Full Judgment Text
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CASE NO.:
Appeal (civil) 7399 of 2001
PETITIONER:
Government of Maharashtra & Ors.
RESPONDENT:
M/s Deokar’s Distillery
DATE OF JUDGMENT: 10/03/2003
BENCH:
S.B. Sinha
JUDGMENT:
J U D G M E N T
W I T H
CIVIL APPEAL NO.7400 OF 2001
AND
CIVIL APPEAL NO. 1302 OF 2003
[Arising out of SLP (C) No.22142 of 2001]
S.B. SINHA, J :
I regret to be unable to persuade myself to concur with the opinion of
my learned Brother Hon’ble Dr. Justice AR. Lakshmanan for whom I have
the highest respect.
Concededly a citizen of India in view of a catena of decisions of this
Court has no fundamental right to carry on trade or business in potable
liquor. The State indisputably has a right to regulate or prohibit business in
potable liquor as a beverage or otherwise keeping in view the fact that the
same is dangerous and injurious to health and is, therefore, an article which
is res extra commercium being inherently harmful. The State is, therefore,
entitled to completely prohibit a trade or business in liquor and create
monopoly either in itself or in an agency created by it or take over such
activities itself. For the purpose of selling the licence it can adopt any mode
with a view to maximise its revenue so long as the method adopted is not
discriminatory.
However, when the State permits trade or business in potable liquor,
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. [See Khoday
Distilleries Ltd. vs. State of Karnataka (1995) 1 SCC 574].
Although a citizen has no fundamental right to carry on trade or
business in potable liquor, but when he is permitted to carry on such
business, he would be entitled to claim equal right as against other citizens.
In absence of the State imposing any prohibition or monopolizing the
business, the same may be carried on by the licensee without being subjected
to any discrimination. Such a right although may not be elevated to the
status of a fundamental right but all the same it is a right.
The Bombay Prohibition Act, 1949 regulates the rights of the distillers
in carrying on business. It is beyond any cavil that a right to carry on
business in liquor being not absolute, the same would be subject to such
restrictions and limitations as may be imposed by law.
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Section 58A of the Act mandates that the cost of the excise
supervision would be borne by the licensees.
The mode and manner of realisation of such costs, however, has been
laid down only in the rules and/or the conditions of the licence. Such cost of
excise supervision does not constitute ’tax’ or ’fee’ but is a part of the price
for grant of exclusive privilege to the licensee for carrying on his business.
The price required to be paid is, thus, a contractual one. The charges, thus,
can be levied either prior to entering into contract or during the currency
thereof.
But can it be said that by reason thereof, the State is entitled to
recover the difference in the salaries of the employees after the currency of
the licence is over is the primal question involved in this appeal?
By reason of the Maharashtra Civil Services (Revised Pay) Rules,
1998, a retrospective effect and retrospective operation was given to the
recommendations of the Fifth Pay Revision Commission with effect from
1.1.1996. A purported circular enabling the State to recover the difference
in wages was issued in December 1999 and the impugned demand notices
were issued in 2000. The rules, the circulars as also the demands were
indisputably made/issued after the licensing period was over.
Rule 17 of Maharashtra Distillation of Spirit and Manufacture of
Potable Liquor Rules, 1966 inter alia that the licensee is to pay the amount
as and when a demand therefor is made. Clause (12) of Rule 17 of the rules
was amended on 15.8.1974 providing that the cost of excise supervision
should be paid to the State Government by the licensee annually in advance.
Furthermore, condition No.2 of the licence is in the following terms :
"(2) In addition to the fee mentioned above,
the licensee shall pay quarterly in advance such
charges as the Government of Maharashtra
(hereinafter referred to as "Government") may,
from time to time, fix in this behalf towards the
costs on account of salary, dearness allowance,
compensatory allowance and other charges,
namely, contingent expenditure, if any, and the
leave and pension charges of such Prohibition and
Excise staff as the Commissioner of Prohibition
and Excise (hereinafter referred to as
"Commissioner") may think it necessary to
employ for the purpose of supervising the
operations of manufacture, storage and issues of
spirit by the licensee."
(Emphasis supplied)
It is, therefore, clear that by reason of the provisions of the Rules or
terms of conditions of licence, the demand on account of excise supervision
charges was to be made in advance.
Such charges are required to be paid by the licensee quarterly in
advance. The State is entitled to fix the cost of supervision charge from time
to time but the same has to be done during the currency of contract and not
thereafter as there does not exist any contract to the contrary.
Interpretation of a statute, it is trite, must be made on a conjoint
reading of the Act, rules made thereunder as also the terms and conditions of
the licence. Section 58A of the Act does not provide for the mode and
manner for recovery of the cost of excise supervision. It has been provided
for in the rules as also the conditions of licence. The rule when validly made
forms part of a statute. Can it be said that a statutory rule can be ignored on
the ground that the same was made only for administrative purposes? Can it
further be said that the conditions of the licence can be interpreted in such a
manner so as to impose upon the licensee a burden which was not
contemplated at the time when licence had been granted and/or during the
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currency thereof ? Answer to both the questions, in my opinion, should be
rendered in the negative.
This Court in Government of Andhra Pradesh vs. M/s Anabeshahi
Wine and Distilleries Pvt. Ltd. [(1988) 2 SCC 25] while considering the
validity of Section 28(2) of the A.P. Excise Act, 1968 which is in pari
materia with Section 58 of the Bombay Prohibition Act, observed :
"A predetermined amount equivalent to
or even higher than the amount which is sought to
be recovered by the appellant from the respondent
calculated for the entire period of the licence could
have been demanded in a lump sum as price for
parting with the privilege and it could not have
been challenged by the respondent in view of the
principle enunciated by this Court in the aforesaid
cases. Simply because the demand was spread
over with a view to making it just and reasonable
so as to represent the actual expenditure incurred
by the government to maintain the requisite excise
staff at the factory premises of the respondent as
contemplated by the relevant provisions of the Act
and the Rules, it would not become illegal and
vulnerable."
(Emphasis Supplied)
This Court, therefore, held that the amount should be predetermined at
the time of entering into contract. Such an amount, however, may be spread
over with a view to making it just and reasonable. This Court further
observed:
"5. The perusal of the aforesaid provisions
of the Act and the Rules leaves no manner
of doubt that it was open to the appellant to
grant the exclusive privilege of
manufacturing and selling wine etc. to the
respondent only provided it was, apart from
making any other payment, also willing to
pay the salaries and allowances referred to
in the aforesaid provisions which for the
sake of convenience have been described as
establishment charges, and which were
sought to be recovered as such under the
impugned notice of demand. The
respondent-Company was not under any
obligation to take the licence. It was open to
it to have refrained from taking any licence
under the Act and the Rules if it was not
willing to pay the price as required by the
government for the grant of privilege to
manufacture and sell intoxicants."
The option of the licensee to take or not to take a licence, would, thus
depend upon the price which was to be fixed. The risk involved in the
matter may be reasonably certain. A licensee before entering into a contract
is entitled to know what price he has to pay for the grant of exclusive
privilege or what are the risks involved in it. A price, thus, must be
predetermined and cannot be redetermined and/or demanded after a period
of four years of the expiry of the licence.
The rights and obligations of the parties to a contract are mutual.
Both the State and the Licensee are bound by it. When a contract is a
statutory one, the terms and conditions of a statute, the statutory rules would
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govern the contract.(See Assistant Excise Commissioner and Others Vs.
Issac Peter and Others reported in (1994) 4 SCC 104) A court of law shall
not for the purpose of interpretation of the terms of the contract read the
provisions of statute in such a way as a result whereof additional liability
may be imposed on a party to the contract.
The reason why a manufacturer must have a fair knowledge about his
liability for obtaining a licence would be that he may during the currency of
the licence fix the price of liquor in such a manner so that all charges are
payable by him may be passed on to the consumers. It would not be correct
to contend that such costs can be recovered after the demands are made long
after the contract has been worked out. It will be preposterous to suggest
that the liability in respect of the increased costs of excise supervision for
one licensing year can be passed on to his consumers after four years or
more.
It is trite that the rights and obligations of the parties will come to an
end with the cessation of the contract unless there exists a contract contrary
thereto. In other words, in a case where the liability of a contracting party
would extend beyond the contract period, an express stipulation in that
behalf must be made in the contract itself.
A party to a statutory contract is bound to discharge his obligations in
terms of the provisions of the Act, Rules or conditions of licence as they
stood. He is also entitled to enforce his rights. No executive order, in my
opinion, can be issued after a long time to fasten a new liability upon the
licensee particularly when grant of licence for each year would result in a
separate contract which may not only provide for a different price but also
different terms and conditions as well as the mode and manner in which the
rights of the parties thereto are required to be exercised and/ or the
obligations are to be discharged; more so when one contracting party has no
say therein. It is well-settled that by reason of an executive act a liability
cannot be created with retrospective effect. The said rule shall squarely
apply also in relation to a statutory contract. Furthermore, the statutory
authority has been enjoined with a duty to follow the mode as regards
recovery of the costs of excise supervision. The mode and manner thereof
having been fixed, the statutory authorities ordinarily must follow the
procedure laid down therefor.
State in pursuance of its welfare activities may increase the pay of its
employees with retrospective effect but such burden cannot be passed on to
a licensee by an unilateral act on its part. For enforcing the same, there must
be a contract to the contrary.
It is one thing to say that a little deviation in the procedure may not
prejudice a party to the contract but it is another thing to say that a fresh/
new liability is created by an executive act by giving a complete go-by to the
contractual terms.
The period of licence determines the period of contract and, thus, no
recovery of any demand made in respect thereof is permissible in law.
The matter may be considered from another angle. The licence of the
licensee after 1996 might not have been renewed. Licence for each year is a
fresh grant and, thus, the liability of a licensee in relation to the licensing
year so far as the price for grant of exclusive privilege is concerned must be
held to be payable only within the year during which the contract remain in
force. For the purpose of entering into a contract with the State, the licensee
has to pay different price for each contract. The said Act, the rules made
thereunder or the conditions of licence do not postulate that a part of the
price can be demanded even after the contract comes to an end.
It may be one thing to say that the liability of the licensee had been
determined pursuant to or in furtherance of a decision taken by the State in
terms of the provisions of a statute or otherwise within the period during
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which the licence was in force but it is another thing to say that the decision
had been taken after expiry of the licence as a result whereof the liability of
the licensee is determined after the period of contract is over. It may be true
that under the rules or conditions of licence, the licensee is bound to comply
with the provisions of the Act, rules and regulations and conditions of the
licence but such undertaking and/or liability comes to an end with the
cessation of contract.
In Halsbury’s Laws of England, 4th Edition, Volume 41, the law is
stated thus:
"677. Effect of revenue duties on price. Whoever
may be liable and on whatever event for the
payment of customs or excise duty or value added
tax, the amount of the duty is usually passed on to
the buyer as part of the price. It is the
responsibility of the seller to quote an inclusive
price price if he wishes, and if he fails to do so he
cannot later recover the duty payable as an
addition to the contract price. However, where a
new or increased customs or excise duty or value
added tax is imposed after the making of the
contract, but before delivery of the goods in the
case of customs or excise duty, or supply of the
goods in the case of value added tax, the duty or
increase of duty, if paid by the seller, may, unless
otherwise agreed, be added to the price; and
conversely where a duty is repealed or reduced, if
the seller has had the benefit of the alteration, the
duty or reduction may be deducted from the price.
As regards customs or excise duty, but not value
added tax, in addition to the actual amount of the
duty to be added or deducted there may also be
added or deducted a sum representing the expenses
incurred or saved, as the case may be, as a result of
the additional or repealed duty. The amount of
such expenses, if not agreed upon by the parties, is
settled in default of agreement by the revenue
authorities."
Section 62 of the Sale of Goods Act, 1930 reads thus :
"Exclusion of implied terms and conditions.-
Where any right, duty or liability would arise
under a contract of sale by implication of law, it
may be negatived or varied by express agreement
or by the course of dealing between the parties, or
by usage, if the usage is such as to bind both
parties to the contract."
A change in the amount of consideration not only must be specifically
provided in the contract but the same must also undergo a strict test.
In Conway Brothers and Savage vs. Mulhern and Co. (Limited)
[Vol.XVII (1900-1901) The Times Law Reports 730], sub-section (1) of
Section 10 the Finance Act, 1901 interpretation whereof fell for
consideration was in the following terms :
"Where any new Customs import duty or
Excise duty is imposed, or where any Customs
import duty or Excise duty is increased, and any
goods in respect of which the duty is payable are
delivered after the day on which the new or
increased duty takes effect in respect of a contract
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made before that day, the seller of the goods may,
in the absence of agreement to the contrary,
recover as an addition to the contract price a sum
equal to any amount paid by him in respect of the
goods on account of the new duty or the increase
of duty, as the case may be."
Interpreting the said provision, as regard the defendant’s plea of
realisation of additional tax in future deliveries, it was held that the said Act
cannot be applied retrospectively so as to impose an additional liability upon
the buyer, save and except when a contrary intention is clearly manifested.
In American Commerce Company (Limited) Vs. Frederick Boehm
(Limited) [Vol. XXXV 1918-19 The Times Law Reports 224] interpreting
the said provision, it was observed:
"His Lordship read the section and said that as it
was a c.i.f. contract there would have been no
obligation on the vendors to pay any duty at all in
the absence of the special provision that the sale
was to be duty paid. Mr. Neilson had contended
that those words meant that both the old duty and
the new duty should be borne by the sellers, but he
could not accept that contention. The case was
one, in his opinion, to which the section directly
applied, and the words "duty paid" did not
constitute an agreement to the contrary within the
meaning of the section.
As to the further point that the time for
performance was extended by agreement, there
was in law a new agreement. That was made on
April 2, and the date for fixing the amount of duty
payable would therefore be that day. But the
increased duty did not come into force until April
23, so the fact that the time had been extended
would not held the defendants. The defendants
should have protected themselves by expressly
providing that the sellers must pay any increased
duty which might be imposed, and as they had not
done so the plaintiffs must have the benefit of the
statute and would have judgment, with costs."
In the instant case also the State of Maharashtra did not expressly
protect themselves that the respondents must pay any amount by way of
increase in wages pursuant to or in furtherance of the recommendations
made by the Fifth Pay Commission with retrospective effect. Having not
done so, they are not entitled to claim the same from the licensees.
In Occidental Crude Sales Inc. Vs. Latsis [1976 Vol. 2 Lloyd’s LR
412] despite provision in the contract that buyer has to bear all charges, fees,
dues, and taxes which would not be deemed to be new charges, it was
observed:
"The seller accordingly wishes to guard against a
possible loss-making situation which could be
extremely serious for him. That is the purpose of
cl. 11.1. However, the buyer, in his turn, could not
be expected to accept an open-ended commitment
to bear any increase in cost which might be
imposed upon the seller or the producer of the oil.
He would wish to have the choice of accepting the
increase and going on with the contract or of not
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accepting it and terminating the contract."
These decisions are pointers to the fact that even in relation to the
increase in duty, the same, subject to an express contract, shall be operative
only during the currency of the contract and not beyond the same.
In Love vs. Norman Wright (Builders), Limited [Law Reports 1944
(1) K.B. 484], while answering a question as regards levy of purchase tax
under Section 27 of the Finance Act, 1940, it was observed :
"The matter really becomes clear when s.28
is considered. That section has the same object as
s.10 of the Finance Act, 1901, which, dealing with
the imposition of new duties, whether of customs
or excise, gives the seller of goods under a contract
made before the new duties were imposed the right
to add the amount to the contract price, or, if the
duties are abolished or decreased, allows the buyer
to reduce the price by the amount of the reduced
duty. So, with regard to purchase tax. No doubt in
the great majority of cases the seller would pass on
the burden of the tax to the buyer. Consequently,
this section provides, by sub-s. I, that he may do so
in respect of a contract made before the tax was
imposed but which would be subject to tax when
the time for the performance arrived, and sub-s.2
gives a corresponding right to the buyer to make a
deduction if the tax is reduced after the contract is
made. In either case the right is given only in the
absence of agreement to the contrary, and in the
case of a buyer only "if the seller has had.the
benefit of the tax not becoming chargeable "or
becoming chargeable at the reduced rate."
Observe that sub-s. I allowed an addition to, and
sub-s.2 a reduction from, the consideration, that is,
the price. Similarly, s.21, sub-s. I, which provides
for the ascertainment of a wholesale value of
goods in respect of which tax is chargeable, says
that it is to be "the price which.the goods would
fetch.if "no tax were chargeable in respect of the
sale," thus indicating an assumption that normally
the tax will be added to the purchase price by the
seller."
It was further observed :
"Where an article is taxed, whether by purchase
tax, customs duty or excise duty, the tax becomes
part of the price which ordinarily the buyer will
have to pay. The price of an ounce of tobacco is
what it is because of the rate of tax, but on a sale
there is only one consideration, though made up of
cost plus profit plus tax. So, if a seller offers
goods for sale, it is for him to quote a price which
includes the tax if he desires to pass it on to the
buyer. If the buyer agrees to the price it is not for
him to consider how it is made up, or whether the
seller has included tax or not."
The said decision has been followed by this Court in Black Diamond
Beverages and Another vs. Commercial Tax Officer, Central Section,
Assessment Wing, Calcutta and Others [(1998) 1 SCC 458].
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It is well-settled that a definite price is an essential element of a
binding agreement and although a definite price need not be stated but
assertion thereof either by reason of express reason or implied reason is
imperative.
In para 59 of Halsbury’s Laws of England, Fourth Edition, Reissue,
the law is stated thus :
"59. Adjustment of contracts on changes in
customs or excise duties or value added tax.
Whoever may be liable and on whatever event for
the payment of customs or excise duty or VAT, the
amount of the duty is usually passed on to the
buyer as part of the price."
An act on the part of the State to increase wages of its employees is a
welfare act. When such increase takes place with retrospective effect the
validity thereof can be upheld only because it is for the benefit of the
employees. Such a beneficial act on the part of the State, however, would
not bind a third party. An increase in wages by the State with a retrospective
effect was an unilateral act on the part of the State. If, it will bear repetition
to state, if it was intended to be passed on by the State to the respondent the
same ought to have been the subject matter of a specific contract so as to
avoid the uncertainty of the terms of contract as contemplated under Section
29 of the Indian Contract Act. The rule of construction of a contract is that
if the terms of the agreement are so vague and indefinite that it may not be
ascertained with reasonable certainty as regard intention of the parties, the
same would not be enforceable at law. Meaning of a contract must be clear
on its face. In any event, in the instant case, the contract had been worked
out. Once the contract had been worked out, a fresh liability cannot be
thrust upon a contracting party.
It is now accepted that the decision of the Full Bench of the Bombay
High Court in Mohan Meakin’s case was not brought to the notice of the
Bench deciding Polychem. The parties referred to two conflicting views of
the High Court. This Court applied its mind and approved the judgment
rendered by the Division Bench in Bilimoria’s case. There is no rule of
practice or precedent that where a Bench of the High Court is faced with two
conflicting views; one rendered by this Court and another by a Full Bench of
the same High Court; both have to be read together. In fact both can’t be so
read unless the decisions are such which can be explained and the ratio of
one may be held to be not applicable in the fact of the matter. In the instant
case, the views of the Full Bench and this Court are diametrically opposite
and thus both the decisions could not have been given effect to
simultaneously by reading them together or otherwise.
For the aforementioned reasons, I am of the opinion that the impugned
judgment cannot be faulted. This appeal is, therefore, dismissed.