Full Judgment Text
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CASE NO.:
Appeal (civil) 3017 of 1997
Appeal (civil) 2696-2697 of 2003
PETITIONER:
State of Punjab and Anr.
RESPONDENT:
M/s. Devans Modern Brewaries and Anr.
DATE OF JUDGMENT: 20/11/2003
BENCH:
B.N. Agrawal
JUDGMENT:
J U D G M E N T
B.N. AGRAWAL,J.
The question involved in this batch of appeals, arising out of an order
of reference made by a three Judge Bench of this Court, is as to whether
Article 301 of the Constitution of India (hereinafter referred to as "the
Constitution") will have any application in relation to potable liquor the
business whereof is said to be res extra commercium; in view of the
decisions of this Court in Cooverjee B. Bharucha Vs. The Excise
Commissioner & The Chief Commissioner, Ajmer, & Ors., [(1954) SCR
873]; The State of Bombay Vs. R.M.D. Chambarbaugwala [(1957) SCR
874]; Har Shankar & Ors. Vs. The Deputy Excise & Taxation
Commissioner & Ors., [(1975) 1 SCC 737] and Khoday Distilleries Ltd.
& Ors., Vs. State of Karnataka & Ors. [(1995) 1 SCC 574].
These appeals arise out of judgements and orders passed by Punjab
and Haryana High Court and Kerala High Court. The State of Punjab
imposed tax on import of potable liquor manufactured in other States. The
State of Kerala also imposed a similar levy. The Punjab and Haryana High
Court by its judgment dated 17.01.1997 passed in Writ Petition (Civil) No.
5358 of 1996 quashed the notification dated 27.03.1996 imposing levy of
import duty by the State of Punjab in exercise of its powers conferred upon
it under Sections 31, 32 and 58 of the Punjab Excise Act, 1914 (hereinafter
referred to as "the Punjab Act’) on two grounds viz.; (i) the State has no
power to levy such tax under the Punjab Act and (ii) in view of the
Constitution Bench decision of this Court in Kalyani Stores Vs. The State
of Orissa and others [1966(1) SCR 865], the imposition of duty is ultra
vires Article 301 of the Constitution.
So far as challenge to imposition of import duty on potable liquor by
the State of Kerala under Abkari Act, 1077 (hereinafter referred to as "the
Abkari Act") is concerned, the Kerala High Court has dismissed the writ
application on grounds, inter alia, that such duty, being regulatory in
nature, is not ultra vires the Abkari Act. The High Court did not enter into
the question of applicability of Article 301 of the Constitution vis-‘-vis
effect of imposition of such import duty on potable liquor.
Mr. P.N.Misra, learned Senior Counsel appearing on behalf of the
appellant - State of Punjab in the Punjab matter having regard to several
provisions of the Punjab Act submitted that the High Court committed a
manifest error in holding that the State has no power to impose such a tax.
As regards applicability of Article 301 of the Constitution, the learned
counsel contended that as the State has the exclusive privilege to deal in
potable liquor in any manner it likes, it has the concomitant requisite power
to impose such tax by way of restriction on import. The learned counsel
further contended that as no trader can claim any fundamental right in
carrying on trade or business in potable liquor, question of applicability of
Article 301 of the Constitution would not arise. It may not be out of place to
mention that at the stage of reply Dr. A.M. Singhvi, learned Senior Counsel
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filed written submissions on behalf of the State of Punjab more or less
reiterating the contentions raised by Mr. P.N. Misra.
Mr. T.L.V. Iyer, the learned senior counsel appearing on behalf of
State of Kerala submitted that it is within the province of the State to
impose restrictions on import of potable liquor by imposing import duty.
According to learned counsel such a duty has not been imposed by the State
in exercise of its statutory power conferred upon it in terms of Entry 51, List
II of the Seventh Schedule to the Constitution but regulatory powers as
envisaged in Entry 8 thereof. In other words, Mr. Iyer contended that the
import duty has been levied not as a measure of tax but as a part of
regulation on the trade. The learned counsel further contended, although
such a stand has not been taken by the State before the High Court, but
having regard to the well-settled principle of law as laid down by this Court
and referred to hereinafter, the State can impose such duty as a price for
parting with its exclusive privilege.
In support of the contentions the learned senior counsel appearing for
the State of Punjab and that of Kerala relied upon the decisions of this Court
in the cases of Har Shankar (supra), Nashirwar and Others Vs. State of
Madhya Pradesh and Others (1975) 1 SCC 29, State of Orissa and
Others Vs. Harinarayan Jaiswal and Others (1972) 2 SCC 36, State
Bank of Haryana and Others Vs. Jage Ram and Others (1980) 3 SCC
599, State of Andhra Pradesh Vs. Y. Prabhakara Reddy (1987) 2 SCC
136, State of U.P. and Others Vs. Sheopat Rai and Others 1994 Suppl.
(1)SCC 8, State of Haryana and Others Vs. Lal Chand and Others
(1984) 3 SCC 634, State of Punjab Vs. M/s. Dial Chand Gian Chand and
Company (1983) 2 SCC 503, Solomon Antony and Others Vs. State of
Kerala and Others (2001) 3 SCC 694, Khoday Distilleries Ltd. and
Others (supra) and Government of Maharashtra and Ors. Vs. M/s.
Deokar’s Distillery JT 2003 (3) SC 86.
Mr. Mohan Jain, learned counsel appearing on behalf of the
respondents-licensees of the State of Punjab and Mr. R.Venkataramani,
learned Senior Counsel, appearing on behalf of the intervenor, on the other
hand, contended that power to impose tax by the State of Punjab is
circumscribed by Sub-section 3 of Section 33A of the Punjab Act. It was
submitted that power to impose countervailing duty being statutorily
restricted, the State cannot be permitted to achieve the same object indirectly
by taking recourse to ’exclusive privilege’ theory.
Mr. Ashok H. Desai and Mr. R.F. Nariman, learned senior counsel
appearing on behalf of the licensees - appellants in the Kerala matter raised
the following contentions:
(1) Levy of import duty having been expressly conferred by the
statute, the State cannot justify such a levy on the spacious ground
of having exclusive privilege of dealing in potable liquor.
(2) The State of Kerala having specifically raised a plea that such a
levy was justified by way of a fee and/or as a regulatory measure
cannot now turn round and contend that the levy was imposed by
way of a price for parting with the exclusive privilege of the State.
As the State of Kerala has not granted any licence to the
appellants, the question of parting of any privilege in their favour
does not arise. Pointing out to the admitted fact that Kerala State
Beverages Corporation has been granted the monopoly to deal in
liquor and the appellants and other traders having been selling
liquor to the Corporation, the question of rendition of any service
by the State of Kerala to the licensees so as to justify imposition of
a fee or regulatory tax therefor does not arise.
(3) Any fee regulating trade by grant of a licence would amount to
’tax’ within the meaning of clause (28) of Article 366 of the
Constitution. Reliance in this connection has been placed on D.C.
Gouse & Co.etc. Vs. State of Kerala and Anr. etc. [1980(1) SCR
804] and Corporation of Calcutta and Anr., Vs. Liberty
Cinema [1965(2) SCR 477].
(4) The applicability of the doctrine of "res extra commercium" and/
or the concept of privilege theory on the part of the State would be
attracted only in a ’no right’ situation. Once a right to trade has
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been conferred by the State, it cannot take umbrage under the
privilege doctrine. Even the State, at the time of grant of licence
by way of exclusive privilege, is bound by its own action, which in
a given case, may attract the wrath of Article 14 of the
Constitution. Reliance in this behalf has been placed on State of
M.P.& Ors., Vs. Nandlal Jaiswal & Ors., [1986(4) SCC 566].
(5) The Constitution Bench of this Court in Krishna Kumar Narula
Vs. The State of Jammu and Kashmir & Ors.1967(3) SCR 50
having clearly laid down that trade in liquor would come within
the purview of Article 19(1)(g) of the Constitution, the State can
only impose a reasonable restriction in terms of Clause (6) of
Article 19 thereof. In Khoday Distilleries Ltd. (supra), this Court
having clearly held that when a licence is granted, persons
similarly situated cannot be discriminated against which would
clearly lead to the conclusion that not only a fundamental right in
terms of Article 14 of the Constitution but also other constitutional
rights including those contained in Part XIII of the Constitution
are available in relation to trade in liquor.
(6) In Kalyani Stores (supra), H. Anraj Vs. Government of Tamil
Nadu (1986) 1 SCC 414 and State of Madhya Pradesh Vs.
Bhailal Bhai & Ors. 1964(6) SCR 261 this Court having clearly
held that Article 301 of the Constitution would be applicable also
in relation to obnoxious trade, there is no reason as to why the said
decisions shall be departed from.
(7) Keeping in view the decisions of this Court in Atiabari Tea
Company Limited Vs.The State of Assam & Ors., [1961(1) SCR
809] and The Automobile Transport (Rajasthan) Ltd. Vs. The
State of Rajasthan and Others [1963 (1) SCR 491] the purpose
of Article 301 of Constitution being to maintain economic unity
of the entire country, the State cannot by imposition of a tax
infringe upon the provisions contained in Part XIII of the
Constitution which is a self-contained part.
(8) The phraseology, used in Article 301 of the Constitution, namely,
trade, commerce and intercourse being of wide amplitude, the right
to carry on trade and business as envisaged in Article 19(1)(g) or
Article 298 of the Constitution cannot restrict the scope and ambit
thereof.
In view of the rival contentions, as noticed hereinbefore, the following
questions arise for consideration:
(i) Whether the impugned notifications issued by the State of Punjab
and that of Kerala are illegal being fraud on the Constitution.
(ii) Whether the import duty can be said to have been validly imposed
having regard to the doctrine of ’exclusive privilege’ of the State to
deal in obnoxious matters?
(iii) Whether dealing in liquor which is said to be ’res extra
commercium’ would nonetheless attract Part XIII of the
Constitution?
Re: Question (i)
The impugned notifications issued by the State of Punjab and that of
Kerala read as under:
I "Government of Punjab
Department of Excise and Taxation
NOTIFICATION
The 27th March, 1996
No. G.S.R. 28/P.A.I./14/Ss. 31, 32 and 58/Amd. (118)/96
In exercise of powers conferred by sections 31, 32
and 33 of the Punjab Excise Act, 1914 (Punjab Act 1 of
1914) and all other powers enabling him in this behalf,
the Governor of Punjab is pleased to make the following
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order, without previous publication, further to amend the
Punjab Excise Fiscal Orders, 1932, namely:-
ORDERS
1. (1) These orders may be called the Punjab
Excise Fiscal (Second Amendment) Orders, 1996.
(2) They shall come into force on and with
effect from the first day of April, 1996.
2. In the Punjab Excise Fiscal Orders, 1932
(hereinafter referred to as the said Orders),in order 1, in
the table, under column "Rate of duty per proof litre" -
(a) in item (1), against sub item (c) for the figures
"4.00" the figures "3.00" shall be substituted;
and
(b) in item (3) against sub-item (b) for the figures
"3.50" the figures "3.00" shall be substituted.
3. In the said Orders in order 1-B -
(a) for the words "rupees three" the words "rupees
two" shall be substituted; and
(b) for clause (iii) to the proviso, the following
clause shall be substituted namely:-
"(iii) the Indian Made Beer shall be at the rate of thirty-
eight paise per bulk litre."
4. In the said orders in order 1-D, for item (iii), the
following item shall be substituted namely:-
"(iii) rupees four and sixty paise per bulk litre."
II. "S.R.O. No. 330/96. In exercise of the powers conferred
by sections 6, 7, 17 and 18 of the Abkari Act, 1 of 1077
and in modification of notification issued under G.O. (p)
No. 24/94/TD dated 3rd March, 1994 and published as
S.R.O. No. 256/94 in the Kerala Gazette Extraordinary
No. 180 dated 3rd March, 1994, as subsequently
amended, the Government of Kerala hereby direct that
the import and export fees, the excise duty and luxury tax
under the said sections shall be levied on the following
kinds of liquors manufactured in the State and exported
outside the State under bond in force or manufactured
elsewhere in India and imported into the State by land,
air, or sea under bond, at the rates mentioned against
each kind of liquor.
The excise duty, import fee or luxury tax on liquor
manufactured elsewhere in India and imported into the
State by land, air or sea otherwise than under bond shall
be equal to the duty to which such liquor manufactured in
the State are liable under the Act such as import fee,
excise duty or luxury tax namely:-
Kind of Liquor
Rate of
excise duty
Rate of
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luxury
tax
Rate of
import fee
Rate of
export fee
1. Indian Made
Foreign Liquor
including beer
except those
consumed by
Defence Service.
(1) When exported
by distilleries/
Foreign Liquor
(compounding,
Blending and
(Bottling) Units/
Breweries to other
State and not
reimported into this
State, in cases where
the following terms
and conditions are
satisfied namely:-
Rs. 5
(Rupees five
only) per
proof litre in
the case of
Indian Made
Foreign
Liquor and
Rs. 2
(Rupees two
only) per
bulk litre in
the case of
beer
(i) The export is
under bond to cover
the duty at the rate
of an amount equal
to 200 per cent of
the value of Indian
Made Foreign
Liquor and
gallonage fee at the
rate of Rs. 3 per
bulk litre in the case
of beer.
(ii) No objection
certificate for import
certificate from the
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excise authorities of
the importing State
is produced by the
Distilleries/ Foreign
Liquor
(Compounding,
Blending and
Bottling) Units/
breweries.
(iii) Excise duty,
luxury tax and
export fee paid to
Kerala Government
before export.
(iv) The verification
certificate from the
Excise Authorities
of the importing
State is produced
before the Excise
officers in charge of
the Distilleries/
Foreign Liquor
(Compounding,
Blending and
Bottling) Units/
Breweries within 42
days of dispatch or
within such further
time as the Excise
Commissioner may
allow for sufficient
cause.
(v) The duty at the
rate of an amount
equal to 200 per cent
of the value of
Indian Made
Foreign Liquor and
gallonage fee at the
rate of Rs. 3 per
bulk litre in the case
of Beer is paid on all
quantities
unaccounted for;
and
(vi) Export is
through air, rail road
or ship.
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(2) in the case of:-
(a) Indian Made
Foreign liquor other
than beer imported
(bond or under
bond)
Rs. 5 per
proof litre
(b) Beer imported
(bond or under
bond)
Rs. 2 per
bulk litre
(c) wine imported
(duty paid or under
Bond)
Rs. 2 per
bulk litre
(3) In other cases:
(a) Indian Made
Foreign Liquor
(excluding beer and
wine)
An equal
amount to
100 per
cent of its
value
(b) Beer
Rs. 3 per
bulk litre
(c) Wine
Rs. 3 per
bulk litre
IV. Medicated wine
and similar
preparations but not
including
preparations on
which duty is
leviable under the
Medicinal and toilet
preparations (Excise
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Duties) Act, 1955
Rs. 12
(Rupees
twelve
only) per
proof litre
Published in K.G. Ex. No. 379 dt. 29.3.1997 as S.R.O.
No. 210/97
Explanation:-Where any liquor is chargeable with duty at
a rate depending on the value of the liquor, such value
shall be the value at which the Kerala State Beverages
(Manufacturing and Marketing) Corporation Ltd.,
purchases such liquor from the suppliers and in case any
such liquor is not purchased by the Kerala State
Beverages (Manufacturing and Marketing) Corporation,
such value shall be the value fixed by the Commissioner.
This notification shall come into force on 1st day of
April, 1996."
Before embarking upon the questions raised in these appeals, the
relevant provisions of the Punjab Act may be noticed which run thus:-
S.3.(9) "Excise revenue" means revenue derived or
derivable from any payment, duty fee, tax,
confiscation, or fine imposed or ordered under the
provisions of this Act, or of any other law for the
time being in force relating to liquor or
intoxicating drugs, but does not include a fine
imposed by a court of law.
S.3(12). "Import" (except in the phrase "import
into India") means to bring into Punjab and
Haryana otherwise than across a custom frontier as
defined by the Central Government.
S.16. Import, export and transport of intoxicants:-
No such intoxicant shall be imported, exported or
transported except -
(a) after payment of any duty to which it
may be liable under this Act or execution
of a bond for such payment, and
(b) in compliance with such condition as the
State Government may impose.
S.17. Power of State Government to prohibit
import, export and transport of intoxicants:- The
State Government may by notification:-
(a) prohibit the import or export of any
intoxicant into or from Punjab, Haryana
or any part thereof; or
(b) prohibit the transport of any intoxicant.
S.18. Pass necessary for import, export and
transport:- Except as otherwise provided by any
rule made under this Act, no intoxicants exceeding
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such quantity as the State Government may
prescribe by notification shall be imported or
transported except under a pass issued under the
provision of the next following section;
Provided that in the case of duty paid foreign
liquor such passes shall be dispensed with unless
the State Government shall by notification
otherwise direct;
Provided further, that no such conditions as may
be determined by the Financial Commissioner, a
pass granted under the excise law in force in
another State may be deemed to be a pass granted
under this Act.
S.19. Grant of passes for import, export and
transport:-Passes for the import, export and
transport of intoxicants may be granted by the
Collector.
Provided that passes for the import and export of
such intoxicant as the Financial Commissioner
may from time to time determine shall be granted
only by the Financial Commissioner.
S.31. Duty on excisable articles:- An excise duty
or a countervailing duty as the case may be at such
rate or rates as the State Government shall direct,
may be imposed either generally or for any
specified local area, on any excisable article.
(a) imported, exported or transported in
accordance with the provisions of section
16; or
(b) manufactured or cultivated under any
licence granted under section 23; or
(c) manufactured in any distillery established
or any distillery or brewery licensed under
section 21.
Provided as follows:-
(i) duty shall not to be so imposed on any
article which has been imported into
India and was liable on importation to
duty under the Indian Tariff Act, 1894, or
the Sea Customs Act, 1878.
Explanation:- Duty may be imposed under this
section at different rates according to the places to
which any excisable article is to be removed for
consumption, or according to the varying strength
and quality of such article.
S.32. Manner in which duty may be levied:-
Subject to such rules regulating the time, place and
manner as the Financial Commissioner may
prescribed such duty shall be levied rateably, on
the quantity of exciseable article imported,
exported, transported, collected or manufactured in
or issued from a distillery brewery or warehouse;
Provided that duty may be levied:-
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(a) on intoxicating drugs by an acreage rated
levied on the cultivation of the hemp plant
or by a rate charged on the quantity
collected.
(b) On spirit or beer manufactured in any
distillery established or any distillery or
brewery licensed, under this Act in
accordance with such scale of equivalents
calculated on the quantity of materials used
or by the degree of attenuation of the wash
or wort, as the case may be as the State
Government may prescribe.
(c) On tari, by a tax on each tree from which the
tari is drawn;
Provided further that, where payment is made upon
issue of an exciseable article for sale from a
warehouse established or licensed under section
22(a) it shall be made -
(a) If the State Government by notification
so directs, at the rate of duty which was
in force at the date of import of that
article; or
(b) In the absence of such direction by the
State Government, at the rate of duty
which is in force on that article on the
date when it is issued from the
warehouse.
S.33. Payment for grant of leases: - Instead of or in
addition to any duty leviable under this chapter the
State Government may accept payment of a sum in
consideration of the lease of any right under
section 27.
S.33-A. Saving for duties being levied at
commencement of the Constitution:- (1) Until
provision to the contrary is made by Parliament,
the State Government may continue to levy any
duty which it was lawfully levying immediately
before the commencement of the Constitution
under this Chapter as then in force.
(2) The duties to which this section applies are:-
(a) any duty on intoxicants which are not
exciseable articles within the meaning of
this Act; and
(b) any duty on exciseable article produced
outside India and imported into
Punjab/Haryana whether across a
customs frontier as defined by the
Central Government or not.
(3) Nothing in this section shall authorize the levy
by the State Government of any duty which as
between goods manufactured or produced in the
State and similar goods not so manufactured or
produced discriminates in favour of the former or
which in the case of goods manufactured or
produced outside the State discriminates between
goods manufactured or produced in one locality
and similar goods manufactured or produced in
another locality.
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S.34. Fees for terms, conditions and form of, and
duration of licences, permit and passes:-(1) Every
licence, permit or pass granted under this Act shall
be granted:-
(a) on payment of such fees, if any.
(b) Subject to such restrictions and on such
conditions,
(c) In such form and containing such
particulars,
(d) For such period,
as the Financial Commissioner may direct.
(2) Any authority granting a licence under this Act
may require the licensee to give such security for
the observance of the terms of his licence, or to
make such deposit in view of security, as such
authority may think fit.
S.58. Power of State Government to make Rules:
(1)....
(2) in particular and without prejudice to the
generality of the foregoing provision, the State
Government may make rules:-
(d) regulating the import, export, transport or
possession of any intoxicant or Excise bottle and
the transfer, price or use of any type or description
of such bottle.
(e) regulating the period and localities for
which and the persons or classes of
persons to whom licenses, permits and
passes for the vend by wholesale or by
retail of any intoxicants may be granted
and regulating the number of such
licences which may be granted in any
local area;
(f) prescribing the procedure to be followed
and the matters to be ascertained before
any licence is granted for the retail vend
for consumption on the premises.
S.59. Powers of Financial Commissioner to make
rules:- The Financial Commissioner may by
notification make rules:-
(d) prescribing the scale of fees or the manner
of fixing the fees, payable in respect of any
licence, permit or pass or in respect of the storing
of any intoxicant;
Apart from provisions of the Punjab Act, it would also be necessary to
notice Sections 17 and 18 of the Abkari Act occurring in Chapter V dealing
in "Duties, Taxes and Rentals" applicable in the State of Kerala which read
thus:
"17. Duty on liquor or intoxicating drugs:- A duty of
excise or luxury tax or both shall, if the Government so
direct, be levied on all liquor and intoxicating drugs:
(a) permitted to be imported under Section 6; or
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(b) permitted to be exported under Section 7; or
(c) permitted under Section 11 to be transported; or
(d) manufactured under any licence granted under
Section 12; or
(e) manufactured at any distillery, brewery, winery
or other manufactory established under Section
14; or
(f) issued from a distillery, brewery, winery or
other manufactory or warehouse licensed or
established under Section 12 or Section 14; or
(g) sold in any part of the State;
Provided that no duty or gallonage fee or vend fee or
other taxes shall be levied under this Act on rectified
spirit including absolute alcohol which is not intended to
be used for the manufacture of potable liquor meant for
human consumption.
Explanation:- For the purpose of this section and Section
18, the expression "duty of excise", with reference to
liquor or intoxicating drugs, include countervailing duty
on such goods manufactured or produced elsewhere in
India and brought into the State.
18. How duty may be imposed:- (1) Such duty of excise
may be levied:
(a) in the case of spirits or beer, either on the
quantity produced in or passed out of a
distillery, brewery or warehouse licensed or
established under Section 12 or Section 14 as
the case may be or in accordance with such
scale of equivalents, calculated on the quantity
of materials used or by the degree of
attenuation of the wash or wort or on the value
of the liquor as the case may be, as the
Government may prescribe;
(b) in the case of intoxicating drugs on the quantity
produced or manufactured or issued from a
warehouse licensed or established under
Section 14;
(c) xxx
(d) xxx
(e) in the case of toddy, or spirits manufactured
from toddy, in the form of a tax on each tree
from which toddy is drawn, to be paid in such
instalments and for such period as the
Government may direct; or
(f) by import, export or transport duties assessed in
such manner as the Government may direct; or
xxx
(2) The luxury tax on liquor or intoxicating drugs shall
be levied:-
(i) in the case of any liquor in the form of a fee for
licence for the sale of the liquor and in the form
of a gallonage fee or vending fee, or in any one
of such forms; and;
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(ii) in the case of an intoxicating drug, in the form
of a fee for licence for the sale of the
intoxicating drug.
(3) The duty of excise under sub-section (1) and the
luxury tax under sub-section (2) shall be levied at such
rates as may be fixed by the Government, from time to
time, by notification in the Gazette, not exceeding the
rates specified below:-
(1)
Duty of excise
Maximum rates
(i)
Duty of excise on liquors
(Indian made)
Rs. 200 per proof litre or an
amount equal to 200 per cent
of the value of the liquor.
(ii)
Duty of excise on
intoxicating drugs
Rs. 1 per gram or
Rs. 933.10 per seer.
(iii)
Duty of excise in the form
of tax on trees tapped for
toddy
Rs. 50 per tree per half-year
or part thereof
(2)
Luxury tax:
(a)
When levied in the form
of a fee for licence for sale
of foreign liquor -
(i)
For licence for sale of
foreign liquor in
wholesale
Rs. 15000 for a year or part
thereof
(ii)
For licence for sale of
foreign liquor in hotels or
restaurants
Rs. 12000 for a year or part
thereof
(iii)
For licence for sale of
medicated wines
Rs. 1000 for a year or part
thereof
(iv)
For licence for sale of
foreign liquor in non-
proprietory clubs to
members
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Rs. 1500 for a year or part
thereof
(v)
Xxx
(b)
When levied in the form
of gallonage fee
Rs. 10 per bulk litre or
Rs. 45.46 per bulk gallon
(c)
When levied in the form
of a fee for licence for the
sale of foreign liquor
(Foreign made)
(i)
In wholesale
Rs. 25,00,000 (Rupees
Twenty Five lakhs) for a year
or part thereof
(ii)
In retail
Rs. 10,00,000 (Rupees Ten
lakhs) for a year or part
thereof
(iii)
In hotels or restaurants
Rs. 25,00,000 (Rupees
Twenty Five lakhs )for a year
or part thereof
(iv)
In non-proprietory clubs
to its members
Rs. 10,00,000 (Rupees Ten
lakhs) for a year or part
thereof
(v)
In Seamen’s and Marine
Officer’s clubs to its
members
Rs. 10,00,000 (Rupees Ten
lakhs) for a year or part
thereof
(d)
When levied in the form
of gallonage fee
(i)
Foreign Liquor (Foreign
made) other than beer and
wine
Rs. 200 (Rupees Two
hundred) per bulk litre
(ii)
For foreign made beer and
wine
Rs. 25 (Rupees Twenty Five)
per bulk litre
Provided that where there is a difference of duty of
excise or luxury tax as between two licence
periods, such difference may be collected in
respect of all stocks of Indian made foreign liquor
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or intoxicating drugs held by licensees at the close
of the former period.
Note: The expression ’Foreign Liquor (Foreign
made) means any liquor produced, manufactured,
or blended and compounded abroad and imported
into India by land, air or sea.
Explanation:- Where any liquor is chargeable with
duty at a rate depending on the value of the liquor,
such value shall be the value at which the Kerala
State Beverages (Manufacturing and Marketing)
Corporation Limited purchases such liquor from
the suppliers and in case any such liquor is not
purchased by Kerala State Beverages
(Manufacturing and Marketing) Corporation
limited such value shall be the value fixed by the
Commissioner."
Provision to grant licence is contained in Chapter VI of the Abkari
Act, Section 24 whereof is as under:
"24. Forms and conditions of licenses, etc:-Every license
or permit granted under this Act shall be granted:-
(a) on payment of such fees, if any;
(b) for such period;
(c) subject to such restrictions and on such
conditions; and
(d) shall be in such form and contain particulars -
as the Government may direct either generally,
or in any particular instance in this behalf."
The State of Kerala raised a contention that the imposition of levy is
referable to Entry 66 of List II of the Seventh Schedule to the Constitution.
An additional affidavit was filed before the Kerala High Court wherein it
was averred that such a levy has been imposed also by way of a regulatory
fee. No plea whatsoever has been raised that such a levy is towards a price
or a part of price for parting with exclusive privilege. The High Court
accepted plea of the State that the levy is by way of regulatory fee in
relation whereto doctrine of ’quid pro quo’ has no application.
Before the High Court of Punjab and Haryana although a plea was
raised that the impost was by way of a price for parting with the exclusive
privilege but in its impugned judgment the High Court rejected the same
having regard to the provisions contained in Section 33A of the Punjab Act.
The Excise Acts referred to hereinbefore seek to regulate trade and
business in liquor. They have their origin before coming into force of the
Government of India Act, 1935 or the Constitution and, thus, being pre-
constitutional laws, validity thereof and/or any statutory impost levied
thereunder would be subject to Articles 372 and 305 of the Constitution vis-
‘-vis Article 13 thereof. The statutory rights and obligations created by
reason of the aforementioned Acts, after coming into force of the
Constitution, would, therefore, be subject to the extent saved by the
Constitution itself and, thus, the provisions thereof, the rules made
thereunder and actions taken must conform to the limitations imposed
thereby. The said Acts, therefore, must be construed keeping in view Entries
8 and 51 of List II of the Seventh Schedule to the Constitution. Before
dealing with the matter further, it may be noticed that in the instant case I am
not concerned with validity or the interpretation of a pre-constitutional law
but a post-constitutional one. The impugned levy, therefore, must be
justified having regard to the relevant entries made in List II of the Seventh
Schedule to the Constitution. Section 6 of the Abkari Act permits import of
liquor on payment of duties, taxes, fees and such other sums as are due to the
Government and Section 7 thereof provides for export. Section 17 provides
for levy of a duty of excise or luxury tax or both on liquor permitted to be
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imported under Section 6 thereof. Section 18 deals with the manner in
which such duty should be imposed. Sections 31 and 32 of the Punjab Act
are in pari materia with Section 17 and Section 18 respectively of the Abkari
Act.
A question arises as to what is "excise duty". An excise duty can be
imposed on manufacturer of goods only in terms of statute made by the
Parliament. An exception thereto has been made in the case of liquor in
terms whereof the State Legislature has been empowered to levy excise duty
by reason of Entries 8 and 51 of List II of the Seventh Schedule to the
Constitution which read thus:
"Entry 8: Intoxicating liquors, that is to say, the
production, manufacture, possession, transport,
purchase and sale of intoxicating liquors.
Entry 51. Duties of excise on the following goods
manufactured or produced in the State and
countervailing duties at the same or lower rates on
similar goods manufactured or produced elsewhere
in India :-
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs
and narcotics; but not including medicinal and
toilet preparations containing alcohol or any
substance included in sub-paragraph (b) of this
entry."
Legislative competence of the State to levy any fee is, therefore,
limited to levy of countervailing duty. In other words, any levy on import
can not exceed the excise duty levied on the manufacturers of the State. The
State, therefore, cannot levy any duty in addition to the countervailing duty.
The notification refers to excise duty and countervailing duty, which in
terms of Section 3(6-B) of the Punjab Act mean any such excise duty or
countervailing duty as the case may be, as is mentioned in Entry 51 of List II
of the Seventh Schedule to the Constitution. The State, therefore, cannot
levy any import fee over and above the excise duty/countervailing duty,
having regard to the said definition. Sections 17 and 18 of the Abkari Act,
which are in pari materia with Sections 31 and 32 of the Punjab Act, are
referable to Entry 51 alone. As Entry 51 puts an embargo on the State to
make a legislation, there cannot be any gainsaying that any levy in terms of
Sections 17 and 18 of the Abkari Act would be subject thereto.
Can the levy be said to be valid if thereby regulatory licencee fees
have been imposed? The answer to the said question must be rendered in
the negative.
Clause (28) of Article 366 reads as under:
"taxation" includes the imposition of any tax or
impost, whether general or local or special, and
"tax" shall be construed accordingly;
A regulatory impost would, thus, come within the purview of the tax.
A fee in terms of the constitutional schemes may be either a regulatory
licence fees or a fee in lieu of rendition of service. When no service is
rendered a fee can be justified only by way of licence fees. Such impost,
however, would be a tax and, thus, would clearly be referable to Entry 51 of
List II to the Constitution and not Entry 66 thereof. (See Liberty Cinema
(supra), D.C. Gouse & Co. (supra) and Hindustan Times & Ors., Vs.
State of U.P. and Anr., JT 2002 (9) SC 317).
Indisputably, the State while imposing import duty has exercised its
power under the statute. The impugned notifications in no uncertain terms
and unequivocally refer to the source of power therefor. The functions of
the State to impose a fee or tax in terms of the provisions of the statute is a
legislative function. Such legislative function must be attributed to the
source of the State’s power in terms of Entry 51 of List II to the Constitution
and not otherwise. If the legislations in question are found to be
unreasonable in nature or fraud on the Constitution, would it still be
permissible for the State to turn round and contend that such imposts are not
being levied in exercise of its taxation power but attributable to its
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regulatory power? In other words, can the State turn round and contend that
what it sought to do was not in terms of legislative function but merely by
way of executive action? Answer to the said question again must be
rendered in the negative. It is a well-settled principle of law that a thing
which cannot be done directly cannot be done indirectly. (See Priyanka
Overseas Pvt. Ltd. and Another Vs. Union of India and Others, 1991
Supp (1) SCC 102). In relation to an administrative act, it is well-settled
that a statutory authority is not permitted to support its decision on a ground
d’hors the ground stated in the order. (See Commissioner of Police,
Bombay Vs. Gordhandas Bhanji, AIR 1952 SC 16 and Mohinder Singh
Gill and another Vs. The Chief Election Commissioner, New Delhi and
others, AIR 1978 SC 851). On the same analogy, a legislation which is
found to be fraud on the Constitution, cannot, inter alia, be upheld on any
other ground. Entry 8 of List II of the Seventh Schedule to the Constitution
does not permit the State to levy a fee on import of liquor. It deals only with
production, manufacture, possession, transport, purchase and sale of
intoxicating liquors and nothing else. Entry 8 of List II, thus, does not
speak of import or export. Its purpose is to regulate and not impose any
statutory impost. The State in exercise of its delegated powers cannot do
what would constitutionally be impermissible.
A subsidiary question which arises for consideration is as to whether
the State of Punjab, having regard to Section 33A of the Punjab Act, could
levy such duty. In Sub-Section (1) of Section 33A provision has been made
permitting the State to continue to levy any duty which it had lawfully been
levying immediately before the commencement of the Constitution. The
said provision is in tune with Article 305 of the Constitution, therefore, the
same calls for a strict construction. Sub-section (3) of Section 33A is
couched in negative language by reason whereof power of the State to levy
any duty has been taken away in the event thereby any discrimination is
made in favour of goods manufactured or produced in the State and similar
goods manufactured or produced in another locality. Clearly such a
provision is in consonance with Article 304 of the Constitution. If by reason
of a statute an embargo has been placed on the State’s power to levy any fee,
it is beyond any cavil of doubt that such a levy cannot be held to be justified
by reason of an executive action or otherwise.
It is trite that even a term of the contract cannot be in violation of an
express provision contained in a statute. By reason of provisions of the
Abkari Act or the Punjab Act, no power has been conferred upon the State
to impose any import fee over and above the excise duty/countervailing
duty. It is not disputed that such countervailing duty has been levied and the
licensees pay the same. The power to levy fee and the power to grant
licences, permits and passes occur in different chapters of the Acts. The
powers under different chapters are required to be exercised for different
purposes. One is legislative in character and the other refers to executive
action. Furthermore, under the Punjab Act fees for grant of licences,
permits and passes are required to be paid on the terms as the Financial
Commissioner may direct. Having regard to the fact that the Financial
Commissioner is the statutory authority in relation thereto, the State cannot
be said to have any jurisdiction thereover, particularly, in the matter of levy
of import fee which clearly is referable to Chapter V of the Punjab Act and
has nothing to do with grant of licence occurring in Chapter VI.
The matter may be considered from another angle. Having regard to
Article 265 of the Constitution a tax must be imposed by a statute. Even
such impost is impermissible by any bye-law or rule. (See Bimal Chandra
Banerjee Vs. State of Madhya Pradesh etc., (1970) 2 SCC 467; A
Venkata Subba Rao Vs. State of Andhra Pradesh, (1965) 2 SCR 577 and
Attorney General Vs. Wilts United Dairies (1922) 91 Law Journal, KB
897.
In Synthetics and Chemicals Limited & Ors., Vs. State of UP and
Others (1990) 1 SCC 109 at page 158, a Seven-Judge Bench of this Court
has equated excise duty with the price for privileges. In the matter of
interpretation of Constitution, the said decision has been referred to with
approval in Welfare Assocn. A.R.P., Maharashtra & Anr. Vs. Ranjit P.
Gohil & Ors. [JT 2003 (2) SC 335]. In the said seven Judge Bench
decision, this Court observed thus:
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"On an analysis of the various Abkari Acts and
Excise Acts, it appears that various
provinces/States reserve to themselves in their
respective States the right to transfer exclusive or
other privileges only in respect of manufacture and
sale of alcohol and not in respect of possession and
use. Not all but some of the States have provided
such reservation in their favour. The price charged
as a consideration for the grant of exclusive and
other privileges was generally regarded as an
excise duty. In other words, excise duty and price
for privileges were regarded as one and the same
thing. So-called privilege was reserved by the State
mostly in respect of country liquor and not foreign
liquor which included denatured spirit."
In view of the foregoing discussions, I am of the opinion that the
impugned levy cannot be sustained.
Re: Questions (ii) and (iii)
What is Res-Extra-Commercium:
In Black’s Law Dictionary, Fifth Edition, ’Res’ has been defined as
follows:
"By "res", according to the modern civilians, is
meant everything that may form an object of
rights, in opposition to "persona," which is
regarded as a subject of rights. "Res", therefore, in
its general meaning, comprises actions of all kinds;
while in its restricted sense it comprehends every
object of right, except actions."
In Trayner’s Latin Maxims, Fourth Edition, ’Extra Commercium’ is
stated as "Beyond Commerce. This is said of things which cannot be bought
or sold, such as public roads, rivers, titles of honour, etc."
In Words and Phrases, Volume 15 A, it has been stated:
"Property once dedicated to public use is "extra
commercia", and inalienable by seizure and sale
under execution against a municipal corporation,
unless it is made affirmatively and clearly to
appear that its use had been abandoned or lost by
nonuser."
In Bouvier’s Law Dictionary, Volume I, Third Edition, at page 531,
it is stated:
"It has been frequently said by the Supreme Court
that commerce includes intercourse, though
usually the term is qualified as "commercial
intercourse"; Gibbons v. Ogden, 9 Wheat. (U.S.) 1,
6 L.Ed 23; U.S. v. E.C. Knight Co., 156 U.S. 1, 15
Sup. Ct. 249, 39 L. Ed. 325; Welton v. Missouri,
91 U.S. 275, 280, 23 L.Ed. 347; Pensacola
Telegraph Co. v. Western Telegraph Co., 96 U.S.
1, 9, 24 L.Ed. 708; Mobile County v. Kimball, 102
U.S. 691, 702, 26 L.Ed. 238 (where the phrase is
"intercourse and traffic"); Addyston Pipe & Steel
Co. v. U.S., 175 U.S. 211, 241, 20 Sup. Ct. 96, 44
L.Ed. 136; Lindsay & P. Co. V. Mullen 176 U.S.
126, 20 Sup. Ct. 325, 44 L.Ed.400; Interstate
Commerce Commission v. Brimson, 154 U.S. 447,
470, 14 Sup Ct. 1125, 38 L.Ed. 1047; Lottery
Case, 188 U.S. 321, 346, 23 Sup. Ct. 321, 47 L.Ed.
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492. The first expression of this was by Marshall,
C.J., in Gibbons v. Ogden, 9 Wheat (U.S.) 1, 6
L.Ed. 23; quoted by Fuller, C.J., in U.S. v. Knight
Co., 156 U.S. 1, 15 Sup. Ct. 249, 39 L.Ed. 325;
and characterized by White, J., as a "luminous
definition" in Northern Securities Co. v. U.S., 193
U.S. 197, 24 Sup. Ct. 436, 48 L.Ed. 679, to the
effect that commerce is something more than
traffic; "It is intercourse; it describes the
commercial intercourse between nations and parts
of nations in all its branches, and is regulated by
prescribing rules for carrying on that intercourse."
This has been practically, if not literally, quoted in
all the cases cited. There is nothing in the
decisions to define or limit so broad a term as
intercourse, except the word commercial, usually
attached to it. As it is hardly likely that the courts
intended to say that commerce is intercourse in the
sense in which it is defined "communication
between persons or places"; Cent. Dict.: it is
probable that the word was not intended to be used
to express more than such intercourse as is
connected with traffic and transportation with
foreign countries or between the States."
Dealing in liquor or for that matter in lottery, tobacco is not prohibited
under the Constitution. On the other hand, in the constitutional schemes
itself Parliament or the State Legislature has been conferred power to
regulate the said trade like any other trade. In fact India has entered into
trade agreements to deal in liquor with other sovereign countries. India has
entered into International treaties in the matter of foreign investment in
liquor. Trade in liquor finds place in World Trade Organization (WTO) and
General Agreement on Trade and Tariff (GATT). In terms of the WTO and
GATT guidelines have been laid down as regards import and export of
potable liquor. India, as a signatory to WTO and GATT, is expected to
follow the said guidelines. It is expected to remove all trade barriers subject
to the other provisions contained therein. It is also supposed to levy taxes/
countervailing duties in terms of such international treaties.
No constitutional provision or statute prohibits trade in liquor. Article 47 of
the Constitution empowers the State to impose prohibition. Once a
prohibition is imposed by any State in exercise of said powers, indisputably
no person will have any right to deal in potable liquor.
Applicability of Res-extra commercium is a judge made law.
Constitution does not provide for it. Even if Entries 8, 51 and 54 of List II,
on the other hand, lead to the conclusion that the State has the legislative
power to make regulatory enactment in the spheres provided for them, the
State indisputably may exercise its right to prohibit dealings in liquor either
wholly or partially but if it allows trade and business in liquor by parting
with its exclusive privilege; a presumption will arise unless contrary
intention is shown in the statute or licence granted therefor that it has not
retained unto itself a right to deal with a part of the trade itself or through its
agency. As has been noticed in the Kerala matter the State has given the
monopoly to trade in liquor in favour of the Kerala State Beverages
Corporation. Nowhere it is stated either by way of counter-affidavit or
under the statute that the State has reserved unto itself any right in the matter
relating to carrying on trade or business in potable liquor. As soon as a
licence is granted upon receipt of a fee fixed by it, the State would be
presumed to part with its entire privilege. To say that while exercising its
regulatory power for the purpose of controlling the trade and business in
potable liquor, it has reserved unto itself a part of its exclusive privilege
would not be correct unless the same is explicitly pleaded and proved.
Regulatory measures in the matter of trade and business in potable
liquor have been taken by reason of a statute. All regulations on the trade,
thus, must be governed by the statutes operating in the field and not by way
of executive action. The provisions of the statute or the contracts made
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thereunder must scrupulously be followed by all concerned as they are
bound by the same. When a legislation referable to Entries 8, 51 and 66 etc.
had occupied the field, the State, in absence of any provision contained in
the statute, cannot turn round and contend that it will exercise its power of
exclusive privilege even though it had granted licence in terms of the statute.
Having regard to the constitutional scheme the power of the State to
undertake trade and business is referable to Article 298 of the Constitution.
The duties, functions and responsibilities of a Government in a democracy
are different from monarchism. Rights and privileges of a monarch cannot
be equated with an elected Government in a democratic set-up. If the power
of the Government in other words to deal in trade or commerce, be it liquor
or any other commodity, can only be traced to Article 298 of the
Constitution, it goes without saying that the same would be subject to all
constitutional limitations applicable in relation thereto. The State while
exercising its constitutional power under Article 298 of the Constitution
cannot itself be an extra constitutional authority so as to violate the
constitutional provisions. It like any other trader must confine itself within
the four corners of the statutes governing the field which are enacted in
terms of one entry or the other made in any of the three lists to the Seventh
Schedule of the Constitution.
A State, therefore, may be entitled to either completely prohibit a
trade or business in liquor and create monopoly either in itself or in any
other agency and furthermore it can for the purpose of selling the licence
adopt any mode with a view to maximize its revenue but while doing so it
must, having regard to a large number of decisions of this Court, not act
arbitrarily. The State while carrying on business by way of parting with its
privilege or distribution of largess must conform to the equality clause
enshrined in Article 14 of the Constitution. It has been so held in Nandlal
Jaiswal (supra) at pages 604-605 in the following terms:
"But, before we do so, we may at this stage
conveniently refer to a contention of a preliminary
nature advanced on behalf of the State
Government and respondents 5 to 11 against the
applicability of Article 14 in a case dealing with
the grant of liquor licences. The contention was
that trade or business in liquor is so inherently
pernicious that no one can claim any fundamental
right in respect of it and Article 14 cannot
therefore be invoked by the petitioners. Now, it is
true, and it is well settled by several decisions of
this Court including the decision in Har Shanker v.
Deputy Excise & Taxation Commissioner [(1975)
3 SCR 254 : (1975) 1 SCC 737 : AIR 1975 SC
1121] that there is no fundamental right in a citizen
to carry on trade or business in liquor. The State
under its regulatory power has the power to
prohibit absolutely every form of activity in
relation to intoxicants - its manufacture, storage,
export, import, sale and possession. No one can
claim as against the State the right to carry on trade
or business in liquor and the State cannot be
compelled to part with its exclusive right or
privilege of manufacturing and selling liquor. But
when the State decides to grant such right or
privilege to others the State cannot escape the
rigour of Article 14. It cannot act arbitrarily or at
its sweet will. It must comply with the equality
clause while granting the exclusive right or
privilege of manufacturing or selling liquor. It is,
therefore, not possible to uphold the contention of
the State Government and respondents 5 to 11 that
Article 14 can have no application in a case where
the licence to manufacture or sell liquor is being
granted by the State Government. The State cannot
ride roughshod over the requirement of that
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article."
Privilege, thus, can be claimed by a State in a ’no right’ situation,
namely, when citizen is not permitted to carry on trade. But once the State
takes a decision to part with its privilege, it cannot make any discrimination
whatsoever. Dealing in liquor by the persons in whose favour licences have
been granted in terms of the statutory enactments derive a right therefor
which cannot be said to be "Res-Extra Commercium"
Now comes the question as to how far and to what extent, if any, the
fundamental and other rights of a citizen could be available in the matter of
trade in potable liquor. Article 19(1)(g) guarantees that all citizens shall have
the right to practice any profession or to carry on any occupation, trade or
business. However, in terms of Article 19(6) this right can be restricted by a
statute imposing reasonable restrictions. A combined reading of clauses (1)
and (6) of Article 19 makes it clear that a citizen has a fundamental right to
carry on any trade or business and the State can make a law imposing
reasonable restrictions on the said right in the interest of the general public.
It is, therefore, obvious that unless dealing in liquor is excluded from ‘trade
or business’, a citizen has a fundamental right to deal in that commodity.
This right was recognized in the The State of Bombay and Another
Vs. F.N. Balsara [(1951) SCR 682] where Fazl Ali, J., observed at page 717
that "we hold that to the extent to which the prohibition Act prevents the
possession, use and consumption of non-beverages and medicinal and toilet
preparations containing alcohol for legitimate purposes the provisions are
void as offending against Art. 19(1)(f) of the Constitution even if they may
be within the legislative competence of the provincial legislature,"
But in Cooverjee B. Bharucha (supra) a Constitution Bench of this
Court held that there is no inherent right in a citizen to sell intoxicating
liquors. This decision was rendered relying on P.Crowley, Chief of Police
of the City and County of San Fancisco, California Vs. Henry
Christenses [(1890) 34 Law. Ed.620(A)].
However, this exclusive privilege theory was rejected by a
Constitution Bench of this Court in Saghir Ahmad & Anr. Vs. State of
U.P. & Ors. [AIR 1954 SC 728] stating that this doctrine has no place
under Indian Constitution. It was observed that establishment of a
monopoly does not create a reasonable restriction. The observations made
in Cooverjee B. Bharucha (supra) stating that the general observations
occurring in the judgment have to be taken with reference to the facts of that
case were duly explained. It was reiterated that the State has a right to
prohibit trade which is illegal or immoral or injurious to the health and
welfare of the public by taking recourse to regulating legislation
contemplated by Article 19(6).
The fundamental right to trade in intoxicant liquor was recognized in
State of Kerala & Ors. Vs. P.J. Joseph [AIR 1958 SC 296]. There the
Government of Travancore and Cochin imposed 20% commission for
sanction of extra quota of Foreign Liquor to wholesale licencees. The said
impost was challenged before the High Court of Judicature for Travancore
Cochin, which was struck down by said High Court. On Appeal by State
this Court while upholding the judgment of High Court observed "an impost
not authorised by law cannot possibly be regarded as a reasonable restriction
and must, therefore, always infringe the right of the respondent to carry on
his business which is guaranteed to him by Article 19(1)(g) of the
Constitution." It was held that an impost in terms of an executive order
having no authority of law would be illegal imposition.
This principle has been affirmed by a Constitution Bench of this Court
in Krishna Kumar Narula Vs.State of Jammu and Kashmir & Ors.,
1967(3) SCR 50. After discussing all previous decisions, Subba Rao, C.J.,
held that "a scrutiny of these decisions does not support the contention that
the court held that dealing in liquor was not business or trade. They were
only considering the provisions of the various Acts which conferred a
restricted right to do business. None of them held that a right to do business
in liquor was not a fundamental right". It was observed that "If the activity
of a dealer, say, in ghee is business; then how does it cease to be business if
it is in liquor. Liquor can be manufactured, brought or sold like any other
commodity. It is consumed throughout the World though some countries
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restrict or prohibit the same on economic or moral grounds". It was further
held that "dealing in liquor is business and a citizen has a right to do
business in that commodity; but the State can make a law imposing
reasonable restrictions on the said right, in public interests."
In R.M.D. Chamarbaugwala(supra) S.R. Das, C.J. observed that the
American Congress have no power to control gambling and like spurious
transactions under its power over ’inter-State commerce’ if they were not
held to be ’commerce’.
Even in Har Shankar (supra) Chandrachud, J. (as the learned Chief
Justice then was) held that the right to trade in liquor is not absolute and it is
to be treated as a separate class. But therein also it has not been held that
despite fulfilling the regulatory measures, the trade would be illegal. The
point that arose for consideration therein was the State’s power to prohibit
trade. In that case, this Court had no occasion to consider the question
involved in the present one.
A large number of decisions, as noticed hereinbefore, have been cited
at the Bar for the proposition that by reason of grant of licence, the licensee
is merely granted a permissive privilege subject to the degree of regulatory
control as may be deemed necessary and appropriate having regard to the
fact that nobody has any constitutional right to trade in liquor in view of its
inherently pernicious and noxious nature. I may deal with some of the
decisions cited at the bar a little later but the principles which emerge from
the various decisions of this Court and particularly by Constitution Benches
of this Court are:
(i) Trade in liquor is against public morality and thus res extra
commercium. No citizen has any Fundamental Right to carry on
business in liquor. [See R.M.D. Chambarbaugwala (supra)]. As
there does not exist any right to carry on trade, Article 301 shall
not apply.
(ii) Right to trade in liquor is a Fundamental Right within the meaning
of Article 19(1)(g) of the Constitution subject, of course, to the
reasonable restrictions in terms of Clause (6) of Article 19. [See
Krishna Kumar Narula (supra)]
(iii) Right of the State to deal exclusively in liquor is its own privilege.
It does not matter as to whether such right is restricted while
parting with privilege by reason of a statute in terms of Article
19(6) of the Constitution.
(iv) (a) The equality clause even in the matter of carrying on trade is
not available. The right of the State to part with its privilege being
a superior right, the inferior right of a citizen to carry on trade,
shall give way to State’s superior right.
(b) The State while carrying on any trade or business itself cannot
make any discrimination and its acts must be fair and reasonable.
[See Nandlal Jaiswal (supra)]
(v) The State’s right is absolute when a complete prohibition is
imposed and at that stage the State can part with its exclusive
privilege in any manner it likes and it is also entitled to take any
measures for having the best price. [See Har Shankar (supra)].
In Khoday Distilleries Ltd. (supra) at pages 608-609, a Constitution
Bench referred to some of the decisions as referred to hereinbefore and
summed up its findings [para 60(a)(b)(e)(f)(g)]:
"(a) The rights protected by art. 19(1) are not
absolute but qualified. The qualifications are stated
in cls. (2) to (6) of art. 19. The fundamental rights
guaranteed in art. 19(1)(a) to (g) are, therefore, to
be read along with the said qualifications. Even the
rights guaranteed under the Constitutions of the
other civilized countries are not absolute but are
read subject to the implied limitations on them.
Those implied limitations are made explicit by cls.
(2) to (6) of art. 19 of our Constitution.
(b) The right to practise any profession or to carry
on any occupation, trade or business does not
extend to practising a profession or carrying on an
occupation, trade or business which is inherently
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vicious and pernicious, and is condemned by all
civilised societies. It does not entitle citizens to
carry on trade or business in activities which are
immoral and criminal and in articles or goods
which are obnoxious and injurious to health, safety
and welfare of the general public, i.e., res extra
commercium, (outside commerce). There cannot
be business in crime.
(e) For the same reason, the State can create a
monopoly either in itself or in the agency created
by it for the manufacture, possession, sale and
distribution of the liquor as a beverage and also
sell the licences to the citizens for the said purpose
by charging fees. This can be done under art. 19(6)
or even otherwise.
(f) For the same reason, again, the State can
impose limitations and restrictions on the trade or
business in potable liquor as a beverage which
restrictions are in nature different from those
imposed on the trade or business in legitimate
activities and goods and articles which are res
commercium. The restrictions and limitations on
the trade or business in potable liquor can again be
both under art. 19(6) or otherwise. The restrictions
and limitations can extend to the State carrying on
the trade or business itself to the exclusion of and
elimination of others and/or to preserving to itself
the right to sell licences to do trade or business in
the same, to others.
(g) When the State permits trade or business in the
potable liquor with or without limitation, the
citizen has the right to carry on trade or business
subject to the limitations, if any, and the State
cannot make discrimination between the citizens
who are qualified to carry on the trade or
business."
The decisions of this Court including those rendered by the
Constitution Benches struck different notes. They at times stand poles apart.
Inconsistencies and contradictions in the said decisions are galore. Some
latter Constitution Bench decisions although took note of the earlier
Constitution Bench decisions, but only sought to distinguish the same and
not referred the matter to a larger Bench for consideration of correctness of
one view or the other. I may, therefore, proceed on the premise that some of
the principles in Khoday (supra) are correct, although one may have strong
reservations even in this behalf. In Khoday (supra) expressly or by
necessary implication fundamental right to deal in any goods is accepted.
Only exception which was made are those commodities, business of which
is inherently noxious and pernicious and is condemned by the civilized
society. It has sought to lay down the law that there cannot be a business in
crime.
Dealing in a commodity which is governed by a statute cannot be said
to be inherently noxious and pernicious. A society cannot condemn a
business nor there exists a presumption in this behalf if such business is
permitted to be carried out under statutory enactments made by the
legislature competent therefor. The legislature being the final arbiter as to
the morality or otherwise of the civilized society has also to state as to
business in which article (s) would be criminal in nature. The society will
have no say in the matter. The society might have a say in the matter which
could have been considered in a Court of law only under common law right
and not when the rights and obligations flow out of statutes operating in the
field. Health, safety and welfare of the general public may again be a matter
for the legislature to define and prohibit or regulate by legislative
enactments. Regulatory statutes are enacted in conformity with clause (6) of
Article 19 of the Constitution to deal with those trades also which are
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inherently noxious and pernicious in nature and furthermore thereby
sufficient measures are to be taken in relation to health, safety and welfare of
the general public. The courts while interpreting a statute would not take
recourse to such interpretation whereby a person can be said to have
committed a crime although the same is not a crime in terms of the statutory
enactment. Whether dealing in a commodity by a person constitutes a crime
or not can only be subject matter of a statutory enactment.
The Excise Acts enacted by the States mandate the licensees to carry
on their activities in terms of the conditions of licence and the provisions
contained therein. So long as the business activities of the licensees are
within the four-corners of the conditions of the licence and the provisions of
the Licensing Act, they, without any obstruction whatsoever, are entitled to
carry on their trade, business or commerce. They would be liable to be
proceeded against for commission of an offence only in the event they
violate the statutory provisions wherefor the statute itself provides for
imposition of penalty.
Thus, when a person has been granted a licence strictly in conformity
with the Excise Act to carry on his business activities in terms of the statute
operating in the field, the same can neither be termed as pernicious,
obnoxious and injurious to health, safety and welfare of the general public.
No public interest can be inferred by any court of law by going beyond the
statutory provisions. Even monopoly of the State either in itself or in any
agency created by it for manufacture, possession, sale and distribution of
liquor can be created only by a statute which must conform to the
provisions of clause (6) of Article 19 of the Constitution, i.e., by making a
valid law, by way of a regulatory legislative enactment.
From the analysis of decisions rendered by this Court in Cooverjee B.
Bharucha, R.M.D. Chambarbaugwala, Har Shankar or Khoday Distilleries, it
will appear that a person cannot claim any right to deal in any obnoxious
substance on the ground of public morality. The State, therefore, is entitled
to completely prohibit any trade or commerce in potable liquor. Such
prohibition, however, has not been imposed. Once a licence is granted to
carry on any trade or business can it be said that a person is committing a
crime in carrying on business in liquor although he strictly complies with the
terms and conditions of licence and the provisions of the statute operating in
the field? If the answer to the said question is to be rendered in affirmative
it will create havoc and lead to anarchy and judicial vagaries. When it is not
a crime to carry on such business having regard to the fact that a person has
been permitted to do so by the State in compliance with the provisions of the
existing laws, indisputably he acquires a right to carry on business. Even in
respect to trade in food articles or other essential commodities either
complete prohibition or restrictions are imposed in the matter of carrying on
any trade or business, except in terms of a licence granted in that behalf by
the authorities specified in that behalf. The distinction between a trade or
business being carried out legally or illegally having regard to the
restrictions imposed by a statute would have, therefore, to be judged by the
fact as to whether such business is being carried out in compliance of the
provisions of the statute(s) operating in the field or not. In other words, so
long it is not made impermissible to carry on such business by reason of a
statute, no crime can be said to have been committed in relation thereto. The
doctrine of res extra commercium, thus, would not be attracted, whence a
person carries on business under a licence granted in terms of the provisions
of the regulatory statutes.
No case and in particular the decisions relied upon by the learned
counsel appearing on behalf of the State of Punjab and that of Kerala had
evolved a principle that despite paying a large amount of licence fees and
despite fulfillment of terms and conditions of licence and other statutory
provisions, the trade or business carried out by the licensee shall be at an
eternal peril, which may at any point of time be determinated or a new tax
imposed or they be proceeded against at the whims or caprice of the
executive wing of the State. In our constitutional scheme such a situation is
unthinkable. The country is governed by rule of law and despite existence
of a valid legislation operating in the field, executive whims or caprice
cannot be permitted to have any role to play. Validity of a tax imposed by
the State Legislature, thus, must be determined on the constitutional anvil of
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the legislative competence and not on any other basis. The decisions of this
Court which had no occasion to consider these aspects of the matter can be
of no assistance and would not constitute binding precedents. [See
Bhavnagar University vs. Palitana Sugar Mill (P) Ltd. and Others -
(2003) 2 SCC 111]
The right of the State to carry on trade or business under Article 298
of the Constitution would be subject to the same constitutional limitations in
the matter of carrying on trade or business in liquor as in other cases. The
distinction being only that the State has a monopoly to do so. Once the State
does not exercise the said right and considers it expedient to allow the
citizens to carry on the business or trade, it cannot be said that the licensees
do not derive any right whatsoever. Even when the State exercises such
right by creating a monopoly in itself, it would be subject to the same
constitutional limitations as envisaged, inter alia, under Articles 14 and 301
of the Constitution. Articles 14 and 301 of the Constitution protect from the
maladies of discrimination. Such discrimination may be in between persons
and persons, persons and State and State and State.
Can a State which exercises its right to create monopoly, prevent
another State to export or import its product? If in between two States such
discriminations are not possible, a discrimination inter se between licensees
of two States would also not be permissible. Such discrimination would also
not be permissible between a State and a person carrying on similar trade or
commerce in one State vis-‘-vis a person or State carrying on business in
another State.
Once the regulations restricting the right to carry on business in
potable liquor is attributed to reasonable restrictions and public interest
clause, contained in clause (6) of Article 19 of the Constitution, the
fundamental right to carry on trade under Article 19 is conceded. Once such
a right is conceded, it cannot be said that although a person has a
Fundamental Right to carry on trade or business for the purpose of Article
19(1)(g), subject to imposition of reasonable restrictions by a law made in
terms of clause (6) of Article 19, he does not have such a right in terms of
Article 301 of the Constitution or for that matter Article 14 thereof. Articles
303 and 304 of the Constitution also provide for imposition of restrictions
and thus even a freedom guaranteed to a person under Article 301 is not an
absolute one, but subject to the constitutional limitations provided therefor.
Article 301 confers freedom but not a licence. The protection from
discrimination as envisaged in Khoday Distilleries (supra) [para 60(g)]
would not only operate against the State which is the licensor but having
regard to the constitutional goals to be achieved by the commerce clause
contained in Article 301, must be extended to another State which seeks to
impose restrictions on import.
Let me raise a hypothetical question. If some States intend to exercise
their right/ privilege/ monopoly in the trade in potable liquor - can such
imposition of tax be still justified? Answer thereto must be rendered in the
negative. Now the question is with regard to the applicability of Article 301
of the Constitution in the matter of trade, commerce and intercourse in
potable liquor. The preamble to the Constitution speaks of unity and
integrity of India in terms whereof India is required to be treated country as
a whole. This theory of unity and integrity of India may have to be found
out while considering the economic integrity of the country vis-‘-vis the
economic barriers which may be put by the States. For the purpose of
considering the question as regards the interpretation of Article 301, one has
to notice the sources thereof. It is now beyond any cavil of doubt that except
a part of Part XIII of the Constitution the major part of the concept thereof
was borrowed from Sections 92 and 99 of the Australian Constitution as also
Section 297 of the Government of India Act, 1935.
Clause 17 of the draft as introduced before the Drafting Committee by
Sir. B.N. Rau in October, 1947 is in the following terms:
"Subject to the provisions of any Federal Law,
trade, commerce and intercourse among the units
shall, if between the citizens of the Federation, be
free:
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Provided that nothing in this section shall prevent
any unit from imposing on goods imported from
other units any tax to which similar goods
manufactured or produced in that unit are subject,
so, however, as not to discriminate between goods
so imported and goods so manufactured or
produced:
Provided further that no preference shall be given
by any regulation of trade, commerce or revenue to
one unit over another:
Provided also that nothing in this section shall
preclude the Federal Parliament from imposing by
Act restrictions on the freedom of trade, commerce
and intercourse among the units in the interests of
public order, morality or health or in cases of
emergency."
The marginal note appended to Sir B.N. Rau’s clause 17 to the effect
"Freedom of trade, commerce and intercourse among the units" is clearly
suggestive of the fact that Section 92 of the Australian Constitution provided
for a comparable provision vis-a-vis other Constitutions. It is also beneficial
to notice that Sections 92 and 99 of the Australian Constitution confer
different rights and the same are independent of each other. Trade,
commerce and intercourse as noticed hereinbefore are of wide amplitude.
The term "commerce" is wider than trade.
In United States Vs. Patterson [55 Fed.Rep. 605 at 639], it is held:
"The word "commerce" is undoubtedly, in its
usual sense, a larger word than "trade", in its usual
sense. Sometimes "commerce" is used to embrace
less than "trade", and sometimes "trade" is used to
embrace as much as "commerce".
An inhibition by Article 301 has been provided to the effect that the
Legislature shall not interfere in the commerce between the State and State
as also to the effect that the Legislature of a State shall not give any
preference to one State over the other. Article 301 of the Constitution in no
uncertain terms provides for a freedom in the matter of trade, commerce and
intercourse. Such trade, commerce and intercourse are inter-State as also
intra-State. By reason of Part XIII of the Constitution, the Constitution
makers sought to evolve a high policy. On a comparison made between
Section 297 of the Government of India Act, 1935 with Part XIII of the
Constitution, it will be found that the latter is wider than the former. The
said part of the Constitution is a self-contained part. Several improvements
made in Part XIII of the Constitution as compared to Section 297 are worth
taking note of. By reason of the said provisions, the entire country has been
considered to be one economic unit. It now embraces within its fold both
’commerce and trade’ and not ’trade’ alone. ’Commerce’ was provided for
in Entry 27 of List II only under the 1935 Act. Part XIII, however, refers to
the relevant entries contained in all the Lists of Seventh Schedule to the
Constitution. The limitation of power as regards legislative
competence of the State and the Parliament having regard to clause 2 of
Article 303 and sub-clauses (a) and (b) of Clause (1) of Article 304 is clear
pointer of the new dimension given to Article 301 of the Constitution. Even
if a comparison is made between the terminologies used in Article 301 on
the one hand and Articles 19 and 298 on the other, it would be evident that
whereas in the former ’trade, commerce and intercourse’ have been used but
in the latter only the words ’trade or business’ have been used. Such trade,
commerce and intercourse is in relation to entire territory of India whether
inter-State or intra-State unlike Section 297 of the Government of India Act.
Article 301 makes a declaration that ’trade, commerce and intercourse
throughout the territory of India shall be free’, which in turn must mean that
it shall be free from control of Executive and Legislature. I may, however,
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hasten to add that by reason thereof although a liberty has been granted but
such liberty cannot be equated with a licence inasmuch it would be subject
to restrictions. Articles 302 and 303 categorically state that there shall be no
discrimination between one State and the other but restrictions inhere in such
liberty as would appear from clause 2 of Article 303 of Constitution, if a
situation stipulated therein arises for consideration. In other words,
discrimination is at the heart of this Chapter. By reason of the said
provision, the State is prohibited from imposing a tax without making any
discrimination whatsoever so as to impede free flow of inter-State or intra-
State trade. The State, however, is entitled to impose reasonable restrictions
as also levy tax in public interest. But the same indisputably would be
subject to the conditions laid down in Articles 303 and 304 of the
Constitution.
The precise question which arises for consideration is as to whether a
trade in liquor would come within the purview of trade, commerce and
intercourse, within the meaning of Article 301 of the Constitution. In the
earlier part of this judgment I have considered the difference between a trade
to which a citizen has an absolute right and a trade where no such absolute
right exists being dangerous or obnoxious; but once such trade is permitted
in terms of a regulatory statute, the same cannot be said to be per se illegal.
Earlier I have considered the difference between a trade which is not
prohibited under any law and a trade carrying whereof although is of
dangerous or obnoxious subjects but is permitted in law and subject to the
regulatory statute. For the purpose of invoking Part XIII of the Constitution,
one may safely proceed on the assumption that a citizen of India may not
have a Fundamental Right in terms of Article 19(1)(g) of the Constitution to
carry on a trade or business but there could be little difficulty in upholding
the right to carry on such trade on the ground that the same has been
permitted by the State, although a citizen but for such permission would not
have a right to deal in the commodity in question. It may be noticed that
in Article 303 of the Constitution the terminology used is "relating to".
These words are of wide amplitude. These expressions relate to all entries
relating to trade or commerce and not one entry in one of the Lists. It, thus,
refers to all such entries which are referable to trade and commerce
occurring in any of the three lists.
Tobacco is one of the goods which would otherwise come within the
purview of the doctrine of "Res extra commercium", if the meaning thereof
as judicially defined is held to be good. Dealing in tobacco is regulated by
the Tobacco Act, a Parliamentary Act. It is universally acknowledged that
cigarettes cause cancer but having regard to the Tobacco Act and other
statutes it cannot be contended that the State can prohibit business in
cigarette without any legislation, i.e., only through executive instructions. In
terms of Article 303 of the Constitution, Tobacco Act which is made in
terms of Entry 52 of List I of the Seventh Schedule to the Constitution
would prohibit the States from making any discriminatory legislation. It is,
therefore, difficult to understand as to how a prohibition can be imposed in
respect of liquor in relation whereto also a legislative power has been
conferred upon the State specifically in terms of Entries 8 and 51 in List II of
the Seventh Schedule to the Constitution.
At this juncture, it is useful to refer to the decision of this Court in
Atiabari Tea Company Limited (supra) wherein this Court in no uncertain
terms laid emphasis upon the economic unity of the country. In that case
before the Constitution Bench an argument was advanced to the effect that
Article 301 is circumscribed by Article 303 but the same was not accepted.
Gajendragadkar, J. (as he then was) held at pages 843-844 as follows:
"In drafting the relevant Articles of Part XIII the
makers of the Constitution were fully conscious
that economic unity was absolutely essential for
the stability and progress of the federal policy
which had been adopted by the constitution for the
governance of the country. Political freedom
which had been won, and political unity which had
been accomplished by the Constitution, had to be
sustained and strengthened by the bond of
economic unity. It was realised that in course of
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time different political parties believing in
different economic theories or ideologies may
come in power in the several constituent units of
the Union, and that may conceivably give rise to
local and regional pulls and pressures in economic
matters. Local or regional fears or apprehensions
raised by local or regional problems may persuade
the State Legislatures to adopt remedial measures
intended solely for the protection of regional
interests without due regard to their effect on the
economy of the nation as a whole. The object of
Part XIII was to avoid such a possibility. Free
movement and exchange of goods throughout the
territory of India is essential for the economy of
the nation and for sustaining and improving living
standards of the country. The provision contained
in Art. 301 guaranteeing the freedom of trade,
commerce and intercourse is not a declaration of a
mere platitude, or the expression of a pious hope of
a declaratory character; it is not also a mere
statement of a directive principle of state policy; it
embodies and enshrines a principle of paramount
importance that the economic unity of the country
will provide the main sustaining force for the
stability and progress of the political and cultural
unity of the country."
In Automobile Transport (Rajasthan) Ltd. (supra), the validity of
the tax impugned therein was upheld only on the ground that it was
compensatory in nature. There had been a cleavage of opinion amongst the
Hon’ble Judges in the said matter; three Hon’ble Judges holding that such
impost was ultra vires and three Hon’ble Judges holding the same to be intra
vires. Subba Rao, J. upheld the constitutionality of the impost by agreeing
with other three Hon’ble Judges on the ground that the impost was
compensatory in nature. The Bench not only accepted the constitutional
principles laid down by this Court in Atiabari (supra) but made a clear
distinction between the regulatory measures which can be adopted by a State
and imposition of a tax. It, further, struck a note of caution that a
geographical barrier cannot be set up by a State for the purpose of earning
revenue or for the benefit of the people thereof. It was held that Article 301
covers a wide area.
Subba Rao, J. elaborated as to what is the nature of a compensatory
tax. The learned Judge, further, emphasized the concept of freedom in the
following terms at pages 564-565 of the Report:-
"(1) Article 301 declares a right of free movement
of trade without any obstructions by way of
barriers, inter-State, or intra-State or other
impediments operating as such barriers. (2) The
said freedom is not impeded, but, on the other
hand, promoted, by regulations creating conditions
for the free movement of trade, such as, police
regulations, provision for services, maintenance of
roads, provision for aerodromes, Wharfs etc., with
or without compensation. (3) Parliament may by
law impose restrictions on such freedom in the
public interest; and the said law can be made by
virtue of any entry with respect where of
Parliament has power to make a law. (4) The State
also, in exercise of its legislative power, may
impose similar restrictions, subject to the two
conditions laid down in Article 304(b) and subject
to the proviso mentioned therein. (5) Neither
Parliament nor the State Legislature can make a
law giving preference to one State over another or
making discrimination between one State and
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another, by virtue of any entry in the Lists,
infringing the said freedom. (6) This ban is lifted
in the case of Parliament for the purpose of dealing
with situations arising out of scarcity of goods in
any part of the territory of India and also in the
case of a State under Article 304(b), subject to the
conditions mentioned therein. And (7) The State
can impose a non-discriminatory tax on goods
imported from other States or the Union territory
to which similar goods manufactured or produced
in that State are subject.
’Commerce and intercourse’ include trade in all its manifestations.
Obstructions or impediments to the free flow of trade would be violative of
the freedom declared by Article 301. Subba Rao, J., in the said case held at
page 548 as under:
"The next question is, where is it free ? The
second, expression "throughout the territory of
India" demarcates the extensive field of operation
of the said freedom. The said intercourse shall be
free throughout the territory of India. The use of
the words ’territory of India" instead of ’among the
several States" found in the American Constitution
or "among the States" found in the Australian
Constitution, removes all inter-State or intra-State
barriers and brings out the idea that for the purpose
of the freedom declared, the whole country is one
unit. Trade cannot be free through-out the territory
of India, if there are barriers in any part of India,
be it inter-State or intra-State. So long as there is
impediment to that freedom, its nature or extent is
irrelevant. The difference will be in degree and not
in quality. The freedom declared under Article 301
may be defined as a right to free movement of
persons or things, tangible or intangible,
commercial or non-commercial, unobstructed by
barriers inter-State or intra-State or any other
impediment operating as such barriers. To State it
differently all obstructions or impediments
whatever shape they may take, to the free flow or
movement of trade, or non-commercial
intercourse, offend Article 301 of the Constitution
except in so far as they are saved by the
succeeding provisions."
It is beyond any cavil of doubt that Part XIII of the Constitution
contains a principle of importance as regards economic sovereignty and
integrity of India by doing away the trade barriers as also an attempt by the
State to provide economic protection to the States. Once, it is held that the
limitation upon the legislative power stipulated in Article 303(1), 304(a)
would apply to trade in liquor, there cannot be any doubt in view of several
Constitution Bench decisions of this Court that Article 301 will also apply
thereto. [See Kalyani Stores (supra), H. Anraj (supra) and Bhailal Bhai
(supra)].
In A.B.Abdul Kadir & Ors. Vs. State of Kerala, AIR 1976 SC 182,
this Court, when the validity of a luxury tax (in the nature of excise duty) on
tobacco was challenged as violative of Article 304(b), proceeded on the
basis that the business was protected by Article 301 but rejected the plea, on
the merits, holding that the restrictions imposed were reasonable and in the
public interest.
In Anraj’s case (supra) this Court considered Entry 34 of List II in
terms whereof the State Legislature has been conferred power to enact
Statutes on gambling. In M/s. Maruthi Agencies, Bangalore rep. by its
Proprietor Vs. The State of Tamil Nadu and others, 1997(1) MLJ 589, it
was held that in the event lotteries are organized by a State, sale of tickets
thereof cannot be prohibited in other States on the ground that it is gambling
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and prohibited by List II. If trade in liquor like gambling or betting were not
to be regulated by statutes it is difficult to comprehend as to why entries in
respect thereof have been made in the Seventh Schedule to the Constitution.
The American decisions relied upon before this Court may not be held
to have any application having regard to the fact that trade in liquor in the
United States of America was completely prohibited at one point of time but
the same was modified by reason of Constitution Twenty-first Amendment.
Let me now take the case of 21st Amendment in US Constitution. In the
Constitution of the United States, an express provision guaranteeing freedom
from inter-State trade and commerce does not exist. There only the
Congress is empowered to regulate commerce. In the States freedom on
trade and commerce clause only provides for a limitation upon the power of
the State Legislature but not Congress and the freedom is confined to the
inter-State aspect.
In Southern Pacific Co., Vs. State of Arizona (1945) 325 US 761, it
is stated:
"For a hundred years it has been accepted
constitutional doctrine that the commerce clause,
without the aid of congressional legislation, thus
affords some protection from state legislation
inimical to the national commerce, and that in such
cases, where Congress has not acted, this Court,
and not the State legislature, is under the
commerce clause the final arbiter of the competing
demands of state and national interests".
It is further stated:
"The Commerce Clause is a grant of authority to
Congress, and not a restriction on the authority of
that body."
In the United States, the inter-State restraint trade as such is prohibited
but a State is not denuded of its power imposing general taxes under its
taxing power. The state has also the power to regulate such aspects of
commerce which do not require a new form of national control. (See Bob-
Lo Excursion Company Vs. People of the State of Michigan.(1948) 333
US 28). Furthermore, in United States a complete prohibition was
imposed. The said prohibition was sought to be relaxed by 21st Amendment
which is in the following terms:
"Section 1. The eighteenth article of amendment to
the Constitution of the United States is hereby
repealed.
Section 2. The transportation or importation into
any State, Territory, or possession of the United
States for delivery or use therein of intoxicating
liquors, in violation of the laws thereof, is hereby
prohibited.
Section 3. This article shall be inoperative unless it
shall have been ratified as an amendment to the
Constitution by conventions in the several States,
as provided in the Constitution, within seven years
from the date of the submission hereof to the
States by the Congress."
In the United States of America, the State has the requisite power to
impose general taxes. Despite the same, an exemption granted in favour of
local manufacturers vis-‘-vis the exporters was frowned upon by the
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American Courts.
In Bacchus Imports, Ltd. Vs. Herbert H. Dias (82 L.Ed. 2d 200),
the challenge was to the following effect:
"1a. Appellants challenge the constitutionality of
the Hawaii liquor tax, which is a 20% excise tax
imposed on sales of liquor at wholesale.
Specifically at issue are exemptions from the tax
for certain locally produced alcoholic beverages.
The Supreme Court of Hawaii upheld the tax
against challenges based upon the Equal Protection
Clause, the Import-Export Clause, and the
Commerce Clause. In re Bacchus Imports, Ltd.,
65 Haw 566, 656 P2d 724 (1982). We noted
probable jurisdiction, 462 US 1130, 77 L.Ed 2d
1365, 103 S Ct 3109 (1983), and now reverse."
White, J. speaking for the majority stated the law thus:
"3. A cardinal rule of Commerce Clause
jurisprudence is that "no State, consistent with the
Commerce Clause, may ’impose a tax which
discriminates against interstate commerce...by
providing a direct commercial advantage to local
business.’" Boston Stock Exchange v State Tax
Comm’n, 429 US 318, 329, 50 L Ed 2d 514, 97 S
Ct 599 (1977)(quoting Northwestern States
Portland Cement Co. v Minnesota, 358 US 450,
458, 3 L Ed 2d 421, 79 S ct 357, 67 ALR2d 1292
(1959)). Despite the fact that the tax exemption
here at issue seems clearly to discriminate on its
face against interstate commerce by bestowing a
commercial advantage on okolehao and pineapple
wine, the State argues - and the Hawaii Supreme
Court held - that there is no improper
discrimination."
The Court noticed:
"(4a, 5) Much of the State’s argument centers
on its contention that okolehao and pineapple wine
do not compete with the other products sold by the
wholesalers. The State relies in part on statistics
showing that for the years in question sales of
okolehao and pineapple wine constituted well
under one percent of the total liquor sales in
Hawaii. It also relies on the statement by the
Hawaii Supreme Court that "we believe we can
safely assume these products pose no competitive
threat to other liquors produced elsewhere and
consumed in Hawaii," In re Bacchus Imports,
Ltd., 65 Haw, at 582, n 21, 656 P2d, at 735, n 21,
as well as the court’s comment that it had "good
reason to believe neither okolehao nor pineapple
wine is produced elsewhere." Id., at 582, n 20,
656 P 2d, at 735, n 20. However, neither the small
volume of sales of exempted liquor nor the fact
that the exempted liquors do not constitute a
present "competitive threat" to other liquors is
dispositive of the question whether competition
exists between the locally produced beverages and
foreign beverages; instead, they go only to the
extent of such competition. It is well settled that
"we need not know how unequal the Tax is before
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concluding that it unconstitutionally
discriminates." Marryland v. Louisiana, 451 US
725, 760, 68 L Ed 2d 576, 101 S Ct 2114 (1981).
The State’s position that there is no
competition is belied by its purported justification
of the exemption in the first place. The legislature
originally exempted the locally produced
beverages in order to foster the local industries by
encouraging increased consumption of their
product. Surely one way that the tax exemption
might produce that result is that drinkers of other
alcoholic beverages might give up or consume less
of their customary drinks in favor of the exempted
products because of the price differential that the
exemption will permit. Similarly, nondrinkers,
such as the maturing young, might be attracted by
the low prices of okolehao and pineapple wine.
On the stipulated facts in this case, we are
unwilling to conclude that no competition exists
between the exempted and the nonexempted
liquors."
As regards the State’s right on economic protectionism it was said:
"A finding that state legislation constitutes
"economic protectionism" may be made on the
basis of either discriminatory purpose, see Hunt v
Washington Apple Advertising Comm’n, 432 US
333, 352-353, 53 L Ed 2d 383, 97 S Ct 2434
(1977), or discriminatory effect, see Philadelphia v
New Jersey, supra. See also Minnesota v Clover
Leaf Creamery Co., supra, at 471, n 15, 66 L Ed 2d
659, 101 S Ct 715. Examination of the State’s
purpose in this case is sufficient to demonstrate the
State’s lack of entitlement to a more flexible
approach permitting inquiry into the balance
between local benefits and the burden on interstate
commerce. See Pike v Bruce Church, Inc., 397 US
137, 142, 25 L Ed 2d 174, 90 S Ct 844 (1970).
The Hawaii Supreme Court described the
legislature’s motivation in enacting the exemptions
as follows:
"The legislature’s reason for exempting ’ti
root okolehao’ from the ’alcohol tax’ was to
’encourage and promote the establishment
of a new industry,’ S.L.H. 1960, c 26; Sen
Stand Comm Rep No. 87, in 1960 Senate
Journal, at 224, and the exemption of ’fruit
wine manufactured in the State from
products grown in the State’ was intended
’to help’ in stimulating ’the local fruit wine
industry’. S.L.H. 1976, c 39; Sen Stand
Comm Rep No. 408-76, in 1976 Senate
Journal, at 1056." In re Bacchus Imports,
Ltd. supra at 573-574, 656 P2d, at 730.
Thus, we need not guess at the legislature’s
motivation, for it is undisputed that the purpose of
the exemption was to aid Hawaiian industry.
Likewise, the effect of the exemption is clearly
discriminatory, in that it applies only to locally
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produced beverages, even though it does not apply
to all such products. Consequently, as long as
there is some competition between the locally
produced exempt products and non-exempt
products from outside the State, there is a
discriminatory effect."
The Learned Judge proceeded to observe:
"No one disputes that a State may enact laws
pursuant to its police powers that have the purpose
and effect of encouraging domestic industry.
However, the Commerce Clause stands as a
limitation on the means by which a State can
constitutionally seek to achieve that goal. One of
the fundamental purposes of the Clause "was to
insure ...against discriminating State legislation."
Welton v Missouri, 91 US 275, 280, 23 L Ed 347
(1876). In Welton, the Court struck down a
Missouri statute that "discriminated in favor of
goods, wares, and merchandise which are the
growth, product, or manufacture of the State, and
against those which are the growth, product or
manufacture of other states or countries..." Id., at
277, 23 L Ed 347. Similarly, in Walling v
Michigan, 116 US 446, 455, 29 L Ed 691, 6 S Ct
454 (1886), the Court struck down a law imposing
a tax on the sale of alcoholic beverages produced
outside the State, declaring:
"A discriminating tax imposed by a State
operating to the disadvantage of the products
of other States when introduced into the first
mentioned State, is, in effect, a regulation in
restraint of commerce among the States, and
as such is a usurpation of the power
conferred by the Constitution upon the
Congress of the United States."
See also I.M. Darnell & Son Co. v Memphis, 208
US 113, 52 L Ed 413, 28 S Ct 247 (1908)."
It was held:
"We also find unpersuasive the State’s contention
that there was no discriminatory intent on the part
of the legislature because "the exemptions in
question were not enacted to discriminate against
foreign products, but rather, to promote a local
industry." Brief for Appellee Dias 40. If we were
to accept that justification, we would have little
occasion ever to find a statute unconstitutionally
discriminatory. Virtually every discriminatory
statute allocates benefits or burdens unequally;
each can be viewed as conferring a benefit on one
party and a detriment on the other, in either an
absolute or relative sense. The determination of
constitutionality does not depend upon whether
one focuses upon the benefited or the burdened
party. A discrimination claim, by its nature,
requires a comparison of the two classifications,
and it could always be said that there was no intent
to impose a burden on one party, but rather the
intent was to confer a benefit on the other.
Consequently, it is irrelevant to the Commerce
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Clause inquiry that the motivation of the
legislature was the desire to aid the makers of the
locally produced beverage rather than to harm out-
of-state producers."
The learned Judge explained the application of 21st Amendment by
posing the question:
"Whether the interests implicated by a state
regulation are so closely related to the powers
reserved by the Twenty-first Amendment that the
regulation may prevail, notwithstanding that its
requirements directly conflict with express federal
policies."
and answered the same :
"Approaching the case in this light, we are
convinced that Hawaii’s discriminatory tax cannot
stand. Doubts about the scope of the
Amendment’s authorization notwithstanding, one
thing is certain: The central purpose of the
provision was not to empower States to favor local
liquor industries by erecting barriers to
competition. It is also beyond doubt that the
Commerce Clause itself furthers strong federal
interests in preventing economic Balkanization.
South-Central Timber, Development, Inc. v
Wunnicke, 467 US 82, 81 L Ed 2d 71, 104 S Ct
2237 (1984); Hughes v Oklahoma, 441 US 322, 60
L Ed 2d 250, 99 S Ct 1727 (1979); Baldwin v
G.A.F. Seelig, Inc., 294 US 511, 79 L Ed 1032, 55
S Ct 497, 101 ALR 55 (1935). State laws that
constitute mere economic protectionism are
therefore not entitled to the same deference as laws
enacted to combat the perceived evils of an
unrestricted traffic in liquor. Here, the State does
not seek to justify its tax on the ground that it was
designed to promote temperance or to carry out
any other purpose of the Twenty-first Amendment,
but instead acknowledges that the purpose was "to
promote a local industry." Brief for Appellee Dias
40. Consequently, because the tax violates a
central tenet of the Commerce Clause but is not
supported by any clear concern of the Twenty-first
Amendment, we reject the State’s belated claim
based on the Amendment."
The minority opinion, however, proceeded on the basis that by reason
of Twenty-first Amendment, the State has the power to create a monopoly.
Such constitutional permissibility is absent from our constitutional scheme.
It may be noticed that the same principles as in Atiabari (supra) or
Automobile (supra) have been applied by the Privy Council and the
Australian Courts while interpreting Section 92 of the Australian
Constitution to hold that even for any purpose for which the State has acted
the legislation would not be relevant criteria for declaring it ultra vires if it is
found that the same interferes with the right of trade. (See James Vs.
Commonwealth of Australia (1936) A.C.578, North Eastern Dairy Co.
Ltd. Vs. Dairy Industry Authority of New South Wales (1974-1975) 134
C.L.R. 559 at 581, The Commonwealth & Ors. Vs. Bank of New South
Wales & Ors. (1949) 79 C.L.R. 497).
Mason, J. in Pilkington Vs. Frank Hammond Pty. Ltd. (1974) 131
C.L.R. 124 interpreted Section 92 of the Australian Constitution in the
following terms:
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"The section does not in terms speak of the private
right of the individual to engage in trade,
commerce, and intercourse among the States; it
refers to trade, commerce and intercourse among
the States as an entire and total concept and
provides that it is to be ’absolutely free’ in the
sense in which this expression has been discussed
in the decided cases. In saying so much the
section protects the right of the individual to
engage in inter-State trade, commerce and
intercourse but it needs to be recognized that this
protection is incidental to, and in a sense
consequential upon, the protection which is given
to the entire concept of inter-State trade, commerce
and intercourse, including the various acts and
transactions by which it is constituted."
Reference in this connection may also be made to North Eastern
Dairy Co. Ltd. Vs. Dairy Industry Authority of New South Wales (1974-
1975) 134 C.L.R. 559, at 615).
In India, the constitutional guarantee under Article 301 of the
Constitution is more extensive than either in United States or Australia. The
decisions of United States Supreme Court and Australian Supreme Court as
also the Privy Council, as referred to hereinbefore, clearly demonstrate that
in these countries, although States have more constitutional freedom but
despite the same Commerce Clause received ample protection at the hands
of the Judiciary.
Subba Rao, J. in Automobile case (supra) observed:
"The freedom declared under Article 301 may be
defined as a right to free movement of persons or
things, tangible or intangible, commercial or non-
commercial, unobstructed by barriers, inter-State
or intra-State or any other impediment operating as
such barriers. To state it differently, all
obstructions or impediments, whatever shape they
may take, to the free flow or movement of trade, or
non-commercial intercourse, offend Article 301 of
the Constitution except in so far as they are saved
by the succeeding provisions."
The public character theory although is an important, but has a
limitation on the individual right which is guaranteed; having regard to the
fact that legislative restriction ultimately permits the individual State to go
ahead, only subject to the reasonable restriction. The rule against enacting
protectionist measures has also been noticed by the High Court of Australia
in Cole Vs. Whitfield & Anr. (1987-1988) 165 CLR 360, settling a long
debate.
In Shree Mahavir Oil Mills and Another Vs. State of J&K and
Others (1996) 11 SCC 39 at pages 53-54, this Court while rejecting an
argument of justification of exemption from sales tax of small scale
industrial units within the State of J&K on the ground that the commodity
produced within the State and that produced in other States and sold in J&K,
constitute different classes, has held as under:-
"The States are certainly free to exercise the power
to levy taxes on goods imported from other
States/Union Territories but this freedom, or
power, shall not be so exercised as to bring about a
discrimination between the imported goods and the
similar goods manufactured or produced in that
State. The clause deals only with discrimination by
means of taxation; it prohibits it. The prohibition
cannot be extended beyond the power of taxation.
It means in the immediate context that States are
free to encourage and promote the establishment
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and growth of industries within their States by all
such means as they think proper but they cannot, in
that process, subject the goods imported from other
States to a discriminatory rate of taxation, i.e., a
higher rate of sales tax vis-a-vis similar goods
manufactured/produced within that State and sold
within that State. Prohibition is against
discriminatory taxation by the States. It matters not
how this discrimination is brought about.............
We find it difficult to appreciate how can the
concept of classification be read into clause (a) of
Article 304 to undo the precise object and purpose
underlying the clause. Shri Verma repeatedly
stressed that the object underlying the impugned
measure is a laudable one and that it seeks to serve
and promote the interest of the State of Jammu and
Kashmir which is economically and industrially an
undeveloped State, besides being a disturbed State.
We may agree on this score but then the measures
necessary in that behalf have to be taken by the
appropriate authority and in the appropriate
manner. Part XIII of the Constitution itself
contains adequate provisions to remedy such a
situation and there is no reason why the necessary
measures cannot be taken to protect the edible oil
industry in the State in accordance with the
provisions of the said Part."
It is thus evident that any manner of extension of protection to trade or
business within the frontiers of State, at the cost of free inter-State trade or
commerce will not stand the test of Article 301. The scheme of
compensatory taxes, operate in an entirely different sphere. They cannot be
confused with measures which are both in form and substance protectionist
impositions.
In Brown Vs. Maryland (1827) 12 Wheat 419, the US Supreme
Court in the context of the competence of the States to enact and impose a
duty on imports or exports has held that the power to regulate inter state
commerce in non-discriminatory fashion and "to break down or to eliminate
barriers to trade amongst the States" is an essential federal power. It has,
therefore, been said that in the absence of such a power "local interest
exerting powerful influences in State Legislatures would, in the long run,
prefer home industries over those that are out of state, establish tariff
barriers, or employ other means tending to Balkanize the nation into hostile
trade areas." [See also William O. Doughlas J: From Marshall to Mukherjea:
Tagore Law Lectures 1956 P. 169].
In James Vs. Commonwealth of Australia 1936 AC 578, referring
to McArthur’s case 28 CLR 530 it was held:
"It is now convenient to examine the actual
language of the Constitution so far as relevant, in
order to ascertain its true construction. The first
question is what is meant by "absolutely free" in s.
92. It may be that the word "absolutely" adds
nothing. The trade is either free or it is not free.
"Absolutely" may perhaps be regarded as merely
inserted to add emphasis. The expression
"absolutely free" is generally described as popular
or rhetorical. On the other hand, ’absolutely’ may
have been added with the object of excluding the
risk of partial or veiled infringements. In any case,
the use of the language involves the fallacy that a
word completely general and undefined is most
effective. A good draftsman would realize that the
mere generality of the word must compel
limitation in its interpretation. "Free" in itself is
vague and indeterminate. It must take its colour
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from the context. Compare, for instance, its use in
free speech, free love, free dinner and free trade.
Free speech does not mean free speech; it means
speech hedged in by all the laws against
defamation, blasphemy, sedition and so forth; it
means freedom governed by law, as was pointed
out in McArthur’s case. Free love, on the contrary,
means licence or libertinage, though, even so, there
are limitations based on public decency and so
forth. Free dinner generally means free of
expense, and sometimes a meal open to any one
who comes, subject, however, to his condition or
behaviour not being objectionable. Free trade
means, in ordinary parlance, freedom from tariffs.
"Free" in s. 92 cannot be limited to freedom in the
last mentioned sense. There may at first sight
appear to be some plausibility in that idea, because
of the starting-point in time specified in the
section, because of the sections which surround s.
92, and because the proviso to s. 92 relates to
customs duties. But it is clear that much more is
included in the term; customs duties and other like
matters constitute a merely pecuniary burden; there
may be different and perhaps more drastic ways of
interfering with freedom, as by restriction or
partial or complete prohibition of passing into or
out of the State.
Nor does "free" necessarily connote absence of
discrimination between inter-State and intra-State
trade. No doubt conditions restrictive of freedom
of trade among the States will frequently involve a
discrimination; but that is not essential or decisive.
An Act may contravene s.92 though it operates in
restriction both of intra-State and of inter-State
trade."
However, in India Part XIII of the Constitution relates both to inter-
State trade and commerce as also intra-State trade.
In Fox Vs. Robbins [8 CLR 115], It was held:
"Sec. 92 of the Constitution does not reframe State
Acts by making new affirmative legislation not
contemplated by the State Parliament. It prevents
adverse discrimination from being lawful; so far as
the Act can be effectively worked in conformity
with the constitutional requirement it still stands;
so far as it cannot it simply ceases to operate."
Once it is held that the principle of res-extra commercium is not
applicable, the decisions in Kalyani Stores (supra), H. Anraj (supra) and
Bhailal Bhai (supra) having been rendered by a Constitution Bench would
constitute binding precedents. Once it is held that the Legislature has no
power to levy any excise duty on imported liquor in excess of the
countervailing duty within the State, having regard to the constitutional
limitation imposed in terms of Entry 51, List II of Seventh Schedule to the
Constitution, such discriminatory levy must be held to be violative of Article
303(1) and 304(a) of the Constitution. As import fee is an impost, thus, levy
thereof in addition to countervailing duty would clearly attract the wrath of
Article 304(a) of the Constitution. It has not been and could not have been
contended that the tax is compensatory in nature as was the case in
Automobile (supra). I am, therefore, of the opinion that the impugned
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impost cannot be upheld.
Before parting, however, I may notice the submission made by Mr.
Iyer on behalf of the State of Kerala that the licensees, having obtained a
privilege and enjoyed the benefit out of it, cannot, turn round subsequently
and repudiate the obligations subject to which they obtained the privilege.
The submission of Mr. Iyer is wholly mis-conceived for more than one
reason. The manufacturers of liquor outside the State of Kerala did not
obtain any privilege from the State. The decisions relied upon by the
learned counsel, namely, Har Shankar (supra), Jage Ram (supra), Lal
Chand (supra), M/s. Dial Chand Gian Chand and Company (supra), thus,
cannot be said to have any application in the instant case. The decisions in
these cases were rendered in the fact situation obtaining therein. The
licensees therein questioned the power of the State to hold auction by the
State and/or they refused to comply with the terms and conditions of licence.
In fact in Harshankar (supra) the Court on the factual matrix obtaining
therein clearly came to the conclusion that the writ petition was not
maintainable as thereby the licensees sought avoidance from compliance of
contractual terms and licensing conditions and, thus, they were not entitled
to any relief. The writ petitioners before the High Court had not questioned
any of the terms and conditions of the licence. In Kerala case they are not
even licensees at all. They are manufacturers of potable liquor, licences
wherefor had been granted by other States. The State of Kerala has not
parted any privilege in their favour. Even otherwise when the legislative
competence of a State is in question, the same goes to the root of the
jurisdiction. Once it is found that the State Legislature has exceeded its
jurisdiction in imposing the impugned levy, the same being a fraud on the
Constitution cannot be sustained on the procedural doctrine of estoppel or
waiver.
For the reasons aforementioned, Civil Appeal No. 3017 of 1997 is
dismissed and impugned judgment rendered by the Punjab and Haryana
High Court quashing the Notification impugned before it is upheld. On
23.7.1998 when prayer for grant of interim relief was being considered, a
prayer was made by Shri Harish N. Salve, learned Senior Counsel, appearing
on behalf of the State of Punjab, to the effect that operation of impugned
judgment rendered by the High Court may be stayed as the State was ready
to undertake before this Court to refund the amount that would be realized
by way of import duty together with interest thereon @ 15% per annum to
the respondents in the event of dismissal of State’s appeal by this Court and
the said prayer having been acceded to, this Court stayed the operation of the
judgment rendered by the High Court upon the aforesaid undertaking. In
view of this, the State of Punjab is hereby directed to refund the amount that
has been realized by it by way of import duty to the respondents together
with interest thereon @ 15% per annum from the date of its realization till
payment, which must be made within a period of three months.
Civil Appeal Nos. 2696-2697 are allowed and the Notification
impugned before the Kerala High Court is quashed.
There shall be no order as to costs.