Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(SC) 826

SUPREME COURT OF INDIA
S.V.N. BHATTI, N.V. ANJARIA, JJ.
State Of U.P. & Ors. - Appellants
Versus
Zafar Ali & Ors. – Respondents
Appeal No. 3954 of 2018 with Civil Appeal No. 3956 of 2018 with Civil Appeal No. 3955 of 2018 and Civil Appeal No. 8137 of 2012
Decided On : 28-07-2026

Advocates appeared:
For the Appellant(s) : Mr. Namit Saxena, AOR
For the Respondent(s): Mr. K. S. Rana, AOR Mr. Shankar Divate, AOR Mr. L. B. Rai, Adv. Mr. Kartik Rai, Adv. Mr. Aftab Ali Khan, AOR Mr. Anil Karnwal, Adv. Mr. Chander Shekhar Ashri, AOR

IMPORTANT POINT
Levy and demand of penalty for non-performance of Minimum Guaranteed Quota – Non-performance of MGQ at the time of completion of licence period is not a ground for levying and demanding penalty, both under Rules 2002, and as per terms of the Form 5-C licence.

Headnote:
U.P. Excise (Settlement of Licences for Retail Sale of Country Liquor) Rules, 2002 – Rules 14 and 15 – U.P. Excise Act, 1910 – Sections 11(1) and 24B – Levy and demand of penalty for non-performance of Minimum Guaranteed Quota – Levy and demand for non-compliance with MGQ are either for one month or for two months, but same licensee has complied with Minimum Annual Guaranteed Quantity – Licence fee is distributed over period of Excise year, and in the event of a licensee lifting excess of Country Liquor over and above MGQ, licensee is entitled to a Credit Balance of licence fee – It is not the case of Appellants that licence conditions in this behalf are not complied with – Non-performance of MGQ at the time of completion of licence period is not a ground for levying and demanding penalty, both under Rules 2002, and as per terms of the Form 5-C licence – Mode and manner of performance insisted upon by Appellants through impugned Demand Notice do not conform to plain meaning of statutory rules – Demand Notice was not issued contemporaneously, but after lapse of a reasonable time – These infirmities go to root of impugned demand – Through impugned Judgment, High Court has rightly interfered with Demand Notice. (Paras 12.1, 13, 14 and 15)
Facts of the case:
Present Appeal examines levy and demand of penalty for non-performance of Minimum Guaranteed Quota (‘MGQ’) by Respondents, under Uttar Pradesh Excise (Settlement of Licences for Retail Sale of Country Liquor) Rules, 2002. It concerns a dispute arising out of excise licence granted to Respondents for years 2006-07 and 2007-08, namely, whether a retail country liquor licensee, who has fulfilled and lifted entire annual minimum guaranteed quantity fixed for excise year, can still be held liable to pay deficit licence fees, penalties, and interest if there was a short-fall in lifting monthly minimum guaranteed quantity in a particular month.
Findings of Court:
Impugned Judgment has considered every aspect in great detail and recorded correct and available conclusions, and hence does not call for interference.
Result : Civil Appeals dismissed.

JUDGMENT :

S.V.N. BHATTI, J.

1. The respondents in Writ (Tax) No. 507 of 2011 are the Appellants herein.

2. The Appeal examines the levy and demand of penalty for nonperformance of Minimum Guaranteed Quota (for short, ‘MGQ’) by the Respondents, under the Uttar Pradesh Excise (Settlement of Licences for Retail Sale of Country Liquor) Rules, 2002 (for short, ‘Rules 2002’). It concerns a dispute arising out of an excise licence granted to the Respondents for the years 2006-07 and 2007-08, namely, whether a retail country liquor licensee, who has fulfilled and lifted the entire annual minimum guaranteed quantity fixed for the excise year, can still be held liable to pay deficit licence fees, penalties, and interest if there was a short-fall in lifting the monthly minimum guaranteed quantity in a particular month. The prayer in the Writ Petition reads as follows:

“(i) Issue a writ, order or direction in the nature of certiorari be passed quashing the impugned reply dated 17.08.2010 sent on behalf of U.P. Government and others by the D.G.C. Civil. Bijnore and letter of Excise Commissioner dated 09.03.2010 and notices of demand dated 17 March, 2009 and 20 March, 2009 which are filed as Annexure No. 1, 3 & 4 to this writ petition be quashed, and also declaring the same legal on just.

(ii) Issue a writ, order or direction in the nature of Mandamus, thereby directing respondent to release the security amount of the petitioners deposited with the District Officers, Bijnore for the Excise Year 2006-07 of the Petitioners No. 4, 19, 25, 32 & 33 and also of the deposits of all the petitioners deposited in the Excise Year 2007-08 as Security Deposits, as the licensees of country made liquor shops of District Bijnore for the period of 01.04.2006 to 31.03.2007 and 01.04.2007 to 31.03.2008 and which have been illegally deducted in the name of penalty and interest imposed upon penalty and details of which is shown in Annexure Nos. 5 & 6 of the Writ Petition be directed to be immediately released to the petitioners of the Excise Year 2007-08 on the basis of parity as has been given to the Country Liquor Licensees of District Lucknow and Unnao.

(iii) To issue directions in the nature of mandamus commanding to oppose parties to immediately refund the security deposits after deducting only Rs. 5000/- of each shops of the petitioners without any delay and also with interest for illegal withelding of the aforesaid security amounts of the petitioners @ 18% per annum or any amount of interest of which this Hon’ble Court pleased to fix, to the petitioners.”

3. To appreciate the controversy between the parties, illustratively, the relevant portion of an impugned Demand Notice dated 20.03.2009 issued to the Petitioner in Writ (Tax) No. 507 of 2011 is excerpted hereinunder:

“…Under para 15(a) Uttar Pradesh Excise (Settlement of Licence for retail sale of Country liquor), Rules, 2002, licensee may lift quantity of Country liquor in excess of the monthly minimum guaranteed quantity without satiating any additional payment. In case licensee lifts quantity of Country liquor in excess of the minimum monthly guaranteed quantity in the month under para 15(c), then he would be entitled to earn the residual amount of licence fee. But such adjustment would not be excess of 20 percent of the monthly licence fee. The details of the Country liquor lifted by you in the month of March, 2008 in the year 2007-08 are as under: -

S. No.	Name of Shop	Annual MGQ (in B.L)	Monthly MGQ (in B.L)	Prescribed quantity lifted in after adjustment of 20% of MGQ	Quantity lifted in the month of March 07 in B.L	Difference of quantity lifted (in B.L)
1	2	3	4	5	6	7
1	Bijnaur No. 2	92230.0 0	7685.0 0	6148.00	4662.0 0	1486.00

Therefore, in compliance of order of the respected District Collector dated 20.03.09 you are directed to deposit the amount consideration fee payable and amount of penal interest Rs.1,61,320.00 on the less quantity lifted in the

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2026 Supreme(SC) 826

SUPREME COURT OF INDIA S.V.N. BHATTI, N.V. ANJARIA, JJ.State Of U.P. & Ors. - AppellantsVersusZafar Ali & Ors. – RespondentsAppeal No. 3954 of 2018 with Civil Appeal No. 3956 of 2018 with Civil Appeal No. 3955 of 2018 and Civil Appeal No. 8137 of 2012Decided On : 28-07-2026

IMPORTANT POINTLevy and demand of penalty for non-performance of Minimum Guaranteed Quota – Non-performance of MGQ at the time of completion of licence period is not a ground for levying and demanding penalty, both under Rules 2002, and as per terms of the Form 5-C licence.

SUPREME COURT OF INDIA
S.V.N. BHATTI, N.V. ANJARIA, JJ.
State Of U.P. & Ors. - Appellants
Versus
Zafar Ali & Ors. – Respondents
Appeal No. 3954 of 2018 with Civil Appeal No. 3956 of 2018 with Civil Appeal No. 3955 of 2018 and Civil Appeal No. 8137 of 2012
Decided On : 28-07-2026

IMPORTANT POINT
Levy and demand of penalty for non-performance of Minimum Guaranteed Quota – Non-performance of MGQ at the time of completion of licence period is not a ground for levying and demanding penalty, both under Rules 2002, and as per terms of the Form 5-C licence.