Krishna Kumar Ujjain vs State of Chhattisgarh and Others

Dhirendra Mishra, J.—These petitions are being disposed of by this common order as the petitioners herein have prayed for quashing of demand notices issued to them to deposit the balance of licence fee for liquor shop/ group given to them on licence for the year 2002-03.

The State Government in exercise of powers conferred under the Excise Act, 1915 (for brevity "the Act) made Chhattisgarh Excise Settlement of licence for Retail Sale of Country/Foreign Liquor Rules, 2002 (in Short "the Rules, 2002") vide notification dated 15th March, 2002 Applications for grant of licence to operate country/foreign liquor shops were invited as per Excise policy of the State Government for the year 2002-03 through Collectors (Excise) of the respective districts, after dividing the entire State in several groups (Excise) of the respective districts, after dividing the entire State in several groups (about 268 groups). However, at the end of March, 2002, it was discovered that applications covering all groups and each shop have not been received and on account of failure on the part of the applicants in depositing the amount as per rules, some shops could not be disposed of, and, therefore the Collectors were directed to dispose of the remaining groups/ shops by inviting tenders. The petitioners in the batch of petitions were granted licence, either on the basis of their applications or through tenders.

Basically, grievance of the petitioners in these petitions is that as per conditions of the licence, they were required to lift Minimum Guaranteed Quota (in short "MGQ") every month after paying duty towards the quantity lifted by them. They have lifted more than MGQ after paying specified duty However, they were served with show cause notice and called upon to pay additional amount towards duty tan the amount, which they had already paid against MGQ.

Contention of the petitioners is that the conditions of licence, the Act, and the Rules made thereunder, only speak about MGQ and penalty at the rate of Rs. 48 per proof liter for country liquor, Rs.84 per proof liter for foreign liquor and Rs.10 for per bottle of malt in case of failure in lifting the MGQ, and there is no mention in the licence about any mandatory requirement of any duty in terms of rupees payable to the State Government. However, the respondent authorities, without considering the reply of the petitioners to the show cause notices, have ordered the petitioners to compulsorily deposit the loss of excise duty within 10 days form issue of the impugned orders.

Shri Prashant Jaiswal, learned Sr. Advocate with Shri Vinay Pandey, learned counsel for the petitioners in W.P. No.649/03, vehemently argued that the Collectors (Excise) in exercise of powers conferred under the Rules, 2002 invited applications for grant of licence of group of liquor shops for the year 2002-03 vide advertisement dated 17th February, 2002 (Annexure P/1). Proforma of the application, supported by affidavit, to be submitted by the applicant was also published in the advertisement and from perusal of the proforma of the application, it would be evident that the applicants were asked to submit their offer for the identified group vide Column 3, month-wise MGQ as prescribed in Column 4 for country liquor and for foreign liquor (spirit & malt) as prescribed in Columns 5 & 6 respectively. In response to the above advertisement, the petitioner applied for Gudiyari group of shop, which is mentioned at Sl.No.6 in the advertisement and had undertaken to lift MGQ prescribed for country liquor, foreign liquor (spirit) and foreign liquor (malt) as indicated in Column 4,5 & 6 of the advertisement. The licence fee prescribed was Ps.1,72,35,925/- for the entire group and security amount was Rs. 14,36,332/-. The petitioner was granted licence for Gudiyari and Gogaon shop vide Annexure P/2 & P/3, both being part of Gudiyari group as described at Sl.No.6 of Annexure P/1. As per conditions of the licence, the petitioner was to pay licence fee of Rs.59,55,926/- and Rs.59,04,000/- for both the shops respectively. For Gudiyari, MGQ to be lifted for foreign liquor spirit was 66020 proof liter and for malt it was 26666 proof liter and for malt 23400 bulk liter. As per conditions of Annexure P/2 & P/3, month-wise MGQ mentioned therein was required to be lifted by the licensee each month in accordance with Rules 3(b) of the Rules, 2002. Rule 15 provides for imposition of penalty @ 48/- per proof liter for country liquor, Rs. 84/- per proof liter for foreign liquor and Rs.10/- per bottle for foreign liquor malt on failure of the licensee to lift month-wise MGQ. The above condition is also enumerated in Clause 8(ga) of the licence. Rule 14 provides for lifting of liquor, according to which the licensee is to place indent well in advance to procure supply of liquor, and Rule 14(c) provides for duty rates of the liquor.

Shri Jaiswal emphasized that the word "duty" occurring in Rules 14(c) of the Rules, 2002 is nothing but "Excise duty". He further argued that the petitioner never failed to lift moth-wise MGQ and at times, he lifted more than the prescribed MGQ as would be evident from the documents of Annexures P/4 & P/5. However, the Collector (Excise), Raipur issued show cause notice (Annexure P/6) and informed the petitioner that out of total value of the liquor shops, 50% is required to be paid as licence fee and 50% as duty and directed the petitioner to deposit the balance of 50% of the value of the shop. The petitioner replied to the above show cause notice vide Annexure P/7 and contested the demands on the ground that the petitioner has lifted the month-wise MGQ. Since the excise duty is payable on the lifting of liquor, the petitioner cannot be compelled to pay more than the excise duty, even if it is 50% of the value of the shop. It was further contended that in the advertisement of Annexure P/1 and tin the licnece of Annexures P/2 and P/ 3, MGQ has been determined in quantity and not in rupees. However, the Collector vide his order of Annexure P/8 held that as per Excise Policy of the State formulated by the Excise Commissioner, value of the shop is to be divided in two parts. 50% would form part of the licence fee and remaining 50% would be payable from the excise duty, and accordingly, the petitioner was held liable for payment of duty, even if he has lifted the entire MGQ, in order to meet the revenue demands of the State. In these circumstances, the impugned demand notices of Annexures P/9 and P/10 have been issued to the petitioner.

Leaned counsel for the petitioner further argued that as per constitutional scheme, excise duty is leviable on the manufacturer and production of the intoxicant liquor by the State Government by virtue of Entry 51 of List-II of Schedule VII of the Constitution to be decided by the State legislature. Since the petitioner-licensee has already paid excise duty for the prescribed month-wise MGQ, which he has lifted, he cannot be compelled to pay more excise duty to the extent of 50% of the value of. The shop, which virtually amounts to imposition of excise duty for the quantity of liquor not lifted by the petitioner-licensee. It was further arguered that Section 25 & 26 of the Act provide for imposition of excise duty and the ways of levying of such duty. Thus, excise duty can be levied by the State Government only and secondly, the excise duty is on the quantity of the liquor issued from the Warehouse after being manufactured at distillery.

Relying upon the decisions of the Hon''ble Supreme Court and the High Court of M.P., it was argued that the power to impose excise duty u/s 25 of the Act can be exercised only by the order of the State Government made in the name of Governor and authenticated in accordance with the rules of business as provided by Article 166(2) of the Constitution. The duty is sought to be imposed on the basis of Excise Policy issued by the Excise Commissioner and letter issued by the Excise Commissioner in this regard. However, from perusal of both these documents, it would be evident that the same have not been expressed in the name of Governor and as such, not an order of the State Government.

Lastly, it was argued that it is settled law that the State cannot levy excise duty on undrawn liquor. Reliance is placed on the judgments in the matters of State of Madhya Pradesh Vs. Firm Gappulal and Others, ; Bimal Chandra Banerjee Vs. State of Madhya Pradesh etc., ; and Panna Lal and others Vs. State of Rajasthan and others AIR 1975 SC 2008.

The petitioners in WP No.232/02 have also prayed for quashing of circular dated 10th June, 2002 issued by the Excise Commissioner, whereby it has been clarified to the Collectors of the State that 50% of the total revenue receivable form liquor shops is licence fee and rest of the 50% is recoverable as duty. Wherever there is deficiency in payment of minimum licence fee and target is not achieved, in that case, the licensee shall be bound to pay the difference amount, irrespective of the fact that he has lifted month-wise MGQ for the particular month.

Shri Ashish Shrivastava, shri Rajeev Shrivastava, Shri Abhishek Sinha, Shri Ghanshyam Patel, Shri Shaif Khan, Shri Akhilesh Dalpati, Shri B.D. Guru, Shri Aditya Tiwari, and Shri Malay Shrivastava, learned counsel appearing for the petitioners, advancing similar arguments, contended that the circular dated 10th June 2002 issued by the Excise Commissioner is without the authority of law as neither u/s 25 & 26 of the Act nor under the rules made thereunder or the general terms and conditions of the licence, the licensing authority has any power to demand additional excise duty when the petitioners have already paid duty at the rate prescribed by the government on the lifted quantity of the liquor in accordance with the terms and conditions of the licence, and the Excise Commissioner has illegally usurped the power of the Stat Government in prescribing the duty payable in respect of country and foreign liquor of various brands.

On the other hand, Shri Kishore Bhaduri, learned Additional Advocate General appearing for the State/respondent, would argue that the only issue involved in this batch of petitions is - whether the demand raised by the respondent is in accordance with the provisions of the Act & the Rules, 2002, and whether the duty demanded the State is the difference of duty or an additional excise duty, as alleged by the petitioners herein?

Referring to the relevant provisions of the Rules for the purpose of these petitions, it was contended that as per procedure for grant of licence provided under rule 8, public advertisement was issued by the licensing authorities of all the districts of the State inviting applications for this purpose, detailing the list of shops, for which the licensing authorities propose to grant licence alongwith shop-wise MGQ, security amount and annual quantity. For the purposes of fixing MGQ, the licence fee, duty and total revenue, consumption in the previous years and expected increase in the ensuing years are taken into account. After arriving at a figure of expected consumption of liquor from a particular group, the duty is calculated as per average of duty structure as shown in the tabular form under Rule 14 of the Rules, 2002. After calculating the expected total duty of a particular shop, likewise entire shop/group is calculated and then the same is doubled for calculating the total revenue. Thus licence fee is fixed equivalent to total amount of recoverable duty.

From perusal of the advertisement of Annexure P/1 and proforma of the application with affidavit to be submitted by the applicants vide advertisement of Annexure P/l, it would be evident that annual MGQ of each category of liquor, annual licence fee, security deposit and application fee for each shop of the group and group, was pre-fixed. The applicants were required to fill in licence fee (in rupees) against Column 3, annual MGQ in proof liter and bulk liter against Column 4, as is evident from the proforma of the application, the applicants were also required to swear-in an affidavit in the proforma given in the advertisement. From perusal of the Applications filed by the petitioners for grant of licence (Annexure R/2), it is evident that they were aware about annual licence fee payable for group/ shop, value of the shop and MGQ of lifting. Therefore, contention of the petitioners that they were not aware of the amount payable to the State under the head of "licence fee" is contrary to the conditions mentioned in the advertisement and the contents of their own application, which were duly supported by their respective affidavits.

From perusal of the relevant rules, it would be evident that a fixed sum as licence fee is payable in consideration of grant of licence for exclusive privilege for selling of country/foreign liquor in a retail shop, as provided under Rule 2(5) of the Rules, 2002, whereas month-wise MGQ is the quantity of country/foreign liquor (spirit & malt) as fixed by the licensing authority in accordance with the general or specific instructions issued by the Excise Commissioner and guaranteed by the licensee to be lifted by him for his retail sale shop/group of shops in a month of an excise year.

Rule 14 deals with lifting of liquor, whereas Rule 14(c) prescribes the rates for various categories of liquor and Rule 15 provides that the licensee shall lift MGQ fixed for the month and further prescribes imposition of penalty on the amount of guaranteed quantity less lifted than the fixed guaranteed quantity. The rates of penalty have been fixed at Rs.48 per proof liter for country liquor, Rs.84 per proof liter for foreign liquor and Rs.10 for per bottle of malt. The amount of penalty is deductible from the security deposit and the licensee is duty bound to eplenish the shortfall in the security deposite within a week and on the failure to deposit the amount of deficit in security amount, his licence is liable to be cancelled.

The Rules, 2002 have been made in consonance with the Excise policy of the State, wherein it has been clearly mentioned in Clause (4) of the Policy that 50% of the targeted revenue earning from country/foreign liquor shops during the year 2002-03 within the districts will be fixed as licence fee and the licensees would be granted a facility of paying the licence fee in installments. The Excise Commissioner, vide circular dated 10th June, 2002, has only clarified to the licensing authorities about the same. Since the petitioners lifted only cheap range of liquor up to the level of MGQ, there was a deficiency in payments of monthly fixed licence fee and in these circumstances, the petitioners were served with show cause notices by the licensing authority and they were directed to make good the deficiency, after considering their replies.

We have heard learned counsel for the respective parties and perused the material available on record.

The State Government in exercise of powers conferred under subsection (1) of Section 62 read with Section 18 of the Act made the Rules, 2002 and notified the same in the Official Gazette on 15th March, 2002.

Sub-rule (5) of Rule 2 defines "license fee" as a sum fixed in consideration of the grant of the licence for exclusive privilege for selling Of county/foreign liquor in a retail shop under sub clause (h) of clause (ii) of sub-section (2) of Section 62 of the Act as fixed by the Excise Commissioner in consultation with the State Government form time to time for the whole excise year or part thereof.

Rule 4 empowers the licensing authority to form groups each consisting of three liquor shops and further provides that groupwise licences shall be issued under the rules with a power to the licensing authority to reduce or add any one or two shops in the group, with a view to augment revenue.

Under Rule 7, the licensing authority shall issue licenses for the liquor shop on deposition of security amount and the licence fee for the month is advance by the licensee.

Whereas Rule 8 provides for the procedure for grant of licence according to which, the licences are to be granted only after inviting applications for this purpose by giving wide publicity through publications in the daily newspapers. Rule 8(b) mendates that the list of shops of all categories of liquor, for which the licensing authority proposes to grant licence, is to be exhibited along with shopwise licence fee, minimum monthwise guaranted quantity, security amount an annual quantity in the office Collector, etc. etc.

A District Level Committee for licence is to be formed under Rule 10 under the chairmanship of the Collector of the District and selection of the licensee is to be made by the said Committee as provided under Rule 11.

Rule 13 requires that the licensee shall deposit one month''s amount of licence fee and security amount within three days of being informed of his selection. On his failure, his selection stands canceled and he is debarred from holding any excise licene in future anywhere in the State.

Rule 14 provides for the manner, in which the liquor is to be lifted by the licensee, whereas Rule 14(c) details the duty rate of different categories of liquor, on payment of which supply of liquor is to be made by the Supplier - Chhattisgarh State Beverages Corporation Ltd.

Rule 15 provides that the licensee is liable to lift the entire minimum monthwise guaranteed quantity during a month, whereas Rule 15(b) provides for imposition of penalty on the amount guaranteed quantity less lifted than the fixed guaranteed quantity at a rate given under this sub-rule for different categories of liquor.

This State Government, after receiving the proposals from the licensing authorities in various districts, fixed the minimum monthly guaranteed quantity of each category of liquor, security deposit and the application fee. After assessing the entire estimated revenue receivable in the excise year, the State Government decided to recover equal amount of licence fee in consideration of grant of licenses for exclusive privilege for selling of liquor through retail shops, and accordingly, invited applications by public notification in the daily newspapers as per provision of Rule 8, clearly mentioning therein the groups, details of the shops in a particular group, annual minimum guaranteed quantity of each category of liquor, annual licence fee, security deposit and application fee. Proforma of the application as well as affidavit required to be filed along with the application was also published in the advertisement. From perusal of the application for grant of licence preferred by the petitioners we find that they applied for license knowing fully well that they are required to pay annual licence fee at a fixed rate as mentioned in the advertisement as also in their own applications Therefore, contention of the petitioners that the licence conditions prescribe only MGQ and not the duty in terms of rupees, which is mandatorily payable to the State Government, is not acceptable.

In the matter of Firm Cappulal the liquor contractors were subject inter alia to the following condition at auction which the Government wanted to enforce.

In case, the fixed monthly quantity is not taken in any month the concerning contractor shall be liable to pay to the Government the amount of PRATIKAR at the rate fixed by the Government for spiced spirit and plain spirit to the extent to which it would be less than the fixed monthly minimum quantity and the amount of such PRATIKAR shall be paid within the tenth day of the month which falls immediately after the month to which such shortage is concerned. Security to the extent of one sixth to one tenth of the whole of the amount of yearly PRATIKAR will have to be given Pratikar is excise duty.

Dismissing the appeal of the State Government, the Hon''ble supreme Court held that the state could not levy excise duty on undrawn liquor. The State did not possess such powers. Hence the conditions in the licence permitting such levy and the demand notices in that connection were invalid.

In the matte of Bimal Chandra Banerjee the petitioners were excise contractors and successful bidders for some of the shops for selling liquor in the State of M.P. for the financial year 1964-65. The State Government issued notification in exercise of powers u/s 62 of the MP Excise Act, 1915 amending the earlier rules and inserted a clause prescribing minimum quantity for taking issues from the Warehouse for sale, and further prescribed that the licensee shall be liable to make good every month the deficit of monthly average of the total minimum duty on or before the 10th day of each month following the month to which the deficit duty relates.

Allowing the appeal preferred by the licensees, the Hon''ble Supreme Court quashed the notification as well as the demand notices on the ground that no tax can be imposed by any bye-law or rule or regulation unless the statute under which the subordinate legislation is made specially authorized the imposition even if it is assumed that the power to tax can be delegated to the executive. The basis of the statutory power conferred by the statute cannot be transgressed by the rule-making authority. A rule-making authority has no plenary power. It has to act within the limits of the power granted to it.

In the case of Panna Lal, the question before the Hon''ble Supreme Court was - whether the excise licences granted to the appellants render them liable to pay the stipulated lump sum mentioned in the licences the licensees were granted licences for sale of country liquor at a stipulated amount of licence fee under the exclusive Privilege system. Where the contractors failed to pay the guaranteed amount, there was a demand for shortfall. The licensees challenged the demand for shortfall of he guaranteed amount. The licensees contended that what was being demanded as shortfall amounted to levy of excise duty, whereas stand of the State was that what was being realized from the licenses was the guaranteed amount in the licence for the exclusive privilege of selling country liquor.

Rejection the contention of the licensees, it was held that the contractual obligation of the appellants to pay the stipulated amount is not dependent on the quantum of liquor sold by them, which is relevant only for the purposes of remission to be earned by them under the licence. No excise duty is charged or chargeable on undrawn liquor under the licence. The agreement gives the contractor an exclusive privilege to sell country liquor in specified areas 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 stipulated sum and 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 contractors can neutralize 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 neutralizing the entire price of exclusive privilege, the contractors are not called upon to pay excise duty.

In the instant case, as already mentioned in the foregoing Paragraphs, the petitioners were granted licence for retail liquor shop on payment of fixed annual licence fee, apart from the condition of lifting of month-wise MGQ. On the basis of documents available on record, we have already held that the petitioners applied for licence for a particular group of liquor shop on the basis of advertisement issued by the State, which, in no uncertain terms, mentions that the fixed annual licence fee would be payable by the retail vendors. In their own applications, they have mentioned the amount of licence fee that is payable against a particular shop for which they were applying. The demand notices were issued to the petitioners only on their failure to pay the fixed licence fee for the shops granted to them. The issue involved is these petitions is squarely covered by the decision of the Supreme Court in the matter of Panna Lal, as present is not a case where the State is imposing duty on any quantity of undrawn liquor. Rule 15(b) prescribes a separate provision for imposing penalty where the licensee makes default in lifting MGQ. And there is no dispute about lifting of liquor less than the month-wise MGQ. We are unable to accept the arguments of learned counsel for the petitioners that demand notices issued to them are for recovery of additional excise duty, as from perusal of the circular dated 10th June, 2002 of the Excise Commissioner as also the demand notices issued on the basis of aforesaid circular, it is very much clear that the demand is only with respect to difference of the amount, which the licensees have not paid towards licence fee, which they were required to pay every month as per the Rules, 2002 and the conditions of the advertisement.

In the result, all these petitions being without any substance deserve to be dismissed and are, accordingly, dismissed.