Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 16
PETITIONER:
STATE OF ANDHRA PRADESH
Vs.
RESPONDENT:
Y. PRABHAKARA REDDY
DATE OF JUDGMENT04/03/1987
BENCH:
REDDY, O. CHINNAPPA (J)
BENCH:
REDDY, O. CHINNAPPA (J)
DUTT, M.M. (J)
CITATION:
1987 AIR 933 1987 SCR (2) 513
1987 SCC (2) 136 JT 1987 (1) 637
1987 SCALE (1)525
ACT:
Andhra Pradesh Excise Act, 1968: ss.2(10), 17, 21-
23/Andhra Pradesh (Arrack, Retail Vend Special Conditions of
Licences) Rules, 1969: rr. 7, 11 & 15/Andhra Pradesh (Lease
of Right to Sell Liquor in Retail) Rules 1969: rr.2(ix), 3,
16, 18 & 22/Andhra Pradesh Excise (Amendment) Act,
1984---Minimum guaranteed quantity of arrack short
drawn--Contractor whether entitled to deduct from issue
price excise duty component--Issue price--Connotation of.
HEADNOTE:
Section 17 of the Andhra Pradesh Excise Act 1968, as it
stood at the relevant time, provided for the grant of lease
for the manufacture or sale of an intoxicant. It also pro-
vided that a lease shall not take effect until a licence
under the Act was also issued. Section 23 provided that the
sum accepted in consideration for the grant of any lease
under s.17 was to be the excise duty payable in respect of
that excisable article.
Rule 3 of the Andhra Pradesh (Lease of Right to Sell
Liquor in Retail) Rules, 1969 prescribes that every lease of
right to sell liquor in retail shall be granted by auction.
Rule 7 of the Andhra Pradesh (Arrack Retail Vend Special
Conditions of Licences) Rules, 1969 requires the licences to
purchase arrack from the distillery, warehouse or depot
allotted by the Government and to pay ’issue price’ as
notified. Rule 15 provides for the purchase of a specified
minimum guaranteed quantity of arrack every month and for
the adjustment of the issue price in case of any short-fail
in the purchase of the minimum guaranteed quantity of liq-
uor.
A question arose as to whether under the Excise-Law
prevailing in the State, the Government was entitled to
claim from the excise contractors, who failed to lift the
minimum guaranteed quantity of liquor, the amount said to
represent the excise duty component in the issue price of
liquor relating to such unlifted quantity of liquor.
A Full Bench of three Judges of the High Court in V.
Narasimha Rao v. Superintendent of Excise, (AIR 1974 AP 157)
held in favour of the Government. It took the view that
three items, namely, duty, cost
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 16
514
and sales tax constituted the issue price. This view, howev-
er, was overruled by the Full Bench of Five Judges of the
same High Court in Atluri Brahmanandam v. Tahsildar of
Gannavaram, (AIR 1977 AP 196) wherein it was held that the
Government could not do so. It treated the excise duty as a
severable element of issue price. That judgment was assailed
in the appeals and petitions filed by the Government.
To nullify the effect of that judgment and to validate
the demands raised by the Government the State Legislature
enacted the Andhra Pradesh Excise (Amendment) Act X of 1984.
The amended s.17 provides for grant of lease or licence for
exclusive privilege of manufacture, supply by wholesale or
sale of any liquor or other intoxicants. The new s.23 empow-
ers the competent officer to accept payment of a sum in
consideration of the grant of lease or licence or both for
the exclusive privilege in respect of the liquor or any
other intoxicant under s.17. Section 4 of the Amending Act,
provides for the validation of earlier demands made in
respect of issue price of short drawn minimum guaranteed
quantity of liquor. Demands raised pursuant to the Amending
Act were upheld by the High Court by a later judgment.
The aggrieved excise contractors filed appeals to this
court. Some of the contractors who had originally succeeded
because of the decision of Five Judges Bench and were again
called upon to make good the deficit after the Amending Act
was passed, having failed in the High Court filed special
leave petitions to this Court.
It was contended for the aggrieved contractors that what
was sought to be recovered from them was excise duty on
unlifted quantity of liquor which was not authorised by the
provisions of the Act, as the excise duty being a part of
the issue price it could only ;elate to liquor drawn by them
and not pertain to undrawn liquor, that without amending
ss.21 and 22 of the Excise Act the amendment of s.23 affect-
ed by the Legislature led nowhere towards achieving the
result aimed at by the Legislature and that the Legislature
could not validate the demands earlier made and struck down
by the Courts, merely by enacting that the demands were to
be deemed to be valid without removing the vices and the
defects.
Disposing of the appeals and the special leave petitions,
the Court,
HELD: 1.1 Once ’issue price’ is determined its compo-
nents, such as excise duty, cost price, transport charges
etc. cease to retain their individual character. They cannot
then be severed from the issue
515
price and dealt with separately. The Five Judges Bench of
the High Court was, therefore, wrong in holding that excise
duty was a severable element of issue price. [526H; 527A-B]
1.2 Issue price is the sum total of whatever has gone
into the price of liquor at the time it is issued and it is
a single pre-determined definite sum per bulk litre and not
the total of separate sums representing to many specified
components. The ’issue price’ is that which is notified as
issued price and not its components, if any. These compo-
nents which have come together to become ’issue price’ are
rendered incapable of being separated again. Excise duty
loses its identity, as it were, and becomes an inseparable
part of ’issue price’. [525H; 526A]
A lessee-licensee, therefore, was not entitled to claim
deduction from the issue price payable by him in respect of
short drawn quantity of arrack the amount attributable to
the excise duty. [528F]
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 16
V. Narasimha Rao v. Superintendent of Excise, AIR 1974
AP 157, distinguished.
Atluri Brahamanandam v. Tahsildar of Gannavaram, AIR
1977 AP 196, overruled.
2.1 The issue price is no more and no less than the
price which the contractor agrees to pay for the grant of
the privilege to sell liquor, drawn or undrawn. The minimum
guaranteed quantity of liquor as well as the issue price are
both fixed well in advance of the auction in regard to each
shop and it is with full knowledge of the issue price and
the minimum guaranteed quantity that every bidder partici-
pates in the auction. 1527D; 526C-D]
2.2 There can be no question that issue price must
generally relate to liquor which is drawn by the contractor
but it does not follow therefrom that issue price cannot be
adopted by agreement between the parties as a measure of
compensation to be paid in the case of undrawn liquor.
[527C-D]
Panna Lal v. State of Rajasthan, [1975] 2 SCR 633, referred
to.
3.1 Even prior to the 1984 amendment, the amount which
each of the contractors was required to pay or to have
adjusted was not excise duty on undrawn liquor, but was part
of the price which he had agreed to pay for the grant of the
privilege to sell liquor. [527D]
516
3.2 All rights in regard to manufacture and sale of
intoxicants vest in the State. It is open to the State to
part with those rights for a consideration. The considera-
tion for parting with the privilege of the State is neither
excise duty nor licence fee but it is the price of the
privilege. [S27E-F]
3.3 Reading sections 17 and 23 of the Andhra Pradesh
Excise Act 1968 together with the Andhra Pradesh Excise
(Lease of Right to Sell Liquor in Retail) Rules 1969 and
Andhra Pradesh (Arrack Retail Vend Special Conditions of
Licences) Rules 1969, makes it evident that the privilege of
selling liquor, which includes the lease of the shop for an
area and the licence to sell liquor therein may be granted
by the State by public auction subject to: (1) payment of
rental being the highest bid at the auction, (2) the re-
quirement that the licensee shall purchase arrack at the
issue price, and (3) the further requirement that the licen-
see shah purchase a minimum guaranteed quantity of arrack,
which he has to make good in case of short fail. The consid-
eration for the grant of the privilege to sell liquor is not
merely the rental to be paid by the lessee but also the
issue price of the arrack supplied or treated as supplied in
case of short fail, which is also to be paid by the lessee-
licensee. There is no question of the lessee-licensee having
to pay the excise duty though it may be that the issue price
is arrived at after taking into account the excise duty
payable. [S28B-E]
Panna Lal v. State of Rajasthan, [1975] 2 SCC 633; State
of Haryana v. Jage Ram, [1980] 3 SCR 746 and Har Shankar &
Ors. v. The Dy. Excise & Taxation Commr. & Ors., [1975] 1
SCC 737, referred to.
Bimal Chandra Banerjee v. State of Madhya Pradesh,
[1971] 1 SCR 844; Madhya Pradesh v. Firm Cappulal etc.,
[1976] 2 SCR 1041 and Excise Commissioner, Uttar Pradesh v.
Ram Kumar, 1976 (Suppl) SCR 532, distinguished.
4. The new s.17 of the Excise Act makes it clear that
what is proposed to be granted is the exclusive previlege to
manufacture or sell liquor in the shape of a lease or li-
cence or both. The explanation makes it clear that the lease
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 16
shall not take effect unless a licence is issued. Having
regard to the vital amendment of s. 17, no further amendment
of s.21 and 22 was necessary. In the new s.23 it is now
specified that the payment in consideration of the grant of
lease or licence or both for the exclusive privilege is to
be instead of or in addition to any excise duty or fees
leviable in ss.21 and 22. The amendments effected to ss.17
and 23,
517
therefore, have fulfilled the object of removing the vices
or defects in the Act if indeed there were any. [533C-F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 437448
Of 1978 Etc.
From the Judgment and Order dated 18.1. 1977 of the
Andhra Pradesh High Court in Writ Petition No. 4485, 3399,
4979, 5819 of 1974.
Y.S. Chitale, Soli J. Sorabjee, P.P. Rao, A.S. Nambiar,
A. Chitale, T.V.S.N. Chari, N. Mathur, W. Quadri, Ms. V.
Grover, Ms. Sunita Mudigouda, T.D. Ramayya, A. Mariarputham,
T.C. Gupta, K.V.G. Rama Rao and G. Narayana Rao for the
appearing parties.
The Judgment of the Court was delivered by
CHINNAPPA REDDY, J. The primary question involved in
these appeals and petitions is whether under the ’Excise-
Law’ prevailing in the State of Andhra Pradesh, the Govern-
ment is entitled to claim from the Excise Contractors who
have failed to lift the ’Minimum Guaranteed Quantity’ of
liquor the amount said to represent the ’excise duty compo-
nent’ in the issue price of liquor relating to such unlifted
quantity of liquor. A full bench of three judges of the High
Court of Andhra Pradesh, in V. Narasimha Rao v. Superintend-
ent of Excise, AIR 1974 AP 157 held that the Government
could but this view was overruled by a Full Bench of Five
Judges of the same High Court in Atluri Brahmanandam v.
Tahsildar of Gannavaram AIR 1977 AP 196 where it was held
that the Government could not. It is the judgment of the
Full Bench of Five Judges which is in question in the ap-
peals and petitions filed by the Government. With a view to
cure the defects pointed out by the Full Bench of Five
Judges and to validate the demands raised by the Government,
the Andhra Pradesh Legislature enacted the Andhra Pradesh
Excise Amendment Act X of 1984. Demands raised pursuant to
the Amending Act were upheld by the High Court by a later
judgment. The aggrieved Excise Contractors have filed ap-
peals and they are also before us. In some cases the con-
tractors who had originally succeeded because of the deci-
sion of the Five Judge Full Bench were again called upon to
make good the deficit after the Amending Act was passed.
They questioned the fresh demands but failed in the High
Court. Their petitions for Special Leave to Appeal are also
before us.
517
Entry 51 of List II of the seventh schedule to the
Constitution empowers the State to levy duties of Excise on
alcoholic liquors for human consumption (not including
medicinal and toilet preparations containing alcohol) manu-
factured or produced in the State’ and counter availing
duties on such alcoholic liquors manufactured or produced
elsewhere in India. An Excise duty levied by the State on
alcoholic liquors is therefore. primarily a duty on the
manufacture or production of such alcoholic liquors. Section
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 16
2(10) of the Andhra Pradesh Excise Act. 1%8 defines "Excise
Duty" or "Countervailing duty" to mean "the duty of Excise
or countervailing duty, as the case may be mentioned in
Entry 51 is List II of the Seventh Schedule to the Constitu-
tion." ’Excise Revenue’ is defined by s.2(12) to mean ’Rev-
enue derived or derivable from any duty, fee, tax, rent,
fine, penalty or confiscation levied, imposed or ordered
under the provisions of this Act or other law for time being
in force elating to intoxicating drugs’. Section 17 of the
Act, before and after the amendment was and is as follows:
"Section 17 before amendment Section 17 as amended by Act
No.10 of 1984.
Power to grant lease: Sec. 17: Grant of exclusive
(i) The Government may, sub- privilege of manufacture etc:
ject to such conditions as (1) subject to the provisions
they may deem fit to impose, of s.28 and any rules made
grant for a fixed period to in this, the Govt. may, subject
any person, at any place a to such conditions as they
lease jointly or severally may deem fit to impose, grant
for the supply, manufacture for a fixed period to any
or sale of any intoxicant. person at any place a lease
or licence or both either
Explanation: A lease shall jointly or severally for the
not take effect until the exclusive privilege-
collector or any other comp-
etent officer has issued (i) of manufacturing or of
a licence under this Act. supplying by wholesale or of
both, or
(2) The Government may (ii) or selling by wholesale
confer on any officer the or by retail, or
power mentioned in sub-
519
section(1). (iii) of manufacturing Or Of
supplying by wholesale, or of
both, and of selling by retail,
any liquor or other intoxicant
within any such area in the
State as may be specified in the
said order.
Explanation: A lease shall not
take effect until the Collector
or any other competent officer
has issued a licence under this
Act.
(2) The Government may confer on
any officer the power mentioned
in sub-section( 1)."
Sections 21 and 22 which remained unchanged are as follows:
"Section 21: Excise duty or Countervailing
duty on excisable articles: (1) The Govt. may,
by notification levy an excise duty on any
excisable article manufactured or produced in
the State at such rate, not exceeding the
rates mentioned in the Schedule, as may be
specified in the notification.
(2) The Govt. may by notification, levy a
countervailing duty on any excisable article
manufactured or produced elsewhere in India
and imported into the State at such rate as
may be specified in the notification which may
not exceed the rates on excise duty on similar
excisable articles levied under sub-
section(1).
(3) Different rates may be specified in sub-
section(1) and (2) for different kinds of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 16
excisable articles and different modes of
levying duties under s.22.
Section 22:- Modes of levying duties: The
excise duty and the countervailing duty under
s.21 shall be levied in one or more of the
following modes:
(a) rateably, on the quantity of any excisable
article produced or manufactured in or issued
from a distillery, brewery or manufactory or
warehouse or imported into the State;
520
(b) in the case of spirits or other liquors
produced in any distillery, brewery or manu-
factory in according with its quality or
strength or in accordance with such scale of
equivalents calculated on the quantity of
materials used, or by the degree or attenua-
tion of the wash or wort as the case may be,
prescribed;
(c) In the case of today, in the form of a tax
on each variety of excise tree from which
teddy is drawn having due regard to the period
during which such tree is capable of yielding
today;
(d) by fees on licences for the manufacture
supply or sale of any excisable article."
Section 23 before and after amendment was as follows:
"Section 23 before amend Section 23 as substituted by
ment Act 10 of 1984-
Excise duty in respect of Sec. 23: Payment for exclu-
lease: Notwithstanding any- sive privilege: Instead of or
thing in Sections 21 and in addition to any excise
22, the sum accepted in con- duty or fees leviable under
sideration of the grant sections 21 and 22, the
of any release relating to Commissioner or any any other
any excisable article under competent officer may accept
s. 17, shall be the excise payment of a sum in consi-
duty or countervailing deration of the grant of
duty payable in respect of lease or licence or both
the excisable article, in for the exclusive privilege
addition to any duty or in respect of the liquor or
fees paid under s.21 & 22. any other intoxicant under
sec. 17.
Validation: Where before the
commencement of this Act.,
any issue price (which
includes excise duty also)
has been collected or
recovered from the licensee
in respect of short-drawn
521
or undrawn minimum guaranteed
quantity of arrack in pursu
ance of rule 15 of the
A.P. Excise (Arrack Retail,
Vend and Special conditions
of Licences) Rules, 1969, by
deducting such price from the
advance money paid by the
licensee, then, notwith
standing anything contained
in any judgment, decree or
order of any court, tribunal
or other authority to the
contrary, the price so col
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 16
lected or recovered shall be
deemed to be and shall be
deemed always to have been
validly collected or recov
ered as consideration for the
grant of lease or licensee or
both to the lessee or licen
see for the exclusive privi
lege in respect of sale of
liquor in accordance with the
provisions of the principal
Act as amended by this Act as
if the amendments made to the
principal Act by a sections 2
and 3 of this Act had been in
force at all material times
and accordingly
(a) all acts, proceedings or
things done or taken by the State
Govt.or by any officer of the State
Govt. or by any other authority
in connection with the collection
of such price shall for all
purposes, be deemed to be and to
have always been done or taken
in accordance with law;
(b) no suit or other proceeding
shall be maintained or contained in
any Court or before any authority
522
for the refund of and no enforcement
Shall be made by any Court of other
authority of any decree or order
directing the refund of any such
price which has been collected as
if the provisions of the principal
Act
as amended by this Act had been in
force at all material times."
The first entry in the Schedule to the Act is as follows:
"No. Description of Mode of levying Maximum rate
excisable article duty of duty
1. Arrack on the quantity Rupees eight per
issued from the litre of the
distillery of ware- strength of
house. proof spirit."
We mentioned earlier that the Andhra Pradesh Legislature
amended the Andhra Pradesh Excise Act to nullify the effect
of the Full Bench judgment in Atluri Brahmanandam v. Tahsil-
dar of Gannavaram (supra). We may refer to the provisions of
the amending Act. Section 2 of the Amending Act provides for
the substitution of a new s. 17 for the old. s. 17. We have
already extracted both the old and the new sections. Sec-
tions 3 of the amending Act provides for the substitution of
old s.23 by a new s.23. We have already extracted both the
old and the new sections. Section 4 of the amending Act
provides for the Validation of earlier demands made in
respect of issue price of short-drawn minimum guaranteed
quantity of liquor. It is necessary to set out the whole of
this provision. It is as follows:-
"4. Validation --Where, before the commence-
ment of this Act, any issue price (which
includes excise duty also) has been collected
or recovered from the licensee in respect of
short-drawn or undrawn minimum guaranteed
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 16
quantity of arrack in pursuance of rule 15 of
the Andhra Pradesh Excise (Arrack Retail, Vend
and Special Conditions of Licences) Rules,
1969, by deducting such price from the advance
money paid by the licensee, then, notwith-
standing
523
anything contained in any judgment decree or
order of any court, tribunal or other authori-
ty to the contrary, the price so collected or
recovered shall be deemed to be and shall be
deemed always to have been validly collected
or recovered as consideration for the grant of
lease or licence or both of the lessee or
licensee for the exclusive privilege in re-
spect of sale of liquor in accordance with the
provisions of the principal Act as amended by
this Act as if the amendments made to the
Principal Act by sections 2 and 3 of this Act
had been in force at all material times and
accordingly, :-
(a) all acts, proceedings or thing done or
taken by the State Government or by any offi-
cer of the State Government or by any other
authority in connection with the collection of
such price shall for all purposes be deemed to
be and to have always been done or taken in
accordance with law.
(b) no suit or other proceeding shall be
maintained or continued in any court or before
any authority for the refund, of, and no
enforcement shall be made by any Court or
other authority of any decree or order direct-
ing the refund of, any, such price which has
been collected and which would have been
validly collected as if the provisions of the
Principal Act as amended by the Act had
been in force at all material times."
The Andhra Pradesh(Arrack, Retail Vend Special Condi-
tions of Licences) Rules, 1969 were made by the Government
of Andhra Pradesh in exercise of the powers conferred by
various provisions of the Andhra Pradesh Excise Act. Rule 7
obliges the licensee to buy arrack from a recognised dis-
tillery, warehouse or depot as may be allotted by the de-
partment at the issue price as notified by the Commissioner
from time to time. Rule 11 provides for remittences of duty
etc. into the Government treasury. Rule 15 deals with mini-
mum guaranteed quantity of liquor. It is necessary to ex-
tract the first two clauses of rule 15 and they are as
follows:-
"15. Minimum guaranteed quantity of arrack--
(1) No licensee shall purchase arrack less than the speci-
fied minimum guaranteed quantity in any month. If in any
month, quantity less than the minimum guaranteed
524
quantity fixed for that month is drawn, at the end of that
month issue price to the extent of deficit purchase shall be
deducted from the advance money paid by the licensee under
the minimum quantity of arrack guaranteed by him and the
licensee shall be called upon to indemnity the amount so
adjusted by the end of the succeeding month in which short
drawn quantity had occured.
Provided that the Excise Superintendents may
permit the licensee to lift the short drawn minimum guaran-
teed quantity of the previous month in the succeeded month
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 16
for special reasons expert for the month of September,
unless the licensee has committed default in lifting the
minimum guaranteed quantity for two successive months;
Provided further that where the Commissioner deems
it necessary to permit a shop keeper to draw the deficit
quantity short drawn in any month in the subsequent, he
shall obtain the prior approval of the Government for grant-
ing such permission.
(2) Where a licensee fails to lift the arrack as
permitted by the Excise Superintendent or to indemnity the
advance amount so adjusted by the end of the succeeding
month in which the short drawal of quantity had occurred,
the right acquired by the defaulting licensee shall be
reauctioned forthwith."
Rule 17 prescribes "every licensee shall be bound by the
provisions of Andhra Pradesh Excise Act, 1968, and the rules
and orders made under from time to time."
The Andhra Pradesh Excise(Lease of fight to sell liquor
in retail) rules 1969 are another set of rules made under
the various provisions of Andhra Pradesh Excise Act. Rule
2(ix) defines "rental" to mean ’the rent payable in respect
of a shop or group of shops in consideration of the grant of
lease for sale of liquor’. Rule 3 provides for the lease of
the fight to sell liquor in retail. Clause 1 of Rule 3 may
be usefully extracted here and it is as follows:
"3. Lease to right to sell liquor in retail:
(1) Subject to the provisions of these rules,
every lease of right to sell
525
liquor in retail shall be granted by auction.
The lease shall ordinarily be for a period of
one excise year;
Provided that where the Commissioner
considers it necessary to grant the lease of
right to sell liquor in retail in any other
manner, he shall do so with the prior approval
of the Government."
The rest of the rules relate to the procedure to be followed
at the auction and thereafter. Rule 16 requires the auction
purchaser to pay 2 per cent of the annual rental as earnest
money together with one month’s rental on the day of auction
immediately after the acceptance of tender or bid as the
case may be. The earnest money and one month’s rental are to
be in addition to the deposit of rental prescribed by Rule
18. Rule 18(1) provides for the deposit by auction purchaser
within fifteen days from the date of auction, two months’
rental in cash or in fixed deposit certificates. Rule 21
provides for execution of counterpart agreement by the
licensee in form 42. This is required to be done before
taking out a licence in respect of lease granted to him for
the sale of liquor. Rule 22 provides that the lease shall
not take effect until the auction purchaser obtains a li-
cence. Rule 24 prescribes that every auction purchaser shall
be bound by all the provisions of the Excise Laws which are
in force or which may come into force and of the rules or
orders made from time to time by the Government or Commis-
sioner or by the competent authority. The prescribed form
for the counterpart agreement provides among other thing for
an undertaking that the licensee shah abide by all the
provisions of the Andhra Pradesh Excise Act and the Rules
and Orders thereunder existing and also those that would be
issued from time to time in that respect. The Andhra Pradesh
Excise (Lease of right to sell liquor in retail) Rules, 1969
and the Andhra Pradesh Excise(Arrack, Retail Vend Special
Conditions for Licences) Rules were duly amended in 1984.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 16
It is to be mentioned here that the issue price of
arrack is notified well in advance of the Excise year and
the minimum guaranteed quantity of liquor is also fixed in
regard to each shop well in advance of the auction. The
issue price is always a definite sum per bulk litre of
liquor. The notification specifying the issue price does not
attempt to split up the issue price into various components
such as cost price, Excise duty, transport charges etc. Cost
price, Excise duty and transport charges are not separately
and individually charged. Issue price is the sum total of
whatever has gone into the price of liquor at the time it is
issued and it is a single pre-determined definite sum and
not the total
526
of separate sums representing so many specified components.
For example, the issue price of arrack for the year 1979˜80
was notified in the following manner:-
"In exercise of the powers conferred by Rule
7(1) of the Andhra Pradesh Excise (Arrack,
Retail sale Special Conditions for Licences)
Rules, 1969, the Commissioner of Excise,
Andhra Pradesh, hereby notifies the issue
price of arrack for the Excise Year 1979-80 at
Rs.5.10 per bulk liter of 30x U.P. strength
and Rs.3 per bulk liter of 60x U.P. strength."
It is however not disputed that excise duty does enter the
determination of the issue price but that has nothing to do
with the excise contractor whose obligation is to pay the
whole of the issue price. As we said the issue price as well
as minimum guaranteed quantity are both fixed well in ad-
vance and it is with full knowledge of the issue price and
the minimum guaranteed quantity that every bidder partici-
pates in the auction. We wish to emphasise here that the
’issue price’ is that which is not notified as issue price
and not its components, if any. These components which have
come together to become ’issue price’ are not to be separat-
ed again. To borrow the analogy of Chemistry it is a chemi-
cal compound and not a mechanical mixture. Excise duty loses
its identity, as it were, and becomes an inseparable part of
’issue price’. The learned counsel for the contractors
however, argued that excise duty was admittedly a part of
issue price and that the legislature, while amending the
Excise Act in 1984, had also recognised the distinctive duty
element in issue price. He also invited our attention to
Narasimha Rao v. Superintendent of Excise (supra). It is
true that it is not disputed that the element of excise duty
has entered the issue price but that does not mean that it
continues to retain its character as Excise duty. In V.
Narasimha Rao v. Superintendent of Excise (supra), the High
Court of Andhra Pradesh, after refering to Rule 11 of the
retail vend Rules, observed that it could be safely taken
that the three items, namely, duty, cost and sales tax
constituted the issue price. It is one thing to say that
several elements enter into the determination of issue price
but it is altogether a different thing to say that these
erstwhile constituent elements retain their character and
individually as such even after determination of issue
price. In the statement of objects and reasons of the amend-
ing Act there is reference to ’issue price’ together with
excise duty’ and ’issue price including excise duty’. In s.4
of the amending Act there is a reference to ’issue
price(which includes excise duty also)’. These references to
issue
527
price and excise duty are made in the context of the judg-
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 16
ment of the Five Judge Full Bench of the Andhra Pradesh High
Court which has treated excise duty as a severable element
of issue price, the effect of which was sought to be got rid
by the amending Act. It was in that context that there was a
reference to the excise duty element of issue price. We do
not think that it is permissible for us to hold that the
element of excise duty which has gone into the determination
of issue price continues to retain its individual character
so as to be capable of being severed and dealt with sepa-
rately.
Basing himself on an observation made in Panna Lal v.
State of Rajasthan, [1975] 2 SCC 633 it was argued by the
learned counsel on behalf of the Excise Contractors, that
issue price can only relate to liquor drawn by the contrac-
tors and cannot pertain to undrawn liquor. There can be no
question that issue price must generally relate to liquor
which is drawn by the Contractors but it does not follow
therefrom that issue price cannot be adopted by agreement
between the parties as the measure of compensation to be
paid in the case of undrawn liquor. In fact, it may not be
quiet correct even to view it as compensation as we shall
presently see. It is no more and no less than the price
which the contractor agrees to pay for the grant of the
privilege to sell liquor, drawn or undrawn.
We may now examine the situation as it obtained before
the amending Act, 1984. It is well settled that all right in
regard to manufacture and sale of intoxicants vest in the
State. It is open to the State to part with those rights for
a consideration. The consideration for parting with the
privilege of the State is neither Excise duty nor Licence
fee but it is the price of the privilege. Section 17 of the
Andhra Pradesh Excise Act as it stood before the amendment
provided for the grant of a lease for the manufacture or
sale of an intoxicant subject to such conditions as the
Government deemed fit to impose. It also provided that a
lease shall not take effect until a licence under the Act
was also issued. Section 21 provided for the levy of Excise
duty on excisable articles and s.22 prescribed the mode of
levy of excise duty. Section 23 provided that, notwithstand-
ing anything in sec. 21 and 22, the sum accepted in consid-
eration for the grant of any lease under s. 17 was to be the
excise duty payable in respect of that excisable article.
The marginal note of s.23 is "Excise duty in respect of
lease". Rental we have seen has been defined in the Andhra
Pradesh (Lease of fight to sell liquor in retail) Rules,
1969, as meaning "the rent payable in respect of a shop or
group of shops in consideration of the grant of lease for
the sale of liquor". Rule 3 prescribes that every lease of
right
528
to sell liquor in retail shall be granted by auction. Rule 7
of the Andhra Pradesh (Arrack Retail Vend Special Conditions
of Licences) Rules prescribes that the licensee shall pur-
chase arrack from the distillery, warehouse or depot allot-
ted by the Government and shall pay issue price as notified
by the Commissioner from time to time. Rule 15 provides for
the purchase of a specified minimum guaranteed quantity of
arrack every month and for the adjustment of the issue price
in case of any short-fall in the purchase of the minimum
guaranteed quantity of liquor. Thus reading sections 17 and
23 of Andhra Pradesh Excise Act together with the Andhra
Pradesh Excise (Lease of Right to sell liquor in retail)
Rules, 1969 and Andhra Pradesh (Retail Vend Special Condi-
tions of Licences) Rules, the picture which emerges is that
the privilege of selling liquor which includes the lease of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 16
the shop for an area and the licence to sell liquor therein
may be granted by the State by public auction subject to (1)
payment of rental being the highest bid at the auction (It
is to be noted here that rental is the rent payable in
consideration of grant of lease for the sale of liquor but
it is not the sale or exclusive consideration for the
lease), (2) the requirement that the licensee shall purchase
arrack at the issue price, and (3) the further requirement
that the licensee shall purchase a minimum guaranteed quan-
tity of arrack, which he has to make good in case of short
fall. The consideration for the grant of the privilege to
sell liquor is not merely the rental to be paid by the
lessee but also the issue price of the arrack supplied or
treated as supplied in case of short fall, which is also to
be paid by the lessee-licensee. There is no question of the
lessee-licensee having to pay the excise duty though it may
be that the issue price is arrived at after taking into
account the excise duty payable. If this is the true posi-
tion, the question arises whether the contractor can claim
to deduct from the issue price payable by him in respect of
short drawn arrack, the amount said to be attributable to
excise duty.
Once we have understood the true nature of ’issue price’
and the true consideration for the grant of the exclusive
privilege to sell liquor, the question posed in the previous
paragraph is not difficult to answer. We have guidance from
several decisions of this Court.
The first of the cases on which the learned counsel for
the liquor contractors relied was that of Bimal Chandra
Banerjee v. State of Madhya Pradesh, [1971] 1 SCR 844. The
successful bidders at an excise auction who had failed to
take delivery of the prescribed minimum quantity of liquor
which they were required to sell under the condition of
auction were called upon to pay excise duty on the quantity
of liquor which they had failed to take. Clause 2(c) of the
529
notification prescribing the conditions of auction provided
that the contractor had to make good every month "the defi-
cit of monthly average of the total minimum duty". The court
found that none of the provisions of the Act empowered the
rule making authority viz. the State Government to levy tax
on excisable articles which had not been either imported,
exported, transported, manufactured, cultivated or collected
under any licence or manufactured in any distillery estab-
lished or distillery or brewery licenced under the Act. The
Court said,
"Quite clearly the State Government purported
to levy duty on liquor which the contractors
failed to lift. In so doing it was attempting
to exercise a power which it did not possess.
No tax can be imposed by any by-law or rule or
regulation unless the statute itself under
which the subordinate legislation is made
specially authorises the imposition even if it
is assumed that the power to tax can be dele-
gated to the executive."
This was clearly a case where the State purported to levy
excise duty on the unlifted quantity of liquor’ and this
could not be done under the authority of law.
The second case on which the learned counsel relied was
that of State of Madhya Pradesh v. Firm Gappulal etc.,
[1976] 2 SCR 1041. In that case there was no dispute that
the demand made on the contractors was in respect of duty on
liquor which had not been lifted. It was held that the
demand could not be made. The decision of the court in Panna
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 16
Lal’s case was distinguished on the ground that in that case
there was not levy of excise duty in enforcing the payment
of the guaranteed sum or the stipulated lump sum mentioned
in the licences. It was also pointed out that in Panna Lal’s
case the excise duty component of the issue price was found
to be a measure of the quantum of or extent of the conces-
sion or the remission to be given to the liquor contractors.
The lump sum amount payable for the exclusive privilege was
not to be confused with the issue price. In essence, it was
said, what was sought to be recovered from the liquor con-
tractors in Panna Lal’s case was the shortfall occasioned on
account of failure on the part of liquor contractors to
fulfil the terms of licence. Gappulal’s case is not of any
assitance to the contractors in the present case as what was
sought to be recovered there, was undoubtedly excise duty
which was not leviable on unlifted liquor.
The third case relied on by the learned counsel for the con-
530
tractors was that of Excise Commissioner, Uttar Pradesh v.
Ram Kumar, [1976] Suppl SCR 532. The licence granted to each
of the contractors in this case provided that on his failure
to lift the monthly proportonate quota in any month, he
shall be liable to pay compensation to the State Government
at the rate equal to the rate of still head duty ... on the
quantity falling short of such monthly proportionate quota.
The contractors having failed to lift or sell the minimum
quantity of quota of liquor were required to compensate the
State as provided by the licence. The Court held that the
demand though disguised as compensation was in reality a
demand for excise duty on the unlifted quantity of liquor
and that was not authorised by the provisions of the Act.
Thus we see that in Bimal Chandra Banerjee’s case and
Gappulal’s case, what was sought to be recovered, was excise
duty and in Ram Kumar’s case also what was sought to be
recovered was excise duty, though disguised as compensation.
Such excise duty on unlifted liquor was not leviable. Refer-
ring to these cases, Chandrachud, CJ. observed in State of
Haryana v. Jage Ram, [1980] 3 SCR 746.
"In Bimal Chandra Banerjee’s case, it was held
by this court that the levy of excise duty on
undrawn liquor was beyond the power of the
State Government and that therefore, the rule
imposing the condition to that effect was
invalid. That decision was followed in State
of Madhya Pradesh v. Firm Gappulal where also
the licensees were required to pay what was
described as ’Pratikar’ which was nothing but
excise duty on undrawn liquor. The same situa-
tion obtained in Excise Commissioner v. Ram
Kumar because the real nature of the payment
which the licensee were required to pay there,
was excise duty on undrawn liquor.
"These decisions cannot held the
respondents because the true position, as we
stated earlier, is that the amount which the
respondents are called upon to pay is not
excise duty on undrawn liquor but is the price
of a privilege for which they bid at the
auction of the vend which they wanted to
conduct."
The learned counsel for the State of Andhra Pradesh
relied on Har Shankar & Ors., v. The Dy. Excise & Taxation
Commr. & Ors., [1975] 1 SCC 737; Panna Lal v. State of
Rajasthan (supra) and State of
531
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 16
Haryana v. Jage Ram (supra). In Har Shankar’s case, it was
held by a Constitution Bench of the Court (Chandrachud, J.
speaking for the Court) that since rights in regard to
intoxicants belonged to the State, it was open to the Gov-
ernment to part with those rights for a consideration. In a
scheme providing for the parting of the right for a consid-
eration, it was not of the essence whether the amount
charged to the licences was pre-determined or whether it was
left to be determined by bids offered in auctions. The power
of the Government to charge a price for parting with its
rights and not the mode of fixing that price was constituted
the essence of the matter. Nor indeed did the label affixed
to the price determine either the true nature of the charge
left by the Government or its rights to levy the same. The
amount charged was neither a fee properly so-called nor
indeed a tax but was in the nature of a price of the privi-
lege which the purchaser had to pay in any trade or business
transaction. Once it was appreciated that the auctions were
only a mode or medium for ascertaining the best price ob-
tainable for the grant of a privilege to sell liquor, there
would be no further contradiction in them.
In Panna Lal’s case, the court held:
"The agreements gave the liquor contractors an
exclusive privilege to sell country liquor in
a specified area for the period fixed for a
stipulated sum of money for enjoying the
privilege. If the contractors do not sell any
liquor, they are yet bound to pay the stipu-
lated sum. If they sell liquor, they are given
the benefit of remission in the price of the
exclusive privilege. The measure for this
remission is the excise duty leviable to the
extent that the liquor contractor can neutra-
lise the entire amount of exclusive privilege
in the excise duty payable by them. If the
contractors fail to lift adequate quantity of
liquor and thereby fail in neutralising the
entire price of exclusive privilege, the
contractors are not called upon to pay excise
duty."
It was held that there was no leviable excise duty in en-
forcing the payment of the guaranteed sum or the stipulated
lump sum mentioned in the licence. We have already referred
to the references made to ’rental’ and ’issue price’. We
finally come to the State of Haryana v. Jage Ram (supra)
which we may now take to be the last word on the subject.
Chandrachud, CJ spoke for the Court and said,:
"The amount which the respondents agreed to-
pay to the
532
State Government under the terms of the auc-
tion is neither a fee properly so called which
would require the existence of a quid pro quo,
nor indeed is the amount in the nature of
excise duty, which by reason of the constitu-
tional constraints had to be primarily a duty
on the production or manufacture of goods
produced or manufactured within the country.
The respondents cannot therefore complain that
they are being asked to pay ’excise duty’ or
"stillhead duty" on quota of liquor not taken,
lifted or purchased by them. The respondents
agreed to pay a certain sum order the terms of
the auction and the Rules only prescribe a
convenient mode whereby their liability was
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 16
spread over the entire year by splitting it up
into fortnightly instalments. The Rules might
as well have provided for payment of a lump
sum and the very issuance of the licence could
have been made to depend on the payment of
such sum. If it could not be argued in that
event that the lumpsum payment represented
excise duty, it cannot be so argued in the
present event merely because the quota for
which the respondents gave their bid is re-
quired to be multiplied by a certain figure
per proof litre and further because the re-
spondents were given the facility of paying
the amount by instalments while lifting the
quota from time to time. What the respondents
agreed to pay was the price of a privilege
which the State parted with in their favour.
They cannot therefore avoid their liability by
contending that the payment which they were
called upon to make is truly in the nature of
excise duty and that no such duty can be
imposed on liquor not lifted or purchased by
them".
The result of our discussion is that even prior to the
1984 amendment, the amount which each of the contractors was
required to pay or have adjusted was not excise duty on
undrawn liquor, but was part of the price which he had
agreed to pay for the grant of the privilege to sell liquor.
The judgment of the High Court of Andhra Pradesh in Atluri
Brahmanandam v. Tahsildar of Gannnvaram (supra) is reversed.
The appeals filed by the State of Andhra Pradesh are al-
lowed.
We mentioned that in order to remedy the situation
resulting from the Full Bench judgment of the Andhra Pradesh
High Court, the Andhra Pradesh Legislature enacted the
Andhra Pradesh Excise (Amendment) Act 10 of 1984. In the
view that we have now taken the amendment of the Act has
become a needless exercise. However, we
533
may briefly consider the attack on the amending Act. It was
argued that the amending Act did not effectually remove the
vices or defects pointed out by the Full Bench in Brahmanan-
dam’s case (supra) as secs. 21 and 22 were left in tact. It
was said that without amending secs. 21 and 22, the amend-
ment of sec. 23 effected by the Andhra Pradesh Legislature
led no where towards achieving the result aimed at by the
Legislature. Nor could the Legislature validate the demands
earlier made and struck down by the courts merely by enact-
ing that the demands were to be deemed to be valid without
removing the vices or defects from which those demands
suffered. We are not inclined to agreed with these submis-
sions.. Sec. 17 of the Andhra Pradesh Excise Act which deals
with the grant of the fight to sell liquor has been substan-
tially amended. Even the marginal note has been changed from
"power to grant lease" to "grant of exclusive privilege of
manufacture, etc." The new sec. 17 makes it clear that what
is proposed to be granted is the exclusive privilege to
manufacture or sell liquor in the shape of a lease or li-
cence or both. The explanation makes it clear that the lease
shall not take effect unless a licence is issued. Having
regard to the vital amendment of sec. 17, no further amend-
ment of secs. 21 and 22 was necessary. The consequential
amendment to sec. 23 has however been made. Again the mar-
ginal note has been changed from "excise duty in respect of
lease" to "payment for exclusive privilege." It is now
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 16
specified in the new section that the payment of the same in
consideration of the grant of lease or licence or both for
the exclusive privilege is to be instead of or in addition
to any excise duty or fees leviable in secs. 21 and 22. We
are, therefore, satisfied that the amendments effected to
secs. 17 and 23 have fulfilled the object of removing the
vices or defects pointed out by the Full Bench in Atluri
Brahmanandam’s case, if indeed there were defects or vices.
In the result, the petitions for special leave to appeal
filed against the judgments of the Andhra Pradesh High Court
upholding the amending Act and the demands made by the
excise authorities are dismissed.
P.S.S. Appeals & Petitions
dismissed.
534