as the said Orders),in order 1, in  the table, under column "Rate of duty per proof litre" -

(a)     in item (1), against sub item (c) for the figures  "4.00" the figures "3.00" shall be substituted;  and (b)     in item (3) against sub-item (b) for the figures  "3.50" the figures "3.00" shall be substituted.

3.      In the said Orders in order 1-B -

(a)     for the words "rupees three" the words "rupees  two" shall be substituted; and (b)     for clause (iii) to the proviso, the following  clause shall be substituted namely:-

"(iii) the Indian Made Beer shall be at the rate of thirty- eight paise per bulk litre."

4.      In the said orders in order 1-D, for item (iii), the  following item shall be substituted namely:-

"(iii) rupees four and sixty paise per bulk litre."

II.     "S.R.O. No. 330/96.  In exercise of the powers conferred  by sections 6, 7, 17 and 18 of the Abkari Act, 1 of 1077  and in modification of notification issued under G.O. (p)  No. 24/94/TD dated 3rd March, 1994 and published as  S.R.O. No. 256/94 in the Kerala Gazette Extraordinary  No. 180 dated 3rd March, 1994, as subsequently  amended, the Government of Kerala hereby direct that  the import and export fees, the excise duty and luxury tax  under the said sections shall be levied on the following  kinds of liquors manufactured in the State and exported  outside the State under bond in force or manufactured  elsewhere in India and imported into the State by land,  air, or sea under bond, at the rates mentioned against  each kind of liquor.

       The excise duty, import fee or luxury tax on liquor  manufactured elsewhere in India and imported into the  State by land, air or sea otherwise than under bond shall  be equal to the duty to which such liquor manufactured in  the State are liable under the Act such as import fee,  excise duty or luxury tax namely:-

Kind of Liquor Rate of  excise duty Rate of

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luxury  tax Rate of  import fee Rate of  export fee 1. Indian Made  Foreign Liquor  including beer  except those  consumed by  Defence Service.

(1) When exported  by distilleries/  Foreign Liquor  (compounding,  Blending and  (Bottling) Units/  Breweries to other  State and not  reimported into this  State, in cases where  the following terms  and conditions are  satisfied namely:-

Rs. 5  (Rupees five  only) per  proof litre in  the case of  Indian Made  Foreign  Liquor and  Rs. 2  (Rupees two  only) per  bulk litre in  the case of  beer (i) The export is  under bond to cover  the duty at the rate  of an amount equal  to 200 per cent of  the value of Indian  Made Foreign  Liquor and  gallonage fee at the  rate of Rs. 3 per  bulk litre in the case  of beer.

(ii) No objection  certificate for import  certificate from the

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excise authorities of  the importing State  is produced by the  Distilleries/ Foreign  Liquor  (Compounding,  Blending and  Bottling) Units/  breweries.

(iii) Excise duty,  luxury tax and  export fee paid to  Kerala Government  before export.

(iv) The verification  certificate from the  Excise Authorities  of the importing  State is produced  before the Excise  officers in charge of  the Distilleries/  Foreign Liquor  (Compounding,  Blending and  Bottling) Units/  Breweries within 42  days of dispatch or  within such further  time as the Excise  Commissioner may  allow for sufficient  cause.

(v) The duty at the  rate of an amount  equal to 200 per cent  of the value of  Indian Made  Foreign Liquor and  gallonage fee at the  rate of Rs. 3 per  bulk litre in the case  of Beer is paid on all  quantities  unaccounted for;  and  

(vi) Export is  through air, rail road  or ship.

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(2) in the case of:- (a) Indian Made  Foreign liquor other  than beer imported  (bond or under  bond)

Rs. 5 per  proof litre

(b) Beer imported  (bond or under  bond)

Rs. 2 per  bulk litre

(c) wine imported  (duty paid or under  Bond)

Rs. 2 per  bulk litre

(3) In other cases: (a) Indian Made  Foreign Liquor  (excluding beer and  wine) An equal  amount to  100 per  cent of its  value

(b) Beer

Rs. 3 per  bulk litre

(c) Wine

Rs. 3 per  bulk litre

IV. Medicated wine  and similar  preparations but not  including  preparations on  which duty is  leviable under the  Medicinal and toilet  preparations (Excise

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Duties) Act, 1955 Rs. 12  (Rupees  twelve  only) per  proof litre

Published in K.G. Ex. No. 379 dt. 29.3.1997 as S.R.O.  No. 210/97

Explanation:-Where any liquor is chargeable with duty at  a rate depending on the value of the liquor, such value  shall be the value at which the Kerala State Beverages  (Manufacturing and Marketing) Corporation Ltd.,  purchases such liquor from the suppliers and in case any  such liquor is not purchased by the Kerala State  Beverages (Manufacturing and Marketing) Corporation,  such value shall be the value fixed by the Commissioner.

       This notification shall come into force on 1st day of  April, 1996."

       Before embarking upon the questions raised in these appeals,   the  relevant provisions of the Punjab  Act may be noticed which run thus:-

S.3.(9) "Excise revenue" means revenue derived or  derivable from any payment, duty fee, tax,  confiscation, or fine imposed or ordered under the  provisions of this Act, or of any other law for the  time being in force relating to liquor or  intoxicating drugs, but does not include a fine  imposed by a court of law.

S.3(12). "Import" (except in the phrase "import  into India") means to bring into Punjab and  Haryana otherwise than across a custom frontier as  defined by the Central Government.

S.16. Import, export and transport of intoxicants:-  No such intoxicant shall be imported, exported or  transported except -

(a)     after payment of any duty to which it  may be liable under this Act or execution  of a bond for such payment, and (b)     in compliance with such condition as the  State Government may impose.

S.17. Power of State Government to prohibit  import, export and transport of intoxicants:- The  State Government may by notification:-

(a)     prohibit the import or export of any  intoxicant into or from Punjab, Haryana  or any part thereof; or (b)     prohibit the transport of any intoxicant.

S.18. Pass necessary for import, export and  transport:- Except as otherwise provided by any  rule made under this Act, no intoxicants exceeding

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such quantity as the State Government may  prescribe by notification shall be imported or  transported except under a pass issued under the  provision of the next following section;

Provided that in the case of duty paid foreign  liquor such passes shall be dispensed with unless  the State Government shall by notification  otherwise direct;

Provided further, that no such conditions as may  be determined by the Financial Commissioner, a  pass granted under the excise law in force in  another State may be deemed to be a pass granted  under this Act.

S.19. Grant of passes for import, export and  transport:-Passes for the import, export and  transport of intoxicants may be granted by the  Collector.

Provided that passes for the import and export of  such intoxicant as the Financial Commissioner  may from time to time determine shall be granted  only by the Financial Commissioner.

S.31. Duty on excisable articles:- An excise duty  or a countervailing duty as the case may be at such  rate or rates as the State Government shall direct,  may be imposed either generally or for any  specified local area, on any excisable article.

(a)     imported, exported or transported in  accordance with the provisions of section  16; or (b)     manufactured or cultivated under any  licence granted under section 23; or (c)     manufactured in any distillery established  or any distillery or brewery licensed under  section 21.

Provided as follows:-

(i)     duty shall not to be so imposed on any  article which has been imported into  India and was liable on importation to  duty under the Indian Tariff Act, 1894, or  the Sea Customs Act, 1878.

Explanation:- Duty may be imposed under this  section at different rates according to the places to  which any excisable article is to be removed for  consumption, or according to the varying strength  and quality of such article.

S.32. Manner in which duty may be levied:-  Subject to such rules regulating the time, place and  manner as the Financial Commissioner may  prescribed such duty shall be levied rateably, on  the quantity of exciseable article imported,  exported, transported, collected or manufactured in  or issued from a distillery brewery or warehouse;

Provided that duty may be levied:-

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(a)     on intoxicating drugs by an acreage rated  levied on the cultivation of the hemp plant  or by a rate charged on the quantity  collected. (b)     On spirit or beer manufactured in any  distillery established or any distillery or  brewery licensed, under this Act in  accordance with such scale of equivalents  calculated on the quantity of materials used  or by the degree of attenuation of the wash  or wort, as the case may be as the State  Government may prescribe. (c)     On tari, by a tax on each tree from which the  tari is drawn;

Provided further that, where payment is made upon  issue of an exciseable article for sale from a  warehouse established or licensed under section  22(a) it shall be made -  

(a)     If the State Government by notification  so directs, at the rate of duty which was  in force at the date of import of that  article; or (b)     In the absence of such direction by the  State Government, at the rate of duty  which is in force on that article on the  date when it is issued from the  warehouse.

S.33. Payment for grant of leases: - Instead of or in  addition to any duty leviable under this chapter the  State Government may accept payment of a sum in  consideration of the lease of any right under  section 27.

S.33-A. Saving for duties being levied at  commencement of the Constitution:- (1) Until  provision to the contrary is made by Parliament,  the State Government may continue to levy any  duty which it was lawfully levying immediately  before the commencement of the Constitution  under this Chapter as then in force.

(2) The duties to which this section applies are:-

(a)     any duty on intoxicants which are not  exciseable articles within the meaning of  this Act; and (b)     any duty on exciseable article produced  outside India and imported into  Punjab/Haryana whether across a  customs frontier as defined by the  Central Government or not.

(3) Nothing in this section shall authorize the levy  by the State Government of any duty which as  between goods manufactured or produced in the  State and similar goods not so manufactured or  produced discriminates in favour of the former or  which in the case of goods manufactured or  produced outside the State discriminates between  goods manufactured or produced in one locality  and similar goods manufactured or produced in  another locality.

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S.34. Fees for terms, conditions and form of, and  duration of licences, permit and passes:-(1) Every  licence, permit or pass granted under this Act shall  be granted:-

(a)     on payment of such fees, if any. (b)     Subject to such restrictions and on such  conditions, (c)     In such form and containing such  particulars, (d)     For such period,

as the Financial Commissioner may direct.

(2) Any authority granting a licence under this Act  may require the licensee to give such security for  the observance of the terms of his licence, or to  make such deposit in view of security, as such  authority may think fit.

S.58. Power of State Government to make Rules:  (1)....

(2)     in particular and without prejudice to the  generality of the foregoing provision, the State  Government may make rules:-

(d)     regulating the import, export, transport or  possession of any intoxicant or Excise bottle and  the transfer, price or use of any type or description  of such bottle.

(e)     regulating the period and localities for  which and the persons or classes of  persons to whom licenses, permits and  passes for the vend by wholesale or by  retail of any intoxicants may be granted  and regulating the number of such  licences which may be granted in any  local area; (f)     prescribing the procedure to be followed  and the matters to be ascertained before  any licence is granted for the retail vend  for consumption on the premises.

S.59. Powers of Financial Commissioner to make  rules:- The Financial Commissioner may by  notification make rules:-

(d)     prescribing the scale of fees or the manner  of fixing the fees, payable in respect of any  licence, permit or pass or in respect of the storing  of any intoxicant;

Apart from provisions of the Punjab Act, it would also be necessary to  notice Sections 17 and 18 of the Abkari Act occurring in Chapter V dealing  in "Duties, Taxes and  Rentals" applicable in the State of Kerala which read  thus: "17. Duty on liquor or intoxicating drugs:- A duty of  excise or luxury tax or both shall, if the Government so  direct, be levied on all liquor and intoxicating drugs:

(a)     permitted to be imported under Section 6; or

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(b)     permitted to be exported under Section 7; or  (c)     permitted under Section 11 to be transported; or (d)     manufactured under any licence granted under  Section 12; or (e)     manufactured at any distillery, brewery, winery  or other manufactory established under Section  14; or (f)     issued from a distillery, brewery, winery or  other manufactory or warehouse licensed or  established under Section 12 or Section 14; or (g)     sold in any part of the State;

Provided that no duty or gallonage fee or vend fee or  other taxes shall be levied under this Act on rectified  spirit including absolute alcohol which is not intended to  be used for the manufacture of potable liquor meant for  human consumption.

Explanation:- For the purpose of this section and Section  18, the expression "duty of excise", with reference to  liquor or intoxicating drugs, include countervailing duty  on such goods manufactured or produced elsewhere in  India and brought into the State.

18. How duty may be imposed:- (1) Such duty of excise  may be levied:

(a)     in the case of spirits or beer, either on the  quantity produced in or passed out of a  distillery, brewery or warehouse licensed or  established under Section 12 or Section 14 as  the case may be or in accordance with such  scale of equivalents, calculated on the quantity  of materials used or by the degree of  attenuation of the wash or wort or on the value  of the liquor as the case may be, as the  Government may prescribe;

(b)     in the case of intoxicating drugs on the quantity  produced or manufactured or issued from a  warehouse licensed or established under  Section 14;

(c)     xxx

(d)     xxx

(e)     in the case of toddy, or spirits manufactured  from toddy, in the form of a tax on each tree  from which toddy is drawn, to be paid in such  instalments and for such period as the  Government may direct; or

(f)     by import, export or transport duties assessed in  such manner as the Government may direct; or

               xxx

(2)     The luxury tax on liquor or intoxicating drugs shall  be levied:-

(i)      in the case of any liquor in the form of a fee for  licence for the sale of the liquor and in the form  of a gallonage fee or vending fee, or in any one  of such forms; and;

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(ii)    in the case of an intoxicating drug, in the form  of a fee for licence for the sale of the  intoxicating drug.

(3)     The duty of excise under sub-section (1) and the  luxury tax under sub-section (2) shall be levied at such  rates as may be fixed by the Government, from time to  time, by notification in the Gazette, not exceeding the  rates specified below:-

(1) Duty of excise Maximum rates (i) Duty of excise on liquors  (Indian made) Rs. 200 per proof litre or an  amount equal to 200 per cent  of the value of the liquor. (ii) Duty of excise on  intoxicating drugs Rs. 1 per gram or Rs. 933.10 per seer. (iii) Duty of excise in the form  of tax on trees tapped for  toddy Rs. 50 per tree per half-year  or part thereof

(2) Luxury tax:

(a) When levied in the form  of a fee for licence for sale  of foreign liquor -

(i) For licence for sale of  foreign liquor in  wholesale Rs. 15000 for a year or part  thereof (ii) For licence for sale of  foreign liquor in hotels or  restaurants Rs. 12000  for a year or part  thereof (iii) For licence for sale of  medicated wines Rs. 1000 for a year or part  thereof (iv) For licence for sale of  foreign liquor in non- proprietory clubs to  members

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Rs. 1500 for a year or part  thereof (v) Xxx

(b) When levied in the form  of gallonage fee Rs. 10 per bulk litre or Rs. 45.46 per bulk gallon  (c) When levied in the form  of a fee for licence for the  sale of foreign liquor (Foreign made)

(i) In wholesale Rs. 25,00,000 (Rupees  Twenty Five lakhs) for a year  or part thereof (ii) In retail Rs. 10,00,000 (Rupees Ten  lakhs) for a year or part  thereof (iii) In hotels or restaurants Rs. 25,00,000 (Rupees  Twenty Five lakhs )for a year  or part thereof (iv) In non-proprietory clubs  to its members Rs. 10,00,000 (Rupees Ten  lakhs) for a year or part  thereof (v) In Seamen’s and Marine  Officer’s clubs to its  members Rs. 10,00,000 (Rupees Ten  lakhs) for a year or part  thereof (d) When levied in the form  of gallonage fee

(i) Foreign Liquor (Foreign  made) other than beer and  wine Rs. 200 (Rupees Two  hundred) per bulk litre (ii) For foreign made beer and  wine Rs. 25 (Rupees Twenty Five)  per bulk litre

Provided that where there is a difference of duty of  excise or luxury tax as between two licence  periods, such difference may be collected in  respect of all stocks of Indian made foreign liquor

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or intoxicating drugs held by licensees at the close  of the former period.

Note:   The expression ’Foreign Liquor (Foreign  made) means any liquor produced, manufactured,  or blended and compounded abroad and imported  into India by land, air or sea.

Explanation:- Where any liquor is chargeable with  duty at a rate depending on the value of the liquor,  such value shall be the value at which the Kerala  State Beverages (Manufacturing and Marketing)  Corporation Limited purchases such liquor from  the suppliers and in case any such liquor is not  purchased by Kerala State Beverages  (Manufacturing and Marketing) Corporation  limited such value shall be the value fixed by the  Commissioner."

       Provision to grant licence is contained in Chapter VI of the Abkari  Act,  Section 24 whereof  is as under: "24. Forms and conditions of licenses, etc:-Every license  or permit granted under this Act shall be granted:-

(a)     on payment of such fees, if any;  (b)     for such period; (c)     subject to such restrictions and on such  conditions; and (d)     shall be in such form and contain particulars -  as the Government may direct either generally,  or in any particular instance in this behalf."

       The State of Kerala raised a contention that the imposition of levy is  referable to Entry 66 of List II of the Seventh Schedule to the Constitution.      An additional affidavit was filed before the Kerala High Court wherein it  was averred that such a levy has been imposed also by way of  a regulatory  fee. No plea whatsoever has been raised that such a levy is towards a price  or a part of price for parting with exclusive privilege.  The High Court  accepted  plea of the State that the levy is by way of regulatory fee in  relation whereto  doctrine of ’quid pro quo’ has no application.           Before the High Court of Punjab and Haryana although a plea was  raised that the impost was by way of a price for parting with the exclusive  privilege but in its impugned judgment the High Court rejected the same  having regard to the provisions contained in Section 33A of the Punjab Act.         The Excise Acts referred to hereinbefore seek to regulate trade and  business in liquor.  They have their origin before coming into force of the  Government of India Act, 1935 or the Constitution and, thus, being pre- constitutional laws, validity thereof and/or any statutory impost levied  thereunder would be subject to Articles 372 and 305 of the Constitution  vis- ‘-vis Article 13 thereof.  The statutory rights and obligations created by  reason of the aforementioned Acts, after coming into force of the  Constitution, would, therefore, be subject to the extent saved by the  Constitution  itself and, thus, the provisions thereof, the rules made  thereunder and actions taken must conform to the limitations imposed  thereby.  The said Acts, therefore, must be construed keeping in view Entries  8 and 51 of List II of  the Seventh Schedule to the Constitution.  Before  dealing with the matter further, it may be noticed that in the instant case I am  not concerned with validity or the interpretation of a pre-constitutional law  but a post-constitutional one.  The impugned levy, therefore, must be  justified having regard to the relevant entries made in  List II of the Seventh  Schedule to the Constitution.  Section 6 of the Abkari Act permits import of  liquor on payment of duties, taxes, fees and such other sums as are due to the  Government and Section 7 thereof provides for export.  Section 17 provides  for levy of a duty of excise or luxury tax or both on liquor permitted to be

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imported under Section 6 thereof.  Section 18 deals with the manner in  which such duty should be imposed.  Sections 31 and 32 of the Punjab Act  are in pari materia with Section 17 and Section 18 respectively of the Abkari  Act.          A question arises as to what is "excise duty".  An excise duty can be  imposed on manufacturer of goods only in terms of  statute made by the  Parliament.  An exception thereto has been made in the case of liquor in  terms whereof the State Legislature has been empowered to levy excise duty  by reason of Entries 8 and 51 of List II of the Seventh Schedule to the  Constitution which read thus: "Entry 8:  Intoxicating liquors, that is to say, the  production, manufacture, possession, transport,  purchase and sale of intoxicating liquors.  Entry 51. Duties of excise on the following goods  manufactured or produced in the State and  countervailing duties at the same or lower rates on  similar goods manufactured or produced elsewhere  in India :-  (a) alcoholic liquors for human consumption;  (b) opium, Indian hemp and other narcotic drugs  and narcotics; but not including medicinal and  toilet preparations containing alcohol or any  substance included in sub-paragraph (b) of this  entry."  

        Legislative competence of the State to levy any fee is, therefore,  limited to levy of countervailing duty.  In other words, any levy on import  can not exceed the excise duty levied on the manufacturers of the State.  The  State, therefore, cannot levy any duty in addition to the countervailing duty.  The notification refers to excise duty and countervailing duty, which in  terms of Section 3(6-B) of the Punjab Act mean any such excise duty or  countervailing duty as the case may be, as is mentioned in Entry 51 of List II  of the Seventh Schedule to the Constitution.  The State, therefore, cannot  levy any import fee over and above the excise duty/countervailing duty,  having regard to the said definition.    Sections 17 and 18 of the Abkari Act,  which are in pari materia with Sections 31 and 32 of the Punjab Act, are  referable to Entry 51 alone.  As Entry 51 puts an embargo on the State to  make a legislation, there cannot be any gainsaying that any levy in terms of  Sections 17 and 18 of the Abkari Act would be subject thereto.           Can the levy be said to be valid if thereby regulatory licencee fees  have been imposed?  The answer to the said question must be rendered in  the negative.           Clause (28) of Article 366 reads as under: "taxation" includes the imposition of any tax or  impost, whether general or local or special, and  "tax" shall be construed accordingly;  

       A regulatory impost would, thus, come within the purview of the tax.   A fee in terms of the constitutional schemes may be either a regulatory  licence fees or a fee in lieu of rendition of service.  When no service is  rendered a fee can be justified only by way of licence fees.  Such impost,  however, would be a tax and, thus, would clearly be referable to Entry 51 of  List II to the Constitution  and not Entry 66 thereof.  (See Liberty Cinema  (supra), D.C. Gouse & Co. (supra) and Hindustan Times & Ors., Vs.  State of U.P. and Anr., JT 2002 (9) SC 317).         Indisputably, the State while imposing import duty has exercised its  power under the statute.  The impugned notifications in no uncertain terms  and unequivocally refer to the source of power therefor.  The functions of  the State to impose a fee or tax in terms of the provisions of the statute is a  legislative function.  Such legislative function must be attributed to the  source of the State’s power in terms of Entry 51 of List II to the Constitution   and not otherwise.      If the legislations in question are found to be  unreasonable in nature or fraud on the Constitution, would it still be  permissible for the State to turn round and contend that such imposts are not  being levied in exercise of its taxation power but attributable to its

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regulatory power?  In other words, can the State turn round and contend that  what it sought to do was not in terms of legislative function but merely by  way of executive action?  Answer to the said question again must be  rendered in the negative.  It is a well-settled principle of law that a thing  which cannot be done directly cannot be done indirectly. (See Priyanka  Overseas Pvt. Ltd. and Another Vs. Union of India and Others, 1991  Supp (1) SCC 102).   In relation to an administrative act, it is well-settled  that a statutory authority is not permitted to support its decision on a ground  d’hors the ground stated in the order.  (See Commissioner of Police,  Bombay Vs. Gordhandas Bhanji, AIR 1952 SC 16 and Mohinder Singh  Gill and another Vs. The Chief Election Commissioner, New Delhi and  others, AIR 1978 SC 851).  On the same analogy, a legislation which is  found to be fraud on the Constitution, cannot, inter alia, be upheld on any  other ground.  Entry 8 of List II of the Seventh Schedule to the Constitution   does not permit the State to levy a fee on import of liquor.  It deals only with  production, manufacture, possession, transport, purchase and sale of  intoxicating liquors and nothing else.  Entry 8 of List II, thus,  does not  speak of import or export.  Its purpose is to regulate and not impose  any  statutory impost.  The State in exercise of its delegated powers cannot do  what would constitutionally be impermissible.         A subsidiary question which arises for consideration is as to whether  the State of Punjab, having regard to Section 33A of the Punjab Act, could  levy such duty.  In Sub-Section (1) of Section 33A provision has been made  permitting the State to continue to levy any duty which it had lawfully been  levying immediately before the commencement of the Constitution.  The  said provision is in tune with Article 305 of the Constitution, therefore, the  same calls for a strict construction.  Sub-section (3) of Section 33A is  couched in negative language by reason whereof power of the State to levy  any duty has been taken away in the event thereby any discrimination is  made in favour of goods manufactured or produced in the State and similar  goods manufactured or produced in another locality.  Clearly such a  provision is in consonance with Article 304 of the Constitution.  If by reason  of a statute an embargo has been placed on the State’s power to levy any fee,  it is beyond any cavil of doubt that such a levy cannot be held to be justified  by reason of an executive action or otherwise.           It is trite that even a term of the contract cannot be in violation of an  express provision contained in a statute. By reason of provisions of the  Abkari Act or the Punjab  Act, no power has been conferred upon the State  to impose any import fee over and above the excise duty/countervailing  duty.  It is not disputed that such countervailing duty has been levied and the  licensees pay the same.  The power to levy fee and the power to grant  licences, permits and passes occur in different chapters of the Acts.  The  powers under different chapters are required to be exercised for different  purposes.  One is legislative in character and the other refers to executive  action.  Furthermore, under the Punjab  Act fees for grant of licences,  permits and passes are required to be paid on the terms as the Financial  Commissioner may direct.  Having regard to the fact that the Financial  Commissioner is the statutory authority in relation thereto, the State cannot  be said to have any jurisdiction thereover, particularly, in the matter of levy  of import fee which clearly is referable to Chapter V of the Punjab Act and  has nothing to do with grant of licence occurring in    Chapter VI.         The matter may be considered from another angle.  Having regard to  Article 265 of the Constitution  a tax must be imposed by a statute.  Even  such impost is impermissible by any bye-law or rule.  (See Bimal Chandra  Banerjee Vs. State of Madhya Pradesh etc., (1970) 2 SCC 467; A  Venkata Subba Rao Vs. State of Andhra Pradesh, (1965) 2 SCR 577 and  Attorney General Vs. Wilts United Dairies (1922) 91 Law Journal, KB  897.         In Synthetics and Chemicals Limited & Ors., Vs. State of UP and  Others (1990) 1 SCC 109 at page 158, a Seven-Judge Bench of this Court  has equated excise duty with the price for privileges.  In the matter of  interpretation of Constitution, the said decision has been referred to with  approval in Welfare Assocn. A.R.P., Maharashtra & Anr. Vs. Ranjit P.  Gohil & Ors. [JT 2003 (2) SC 335].  In the said seven Judge Bench  decision, this Court observed thus:

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"On an analysis of the various Abkari Acts and  Excise Acts, it appears that various  provinces/States reserve to themselves in their  respective States the right to transfer exclusive or  other privileges only in respect of manufacture and  sale of alcohol and not in respect of possession and  use. Not all but some of the States have provided  such reservation in their favour. The price charged  as a consideration for the grant of exclusive and  other privileges was generally regarded as an  excise duty. In other words, excise duty and price  for privileges were regarded as one and the same  thing. So-called privilege was reserved by the State  mostly in respect of country liquor and not foreign  liquor which included denatured spirit."  

       In view of the foregoing discussions, I am of the opinion that the  impugned levy cannot be sustained.

Re: Questions (ii) and (iii)

       What is Res-Extra-Commercium:         In Black’s Law Dictionary, Fifth Edition, ’Res’ has been defined as  follows: "By "res", according to the modern civilians, is  meant everything that may form an object of  rights, in opposition to "persona," which is  regarded as a subject of rights. "Res", therefore, in  its general meaning, comprises actions of all kinds;  while in its restricted sense it comprehends every  object of right, except actions."

       In Trayner’s Latin Maxims, Fourth Edition, ’Extra Commercium’ is  stated as "Beyond Commerce.  This is said of things which cannot be bought  or sold, such as public roads, rivers, titles of honour, etc."

       In Words and Phrases, Volume 15 A, it has been stated:

"Property once dedicated to public use is "extra  commercia", and inalienable by seizure and sale  under execution against a municipal corporation,  unless it is made affirmatively and clearly to  appear that its use had been abandoned or lost by  nonuser."

       In Bouvier’s Law Dictionary, Volume I, Third Edition, at page 531,  it is stated: "It has been frequently said by the Supreme Court  that commerce includes intercourse, though  usually the term is qualified as "commercial  intercourse"; Gibbons v. Ogden, 9 Wheat. (U.S.) 1,  6 L.Ed 23; U.S. v. E.C. Knight Co., 156 U.S. 1, 15  Sup. Ct. 249, 39 L. Ed. 325; Welton v. Missouri,  91 U.S. 275, 280, 23 L.Ed. 347; Pensacola  Telegraph Co. v. Western Telegraph Co., 96 U.S.  1, 9, 24 L.Ed. 708; Mobile County v. Kimball, 102  U.S. 691, 702, 26 L.Ed. 238 (where the phrase is  "intercourse and traffic"); Addyston Pipe & Steel  Co. v. U.S., 175 U.S. 211, 241, 20 Sup. Ct. 96, 44  L.Ed. 136; Lindsay & P. Co. V. Mullen 176 U.S.  126, 20 Sup. Ct. 325, 44 L.Ed.400; Interstate  Commerce Commission v. Brimson, 154 U.S. 447,  470, 14 Sup Ct. 1125, 38 L.Ed. 1047; Lottery  Case, 188 U.S. 321, 346, 23 Sup. Ct. 321, 47 L.Ed.

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492.  The first expression of this was by Marshall,  C.J., in Gibbons v. Ogden, 9 Wheat (U.S.) 1, 6  L.Ed. 23; quoted by Fuller, C.J., in U.S. v. Knight  Co., 156 U.S. 1, 15 Sup. Ct. 249, 39 L.Ed. 325;  and characterized by White, J., as a "luminous  definition" in Northern Securities Co. v. U.S., 193  U.S. 197, 24 Sup. Ct. 436, 48 L.Ed. 679, to the  effect that commerce is something more than  traffic; "It is intercourse; it describes the  commercial intercourse between nations and parts  of nations in all its branches, and is regulated by  prescribing rules for carrying on that intercourse."   This has been practically, if not literally, quoted in  all the cases cited.  There is nothing in the  decisions to define or limit so broad a term as  intercourse, except the word commercial, usually  attached to it.  As it is hardly likely that the courts  intended to say that commerce is intercourse in the  sense in which it is defined "communication  between persons or places"; Cent. Dict.: it is  probable that the word was not intended to be used  to express more than such intercourse as is  connected with traffic and transportation with  foreign countries or between the States."

       Dealing in liquor or for that matter in lottery, tobacco is not prohibited  under the Constitution.  On the other hand, in the constitutional schemes  itself Parliament or the State Legislature has been conferred power to  regulate the said trade like any other trade.  In fact India has entered into  trade agreements to deal in liquor with other sovereign countries.  India has  entered into International treaties in the matter of foreign investment in  liquor.  Trade in liquor finds place in World Trade Organization (WTO) and  General Agreement on Trade and Tariff (GATT).  In terms of the WTO and  GATT guidelines have been laid down as regards import and export of  potable liquor.  India, as a signatory to WTO and GATT, is expected to  follow the said guidelines.  It is expected to remove all trade barriers subject  to the other provisions contained therein.  It is also supposed to levy taxes/  countervailing duties in terms of such international treaties.                         No constitutional provision or statute prohibits trade in  liquor.  Article 47 of  the Constitution  empowers the State to impose prohibition.  Once a  prohibition is imposed by any State in exercise of said powers, indisputably  no person will have any right to deal in potable liquor.         Applicability of Res-extra commercium is a judge made law.   Constitution does not provide for it.  Even if Entries 8, 51 and 54 of List II,  on the other hand, lead to the conclusion that the State has the legislative  power to make regulatory enactment in the spheres provided for them, the  State indisputably may exercise its right to prohibit dealings in liquor either  wholly or partially but if it allows trade and business in liquor by parting  with its exclusive privilege; a presumption will arise unless contrary  intention is shown in the statute or licence granted therefor that it has not  retained unto itself a right to deal with a part of the trade itself or through its  agency.  As has been noticed in the Kerala matter the State has given the  monopoly to trade in liquor in favour of the Kerala State Beverages  Corporation.  Nowhere it is stated either by way of counter-affidavit or  under the statute that the State has reserved unto itself any right in the matter  relating to carrying on trade or business in potable liquor.  As soon as a  licence is granted upon receipt of a fee fixed by it, the State would be  presumed to part with its entire privilege.  To say that while exercising its  regulatory power for the purpose of controlling the trade and business in  potable liquor, it has reserved unto itself a part of its exclusive privilege  would not be correct unless the same is explicitly pleaded and proved.           Regulatory measures in the matter of trade and business in potable  liquor have been taken by reason of a statute.   All regulations on the trade,  thus, must be governed by the statutes operating in the field and not by way  of executive action.  The provisions of the statute or the contracts made

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thereunder must scrupulously be followed by all concerned as they are  bound by the same.  When a legislation referable to Entries 8, 51 and 66 etc.  had occupied the field, the State, in absence of any provision contained in  the statute, cannot turn round and contend that it will exercise its power of  exclusive privilege even though it had granted licence in terms of the statute.   Having regard to the constitutional scheme the power of the State to  undertake trade and business is referable to Article 298 of the Constitution.   The duties, functions and responsibilities of a Government in a democracy  are different from monarchism.  Rights and privileges of a monarch cannot  be equated with an elected Government in a democratic set-up.  If the power  of the Government in other words to deal in trade or commerce, be it liquor  or any other commodity, can only be traced to Article 298 of the  Constitution, it goes without saying that the same would be subject to all  constitutional limitations applicable in relation thereto.  The State while  exercising its constitutional power under Article 298 of the Constitution   cannot itself be an extra constitutional authority so as to violate the  constitutional provisions.  It like any other trader must confine itself within  the four corners of the statutes governing the field which are enacted in  terms of one entry or the other made in any of the three lists to the Seventh  Schedule of the Constitution.         A State, therefore, may be entitled to either completely prohibit a  trade or business in liquor and create monopoly either in itself or in any  other agency and furthermore it can for the purpose of selling the licence  adopt any mode with a view to maximize its revenue but while doing so it  must, having regard to a large number of decisions of this Court, not act  arbitrarily.  The State while carrying on business by way of parting with its  privilege or distribution of largess must conform to the equality clause  enshrined in Article 14 of the Constitution.  It has been so held in Nandlal  Jaiswal (supra) at pages 604-605 in the following terms: "But, before we do so, we may at this stage  conveniently refer to a contention of a preliminary  nature advanced on behalf of the State  Government and respondents 5 to 11 against the  applicability of Article 14 in a case dealing with  the grant of liquor licences. The contention was  that trade or business in liquor is so inherently  pernicious that no one can claim any fundamental  right in respect of it and Article 14 cannot  therefore be invoked by the petitioners. Now, it is  true, and it is well settled by several decisions of  this Court including the decision in Har Shanker v.  Deputy Excise & Taxation Commissioner [(1975)  3 SCR 254 : (1975) 1 SCC 737 : AIR 1975 SC  1121] that there is no fundamental right in a citizen  to carry on trade or business in liquor. The State  under its regulatory power has the power to  prohibit absolutely every form of activity in  relation to intoxicants - its manufacture, storage,  export, import, sale and possession. No one can  claim as against the State the right to carry on trade  or business in liquor and the State cannot be  compelled to part with its exclusive right or  privilege of manufacturing and selling liquor. But  when the State decides to grant such right or  privilege to others the State cannot escape the  rigour of Article 14. It cannot act arbitrarily or at  its sweet will. It must comply with the equality  clause while granting the exclusive right or  privilege of manufacturing or selling liquor. It is,  therefore, not possible to uphold the contention of  the State Government and respondents 5 to 11 that  Article 14 can have no application in a case where  the licence to manufacture or sell liquor is being  granted by the State Government. The State cannot  ride roughshod over the requirement of that

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article."                  Privilege, thus, can be claimed by a State in a ’no right’ situation,  namely, when citizen is not permitted to carry on trade.  But once the State  takes a decision to part with its privilege, it cannot make any discrimination  whatsoever.  Dealing in liquor by the persons in whose favour licences have  been granted in terms of the statutory enactments derive a right therefor  which cannot be said to be "Res-Extra Commercium"           Now comes the question as to how far and to what extent, if any, the  fundamental and other rights of a citizen could be available in the matter of  trade in potable liquor. Article 19(1)(g) guarantees that all citizens shall have  the right to practice any profession or to carry on any occupation, trade or  business. However, in terms of  Article 19(6) this right can be restricted by a  statute  imposing reasonable restrictions.  A combined reading of clauses (1)  and (6) of Article 19 makes it clear that a citizen has a fundamental right to  carry on any trade or business and the State can make a law imposing  reasonable restrictions on the said right in the interest of the general public.   It is, therefore, obvious that unless dealing in liquor is excluded from ‘trade  or business’, a citizen has a fundamental right to deal in that commodity.         This right was recognized in the The State of Bombay and Another  Vs. F.N. Balsara [(1951) SCR 682] where Fazl Ali, J., observed at page 717  that "we hold that to the extent to which the prohibition Act prevents the  possession, use and consumption of non-beverages and medicinal and toilet  preparations containing alcohol for legitimate purposes the provisions are  void as offending against Art. 19(1)(f) of the Constitution even if they may  be within the legislative competence of the provincial legislature,"           But in Cooverjee B. Bharucha (supra) a Constitution Bench of this  Court held that there is no inherent right in a citizen to sell intoxicating  liquors.  This decision was rendered relying on P.Crowley, Chief of Police  of the City and County of San Fancisco, California  Vs. Henry  Christenses [(1890) 34 Law. Ed.620(A)].         However, this exclusive privilege theory was rejected by a  Constitution Bench of this Court in Saghir Ahmad & Anr. Vs. State of  U.P. & Ors.  [AIR 1954 SC 728] stating that this doctrine has no place  under Indian Constitution.  It was observed that establishment of a  monopoly does not create a reasonable restriction.  The observations made  in Cooverjee B. Bharucha (supra) stating that the general observations  occurring in the judgment have to be taken with reference to the facts of that  case were duly explained.  It was reiterated that the State has a right to  prohibit trade which is illegal or immoral or injurious to the health and  welfare of the public by taking recourse to regulating legislation  contemplated by Article 19(6).         The fundamental right to trade in intoxicant liquor was recognized in  State of Kerala & Ors. Vs. P.J. Joseph [AIR 1958 SC 296].  There the  Government of Travancore and Cochin imposed 20% commission for  sanction of extra quota of Foreign Liquor to wholesale licencees.  The said  impost was challenged before the High Court of Judicature for Travancore  Cochin, which was struck down by said High Court.  On Appeal by State   this Court while upholding the judgment of High Court observed "an impost  not authorised by law cannot possibly be regarded as a reasonable restriction  and must, therefore, always infringe the right of the respondent to carry on  his business which is guaranteed to him by Article 19(1)(g) of the  Constitution."  It was held that an impost in terms of an executive order  having no authority of law would be illegal imposition.         This principle has been affirmed by a Constitution Bench of this Court  in Krishna Kumar Narula Vs.State of Jammu and Kashmir & Ors.,  1967(3) SCR 50.  After discussing all previous decisions, Subba Rao, C.J.,  held that "a scrutiny of these decisions does not support the contention that  the court held that dealing in liquor was not business or trade.  They were  only considering the provisions of the various Acts which conferred a  restricted right to do business.  None of them held that a right to do business  in liquor was not a fundamental right".  It was  observed that "If the activity  of a dealer, say, in ghee is business; then how does it cease to be business if  it is in liquor.  Liquor can be manufactured, brought or sold like any other  commodity.  It is consumed throughout the World though some countries

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restrict or prohibit the same on economic or moral grounds".  It was further  held that "dealing in liquor is business and a citizen has a right to do  business in that commodity; but the State can make a law imposing  reasonable restrictions on the said right, in public interests."         In R.M.D. Chamarbaugwala(supra) S.R. Das, C.J. observed that the  American Congress have no power to control gambling and like spurious  transactions under its power over ’inter-State commerce’ if they were not  held to be ’commerce’.         Even in Har Shankar (supra) Chandrachud, J. (as the learned Chief  Justice then was) held that the right to trade in liquor is not absolute and it is  to be treated as a separate class.  But therein also it has not been held that  despite fulfilling the regulatory measures, the trade would be illegal.  The  point that arose for consideration therein was the State’s power to prohibit  trade.  In that case, this Court had no occasion to consider the question  involved in the present one.          A large number of decisions, as noticed hereinbefore, have been cited  at the Bar for the proposition that by  reason of grant of licence, the licensee  is merely granted a permissive privilege subject to the degree of regulatory  control as may be deemed necessary and appropriate having regard to the  fact that nobody has any constitutional right to trade in liquor in view of its  inherently pernicious and noxious nature. I may deal with some of the  decisions cited at the bar a little later but the principles which emerge from  the various decisions of this Court and particularly by Constitution Benches  of this Court are: (i)     Trade in liquor is against public morality and thus res extra  commercium.  No citizen has any Fundamental Right to carry on  business in liquor. [See R.M.D. Chambarbaugwala (supra)].  As  there does not exist any right to carry on trade, Article 301 shall  not apply. (ii)    Right to trade in liquor is a Fundamental Right within the meaning  of Article 19(1)(g) of the Constitution subject, of course, to the  reasonable restrictions in terms of Clause (6) of Article 19.  [See  Krishna Kumar Narula (supra)] (iii)   Right of the State to deal exclusively in liquor is its own privilege.   It does not matter as to whether such right is restricted while  parting with privilege by reason of a statute in terms of Article  19(6) of the Constitution. (iv)    (a) The equality clause even in the matter of carrying on trade is  not available.  The right of the State to part with its privilege being  a superior right, the inferior right of a citizen to carry on trade,  shall give way to State’s superior right.    (b) The State while carrying on any trade or business itself cannot  make any discrimination and its acts must be fair and reasonable.  [See Nandlal Jaiswal (supra)]    (v)     The State’s right is absolute when a complete prohibition is  imposed and at that stage the State can part with its exclusive  privilege in any manner it likes and it is also entitled to take any  measures for having the best price. [See Har Shankar (supra)].           In Khoday Distilleries Ltd. (supra) at pages 608-609, a Constitution  Bench referred to some of the decisions as referred to hereinbefore and  summed up its findings [para 60(a)(b)(e)(f)(g)]: "(a) The rights protected by art. 19(1) are not  absolute but qualified. The qualifications are stated  in cls. (2) to (6) of art. 19. The fundamental rights  guaranteed in art. 19(1)(a) to (g) are, therefore, to  be read along with the said qualifications. Even the  rights guaranteed under the Constitutions of the  other civilized countries are not absolute but are  read subject to the implied limitations on them.  Those implied limitations are made explicit by cls.  (2) to (6) of art. 19 of our Constitution.  (b) The right to practise any profession or to carry  on any occupation, trade or business does not  extend to practising a profession or carrying on an  occupation, trade or business which is inherently

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vicious and pernicious, and is condemned by all  civilised societies. It does not entitle citizens to  carry on trade or business in activities which are  immoral and criminal and in articles or goods  which are obnoxious and injurious to health, safety  and welfare of the general public, i.e., res extra  commercium, (outside commerce). There cannot  be business in crime.  (e) For the same reason, the State can create a  monopoly either in itself or in the agency created  by it for the manufacture, possession, sale and  distribution of the liquor as a beverage and also  sell the licences to the citizens for the said purpose  by charging fees. This can be done under art. 19(6)  or even otherwise.  (f) For the same reason, again, the State can  impose limitations and restrictions on the trade or  business in potable liquor as a beverage which  restrictions are in nature different from those  imposed on the trade or business in legitimate  activities and goods and articles which are res  commercium. The restrictions and limitations on  the trade or business in potable liquor can again be  both under art. 19(6) or otherwise. The restrictions  and limitations can extend to the State carrying on  the trade or business itself to the exclusion of and  elimination of others and/or to preserving to itself  the right to sell licences to do trade or business in  the same, to others.  (g) When the State permits trade or business in the  potable liquor with or without limitation, the  citizen has the right to carry on trade or business  subject to the limitations, if any, and the State  cannot make discrimination between the citizens  who are qualified to carry on the trade or  business."  

       The decisions of this Court including those rendered by the  Constitution Benches struck different notes.  They at times stand poles apart.  Inconsistencies and contradictions in the said decisions are galore.  Some  latter Constitution Bench decisions although took note of the earlier  Constitution Bench decisions, but only  sought to distinguish the same and  not referred the matter to a larger Bench for consideration of correctness of  one view or the other.  I may, therefore, proceed on the premise that some of  the principles in Khoday (supra) are correct, although one may have strong  reservations even in this behalf.   In Khoday (supra) expressly or by  necessary implication fundamental right to deal in any goods is accepted.   Only exception which was made are those commodities, business of which  is inherently noxious and pernicious and is condemned by the civilized  society.  It has sought to lay down the law that there cannot be a business in  crime.           Dealing in a commodity which is governed by a statute cannot be said  to be inherently noxious and pernicious.  A society cannot condemn a  business nor there exists a presumption in this behalf if such business is  permitted to be carried out under statutory enactments made by the  legislature competent therefor.  The legislature being the final arbiter as to  the morality or otherwise of the civilized society has also to state as to  business in which article (s) would be criminal in nature.  The society will  have no say in the matter.  The society might have a say in the matter which  could have been considered in a Court of law only under common law right  and not when the rights and obligations flow out of statutes operating in the  field.  Health, safety and welfare of the general public may again be a matter  for the legislature to define and prohibit or regulate by legislative  enactments.  Regulatory statutes are enacted in conformity with clause (6) of  Article 19 of the Constitution  to deal with those trades also which are

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inherently noxious and pernicious in nature and furthermore thereby  sufficient measures are to be taken in relation to health, safety and welfare of  the general public.  The courts while interpreting a statute would not take  recourse to such interpretation whereby a person can be said to have  committed a crime although the same is not a crime in terms of the statutory  enactment.  Whether dealing in a commodity by a person constitutes a crime  or not can only be subject matter of a statutory enactment.         The Excise Acts enacted  by the States mandate the licensees to carry  on their activities in terms of the conditions of licence and the provisions  contained therein.  So long as the business activities of the licensees are  within the four-corners of the conditions of the licence and the provisions of  the Licensing Act, they, without any obstruction whatsoever, are entitled to  carry on their trade, business or commerce.  They would be liable to be  proceeded against for commission of an offence only in the event they  violate the statutory provisions wherefor the statute itself provides for  imposition of penalty.         Thus, when a person has been granted a licence strictly in conformity  with the Excise Act to carry on his business activities in terms of the statute  operating in the field, the same can neither be termed as  pernicious,   obnoxious and injurious to health, safety and welfare of the general public.  No public interest can be inferred by any court of law by going beyond the  statutory provisions.  Even monopoly of the State either in itself or in any  agency created by it for manufacture, possession, sale and distribution of  liquor can be created only by a  statute which must conform to the  provisions of clause (6) of Article 19 of the Constitution, i.e., by making a  valid  law, by way of a regulatory legislative enactment.         From the analysis of  decisions rendered by this Court in Cooverjee B.  Bharucha, R.M.D. Chambarbaugwala, Har Shankar or Khoday Distilleries, it  will appear that a person cannot claim any right to deal in any obnoxious  substance on the ground of public morality.  The State, therefore, is entitled  to completely prohibit any trade or commerce in potable liquor.  Such  prohibition, however, has not been imposed.  Once a licence is granted to  carry on any trade or business can it be said that a person is committing a  crime in carrying on business in liquor although he strictly complies with the  terms and conditions of licence and the provisions of the statute operating in  the field?  If the answer to the said question is to be rendered in affirmative  it will create havoc and lead to anarchy and judicial vagaries.  When it is not  a crime to carry on such business having regard to the fact that a person has  been permitted to do so by the State in compliance with the provisions of the  existing laws, indisputably he acquires a right to carry on business.  Even in  respect to trade in food articles or other essential commodities either  complete prohibition or restrictions are imposed in the matter of carrying on  any trade or business, except in terms of a licence granted in that behalf by  the authorities specified in that behalf.  The distinction between a trade or  business being carried out legally or illegally having regard to the  restrictions imposed by a statute would have, therefore, to be judged by the  fact as to whether such business is being carried out in compliance of the  provisions of the statute(s) operating in the field or not.  In other words, so  long it is not made impermissible to carry on such business by reason of a  statute, no crime can be said to have been committed in relation thereto.  The  doctrine of res extra commercium, thus, would not be attracted, whence a  person carries on business under a licence granted in terms of the provisions  of the regulatory statutes.         No case and in particular the decisions relied upon by the learned  counsel appearing on behalf of the State of Punjab and that of Kerala had  evolved a principle that despite paying a large amount of licence fees and  despite fulfillment of terms and conditions of  licence and other statutory  provisions, the trade or business carried out by the licensee shall be at an  eternal peril, which may at any point of time be determinated or a new tax  imposed or they be proceeded against at the whims or caprice of the  executive wing of the State.  In our constitutional scheme such a situation is  unthinkable.  The country is governed by rule of law and despite existence  of a valid legislation operating in the field, executive whims or caprice  cannot be permitted to have any role to play.  Validity of a tax imposed  by  the State Legislature, thus, must be determined on the constitutional anvil of

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the legislative competence and not on any other basis.   The decisions of this  Court which had no occasion to consider these aspects of the matter can be  of no assistance and would not constitute binding precedents.  [See  Bhavnagar University vs. Palitana Sugar Mill (P) Ltd. and Others -  (2003) 2 SCC 111]         The right of the State to carry on trade or business under Article 298  of the Constitution  would be subject to the same constitutional limitations in  the matter of carrying on trade or business in liquor as in  other cases.  The  distinction being only that the State has a monopoly to do so.  Once the State  does not exercise the said right and considers it expedient to allow the  citizens to carry on the business or trade, it cannot be said that the licensees  do not derive any right whatsoever.  Even when the State exercises such  right by creating a monopoly in itself, it would be subject to the same  constitutional limitations as envisaged, inter alia, under Articles 14 and 301  of the Constitution. Articles 14 and 301 of the Constitution  protect from the  maladies of discrimination.  Such discrimination may be in between persons  and persons, persons and State and State and State.         Can a State which exercises its right to create monopoly, prevent  another State to export or import its product?  If in between two States such  discriminations are not possible, a discrimination inter se between licensees  of two States would also not be permissible.  Such discrimination would also  not be permissible between a State and a person carrying on similar trade or  commerce in one State vis-‘-vis a person or State carrying on business in  another State.         Once the regulations restricting the right to carry on business in  potable liquor is attributed to reasonable restrictions and public interest  clause, contained in clause (6) of Article 19 of the Constitution, the  fundamental right to carry on trade under Article 19 is conceded.  Once such  a right is conceded, it cannot be said that although a person has a  Fundamental Right to carry on  trade or business for the purpose of Article  19(1)(g), subject to imposition of reasonable restrictions by a law made in  terms of clause (6) of Article 19, he does not have such a right in terms of  Article 301 of the Constitution  or for that matter Article 14 thereof.  Articles  303 and 304 of the Constitution  also provide for imposition of restrictions  and thus even a freedom guaranteed to a person under Article 301 is not an  absolute one, but subject to the constitutional limitations provided therefor.   Article 301 confers freedom but not a licence.  The protection from  discrimination as envisaged in Khoday Distilleries (supra) [para 60(g)]  would not only operate against the State which is the licensor but having  regard to the constitutional goals to be achieved by the commerce clause  contained in Article 301, must be extended to another State which seeks to  impose restrictions on import.         Let me raise a hypothetical question.  If some States intend to exercise  their right/ privilege/ monopoly in the trade in potable liquor - can such  imposition of tax be still justified?  Answer thereto must be rendered in the  negative.  Now the question is with regard to the  applicability of Article 301  of the Constitution  in the matter of trade, commerce and intercourse in  potable liquor.         The preamble to the Constitution speaks of unity and  integrity of India in terms whereof India is required to be treated  country as  a whole.  This theory of unity and integrity of India may have to be found  out while considering the economic integrity of the country vis-‘-vis the  economic barriers which may be put by the States.       For the purpose of  considering the question as regards the interpretation of Article 301, one has  to notice the sources thereof.  It is now beyond any cavil of doubt that except  a part of Part XIII of the Constitution  the major part of the concept thereof  was borrowed from Sections 92 and 99 of the Australian Constitution as also  Section 297 of the Government of India Act, 1935.           Clause 17 of the draft as introduced before the Drafting Committee by  Sir. B.N. Rau in October, 1947 is in the following terms:

"Subject to the provisions of any Federal Law,  trade, commerce and intercourse among the units  shall, if between the citizens of the Federation, be  free:

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Provided that nothing in this section shall prevent  any unit from imposing on goods imported from  other units any tax to which similar goods  manufactured or produced in that unit are subject,  so, however, as not to discriminate between goods  so imported and goods so manufactured or  produced:

Provided further that no preference shall be given  by any regulation of trade, commerce or revenue to  one unit over another:

Provided also that nothing in this section shall  preclude the Federal Parliament from imposing by  Act restrictions on the freedom of trade, commerce  and intercourse among the units in the interests of  public order, morality or health or in cases of  emergency."

       The marginal note appended to Sir B.N. Rau’s clause 17 to the effect  "Freedom of trade, commerce and intercourse among the units" is clearly  suggestive of the fact that Section 92 of the Australian Constitution provided  for a comparable provision vis-a-vis other Constitutions.       It is also beneficial  to notice that Sections 92 and 99 of the Australian Constitution confer  different rights and the same are independent of each other.  Trade,  commerce and intercourse as noticed hereinbefore are of wide amplitude.   The term "commerce" is wider than trade.           In United States Vs. Patterson [55 Fed.Rep. 605 at 639], it is held:

"The word "commerce" is undoubtedly, in its  usual sense, a larger word than "trade", in its usual  sense.  Sometimes "commerce" is used to embrace  less than "trade", and sometimes "trade" is used to  embrace as much as "commerce".

       An inhibition by Article 301 has been provided to the effect that the  Legislature shall not interfere in the commerce between the State and State  as also to the effect that the Legislature of a State shall not give any  preference to one State over the other.  Article 301 of the Constitution in no  uncertain terms provides for a freedom in the matter of trade, commerce and  intercourse.  Such trade, commerce and intercourse are inter-State as also  intra-State.  By reason of Part XIII of the Constitution, the Constitution  makers sought to evolve a high policy.  On a comparison made between  Section 297 of the Government of India Act, 1935 with Part XIII of the  Constitution, it will be found that the latter is wider than the former.  The  said part of the Constitution  is a self-contained part.  Several improvements  made in Part XIII of the Constitution  as compared to Section 297 are worth  taking note of.  By reason of the said provisions, the entire country has been  considered to be one economic unit.  It now embraces within its fold both  ’commerce and trade’ and not ’trade’ alone.  ’Commerce’ was provided for  in Entry 27 of List II only under the 1935 Act.  Part XIII, however, refers to  the relevant entries contained in all the Lists of Seventh Schedule to the  Constitution.   The limitation of power as regards legislative  competence of the State and the Parliament having regard to clause 2 of  Article 303 and sub-clauses (a) and (b) of Clause (1) of Article 304 is clear  pointer of the new dimension given to Article 301 of the Constitution. Even  if a comparison is made between the terminologies used in Article 301 on  the one hand and Articles 19 and 298 on the other, it would be evident that  whereas in the former ’trade, commerce and intercourse’ have been used but  in the latter only the words ’trade or business’ have been used.  Such trade,  commerce and intercourse is in relation to entire territory of India whether  inter-State or intra-State unlike Section 297 of the Government of India Act.   Article 301 makes a declaration that ’trade, commerce and intercourse  throughout the territory of India shall be free’, which in turn must mean that  it shall be free from control of Executive and Legislature.  I may, however,

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hasten to add that by reason thereof although a liberty has been granted but  such liberty cannot be equated with a licence inasmuch it would be subject  to restrictions.  Articles 302 and 303 categorically state that there shall be no  discrimination between one State and the other but restrictions inhere in such  liberty as would appear from clause 2 of Article 303 of Constitution, if a  situation stipulated therein arises for consideration.  In other words,  discrimination is at the heart of this Chapter.  By reason of the said  provision, the State is prohibited from imposing a tax without making any  discrimination whatsoever so as to impede free flow of inter-State or intra- State trade.  The State, however, is entitled to impose reasonable restrictions  as also levy tax in public interest.  But the same indisputably would be  subject to the conditions laid down in Articles 303 and 304 of the  Constitution.         The precise question which arises for consideration is as to whether a  trade in liquor would come within the purview of trade, commerce and  intercourse, within the meaning of Article 301 of the Constitution.  In the  earlier part of this judgment I have considered the difference between a trade  to which a citizen has an absolute right and a trade where no such absolute  right exists being dangerous or obnoxious; but once such trade is permitted  in terms of a regulatory statute, the same cannot be said to be per se illegal.   Earlier I have considered the difference between a trade which is not  prohibited under any law and a trade carrying whereof although is of  dangerous or obnoxious subjects but is permitted in law and subject to the  regulatory statute.  For the purpose of invoking Part XIII of the Constitution,  one may safely proceed on the assumption that a citizen of India may not  have a Fundamental Right in terms of Article 19(1)(g) of the Constitution  to  carry on a trade or business but there could be little difficulty in upholding  the right to carry on such trade on the ground that the same has been  permitted by the State, although a citizen but for such permission would not  have a right to deal in the commodity in question.      It may be noticed that     in Article 303 of the Constitution  the terminology used is "relating to".   These words are of wide amplitude.  These expressions relate to all entries  relating to trade or commerce and not one entry in one of the Lists.  It, thus,  refers to all such entries which are referable to trade and commerce  occurring in any of the three lists.           Tobacco is one of the goods which would otherwise come within the  purview of the doctrine of "Res extra commercium", if the meaning thereof  as judicially defined is held to be good.  Dealing in tobacco is regulated by  the Tobacco Act, a Parliamentary Act.  It is universally acknowledged that  cigarettes cause cancer but having regard to the Tobacco Act and other  statutes it cannot be contended that the State can prohibit business in  cigarette without any legislation, i.e., only through executive instructions. In  terms of Article 303 of the Constitution, Tobacco Act which is made in  terms of Entry 52 of List I of the Seventh Schedule to the Constitution  would prohibit the States from making any discriminatory legislation.  It is,  therefore, difficult to understand as to how a prohibition can be imposed in  respect of liquor in relation whereto also a legislative power has been  conferred upon the State specifically in terms of Entries 8 and 51 in List II of  the Seventh Schedule to the Constitution.           At this juncture, it is useful to refer to the decision of this Court in  Atiabari Tea Company Limited (supra) wherein this Court in no uncertain  terms laid emphasis upon the economic unity of the country.  In that case  before the Constitution Bench an argument was advanced to the effect that  Article 301 is circumscribed by Article 303 but the same was not accepted.           Gajendragadkar, J. (as he then was) held at pages 843-844 as follows: "In drafting the relevant Articles of Part XIII the  makers of the Constitution were fully conscious  that economic unity was absolutely essential for  the stability and progress of the federal policy  which had been adopted by the constitution for the  governance of the country. Political freedom  which had been won, and political unity which had  been accomplished by the Constitution, had to be  sustained and strengthened by the bond of  economic unity. It was realised that in course of

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time different political parties believing in  different economic theories or ideologies may  come in power in the several constituent units of  the Union, and that may conceivably give rise to  local and regional pulls and pressures in economic  matters. Local or regional fears or apprehensions  raised by local or regional problems may persuade  the State Legislatures to adopt remedial measures  intended solely for the protection of regional  interests without due regard to their effect on the  economy of the nation as a whole. The object of  Part XIII was to avoid such a possibility. Free  movement and exchange of goods throughout the  territory of India is essential for the economy of  the nation and for sustaining and improving living  standards of the country. The provision contained  in Art. 301 guaranteeing the freedom of trade,  commerce and intercourse is not a declaration of a  mere platitude, or the expression of a pious hope of  a declaratory character; it is not also a mere  statement of a directive principle of state policy; it  embodies and enshrines a principle of paramount  importance that the economic unity of the country  will provide the main sustaining force for the  stability and progress of the political and cultural  unity of the country."

       In Automobile Transport (Rajasthan) Ltd. (supra), the validity of  the tax impugned therein was upheld only on the ground that it was  compensatory in nature.  There had been a cleavage of opinion amongst the  Hon’ble Judges in the said matter; three Hon’ble Judges holding that such  impost was ultra vires and three Hon’ble Judges holding the same to be intra  vires.  Subba Rao, J. upheld the constitutionality of the impost by agreeing  with other three Hon’ble Judges on the ground that the impost was  compensatory in nature.  The Bench not only accepted the constitutional  principles laid down by this Court in Atiabari (supra) but made a clear  distinction between the regulatory measures which can be adopted by a State  and imposition of a tax.  It, further, struck a note of caution that a  geographical barrier cannot be set up by a State for the purpose of earning  revenue or for the benefit of the people thereof.  It was held that Article 301  covers a wide area.           Subba Rao, J. elaborated as to what is the nature of a compensatory  tax.  The learned Judge, further, emphasized the concept of freedom in the  following terms at pages 564-565 of the Report:- "(1) Article 301 declares a right of free movement  of trade without any obstructions by way of  barriers, inter-State, or intra-State or other  impediments operating as such barriers. (2) The  said freedom is not impeded, but, on the other  hand, promoted, by regulations creating conditions  for the free movement of trade, such as, police  regulations, provision for services, maintenance of  roads, provision for aerodromes, Wharfs etc., with  or without compensation. (3) Parliament may by  law impose restrictions on such freedom in the  public interest; and the said law can be made by  virtue of any entry with respect where of  Parliament has power to make a law. (4) The State  also, in exercise of its legislative power, may  impose similar restrictions, subject to the two  conditions laid down in Article 304(b) and subject  to the proviso mentioned therein. (5) Neither  Parliament nor the State Legislature can make a  law giving preference to one State over another or  making discrimination between one State and

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another, by virtue of any entry in the Lists,  infringing the said freedom. (6) This ban is lifted  in the case of Parliament for the purpose of dealing  with situations arising out of scarcity of goods in  any part of the territory of India and also in the  case of a State under Article 304(b), subject to the  conditions mentioned therein. And (7) The State  can impose a non-discriminatory tax on goods  imported from other States or the Union territory  to which similar goods manufactured or produced  in that State are subject.          ’Commerce and intercourse’ include trade in all its manifestations.   Obstructions or impediments to the free flow of trade would be violative of  the freedom declared by Article 301.  Subba Rao, J., in the said case held at  page 548 as under: "The next question is, where is it free ? The  second, expression "throughout the territory of  India" demarcates the extensive field of operation  of the said freedom. The said intercourse shall be  free throughout the territory of India. The use of  the words ’territory of India" instead of ’among the  several States" found in the American Constitution  or "among the States" found in the Australian  Constitution, removes all inter-State or intra-State  barriers and brings out the idea that for the purpose  of the freedom declared, the whole country is one  unit. Trade cannot be free through-out the territory  of India, if there are barriers in any part of India,  be it inter-State or intra-State. So long as there is  impediment to that freedom, its nature or extent is  irrelevant. The difference will be in degree and not  in quality. The freedom declared under Article 301  may be defined as a right to free movement of  persons or things, tangible or intangible,  commercial or non-commercial, unobstructed by  barriers inter-State or intra-State or any other  impediment operating as such barriers. To State it  differently all obstructions or impediments  whatever shape they may take, to the free flow or  movement of trade, or non-commercial  intercourse, offend Article 301 of the Constitution  except in so far as they are saved by the  succeeding provisions."

       It is beyond any cavil of doubt that Part XIII of the Constitution   contains a principle of importance as regards economic sovereignty and  integrity of India by doing away the trade barriers as also an attempt by the  State to provide economic protection to the States.  Once, it is held that the  limitation upon the legislative power stipulated in Article 303(1), 304(a)  would apply to trade in liquor, there cannot be any doubt in view of several  Constitution Bench decisions of this Court that Article 301 will also apply  thereto. [See Kalyani Stores (supra), H. Anraj (supra) and Bhailal Bhai  (supra)].         In A.B.Abdul Kadir & Ors. Vs. State of Kerala, AIR 1976 SC 182,  this Court, when the validity of a luxury tax (in the nature of excise duty) on  tobacco was challenged as violative of Article 304(b), proceeded on the  basis that the business was protected by Article 301 but rejected the plea, on  the merits, holding that the restrictions imposed were reasonable and in the  public interest.           In Anraj’s case (supra) this Court considered Entry 34 of List II in  terms whereof the State Legislature has been conferred power to enact  Statutes on gambling.   In M/s. Maruthi Agencies, Bangalore rep. by its  Proprietor Vs. The State of Tamil Nadu and others, 1997(1) MLJ 589, it  was held that in the event lotteries are organized by a State, sale of tickets  thereof cannot be prohibited in other States on the ground that it is gambling

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and prohibited by List II.      If trade in liquor like gambling or betting were not  to be regulated by statutes it is difficult to comprehend as to why entries in  respect thereof have been made in the Seventh Schedule to the Constitution.         The American decisions relied upon before this Court may not be held  to have any application having regard to the fact that trade in liquor in the  United States of America was completely prohibited at one point of time but  the same was modified by reason of Constitution Twenty-first Amendment.   Let me now take the case of 21st Amendment in US Constitution.  In the  Constitution of the United States, an express provision guaranteeing freedom  from inter-State trade and commerce does not exist.  There only the  Congress is empowered to regulate commerce.  In the States freedom on  trade and commerce clause only provides for a limitation upon the power of  the State Legislature but not Congress and the freedom is confined to the  inter-State aspect.           In Southern Pacific Co., Vs. State of Arizona (1945) 325 US 761, it  is stated: "For a hundred years it has been accepted  constitutional doctrine that the commerce clause,  without the aid of congressional legislation, thus  affords some protection from state legislation  inimical to the national commerce, and that in such  cases, where Congress has not acted, this Court,  and not the State legislature, is under the  commerce clause the final arbiter of the competing  demands of state and national interests".

       It is further stated:

"The Commerce Clause is a grant of authority to  Congress, and not a restriction on the authority of  that body."

       In the United States, the inter-State restraint trade as such is prohibited  but a State is not denuded of its power imposing general taxes under its  taxing power.  The state has also the power to regulate such aspects of  commerce which do not require a new form of national control.  (See Bob- Lo Excursion Company Vs. People of the State of Michigan.(1948) 333  US 28).         Furthermore, in United States a complete prohibition was  imposed.  The said prohibition was sought to be relaxed by 21st Amendment  which is in the following terms: "Section 1. The eighteenth article of amendment to  the Constitution of the United States is hereby  repealed.

Section 2. The transportation or importation into  any State, Territory, or possession of the United  States for delivery or use therein of intoxicating  liquors, in violation of the laws thereof, is hereby  prohibited.

Section 3. This article shall be inoperative unless it  shall have been ratified as an amendment to the  Constitution by conventions in the several States,  as provided in the Constitution, within seven years  from the date of the submission hereof to the  States by the Congress."

       In the United States of America, the State has the requisite power to  impose general taxes.  Despite the same, an exemption granted in favour of  local manufacturers vis-‘-vis the exporters was frowned upon by the

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American Courts.

       In Bacchus Imports, Ltd. Vs. Herbert H. Dias (82 L.Ed. 2d 200),  the challenge was to the following effect: "1a. Appellants challenge the constitutionality of  the Hawaii liquor tax, which is a 20% excise tax  imposed on sales of liquor at wholesale.   Specifically at issue are exemptions from the tax  for certain locally produced alcoholic beverages.   The Supreme Court of Hawaii upheld the tax  against challenges based upon the Equal Protection  Clause, the Import-Export Clause, and the  Commerce Clause.  In re Bacchus Imports, Ltd.,  65 Haw 566, 656 P2d 724 (1982).  We noted  probable jurisdiction, 462 US 1130, 77 L.Ed 2d  1365, 103 S Ct 3109 (1983), and now reverse."

       White, J. speaking for the majority stated the law thus:

"3. A cardinal rule of Commerce Clause  jurisprudence is that "no State, consistent with the  Commerce Clause, may ’impose a tax which  discriminates against interstate commerce...by  providing a direct commercial advantage to local  business.’"  Boston Stock Exchange v State Tax  Comm’n, 429 US 318, 329, 50 L Ed 2d 514, 97 S  Ct 599 (1977)(quoting Northwestern States  Portland Cement Co. v Minnesota, 358 US 450,  458, 3 L Ed 2d 421, 79 S ct 357, 67 ALR2d 1292  (1959)).  Despite the fact that the tax exemption  here at issue seems clearly to discriminate on its  face against interstate commerce by bestowing a  commercial advantage on okolehao and pineapple  wine, the State argues - and the Hawaii Supreme  Court held - that there is no improper  discrimination."

       The Court noticed:

"(4a, 5)        Much of the State’s argument centers  on its contention that okolehao and pineapple wine  do not compete with the other products sold by the  wholesalers.  The State relies in part on statistics  showing that for the years in question sales of  okolehao and pineapple wine constituted well  under one percent of the total liquor sales in  Hawaii.  It also relies on the statement by the  Hawaii Supreme Court that "we believe we can  safely assume these products pose no competitive  threat to other liquors produced elsewhere and  consumed in Hawaii,"  In re Bacchus Imports,  Ltd., 65 Haw, at 582, n 21, 656 P2d, at 735, n 21,  as well as the court’s comment that it had "good  reason to believe neither okolehao nor pineapple  wine is produced elsewhere."  Id., at 582, n 20,  656 P 2d, at 735, n 20.  However, neither the small  volume of sales of exempted liquor nor the fact  that the exempted liquors do not constitute a  present "competitive threat" to other liquors is  dispositive of the question whether competition  exists between the locally produced beverages and  foreign beverages; instead, they go only to the  extent of such competition.  It is well settled that  "we need not know how unequal the Tax is before

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concluding that it unconstitutionally  discriminates." Marryland v. Louisiana, 451 US  725, 760, 68 L Ed 2d 576, 101 S Ct 2114 (1981).

       The State’s position that there is no  competition is belied by its purported justification  of the exemption in the first place.  The legislature  originally exempted the locally produced  beverages in order to foster the local industries by  encouraging increased consumption of their  product.  Surely one way that the tax exemption  might produce that result is that drinkers of other  alcoholic beverages might give up or consume less  of their customary drinks in favor of the exempted  products because of the price differential that the  exemption will permit.  Similarly, nondrinkers,  such as the maturing young, might be attracted by  the low prices of okolehao and pineapple wine.   On the stipulated facts in this case, we are  unwilling to conclude that no competition exists  between the exempted and the nonexempted  liquors."

       As regards the State’s right on economic protectionism it was said:

"A finding that state legislation constitutes  "economic protectionism" may be made on the  basis of either discriminatory purpose, see Hunt v  Washington Apple Advertising Comm’n, 432 US  333, 352-353, 53 L Ed 2d 383, 97 S Ct 2434  (1977), or discriminatory effect, see Philadelphia v  New Jersey, supra.  See also Minnesota v Clover  Leaf Creamery Co., supra, at 471, n 15, 66 L Ed 2d  659, 101 S Ct 715.  Examination of the State’s  purpose in this case is sufficient to demonstrate the  State’s lack of entitlement to a more flexible  approach permitting inquiry into the balance  between local benefits and the burden on interstate  commerce.  See Pike v Bruce Church, Inc., 397 US  137, 142, 25 L Ed 2d 174, 90 S Ct 844 (1970).   The Hawaii Supreme Court described the  legislature’s motivation in enacting the exemptions  as follows:

"The legislature’s reason for exempting ’ti  root okolehao’ from the ’alcohol tax’ was to  ’encourage and promote the establishment  of a new industry,’ S.L.H. 1960, c 26; Sen  Stand Comm Rep No. 87, in 1960 Senate  Journal, at 224, and the exemption of ’fruit  wine manufactured in the State from  products grown in the State’ was intended  ’to help’ in stimulating ’the local fruit wine  industry’.  S.L.H. 1976, c 39; Sen Stand  Comm Rep No. 408-76, in 1976 Senate  Journal, at 1056."  In re Bacchus Imports,  Ltd. supra at 573-574, 656 P2d, at 730.

Thus, we need not guess at the legislature’s  motivation, for it is undisputed that the purpose of  the exemption was to aid Hawaiian industry.   Likewise, the effect of the exemption is clearly  discriminatory, in that it applies only to locally

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produced beverages, even though it does not apply  to all such products.  Consequently, as long as  there is some competition between the locally  produced exempt products and non-exempt  products from outside the State, there is a  discriminatory effect."

       The Learned Judge proceeded to observe:

"No one disputes that a State may enact laws  pursuant to its police powers that have the purpose  and effect of encouraging domestic industry.   However, the Commerce Clause stands as a  limitation on the means by which a State can  constitutionally seek to achieve that goal.  One of  the fundamental purposes of the Clause "was to  insure ...against discriminating State legislation."   Welton v Missouri, 91 US 275, 280, 23 L Ed 347  (1876).  In Welton, the Court struck down a  Missouri statute that "discriminated in favor of  goods, wares, and merchandise which are the  growth, product, or manufacture of the State, and  against those which are the growth, product or  manufacture of other states or countries..." Id., at  277, 23 L Ed 347.  Similarly, in Walling v  Michigan, 116 US 446, 455, 29 L Ed 691, 6 S Ct  454 (1886), the Court struck down a law imposing  a tax on the sale of alcoholic beverages produced  outside the State, declaring:

"A discriminating tax imposed by a State  operating to the disadvantage of the products  of other States when introduced into the first  mentioned State, is, in effect, a regulation in  restraint of commerce among the States, and  as such is a usurpation of the power  conferred by the Constitution upon the  Congress of the United States."

See also I.M. Darnell & Son Co. v Memphis, 208  US 113, 52 L Ed 413, 28 S Ct 247 (1908)."

       It was held:

"We also find unpersuasive the State’s contention  that there was no discriminatory intent on the part  of the legislature because "the exemptions in  question were not enacted to discriminate against  foreign products, but rather, to promote a local  industry."  Brief for Appellee Dias 40.  If we were  to accept that justification, we would have little  occasion ever to find a statute unconstitutionally  discriminatory.  Virtually every discriminatory  statute allocates benefits or burdens unequally;  each can be viewed as conferring a benefit on one  party and a detriment on the other, in either an  absolute or relative sense.  The determination of  constitutionality does not depend upon whether  one focuses upon the benefited or the burdened  party.  A discrimination claim, by its nature,  requires a comparison of the two classifications,  and it could always be said that there was no intent  to impose a burden on one party, but rather the  intent was to confer a benefit on the other.   Consequently, it is irrelevant to the Commerce

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Clause inquiry that the motivation of the  legislature was the desire to aid the makers of the  locally produced beverage rather than to harm out- of-state producers."

       The learned Judge explained the application of 21st Amendment by  posing the question:

"Whether the interests implicated by a state  regulation are so closely related to the powers  reserved by the Twenty-first Amendment that the  regulation may prevail, notwithstanding that its  requirements directly conflict with express federal  policies."

and answered the same :

"Approaching the case in this light, we are  convinced that Hawaii’s discriminatory tax cannot  stand.  Doubts about the scope of the  Amendment’s authorization notwithstanding, one  thing is certain: The central purpose of the  provision was not to empower States to favor local  liquor industries by erecting barriers to  competition.  It is also beyond doubt that the  Commerce Clause itself furthers strong federal  interests in preventing economic Balkanization.   South-Central Timber, Development, Inc. v  Wunnicke, 467 US 82, 81 L Ed 2d 71, 104 S Ct  2237 (1984); Hughes v Oklahoma, 441 US 322, 60  L Ed 2d 250, 99 S Ct 1727 (1979); Baldwin v  G.A.F. Seelig, Inc., 294 US 511, 79 L Ed 1032, 55  S Ct 497, 101 ALR 55 (1935).  State laws that  constitute mere economic protectionism are  therefore not entitled to the same deference as laws  enacted to combat the perceived evils of an  unrestricted traffic in liquor.  Here, the State does  not seek to justify its tax on the ground that it was  designed to promote temperance or to carry out  any other purpose of the Twenty-first Amendment,  but instead acknowledges that the purpose was "to  promote a local industry."  Brief for Appellee Dias  40.  Consequently, because the tax violates a  central tenet of the Commerce Clause but is not  supported by any clear concern of the Twenty-first  Amendment, we reject the State’s belated claim  based on the Amendment."

       The minority opinion, however, proceeded on the basis that by reason  of Twenty-first Amendment, the State has the power to create a monopoly.   Such constitutional permissibility is absent from our constitutional scheme.           It may be noticed that the same principles as in Atiabari (supra) or  Automobile (supra) have been applied by the Privy Council and the  Australian Courts while interpreting Section 92 of the Australian  Constitution to hold that even for any purpose for which the State has acted  the legislation would not be relevant criteria for declaring it ultra vires if it is  found that the same interferes with the right of trade. (See James Vs.  Commonwealth of Australia (1936) A.C.578, North Eastern Dairy Co.  Ltd. Vs. Dairy Industry Authority of New South Wales (1974-1975) 134  C.L.R. 559 at 581, The Commonwealth & Ors.  Vs. Bank of New South   Wales & Ors. (1949) 79 C.L.R. 497).         Mason, J. in Pilkington Vs. Frank Hammond Pty. Ltd. (1974) 131  C.L.R. 124 interpreted Section 92 of the Australian Constitution in the  following terms:

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"The section does not in terms speak of the private  right of the individual to engage in trade,  commerce, and intercourse among the States; it  refers to trade, commerce and intercourse among  the States as an entire and total concept and  provides that it is to be ’absolutely free’ in the  sense in which this expression has been discussed  in the decided cases.  In saying so much the  section protects the right of the individual to  engage in inter-State trade, commerce and  intercourse but it needs to be recognized that this  protection is incidental to, and in a sense  consequential upon, the protection which is given  to the entire concept of inter-State trade, commerce  and intercourse, including the various acts and  transactions by which it is constituted."  

       Reference in this connection may also be made to North Eastern  Dairy Co. Ltd. Vs. Dairy Industry Authority of New South Wales (1974- 1975) 134 C.L.R. 559, at 615).         In India, the constitutional guarantee under Article 301 of the  Constitution is more extensive than either in United States or Australia.  The  decisions of United States Supreme Court and Australian Supreme Court as  also the Privy Council, as referred to hereinbefore, clearly demonstrate that  in these countries, although States have more constitutional freedom but  despite the same Commerce Clause received ample protection at the hands  of the Judiciary.           Subba Rao, J. in Automobile case (supra) observed: "The freedom declared under Article 301 may be  defined as a right to free movement of persons or  things, tangible or intangible, commercial or non- commercial, unobstructed by barriers, inter-State  or intra-State or any other impediment operating as  such barriers.  To state it differently, all  obstructions or impediments, whatever shape they  may take, to the free flow or movement of trade, or  non-commercial intercourse, offend Article 301 of  the Constitution except in so far as they are saved  by the succeeding provisions."

       The public character theory although is an important, but has a  limitation on the individual right which is guaranteed; having regard to the  fact that legislative restriction ultimately permits the individual State to go  ahead, only subject to the reasonable restriction.      The rule against enacting  protectionist measures has also been noticed by the High Court of Australia  in Cole Vs. Whitfield & Anr.  (1987-1988) 165 CLR 360, settling a long  debate.           In Shree Mahavir Oil Mills and Another Vs. State of J&K and  Others (1996) 11 SCC 39 at pages 53-54, this Court while rejecting an  argument of justification of exemption from sales tax of small scale  industrial units within the State of J&K on the ground that the commodity  produced within the State and that produced in other States and sold in J&K,  constitute different classes, has held as under:-

"The States are certainly free to exercise the power  to levy taxes on goods imported from other  States/Union Territories but this freedom, or  power, shall not be so exercised as to bring about a  discrimination between the imported goods and the  similar goods manufactured or produced in that  State. The clause deals only with discrimination by  means of taxation; it prohibits it. The prohibition  cannot be extended beyond the power of taxation.  It means in the immediate context that States are  free to encourage and promote the establishment

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and growth of industries within their States by all  such means as they think proper but they cannot, in  that process, subject the goods imported from other  States to a discriminatory rate of taxation, i.e., a  higher rate of sales tax vis-a-vis similar goods  manufactured/produced within that State and sold  within that State. Prohibition is against  discriminatory taxation by the States. It matters not  how this discrimination is brought about............. We find it difficult to appreciate how can the  concept of classification be read into clause (a) of  Article 304 to undo the precise object and purpose  underlying the clause. Shri Verma repeatedly  stressed that the object underlying the impugned  measure is a laudable one and that it seeks to serve  and promote the interest of the State of Jammu and  Kashmir which is economically and industrially an  undeveloped State, besides being a disturbed State.  We may agree on this score but then the measures  necessary in that behalf have to be taken by the  appropriate authority and in the appropriate  manner. Part XIII of the Constitution itself  contains adequate provisions to remedy such a  situation and there is no reason why the necessary  measures cannot be taken to protect the edible oil  industry in the State in accordance with the  provisions of the said Part."

       It is thus evident that any manner of extension of protection to trade or  business within the frontiers of State, at the cost of free inter-State trade or  commerce will not stand the test of Article 301.  The scheme of  compensatory taxes, operate in an entirely different sphere.  They cannot be  confused with measures which are both in form and substance protectionist  impositions.         In Brown Vs. Maryland (1827) 12 Wheat 419, the US Supreme  Court in the context of the competence of the States to enact and impose a  duty on imports or exports has held that the power to regulate inter state  commerce in non-discriminatory fashion and "to break down or to eliminate  barriers to trade amongst the States" is an essential federal power.  It has,  therefore, been said that in the absence of such a power "local interest  exerting powerful influences in State Legislatures would, in the long run,  prefer home industries over those that are out of state, establish tariff  barriers, or employ other means tending to Balkanize the nation into hostile  trade areas." [See also William O. Doughlas J: From Marshall to Mukherjea:  Tagore Law Lectures 1956 P. 169].         In James Vs. Commonwealth of Australia 1936 AC 578, referring  to McArthur’s case 28 CLR 530 it was held: "It is now convenient to examine the actual  language of the Constitution so far as relevant, in  order to ascertain its true construction.  The first  question is what is meant by "absolutely free" in s.  92.  It may be that the word "absolutely" adds  nothing.  The trade is either free or it is not free.   "Absolutely" may perhaps be regarded as merely  inserted to add emphasis.  The expression  "absolutely free" is generally described as popular  or rhetorical.  On the other hand, ’absolutely’ may  have been added with the object of excluding the  risk of partial or veiled infringements.  In any case,  the use of the language involves the fallacy that a  word completely general and undefined is most  effective.  A good draftsman would realize that the  mere generality of the word must compel  limitation in its interpretation. "Free" in itself is  vague and indeterminate.  It must take its colour

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from the context.  Compare, for instance, its use in  free speech, free love, free dinner and free trade.   Free speech does not mean free speech; it means  speech hedged in by all the laws against  defamation, blasphemy, sedition and so forth; it  means freedom governed by law, as was pointed  out in McArthur’s case.  Free love, on the contrary,  means licence or libertinage, though, even so, there  are limitations based on public decency and so  forth.  Free dinner generally means free of  expense, and sometimes a meal open to any one  who comes, subject, however, to his condition or  behaviour not being objectionable.  Free trade  means, in ordinary parlance, freedom from tariffs.

"Free" in s. 92 cannot be limited to freedom in the  last mentioned sense.  There may at first sight  appear to be some plausibility in that idea, because  of the starting-point in time specified in the  section, because of the sections which surround s.  92, and because the proviso to s. 92 relates to  customs duties.  But it is clear that much more is  included in the term; customs duties and other like  matters constitute a merely pecuniary burden; there  may be different and perhaps more drastic ways of  interfering with freedom, as by restriction or  partial or complete prohibition of passing into or  out of the State.

Nor does "free" necessarily connote absence of  discrimination between inter-State and intra-State  trade.  No doubt conditions restrictive of freedom  of trade among the States will frequently involve a  discrimination; but that is not essential or decisive.   An Act may contravene s.92 though it operates in  restriction both of intra-State and of inter-State  trade."

       However, in India Part XIII of the Constitution relates both to inter- State trade and commerce as also intra-State trade.

       In Fox Vs. Robbins [8 CLR 115], It was held:

"Sec. 92 of the Constitution does not reframe State  Acts by making new affirmative legislation not  contemplated by the State Parliament.  It prevents  adverse discrimination from being lawful; so far as  the Act can be effectively worked in conformity  with the constitutional requirement it still stands;  so far as it cannot it simply ceases to operate."

       Once it is held that the principle of res-extra commercium is not  applicable, the decisions in Kalyani Stores (supra), H. Anraj (supra) and  Bhailal Bhai (supra) having been rendered by a Constitution Bench would  constitute binding precedents.  Once it is held that the Legislature has no  power to levy any excise duty on imported liquor in excess of the  countervailing duty within the State, having regard to the constitutional  limitation imposed in terms of Entry 51, List II of Seventh Schedule to the  Constitution, such discriminatory levy must be held to be violative of Article  303(1) and 304(a) of the Constitution.  As import fee is an impost, thus, levy  thereof in addition to countervailing duty would clearly attract the wrath of  Article 304(a) of the Constitution.  It has not been and could not have been  contended that the tax is compensatory in nature as was the case in  Automobile (supra).  I am, therefore, of the opinion that the impugned

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impost cannot be upheld.           Before parting, however, I may notice the submission made by    Mr.  Iyer on behalf of the State of Kerala that the licensees, having obtained a  privilege and enjoyed the benefit out of it, cannot, turn round subsequently  and repudiate the obligations subject to which they obtained the privilege.   The submission of Mr. Iyer is wholly mis-conceived for more than one  reason.  The manufacturers of liquor outside the State of Kerala did not  obtain any privilege from the State.  The decisions relied upon by the  learned counsel, namely, Har Shankar (supra), Jage Ram (supra), Lal  Chand (supra), M/s. Dial Chand Gian Chand and Company (supra), thus,  cannot be said to have any application in the instant case.  The decisions in  these cases were rendered in the fact situation obtaining therein.  The  licensees therein questioned the power of the State to hold auction by the  State and/or they refused to comply with the terms and conditions of licence.    In fact in Harshankar (supra) the Court on the factual matrix obtaining  therein clearly came to the conclusion that the writ petition was not  maintainable as thereby the licensees sought avoidance from compliance of  contractual terms and licensing conditions and, thus, they were not entitled  to any relief.  The writ petitioners before the High Court had not questioned  any of the terms and conditions of the licence.  In Kerala case they are not  even licensees at all.  They are manufacturers of potable liquor, licences  wherefor had been granted by other States.  The State of Kerala has not  parted any privilege in their favour.  Even otherwise when the legislative  competence of a State is in question, the same goes to the root of the  jurisdiction.  Once it is found that the State Legislature has exceeded its  jurisdiction in imposing the impugned levy, the same being a fraud on the  Constitution cannot be sustained on the procedural doctrine of estoppel or  waiver.         For the reasons aforementioned, Civil Appeal No. 3017 of 1997 is  dismissed and impugned judgment rendered by the Punjab and Haryana  High Court quashing the Notification impugned before it is upheld.  On  23.7.1998 when prayer for grant of interim relief was being considered, a  prayer was made by Shri Harish N. Salve, learned Senior Counsel, appearing  on behalf of the State of Punjab, to the effect that operation of impugned  judgment rendered by the High Court may be stayed as the State was ready  to undertake before this Court to refund the amount that would be realized  by way of import duty together with interest thereon @ 15% per annum to  the respondents in the event of dismissal of State’s appeal by this Court and  the said prayer having been acceded to, this Court stayed the operation of the  judgment rendered by the High Court upon the aforesaid undertaking.  In  view of this, the State of Punjab is hereby directed to refund the amount that  has been realized by it by way of import duty to the respondents together  with interest thereon @ 15% per annum from the date of its realization till  payment, which must be made within a period of three months.  Civil Appeal Nos. 2696-2697 are allowed and the Notification  impugned before the Kerala High Court is quashed.  There shall be no order as to costs.