PETITIONER:
STATE OF PUNJAB AND ORS.
Vs.
RESPONDENT:
AJUDHIA NATH AND ANR.
DATE OF JUDGMENT07/05/1981
BENCH:
KOSHAL, A.D.
BENCH:
KOSHAL, A.D.
DESAI, D.A.
MISRA, R.B. (J)
CITATION:
1981 AIR 1374 1981 SCR (3) 686
1981 SCC (3) 251
CITATOR INFO :
APL 1983 SC1207 (14)
ACT:
Punjab Excise Act and Rules made thereunder-Principle
of natural justice of giving opportunity to be heard does
not come into play when the demand is merely for payment of
a sum becoming due under the conditions of the licence.
Constitution of India, 1950, Entry 51 of List II of
Schedule VII read with section 31 of the Punjab Excise Act-
Still-head duty is neither a duty of excise nor can be
regarded as a tax of any kind whatsoever.
HEADNOTE:
Condition 8 of the licence to run liquor vends in
various parts of Punjab during the financial year 1965-66
laid down: (i) the licensee shall lift each month the
proportionate quota for the month fixed for his vends or
deposit still-head duty realisable thereof (ii) Any
deficiency in the amount of still-head duty realisable from
the lifting of the full proportionate quota due to the short
lifting of the quota by the licensee or non-deposit of the
still-head duty may be realised from the amount of security
deposited by the licensee at the time of grant of licence;
(iii) the resultant deficiency in the amount of security
shall be made good by the licensee within seven days of such
adjustment and (iv) if there is short lifting of
proportionate quota or short deposit of still-head duty
continues for two consecutive months or the licensee fails
to make up the deficiency in the amount of security within
the prescribed period of seven days, his licence may be
cancelled in addition to the recovery of still-head duty.
Respondent Ajudhia Nath who was granted the necessary
licences under the relevant provisions of the Punjab Excise
Act and the Rules framed thereunder, was unable to lift the
minimum quota of country liquor and also failed to deposit
the still-head duty which became payable by him under
condition No. 8. On an application made by him claiming
relief in the matter of payment of sums which had fallen
due, such relief was granted to him in part by the Excise
and Taxation Commissioner, Punjab, on the ground that the
liquor trade was badly affected by reason of the movement of
population in the border area of Punjab on account of the
hostilities which broke out between India and Pakistan in
the month of September 1965. Not satisfied with the relief
so granted Ajudhia Nath filed two petitions under Article
226 of the Constitution before the High Court of Punjab and
Haryana claiming, inter alia, that still-head duty was an
excise duty which could be levied only on manufacture of
goods and which he was not liable to pay by reason of the
admitted fact he was not a manufacturer of Liquor and that
he was not given the opportunity of being heard in the
matter covered by the applications claiming relief. The
petitions were allowed and the Letters Patent Appeals
preferred by the State were dismissed. Hence the appeals by
special leave.
687
Allowing the appeals, the Court
^
HELD: 1. The demand for the short-fall in still-head
duty was based on the terms of a binding contract and it
sought to enforce the liabilities arising out of mutually
agreed conditions of auction. Such a demand could not be
equated with a notice requiring the liquor vendor to show
cause why his licence should not be cancelled. Although an
opportunity of being heard has to be given to a liquor
vendor when his licence is sought to be cancelled, the same
principle of natural justice does not come into play when
the demand is merely for payment of a sum becoming due under
the conditions subject to which the licence was granted.
[691 G-H, 692A, E-F]
Har Shankar and others v. The Dy. Excise & Taxation
Commissioner and others [1973] 3 SCR 254; Shyam Lal v. State
of Punjab, AIR 1976 SC 2045; State of Punjab v. Mulkh Raj
and Co., AIR 1977 SC 1550 and The State of Punjab v. Balbir
Singh and others, AIR 1977 SC 1717, followed.
2: 1. A combined reading of Entry 51 of List II of
Schedule VII to the Constitution of India and section 31 of
the Punjab Excise Act no doubt makes it clear that a duty of
excise on alcoholic liquors meant for human consumption
cannot be recovered from a person unless any one of the
three clauses of section 31 covers his business activities.
[693 C-D, 694A]
2: 2. Still-head duty is not a duty of excise in view
of the dicta laid down by the Supreme Court to the effect
that the short fall in still-head duty represents nothing
but sums recoverable from the licensees under a contract
which was entered into by them with their eyes open and that
they cannot be allowed to have the best of both the words by
exploiting the contract so long as it suits them and by
repudiating it if and when it does not work to their
advantage. [694 B-C]
Har Shankar and others v. The Dy. Excise & Taxation
Commissioner and others, [1973] 3 SCR 254; State of Punjab
v. Balbir Singh and others, AIR 1977 SC 1717, applied.
2: 3. Condition No. 8 of the licence does not involve
the imposition of a duty of excise but makes provision only
for recovery of sums becoming due under a contract. The
licensees are not connected in any manner whatsoever with
the manufacture of alcoholic liquor and there was,
therefore, no question at all of levying a duty of excise on
their operations which were confined merely to the sale of
liquor manufactured by others and which, therefore,
commenced only after the process of manufacture was
completely over. [696 E-G]
M/s. Bhajan Lal Saran Singh & Co. v. State of Punjab
and others, 1967 Current Law Journal (Punjab and Haryana)
460; State of M.P. v. Firm Goppulal, [1976] 2 SCR 1041;
Excise Commissioner, U.P., Allahabad and others v. Ram Kumar
and others, [1976] 3 SCC 540, distinguished.
3: 1. On the facts of this case still-head duty cannot
be regarded as a tax of some other kind nor can the question
whether it does amount to such a tax
688
(for levying which the State lacks authority) be allowed to
be raised since it was never raised at any earlier stage and
its consideration is bound to work prejudice to the cause of
the appellants. Further there is no impediment in the way of
the demand being regarded as the enforcement of an
obligation arising under the contracts which the licensees
had entered into and exploited so long as the same worked to
their advantage and which were fully permissible under sub-
section (3) of section 34 of the Punjab Excise Act. [696 H,
697 A-B]
3: 2. Clause (b) of sub-section (3) of section 34 of
the Punjab Excise Act allows impositions of conditions on
grant of the licences in addition to the payment of the
licence fees which is a matter covered by clause (a).
Condition No. 8 is, therefore, fully enforceable and there
is no reason why still-head duty should be regarded as a tax
of any kind whatsoever. [697 D-E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1665 and
1666 of 1970.
From the order dated the 25th July, 1968 of the Punjab
and Haryana High Court in LPA Nos. 230 & 240 of 1968.
M.S. Dhillon for the Appellant in both the appeals.
Tirath Singh Munjral, G.K. Arora, S.S. Munjral and
Gautam Bannerjee for the Respondents in both the appeals.
The Judgment of the Court was delivered by
KOSHAL J. By this judgment we shall dispose of Civil
Appeals Nos. 1665 and 1666 of 1970 in which common questions
of law have arisen for determination by this Court.
2. The facts leading to the two appeals are undisputed
and may be briefly stated thus. Licences to run liquor vends
in various parts of Punjab during the financial year 1965-66
were sold by public auction shortly before the 1st April,
1965. Auctions were held at numerous places subject to
identical conditions which were supplied to the bidders in
writing. Condition No. 8 which is material for our purposes
is reproduced below:
“That the licensee shall lift each month the
proportionate quota for the month fixed for his vend
(s) or deposit still-head duty realisable thereon. In
the event of any deficiency in the amount of still-head
duty realisable from the lifting of the full
proportionate quota due to the short lifting of the
quota by the licensee or non-deposit of the amount of
the still-head duty, the said deficiency may be
realised from the amount of security deposited by
689
him at the time of grant of licence. The resulting
deficiency in the amount of security shall be made good
by the licensee within 7 days of such adjustment. In
case the short lifting of proportionate quota or short
deposit of still-head duty continues for two
consecutive months or the licensee fails to make up the
deficiency in the amount of security within the
prescribed period of 7 days, his licence may be
cancelled in addition to the recovery of deficiency in
still-head duty.”
Ajudhia Nath who figures as respondent No. 1 in each of
the two appeals and who carries on business of selling
country liquor either in his own name or in the name and
style of M/s. Ajudhia Nath Bal Mukand (a business concern
arrayed as respondent No. 2 in Civil Appeal No. 1665 of
1970) was the highest bidder for the auctions pertaining to
5 villages situated in the district of Amritsar and a couple
of villages in Ferozepur district. Accordingly the auctions
were sanctioned in his favour and he was granted the
necessary licences under the relevant provisions of the
Punjab Excise Act (hereinafter referred to as the Act) and
the rules framed thereunder.
The licensee started his liquour selling business in
the said seven villages on the 1st April, 1965. By the close
of the financial year 1965-66, however, he was unable to
lift the minimum quota of country liquor and also failed to
deposit the still-head duty which became payable by him
under condition No. 8 above extracted. He made applications
claiming relief in the matter of payment of sums which had
fallen due and such relief was granted to him in part by the
Excise & Taxation Commissioner, Punjab, on the ground that
sales of country liquor had been adversely affected by
reason of the movement of population in the border areas of
Punjab on account of the hostilities which broke out between
India and Pakistan in the month of September 1965. Not
satisfied with the relief so granted Ajudhianath filed two
petitions under article 226 of the Constitution of India
before the High Court of Punjab and Haryana claiming, inter
alia, that still-head duty was an excise duty which could be
levied only on manufacture of goods and which he was not
liable to pay by reason of the admitted fact that he was not
a manufacturer of liquor. A grouse was also made by him of
the fact that the applications claiming relief had been
decided without affording to him an opportunity of being
heard. One of those petitions (Civil Writ Petition No. 2034
of 1966) related to
690
vends functioning in the two villages of Ferozepur District,
while the other (Civil Writ Petition Nos 2035 of 1966)
covered the 5 vends located in the 5 villages of Amritsar
District. The petitions were allowed by a single order dated
the 9th May, 1967 passed by D.K. Mahajan, J., on the sole
ground that a similar petition (Civil Writ Petition No. 2021
of 1966) had been allowed by Gurdev Singh, J., on the 27th
March, 1966. The proceedings for the recovery of the short
fall in the deposit of still-head duty by Ajudhia Nath which
had been initiated by the State of Punjab and its concerned
officers (appellants Nos. 1 to 4 in each of the appeals
before us) were quashed and the Excise and Taxation
Commissioner, Punjab (appellant No. 2 in both the appeals)
was directed to dispose of the “cases” of the respondents
“in accordance with law after hearing the petitioners”. D.K.
Mahajan, J., adopted all the reasons on which Gurdev Singh,
J., had based his order above mentioned.
Letters Patent Appeals preferred by the 4 appellants to
the Division Bench of the High Court were summarily
dismissed by Mehar Singh and Tuli, JJ., for the reason that
a Letters Patent Appeal against the judgment of Gurdev
Singh, J., above mentioned had met the same fate.
It is against the judgment of the Division Bench (which
is dated the 29th August, 1969) that each of the appeals
before us has been filed.
3. Mr. Dhillon, learned counsel for the appellants had
drawn our attention to The State of Punjab v. Balbir Singh
and Others, which reversed the judgment of Gurdev Singh, J.,
mentioned above and has contended that the very basis of the
impugned judgment has consequently fallen to the ground. The
contention is correct. As pointed out in Balbir Singh’s case
(supra) the judgment of Gurdev Singh, J., in Civil Writ
Petition No. 2021 of 1966 had proceeded merely on the ground
that the petitioner-firm therein had not been given an
opportunity of being heard in relation to the demand notice
issued to it for payment of the still-head duty on the
entire minimum quantity of liquor which that firm was
required to lift under the licence. In differing with the
view
691
expressed by Gurdev Singh, J., this Court made a reference
to the following observations of Chandrachud, J., (as he
then was) in Har Shanker and Others v. The Dy. Excise &
Taxation Commissioner and Others which was followed in Shyam
Lal v. State of Punjab
“The announcement of conditions governing the
auctions was in the nature of an invitation to an offer
to those who were interested in the sale of country
liquor. The bids given in the auctions were offers made
by prospective vendors to the Government. The
Government’s acceptance of those bids was the
acceptance of willing offers made to it. On such
acceptance, the contract between the bidders and the
Government became concluded and a binding agreement
came into existence between them. The successful
bidders were then granted licences evidencing the terms
of contract between them and the Government, under
which they became entitled to sell liquor. The
licensees exploited the respective licences for a
portion of the period of their currency, presumably in
expectation of a profit. Commercial considerations may
have revealed an error of judgment in the initial
assessment of profitability of the adventure but that
is a normal incident of the trading transactions. Those
who contract with open eyes must accept the burdens of
the contract along with its benefits. The powers of the
Financial Commissioner to grant liquor licences by
auction and to collect licence fees through the medium
of auctions cannot by writ petitions be questioned by
those who, had their venture succeeded, would have
relied upon those very powers to found a legal claim.
Reciprocal rights and obligations arising out of
contract do not depend for their enforceability upon
whether a contracting party finds it prudent to abide
by the terms of the contract. By such a test no
contract could ever have a binding force.”
and concluded that the demand for the short-fall in still-
head duty was based on the term of a binding contract and
that it sought to enforce the liabilities arising out of
mutually agreed conditions of auction. Such a demand, in the
opinion of this
692
Court, could not be equated with a notice requiring the
liquor vendor to show cause why his licence should not be
cancelled. In making this distinction this Court further
relied upon State of Punjab v. Mulkh Raj and Co. wherein it
was observed:-
“It was also held there that a cancellation of the
licence under section 36 of the Punjab Excise Act,
1914, had to take place quasi-judicially after due
service of the notice on the licensee to show cause why
it should not be cancelled. Although, the merits of the
last mentioned proposition need not be examined by us
as it rests on a sound footing, yet, we find it
difficult to uphold the order that the demand for a sum
of Rs. 36,636. On account of short-fall should also be
quashed on account of non-compliance with rules of
natural justice in cancelling the licence in
proceedings under section 36 of the Act. We think that
the two liabilities were erroneously considered by the
High Court to be inextricably linked
up……………………………….
We do not think that, even if the respondent ought to
have been given a hearing before cancelling the
licence, this would dispense with his liability to
deposit the amount of balance of the licence fee or
invalidate the notice of demand for it.”
Thus, the proposition is by now well-settled that
although an opportunity of being heard has to be given to a
liquor vendor when his licence is sought to be cancelled,
the same principle of natural justice does not come into
play when the demand is merely for payment of a sum becoming
due under the conditions subject to which the licence was
granted, and this proposition fully covers these appeals.
The demands for payment of the amount of the still head duty
which had become due under the contracts accepted by the
respondents and had remained unpaid were demands arising
under condition No. 8 above extracted and had, therefore,
resulted from the terms of those contracts. No question of
affording to the respondents any opportunity of being heard
thus arises and the impugned judgment, is, therefore, liable
to be reversed.
693
4. Faced with the above situation, Shri Munjral,
learned counsel for the respondents, raised the following
two contentions:
(a) Still-head duty is a duty of excise which could
only be levied on a manufacturer and not on a mere
vendor of goods manufactured by others.
(b) If the still-head duty mentioned in condition No.
8 above extracted cannot be regarded as a duty of
excise, it nevertheless amounts to a tax of some
other kind for levying which the State lacks
authority.
5. Reliance in connection with contention (a) is placed
on Entry 51 of List II forming part of Schedule VII to the
Constitution of India and on section 31 of the Punjab Excise
Act. The relevant portions of these provisions state:
Entry 51
“Duties of Excise on the following goods
manufactured or produced in the State and
countervailing duties at the same or lower rates on
similar goods manufactured or produced elsewhere in
India :-
(a) alcoholic liquors for human consumption;…..
Section 31
“An excise duty or a countervailing duty, as the
case may be, at such rate or rates as the State
Government shall direct, may be imposed, either
generally or for any specified local area, on any
excisable article-
(a) imported, exported or transported in
accordance with the provisions of section 16;
or
(b) manufactured or cultivated under any licence
granted under section 20; or
(c) manufactured in any distillery established,
or any distillery or brewery licenced under
section 21;…
694
These provisions leave no room for doubt that a duty of
excise on alcoholic liquors meant for human consumption
cannot be recovered from the respondents because none of the
3 clauses of section 31 covers their business activities.
But then the first part of contention (a) that still-head
duty is a duty of excise cannot be accepted in view of the
dicta in Har Shankar and others v. The Dy. Excise & Taxation
Commissioner and others (supra) and The State of Punjab v.
Balbir Singh and others (supra) to the effect that the
short-fall in still-head duty represents nothing but sums
recoverable by the appellants under the terms of a contract
which was entered into by the respondents with their eyes
open and that the latter cannot be allowed to have the best
of both the worlds by exploiting the contract so long as it
suits them and by repudiating it if and when it does not
work to their advantage.
6. Shri Munjral has vehemently contended that still-
head duty is only another name for excise duty inasmuch as
it is nothing more or less than a duty leviable on the
manufacture of alcoholic liquor. For this proposition he
places reliance on a Division Bench judgment of the High
Court of Punjab & Haryana in M/s. Bhajan Lal Saran Singh &
Co. v. The State of Punjab and others the approval of that
judgment by this Court in Civil Appeals Nos. 1042 and 1043
of 1968 decided on 21st August, 1972, State of Madhya
Pradesh v. Firm Gappulal etc. and Excise Commissioner, U.P.,
Allahabad and others v. Ram Kumar and others. These
authorities, however, are of no help to him because, in
every one of them, the still-head duty which was mentioned
in the condition corresponding to condition No. 8 in the
present case was either expressly stated to be an excise
duty or was assumed to be a duty of that character. In fact,
in the case of M/s. Bhajan Lal Saran Singh it was conceded
on behalf of the State before the High Court that still-head
duty was an excise duty and that is why the nature of the
charge as excise duty was taken for granted before the High
Court as well as in this Court. No question was either
raised or decided as to whether it could at all be regarded
as an excise duty. However, in later cases, namely, Har
Shankar and others v. The Dy. Excise & Taxation Commissioner
and others, (supra) and The State of Punjab v. Balbir Singh
and others (supra) the demand for still-head duty
recoverable under condition No. 8 above extracted was
specifically
695
held to be a demand for money which had become due under an
obligation created by terms of the contract. It is too late
in the day, therefore, for Shri Munjral to contend that such
a demand should be considered as one covering excise duty.
He, however, relies on the following passage in Har Shankar
and others v. The Dy. Excise & Taxation Commissioner and
others (supra):
“The second decision on which the appellants laid
stress was rendered by the High Court of Punjab and
Haryana in Jage Ram v. State of Haryana (C.W. No. 1376
of 1961 decided on March 12, 1968). The argument is
that this decision is based on the earlier decision of
the High Court in Bhajan Lal v. State of Punjab (C.W.
No. 538 of 1966 decided on February 6, 1967), that the
decision in Bhajan Lal’s case was confirmed in appeal
by this Court (C.A. Nos. 1042 and 1043 of 1968 decided
on August 21, 1972), that there is no material
difference between the rules and the procedure adopted
in the instant cases and those which were struck down
in Bhajan Lal’s case and therefore, the rules and the
procedure followed herein must also be struck down for
the same reasons. This argument overlooks the
significant difference between the rules struck down in
Bhajan Lal’s case and in Jage Ram’s case and the
amended Rules now in force. Under the old Rule 36 (23-
A) still-head duty which was admittedly in the nature
of excise-duty was payable by the licencee even on
quota not lifted by him. The Rule and Condition No. 8
founded on it were therefore struck down in Bhajan
Lal’s case as being beyond the scope of entry 51 of
List II, the taxable event under the impugned Rule
being the sale and not the manufacturer of liquor. Rule
36 was amended on March 31, 1967 in order to meet the
Judgment in Bhajan Lal’s case but the High Court found
in Jage Ram’s case that even under the amended Rule,
still-head duty which was in the nature of excise duty
was payable on unlifted quota of liquor. The position
obtaining under the Rules as amended on March 22, 1968
which are relevant for our purposes is in principle
different as the still-head duty is now only 0. 64
paise as against Rs. 17.60 per litre which was in force
under the old Rules and excise duty as such is no
longer payable on unlifted quota. The principle
governing the decisions in Bhajan Lal’s
696
case and Jage Ram’s case cannot, therefore, apply any
longer”.
(Emphasis supplied)
Special stress has been laid by Shri Munjral on the
underlined portion of the passage above extracted and it is
contended by him that the judgments in the cases of Jage Ram
and Bhajan Lal were neither disapproved nor dissented from
but were merely distinguished in Har Shankar’s case, that
while pointing out the distinction this Court took it for
granted that in those earlier cases the charge of still-head
duty amounted to an excise duty and that condition No. 8 as
obtaining in the present case being identical with the
corresponding condition in those cases, it must be held that
Har Shankar’s case is an authority for the proposition that
the said condition No. 8 seeks to levy nothing but excise
duty in the form of still-head duty. A careful perusal of
the passage cited (which appears at first sight to lend
colour to the contention) leaves no room for doubt, however,
that in deciding Har Shankar’s case this Court was not
called upon to adjudicate on the Constitutional propriety of
condition No. 8 above extracted, nor with the question as to
the nature of the levy covered by that condition. All that
the Court said was that the corresponding condition in Har
Shankar’s case was a very different condition which could in
no manner be construed to levy an excise duty. Besides, it
was pointed out in the passage above quoted that the still-
head duty mentioned in the relevant condition in the earlier
cases (which was indentical with condition No. 8) was
admittedly a duty of excise-a fact to which we have already
adverted while holding that condition No. 8 does not involve
the imposition of a duty of exercise but makes provision
only for recovery of sums becoming due under a contract. We
may also point out that the respondents are not connected in
any manner whatsoever with the manufacture of alcoholic
liquor and there was, therefore, no question at all of
levying a duty of excise on their operations which were
confined merely to the sale of liquor manufactured by others
and which, therefore, commenced only after the process of
manufacture was completely over. For all these reasons, we
repel the contention under examination.
7. Contention (b) is also without substance and need
not detain us long. For one thing, it was never raised at
any earlier stage and its consideration is bound to work
prejudice to the cause of the appellants. Secondly, as
already pointed out above, there
697
is no impediment in the way of the demand being regarded as
the enforcement of an obligation arising under the contracts
which the respondents had entered into and exploited so long
as the same worked to their advantage and which were fully
permissible under sub-section (3) of section 34 of the
Punjab Excise Act. That sub-section states :-
“(3) Every licence, permit or pass granted under this
Act shall be granted-
(a) on payment of such fees, if any,
(b) subject to such restrictions and on such
conditions,
(c) in such form and containing such particulars,
(d) for such period,
as the Financial Commissioner may direct”.
According to Shri Munjral the payment of licence fees
is provided for in the conditions of auction apart from
condition No. 8 and, therefore, the latter cannot be
regarded as providing for anything but the levy of a duty of
excise or of some other kind. The argument is fallacious in
view of the language of clause (b) of the sub-section just
above reproduced. That clause allows the imposition of
conditions on the grant of a licence, in addition to the
payment of the licence fees which is a matter covered by
clause (a). Condition No. 8 is, therefore, fully enforceable
and there is no reason why still-head duty should be
regarded as a tax of any kind whatsoever.
8. For the reasons stated, both the appeals are
accepted and the impugned judgment. which cannot be
sustained, is reversed so that both the petitions under
article 226 of the Constitution of India filed by the
respondents before the High Court and accepted by it are
dismissed. However, we leave the parties to bear their own
costs.
V.D.K. Appeals allowed.
698