2003 Supreme(SC) 1177

2004(4) Supreme 537
Supreme Court of India
(From Punjab & Haryana High Court)
V.N. Khare, CJI., R.C. Lahoti, B.N. Agrawal, S.B. Sinha and Dr. AR. Lakshmanan, JJ.
State of Punjab & Anr. -Appellants
versus
M/s. Devans Modern Brewaries Ltd. & Anr. -Respondents
Civil Appeal No. 3017 of 1997
With
(C.A. Nos. 2696-2697 of 2003)
Decided on 20-11-2003
Counsel for the Parties :
For the Appearing Parties : Dr. A.M. Singhvi, P.N., Misra, Ashok H. Desai, R.F. Nariman, R. Venkataramani, T.L.V. Iyer, Sr. Advocates, H.M. Singh, Anil Hooda, Kaushal Yadav, R.S. Suri, Rajeev Kumar Sharma, Advocate (NP), Pallav Shishodia, George Poonthatham, R. Yoshod Vard­han, Nanjunda Reddy, Nagendra Naidu, S. Sukumaran, M.P. Vinod, Ms. Divya Nair, Vikram Mehta, Ms. Padmalakshmi Nigam, Mohan Jain, Sanjiv Sen, Neeraj Sethi, Ms. Nandini Gore, Ramesh Babu M.R., E.M.S. Anam, Advocates.

Important point
Trade in liquor is not a fundamental right, it is a privilege of the State, therefore, levy of import fee on potable liquor manufactured in other States is valid as a regulatory levy.

Headnote:Excise-Punjab Excise Act, 1914-Sections 31, 32, 33A and 58-Punjab Excise Fiscal Orders, 1932-Order 1-D(iii), Rule 1(d)-Punjab Liquor Import, Export Order, 1932-Punjab Liquor Permit and Pass Rules, 1932-Kerala Abkari Act, 1977-Constitution of India-Articles 301 and 302-Imposition of import fee on Beer-Validity-State of Punjab imposed tax on import of potable liquor manufactured in other States-State of Kerala also imposed a similar levy-Respondent carry­ing wholesale trade-Writ petition for quashing notification dated 27.3.1996 alleging that the State of Punjab and Kerala have no power to levy such tax and that imposition is ultra vires Article 301 of the Constitution-Reference made by three Judge Bench of Supreme Court-Whether impugned notifications issued by State of Punjab and that of Kerala are within competence of States to impose import fee-(Yes) (Majority Judgment).

       Majority Opinion [Dr. AR. Lakshmanan, J. for himself and on behalf of V.N. Khare, CJI, and R.C. Lahoti, J.]

       Held : It is well settled by a catena of decisions that the trade in liquor is not a fundamental right. It is a privilege of the State. The State parts with this privilege for revenue consideration. In Punjab, the Excise Policy of the State is formulated every year. It is also made known to the licensees much before their licenses for the year comes to an end. It is also a matter of fact that the licensees have paid the fee on demand. The fee was first levied in the year 1992. The licensee, in the Punjab case, had been holding the licence all through this period and never challenged or protested against levy of the fee. The licensees having paid the fee without any protest all through is not entitled to challenge the same, which does not suit them. The licensee cannot aprobate and reprobate. In Punjab, the grant of licences are governed by the Punjab Excise Act, 1914 (for short "the Act") and various rules and orders framed under it. In the Punjab case, the challenge of the appellant is limited to the imposition of import fee in addition to the countervailing duty on Beer. It is not disputed by the appellant that the State is competent and is entitled to impose excise duty or countervailing duty besides there is no bar on the State to charge any other fee on ­account of consideration of the privilege ­provided to the licensee to provide them the right to trade in liquor. A perusal of the impugned notification shows that the State Government substituted the existing provision with regard to import fee and increased the rate of this fee. It is part of the privilege price i.e. consideration amount on account of which the licence was granted to the licensee. Further, the licensee had an option to opt out of the business field if such levies were detrimental to their interest or were to their disadvantage. (Para 7)

       The respondent in this appeal is holding L-1 licence i.e. Wholesale and retail vend of foreign liquor to trade only. The said licence is given on fixed licence fee, which is subject to variation as per excise policy of the Government based on year to year. The State Government has incorporated as one of the terms and conditions on the L-1 holders to pay import fees also at the prescribed rate as per the Punjab Excise Fiscal Order, 1996. The respondent has been accepting the terms and conditions from 1992 onwards and acted on the same, the licence was renewed on yearly basis. (Para 12)

       The respondent has referred to the duty paid under Rule 5 i.e. equivalent to Excise duty and fees under Order (1) (D) of the Punjab Fiscal Orders, 1932. As stated above, on imported goods by L-1 holder, there are two different and independent imposts in the shape of Excise duty under Rule 5 and import fee under Rule (1) (D) of Punjab Excise Fiscal Orders, 1932. In addition he has to pay licence fee under the Punjab Liquor Licence Rules, 1956, which is fixed on yearly basis. Thus, it is seen that as per provisions of Section 58 (D) as well as Section 59 (D) the State Government, in my opinion, has power to regulate the import and price of any description of bottle and the scale of the fee and the manner of the fee payable by any licensee. (Para 13)

       This Court, in a number of judgments, has held that the State Government has unfettered powers to regulate the Export/Import sale of intoxicants and in exercise of its regulatory powers, the import fee has been incorporated as one of the terms of the Excise Policy on yearly basis. We will refer to the relevant judgments in the later part of this judgment. (Para 15)

       It is undeniable that regulations deemed necessary and apposite are liable to be ­imposed on liquor trade more than any other activity since the former is considered inherent are noxious, pernicious and res extra commercium. Regulation is thus the hall-mark of the State action in respect of liquor and that regulation can be and indeed normally is through the mode of imposition of levies which levy is also necessary to regulate by keeping out and excluding persons entering the liquor trade. We have already extracted the provisions of 1914 Act. The contention of the licensee is that once a L-1 wholesale liquor licence is issued to him, the State s permissive privilege in respect of liquor stands permanently parted with and thereafter no additional or further levy of any kind even in respect of activities other than wholesale selling under L-1 licence can be raised. This argument, in my opinion, is completely fallacious and ex-facie unsustainable. This contention ignores the well-established legal statutory and operational distinction demarcating and dealing separately with several distinct activities in relation to liquor, namely, manufacture, possession, sale, transport, import, export consumption on premises of hotel/ restaurant etc. Each activity is separately defined and separately itemized and separately dealt with in statute as also in the rules and involves a diverse range of separate licences, passes, permits and applications each of differing contained format and ambit. The import fee levied in the instant case is fully authorized by the 1914 Act and delegated legislation thereunder and is clearly intra vires. I have already listed in paragraphs above all the provisions authorizing the levy in question in the instant case which is mentioned in the additional affidavit of the State of Punjab. The provisions summarized above confer ample regulatory power upon the excise authority to regulate several activities related with liquor in any reasonable manner and in particular to regulate its import. The regulatory power includes power to levy a monthly fee in that regard such as the impugned import fee. Indeed levy for such fee to exclude and to keep out certain people from the liquor trade and to keep the number of persons participating in this trade within reasonable limits has been recognized by this Court in Har Shankar s case (supra) relying upon and quoting American decisions. (Paras 22 and 23)

       The issuance of liquor licence constitutes a contract between the parties i.e. between Excise Authorities on the one hand and the individual applicant contractor on the other. The respondent having accepted the contracts/licences, having fully exploited the advantage flowing from the contract to the exclusion of others and having reaped rich commercial benefits from that activity, it is not open to the contractor to wriggle out from the contract by challenging, inter alia, any particular condition of that contract/licence. The respondent herein seeks to do exactly that by challenging the condition requiring him to pay import fee. (Para 25)

       The High Court of Punjab proceeded to decide the case on a total wrong assumption that the import fee levied is in the nature of duty which cannot be imposed under the Excise Act, 1984 when, in fact, the import fee levied is the price for parting with the privilege given to the licensee to import beer into the State and, therefore, the same is within the competence of the State to impose import fee. I am of the view that the licensee besides the payment of duty etc. is to comply with such conditions as the State Government may impose while formulating the excise policy for the concerned year. The State, in my view, is competent and entitled to impose excise duty or countervailing duty. Besides there is no bar on the State to charge any other fees on account of consideration for the privilege provided to the licensee to trade in liquor which privilege he did not ­otherwise have. Therefore, the licensee is liable to comply with the other conditions imposed by the State Government from time to time. As held in many cases referred to supra the levy in dispute under challenge is an import levy. It is neither duty nor countervailing duty. It is part of the consideration money i.e. the price of the privilege given to the licensees for dealing in liquor. The decision of this Court in the case of Kalyani Stores (supra) is not applicable to the facts of the present case and that the Punjab Excise Act, 1914 is an existing law under Clause 10 of Article 366 of the Constitution of India and its continued application is saved by Article 372 of the Constitution of India. It is also saved by Article 305 of the Constitution from attack under Articles 301 and 303 of the Constitution. It is well within the legislative competence of the State. (Para 56)

       Minority Opinions [B.N. Agrawal, J.]

       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. (Para 75)

       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. (Para 77)

       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 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. (Para 78)

       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. (Para 80)

       In view of the foregoing discussions, I am of the opinion that the impugned levy cannot be sustained. (Para 83)

       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. (Para 143)

       Minority Opinion [S.B. Sinha, J.] [Concurrent Opinion with B.N. Agraw­al, J.]

       Laws relating to imposition of duty of excise is within the legislative competence of the Parliament in terms of Entry 84, List I of the Seventh Schedule of the Constitution of India. One of the exceptions to the said field is imposition of duty on alcoholic liquor for human consumption, which is exclusively within the legislative competence of the State. The States of Punjab and Kerala exercised its constitutional power in enacting the said Act, the sources whereof are referable to Entry 8 or 51 of List II of the Seventh Schedule of the Constitution of India. The validity of the impugned provisions of the said Acts, therefore, revolves round the question as to whether the same fulfil constitutional requirements. (Para 149)

       Entry 8 of List II does not envisage any control over import. Entry 51 of List II empowers the State to levy countervailing duty at the same or lower rates of excise duty levied on similar goods produced in that State. (Para 150)

       It is, therefore, evident that import of liquor in terms of the licences granted under the provisions of a statute cannot be the subject-matter of regulation within the purview of Entry 8 of List II of the Seventh Schedule of the Constitution of India. Furthermore, on a plain reading of Entry 51 no duty can be imposed on import of liquor over and above the countervailing duty. Ex-facie, therefore, the imposition of import duty on liquor is unconstitutional. (Paras 153 and 154)

       The propositions of law which emerge from the discussions made hereinbefore are:

        (1) The maxim res extra com­mercium has no role to play in determining the constitutional validity of a statute.­

        The State, in its discretion having regard to the provisions ­contained in Article 47 of the Constitution of India may part with its right of exclusive privilege but once it does so, the grant ­being subject to the terms and conditions of a statute, the common law principle based on the maxim res extra commer­cium shall have no application in relation thereto.

        (2) When the constitutionality of a taxing statute is questioned, the same has to be judged on the touchstone of the constitutional provisions including Article 301 thereof. The freedom guaranteed under Article 301 of the Constitution of India may be considered in isolation having regard to the expression contained therein that such freedom is subject to Part XIII of the Constitution of India.

        (3) The right to carry on trade in liquor is a fundamental right within the meaning of Article 19(1)(g) of the Constitution of India and the State may, however, legislate prohibiting such trade either in whole or in part in terms of clause (6) of thereof.

        (4) Article 14 is applicable in the matter of grant by the State and, thus, there is no reason as to why grantee would not be entitled to invoke the commerce clause contained in Article 301 of the Constitution of India.

        (5) In interpreting the constitutional provisions, the court should take into consideration the implication of its decision having regard to the international treaties dealing with countervailing duty, etc.

        (6) The decision of Kalyani Stores (supra) being an authoritative pronouncement, the same is binding irrespective of the fact as to whether therein the decisions of this Court in Chamarbaugwala (supra), Har Shankar (supra) and Khoday Distilleries (supra) have been referred to or not, keeping in view the fact that even in K.K. Narula (supra), another Constitution Bench has held that trade in liquor is a fundamental right.

       Before parting, I may observe that it had been my endeavour not to repeat the reasonings of B.N. Agrawal, J. with whom I respectfully agree and, with utmost respect, I dissent from the views of the majority. (Paras 346 and 347)

       (ii) Constitution of India-Articles 19(1)(g) and 19(6), 301, 302-Punjab Excise Act, 1914-Punjab Excise Fiscal Orders, 1932-Imposition of import fee on potable liquor manufactured in other States-Whether in violation of right to carry on business in potable liquor-(No) (Majority Judgment)-(Yes) (Minority Opinions).

       Majority Judgment [Dr. AR. Lakshmanan, J. for himself and on behalf of V.N. Khare, CJI and R.C. Lahoti, J.]

       Held : In my opinion, Articles 302 and 304A of the Constitution of India are not attracted to the present case as the imposition of import fee does not, in any way, restrict trade commerce and intercourse among the States. In my opinion, the permissive privilege to deal in liquor is not a "right at all. The levy charged for parting with that privilege is neither a tax nor a fee. It is simply a levy for the act of granting permission or for the exercise of power to part with the privilege. In this context, we can usefully refer to Har Shankar and Others etc. etc. vs. The Deputy Excise and Taxation Commissioner and Others etc. AIR 1975 SC 1121 and Panna Lal and Others vs. State of Rajasthan and Others (1975) 2 SCC 633. As noticed earlier, dealing in liquor is neither a right nor is the levy a tax or a fee. Articles 301-304 will be rendered inapplicable at the threshold to the activity in question. Further, there is not even a single judgment which upholds the applicability of Articles 301-304 to the liquor trade. On the contrary, numerous judgments expressly hold these Articles to be inapplicable to trade, commerce and intercourse in liquor. (Para 17)

       Minority Opinion [B.N. Agrawal, J.]

       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-a-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. (Paras 109 & 110)

       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. (Para 115)

       Miniority Opinion [S.B. Sinha, J.]

       Whereas in terms of Article 19(6) as also Article 302 of the Constitution of India in relation to a trade which is noxious in nature a complete prohibition would be permissible, the same would not mean that while permitting the trade to go on the State s action whether legislative or executive need not undergo the constitutional tests in terms of Articles 14, 19 or 301 of the Constitution of India. The argument that the relationship between State and the licensee is contractual in nature but the same would not mean that any legislative interference thereupon as a result whereof the contract becomes more burdensome would not be a subject-matter of challenge. There is no estoppel against statute. There cannot be any waiver of fundamental right. Freedom of trade was the established practice in India during the reign of the British. There were no existing interprovincial duties or trade barriers. However, with the advent of provincial autonomy, it was considered necessary to have a statutory basis. Accordingly, Section 297 of the Government of India Act, 1935 prohibited Provincial governments from imposing barriers on trade within the country. They also could not levy tax, cess, toll or other due which discriminated between goods manufactured in one locality and similar goods manufactured elsewhere. (Paras 266 and 267)

       Article 301 of the Constitution of India provides that trade, commerce and intercourse throughout India shall be free and subject only to the provisions of Part XIII of the Constitution. This Article seeks to limit the legislative powers of the State in matters relating to interstate commerce, trade and intercourse. The object behind Article 301 is to ensure that the economic unity of India may not be broken up by internal barriers. [See Atiabari Tea Co. vs. State of Assam - AIR 1961 SC 232] Further, unlike the Fundamental right provided to citizens only under Article 19(1)(g), Article 301 seeks to extend its benefits to all individuals. This is the basis of operation of Article 301. The essence of Article 301 is a right of free movement of trade without any barrier whether inter-State or intra-State. It is also not in ­dispute that the taxes which have direct impact on the flow of trade and commerce constitute a violation of Article 301 unless the legislation is brought within the scope of Article 302, 304 and 305. (Paras 270 to 272)