The demand for excise duty on the designated quantum of rectified spirit was found to be a contractual obligation rather than genuine excise duty, ruling that contractors could not evade payment despite supply issues.

1The Judgment delivered by T. L. Viswanatha Iyer, J.- The main question arising for consideration in the writ appeals is the validity or otherwise of the levy and collection made under R.8(1) of the Kerala Abkari Shops (Disposal in Auction) Rules, 1974 (to which we shall hereinafter refer as the Disposal in Auction Rules), as amended in March 1993, on the designated quantum of rectified spirit permitted to be imported from outside the State by licensees of the privilege of vending arrack in independent shops in the State. The learned Single Judge held that the levy was void. He allowed the writ petitions filed by the abkari contractors, and directed refund of the duty so levied and collected. The State and its officers in the Commissioner-ate of Excise are in appeal before us.

2 The law relating to the import, export, transport, manufacture, sale and possession of intoxicating liquor in the State is the Abkari Act 1 of 1077 M.E. (The Act, in the further discussion), which was in force in the erstwhile Cochin area of the State and was extended to the whole of Kerala with effect from May 11, 1967 by the Cochin Abkari (Extension and Amendment) Act, 10 of 1967, and the various rules and notifications framed or issued thereunder. S.6 of the Act provides that no liquor shall be imported unless permission of the Government or any officer authorised by the Government in this behalf is obtained for the importation and unless the duties, taxes, fees and such other sums as are due to the Government under the Act in respect of such liquor, have been paid. The permission so granted for import shall be subject to such conditions and restrictions as may be specified by the Government by notification in the gazette. S.10 mandates that no liquor, exceeding the quantity notified in the gazette, shall be transported except under a permit issued under the provisions of S.11. S.17 empowers Government to levy a duty of excise inter alia on all liquor permitted to be imported under S.6. S.18 provides the procedure for imposition of the duty of excise, which may be in the shape of import, export or transport duties in such manner ' as the Government may direct. Sub-section (3) provides that the said duty of excise may be levied at such rates as may be fixed by the Government from time to time by notification in the gazette, but not exceeding the rates specified in the sub-section, which in the case of liquors (Indian made) is Rs. 20 per proof litre. The rate of duty for Indian made " rectified spirit is Rs. 15.50 per proof litre, with effect from April 1, 1966 as per notification issued by Government in the year 1961. as amended in 1966. S.18A which was introduced by Presidential Act I of 1964 relates to the grant of exclusive or other privilege for the manufacture or sale of liquor. It makes it lawful for the Government to grant to any person or persons on such conditions, and for such period as they deem fit, the exclusive or other privilege, among others, of selling by retail any liquor within any local area on his or their payment to the Government of an amount as rental in consideration of the grant of such privilege. The amount of rental may be settled by auction, negotiation or any other method as may be determined by the Government, from time to time, and may be collected to the exclusion of, or in addition to, the duty leviable under S.17 and 18. S.29 empowers Government to make rules for the purpose of carrying out the provisions of the Act. The Disposal in Auction Rules have been framed in exercise of the powers under S.18A and 29 of the Act.

3 Till and inclusive of the Abkari year 1992-93, (which so far as this State is concerned is the financial year), the State was having the monopoly in the matter of supply of arrack. The licensees of the privilege of vending arrack had to get their supply only through the State owned or controlled distilleries. They were not allowed to import any arrack or rectified spirit from outside. But a drastic c