State Of Punjab And Anr vs Devans Modern Brewaries Ltd. And Anr on 20 November, 2003

Author: Ar. Lakshmanan

Bench: V.N.Khare, R.C.Lahoti, B.N.Agrawal, S.B.Sinha, Ar. Lakshmanan

 CASE NO.:
Appeal (civil) 3017 of 1997

PETITIONER:
State of Punjab and Anr.

RESPONDENT:
Devans Modern Brewaries Ltd. and Anr.

DATE OF JUDGMENT: 20/11/2003

BENCH:
V.N.Khare CJI & R.C.Lahoti & B.N.Agrawal & S.B.Sinha & AR. Lakshmanan

JUDGMENT:
JUDGMENT

WITH
CIVIL APPEAL NO. 2696-2697 of 2003
 
 
DELIVERED BY:

AR. Lakshmanan, J.
B.N. Agrawal. J.
S.B. Sinha, J.

AR. Lakshmanan, J.(for V.N. Khare, R.C. Lahoti and for himself)

1. I have had the privilege of perusing the judgment proposed by my learned
Brother Justice B.N. Agrawal. However, with respect, I express my inability
to agree with the same and I propose to write a separate judgment in the
following terms.

2. As facts and provisions of the relevant law have been set out in the
judgment of my learned Brother Justice B.N. Agrawal, I do not propose to
extract again.

3. Civil Appeal No. 3017 of 1997 was filed by the State of Punjab against
the judgment of the Division Bench of the Punjab & Haryana High Court dated
17.01.1997 in Writ Petition (Civil) No. 5358 of 1996. The said writ
petition was filed by Respondent No. 1 in this appeal, namely, M/s. Devans
Modern Brewaries Ltd., Ludhiana praying for issuance of a writ in the
nature of certiorari quashing the imposition of import fee on Beer vide
Order 1-D(iii) of the Punjab Excise Fiscal Orders, 1932, amended from time
to time, latest being notification dated 27.03.1996 which is impugned in
the writ petition and for other consequential prayers.

4. Civil Appeal Nos. 2696 and 2697 of 2003 were filed by Penguin Alcohols
(P) Ltd. and Another etc. against the State of Kerala and Others against
the common judgment of the High Court of Kerala dated 06.04.2001 in Writ
Appeal Nos. 3 and 10 of 2001 dismissing the appeal filed by them.

5. The original petitions were filed by appellants herein against Exhibit
P1 notification issued by the State of Kerala enhancing the rate of import
fee from Rs. 2/- per proof litre to Rs. 5/- on Indian Made Foreign Liquor
(hereinafter referred to as "IMFL"). The import fee was initially levied
under Government Order, G.O.(MS) No. 57/92/TD dated 31.12.1992. The learned
Single Judge upheld the levy holding that it is a fee and regulatory in
nature. The appellants preferred writ appeals, which were dismissed by the
Division Bench by the impugned common order in Writ Appeal Nos. 3 and 10 of
2001.

6. In both the appeals, common questions arise for consideration and hence
they have beee heard together and are being disposed of by this common
judgment.

7. The points for consideration in both the appeals are:
a) Whether the import fee levied is the levied is the price for parting
with the privilege given to the respondent to import liquor into the State
and, therefore, the same is within the competence of the State to impose
import fee;
b) Whether the imposition of import fee does not, in any way, restrict
trade, commerce and intercourse among the States.

8. 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.

9. The respondent in Civil Appeal No. 3017 of 1997 carries on wholesale
trade in the State of Punjab. Under the rules, the licensee is required to
obtain a licence in Form L-1, which is valid for one year. In addition to
this under the Punjab Excise Fiscal Orders, 1932, the respondents is liable
to pay duty/fee at the rates mentioned therein. As a result of this, the
respondent has to pay excise duty/import fee as the case may be. Over and
above this, there is an import fee which is levied by the State Government
in exercise of its powers under Section 58 of the Act. According to learned
counsel for the State of Punjab all these charges and levies are really a
price for the privilege of carrying on the trade under the L-1 license as
far as the privilege of importing alcohol into the State of Punjab. The
impugned levy is under the Punjab Excise Act, 1914, which is a pre-
Constitution Act. It is this Act which provides that no intoxicant shall be
imported, exported or transported except after the payment of duty to which
it may be liable under the Act. The words "duty to which it may be liable
under this Act" were substituted by the words "duty of customs or excise to
which it may be liable". This change was also brought about by the
Government of India on adaptation of Indian Laws Order 1937. It was,
therefore, argued by the State that the power is conferred under Section
58(2)(b) to regulate the import, export, transport and possession of any
intoxicant. Therefore, the different imposts have to be construed in this
background. There is, therefore, an excise duty so-called which is provided
for under Rule 5 of the Punjab Excise Fiscal Orders, 1932, not only on
locally produced beer but also on imported beer. The Statutory Authority
for this imposition can be found from the provisions including Section 16
read with Section 32 of the Act. In addition to the excise duty under Rule
5, there is also a provision for grant of licence for sale of intoxicants.
To carry on the trade in wholesale, a person has to obtain a L-1 licence
for which an annual pre-determined sum is payable. Similarly, in addition
there are licences for production and for manufacture each of which licence
has its own predetermined fee which has to be paid for obtaining such a
licence. The modalities of the levy of fees or the quantum of the fees has
no bearing on its legal pedigree which is that of consideration for the
permission to carry on an activity in the noxious articles. Thus, if a
person wants to carry on a wholesale trade in liquor in Punjab, he will
have to (a) obtain a L-1 licence for which he would pay the fees in
accordance with the policy carried on for the period; (b) On the liquor
purchased by him, he will have to pay duty on all purchases irrespective of
the source of the product. This duty is the duty under Rule 5 of the Punjab
Excise Fiscal Orders, 1932, in relation to beer read with Rule 1 of the
said Orders in case of IMFL.

10. In case, the licensee seeks a permit to bring in imported alcohol, he
would have to pay as a condition of the permission to import under Section
16(b) read with Section 19 an import pass fee at such sum fixed by the
Government. The respondent in this case/writ petitioner has mixed up these
different imposts and has referred to the duty paid under Rule 5 which is
an amount equivalent to the excise duty and the fee under Rule 1(d) of
Punjab Excise Fiscal Orders, 1932. As already noticed, on imported goods
there are two independent imposts, namely, duty equal to the local excise
duty under Rule 5 and an import fee under Rule 1(d) of the Punjab Excise
Fiscal Orders, 1932.

On 31.01.2002, this Court passed an order which read as under:

"In the course of the argument, it was noticed that the principal argument
on behalf of the respondents before the High Court, which was upheld by the
High Court, was that the import fee, which is the subject matter of these
proceedings, had been imposed by the State of Punjab without authority of
law. The response on behalf of the State of Punjab before the High Court
was that the right of the respondents to import beer into the State was
privilege conferred by the State upon the respondents to which Article 301
had no application because the respondents had no right to trade in liquor
de hors that privilege and that the import fee was the price for the
privilege. In the course of the argument before us, we asked Mr. K.K.
Venugopal, learned counsel for the State, to tall us what the source of
power for thew imposition of the import fee was. Mr. Venugopal referred in
reply to Section 18, 19, 34, 58 and 59 of the Punjab Excise Act, 1914. In
other words, the contention of the State before us is that the import fee
is a fee and the respondents are required to pay such fee to bring beer
into the State."
In compliance with the aforesaid order, a detailed additional affidavit was
filed on behalf of the State of Punjab by quoting the relevant provisions
of the Punjab Excise Act, 1914, namely, Section 3(9) - "Excise Revenue",
Section 3(10) - "Export, Section 3(12) - "Import", Section 16 - "Import,
export and transport of intoxicant", Section 17 - "Power of State
Government to prohibit import, export and transport of intoxicant", Section
18 - Passes necessary for import, export and transport, Section 19 - Grant
of passes for import, export and transport, Section 31 - Duty on excisable
articles, Section 32 - Manner in which duty may be levied, Section 33 -
Payment for grant of leases. Section 34 - Fees for terms, condition and
form of, and duration of licences, permits and passes, Section 35 - Grant
of license for sale, Section 58 - Power of State Government to make Rules,
Section 59 - Powers of Financial Commissioner to make rules. Along with the
additional affidavit, a copy of the Notification No. 5998 called the Punjab
Excise Fiscal Orders and prescribed levy of rates of duty etc. was filed
and marked as Annexure-A-1. It is seen from the additional affidavit that
this notification was republished by the State of Punjab in the year 1965.
The State vide notification dated 24.03.1986 introduced amendment to the
Punjab Excise Fiscal Orders, 1986 and as per Clause 5 of the notification,
Order 1-D was added after Order 1-C levying an import fee of Rs. 3.20 per
proof litre on all imports of IMFL and rectified spirit into the State of
Punjab.

11. Vide notification dated 31.03.1992, the Government of Punjab made
further amendment in the Fiscal Order and issued Punjab Excise Fiscal (10th
amendment) Orders, 1992 and substituted Order 1-D stating that "All imports
of liquor and sprit shall be subject to the levy of an import fee as
prescribed." By further amendment vide notification dated 27.03.1996, the
Punjab Excise Fiscal Orders, 1932 was amended and the Order 1-D item (iii)
was substituted. In exercise of powers conferred under the Act, the State
Government framed rules which have been marked as Annexure P-2.

12. Thus, it is seen from the Punjab Liquor Import, Export Order, 1932, the
State Government is competent and empowered to regulate the import and
export of liquor. Under the Punjab Liquor Licence Rules, 1956, there are 21
types of licences which are prescribed and are given. 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.

13. Similarly, under the provisions of the Punjab Liquor Permit & Pass
Rules, 1932, the State Government issued permit in form L-32, in the case
of import and the licensees are liable to pay permit fee at the prescribed
rate. As already stated, the respondent has mixed up two different imposts.
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.

14. It is stated in the additional affidavit that the word "fee" is not
used in the strict sense to attract the doctrine of quid pro quo. This is
the price or consideration which the State Government charges for parting
with this privilege and granting the same to the vendors. Therefore, in my
opinion, the amount charged is not a fee nor a tax but it is the nature of
price of a privilege which the purchaser has to pay in any trading and
business in noxious article/goods. The collection of such amount in the
shape of import fee does not form part of the general revenue of the State.
As stated above, it is one of the terms and conditions of the Excise Policy
applicable to all L-1 holders including the respondents herein. In my view,
respondents cannot be permitted to challenge the terms and conditions of
the policy if they want to avail the benefit of the same.

15. 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.

16. The learned counsel for the respondent submitted that there is no
source of power for imposition of import fee over and above the
countervailing duty and that the appellant-State was not able to show that
under which Authority or provision of the Punjab Excise Act, 1914, they can
impose the import fee over and above the countervailing duty. It is further
submitted that a combined reading of Section 33A of the Punjab Excise Act,
1914, Articles 301 and 304 of the Constitution and Entry 51 of List II of
Seventh Schedule to the Constitution makes it clear that the State of
Punjab has no authority to impose the import fee over and above the
countervailing duty. This contention, in my opinion, has no force for the
reasons stated and the discussions made in paragraphs supra.

17. 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 Ors. etc. etc. v. The Deputy Excise and
Taxation Commissioner and Ors. etc. and Panna Lal and Ors. v. State of
Rajasthan and Ors.. 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. We can beneficially refer to the judgments in The State of
Bombay v. R.M.D. Chamarbaugwala [1957] SCR 874, Har Shankar's case (supra),
Sat Pal and Co. and Ors. v. Lt. Governor of Delhi and Ors. and Khoday's
case. The learned counsel for the respondent submitted that Articles
301-304 are violated or transgressed. In view of discussions in paragraphs
above, it is clearly demonstrated as to how and why Article 301-304 are
inapplicable to liquor trade in any form.

18. We shall now deal with the Kerala matter in Civil Appeal Nos. 2696 and
2697 of 2003.

19. The learned counsel for the licensee/appellant in this case also
contended that Part XIII of the Constitution interdicts Parliament and
State Legislatures from enacting laws containing discriminatory
measures/taxation in respect of inter-state trade and commerce and that the
said articles in Part XIII impose a constitutional limitation on the power
of the Parliament and the Legislatures of the States and that the said Part
XIII of the Constitution enshrines a principle of paramount importance that
the economic unity of the country cannot be interfered with by economic
protectionism and creation of trade barriers, fiscal or otherwise. He would
further submit the restriction in Part XIII of the Constitution also apply
to Taxation Laws and the provisions of Part XII of the Constitution are
subject to the limitations set out in Part XIII and such regulatory
measures also do not impede the freedom of trade, commerce and intercourse
and compensatory taxes for the use of trading facilities are not hit by the
freedom declared by Article 301. He would also urge that Article 303(1)
prohibits Parliament and the Legislature of a State from enacting any law
giving preference to one State over another or from making any
discrimination between one State and another by virtue of any entry
relating to trade and commerce in any of the lists in the Seventh Schedule
and that the obstructions or impediments to the free flow of trade would be
violative of the freedom declared by Article 301. In this context, he
referred to the case in The Automobile Transport (Rajasthan) Ltd. v. The
State of Rajasthan and Ors.. It is further submitted that the limitation
upon the Legislative power stipulated in Article 303(1) and Article 304A
will apply to trade in liquor. It is further contended that the
discriminatory levy of import fee is violative of Articles 303(1) and 304A
of the Constitution. According to the learned counsel for the
appellant/licensee, the power of the State to levy a tax or a fee should be
traceable to the entries in the Seventh Schedule to the Constitution. Entry
51 of List II provides for a levy of duty of excise on alcoholic liquor for
human consumption manufactured or produced in the State and countervailing
duties at the same or lower rates of similar goods manufactured or produced
elsewhere in India and, therefore, the State Legislature has no power to
levy any countervailing duty on imported liquor in excess of the excise
duty on liquor manufactured within the State. The State of Kerala imposes a
countervailing duty on imported liquor which is equivalent to the excise
duty paid by the manufacturers within the State. The State imposes an
import fee in addition to the countervailing duty and the direct and
immediate effect of the import fee is to favour local manufacturers by
making the imported liquor costlier. He would further contend that Article
303(1) prohibits the State Legislature from taking discriminatory measures
and Article 304A also prohibits the State from imposing such discriminatory
levies. It is also submitted that the State Legislature has no competence
to levy an import fee in addition to countervailing duty.

20. The argument advanced by learned counsel for the licensee was countered
by learned senior counsel appearing for the State of Kerala. The learned
counsel submitted that the import of liquor into the State of Kerala is
prohibited under Section 6 of the Abkari Act and, therefore, liquor can be
imported only after obtaining permission from the Government in the form of
permit issued under Section 24 of the Abkari Act. As a matter of fact, it
was submitted that the State has not issued any licence to anybody
including the Kerala State Beverages Corporation to import liquor. The
Kerala State Beverages Corporation has licence only for wholesale and
retail of liquor which will not authorise them to import liquor and that
the only licence issued to import liquor into the State is the permit
issued on payment of the import fee and, therefore, it is seen that the
levy of import fee is authorized by Sections 6 and 24 of the Abkari Act,
1977. It is not excise duty or countervailing duty referable to Entry 51 of
List II. It is a collection falling under Entry 8 of List II. It is the
price paid to the State for parting with its exclusive privilege of dealing
in liquor which includes every fact of it including its import. In my view,
the State has the right to prohibit every form of activity in relation to
intoxicants including its import. Though it is alleged by the appellant
that the State has discriminated against, the same has not been
substantiated or established by any material. The State, in this case, has
granted such permit to the Beverages Corporation on their paying the fee
fixed for the purpose as per notification enabling the Corporation to
import liquor from the petitioners/licensees and others. The import fee so
paid is passed on to the consumers. Even in the Punjab case, we have
already noticed, that the right to import liquor is dependant on the issue
of the import permit on payment of the import fee as consideration for
parting with the State's exclusive privilege to import the liquor. It is
purely a contractual dealing between the State and the importer and,
therefore, no question of violation of Article 301 can arise. The imported
had no anterior right to import liquor and hence cannot complain of any
violation of Article 301 at that stage as right to trade in liquor is not a
fundamental right. His right to import is referable to the import permit
which he acquired on payment of the import fee. No further impediment has
been created in the import of the liquor so that Article 301 is not
attracted in relation to the payment of the import fee which was prior to
getting his privilege of importing. The appellant/licensee having entered
into a contractual relationship with the State obtained the privilege and
enjoyed the benefit of it. It is not open to the petitioners to turn round
subsequently and repudiate the obligations subject to which they obtained
the privilege. Regulation in the interest of public health and order takes
the case out of Article 301 and regulation for purpose of Article 301 is
not confined to such regulations alone which will facilitate the trade.

21. An affidavit was also filed on behalf of the State of Kerala dated
16.04.2003 stating that the collection of import fee in the State of Kerala
while issuing permit to import IMFL is referable to Sections 6 and 24 of
the Abkari Act, 1977, and that it is the price payable by the grantee to
the State for parting with the privilege of importing IMFL which is
exclusively that of the State. Along with the affidavit, Annexure R1
(photocopy of permit issued) and Annexure R2 (year-wise statement showing
the amount of import fee collected by the State) was filed. It is not in
dispute that the Kerala State Beverage Corporation is the exclusive
wholesale distributor of IMFL within the State of Kerala. Previously, the
retail distribution of IMFL in the State was done by 14 shops of the Kerala
State Beverages Corporation and 231 shops by private individuals to whom
licences were granted by auction conducted every year. However, the scheme
has been changed and the retail distribution of IMFL in the State is now
being carried on by a few shops of the Kerala State Consumer Federation and
the rest of the shops by the Kerala State Beverages Corporation. This is
apart from the sales in bars, clubs, etc. under licences issued in relevant
Forms under the Foreign Liquor Rules. The Kerala State Beverages
Corporation gets its supply of IMFL from distributors within the State as
also from manufacturers and distributors outside the State. The Kerala
State Beverages Corporation calls for tenders fixing a floor price for the
supply with a view to ensure quality as also to prevent unhealthy
competition and loss of revenue. Based on these tenders, the Kerala State
Beverages Corporation enters into contracts with the
manufacturers/distributors. After entering into contracts with the
manufacturers/distributors, to enable the import of IMFL to the State, the
Kerala State Beverages Corporation applies to the authorized officer for
grant of permit for import of specified quantity of IMFL after depositing
in advance, the countervailing duty and the import fee payable on the
quantity of IMFL sought to be imported. Details of the payments so made are
entered in Column No. 6 of the import permit issued. The name of the
outside manufacturer/distributor from whom the IMFL is being procured is
also mentioned in the permit for identification of the product. The import
fee paid by the Kerala State Beverages Corporation is ultimately passed on
to the consumers by adding to the final selling price of the product. The
State has to deploy its officers at all the check-posts to monitor import
of IMFL. Every consignment, on crossing the border has to be escorted till
it reaches the warehouse of the Kerala State Beverages Corporation to check
diversion and misuse and the State is incurring heavy expenses for
regulating import of liquor into the State. Therefore, the import fee was
increased from Rs. 2/- per proof litre to Rs. 5/- per proof litre in 1995.
Even after the increase in the import fee, the import of liquor to the
State was steadily increasing till 1999-2000. The affidavit now filed along
with the Annexures gives us a clear picture of the levy of import fee while
issuing permit to import IMFL. Before the High Court, the learned counsel
of the appellants therein have raised only one contention that the
imposition of import fee is not in the nature of regulatory fee. It was
contended on behalf of the State that the levy is permissible and
authorized under Sections 6, 7, 17 and 18 of the Act and that the import
fee is the only fee realized from a firm which supplies liquor to the
Kerala State Beverages Corporation to be supplied to other licensees in the
State and that the levy of import fee is also well founded under the Act
basically referable to the legislative Entries 8 and 66 of List III of the
Seventh Schedule to the Constitution. The learned Single Judge and also the
learned Judges of the Division Bench rejected the contention of the
licensee and upheld the levy on import.

22. At the time of hearing,many judgments were cited by both sides in
regard of their respective contentions. I feel it is not necessary to deal
with or refer to all the judgments cited, as in my opinion, the real
questions in this case as contended by the licensees are that the State has
no authority to impose the import fee and that it is violative of Articles
301 and 304 of the Constitution. The real question, in my opinion, is
whether Articles 301 and 304 at all apply. In the alternative, it was
submitted by learned senior counsel for the State of Punjab that
compensatory or regulatory levies have always been held to be valid and
permissible under Article 301 and 304. In this context, he referred to the
decisions in the case of Atiabari Tea Co. Ltd. v. The State of Assam and
Ors.,; The Automobile Transport (Rajasthan) Ltd. case (supra), State of
Bihar v. Chambers of Commerce (1996) STC 1, Godfrey Ltd. v. State of
Rajasthan (2001) (121) STC 54, Jindal Strips Limited and Ors. v. State of
Haryana (2002) 19 PHT 299. If that be so, 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 at L-1 wholesale liquor licence is
issued to him, the Stat'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.

23. 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 activity 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.

24. The statutory provision in question must be interpreted and read
broadly and not narrowly. The approach must be to uphold the validity of
the impugned delegated legislation by a process of fair and broad reading
of the statutory mandate. Even if the Act does not specifically provide for
the levy in question by name to provide statutory authority for its
imposition by delegated legislation and the levy is actually imposed by the
delegated legislation made under the Statute, the same would be valid and
not ultra vires. In the instant case, the levy has been imposed by the
Punjab Fiscal Orders as amended from time to time under specific statutory
authority to issue such orders under Sections 58 and 59 of the Act, in
particular, and other provisions of the Act as itemized in paragraphs
supra. Since the rule making power has not been shown to be bad, the Punjab
Fiscal Orders, once made have the effect of the Statute itself and become
part of the Statute since they have been made under valid rule making
power. The statutory provisions of the Punjab Act and the Rules itemized in
paragraphs above amply delineate that regulatory power and the impugned
import fee is nothing but a facet and manifestation of that regulation by
the State. Hence, in my view, the levy in question is valid as a regulatory
levy which has consistently been held on the touchstone of Article 304.

25. The conduct of the respondent/licensee in attempting to wriggle out of
his contractual obligations is contrary to the clear and unequivocal
principle laid down in Har Shankar's case (supra). 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. Har Shankar's case (supra) clearly
disentitle the liquor contractor from wriggling out of contractual
obligations solemnly undertaken. Likewise, in Panna Lal's case (supra),
this Court in the specific context of liquor licence had this to say.

"The licenses in the present case are contracts between the parties. The
licensees voluntarily accepted the contracts. They fully exploited to their
advantage the contracts to the exclusion of others. The High Court rightly
said that it was not open to the appellants to resile from the contracts on
the ground that the terms of payment were onerous. The reasons given by the
High Court were that the licensees accepted the license by excluding their
competitors and it would not be open to the licensees to challenge the
terms either on the ground of inconvenient consequence of terms or of
harshness of terms."
As a matter of fact, the respondent is the only and the sole challenger of
the instant levy of import fee. It is stated that no other liquor
contractor or beer manufacturer or importer has challenged the import fee
in Punjab at any point of time at any forum. The import fee on IMFL on
rectified spirit was levied from the Year 1986 and at no time the
respondent challenged the levy of import fee from 1986 onwards on IMFL and
continued to import large quantities of beer and paid large sums of fee as
per the prescribed rates. The writ petition was filed only in April, 1996.
The respondent accepted the burden of this contract and obviously did so
because he enjoyed the benefits flowing from this contract. Having done so,
in my view, he cannot and should not be allowed to wriggle out of his
contractual and licence obligation.

26. In the case of Government of Maharashtra and Ors. v. Deokar's
Distillery (V.N. Khare, CJI and Dr. A.C. Lakshmanan, J. concurring)
reported in, this Court, in para 32, observed thus:

"The order of the High Court is bad in law. The High Court, in our view,
has erred in not appreciating that the impugned demand notice was also in
the nature of demanding balance of the price of the exclusive privilege
which would become final only on issue of the notification, order under
Article 309, the bulk of which has already been recovered in advance, which
privilege exclusively vests with the Government considering the effect of
provisions especially Section 49 and Section 143 (2)(u) of the Prohibition
Act. In our opinion, the establishment charges demanded are in the nature
of price for parting with the privilege to permit manufacture and sale or
liquor, and the privilege exclusively vests with the Government."

27. Again in para 40, this Court observed thus:

"As pointed out by Y.V. Chandrachud, C.J., as he then was, what the
respondents agreed to pay was the price of an exclusive privilege which the
State parted with in their favour. They cannot, therefore, avoid their
liability by contending that the payment which they were called upon to
make is truly in the nature of excise duty and no such duty can be imposed
on liquor not lifted or purchased by them. The respondents, in our view,
must fail in their contention both on account of the objection to the
maintainability of the appeals and on merits concerning the nature of the
payment which they are liable to make."

28. In the above case, the power of the State Government under Section 58A
to recover cost of supervision was challenged. Per majority, this Court
held that the power of the State Government extends to recovering the
differential amount consequent to upward revision of pay-scales and
allowances with retrospective effect and that such differential amount can
be demanded even in exercise of residuary powers of the State Government
and that the liquor licensees having given undertaking in the application
in Form PLA prescribed under the Rules to abide by the orders made under
the Act and the rules could not escape their contractual liability. This
Court also further held that the establishment charges demanded are in the
nature of price for parting with the privilege to permit manufacture and
sale of liquor and the privilege exclusively rests with the Government.

29. The same effect is the judgment of this Court in the case of Assistant
Excise Commissioner and Ors. v. Issac Peter and Ors. In the context of a
liquor contract, this Court held as under:

".....We are, therefore, of the opinion that in case of contracts freely
entered into with the State, like the present ones, there is no room for
invoking the doctrine of fairness and reasonableness against one party to
the contract (State), for the purpose of altering or adding to the terms
and conditions of the contract, merely because it happens to be the State.
In such cases, the mutual rights and liabilities of the parties are
governed by the terms of the contracts (which may be statutory in some
contracts are entered into pursuant to public auction, floating of tenders
or by negotiation. There is no compulsion on anyone to enter into these
contracts. It is voluntary on both sides. There can be no question of the
State power being involved in such contracts. It bears repetition to say
that the State does not guarantee profit to the licensees in such
contracts. There is no warranty against incurring losses. It is a business
for the licensees. Whether they make profit or incur loss is no concern of
the State. In law, it is entitled to its money under the contract. It is
not as if the licensees are going to pay more to the State in case they
make substantial profits. We reiterate that what we have said hereinabove
is in the context of contracts entered into between the State and its
citizens pursuant to public auction, floating of tenders or by negotiation.
It is not necessary to say more than this for the purpose of these
otherwise than by public auction, floating of tenders or negotiation, we
need not express any opinion herein."

30. Kalyani Stores v. The State of Orissa and Ors. case was heavily relied
on by the respondent/licensee. The Constitution Bench has not in that cases
adverted to the issue of liquor trade being res extra commercium and has
simply considered whether Articles 301/304 are violated or not. The case,
in my opinion, would have no relevance to the instant case.

31. The following judgments can be usefully referred for the proposition
that the rights are vested in the State which it may part with for a
consideration.

32. In the case of Har Shankar and Ors. etc.etc. v. The Deputy Excise and
Taxation Commissioner and Ors. etc. AIR 1975 SC 1121 (paras 44, 46, 47, 50,
51, 53, 55, 57 and 58 dealt with the rights of the State in this regard).

33. In the case of Nashirwar and Ors. v. State of Madhya Pradesh and Ors.,
, this Court held that by virtue of Entry 8 of List II, the Government can
hold a public auction to grant lease, the amount representing the
consideration for the grant of such right or privilege.

34. In the case of State of Orissa and Ors. v. Harinarayan Jaiswal and
Ors., this Court held that the Government is the exclusive owner of the
privilege to sell the right to sell liquor, reliance on Article 19(1)(g) or
Article 14 of the Constitution becomes irrelevant.

35. In the case of State of Andhra Pradesh v. Prabhakara Reddy held that
all rights in regard to manufacture and sale of intoxicants vest in the
State and it is open to the State to part with those rights for a
consideration and that the consideration for parting with the privilege of
the State is neither excise duty nor licence fee but it is the price of the
privilege.

36. In the case of State U.P. and Ors. v. Sheopat Rai and Ors. 1994 Supp
(1) SCC 8 held that the term 'licence fee' in the context of the U.P.
Excise Law connotes the idea of it being the consideration in money
received by the Government from a private person by grant of a licence
(contract) for parting in such person's favour, its exclusive privilege or
right of carrying on certain activities in respect of country liquor or
drugs under 'auction system' in public auctions.

37. In the case of State of Haryana and Ors. v. Lal Chand and Ors., AIR
1984 SC 1326, this Court has held that the licence fee is a price for
acquiring such privilege and one who makes a bid for the grant of such
privilege with a full knowledge of the terms and conditions attaching to
the auction cannot be permitted to wriggle out of the contractual
obligations arising out of the acceptance of his bid, by a petition under
Article 226.

38. State of Punjab v. Dial Chand Gian Chand & Co. AIR 1983 SC 743 is also
a case arising under the Punjab Intoxicants Licence and Sale Order, 1956.
This Court held that the writ jurisdiction of the High Courts under Article
226 of the Constitution is not intended to facilitate avoidance of
obligations voluntarily incurred.

39. In the case of Khoday Distilleries Ltd. and Ors. v. State of Karnataka
and Ors.,. The Constitution Bench of this Court held that a citizen has no
fundamental right to trade or business in liquor as a beverage and that the
activities which are res extra commercium cannot be carried on by any
citizen and that the State can prohibit completely trade or business in
potable liquor since trade or business in liquor as a beverage is res extra
commercium and that the State may also create monopoly in itself for trade
or business in such liquor. It is further held that the State can further
place restrictions and limitations on such trade or business and such
restrictions and limitations can be placed by subordinate legislation as
well. It is also further held that the State is not precluded from
regulating the trade and business in potable liquor merely because it
imposes tax or fee on purchase or sale and income is derived from such
liquor.

40. In the case of Solomon Antony and Ors. v. State of Kerala and Ors.,
(2001) 3 SC 694, the contractors are required to pay the consideration
payable to the State for sale of liquor for importing designated quantity
of rectified spirit in respect of which the consideration payable is
equivalent to excise duty. This Court justified the order passed by the
High Court in holding that the contractors are bound to pay the amount
which is a measured excise duty payable on the designated quantum of
rectified spirit in terms of Rule 8 of the Rules and which the contractors
had undertaken in the agreements executed by them to pay. This Court
further held that the power of the Government to enhance the rate of excise
duty from Rs. 5/- per bulk litre to Rs. 10/- per bulk of arrack could not
be assailed.

41. The Division Bench of the Kerala High Court to which I was a member has
also taken the same view in Kerala Distilleries and Allied Products Limited
v. Assistant Commissioner (Assessment) (I), Commercial Tax, Special Circle,
Palakkad and Ors. reported in 2000 (Vol. 117) STC page 553) in the
following terms:

"The manufacture and sale of liquor are the exclusive privilege of the
State and the State, by the process of licensing, is parting with the said
privilege and what is charged by the State is only the privilege price
through the process of licensing and it is not excise duty."
"The concept of excise duty on production and manufacture as understood in
the Central Excise Act cannot be equated in the case of excise duty under
the Abkari Act since the manufacture and the sale of liquor are the
exclusive privilege of the State and the State, by the process of
licensing, is parting with the said privilege and what is charged by the
State is only the privilege price through the process of licensing the
price and it is not excise duty."

42. The above rulings are amongst the catena of cases on the point that the
rights are vested in the State which it may part with for consideration.

43. I have already dealt with the concept of contractual relationship
between the State and the licensee whereunder the licensee having obtained
a privilege and enjoyed the benefit of it, it is not open to the licensees
to turn round subsequently and repudiate the obligations attaching with the
obtained privilege. The following are the cases on the point.

44. In the case of State of Haryana and Ors. v. Jage Ram and Ors. AIR 1980
SC 2018, this Court held that the bids in respect of country liquor vends
at an annual auctions and the amounts which bidders agree to pay to State
Government under auction terms is neither fee nor excise duty on undrawn
liquor but price of privilege which State parted in their favour.

45. In the case of State of Haryana and Ors. v. Lal Chand and Ors., , this
Court held that after making bid for grant of exclusive privilege of liquor
vend with full knowledge of terms and conditions of auction, the bidder
cannot wriggle out of the contractual obligations arising out of acceptance
of his bid by filing writ petition.

46. In the case of State of Punjab v. Dial Chand Gian Chand and Company,
this Court held that a licensee who participates in the auction voluntarily
and with full knowledge is bound by the bargain and the writ petition filed
under Article 226 by such licensee in an attempt to dictate terms of the
licence without paying the licence fee must fail. The highest bidder after
acceptance of his bid cannot challenge the second auction on ground of
adverse effect on his business.

47. We shall now consider the cases on the freedom guaranteed by Article
301 which is not available to liquor because it is a noxious substance
injurious to public health order and morality. The following cases can be
usefully referred:

48. In the case of Sat Pal and Co. and Ors. v. Lt. Governor of Delhi and
Ors., this Court held that the Ordinance does not infringe any right under
Article 19(1)(g) or Article 301 there being no fundamental right to trade
in liquor and that the ordinance was both a fiscal measure and one for
safeguarding public health and public morals and hence it could validity be
made retrospective and that the test of reasonable restrictions has to be
judged in the light of the purpose for which the restriction is imposed,
that is, as may be required in the public interest and restrictions that
may validity be imposed under Article 304(b) are those which seek to
protect public health, safety, morals and property within the territory and
the present levy under the amended provisions of the Act in its application
to Delhi could certainly be said to be one enacted both with the object of
regulating the trade or business in intoxicants and with a view to
realising the goal fixed in Article 47 of the Constitution.

49. In the case of the State of Bombay v. R.M.D. Chamarbaugwala [1957] SCR
874, this Court held as under:
"Gambling activities were in their very nature and essence extra-commercium
although they might appear in the trappings of trade. They were considered
to be a sinful and pernicious vice by the ancient seers and law-givers of
India and have been deprecated by the laws of England, Scotland, United
States of America and Australia. The Constitution-makers of India, out to
create a welfare State, could never have intended to raise betting and
gambling to the status of trade, business, commerce or intercourse.
The petitioners, therefore, had no fundamental right under Article 19(1)(g)
or freedom under Article 301 of the Constitution in respect of their prize
competitions that could be violated and the validity of the impugned act,
in pith and substance an Act relating to gambling, did not fall to be
tested by Articles 19(6) and 304 of the Constitution"

50. In the case of Fatehchand Himmatlal and Ors. etc. v. State of
Maharashtra, this Court held as follows:

"A meaningful, yet minimal analysis of the Debt Act, read in the light of
the times and circumstances which compelled its enactment, will bring out
the human setting of the statute. The bulk of the beneficiaries are rural
indigents and the rest urban workers. These are weaker sections for whom
constitutional concern is shown because institutional credit
instrumentalities have ignored them. Money lending may be ancillary to
commercial activity and benignant in its effects, but money-lending may
also be ghastly when it facilitates no flow of trade, no movement of
commerce, no promotion of intercourse, no servicing of business, but merely
stagnates rural economy, strangulates the borrowing community and turns
malignant in its repercussions. The former may surely be trade, but the
latter - the law may well say - is not trade. This narrow, deleterious
pattern of money-lending cannot be classed as 'trade'. Hence Article 301
does not apply."

51. In the case of B.R. Enterprises etc. v. State of U.P. and Ors. etc.,
this Court held that this case relates to lottery which is gambling in
nature. This Court held that merely because a lottery transaction is run by
State itself will not change its character as res extra commercium and that
merely because lottery tickets are goods, transaction of sale thereof
cannot constitute trade and while trade contains skill with no chance,
gambling contains the element of chance with no sill and, therefore, ban by
any State on the sale of lotteries of other States within its territory
does not violate Articles 301 and 303.

52. We have already noticed that the regulation in the interest of public
health and order takes the case out of Article 301, and Regulation for the
purpose of Article 301 is not confined to regulations which will facilitate
the trade.

53. In the case of Bishamber Dayal Chandra Mohan etc.etc. v. State of U.P.
and Ors. etc.etc., AIR 1982 SC 33, this Court in paras 36 and 37 observed
as under:

"The word 'free' in Article 301 does not mean freedom from laws or from
regulations. Article 301 guarantee freedom of trade, commerce and
intercourse throughout the country from any State barriers. It declares
that subject to the other provisions of Part XIII, trade, commerce and
intercourse throughout the territory of India shall be free. The whole
object was to bring about the economic unity of the country under a federal
structure,, so that the people may feel that they are members of one nation
is to guarantee to every citizen the freedom of movement and residence
throughout the country. That is achieved by Article 19(1)(d) and (e). No
less important is the freedom of movement or passage of commodities from
one par of the country to another. The progress of the country as a whole
also requires free flow of commerce and intercourse as between different
parts, without any barrier. This freedom of trade, commerce and intercourse
throughout the country without any 'State barriers' is not confined to
inter-State trade as well. In other words, subject to the provisions of
Part XIII, no restrictions can be imposed upon the flow of trade, commerce
and intercourse, not only between one State and another, but between any
two points within the territory of India whether any State border has to be
cross or not.
It is now well settled that the regulatory measures or measures imposing
compensatory taxes do not come within the purview of the restrictions
contemplated by Article 301. The regulatory measures should, however, be
such as do not impede the freedom of trade, commerce and intercourse. It
cannot be said that the instructions conveyed by the State Government by
the impugned teleprinter message imposing the requirement for the making of
an endorsement by the Deputy Marketing Officer or the Senior Marketing
Officer or the physical verification of stocks of wheat during the course
of transit, are a 'restriction' on the freedom of trade, commerce and
intercourse with the country, i.e., across the State or from one part of
the State to another. These are nothing but regulatory measures to ensure
that the excess stock of wheat held by a wholesale dealer, commission agent
or a retailer is not transported to a place outside the State or from one
district to another. Even if these requirements are construed to be a
'restriction' on the inter-State or intra-State trade the limitation so
imposed on the enjoyment of the right cannot be considered to be arbitrary
or of an excessive nature. Nor can it be said that such restrictions do not
satisfy the test of reasonableness."

54. The case of State of Tamil Nadu v. Hind Stone etc. etc. reported in AIR
1981 SC 711 relates to non-renewal of mining lease for black granite. It
was submitted by the counsel in this case, that the impugned rule offends
Articles 301 and 303 of the Constitution. This Court rejected the same as
without force. This Court held as under:

".....The Mines & Minerals (Regulation and Development) Act is, without
doubt a regulatory measure. Parliament having enacted it for the express
purpose of "the regulation of mines and the development of minerals". The
Act and the rules properly made thereunder are, therefore, outside the
purview of Article 301. Even otherwise, Article 302 which enables
Parliament, by law, to impose such restrictions on the freedom of trade,
commerce or intercourse between one State and another or within any part of
the territory of India as may be required in the public interest also
furnishes an answer to the claim based on the alleged contravention of
Article 301....."

55. The case of State of Tamil Nadu and Ors. v. Sanjeetha Trading Co. and
Ors. relates to prohibition of export of timber outside the State to
prevent illicit felling. This Court held that where goods are declared to
be essential commodities/articles and export thereof prohibited with a view
to effect equitable distribution at a fair price the prohibition in the
circumstances would not be an unreasonable restriction. This Court further
held as follows:

"The power to impose restrictions conferred on the Parliament under Article
302 is not qualified by the word 'reasonable' while in Article 304(1)(b)
which confers such power on the State legislature the expression
'reasonable' precedes 'restrictions' and a further check is provided by the
proviso thereto. Therefore, before Article 304 comes into play, it has to
be held that the prohibition introduced by the amendment on movement and
transport of any particular item amounts to a restriction. Any prohibition
on movement of any article from one State to another has to be examined
with reference to the facts and circumstances of that particular case -
whether it amounts to regulation only, taking into consideration the local
conditions prevailing, the necessity for such prohibition and what public
interest is sought to be served by imposition thereof."

56. In the case of State of Bihar and Ors. v. Harihar Prasad Debuka etc.
AIR 1989 SC 1119, this Court observed thus:

"In the instant case what is being insisted is a permit disclosing
particulars of the goods to be transported. Article 304(b) clearly permits
the State legislature to impose such a reasonable restriction on the
freedom of trade, commerce and intercourse with or within that State as may
be required in the public interest. The word 'with' involves an element
having its sit us in another State. It cannot be therefore said that the
insistence on the disclosure in respect of goods entering Bihar from
another State if otherwise legitimate would not be protected by Article
304(b)."

57. The High Court of Punjab proceeded to decided 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.

58. In the result, Civil Appeal No. 3017 of 1997 filed by the State of
Punjab is allowed and the judgment of the High Court which is impugned in
this Civil Appeal stands set aside. Likewise, the appeals filed by the
appellants in Civil Appeal Nos. 2696 and 2697 are dismissed and the common
judgment of the High Court in Writ Appeal Nos. 3 and 10 of 2001 is
affirmed. However, there shall be no order as to costs.

__________________________________________________________________________

B.N. Agrawal. J.

59. 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 v. The Excise Commissioner
& The Chief Commissioner, Ajmer, and Ors., [(1954) SCR 873]; The State of
Bombay v. R.M.D. Chambarbaugwala [(1957) SCR 874]; Har Shanhar and Ors. v.
The Deputy Excise & Taxation Commissioner and Ors., and Khoday Distilleries
Ltd. and Ors. v. State of Karnataka and Ors.

60. These appeals arise out of judgments 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 Punja