{"id":31461,"date":"2003-11-20T00:00:00","date_gmt":"2003-11-19T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/state-of-punjab-and-anr-vs-devans-modern-brewaries-ltd-and-on-20-november-2003"},"modified":"2017-10-07T13:52:10","modified_gmt":"2017-10-07T08:22:10","slug":"state-of-punjab-and-anr-vs-devans-modern-brewaries-ltd-and-on-20-november-2003","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/state-of-punjab-and-anr-vs-devans-modern-brewaries-ltd-and-on-20-november-2003","title":{"rendered":"State Of Punjab And Anr vs Devans Modern Brewaries Ltd. And … on 20 November, 2003"},"content":{"rendered":"
Supreme Court of India<\/div>\n
State Of Punjab And Anr vs Devans Modern Brewaries Ltd. And … on 20 November, 2003<\/div>\n
Author: A Lakshmanan<\/div>\n
Bench: V.N.Khare Cji, R.C.Lahoti, B.N.Agrawal, S.B.Sinha, Ar. Lakshmanan<\/div>\n
           CASE NO.:\nAppeal (civil)  3017 of 1997\n\nPETITIONER:\nState of Punjab and Anr.\n\nRESPONDENT:\nDevans Modern Brewaries Ltd. and Anr.\n\nDATE OF JUDGMENT: 20\/11\/2003\n\nBENCH:\nV.N.Khare CJI & R.C.Lahoti & B.N.Agrawal & S.B.Sinha & AR. Lakshmanan\n\nJUDGMENT:\n<\/pre>\n
JUDGMENT<\/p>\n
WITH
\nCIVIL APPEAL NO. 2696-2697 of 2003<\/p>\n
DELIVERED BY:\n<\/p>\n
AR. Lakshmanan, J.\n<\/p>\n
B.N. Agrawal. J.\n<\/p>\n
S.B. Sinha, J.\n<\/p>\n
AR. Lakshmanan, J.(for V.N. Khare, R.C. Lahoti and for himself)<\/p>\n
1. I have had the privilege of perusing the judgment proposed by my learned
\nBrother Justice B.N. Agrawal. However, with respect, I express my inability
\nto agree with the same and I propose to write a separate judgment in the
\nfollowing terms.\n<\/p>\n
2. As facts and provisions of the relevant law have been set out in the
\njudgment of my learned Brother Justice B.N. Agrawal, I do not propose to
\nextract again.\n<\/p>\n
3. Civil Appeal No. 3017 of 1997 was filed by the State of Punjab against
\nthe judgment of the Division Bench of the Punjab & Haryana High Court dated
\n17.01.1997 in Writ Petition (Civil) No. 5358 of 1996. The said writ
\npetition was filed by Respondent No. 1 in this appeal, namely, M\/s. Devans
\nModern Brewaries Ltd., Ludhiana praying for issuance of a writ in the
\nnature of certiorari quashing the imposition of import fee on Beer vide
\nOrder 1-D(iii) of the Punjab Excise Fiscal Orders, 1932, amended from time
\nto time, latest being notification dated 27.03.1996 which is impugned in
\nthe writ petition and for other consequential prayers.\n<\/p>\n
4. Civil Appeal Nos. 2696 and 2697 of 2003 were filed by Penguin Alcohols
\n(P) Ltd. and Another etc. against the State of Kerala and Others against
\nthe common judgment of the High Court of Kerala dated 06.04.2001 in Writ
\nAppeal Nos. 3 and 10 of 2001 dismissing the appeal filed by them.\n<\/p>\n
5. The original petitions were filed by appellants herein against Exhibit
\nP1 notification issued by the State of Kerala enhancing the rate of import
\nfee from Rs. 2\/- per proof litre to Rs. 5\/- on Indian Made Foreign Liquor
\n(hereinafter referred to as “IMFL”). The import fee was initially levied
\nunder Government Order, G.O.(MS) No. 57\/92\/TD dated 31.12.1992. The learned
\nSingle Judge upheld the levy holding that it is a fee and regulatory in
\nnature. The appellants preferred writ appeals, which were dismissed by the
\nDivision Bench by the impugned common order in Writ Appeal Nos. 3 and 10 of
\n2001.\n<\/p>\n
6. In both the appeals, common questions arise for consideration and hence
\nthey have beee heard together and are being disposed of by this common
\njudgment.\n<\/p>\n
7. The points for consideration in both the appeals are:\n<\/p>\n
a) Whether the import fee levied is the levied is the price for parting
\nwith the privilege given to the respondent to import liquor into the State
\nand, therefore, the same is within the competence of the State to impose
\nimport fee;\n<\/p>\n
b) Whether the imposition of import fee does not, in any way, restrict
\ntrade, commerce and intercourse among the States.\n<\/p>\n
8. It is well settled by a catena of decisions that the trade in liquor is
\nnot a fundamental right. It is a privilege of the State. The State parts
\nwith this privilege for revenue consideration. In Punjab, the Excise Policy
\nof the State is formulated every year. It is also made known to the
\nlicensees much before their licenses for the year comes to an end. It is
\nalso a matter of fact that the licensees have paid the fee on demand. The
\nfee was first levied in the year 1992. The licensee, in the Punjab case,
\nhad been holding the licence all through this period and never challenged
\nor protested against levy of the fee. The licensees having paid the fee
\nwithout any protest all through is not entitled to challenge the same,
\nwhich does not suit them. The licensee cannot aprobate and reprobate. In
\nPunjab, the grant of licences are governed by the Punjab Excise Act, 1914
\n(for short “the Act”) and various rules and orders framed under it. In the
\nPunjab case, the challenge of the appellant is limited to the imposition of
\nimport fee in addition to the countervailing duty on Beer. It is not
\ndisputed by the appellant that the State is competent and is entitled to
\nimpose excise duty or countervailing duty besides there is no bar on the
\nState to charge any other fee on account of consideration of the privilege
\nprovided to the licensee to provide them the right to trade in liquor. A
\nperusal of the impugned notification shows that the State Government
\nsubstituted the existing provision with regard to import fee and increased
\nthe rate of this fee. It is part of the privilege price i.e. consideration
\namount on account of which the licence was granted to the licensee.
\nFurther, the licensee had an option to opt out of the business field if
\nsuch levies were detrimental to their interest or were to their
\ndisadvantage.\n<\/p>\n
9. The respondent in Civil Appeal No. 3017 of 1997 carries on wholesale
\ntrade in the State of Punjab. Under the rules, the licensee is required to
\nobtain a licence in Form L-1, which is valid for one year. In addition to
\nthis under the Punjab Excise Fiscal Orders, 1932, the respondents is liable
\nto pay duty\/fee at the rates mentioned therein. As a result of this, the
\nrespondent has to pay excise duty\/import fee as the case may be. Over and
\nabove this, there is an import fee which is levied by the State Government
\nin exercise of its powers under Section 58 of the Act. According to learned
\ncounsel for the State of Punjab all these charges and levies are really a
\nprice for the privilege of carrying on the trade under the L-1 license as
\nfar as the privilege of importing alcohol into the State of Punjab. The
\nimpugned levy is under the Punjab Excise Act, 1914, which is a pre-
\nConstitution Act. It is this Act which provides that no intoxicant shall be
\nimported, exported or transported except after the payment of duty to which
\nit may be liable under the Act. The words “duty to which it may be liable
\nunder this Act” were substituted by the words “duty of customs or excise to
\nwhich it may be liable”. This change was also brought about by the
\nGovernment of India on adaptation of Indian Laws Order 1937. It was,
\ntherefore, argued by the State that the power is conferred under Section
\n58(2)(b) to regulate the import, export, transport and possession of any
\nintoxicant. Therefore, the different imposts have to be construed in this
\nbackground. There is, therefore, an excise duty so-called which is provided
\nfor under Rule 5 of the Punjab Excise Fiscal Orders, 1932, not only on
\nlocally produced beer but also on imported beer. The Statutory Authority
\nfor this imposition can be found from the provisions including Section 16
\nread with Section 32 of the Act. In addition to the excise duty under Rule
\n5, there is also a provision for grant of licence for sale of intoxicants.
\nTo carry on the trade in wholesale, a person has to obtain a L-1 licence
\nfor which an annual pre-determined sum is payable. Similarly, in addition
\nthere are licences for production and for manufacture each of which licence
\nhas its own predetermined fee which has to be paid for obtaining such a
\nlicence. The modalities of the levy of fees or the quantum of the fees has
\nno bearing on its legal pedigree which is that of consideration for the
\npermission to carry on an activity in the noxious articles. Thus, if a
\nperson wants to carry on a wholesale trade in liquor in Punjab, he will
\nhave to (a) obtain a L-1 licence for which he would pay the fees in
\naccordance with the policy carried on for the period; (b) On the liquor
\npurchased by him, he will have to pay duty on all purchases irrespective of
\nthe source of the product. This duty is the duty under Rule 5 of the Punjab
\nExcise Fiscal Orders, 1932, in relation to beer read with Rule 1 of the
\nsaid Orders in case of IMFL.\n<\/p>\n
10. In case, the licensee seeks a permit to bring in imported alcohol, he
\nwould have to pay as a condition of the permission to import under Section
\n16(b) read with Section 19 an import pass fee at such sum fixed by the
\nGovernment. The respondent in this case\/writ petitioner has mixed up these
\ndifferent imposts and has referred to the duty paid under Rule 5 which is
\nan amount equivalent to the excise duty and the fee under Rule 1(d) of
\nPunjab Excise Fiscal Orders, 1932. As already noticed, on imported goods
\nthere are two independent imposts, namely, duty equal to the local excise
\nduty under Rule 5 and an import fee under Rule 1(d) of the Punjab Excise
\nFiscal Orders, 1932.\n<\/p>\n
On 31.01.2002, this Court passed an order which read as under:
\n“In the course of the argument, it was noticed that the principal argument
\non behalf of the respondents before the High Court, which was upheld by the
\nHigh Court, was that the import fee, which is the subject matter of these
\nproceedings, had been imposed by the State of Punjab without authority of
\nlaw. The response on behalf of the State of Punjab before the High Court
\nwas that the right of the respondents to import beer into the State was
\nprivilege conferred by the State upon the respondents to which Article 301
\nhad no application because the respondents had no right to trade in liquor
\nde hors that privilege and that the import fee was the price for the
\nprivilege. In the course of the argument before us, we asked Mr. K.K.
\nVenugopal, learned counsel for the State, to tall us what the source of
\npower for thew imposition of the import fee was. Mr. Venugopal referred in
\nreply to Section 18, 19, 34, 58 and 59 of the Punjab Excise Act, 1914. In
\nother words, the contention of the State before us is that the import fee
\nis a fee and the respondents are required to pay such fee to bring beer
\ninto the State.”\n<\/p>\n
In compliance with the aforesaid order, a detailed additional affidavit was
\nfiled on behalf of the State of Punjab by quoting the relevant provisions
\nof the Punjab Excise Act, 1914, namely, Section 3(9) – “Excise Revenue”,
\nSection 3(10) – “Export, Section 3(12) – “Import”, Section 16 – “Import,
\nexport and transport of intoxicant”, Section 17 – “Power of State
\nGovernment to prohibit import, export and transport of intoxicant”, Section
\n18 – Passes necessary for import, export and transport, Section 19 – Grant
\nof passes for import, export and transport, Section 31 – Duty on excisable
\narticles, Section 32 – Manner in which duty may be levied, Section 33 –
\nPayment for grant of leases. Section 34 – Fees for terms, condition and
\nform of, and duration of licences, permits and passes, Section 35 – Grant
\nof license for sale, Section 58 – Power of State Government to make Rules,
\nSection 59 – Powers of Financial Commissioner to make rules. Along with the
\nadditional affidavit, a copy of the Notification No. 5998 called the Punjab
\nExcise Fiscal Orders and prescribed levy of rates of duty etc. was filed
\nand marked as Annexure-A-1. It is seen from the additional affidavit that
\nthis notification was republished by the State of Punjab in the year 1965.
\nThe State vide notification dated 24.03.1986 introduced amendment to the
\nPunjab Excise Fiscal Orders, 1986 and as per Clause 5 of the notification,
\nOrder 1-D was added after Order 1-C levying an import fee of Rs. 3.20 per
\nproof litre on all imports of IMFL and rectified spirit into the State of
\nPunjab.\n<\/p>\n
11. Vide notification dated 31.03.1992, the Government of Punjab made
\nfurther amendment in the Fiscal Order and issued Punjab Excise Fiscal (10th
\namendment) Orders, 1992 and substituted Order 1-D stating that “All imports
\nof liquor and sprit shall be subject to the levy of an import fee as
\nprescribed.” By further amendment vide notification dated 27.03.1996, the
\nPunjab Excise Fiscal Orders, 1932 was amended and the Order 1-D item (iii)
\nwas substituted. In exercise of powers conferred under the Act, the State
\nGovernment framed rules which have been marked as Annexure P-2.\n<\/p>\n
12. Thus, it is seen from the Punjab Liquor Import, Export Order, 1932, the
\nState Government is competent and empowered to regulate the import and
\nexport of liquor. Under the Punjab Liquor Licence Rules, 1956, there are 21
\ntypes of licences which are prescribed and are given. The respondent in
\nthis appeal is holding L-1 licence i.e. Wholesale and retail vend of
\nforeign liquor to trade only. The said licence is given on fixed licence
\nfee, which is subject to variation as per excise policy of the Government
\nbased on year to year. The State Government has incorporated as one of the
\nterms and conditions on the L-1 holders to pay import fees also at the
\nprescribed rate as per the Punjab Excise Fiscal Order, 1996. The respondent
\nhas been accepting the terms and conditions from 1992 onwards and acted on
\nthe same, the licence was renewed on yearly basis.\n<\/p>\n
13. Similarly, under the provisions of the Punjab Liquor Permit & Pass
\nRules, 1932, the State Government issued permit in form L-32, in the case
\nof import and the licensees are liable to pay permit fee at the prescribed
\nrate. As already stated, the respondent has mixed up two different imposts.
\nThe respondent has referred to the duty paid under Rule 5 i.e. equivalent
\nto Excise duty and fees under Order (1)(D) of the Punjab Fiscal Orders,
\n1932. As stated above, on imported goods by L-1 holder, there are two
\ndifferent and independent imposts in the shape of Excise duty under Rule 5
\nand import fee under Rule (1)(D) of Punjab Excise Fiscal Orders, 1932. In
\naddition he has to pay licence fee under the Punjab Liquor Licence Rules,
\n1956, which is fixed on yearly basis. Thus, it is seen that as per
\nprovisions of Section 58(D) as well as Section 59(D) the State Government,
\nin my opinion, has power to regulate the import and price of any
\ndescription of bottle and the scale of the fee and the manner of the fee
\npayable by any licensee.\n<\/p>\n
14. It is stated in the additional affidavit that the word “fee” is not
\nused in the strict sense to attract the doctrine of quid pro quo. This is
\nthe price or consideration which the State Government charges for parting
\nwith this privilege and granting the same to the vendors. Therefore, in my
\nopinion, the amount charged is not a fee nor a tax but it is the nature of
\nprice of a privilege which the purchaser has to pay in any trading and
\nbusiness in noxious article\/goods. The collection of such amount in the
\nshape of import fee does not form part of the general revenue of the State.
\nAs stated above, it is one of the terms and conditions of the Excise Policy
\napplicable to all L-1 holders including the respondents herein. In my view,
\nrespondents cannot be permitted to challenge the terms and conditions of
\nthe policy if they want to avail the benefit of the same.\n<\/p>\n
15. This Court, in a number of judgments, has held that the State
\nGovernment has unfettered powers to regulate the Export\/Import sale of
\nintoxicants and in exercise of its regulatory powers, the import fee has
\nbeen incorporated as one of the terms of the Excise Policy on yearly basis.
\nWe will refer to the relevant judgments in the later part of this judgment.\n<\/p>\n
16. The learned counsel for the respondent submitted that there is no
\nsource of power for imposition of import fee over and above the
\ncountervailing duty and that the appellant-State was not able to show that
\nunder which Authority or provision of the Punjab Excise Act, 1914, they can
\nimpose the import fee over and above the countervailing duty. It is further
\nsubmitted that a combined reading of Section 33A of the Punjab Excise Act,
\n1914, Articles 301 and 304 of the Constitution and Entry 51 of List II of
\nSeventh Schedule to the Constitution makes it clear that the State of
\nPunjab has no authority to impose the import fee over and above the
\ncountervailing duty. This contention, in my opinion, has no force for the
\nreasons stated and the discussions made in paragraphs supra.\n<\/p>\n
17. In my opinion, Articles 302 and 304A of the Constitution of India are
\nnot attracted to the present case as the imposition of import fee does not,
\nin any way, restrict trade commerce and intercourse among the States. In my
\nopinion, the permissive privilege to deal in liquor is not a “right” at
\nall. The levy charged for parting with that privilege is neither a tax nor
\na fee. It is simply a levy for the act of granting permission or for the
\nexercise of power to part with the privilege. In this context, we can
\nusefully refer to Har Shankar and Ors. etc. etc. v. The Deputy Excise and
\nTaxation Commissioner and Ors. etc. and Panna Lal and Ors. v. State of
\nRajasthan and Ors.. As noticed earlier, dealing in liquor is neither a
\nright nor is the levy a tax or a fee. Articles 301-304 will be rendered
\ninapplicable at the threshold to the activity in question. Further, there
\nis not even a single judgment which upholds the applicability of Articles
\n301-304 to the liquor trade. On the contrary, numerous judgments expressly
\nhold these Articles to be inapplicable to trade, commerce and intercourse
\nin liquor. We can beneficially refer to the judgments in The State of
\nBombay v. R.M.D. Chamarbaugwala<\/a> [1957] SCR 874, Har Shankar’s case (supra),
\nSat Pal and Co. and Ors. v. Lt. Governor of Delhi and Ors. and Khoday’s<\/a>
\ncase. The learned counsel for the respondent submitted that Articles
\n301-304 are violated or transgressed. In view of discussions in paragraphs
\nabove, it is clearly demonstrated as to how and why Article 301-304 are
\ninapplicable to liquor trade in any form.\n<\/p>\n
18. We shall now deal with the Kerala matter in Civil Appeal Nos. 2696 and
\n2697 of 2003.\n<\/p>\n
19. The learned counsel for the licensee\/appellant in this case also
\ncontended that Part XIII of the Constitution interdicts Parliament and
\nState Legislatures from enacting laws containing discriminatory
\nmeasures\/taxation in respect of inter-state trade and commerce and that the
\nsaid articles in Part XIII impose a constitutional limitation on the power
\nof the Parliament and the Legislatures of the States and that the said Part
\nXIII of the Constitution enshrines a principle of paramount importance that
\nthe economic unity of the country cannot be interfered with by economic
\nprotectionism and creation of trade barriers, fiscal or otherwise. He would
\nfurther submit the restriction in Part XIII of the Constitution also apply
\nto Taxation Laws and the provisions of Part XII of the Constitution are
\nsubject to the limitations set out in Part XIII and such regulatory
\nmeasures also do not impede the freedom of trade, commerce and intercourse
\nand compensatory taxes for the use of trading facilities are not hit by the
\nfreedom declared by Article 301. He would also urge that Article 303(1)
\nprohibits Parliament and the Legislature of a State from enacting any law
\ngiving preference to one State over another or from making any
\ndiscrimination between one State and another by virtue of any entry
\nrelating to trade and commerce in any of the lists in the Seventh Schedule
\nand that the obstructions or impediments to the free flow of trade would be
\nviolative of the freedom declared by Article 301. In this context, he
\nreferred to the case in The Automobile Transport (Rajasthan) Ltd. v. The
\nState of Rajasthan and Ors.. It<\/a> is further submitted that the limitation
\nupon the Legislative power stipulated in Article 303(1) and Article 304A
\nwill apply to trade in liquor. It is further contended that the
\ndiscriminatory levy of import fee is violative of Articles 303(1) and 304A
\nof the Constitution. According to the learned counsel for the
\nappellant\/licensee, the power of the State to levy a tax or a fee should be
\ntraceable to the entries in the Seventh Schedule to the Constitution. Entry
\n51 of List II provides for a levy of duty of excise on alcoholic liquor for
\nhuman consumption manufactured or produced in the State and countervailing
\nduties at the same or lower rates of similar goods manufactured or produced
\nelsewhere in India and, therefore, the State Legislature has no power to
\nlevy any countervailing duty on imported liquor in excess of the excise
\nduty on liquor manufactured within the State. The State of Kerala imposes a
\ncountervailing duty on imported liquor which is equivalent to the excise
\nduty paid by the manufacturers within the State. The State imposes an
\nimport fee in addition to the countervailing duty and the direct and
\nimmediate effect of the import fee is to favour local manufacturers by
\nmaking the imported liquor costlier. He would further contend that Article
\n303(1) prohibits the State Legislature from taking discriminatory measures
\nand Article 304A also prohibits the State from imposing such discriminatory
\nlevies. It is also submitted that the State Legislature has no competence
\nto levy an import fee in addition to countervailing duty.\n<\/p>\n
20. The argument advanced by learned counsel for the licensee was countered
\nby learned senior counsel appearing for the State of Kerala. The learned
\ncounsel submitted that the import of liquor into the State of Kerala is
\nprohibited under Section 6 of the Abkari Act and, therefore, liquor can be
\nimported only after obtaining permission from the Government in the form of
\npermit issued under Section 24 of the Abkari Act. As a matter of fact, it
\nwas submitted that the State has not issued any licence to anybody
\nincluding the Kerala State Beverages Corporation to import liquor. The
\nKerala State Beverages Corporation has licence only for wholesale and
\nretail of liquor which will not authorise them to import liquor and that
\nthe only licence issued to import liquor into the State is the permit
\nissued on payment of the import fee and, therefore, it is seen that the
\nlevy of import fee is authorized by Sections 6 and 24 of the Abkari Act,
\n1977. It is not excise duty or countervailing duty referable to Entry 51 of
\nList II. It is a collection falling under Entry 8 of List II. It is the
\nprice paid to the State for parting with its exclusive privilege of dealing
\nin liquor which includes every fact of it including its import. In my view,
\nthe State has the right to prohibit every form of activity in relation to
\nintoxicants including its import. Though it is alleged by the appellant
\nthat the State has discriminated against, the same has not been
\nsubstantiated or established by any material. The State, in this case, has
\ngranted such permit to the Beverages Corporation on their paying the fee
\nfixed for the purpose as per notification enabling the Corporation to
\nimport liquor from the petitioners\/licensees and others. The import fee so
\npaid is passed on to the consumers. Even in the Punjab case, we have
\nalready noticed, that the right to import liquor is dependant on the issue
\nof the import permit on payment of the import fee as consideration for
\nparting with the State’s exclusive privilege to import the liquor. It is
\npurely a contractual dealing between the State and the importer and,
\ntherefore, no question of violation of Article 301 can arise. The imported
\nhad no anterior right to import liquor and hence cannot complain of any
\nviolation of Article 301 at that stage as right to trade in liquor is not a
\nfundamental right. His right to import is referable to the import permit
\nwhich he acquired on payment of the import fee. No further impediment has
\nbeen created in the import of the liquor so that Article 301 is not
\nattracted in relation to the payment of the import fee which was prior to
\ngetting his privilege of importing. The appellant\/licensee having entered
\ninto a contractual relationship with the State obtained the privilege and
\nenjoyed the benefit of it. It is not open to the petitioners to turn round
\nsubsequently and repudiate the obligations subject to which they obtained
\nthe privilege. Regulation in the interest of public health and order takes
\nthe case out of Article 301 and regulation for purpose of Article 301 is
\nnot confined to such regulations alone which will facilitate the trade.\n<\/p>\n
21. An affidavit was also filed on behalf of the State of Kerala dated
\n16.04.2003 stating that the collection of import fee in the State of Kerala
\nwhile issuing permit to import IMFL is referable to Sections 6 and 24 of
\nthe Abkari Act, 1977, and that it is the price payable by the grantee to
\nthe State for parting with the privilege of importing IMFL which is
\nexclusively that of the State. Along with the affidavit, Annexure R1
\n(photocopy of permit issued) and Annexure R2 (year-wise statement showing
\nthe amount of import fee collected by the State) was filed. It is not in
\ndispute that the Kerala State Beverage Corporation is the exclusive
\nwholesale distributor of IMFL within the State of Kerala. Previously, the
\nretail distribution of IMFL in the State was done by 14 shops of the Kerala
\nState Beverages Corporation and 231 shops by private individuals to whom
\nlicences were granted by auction conducted every year. However, the scheme
\nhas been changed and the retail distribution of IMFL in the State is now
\nbeing carried on by a few shops of the Kerala State Consumer Federation and
\nthe rest of the shops by the Kerala State Beverages Corporation. This is
\napart from the sales in bars, clubs, etc. under licences issued in relevant
\nForms under the Foreign Liquor Rules. The Kerala State Beverages
\nCorporation gets its supply of IMFL from distributors within the State as
\nalso from manufacturers and distributors outside the State. The Kerala
\nState Beverages Corporation calls for tenders fixing a floor price for the
\nsupply with a view to ensure quality as also to prevent unhealthy
\ncompetition and loss of revenue. Based on these tenders, the Kerala State
\nBeverages Corporation enters into contracts with the
\nmanufacturers\/distributors. After entering into contracts with the
\nmanufacturers\/distributors, to enable the import of IMFL to the State, the
\nKerala State Beverages Corporation applies to the authorized officer for
\ngrant of permit for import of specified quantity of IMFL after depositing
\nin advance, the countervailing duty and the import fee payable on the
\nquantity of IMFL sought to be imported. Details of the payments so made are
\nentered in Column No. 6 of the import permit issued. The name of the
\noutside manufacturer\/distributor from whom the IMFL is being procured is
\nalso mentioned in the permit for identification of the product. The import
\nfee paid by the Kerala State Beverages Corporation is ultimately passed on
\nto the consumers by adding to the final selling price of the product. The
\nState has to deploy its officers at all the check-posts to monitor import
\nof IMFL. Every consignment, on crossing the border has to be escorted till
\nit reaches the warehouse of the Kerala State Beverages Corporation to check
\ndiversion and misuse and the State is incurring heavy expenses for
\nregulating import of liquor into the State. Therefore, the import fee was
\nincreased from Rs. 2\/- per proof litre to Rs. 5\/- per proof litre in 1995.
\nEven after the increase in the import fee, the import of liquor to the
\nState was steadily increasing till 1999-2000. The affidavit now filed along
\nwith the Annexures gives us a clear picture of the levy of import fee while
\nissuing permit to import IMFL. Before the High Court, the learned counsel
\nof the appellants therein have raised only one contention that the
\nimposition of import fee is not in the nature of regulatory fee. It was
\ncontended on behalf of the State that the levy is permissible and
\nauthorized under Sections 6, 7, 17 and 18 of the Act and that the import
\nfee is the only fee realized from a firm which supplies liquor to the
\nKerala State Beverages Corporation to be supplied to other licensees in the
\nState and that the levy of import fee is also well founded under the Act
\nbasically referable to the legislative Entries 8 and 66 of List III of the
\nSeventh Schedule to the Constitution. The learned Single Judge and also the
\nlearned Judges of the Division Bench rejected the contention of the
\nlicensee and upheld the levy on import.\n<\/p>\n
22. At the time of hearing,many judgments were cited by both sides in
\nregard of their respective contentions. I feel it is not necessary to deal
\nwith or refer to all the judgments cited, as in my opinion, the real
\nquestions in this case as contended by the licensees are that the State has
\nno authority to impose the import fee and that it is violative of Articles
\n301 and 304 of the Constitution. The real question, in my opinion, is
\nwhether Articles 301 and 304 at all apply. In the alternative, it was
\nsubmitted by learned senior counsel for the State of Punjab that
\ncompensatory or regulatory levies have always been held to be valid and
\npermissible under Article 301 and 304. In this context, he referred to the
\ndecisions in the case of Atiabari Tea Co. Ltd. v. The State of Assam and
\nOrs.,<\/a>; The Automobile Transport (Rajasthan) Ltd. case (supra), State of
\nBihar v. Chambers of Commerce (1996) STC 1, Godfrey Ltd. v. State of
\nRajasthan (2001) (121) STC 54, Jindal Strips Limited and Ors. v. State of
\nHaryana (2002) 19 PHT 299. If that be so, it is undeniable that regulations
\ndeemed necessary and apposite are liable to be imposed on liquor trade more
\nthan any other activity since the former is considered inherent are
\nnoxious, pernicious and res extra commercium. Regulation is thus the hall-
\nmark of the State action in respect of liquor and that regulation can be
\nand indeed normally is through the mode of imposition of levies which levy
\nis also necessary to regulate by keeping out and excluding persons entering
\nthe liquor trade. We have already extracted the provisions of 1914 Act. The
\ncontention of the licensee is that once at L-1 wholesale liquor licence is
\nissued to him, the Stat’s permissive privilege in respect of liquor stands
\npermanently parted with and thereafter no additional or further levy of any
\nkind even in respect of activities other than wholesale selling under L-1
\nlicence can be raised.\n<\/p>\n
23. This argument, in my opinion,is completely fallacious and ex-facie
\nunsustainable. This contention ignores the well-established legal statutory
\nand operational distinction demarcating and dealing separately with several
\ndistinct activities in relation to liquor, namely, manufacture, possession,
\nsale, transport, import, export consumption on premises of hotel\/restaurant
\netc. Each activity is separately defined and separately itemized and
\nseparately dealt with in statute as also in the rules and involves a
\ndiverse range of separate licences, passes, permits and applications each
\nof differing contained format and ambit. The import fee levied in the
\ninstant case is fully authorized by the 1914 Act and delegated legislation
\nthereunder and is clearly intra vires. I have already listed in paragraphs
\nabove all the provisions authorizing the levy in question in the instant
\ncase which is mentioned in the additional affidavit of the State of Punjab.
\nThe provisions summarized above confer ample regulatory power upon the
\nexcise authority to regulate several activity related with liquor in any
\nreasonable manner and in particular to regulate its import. The regulatory
\npower includes power to levy a monthly fee in that regard such as the
\nimpugned import fee. Indeed levy for such fee to exclude and to keep out
\ncertain people from the liquor trade and to keep the number of persons
\nparticipating in this trade within reasonable limits has been recognized by
\nthis Court in Har Shankar’s case (supra) relying upon and quoting American
\ndecisions.\n<\/p>\n
24. The statutory provision in question must be interpreted and read
\nbroadly and not narrowly. The approach must be to uphold the validity of
\nthe impugned delegated legislation by a process of fair and broad reading
\nof the statutory mandate. Even if the Act does not specifically provide for
\nthe levy in question by name to provide statutory authority for its
\nimposition by delegated legislation and the levy is actually imposed by the
\ndelegated legislation made under the Statute, the same would be valid and
\nnot ultra vires. In the instant case, the levy has been imposed by the
\nPunjab Fiscal Orders as amended from time to time under specific statutory
\nauthority to issue such orders under Sections 58 and 59 of the Act, in
\nparticular, and other provisions of the Act as itemized in paragraphs
\nsupra. Since the rule making power has not been shown to be bad, the Punjab
\nFiscal Orders, once made have the effect of the Statute itself and become
\npart of the Statute since they have been made under valid rule making
\npower. The statutory provisions of the Punjab Act and the Rules itemized in
\nparagraphs above amply delineate that regulatory power and the impugned
\nimport fee is nothing but a facet and manifestation of that regulation by
\nthe State. Hence, in my view, the levy in question is valid as a regulatory
\nlevy which has consistently been held on the touchstone of Article 304.\n<\/p>\n
25. The conduct of the respondent\/licensee in attempting to wriggle out of
\nhis contractual obligations is contrary to the clear and unequivocal
\nprinciple laid down in Har Shankar’s case (supra). The issuance of liquor
\nlicence constitutes a contract between the parties i.e. between Excise
\nAuthorities on the one hand and the individual applicant contractor on the
\nother. The respondent having accepted the contracts\/licences, having fully
\nexploited the advantage flowing from the contract to the exclusion of
\nothers and having reaped rich commercial benefits from that activity, it is
\nnot open to the contractor to wriggle out from the contract by challenging,
\ninter alia, any particular condition of that contract\/licence. The
\nrespondent herein seeks to do exactly that by challenging the condition
\nrequiring him to pay import fee. Har Shankar’s case (supra) clearly
\ndisentitle the liquor contractor from wriggling out of contractual
\nobligations solemnly undertaken. Likewise, in Panna Lal’s case (supra),
\nthis Court in the specific context of liquor licence had this to say.
\n“The licenses in the present case are contracts between the parties. The
\nlicensees voluntarily accepted the contracts. They fully exploited to their
\nadvantage the contracts to the exclusion of others. The High Court rightly
\nsaid that it was not open to the appellants to resile from the contracts on
\nthe ground that the terms of payment were onerous. The reasons given by the
\nHigh Court were that the licensees accepted the license by excluding their
\ncompetitors and it would not be open to the licensees to challenge the
\nterms either on the ground of inconvenient consequence of terms or of
\nharshness of terms.”\n<\/p>\n
As a matter of fact, the respondent is the only and the sole challenger of
\nthe instant levy of import fee. It is stated that no other liquor
\ncontractor or beer manufacturer or importer has challenged the import fee
\nin Punjab at any point of time at any forum. The import fee on IMFL on
\nrectified spirit was levied from the Year 1986 and at no time the
\nrespondent challenged the levy of import fee from 1986 onwards on IMFL and
\ncontinued to import large quantities of beer and paid large sums of fee as
\nper the prescribed rates. The writ petition was filed only in April, 1996.
\nThe respondent accepted the burden of this contract and obviously did so
\nbecause he enjoyed the benefits flowing from this contract. Having done so,
\nin my view, he cannot and should not be allowed to wriggle out of his
\ncontractual and licence obligation.\n<\/p>\n
26. In the case of Government of Maharashtra and Ors. v. Deokar’s
\nDistillery (V.N. Khare, CJI and Dr. A.C. Lakshmanan, J.<\/a> concurring)
\nreported in, this Court, in para 32, observed thus:\n<\/p>\n
“The order of the High Court is bad in law. The High Court, in our view,
\nhas erred in not appreciating that the impugned demand notice was also in
\nthe nature of demanding balance of the price of the exclusive privilege
\nwhich would become final only on issue of the notification, order under
\nArticle 309, the bulk of which has already been recovered in advance, which
\nprivilege exclusively vests with the Government considering the effect of
\nprovisions especially Section 49 and Section 143 (2)(u) of the Prohibition
\nAct. In our opinion, the establishment charges demanded are in the nature
\nof price for parting with the privilege to permit manufacture and sale or
\nliquor, and the privilege exclusively vests with the Government.”\n<\/p>\n
27. Again in para 40, this Court observed thus:\n<\/p>\n
“As pointed out by Y.V. Chandrachud, C.J., as he then was, what the
\nrespondents agreed to pay was the price of an exclusive privilege which the
\nState parted with in their favour. They cannot, therefore, avoid their
\nliability by contending that the payment which they were called upon to
\nmake is truly in the nature of excise duty and no such duty can be imposed
\non liquor not lifted or purchased by them. The respondents, in our view,
\nmust fail in their contention both on account of the objection to the
\nmaintainability of the appeals and on merits concerning the nature of the
\npayment which they are liable to make.”\n<\/p>\n
28. In the above case, the power of the State Government under Section 58A
\nto recover cost of supervision was challenged. Per majority, this Court
\nheld that the power of the State Government extends to recovering the
\ndifferential amount consequent to upward revision of pay-scales and
\nallowances with retrospective effect and that such differential amount can
\nbe demanded even in exercise of residuary powers of the State Government
\nand that the liquor licensees having given undertaking in the application
\nin Form PLA prescribed under the Rules to abide by the orders made under
\nthe Act and the rules could not escape their contractual liability. This
\nCourt also further held that the establishment charges demanded are in the
\nnature of price for parting with the privilege to permit manufacture and
\nsale of liquor and the privilege exclusively rests with the Government.\n<\/p>\n
29. The same effect is the judgment of this Court in the case of Assistant
\nExcise Commissioner and Ors. v. Issac Peter and Ors.  In the<\/a> context of a
\nliquor contract, this Court held as under:\n<\/p>\n
“…..We are, therefore, of the opinion that in case of contracts freely
\nentered into with the State, like the present ones, there is no room for
\ninvoking the doctrine of fairness and reasonableness against one party to
\nthe contract (State), for the purpose of altering or adding to the terms
\nand conditions of the contract, merely because it happens to be the State.
\nIn such cases, the mutual rights and liabilities of the parties are
\ngoverned by the terms of the contracts (which may be statutory in some
\ncontracts are entered into pursuant to public auction, floating of tenders
\nor by negotiation. There is no compulsion on anyone to enter into these
\ncontracts. It is voluntary on both sides. There can be no question of the
\nState power being involved in such contracts. It bears repetition to say
\nthat the State does not guarantee profit to the licensees in such
\ncontracts. There is no warranty against incurring losses. It is a business
\nfor the licensees. Whether they make profit or incur loss is no concern of
\nthe State. In law, it is entitled to its money under the contract. It is
\nnot as if the licensees are going to pay more to the State in case they
\nmake substantial profits. We reiterate that what we have said hereinabove
\nis in the context of contracts entered into between the State and its
\ncitizens pursuant to public auction, floating of tenders or by negotiation.
\nIt is not necessary to say more than this for the purpose of these
\notherwise than by public auction, floating of tenders or negotiation, we
\nneed not express any opinion herein.”\n<\/p>\n
30. Kalyani Stores v. The State of Orissa and Ors.<\/a> case was heavily relied
\non by the respondent\/licensee. The Constitution Bench has not in that cases
\nadverted to the issue of liquor trade being res extra commercium and has
\nsimply considered whether Articles 301\/304 are violated or not. The case,
\nin my opinion, would have no relevance to the instant case.\n<\/p>\n
31. The following judgments can be usefully referred for the proposition
\nthat the rights are vested in the State which it may part with for a
\nconsideration.\n<\/p>\n
32. In the case of Har Shankar and Ors. etc.etc. v. The Deputy Excise and
\nTaxation Commissioner and Ors. etc. AIR 1975 SC 1121 (paras 44, 46, 47, 50,
\n51, 53, 55, 57 and 58 dealt with the rights of the State in this regard).\n<\/p>\n
33. In the case of Nashirwar and Ors. v. State of Madhya Pradesh and Ors.,<\/a>
\n, this Court held that by virtue of Entry 8 of List II, the Government can
\nhold a public auction to grant lease, the amount representing the
\nconsideration for the grant of such right or privilege.\n<\/p>\n
34. In the case of State of Orissa and Ors. v. Harinarayan Jaiswal and
\nOrs.,<\/a> this Court held that the Government is the exclusive owner of the
\nprivilege to sell the right to sell liquor, reliance on Article 19(1)(g) or
\nArticle 14 of the Constitution becomes irrelevant.\n<\/p>\n
35. In the case of State of Andhra Pradesh v. Prabhakara Reddy<\/a> held that
\nall rights in regard to manufacture and sale of intoxicants vest in the
\nState and it is open to the State to part with those rights for a
\nconsideration and that the consideration for parting with the privilege of
\nthe State is neither excise duty nor licence fee but it is the price of the
\nprivilege.\n<\/p>\n
36. In the case of State U.P. and Ors. v. Sheopat Rai and Ors.<\/a> 1994 Supp
\n(1) SCC 8 held that the term ‘licence fee’ in the context of the U.P.
\nExcise Law connotes the idea of it being the consideration in money
\nreceived by the Government from a private person by grant of a licence
\n(contract) for parting in such person’s favour, its exclusive privilege or
\nright of carrying on certain activities in respect of country liquor or
\ndrugs under ‘auction system’ in public auctions.\n<\/p>\n
37. In the case of State of Haryana and Ors. v. Lal Chand and Ors., AIR<\/a>
\n1984 SC 1326, this Court has held that the licence fee is a price for
\nacquiring such privilege and one who makes a bid for the grant of such
\nprivilege with a full knowledge of the terms and conditions attaching to
\nthe auction cannot be permitted to wriggle out of the contractual
\nobligations arising out of the acceptance of his bid, by a petition under
\nArticle 226.\n<\/p>\n
38. State of Punjab v. Dial Chand Gian Chand & Co. AIR<\/a> 1983 SC 743 is also
\na case arising under the Punjab Intoxicants Licence and Sale Order, 1956.
\nThis Court held that the writ jurisdiction of the High Courts under Article
\n226 of the Constitution is not intended to facilitate avoidance of
\nobligations voluntarily incurred.\n<\/p>\n
39. In the case of Khoday Distilleries Ltd. and Ors. v. State of Karnataka
\nand Ors.,. The Constitution Bench of<\/a> this Court held that a citizen has no
\nfundamental right to trade or business in liquor as a beverage and that the
\nactivities which are res extra commercium cannot be carried on by any
\ncitizen and that the State can prohibit completely trade or business in
\npotable liquor since trade or business in liquor as a beverage is res extra
\ncommercium and that the State may also create monopoly in itself for trade
\nor business in such liquor. It is further held that the State can further
\nplace restrictions and limitations on such trade or business and such
\nrestrictions and limitations can be placed by subordinate legislation as
\nwell. It is also further held that the State is not precluded from
\nregulating the trade and business in potable liquor merely because it
\nimposes tax or fee on purchase or sale and income is derived from such
\nliquor.\n<\/p>\n
40. In the case of Solomon Antony and Ors. v. State of Kerala and Ors.,<\/a>
\n(2001) 3 SC 694, the contractors are required to pay the consideration
\npayable to the State for sale of liquor for importing designated quantity
\nof rectified spirit in respect of which the consideration payable is
\nequivalent to excise duty. This Court justified the order passed by the
\nHigh Court in holding that the contractors are bound to pay the amount
\nwhich is a measured excise duty payable on the designated quantum of
\nrectified spirit in terms of Rule 8 of the Rules and which the contractors
\nhad undertaken in the agreements executed by them to pay. This Court
\nfurther held that the power of the Government to enhance the rate of excise
\nduty from Rs. 5\/- per bulk litre to Rs. 10\/- per bulk of arrack could not
\nbe assailed.\n<\/p>\n
41. The Division Bench of the Kerala High Court to which I was a member has
\nalso taken the same view in Kerala Distilleries and Allied Products Limited
\nv. Assistant Commissioner (Assessment) (I), Commercial Tax, Special Circle,
\nPalakkad and Ors. reported in 2000 (Vol. 117) STC page 553) in the
\nfollowing terms:\n<\/p>\n
“The manufacture and sale of liquor are the exclusive privilege of the
\nState and the State, by the process of licensing, is parting with the said
\nprivilege and what is charged by the State is only the privilege price
\nthrough the process of licensing and it is not excise duty.”
\n“The concept of excise duty on production and manufacture as understood in
\nthe Central Excise Act cannot be equated in the case of excise duty under
\nthe Abkari Act since the manufacture and the sale of liquor are the
\nexclusive privilege of the State and the State, by the process of
\nlicensing, is parting with the said privilege and what is charged by the
\nState is only the privilege price through the process of licensing the
\nprice and it is not excise duty.”\n<\/p>\n
42. The above rulings are amongst the catena of cases on the point that the
\nrights are vested in the State which it may part with for consideration.\n<\/p>\n
43. I have already dealt with the concept of contractual relationship
\nbetween the State and the licensee whereunder the licensee having obtained
\na privilege and enjoyed the benefit of it, it is not open to the licensees
\nto turn round subsequently and repudiate the obligations attaching with the
\nobtained privilege. The following are the cases on the point.\n<\/p>\n
44. In the case of State of Haryana and Ors. v. Jage Ram and Ors. AIR<\/a> 1980
\nSC 2018, this Court held that the bids in respect of country liquor vends
\nat an annual auctions and the amounts which bidders agree to pay to State
\nGovernment under auction terms is neither fee nor excise duty on undrawn
\nliquor but price of privilege which State parted in their favour.\n<\/p>\n
45. In the case of State of Haryana and Ors. v. Lal Chand and Ors.,<\/a> , this
\nCourt held that after making bid for grant of exclusive privilege of liquor
\nvend with full knowledge of terms and conditions of auction, the bidder
\ncannot wriggle out of the contractual obligations arising out of acceptance
\nof his bid by filing writ petition.\n<\/p>\n
46. In the case of State of Punjab v. Dial Chand Gian Chand and Company,<\/a>
\nthis Court held that a licensee who participates in the auction voluntarily
\nand with full knowledge is bound by the bargain and the writ petition filed
\nunder Article 226 by such licensee in an attempt to dictate terms of the
\nlicence without paying the licence fee must fail. The highest bidder after
\nacceptance of his bid cannot challenge the second auction on ground of
\nadverse effect on his business.\n<\/p>\n
47. We shall now consider the cases on the freedom guaranteed by Article
\n301 which is not available to liquor because it is a noxious substance
\ninjurious to public health order and morality. The following cases can be
\nusefully referred:\n<\/p>\n
48. In the case of Sat Pal and Co. and Ors. v. Lt. Governor of Delhi and
\nOrs.,<\/a> this Court held that the Ordinance does not infringe any right under
\nArticle 19(1)(g) or Article 301 there being no fundamental right to trade
\nin liquor and that the ordinance was both a fiscal measure and one for
\nsafeguarding public health and public morals and hence it could validity be
\nmade retrospective and that the test of reasonable restrictions has to be
\njudged in the light of the purpose for which the restriction is imposed,
\nthat is, as may be required in the public interest and restrictions that
\nmay validity be imposed under Article 304(b) are those which seek to
\nprotect public health, safety, morals and property within the territory and
\nthe present levy under the amended provisions of the Act in its application
\nto Delhi could certainly be said to be one enacted both with the object of
\nregulating the trade or business in intoxicants and with a view to
\nrealising the goal fixed in Article 47 of the Constitution.\n<\/p>\n
49. In the case of the State of Bombay v. R.M.D. Chamarbaugwala<\/a> [1957] SCR
\n874, this Court held as under:\n<\/p>\n
“Gambling activities were in their very nature and essence extra-commercium
\nalthough they might appear in the trappings of trade. They were considered
\nto be a sinful and pernicious vice by the ancient seers and law-givers of
\nIndia and have been deprecated by the laws of England, Scotland, United
\nStates of America and Australia. The Constitution-makers of India, out to
\ncreate a welfare State, could never have intended to raise betting and
\ngambling to the status of trade, business, commerce or intercourse.
\nThe petitioners, therefore, had no fundamental right under Article 19(1)(g)
\nor freedom under Article 301 of the Constitution in respect of their prize
\ncompetitions that could be violated and the validity of the impugned act,
\nin pith and substance an Act relating to gambling, did not fall to be
\ntested by Articles 19(6) and 304 of the Constitution”\n<\/p>\n
50. In the case of Fatehchand Himmatlal and Ors. etc. v. State of
\nMaharashtra, this Court held as follows:\n<\/p>\n
“A meaningful, yet minimal analysis of the Debt Act, read in the light of
\nthe times and circumstances which compelled its enactment, will bring out
\nthe human setting of the statute. The bulk of the beneficiaries are rural
\nindigents and the rest urban workers. These are weaker sections for whom
\nconstitutional concern is shown because institutional credit
\ninstrumentalities have ignored them. Money lending may be ancillary to
\ncommercial activity and benignant in its effects, but money-lending may
\nalso be ghastly when it facilitates no flow of trade, no movement of
\ncommerce, no promotion of intercourse, no servicing of business, but merely
\nstagnates rural economy, strangulates the borrowing community and turns
\nmalignant in its repercussions. The former may surely be trade, but the
\nlatter – the law may well say – is not trade. This narrow, deleterious
\npattern of money-lending cannot be classed as ‘trade’. Hence Article 301
\ndoes not apply.”\n<\/p>\n
51. In the case of B.R. Enterprises etc. v. State of U.P. and Ors. etc.,
\nthis Court held that this case relates to lottery which is gambling in
\nnature. This Court held that merely because a lottery transaction is run by
\nState itself will not change its character as res extra commercium and that
\nmerely because lottery tickets are goods, transaction of sale thereof
\ncannot constitute trade and while trade contains skill with no chance,
\ngambling contains the element of chance with no sill and, therefore, ban by
\nany State on the sale of lotteries of other States within its territory
\ndoes not violate Articles 301 and 303.\n<\/p>\n
52. We have already noticed that the regulation in the interest of public
\nhealth and order takes the case out of Article 301, and Regulation for the
\npurpose of Article 301 is not confined to regulations which will facilitate
\nthe trade.\n<\/p>\n
53. In the case of Bishamber Dayal Chandra Mohan etc.etc. v. State of U.P.
\nand Ors. etc.etc., AIR 1982 SC 33, this Court in paras 36 and 37 observed
\nas under:\n<\/p>\n
“The word ‘free’ in Article 301 does not mean freedom from laws or from
\nregulations. Article 301 guarantee freedom of trade, commerce and
\nintercourse throughout the country from any State barriers. It declares
\nthat subject to the other provisions of Part XIII, trade, commerce and
\nintercourse throughout the territory of India shall be free. The whole
\nobject was to bring about the economic unity of the country under a federal
\nstructure,, so that the people may feel that they are members of one nation
\nis to guarantee to every citizen the freedom of movement and residence
\nthroughout the country. That is achieved by Article 19(1)(d) and (e). No
\nless important is the freedom of movement or passage of commodities from
\none par of the country to another. The progress of the country as a whole
\nalso requires free flow of commerce and intercourse as between different
\nparts, without any barrier. This freedom of trade, commerce and intercourse
\nthroughout the country without any ‘State barriers’ is not confined to
\ninter-State trade as well. In other words, subject to the provisions of
\nPart XIII, no restrictions can be imposed upon the flow of trade, commerce
\nand intercourse, not only between one State and another, but between any
\ntwo points within the territory of India whether any State border has to be
\ncross or not.\n<\/p>\n
It is now well settled that the regulatory measures or measures imposing
\ncompensatory taxes do not come within the purview of the restrictions
\ncontemplated by Article 301. The regulatory measures should, however, be
\nsuch as do not impede the freedom of trade, commerce and intercourse. It
\ncannot be said that the instructions conveyed by the State Government by
\nthe impugned teleprinter message imposing the requirement for the making of
\nan endorsement by the Deputy Marketing Officer or the Senior Marketing
\nOfficer or the physical verification of stocks of wheat during the course
\nof transit, are a ‘restriction’ on the freedom of trade, commerce and
\nintercourse with the country, i.e., across the State or from one part of
\nthe State to another. These are nothing but regulatory measures to ensure
\nthat the excess stock of wheat held by a wholesale dealer, commission agent
\nor a retailer is not transported to a place outside the State or from one
\ndistrict to another. Even if these requirements are construed to be a
\n‘restriction’ on the inter-State or intra-State trade the limitation so
\nimposed on the enjoyment of the right cannot be considered to be arbitrary
\nor of an excessive nature. Nor can it be said that such restrictions do not
\nsatisfy the test of reasonableness.”\n<\/p>\n
54. The case of State of Tamil Nadu v. Hind Stone<\/a> etc. etc. reported in AIR
\n1981 SC 711 relates to non-renewal of mining lease for black granite. It
\nwas submitted by the counsel in this case, that the impugned rule offends
\nArticles 301 and 303 of the Constitution. This Court rejected the same as
\nwithout force. This Court held as under:\n<\/p>\n
“…..The Mines & Minerals (Regulation and Development) Act is, without
\ndoubt a regulatory measure. Parliament having enacted it for the express
\npurpose of “the regulation of mines and the development of minerals”. The
\nAct and the rules properly made thereunder are, therefore, outside the
\npurview of Article 301. Even otherwise, Article 302 which enables
\nParliament, by law, to impose such restrictions on the freedom of trade,
\ncommerce or intercourse between one State and another or within any part of
\nthe territory of India as may be required in the public interest also
\nfurnishes an answer to the claim based on the alleged contravention of
\nArticle 301…..”\n<\/p>\n
55. The case of State of Tamil Nadu and Ors. v. Sanjeetha Trading Co. and
\nOrs.<\/a> relates to prohibition of export of timber outside the State to
\nprevent illicit felling. This Court held that where goods are declared to
\nbe essential commodities\/articles and export thereof prohibited with a view
\nto effect equitable distribution at a fair price the prohibition in the
\ncircumstances would not be an unreasonable restriction. This Court further
\nheld as follows:\n<\/p>\n
“The power to impose restrictions conferred on the Parliament under Article
\n302 is not qualified by the word ‘reasonable’ while in Article 304(1)(b)
\nwhich confers such power on the State legislature the expression
\n‘reasonable’ precedes ‘restrictions’ and a further check is provided by the
\nproviso thereto. Therefore, before Article 304 comes into play, it has to
\nbe held that the prohibition introduced by the amendment on movement and
\ntransport of any particular item amounts to a restriction. Any prohibition
\non movement of any article from one State to another has to be examined
\nwith reference to the facts and circumstances of that particular case –
\nwhether it amounts to regulation only, taking into consideration the local
\nconditions prevailing, the necessity for such prohibition and what public
\ninterest is sought to be served by imposition thereof.”\n<\/p>\n
56. In the case of State of Bihar and Ors. v. Harihar Prasad Debuka<\/a> etc.
\nAIR 1989 SC 1119, this Court observed thus:\n<\/p>\n
“In the instant case what is being insisted is a permit disclosing
\nparticulars of the goods to be transported. Article 304(b) clearly permits
\nthe State legislature to impose such a reasonable restriction on the
\nfreedom of trade, commerce and intercourse with or within that State as may
\nbe required in the public interest. The word ‘with’ involves an element
\nhaving its sit us in another State. It cannot be therefore said that the
\ninsistence on the disclosure in respect of goods entering Bihar from
\nanother State if otherwise legitimate would not be protected by Article
\n304(b).”\n<\/p>\n
57. The High Court of Punjab proceeded to decided the case on a total wrong
\nassumption that the import fee levied is in the nature of duty which cannot
\nbe imposed under the Excise Act, 1984 when, in fact, the import fee levied
\nis the price for parting with the privilege given to the licensee to import
\nbeer into the State and, therefore, the same is within the competence of
\nthe State to impose import fee. I am of the view that the licensee besides
\nthe payment of duty etc. is to comply with such conditions as the State
\nGovernment may impose while formulating the excise policy for the concerned
\nyear. The State, in my view, is competent and entitled to impose excise
\nduty or countervailing duty. Besides there is no bar on the State to charge
\nany other fees on account of consideration for the privilege provided to
\nthe licensee to trade in liquor which privilege he did not otherwise have.
\nTherefore, the licensee is liable to comply with the other conditions
\nimposed by the State Government from time to time. As held in many cases
\nreferred to supra the levy in dispute under challenge is an import levy. It
\nis neither duty nor countervailing duty. It is part of the consideration
\nmoney i.e. the price of the privilege given to the licensees for dealing in
\nliquor. The decision of this Court in the case of Kalyani Stores (supra) is
\nnot applicable to the facts of the present case and that the Punjab Excise
\nAct, 1914 is an existing law under Clause 10 of Article 366 of the
\nConstitution of India and its continued application is saved by Article 372
\nof the Constitution of India. It is also saved by Article 305 of the
\nConstitution from attack under Articles 301 and 303 of the Constitution. It
\nis well within the legislative competence of the State.\n<\/p>\n
58. In the result, Civil Appeal No. 3017 of 1997 filed by the State of
\nPunjab is allowed and the judgment of the High Court which is impugned in
\nthis Civil Appeal stands set aside. Likewise, the appeals filed by the
\nappellants in Civil Appeal Nos. 2696 and 2697 are dismissed and the common
\njudgment of the High Court in Writ Appeal Nos. 3 and 10 of 2001 is
\naffirmed. However, there shall be no order as to costs.\n<\/p>\n
__________________________________________________________________________<\/p>\n
B.N. Agrawal. J.\n<\/p>\n
59. The question involved in this batch of appeals, arising out of an order
\nof reference made by a three Judge Bench of this Court is as to whether
\nArticle 301 of the Constitution of India (hereinafter referred to as “the
\nConstitution”) will have any application in relation to potable liquor the
\nbusiness whereof is said to be res extra commercium; in view of the
\ndecisions of this Court in Cooverjee B. Bharucha v. The Excise Commissioner
\n& The Chief Commissioner, Ajmer, and Ors.,<\/a> [(1954) SCR 873]; The State of
\nBombay v. R.M.D. Chambarbaugwala<\/a> [(1957) SCR 874]; Har Shanhar and Ors. v.
\nThe Deputy Excise & Taxation Commissioner and Ors., and Khoday Distilleries
\nLtd. and Ors. v. State of Karnataka and Ors.\n<\/p>\n
60. These appeals arise out of judgments and orders passed by Punjab and
\nHaryana High Court and Kerala High Court. The State of Punjab imposed tax
\non import of potable liquor manufactured in other States. The State of
\nKerala also imposed a similar levy. The Punjab and Haryana High Court by
\nits judgment dated 17.01.1997 passed in Writ Petition (Civil) No. 5358 of
\n1996 quashed the notification dated 27.03.1996 imposing levy of import duty
\nby the State of Punjab in exercise of its powers conferred upon it under
\nSections 31, 32 and 58 of the Punjab Excise Act 1914 (hereinafter referred
\nto as “the Punjab Act’) on two grounds viz.; (i) the State has no power to
\nlevy such tax under the Punjab Act and (ii) in view of the Constitution
\nBench decision of this Court in Kalyani Stores v. The State of Orissa and
\nOrs., the<\/a> imposition of duty is ultra vires Article 301 of the
\nConstitution.\n<\/p>\n
61. So far as challenge to imposition of import duty on potable liquor by
\nthe State of Kerala under Abkari Act, 1077 (hereinafter referred to as “the
\nAbkari Act”) is concerned, the Kerala High Court has dismissed the writ
\napplication on grounds, inter alia, that such duty, being regulatory in
\nnature, is not ultra vires the Abkari Act. The High Court did not enter
\ninto the question of applicability of Article 301 of the Constitution vis-
\na-vis effect of imposition of such import duty on potable liquor.\n<\/p>\n
62. Mr. P.N. Misra, learned Senior Counsel appearing on behalf of the
\nappellant – State of Punjab in the Punjab matter having regard to several
\nprovisions of the Punjab Act submitted that the High Court committed a
\nmanifest error in holding that the State has no power to impose such a tax.
\nAs regards applicability of Article 301 of the Constitution, the learned
\ncounsel contended that as the State has the exclusive privilege to deal in
\npotable liquor in any manner it likes, it has the concomitant requisite
\npower to impose such tax by way of restriction on import. The learned
\ncounsel further contended that as no trader can claim any fundamental right
\nin carrying on trade or business in potable liquor, question of
\napplicability of Article 301 of the Constitution would not arise. It may
\nnot be out of place to mention that at the stage of reply Dr. A.M. Singhvi,
\nlearned Senior Counsel filed written submissions on behalf of the State of
\nPunjab more or less reiterating the contentions raised by Mr. P.N. Misra.\n<\/p>\n
63. Mr. T.L.V. Iyer, the learned senior counsel appearing on behalf of
\nState of Kerala submitted that it is within the province of the State to
\nimpose restrictions on import of potable liquor by imposing import duty.
\nAccording to learned counsel such a duty has not been imposed by the State
\nin exercise of its statutory power conferred upon it in terms of Entry 51,
\nList II of the Seventh Schedule to the Constitution but regulatory powers
\nas envisaged in Entry 8 thereof. In other words, Mr. Iyer contended that
\nthe import duty has been levied not as a measure of tax but as a part of
\nregulation on the trade. The learned counsel further contended, although
\nsuch a stand has not been taken by the State before the High Court, but
\nhaving regard to the well-settled principle of law as laid down by this
\nCourt and referred to hereinafter, the State can impose such duty as a
\nprice for parting with its exclusive privilege.\n<\/p>\n
64. In support of the contentions the learned senior counsel appearing for
\nthe State of Punjab and that of Kerala relied upon the decisions of this
\nCourt in the cases of Har Shankar (supra), Nashirwar and Ors. v. State of
\nMadhya Pradesh and Ors., State of Orissa and Ors.<\/a> v. Harinarayan Jaiswal
\nand Ors., State Bank of Haryana and Ors. v. Jage Ram and Ors., State of
\nAndhra Pradesh<\/a> v. Y. Prabhakara Reddy, State of U.P. and Ors. v. Sheopat
\nRai and Ors.<\/a> 1994 Suppl. (1)SCC 8, State of Haryana and Ors. v. Lal Chand
\nand Ors., State of Punjab<\/a> v. Dial Chand Gian Chand and Company, Solomon
\nAntony and Ors. v. State of Kerala and Ors.<\/a> (2001) 3 SCC 694, Khoday
\nDistilleries Ltd. and Ors. (supra) and Government of Maharashtra and Ors.
\nv. Deokar’s Distillary JT<\/a> 2003 (3) SC 86.\n<\/p>\n
65. Mr. Mohan Jain, learned counsel appearing on behalf of the respondents-
\nlicensees of the State of Punjab and Mr. R. Venkataramani, learned Senior
\nCounsel, appearing on behalf of the intervenor, on the other hand,
\ncontended that power to impose tax by the State of Punjab is circumscribed
\nby Sub-section 3 of Section 33A of the Punjab Act. It was submitted that
\npower to impose countervailing, duty being statutorily restricted, the
\nState cannot be permitted to achieve the same object indirectly by taking
\nrecourse to ‘exclusive privilege’ theory.\n<\/p>\n
66. Mr. Ashok H. Desai and Mr. R.F. Nariman, learned senior counsel
\nappearing on behalf of the licensees – appellants in the Kerala matter
\nraised the following contentions:\n<\/p>\n
(1) Levy of import duty having been expressly conferred by the statute, the
\nState cannot justify such a levy on the spacious ground of having exclusive
\nprivilege of dealing in potable liquor.\n<\/p>\n
(2) The State of Kerala having specifically raised a plea that such a levy
\nwas justified by way of a tee and\/or as a regulatory measure cannot now
\nturn round and contend that the levy was imposed by way of a price for
\nparting with the exclusive privilege of the State. As the State of Kerala
\nhas not granted any licence to the appellants, the question, of parting of
\nany privilege in their favour does not arise. Pointing out to the admitted
\nfact that Kerala State Beverages Corporation has been granted the monopoly
\nto deal in liquor and the appellants and other traders having been selling
\nliquor to the Corporation, the question of rendition of any service by the
\nState of Kerala to the licensees so as to justify imposition of a lee or
\nregulatory tax therefore does not arise.\n<\/p>\n
(3) Any fee regulating trade by grant of a licence would amount to ‘tax’
\nwithin the meaning of Clause (28) of Article 366 of the Constitution.
\nReliance in this connection has been placed on D.C. Gouse & Co.etc. v.
\nState of Kerala and Anr.<\/a> etc. and Corporation of Calcutta and Anr. v.
\nLiberty Cinema.<\/a>\n<\/p>\n
(4) The applicability of the doctrine of “res extra commercium” and\/ Of the
\nconcept of privilege theory on the part of the State would be attracted
\nonly in a ‘no right’ situation. Once a right to trade has been Conferred by
\nthe State, it cannot take umbrage under the privilege doctrine. Even the
\nState, at the time of grant of licence by way of exclusive privilege, is
\nbound by its own action, which in a given case, may attract the wrath of
\nArticle 14 of the Constitution. Reliance in this behalf has been placed on
\nState of M.P. and Ors. v. Nandlal Jaiswal and Ors.<\/a>\n<\/p>\n
(5) The Constitution Bench of this Court in Krishna Kumar Narula v. The
\nState of Jammu and Kashmir and Ors.<\/a> having clearly laid down that trade in
\nliquor would come within the purview of Article 19(1)(g) of the
\nConstitution, the State can only impose a reasonable restriction in terms
\nof Clause (6) of Article 19 thereof. In Khoday Distilleries Ltd. (supra),
\nthis Court haying clearly held that when a licence is granted, persons
\nsimilarly situated cannot be discriminated against which would clearly lead
\nto the conclusion that not only a fundamental right in terms of Article 14
\nof the Constitution but also other constitutional rights including those
\ncontained in Part XIII of the Constitution are available in relation to
\ntrade in liquor.\n<\/p>\n
(6) In Kalyani Stores (supra), H. Anraj v. Government of Tamil Nadu and
\nState of Madhya Pradesh<\/a> v. Bhailal Bhai and Ors. this Court having clearly
\nheld that Article 301 of the Constitution would be applicable also in
\nrelation to obnoxious trade, there is no reason as to why the said
\ndecisions shall be departed from.\n<\/p>\n
(7) Keeping in view the decisions of this Court in Atiabari Tea Company
\nLimited v. The State of Assam and Ors., and The Automobile Transport
\n(Rajasthan) Ltd.<\/a> v. The State of Rajasthan and Ors. the purpose of Article
\n301 of Constitution being to maintain economic unity of the entire country,
\nthe State cannot by imposition of a tax infringe upon the provisions
\ncontained in Part XIII of the Constitution which is a self-contained part.
\n(8) The phraseology, used in Article 301 of the Constitution, namely,
\ntrade, commerce and intercourse being of wide amplitude, the right to carry
\non trade and business as envisaged in Article 19(1)(g) or Article 298 of
\nthe Constitution cannot restrict the scope and ambit thereof.\n<\/p>\n
67. In view of the rival contentions, as noticed hereinbefore, the
\nfollowing questions arise for consideration:\n<\/p>\n
(i) Whether the impugned notifications issued by the State of Punjab and
\nthat of Kerala are illegal being fraud on the Constitution.\n<\/p>\n
(ii) Whether the import duty can be said to have been validly imposed
\nhaving regard to the doctrine of ‘exclusive privilege’ of the State to deal
\nin obnoxious matters?\n<\/p>\n
(iii) Whether dealing in liquor which is said to be ‘res extra commercium’
\nwould nonetheless attract Part XIII of the Constitution?
\nRe: Question (i)<\/p>\n
68. The impugned notifications issued by the State of Punjab and that of
\nKerala read as under:\n<\/p>\n
I “Government of Punjab
\nDepartment of Excise and Taxation
\nNOTIFICATION
\nThe 27th March, 1996
\nNo. G.S.R. 28\/P.A.I.\/14\/Sections 31, 32 and 58\/Amd. (118)\/96
\nIn exercise of powers conferred by Sections 31, 32 and 33 of the Punjab
\nExcise Act, 1914 (Punjab Act 1 of 1914) and all other powers enabling him
\nin this behalf, the Governor of Punjab is pleased to make the following
\norder, without previous publication, further to amend the Punjab Excise
\nFiscal Orders, 1932, namely:-\n<\/p>\n
ORDERS\n<\/p>\n
1. (1) These orders may be called the Punjab Excise Fiscal (Second
\nAmendment) Orders, 1996.\n<\/p>\n
(2) They shall come into force on and with effect from the first day of
\nApril, 1996.\n<\/p>\n
2. In the Punjab Excise Fiscal Orders, 1932 (hereinafter referred to as the
\nsaid Orders), in order 1, in the table, under column “Rate of duty per
\nproof litre”-\n<\/p>\n
(a) in item (1), against sub item (c) for the figures “4.00” the figures
\n“3.00” shall be substituted; and\n<\/p>\n
(b) in item (3) against sub-item (b) for the figures “3.50” the figures
\n“3.00” shall be substituted.\n<\/p>\n
3. In the said Orders in order 1-B-\n<\/p>\n
(a) for the words “rupees three” the words “rupees two” shall be
\nsubstituted; and\n<\/p>\n
(b) for Clause (iii) to the proviso, the following clause shall be
\nsubstituted namely:-\n<\/p>\n
“(iii) the Indian Made Beer shall be at the rate of thirty-eight paise per
\nbulk litre.”\n<\/p>\n
4. In the said orders in order 1-D, for item (iii), the following item
\nshall be substituted namely:-\n<\/p>\n
“(iii) rupees four and sixty paise per bulk litre.”\n<\/p>\n
II. “S.R.O. No. 330\/96. In exercise of the powers conferred by sections 6,
\n7, 17 and 18 of the Abkari Act, 1 of 1077 and in modification of
\nnotification issued under G.O. (p) No. 24\/94\/TD dated 3rd March, 1994 and
\npublished as S.R.O. No. 256\/94 in the Kerala Gazette Extraordinary No. 180
\ndated 3rd March, 1994, as subsequently amended, the Government of Kerala
\nhereby direct that the import and export fees, the excise duty and luxury
\ntax under the said sections shall be levied on the following kinds of
\nliquors manufactured in the State and exported outside the State under bond
\nin force or manufactured elsewhere in India and imported into the State by
\nland, air, or sea under bond, at the rates mentioned against each kind of
\nliquor.\n<\/p>\n
The excise duty, import fee or luxury tax on liquor manufactured elsewhere
\nin India and imported into the State by land, air or sea otherwise than
\nunder bond shall be equal to the duty to which such liquor manufactured in
\nthe State are liable under the Act such as import fee, excise duty or
\nluxury tax namely:-\n<\/p>\n
Kind of Liquor\tRate of excise duty\tRate of luxury tax\tRate of
\nimport fee\tRate of export fee<\/p>\n
1. Indian Made Foreign Liquor including beer except those consumed by
\nDefence Service.\n<\/p>\n
(1) When exported by distilleries\/ Foreign Liquor (compounding, Blending
\nand (Bottling) Units\/ Breweries to other State and not re imported into
\nthis State, in cases where the following terms and conditions are satisfied
\nnamely:-\t\t\t\tRs. 5 (Rupees five only) per proof
\nlitre in the case of Indian Made Foreign Liquor and Rs. 2 (Rupees two only)
\nper bulk litre in the case of beer\n<\/p>\n
(i) The export is under bond to cover the duty at the rate of an amount
\nequal to 200 per cent of the value of Indian Made Foreign Liquor and
\ngallonage fee at the rate of Rs. 3 per bulk litre in the case of beer.\n<\/p>\n
(ii) No objection certificate for import certificate from the excise
\nauthorities of the importing State is produced by the Distilleries\/ Foreign
\nLiquor (Compounding, Blending and Bottling) Units\/ breweries.\n<\/p>\n
(iii) Excise duty, luxury tax and export fee paid to Kerala Government
\nbefore export.\n<\/p>\n
(iv) The verification certificate from the Excise Authorities of the
\nimporting State is produced before the Excise officers in charge of the
\nDistilleries\/ Foreign Liquor (Compounding, Blending and Bottling) Units\/
\nBreweries within- 42 days of dispatch or within such further time as the
\nExcise Commissioner may allow for sufficient cause.\n<\/p>\n
(v) The duty at the rate of an amount equal to 200 per cent of the value of
\nIndian Made Foreign Liquor and gallonage fee at the rate of Rs. 3 per bulk
\nlitre in the case of Beer is paid on all quantities unaccounted for: and\n<\/p>\n
(vi) Export is through air, rail road or ship.\n<\/p>\n
(2) in the case of:-\n<\/p>\n
(a) Indian Made Foreign liquor other than beer imported (bond or under
\nbond)\t\t\tRs. 5 per proof litre\n<\/p>\n
(b) Beer imported (bond or under bond)\t\t\tRs. 2 per bulk
\nlitre\n<\/p>\n
(c) wine imported (duty paid or under Bond)\t\t\tRs. 2 per
\nbulk litre
\n(3) In other cases:\n<\/p>\n
(a) Indian Made Foreign Liquor (excluding beer and wine)\tAn equal
\namount to 100 per cent of its value\n<\/p>\n
(b) Beer\t\tRs. 3 per bulk litre\n<\/p>\n
(c)Wine\t\tRs. 3 per bulk litre
\nIV, Medicated wine and similar preparations but not including preparations
\non which duty is leviable under the Medicinal and toilet preparations
\n(Excise Duties) Act, 1955\tRs. 12 (Rupees twelve only) per proof litre<\/p>\n
Published in K.G. Ex. No. 379 dt. 29.3.1997 as S.R.O. No. 210\/97
\nExplanation:-Where any liquor is chargeable with duty at a rate depending
\non the value of the liquor, such value shall be the value at which the
\nKerala State Beverages (Manufacturing and Marketing) Corporation Ltd.,
\npurchases such liquor from the suppliers and in case any such liquor is not
\npurchased by the Kerala State Beverages (Manufacturing and Marketing)
\nCorporation, such value shall be the value fixed by the Commissioner.
\nThis notification shall come into force on 1st day of April, 1996.”\n<\/p>\n
69. Before embarking upon the questions raised in these appeals, the
\nrelevant provisions of the Punjab Act may be noticed which run thus:-
\nSection 3.(9) “Excise revenue” means revenue derived or derivable from any
\npayment, duty fee, tax, confiscation, or fine imposed or ordered under the
\nprovisions of this Act or of any other law for the time being in force
\nrelating to liquor or intoxicating drugs, but does not include a fine
\nimposed by a court of law.\n<\/p>\n
Section 3(12). “Import” (except in the phrase “import into India”) means to
\nbring into Punjab and Haryana otherwise than across a custom frontier as
\ndefined by the Central Government.\n<\/p>\n
Section 16. Import export and transport of intoxicants:-No such intoxicant
\nshall be imported, exported or transported except –\n<\/p>\n
(a) after payment of any duty to which it may be liable under this Act or
\nexecution of a bond for such payment and\n<\/p>\n
(b) in compliance with such condition as the State Government may impose.
\nSection 17. Power of State Government to prohibit import, export and
\ntransport of intoxicants:- The State Government may by notification:-\n<\/p>\n
(a) prohibit the import or export of any intoxicant into or from Punjab,
\nHaryana or any part thereof; or\n<\/p>\n
(b) prohibit the transport of any intoxicant.\n<\/p>\n
Section 18. Pass necessary for import, export and transport:- Except as
\notherwise provided by any rule made under this Act, no intoxicants
\nexceeding such quantity as the State Government may prescribe by
\nnotification shall be imported or transported except under a pass issued
\nunder the provision of the next following section;\n<\/p>\n
Provided that in the case of duty paid foreign liquor such parses shall be
\ndispensed with unless the State Government shall by notification otherwise
\ndirect
\nProvided further, that no such conditions as may be determined by the
\nFinancial Commissioner, a pass granted under the excise law in force in
\nanother State may be deemed to be a pass granted under this Act
\nSection 19. Grant of passes for import, export and transport-Passes for the
\nimport, export and transport of intoxicants may be granted by the
\nCollector.\n<\/p>\n
Provided that passes for the import and export of such intoxicant as the
\nFinancial Commissioner may from time to time determine shall be granted
\nonly by the Financial Commissioner.\n<\/p>\n
Section 31. Duty on excisable articles:- An excise duty or a countervailing
\nduty as the case may be at such rate or rates as the State Government shall
\ndirect, may be imposed either generally or for any specified local area, on
\nany excisable article.\n<\/p>\n
(a) imported, exported or transported in accordance with the provisions of
\nSection 16; or\n<\/p>\n
(b) manufactured , or cultivated under any licence granted under Section
\n23; or\n<\/p>\n
(c) manufactured in any distillery established or any distillery or brewery
\nlicensed under Section 21.\n<\/p>\n
Provided as follows:-\n<\/p>\n
(i) duty shall not to be so imposed on any article which has been imported
\ninto India and was liable on importation to duty under the Indian Tariff
\nAct, 1894, or the Sea Customs Act, 1878.\n<\/p>\n
Explanation:- Duty may be imposed under this, section at different rates
\naccording to the places to which any excisable article is to be removed for
\nconsumption, or according to the varying strength and quality of such
\narticle.\n<\/p>\n
Section 32. Manner in which duty may be levied:-Subject to such rules
\nregulating the time, place and manner as the Financial Commissioner may
\nprescribed such duty shall be levied rateably, on the quantity of
\nexciseable article imported, exported, transported, collected or
\nmanufactured in or issued from a distillery brewery or warehouse;
\nProvided that duty may be levied:-\n<\/p>\n
(a) on intoxicating drugs by an acreage rated levied on the cultivation of
\nthe hemp plant or by a rate charged on the quantity collected.\n<\/p>\n
(b) On spirit or beer manufactured in any distillery established or any
\ndistillery or brewery licensed, under this Act in accordance with such
\nscale of equivalents calculated on the quantity of materials used or by the
\ndegree of attenuation of the wash or wort, as the case may be as the State
\nGovernment may prescribe.\n<\/p>\n
(c) On tari, by a tax on each tree from which the tari is drawn;
\nProvided further that where payment is made upon issue of an exciseable
\narticle for sale from a warehouse established or licensed under Section
\n22(a) it shall be made –\n<\/p>\n
(a) If the State Government by notification so directs, at the rate of duty
\nwhich was in force at the date of import of that article; or\n<\/p>\n
(b) In the absence of such direction by the State Government at the rate of
\nduty which is in force on that article on the date when it is issued from
\nthe warehouse.\n<\/p>\n
Section 33. Payment for grant of leases: – Instead of or in addition to any
\nduty leviable under this chapter the State Government may accept payment of
\na sum in consideration of the lease of any right under Section 27.
\nSection 33-A. Saving for duties being levied at commencement of the
\nConstitution:- (1) Until provision to the contrary is made by Parliament,
\nthe State Government may continue to levy any duty which it was lawfully
\nlevying immediately before the commencement of the Constitution under this
\nChapter as then in force.\n<\/p>\n
(2) The duties to which this section applies are:-\n<\/p>\n
(a) any duty on intoxicants which are not exciseable articles within the
\nmeaning of this Act; and\n<\/p>\n
(b) any duty on exciseable article produced outside India and imported into
\nPunjab\/Haryana whether across a customs frontier as defined by the Central
\nGovernment or not.\n<\/p>\n
(3) Nothing in this section shall authorize the levy by the State
\nGovernment of any duty which as between goods manufactured or produced in
\nthe State and similar goods not so manufactured or produced discriminates
\nin favour of the former or which in the case of goods manufactured or
\nproduced outside the State discriminates between goods manufactured or
\nproduced in one locality and similar goods manufactured or produced in
\nanother locality.\n<\/p>\n
Section 34. Fees for terms, conditions and form of, and duration of
\nlicence, permit and passes:-(1) Every licence, permit or pass granted under
\nthis Act shall be granted:-\n<\/p>\n
(a) on payment of such fees, if any.\n<\/p>\n
(b) Subject to such restrictions and on such conditions.\n<\/p>\n
(c) In such form and containing such particulars,\n<\/p>\n
(d) For such period,
\nas the Financial Commissioner may direct.\n<\/p>\n
(2) Any authority granting a licence under this Act may require the
\nlicensee to give such security for the observance of the terms of his
\nlicence, or to make such deposit in view of security, as such authority may
\nthink fit.\n<\/p>\n
Section 58. Power of State Government to make Rules: (1)….
\n(2) in particular and without prejudice to the generality of the foregoing
\nprovision, the State Government may make rules:-\n<\/p>\n
(d) regulating the import, export, transport or possession of any
\nintoxicant or Excise bottle and the transfer, price or use of any type or
\ndescription of such bottle.\n<\/p>\n
(e) regulating the period and localities for which and the persons or
\nclasses of persons to whom licenses, permits and passes for the vend by
\nwholesale or by retail of any intoxicants may be granted and regulating the
\nnumber of such licences which may be granted in any local area;\n<\/p>\n
(f) prescribing the procedure to be followed and the matters to be
\nascertained before any licence is granted for the retail vend for
\nconsumption on the premises.\n<\/p>\n
Section 59. Powers of Financial Commissioner to make rules:- The Financial
\nCommissioner may by notification make rules:-\n<\/p>\n
(d) prescribing the scale of fees or the manner of fixing the fees, payable
\nin respect of any licence, permit or pass or in respect of the storing of
\nany intoxicant;\n<\/p>\n
70. Apart from provisions of the Punjab Act, it would also be necessary to
\nnotice Sections 17 and 18 of the Abkari Act occuring in Chapter V dealing
\nin “Duties, Taxes and Rentals” applicable in the State of Kerala which read
\nthus:\n<\/p>\n
“17. Duty on liquor or intoxicating drugs:- A duty of excise or luxury tax
\nor both shall, if the Government so direct be levied on all liquor and
\nintoxicating drugs:\n<\/p>\n
(a) permitted to be imported under Section 6; or\n<\/p>\n
(b) permitted to be exported under Section 7; or\n<\/p>\n
(c) permitted under Section 11 to be transported; or\n<\/p>\n
(d) manufactured under any licence granted under Section 12; or\n<\/p>\n
(e) manufactured at any distillery, brewery, winery or other manufactory
\nestablished under Section 14; or\n<\/p>\n
(f) issued from a distillery, brewery, winery or other manufactory or
\nwarehouse licensed or established under Section 12 or Section 14; or\n<\/p>\n
(g) sold in any part of the State;\n<\/p>\n
Provided that no duty or gallonage fee or vend fee or other taxes shall be
\nlevied under this Act on rectified spirit including absolute alcohol which
\nis not intended to be used for the manufacture of potable liquor meant for
\nhuman consumption.\n<\/p>\n
Explanation:- For the purpose of this section and Section 18, the
\nexpression “duty of excise”, with reference to liquor or intoxicating
\ndrugs, include countervailing duty on such goods manufactured or produced
\nelsewhere in India and brought into the State.\n<\/p>\n
18. How duty may be imposed:- (1) Such duty of excise may be levied:\n<\/p>\n
(a) in the case of spirits or beer, either on the quantity produced in or
\npassed out of a distillery, brewery or warehouse licensed or established
\nunder Section 12 or Section 14 as the case may be or in accordance with
\nsuch scale of equivalents, calculated on the quantity of materials used or
\nby the degree of attenuation of the wash or wort or on the value of the
\nliquor as the case may be, as the Government may prescribe;\n<\/p>\n
(b) in the case of intoxicating drugs on the quantity produced or
\nmanufactured or issued from a warehouse licensed or established under
\nSection 14;\n<\/p>\n
(c) xxx\n<\/p>\n
(d) xxx\n<\/p>\n
(e) in the case of toddy, or spirits manufactured from toddy, in the form
\nof a tax on each tree from which toddy is drawn, to be paid in such
\ninstalments and for such period as the Government may direct: or\n<\/p>\n
(f) by import, export or transport duties assessed in such manner as the
\nGovernment may direct; or
\nXXX
\n(2) The luxury tax on liquor or intoxicating drugs shall be levied:-\n<\/p>\n
(i) in the case of any liquor in the form of a fee for licence for the sale
\nof the liquor and in the form of a gallonage fee or vending fee, or in any
\none of such forms; and;\n<\/p>\n
(ii) in the case of an intoxicating drug, in the form of a fee for licence
\nfor the sale of the intoxicating drug.\n<\/p>\n
(3) The duty of excise under Sub-section (1) and the luxury tax under Sub-
\nsection (2) shall be levied at such rates as may be fixed by the Government
\nfrom time to time, by notification in the Gazette, not exceeding the rates
\nspecified below:-\n<\/p>\n
(1)\tDuty of excise\tMaximum rates\n<\/p>\n
(i)\tDuty of excise on liquors (Indian made)\tRs. 200 per proof litre or
\nan amount equal to 200 per cent of the value of the liquor.\n<\/p>\n
(ii)\tDuty of excise on intoxicating drugs\tRs. 1 per gram or Rs.
\n933.10 per seer.\n<\/p>\n
(iii)\tDuty of excise in the form of tax on trees tapped for toddy\tRs.
\n50 per tree per half-year or part thereof
\n(2)\tLuxury tax:\n<\/p>\n
(a)\tWhen levied in the form of a fee for licence for sale of foreign
\nliquor –\n<\/p>\n
(i)\tFor licence for sale of foreign liquor in wholesale\tRs. 1 5000
\nfor a year or part thereof\n<\/p>\n
(ii)\tFor licence for sale of foreign liquor in hotels or restaurants\tRs.
\n12000 for a year or part thereof\n<\/p>\n
(iii)\tFor licence for sale of medicated wines\tRs. 1000 for a year or part
\nthereof\n<\/p>\n
(iv)\tFor licence for sale of foreign liquor in non-proprietory clubs to
\nmembers\tRs. 1500 for a year or part thereof\n<\/p>\n
(v)\tXxxx\n<\/p>\n
(b)\tWhen levied in the form of gallonage fee\tRs. 10 per bulk
\nlitre or Rs. 45.46 per bulk gallon\n<\/p>\n
(c)\tWhen levied in the form of a fee for licence for the sale of
\nforeign liquor (Foreign made)\n<\/p>\n
(i)\tIn wholesale\tRs. 25,00,000 (Rupees Twenty Five lakhs) for a year
\nor part thereof\n<\/p>\n
(ii)\tIn retail\tRs. 10,00,000 (Rupees Ten lakhs) for a year or part
\nthereof\n<\/p>\n
(iii)\tIn hotels or restaurants\tRs. 25,00,000 (Rupees Twenty Five
\nlakhs )for a year or part thereof ,\n<\/p>\n
(iv)\tIn non-proprietory clubs to its members\tRs. 10,00,000  (Rupees Ten
\nlakhs) for a year or part thereof\n<\/p>\n
(v)\tIn Seamen’s and Marine Officer’s clubs to its members\tRs.
\n10,00,000 (Rupees Ten lakhs) for a year or part thereof\n<\/p>\n
(d)\tWhen levied in the form of gallonage fee\n<\/p>\n
(i)\tForeign Liquor (Foreign made) other than beer and wine\tRs. 200
\n(Rupees Two hundred) per bulk litre\n<\/p>\n
(ii)\tFor foreign made beer and wine\tRs. 25 (Rupees Twenty Five) per
\nbulk litre<\/p>\n
Provided that where there is a difference of duty of excise or luxury tax
\nas between two licence periods, such difference may be collected in respect
\nof all stocks of Indian made foreign liquor or intoxicating drugs held by
\nlicensees at the close of the former period.\n<\/p>\n
Note: The expression ‘Foreign Liquor (Foreign made) means any liquor
\nproduced, manufactured, or blended and compounded abroad and imported into
\nIndia by land, air or sea.\n<\/p>\n
Explanation:- Where any liquor is chargeable with duty at a rate depending
\non the value of the liquor, such value shall be the value at which the
\nKerala State Beverages (Manufacturing and Marketing) Corporation Limited
\npurchases such liquor from the suppliers and in case any such liquor is not
\npurchased by Kerala State Beverages (Manufacturing and Marketing)
\nCorporation limited such value shall be the value fixed by the
\nCommissioner.”\n<\/p>\n
71. Provision to grant licence is contained in Chapter VI of the Abkari
\nAct, Section 24 whereof is as under:\n<\/p>\n
“24. Forms and conditions of licenses, etc:-Every license or permit granted
\nunder this Act shall be granted:-\n<\/p>\n
(a) on payment of such fees, if any;\n<\/p>\n
(b) for such period;\n<\/p>\n
(c) subject to such restrictions and on such conditions; and\n<\/p>\n
(d) shall be in such form and contain particulars – as the Government may
\ndirect either generally, or in any particular instance in this behalf.”\n<\/p>\n
72. The State, of Kerala raised a contention that the imposition of levy is
\nreferable to Entry 66 of List II of the Seventh Schedule to the
\nConstitution. An additional affidavit was filed before the Kerala High
\nCourt wherein it was averred that such a levy has been imposed also by way
\nof a regulatory fee. No plea whatsoever has been raised that such a levy is
\ntowards a price or a part of price for parting with exclusive privilege.
\nThe High Court accepted plea of the State that the levy is by way of
\nregulatory tee in relation whereto doctrine of ‘quid pro quo’ has no
\napplication.\n<\/p>\n
73. Before the High Court of Punjab and Haryana although a plea was raised
\nthat the impost was by way of a price for parting with the exclusive
\nprivilege but in its impugned judgment the High Court rejected the same
\nhaving regard to the provisions contained in Section 33A of the Punjab Act.\n<\/p>\n
74. The Excise Acts referred to hereinbefore seek to regulate trade and
\nbusiness in liquor. They have their origin before coming into force of the
\nGovernment of India Act, 1935 or the Constitution and, thus, being pre-
\nconstitutional laws, validity thereof and\/or any statutory impost levied
\nthereunder would be subject to Articles 372 and 305 of the Constitution
\nvis–vis Article 13 thereof. The statutory rights and obligations created
\nby reason of the aforementioned Acts, after coming into force of the
\nConstitution, would, therefore, be subject to the extent saved by the
\nConstitution itself and, thus, the provisions thereof, the rules made
\nthereunder and actions taken must conform to the limitations imposed
\nthereby. The said Acts, therefore, must be construed keeping in view
\nEntries 8 and 51 of List II of the Seventh Schedule to the Constitution.
\nBefore dealing with the matter further, it may be noticed that in the
\ninstant case I am not concerned with validity or the interpretation of a
\npre-constitutional law but a post-constitutional one. The impugned levy,
\ntherefore, must be justified having regard to the relevant entries made in
\nList II of the Seventh Schedule to the Constitution. Section 6 of the
\nAbkari Act permits import of liquor on payment of duties, taxes, tees and
\nsuch other sums as are due to the government and Section 7 thereof provides
\nfor export. Section 17 provides for levy of a duty of excise or luxury tax
\nor both on liquor permitted to be imported under Section 6 thereof. Section
\n18 deals with the manner in which such duty should be imposed. Sections 31
\nand 32 of the Punjab Act are in pari materia with Section 17 and Section 18
\nrespectively of the Abkari Act.\n<\/p>\n
75. A question arises as to what is “excise duty”. An excise duty can be
\nimposed on manufacturer of goods only in terms of statute made by the
\nParliament. An exception thereto has been made in the case of liquor in
\nterms whereof the State Legislature has been empowered to levy excise duty
\nby reason of Entries 8 and 51 of List II of the Seventh Schedule to the
\nConstitution which read thus:\n<\/p>\n
“Entry 8: Intoxicating liquors, that is to say, the production,
\nmanufacture, possession, transport, purchase and sale of intoxicating
\nliquors.\n<\/p>\n
Entry 51. Duties of excise on the following goods manufactured or produced
\nin the State and countervailing duties at the same or lower rates on
\nsimilar goods manufactured or produced elsewhere in India :-\n<\/p>\n
(a) alcoholic liquors for human consumption;\n<\/p>\n
(b) opium, Indian hemp and other narcotic drugs and narcotics; but not
\nincluding medicinal and toilet preparations containing alcohol or any
\nsubstance included in Sub-paragraph (b) of this entry.”\n<\/p>\n
76. Legislative competence of the State to levy any fee is, therefore,
\nlimited to levy of countervailing duty. In other words, any levy on import
\ncan not exceed the excise duty levied on the manufacturers of the State.
\nThe State, therefore, cannot levy any duty in addition to the
\ncountervailing duty. The notification refers to excise duty and
\ncountervailing duty, which in terms of Section 3(6-B) of the Punjab Act
\nmean any such excise duty or countervailing duty as the case may be, as is
\nmentioned in Entry 51 of List II of the Seventh Schedule to the
\nConstitution. The State, therefore, cannot levy any import fee over and
\nabove the excise duty\/countervailing duty, having regard to the said
\ndefinition. Sections 17 and 18 of the Abkari Act which are in pari materia
\nwith Sections 31 and 32 of the Punjab Act are referable to Entry 51 alone.
\nAs Entry 51 puts an embargo on the State to make a legislation, there
\ncannot be any gainsaying that any levy in terms of Sections 17 and 18 of
\nthe Abkari Act would be subject thereto.\n<\/p>\n
77. Can the levy be said to be valid if thereby regulatory licencee fees
\nhave been imposed? The answer to the said question must be rendered in the
\nnegative.\n<\/p>\n
78. Clause (28) of Article 366 reads as under:\n<\/p>\n
“taxation” includes the imposition of any tax or impost, whether general or
\nlocal or special, and “tax” shall be construed accordingly;\n<\/p>\n
79. A regulatory impost would, thus, come within the purview of the tax. A
\nfee in terms of the constitutional schemes may be either a regulatory
\nlicence fees or a fee in lieu of rendition of service. When no service is
\nrendered a fee can be justified only by way of licence fees. Such impost,
\nhowever, would be a tax and, thus, would clearly be referable to Entry 51
\nof List II to the Constitution and not Entry 66 thereof. (See Liberty
\nCinema (supra), D.C. Gouse & Co. (supra) and Hindustan Times and Ors. v.
\nState of U.P. and Anr., JT<\/a> 2002 (9) SC 317).\n<\/p>\n
80. Indisputably, the State while imposing import duty has exercised its
\npower under the statute. The impugned notifications in no uncertain terms
\nand unequivocally refer to the source of power therefore. The functions of
\nthe State to impose a fee or tax in terms of the provisions of the statute
\nis a legislative function. Such legislative function must be attributed to
\nthe source of the State’s power in terms of Entry 51 of List II to the
\nConstitution and not otherwise. If the legislations in question are found
\nto be unreasonable in nature or fraud on the Constitution, would it still
\nbe permissible for the State to turn round and contend that such imposts
\nare not being levied in exercise of its taxation power but attributable to
\nits regulatory power? In other words, can the State turn round and contend
\nthat what it sought to do was not in terms of legislative function but
\nmerely by way of executive action? Answer to the said question again must
\nbe rendered in the negative. It is a well-settled principle of law that a
\nthing which cannot be done directly cannot be done indirectly. (See
\nPriyanka Overseas Pvt. Ltd, and Anr. v. Union of India and Ors.,<\/a> 1991 Supp
\n(1) SCC 102). In relation to an administrative act it is well-settled that
\na statutory authority is not permitted to support its decision on a ground
\nd’hors the ground stated in the order, (See Commissioner of Police, Bombay
\nv. Gordhandas Bhanji, AIR<\/a> 1952 SC 16 and Mohinder Singh Gill and Anr. v.
\nThe Chief Election Commissioner, New Delhi and Ors., AIR<\/a> 1978 SC 851). On
\nthe same analogy, a legislation which is found to be fraud on the
\nConstitution, cannot, inter alia, be upheld on any other ground. Entry 8 of
\nList II of the Seventh Schedule to the Constitution does not permit the
\nState to levy a fee on import of liquor. It deals only with production,
\nmanufacture, possession, transport, purchase, and sale of intoxicating
\nliquors and nothing else. Entry 8 of List II, thus, does not speak of
\nimport or export. Its purpose is to regulate and not impose any statutory
\nimpost. The State in exercise of its delegated powers cannot do what would
\nconstitutionally be impermissible.\n<\/p>\n
81. A subsidiary question which arises for consideration is as to whether
\nthe State of Punjab, having regard to Section 33A of the Punjab Act, could
\nlevy such duty. In Sub-section (1) of Section 33A provision has been made
\npermitting the State to continue to levy any duty which it had lawfully
\nbeen levying immediately before the commencement of the Constitution. The
\nsaid provision is in tune with Article 305 of the Constitution, therefore,
\nthe same calls for a strict construction. Sub-section (3) of Section 33A is
\ncouched in negative language by reason whereof power of the State to levy
\nany duty has been taken away in the event thereby any discrimination is
\nmade in favour of goods manufactured or produced in the State and similar
\ngoods manufactured or produced in another locality. Clearly such a
\nprovision is in consonance with Article 304 of the Constitution. If by
\nreason of a statute an embargo has been placed on the State’s power to levy
\nany fee it is beyond any cavil of doubt that such a levy cannot be held to
\nbe justified by reason of an executive action or otherwise.\n<\/p>\n
82. It is trite that even a term of the contract cannot be in violation of
\nan express provision contained in a statute. By reason of provisions of the
\nAbkari Act or the Punjab Act, no power has been conferred upon the State to
\nimpose any import fee over and above the excise duty\/countervailing duty.
\nIt is not disputed that such countervailing duty has been levied and the
\nlicensees pay the same. The power to levy fee and the power to grant
\nlicences, permits and passes occur in different chapters of the Acts. The
\npowers under different chapters are required to be exercised for different
\npurposes. One is legislative in character and the other refers to executive
\naction. Furthermore, under the Punjab Act fees for grant of licences,
\npermits and passes are required to be paid on the terms as the Financial
\nCommissioner may direct. Having regard to the fact that the Financial
\ncommissioner is the statutory authority in relation thereto, the State
\ncannot be said to have any jurisdiction thereover, particularly, in the
\nmatter of levy of import fee which clearly is referable to Chapter V of the
\nPunjab Act and has nothing to do with grant of licence occurring in Chapter
\nVI.\n<\/p>\n
83. The matter may be considered from another angle. Having regard to
\nArticle 265 of the Constitution a tax must be imposed by a statute. Even
\nsuch impost is impermissible by any bye-law or rule. (See Bimal Chandra
\nBanerjee v. State of Madhya Pradesh etc.,; A Venkata Subba Rao v. State of
\nAndhra Pradesh, and Attorney General<\/a> v. Wilts United Dairies (1922) 91 Law
\nJournal, KB 897.\n<\/p>\n
84. In Synthetics and Chemicals Limited and Ors. v. State of UP and Ors., a
\nSeven-Judge Bench of this Court has equated excise duty with the price for
\nprivileges. In the matter of interpretation of Constitution, the said
\ndecision has been referred to with approval in Welfare Assocn. A.R.P.,
\nMaharashtra and Anr. v. Ranjit P. Gohil and Ors.<\/a> [JT 2003 (2) SC 335]. In
\nthe said seven Judge Bench decision, this Court observed thus:
\n“On an analysis of the various Abkari Acts and Excise Acts, it appears that
\nvarious provinces\/States reserve to themselves in their respective States
\nthe right to transfer exclusive or other privileges only in respect of
\nmanufacture and sale of alcohol and not in respect of possession and use.
\nNot all but some of the States have provided such reservation in their
\nfavour. The price charged as a consideration for the grant of exclusive and
\nother privileges was generally regarded as an excise duty. In other words,
\nexcise duty and price for privileges were regarded as one and the same
\nthing. So-called privilege was reserved by the State mostly in respect of
\ncountry liquor and not foreign liquor which included denatured spirit.”\n<\/p>\n
85. In view of the foregoing discussions, I am of the opinion that the
\nimpugned levy cannot be sustained.\n<\/p>\n
Re: Questions (ii) and (in)
\nWhat is Res-Extra-Commercium:\n<\/p>\n
86. In Black’s Law Dictionary, Fifth Edition, ‘Res’ has been defined as
\nfollows:\n<\/p>\n
“By “res”, according to the modern civilians, is meant everything that may
\nform an object of rights, in opposition to “persona,” which is regarded as
\na subject of rights. “Res”, therefore, in its general meaning, comprises
\nactions of all kinds; while in its restricted sense it comprehends every
\nobject of right, except actions.”\n<\/p>\n
87. In Trayner’s Latin Maxims, Fourth Edition, ‘Extra Commercium’ is stated
\nas “Beyond Commerce. This is said of things which cannot be bought or sold,
\nsuch as public roads, rivers, titles of honour, etc.”\n<\/p>\n
88. In Words and Phrases, Volume 15 A, it has been stated:
\n“Property once dedicated to public use is “extra commercia”, and
\ninalienable by seizure and sale under execution against a municipal
\ncorporation, unless it is made affirmatively and clearly to appear that its
\nuse had been abandoned or lost by nonuser.”\n<\/p>\n
89. In Bouvier’s Law Dictionary, Volume I, Third Edition, at page 531, it
\nis stated:\n<\/p>\n
“It has been frequently said by the Supreme Court that commerce includes
\nintercourse, though usually the term is qualified as “commercial
\nintercourse”; Gibbons v. Ogden. 9 Wheat. (U.S.) 1, 6 L. Ed 23; U.S. v. E.C.
\nKnight Co., 156 U.S. 1, 15 Sup. Ct 249, 39 L. Ed. 325; Welton v. Missouri,
\n91 U.S. 275, 280, 23 L.Ed. 347; Pensacola Telegraph Co. v. Western
\nTelegraph Co., 96 U.S. 1, 9, 24 L.Ed. 708; Mobile County v. Kimball, 102
\nU.S. 691, 702, 26 L.Ed. 238 (where the phrase is “intercourse and
\ntraffic”); Addyston Pipe & Steel Co. v. U.S., 175 U.S. 211, 241, 20 Sup.
\nCt. 96, 44 L.Ed. 136; Lindsay & P. Co. V. Mullen 176 U.S. 126, 20 Sup. Ct.
\n325, 44 L.Ed.400; Interstate Commerce Commission v. Brimson, 154 U.S. 447,
\n470, 14 Sup Ct. 1125, 38 L.Ed. 1047; Lottery Case, 188 U.S. 321, 346, 23
\nSup. Ct 321, 47 L.Ed. 492. The first expression of this was by Marshall,
\nC.J., in Gibbons v. Ogden, 9 Wheat (U.S.) 1, 6 L.Ed. 23; quoted by Fuller,
\nC.J., in U.S. v. Knight Co, 156 U.S. 1, 15 Sup. Ct 249, 39 L.Ed. 325: and
\ncharacterized by White, J., as a “luminous definition” in Northern
\nSecurities Co. v. U.S., 193 U.S. 197, 24 Sup. Ct, 436, 48 L.Ed. 679, to the
\neffect that commerce is something more than traffic; “It is intercourse; it
\ndescribes the commercial intercourse between nations and parts of nations
\nin all its branches, and is regulated by prescribing rates for carrying on
\nthat intercourse.” This has been practically, if not literally, quoted in
\nall the cases cited. There is nothing in the decisions to define or limit
\nso broad a term as intercourse, except the word commercial, usually
\nattached to it. As it is hardly likely that the courts intended to say that
\ncommerce is intercourse in the sense in which it is defined “communication
\nbetween persons or places”; Cent. Dict.: it is probable that the word was
\nnot intended to be used to express more than such intercourse as is
\nconnected with traffic and transportation with foreign countries or between
\nthe States.”\n<\/p>\n
90. Dealing in liquor or for that matter in lottery, tobacco is not
\nprohibited under the Constitution. On the other hand, in the constitutional
\nschemes itself Parliament or the State Legislature has been conferred power
\nto regulate the said trade like any other trade. In fact India has entered
\ninto trade agreements to deal in liquor with other sovereign countries.
\nIndia has entered into International treaties in the matter of foreign
\ninvestment in liquor. Trade in liquor finds place in World Trade
\nOrganization (WTO) and General Agreement on Trade and Tariff (GAIT). In
\nterms of the WTO and GATT guidelines have been laid down as regards import
\nand export of potable liquor. India, as a signatory to WTO and GATT, is
\nexpected to follow the said guidelines. It is expected to remove all trade
\nbarriers subject to the other provisions contained therein. It is also
\nsupposed to levy taxes\/countervailing duties in terms of such international
\ntreaties. No constitutional provision or statute prohibits trade in liquor.
\nArticle 47 of the Constitution empowers the State to impose prohibition.
\nOnce a prohibition is imposed by any State in exercise of said, powers,
\nindisputably no person will have any right to deal in potable liquor.\n<\/p>\n
91. Applicability of Res-extra commercium is a judge made law. Constitution
\ndoes not provide for it. Even if Entries 8, 51 and 54 of List II, on the
\nother hand, lead to the conclusion that the State has the legislative power
\nto make regulatory enactment in the spheres provided for them, the State
\nindisputably may exercise its right to prohibit dealings in liquor either
\nwholly or partially but if it allows trade and business in liquor by
\nparting with its exclusive privilege; a presumption will arise unless
\ncontrary” intention is shown in the statute or licence granted therefore
\nthat it has not retained unto itself a right to deal with a part of the
\ntrade itself or through its agency. As has been noticed in the Kerala
\nmatter the State has given the monopoly to trade in liquor in favour of the
\nKerala State Beverages Corporation. Nowhere it is stated either by way of
\ncounter-affidavit or under the statute that the State has reserved unto
\nitself any right in the matter relating to carrying on trade or business in
\npotable liquor. As soon as a licence is granted upon receipt of a fee fixed
\nby it, the State would be presumed to part with its entire privilege. To
\nsay that while exercising its regulatory power for the purpose of
\ncontrolling the trade and business in potable liquor, it has reserved unto
\nitself a part of its exclusive privilege would not be correct unless the
\nsame is explicitly pleaded and proved.\n<\/p>\n
92. Regulatory measures in the matter of trade and business in potable
\nliquor have been taken by reason of a statute. All regulations on the
\ntrade, thus, must be governed by the statutes operating in the field and
\nnot by way of executive action. The provisions of the statute or the
\ncontracts made thereunder must scrupulously be followed by all concerned as
\nthey are bound by the same. When a legislation referable to Entries 8, 51
\nand 66 etc. had occupied the field, the State, in absence of any provision
\ncontained in the statute, cannot turn round and contend that it will
\nexercise its power of exclusive privilege even though it had granted
\nlicence in terms of the statute. Having regard to the constitutional scheme
\nthe power of the State to undertake trade and business is referable to
\nArticle 298 of the Constitution. The duties, functions and responsibilities
\nof a Government in a democracy are different from monarchism. Rights and
\nprivileges of a monarch cannot be equated with an elected Government in a
\ndemocratic set-up. If the power of the Government in other words to deal in
\ntrade or commerce, be it liquor or any other commodity, can only be traced
\nto Article 298 of the Constitution, it goes without saying that the same
\nwould be subject to all constitutional limitations applicable in relation
\nthereto. The State while exercising its constitutional power under Article
\n298 of the Constitution cannot itself be an extra constitutional authority
\nso as to violate the constitutional provisions. It like any other trader
\nmust confine itself within the four corners of the statutes governing the
\nfield which are enacted in terms of one entry or the other made in any of
\nthe three lists to the Seventh Schedule of the Constitution.\n<\/p>\n
93. A State, therefore, may be entitled to either completely prohibit a
\ntrade or business in liquor and create monopoly either in itself or in any
\nother agency and furthermore it can for the purpose of selling the licence
\nadopt any mode with a view to maximize its revenue but while doing so it
\nmust, having regard to a large number of decisions of this Court, not act
\narbitrarily. The State while carrying on business by way of parting with
\nits privilege or distribution of largess must conform to the equality
\nclause enshrined in Article 14 of the Constitution. It has been so held in
\nNandlal Jaiswal (supra) at pages 604-605 in the following terms:
\n“But, before we do so, we may at this stage conveniently refer to a
\ncontention of a preliminary nature advanced on behalf of the State
\nGovernment and respondents 5 to 11 against the applicability of Article 14
\nin a case dealing with the grant of liquor licences. The contention was
\nthat trade or business in liquor is so inherently pernicious that no one
\ncan claim any fundamental right in respect of it and Article 14 cannot
\ntherefore be invoked by the petitioners. Now, it is true, and it is well
\nsettled by several decisions of this Court including the decision in Har
\nShanker v. Deputy Excise & Taxation Commissioner that there is no
\nfundamental right in a citizen to carry on trade or business in liquor. The
\nState under its regulatory power has the power to prohibit absolutely every
\nform of activity in relation to intoxicants – its manufacture, storage,
\nexport, import, sale and possession. No one can claim as against the State
\nthe right to carry on trade or business in liquor and the State cannot be
\ncompelled to part with its exclusive right or privilege of manufacturing
\nand selling liquor. But when the State decides to grant such right or
\nprivilege to others the State cannot escape the rigour of Article 14. It
\ncannot act arbitrarily or at its sweet will. It must comply with the
\nequality clause while granting the exclusive right or privilege of
\nmanufacturing or selling liquor. It is, therefore, not possible to uphold
\nthe contention of the State Government and respondents 5 to 11 that Article
\n14 can have no application in a case where the licence to manufacture or
\nsell liquor is being granted by the State Government. The State cannot ride
\nroughshod over the requirement of that article.”\n<\/p>\n
94. Privilege, thus, can be claimed by a State in a ‘no right’ situation,
\nnamely, when citizen is not permitted to carry on trade. But once the State
\ntakes a decision to part with its privilege, it cannot make any
\ndiscrimination whatsoever. Dealing in liquor by the persons in whose favour
\nlicences have been granted in terms of the statutory, enactments derive a
\nright therefore which, cannot be said to be “Res-Extra Commercium”\n<\/p>\n
95. Now comes the question as to how far and to what extent, if any, the
\nfundamental and other rights of a citizen could be available in the matter
\nof trade in potable liquor. Article 19(1)(g) guarantees that all citizens
\nshall have the right to practice any profession or to carry on any
\noccupation, trade or business. However, in terms of Article 19(6) this
\nright can be restricted by a statute imposing reasonable restrictions. A
\ncombined reading of Clauses (1) and (6) of Article 19 makes it clear that a
\ncitizen has a fundamental right to carry on any trade or business and the
\nState can make a law imposing reasonable restrictions on the said right in
\nthe interest of the general public. It is, therefore, obvious that unless
\ndealing in liquor is excluded from ‘trade or business’, a citizen has a
\nfundamental right to deal in that commodity.\n<\/p>\n
96. This right was recognized in the The State of Bombay and Anr. v. F.N.
\nBalsara<\/a> [(1951) SCR 682] where Fazl Ali, J., observed at page 717 that “we
\nhold that to the extent to which the prohibition Act prevents the
\npossession, use and consumption of non-beverages and medicinal and toilet
\npreparations containing alcohol for legitimate purposes the provisions are
\nvoid as offending against Article 19(1)(f) of the Constitution even if they
\nmay be within the legislative competence of the provincial legislature,”\n<\/p>\n
97. But in Cooverjee B. Bharucha (supra) a Constitution Bench of this Court
\nheld that there is no inherent right in a citizen to sell intoxicating
\nliquors. This decision was rendered relying on P. Crowley, Chief of Police
\nof the City and County of San Fancisco, California v. Henry Christenses
\n[(1890) 34 Law. Ed.620(A)].\n<\/p>\n
98. However, this exclusive privilege theory was rejected by a Constitution
\nBench of this Court in Saghir Ahmad and Anr. v. State of U.P. and Ors.<\/a> [AIR
\n1954 SC 728] stating that this doctrine has no place under Indian
\nConstitution. It was observed that establishment of a monopoly does not
\ncreate a reasonable restriction. The observations made in Cooverjee B.
\nBharucha (supra) stating that the general observations occurring in the
\njudgment have to be taken with reference to the facts of that case were
\nduly explained. It was reiterated that the State has a right to prohibit
\ntrade which is illegal or immoral or injurious to the health and welfare of
\nthe public by taking recourse to regulating legislation contemplated by
\nArticle 19(6).\n<\/p>\n
99. The fundamental right to trade in intoxicant liquor was recognized in
\nState of Kerala and Ors. v. P.J. Joseph<\/a> [AIR 1958 SC 296]. There the
\nGovernment of Travancore and Cochin imposed 20% commission for sanction of
\nextra quota of Foreign Liquor to wholesale licencees. The said impost was
\nchallenged before the High Court of Judicature for Travancore Cochin, which
\nwas struck down by said High Court. On Appeal by State this Court while
\nupholding the judgment of High Court observed “an impost not authorised by
\nlaw cannot possibly be regarded as a reasonable restriction and must,
\ntherefore, always infringe the right of the respondent to carry on his
\nbusiness which is guaranteed to him by Article 19(1)(g) of the
\nConstitution.” It was held that an impost in terms of an executive order
\nhaving no authority of law would be illegal imposition.\n<\/p>\n
100. This principle has been affirmed by a Constitution Bench of this Court
\nin Krishna Kumar Narula v. State of Jammu and Kashmir and Ors. After<\/a>
\ndiscussing all previous decisions, Subba Rao, C.J., held that “a scrutiny
\nof these decisions does not support the contention that the court held that
\ndealing in liquor was not business or trade. They were only considering the
\nprovisions of the various Acts which conferred a restricted right to do
\nbusiness. None of them held that a right to do business in liquor was not a
\nfundamental right”. It was observed that “If the activity of a dealer, say,
\nin ghee is business; then how does it cease to be business if it is in
\nliquor. Liquor can be manufactured, brought or sold like any other
\ncommodity. It is consumed throughout the World though some countries
\nrestrict or prohibit the same on economic or moral grounds”. It was further
\nheld that “dealing in liquor is business and a citizen has a right to do
\nbusiness in that commodity; but the State can make a law imposing
\nreasonable restrictions on the said right, in public interests.”\n<\/p>\n
101. In R.M.D. Chamarbaugwala (supra) S.R. Das, C.J. observed that the
\nAmerican Congress have no power to control gambling and like spurious
\ntransactions under its power over ‘inter-State commerce’ if they were not
\nheld to be ‘commerce’.\n<\/p>\n
102. Even in Har Shankar (supra) Chandrachud, J. (as the learned Chief
\nJustice then was) held that the right to trade in liquor is not absolute
\nand it is to be treated as a separate class. But therein also it has not
\nbeen held that despite fulfilling the regulatory measures, the trade would
\nbe illegal. The point that arose for consideration therein was the State’s
\npower to prohibit trade. In that case, this Court had no occasion to
\nconsider the question involved in the present one.\n<\/p>\n
103. A large number of decisions, as noticed hereinbefore, have been cited
\nat the Bar for the proposition that by reason of grant of licence, the
\nlicensee is merely granted a permissive privilege subject to the degree of
\nregulatory control as may be deemed necessary and appropriate having regard
\nto the fact that: nobody has any constitutional right to trade in liquor in
\nview of its inherently pernicious and noxious nature. I may deal with some
\nof the decisions cited at the bar a little later but the principles which
\nemerge from the various decisions of this Court and particularly by
\nConstitution Benches of this Court are:\n<\/p>\n
(i) Trade in liquor is against public morality and thus res extra
\ncommercium. No citizen has any Fundamental Right to carry on business in
\nliquor. [See R.M.D. Chambarbaugwala (supra)]. As there does not exist any
\nright to carry on trade, Article 301 shall not apply.\n<\/p>\n
(ii) Right to trade in liquor is a Fundamental Right within the meaning of
\nArticle 19(1)(g) of the Constitution subject, of course, to the reasonable
\nrestrictions in terms of Clause (6) of Article 19, [See Krishna Kumar
\nNarula (supra)]\n<\/p>\n
(iii) Right of the State to deal exclusively in liquor is its own
\nprivilege. It does not matter as to whether such right is restricted while
\nparting with privilege by reason of a statute in terms of Article 19(6) of
\nthe Constitution.\n<\/p>\n
(iv) (a) The equality clause even in the matter of carrying on trade is not
\navailable. The right of the State to part with its privilege being a
\nsuperior right, the inferior right of a citizen to carry on trade shall
\ngive way to State’s superior right,\n<\/p>\n
(b) The State while carrying on any trade or business itself cannot make
\nany discrimination and its acts must be lair and reasonable. [See Nandlal
\nJaiswal (supra)]\n<\/p>\n
(v) The State’s right is absolute when a complete prohibition is imposed
\nand at that stage the State can part with its exclusive privilege in any
\nmanner it likes and it is also entitled to take any measures for having the
\nbest price. [See Har Shankar (supra)].\n<\/p>\n
104. In Khoday Distilleries Ltd. (supra) at pages 608-609, a Constitution
\nBench referred to some of the decisions as referred to hereinbefore and
\nsummed up its findings [para 60(a)(b)(e)(f)(g)]:\n<\/p>\n
“(a) The rights protected by Article 19(1) are not absolute but qualified.
\nThe qualifications are stated in Clauses (2) to (6) of Article 19. The
\nfundamental rights guaranteed in Article 19(1)(a) to (g) are, therefore, to
\nbe read along with the said qualifications. Even the rights guaranteed
\nunder the Constitutions of the other civilized countries are not absolute
\nbut are read subject to the implied limitations on them. Those implied
\nlimitations are made explicit by Clauses (2) to (6) of Article 19 of our
\nConstitution.\n<\/p>\n
(b) The right to practise any profession or to carry on any occupation,
\ntrade or business does not extend to practising a profession or carrying on
\nan occupation, trade or business which is inherently vicious and
\npernicious, and is condemned by all civilised societies. It does not
\nentitle citizens to carry on trade or business in activities which are
\nimmoral and criminal and in articles or goods which arc obnoxious and
\ninjurious to health, safety and, welfare of the general public, i.e., res
\nextra commercium, (outside commerce). There cannot be business in crime.\n<\/p>\n
(e) For the same reason, the State can create a monopoly either in itself
\nor in the agency created by it for the manufacture, possession, sale and
\ndistribution of the liquor as a beverage and also sell the licences to the
\ncitizens for the said purpose by charging tees. This can be done under
\nArticle 19(6) or even otherwise.\n<\/p>\n
(f) For the same reason, again, the State can impose limitations and
\nrestrictions on the trade or business in potable liquor as a beverage which
\nrestrictions are in nature different from those imposed on the trade or
\nbusiness in legitimate activities and goods and articles which are res
\ncommercium. The restrictions and limitations on the trade or business in
\npotable liquor can again be both under Article 19(6) or otherwise. The
\nrestrictions and limitations can extend to the State carrying on the trade
\nor business itself to the exclusion of and elimination of others and\/or to
\npreserving to itself the right to sell licences to do trade or business in
\nthe same, to others.\n<\/p>\n
(g) When the State permits trade or business in the potable liquor with or
\nwithout limitation, the citizen has the right to carry on trade or business
\nsubject to the limitations, if any, and the State cannot make
\ndiscrimination between the citizens who are qualified to carry on the trade
\nor business.”\n<\/p>\n
105. The decisions of this Court including those rendered by the
\nConstitution Benches struck different notes. They at times stand poles
\napart. Inconsistencies and contradictions in the said decisions are galore.
\nSome latter Constitution Bench decisions although took note of the earlier
\nConstitution Bench decisions, but only sought to distinguish the same and
\nnot referred the matter to a larger Bench for consideration of correctness
\nof one view or the other. I may, therefore, proceed on the premise that
\nsome of the principles in Khoday (supra) are correct, although one may have
\nstrong reservations even in this behalf. In Khoday (supra) expressly or by
\nnecessary implication fundamental right to deal in any goods is accepted.
\nOnly exception which was made are those commodities, business of which is
\ninherently noxious and pernicious and is condemned by the civilized
\nsociety. It has sought to lay down the law that there cannot be a business
\nin crime.\n<\/p>\n
106. Dealing in a commodity which is governed by a statute cannot be said
\nto be inherently noxious and pernicious. A society cannot condemn a
\nbusiness nor there exists a presumption in this behalf if such business is
\npermitted to be carried out under statutory enactments made by the
\nlegislature competent therefore. The legislature being the final arbiter as
\nto the morality or otherwise of the civilized society has also to state as
\nto business in which article (s) would be criminal in nature. The society
\nwill have no say in the matter. The society might have a say in the matter
\nwhich could have been considered in a Court of law only under common law
\nright and not when the rights and obligations flow out of statutes
\noperating in the field. Health, safety and welfare of the general public
\nmay again be a matter for the legislature to define and prohibit or
\nregulate by legislative enactments. Regulatory statutes are enacted in
\nconformity with Clause (6) of Article 19 of the Constitution to deal with
\nthose trades also which are inherently noxious and pernicious in nature and
\nfurthermore thereby sufficient measures are to be taken in relation to
\nhealth, safety and welfare of the general public. The courts while
\ninterpreting a statute would not take recourse to such interpretation
\nwhereby a person can be said to have committed a crime although the same is
\nnot a crime in terms of the statutory enactment. Whether dealing in a
\ncommodity by a person constitutes a crime or not can only be subject matter
\nof a statutory enactment.\n<\/p>\n
107. The Excise Acts enacted by the States mandate the licensees to carry
\non their activities in terms of the conditions of licence and the
\nprovisions contained therein. So long as the business activities of the
\nlicensees are within the four-corners of the conditions of the licence and
\nthe provisions of the Licensing Act, they, without any obstruction
\nwhatsoever, are entitled to carry on their trade, business or commerce.
\nThey would be liable to be proceeded against for commission of an offence
\nonly in the event they violate the statutory provisions wherefor the
\nstatute itself provides for imposition of penalty.\n<\/p>\n
108. Thus, when a person has been granted a licence strictly in conformity
\nwith the Excise Act to carry on his business activities in terms of the
\nstatute operating in the field, the same can neither be termed as
\npernicious, obnoxious and injurious to health, safety and welfare of the
\ngeneral public. No public interest can be inferred by any court of law by
\ngoing beyond the statutory provisions. Even monopoly of the State either in
\nitself or in any agency created by it for manufacture, possession, sale and
\ndistribution of liquor can be created only by a statute which must conform
\nto the provisions of Clause (6) of Article 19 of the Constitution, i.e., by
\nmaking a valid law by way of a regulatory legislative enactment.\n<\/p>\n
109. From the analysis of decisions rendered by this Court in Cooverjee B.
\nBharucha , R.M.D. Chambarbaugwala, Har Shankar or Khoday Distilleries , it
\nwill appear that a person cannot claim any right to deal in any obnoxious
\nsubstance on the ground of public morality. The State, therefore, is
\nentitled to completely prohibit any trade or commerce in potable liquor.
\nSuch prohibition, however, has not been imposed. Once a licence is granted
\nto carry on any trade or business can it be said that a person is
\ncommitting a crime in carrying on business in liquor although he strictly
\ncomplies with the terms and conditions of licence and the provisions of the
\nstatute operating in the field? If the answer to the said question is to be
\nrendered in affirmative it will create havoc and lead to anarchy and
\njudicial vagaries. When it is not a crime to carry on such business having
\nregard to the fact that a person has been permitted to do so by the State
\nin compliance with the provisions of the existing laws, indisputably he
\nacquires a right to carry on business. Even in respect to trade in food
\narticles or other essential commodities either complete prohibition or
\nrestrictions are imposed in the matter of carrying on any trade or
\nbusiness, except in terms of a licence granted in that behalf by the
\nauthorities specified in that behalf. The distinction between a trade or
\nbusiness being carried out legally or illegally having regard to the
\nrestrictions imposed by a statute would have, therefore, to be judged by
\nthe fact as to whether such business is being carried out in compliance of
\nthe provisions of the statute(s) operating in the field or not. In other
\nwords, so long it is not made impermissible to carry on such business by
\nreason of a statute, no crime can be said to have been committed in
\nrelation thereto. The doctrine of res extra commercium, thus, would not be
\nattracted, whence a person carries on business under a licence granted in
\nterms of the provisions of the regulatory statutes.\n<\/p>\n
110. No case and in particular the decisions relied upon by the learned
\ncounsel appearing on behalf of the State of Punjab and that of Kerala had
\nevolved a principle that despite paying a large amount of licence tees and
\ndespite fulfillment of terms and conditions of licence and other statutory
\nprovisions, the trade or business carried out by the licensee shall be at
\nan eternal peril, which may at any point of time be determinated or a new
\ntax imposed or they be proceeded against at the whims or caprice of the
\nexecutive wing of the State. In our constitutional scheme such a situation
\nis unthinkable. The country is governed by rule of law and despite
\nexistence of a valid legislation operating in the field, executive whims or
\ncaprice cannot be permitted to have any role to play. Validity of a tax
\nimposed by the State Legislature, thus, must be determined on the
\nconstitutional anvil of the legislative competence and not on any other
\nbasis. The decisions of this Court which had no occasion to consider these
\naspects of the matter can be of no assistance and would not constitute
\nbinding precedents. [See Bhavnagar University v. Palitana Sugar Mill (P)
\nLtd. and Ors.<\/a>\n<\/p>\n
111. The right of the State to carry on trade or business under Article 298
\nof the Constitution would be subject to the same constitutional limitations
\nin the matter of carrying on trade or business in liquor as in other cases.
\nThe distinction being only that the State has a monopoly to do so. Once the
\nState does not exercise the said right and considers it expedient to allow
\nthe citizens to carry on the business or trade, it cannot be said that the
\nlicensees do not derive any right whatsoever. Even when the State exercises
\nsuch right by creating a monopoly in itself it would be subject to the same
\nconstitutional limitations as envisaged, inter alia, under Articles 14 and
\n301 of the Constitution; Articles 14 and 301 of the Constitution protect
\nfrom the maladies of discrimination. Such discrimination may be in between
\npersons and persons, persons and State and State and State.\n<\/p>\n
112. Can a State which exercises its right to create monopoly, prevent
\nanother State to export or import its product? If in between two States
\nsuch discriminations are not possible, a discrimination inter se between
\nlicensees of two States would also not be permissible. Such discrimination
\nwould also not be permissible between a State and a person carrying on
\nsimilar trade or commerce in one State vis–vis a person or State carrying
\non business in another State,<\/p>\n
113. Once the regulations restricting the right to carry on business in
\npotable liquor is attributed to reasonable restrictions and public interest
\nclause, contained in Clause (6) of Article 19 of the Constitution, the
\nfundamental right to carry on trade under Article 19 is conceded. Once such
\na right is conceded, it cannot be said that although a person has a
\nFundamental Right to carry on trade or business for the purpose of Article
\n19(1)(g), subject to imposition of reasonable restrictions by a law made in
\nterms of Clause (6) of Article 19, he does not have such a right in terms
\nof Article 301 of the Constitution or for that matter Article 14 thereof.
\nArticles 303 and 304 of the Constitution also provide for imposition of
\nrestrictions and thus even a freedom guaranteed to a person under Article
\n301 is not an absolute one, but subject to the constitutional limitations
\nprovided therefore. Article 301 confers freedom but not a licence. The
\nprotection from discrimination as envisaged in Khoday Distilleries (supra)
\n[para 60(g)] would not only operate against the State which is the licensor
\nbut having regard to the constitutional goals to be achieved by the
\ncommerce clause contained in Article 301, must be extended to another State
\nwhich seeks to impose restrictions on import.\n<\/p>\n
114. Let me raise a hypothetical question. If some States intend to
\nexercise their right\/ privilege\/ monopoly in the trade in potable liquor –
\ncan such imposition of tax be still justified? Answer thereto must be
\nrendered in the negative. Now the question is with regard to the
\napplicability of Article 301 of the Constitution in the matter of trade,
\ncommerce and intercourse in potable liquor. The preamble to the
\nConstitution speaks of unity and integrity of India in terms whereof India
\nis required to be treated country as a whole. This theory of unity and
\nintegrity of India may have to be found out while considering the economic
\nintegrity of the country vis–vis the economic barriers which may be put
\nby the States. For the purpose of considering the question as regards the
\ninterpretation of Article 301, one has to notice the sources thereof. It is
\nnow beyond any cavil of doubt that except a part of Part XIII of the
\nConstitution the major part of the concept thereof was borrowed from
\nSections 92 and 99 of the Australian Constitution as also Section 297 of
\nthe Government of India Act, 1935.\n<\/p>\n
115. Clause 17 of the draft as introduced before the Drafting Committee by
\nSir. B.N. Rau in October, 1947 is in the following terms:
\n“Subject to the provisions of any Federal Law, trade, commerce and
\nintercourse among the units shall, if between the citizens of the
\nFederation, be free:\n<\/p>\n
Provided that nothing in this section shall prevent any unit from imposing
\non goods imported from other units any tax to which similar goods
\nmanufactured or produced in that unit are subject, so, however, as not to
\ndiscriminate between goods so imported and goods so manufactured or
\nproduced:\n<\/p>\n
Provided further that no preference shall be given by any regulation of
\ntrade, commerce or revenue to one unit over another:
\nProvided also that nothing in this section shall preclude the Federal
\nParliament from imposing by Act restrictions on the freedom of trade,
\ncommerce and intercourse among the units in the interests of public order,
\nmorality or health or in cases of emergency.”\n<\/p>\n
116. The marginal note appended to Sir B.N. Rau’s Clause 17 to the effect
\n“Freedom of trade, commerce and intercourse among the units” is clearly
\nsuggestive of the fact that Section 92 of the Australian Constitution
\nprovided for a comparable provision vis–vis other Constitutions. It is
\nalso beneficial to notice that Sections 92 and 99 of the Australian
\nConstitution confer different rights and the same are independent of each
\nother. Trade, commerce and intercourse as noticed hereinbefore are of wide
\namplitude. The term “commerce” is wider than trade.\n<\/p>\n
117. In United States v. Patterson [55 Fed.Rep. 605 at 639], it is held;
\n“The word “commerce” is undoubtedly, in its usual sense, a larger word than
\n“trade”, in its usual sense. Sometimes “commerce” is used to embrace less
\nthan “trade”, and sometimes “trade” is used to embrace as much as
\n“commerce”.\n<\/p>\n
118. An inhibition by Article 301 has been provided to the effect that the
\nLegislature shall not interfere in the commerce between the State and State
\nas also to the effect that the Legislature of a State shall not give any
\npreference to one State over the other. Article 301 of the Constitution in
\nno uncertain terms provides for a freedom in the matter of trade, commerce
\nand intercourse. Such trade, commerce and intercourse are inter-State as
\nalso intra-State. By reason of Part XIII of the Constitution, the
\nConstitution makers sought to evolve a high policy. On a comparison made
\nbetween Section 297 of the Government of India Act, 1935 with Part XIII of
\nthe Constitution, it will be found that the latter is wider than the
\nformer. The said part of the Constitution is a self-contained part. Several
\nimprovements made in Part XIII of the Constitution as compared to Section
\n297 are worth taking note of. By reason of the said provisions, the entire
\ncountry has been considered to be one economic unit. It now embraces within
\nits fold both ‘commerce and trade’ and not ‘trade’ alone. ‘Commerce’ was
\nprovided for in Entry 27 of List II only under the 1935 Act. Part XIII,
\nhowever, refers to the relevant entries contained in all the Lists of
\nSeventh Schedule to the Constitution. The limitation of power as regards
\nlegislative competence of the State and the Parliament having regard to
\nclause 2 of Article 303 and Sub-clauses (a) and (b) of Clause (1) of
\nArticle 304 is clear pointer of the new dimension given to Article 301 of
\nthe Constitution. Even if a comparison is made between the terminologies
\nused in Article 301 on the one hand and Articles 19 and 298 on the other,
\nit would be evident that whereas in the former ‘trade, commerce and
\nintercourse’ have been used but in the latter only the words ‘trade or
\nbusiness’ have been used. Such trade, commerce and intercourse is in
\nrelation to entire territory of India whether inter-State or infra-State
\nunlike Section 297 of the Government of India Act. Article 301 makes a
\ndeclaration that ‘trade, commerce and intercourse throughout the territory’
\nof India shall be free’, which in turn must mean that it shall be free from
\ncontrol of Executive and. Legislature, I may, however, hasten to add that
\nby reason thereof although a liberty has been granted but such liberty
\ncannot be equated with a licence inasmuch it would be subject to
\nrestrictions. Articles 302 and 303 categorically state that there shall be
\nno discrimination between one State and the other but restrictions inhere
\nin such liberty as would appear from clause 2 of Article 303 of
\nConstitution, if a situation stipulated therein arises for consideration.
\nIn other words, discrimination is at the heart of this Chapter. By reason
\nof the said provision, the State is prohibited from imposing a tax without
\nmaking any discrimination whatsoever so as to impede free flow of inter-
\nState or intrastate trade. The State, however, is entitled to impose
\nreasonable restrictions as also levy tax in public interest. But the same
\nindisputably would be subject to the conditions laid down in Articles 303
\nand 304 of the Constitution,<\/p>\n
119. The precise question which arises for consideration is as to whether a
\ntrade in liquor would come within the purview of trade, commerce and
\nintercourse, within the meaning of Article 301 of the Constitution. In the
\nearlier part of this judgment I have considered the difference between a
\ntrade to which a citizen has an absolute right and a trade where no such
\nabsolute right exists being dangerous or obnoxious; but once such trade is
\npermitted in terms of a regulatory statute, the same cannot be said to be
\nper se illegal. Earlier I have considered the difference between a trade
\nwhich is not prohibited under any law and a trade carrying whereof although
\nis of dangerous or obnoxious subjects but is permitted in law and subject
\nto the regulatory statute. For the purpose of invoking Part XIII of the
\nConstitution, one may safely proceed on the assumption that a citizen of
\nIndia may not have a Fundamental Right in terms of Article 19(1)(g) of the
\nConstitution to carry on a trade or business but there could be little
\ndifficulty in upholding the right to carry on such trade on the ground that
\nthe same has been permitted by the State, although a citizen but for such
\npermission would not have a right to deal in the commodity in question. It
\nmay be noticed that in Article 303 of the Constitution the terminology used
\nis “relating to”. These words are of wide amplitude. These expressions
\nrelate to all entries relating to trade or commerce and not one entry in
\none of the Lists. It, thus, refers to all such entries which are referable
\nto trade and commerce occurring in any of the three lists.\n<\/p>\n
120. Tobacco is one of the goods which would otherwise come within the
\npurview of the doctrine of “Res extra commereium”, if the meaning thereof
\nas judicially defined is held to be good. Dealing in tobacco is regulated
\nby the Tobacco Act, a Parliamentary Act. It is universally acknowledged
\nthat cigarettes cause cancer but having regard to the Tobacco Act and other
\nstatutes it cannot be contended that the State can prohibit business in
\ncigarette without any legislation, i.e., only through executive
\ninstructions. In terms of Article 303 of the Constitution, Tobacco Act
\nwhich is made in terms of Entry 52 of List I of the Seventh Schedule to the
\nConstitution would prohibit the States from making any discriminatory
\nlegislation. It is, therefore, difficult to understand as to how a
\nprohibition can be imposed in respect of liquor in relation whereto also a
\nlegislative power has been conferred upon the State specifically in terms
\nof Entries 8 and 51 in List II of the Seventh Schedule to the Constitution.\n<\/p>\n
121. At this juncture, it is useful to refer to the decision of this Court
\nin Atiabari Tea Company Limited (supra) wherein this Court in no uncertain
\nterms laid emphasis upon the economic unity of the country. In that case
\nbefore the Constitution Bench an argument was advanced to the effect that
\nArticle 301 is circumscribed by Article 303 but the same was not accepted.
\nGajendragadkar, J.\n<\/p>\n
(as he then was) held at pages 843-844 as follows:\n<\/p>\n
“In drafting the relevant Articles of Part XIII the makers of the
\nConstitution were fully conscious that economic unity was absolutely
\nessential for the stability and progress of the federal policy which had
\nbeen adopted by the constitution for the governance of the country.
\nPolitical freedom which had been won, and political unity which had been
\naccomplished by the Constitution, had to be sustained and strengthened by
\nthe bond of economic unity. It was realised that in course of time
\ndifferent political parties believing in different economic theories or
\nideologies may come in power in the several constituent units of the Union,
\nand that may conceivably give rise to local and regional pulls and
\npressures in economic matters. Local or regional fears or apprehensions
\nraised by local or regional problems may persuade the State Legislatures to
\nadopt remedial measures intended solely for the protection of regional
\ninterests without due regard to their effect on the economy of the nation
\nas a, whole. The object of Part XIII was to avoid such a possibility. Free
\nmovement and exchange of goods throughout the territory of India is
\nessential for the economy of the nation and for sustaining and improving
\nliving standards of the country. The provision contained in Article 301
\nguaranteeing the freedom of trade, commerce and intercourse is not a
\ndeclaration of a mere platitude, or the expression of a pious hope of a
\ndeclaratory character; it is not also a mere statement of a directive
\nprinciple of state policy; it embodies and enshrines a principle of
\nparamount importance that the economic unity of the country will provide
\nthe main sustaining force for the stability and progress of the political
\nand cultural unity of the country.”\n<\/p>\n
122. In Automobile Transport (Rajasthan) Ltd. (supra), the validity of the
\ntax impugned therein was upheld only on the ground that it was compensatory
\nin nature. There had been a cleavage of opinion amongst the Hon’ble Judges
\nin the said matter; three Hon’ble Judges holding that such impost was ultra
\nvires and three Hon’ble Judges holding the same to be intra vires. Subba
\nRao, J. upheld the constitutionality of the impost by agreeing with other
\nthree Hon’ble Judges on the ground that the impost was compensatory in
\nnature. The Bench not only accepted the constitutional principles laid down
\nby this Court in Atiabari (supra) but made a clear distinction between the
\nregulatory measures which can be adopted by a State and imposition of a
\ntax. It further, struck a note of caution that a geographical barrier
\ncannot be set up by a State for the purpose of earning revenue or for the
\nbenefit of the people thereof. It was held that Article 301 covers a wide
\narea.\n<\/p>\n
123. Subba Rao, J. elaborated as to what is the nature of a compensatory
\ntax. The learned Judge, further, emphasized the concept of freedom in the
\nfollowing terms at pages 564-565 of the Report-\n<\/p>\n
“(1) Article 301 declares a right of free movement of trade without any
\nobstructions by way of barriers, inter-State, or intra-State or other
\nimpediments operating as such barriers. (2) The said freedom is not
\nimpeded, but, on the other hand, promoted, by regulations creating
\nconditions for the free movement of trade, such as police regulations,
\nprovision for services, maintenance of reads provision for aerodromes,
\nWharfs etc., with or without compensation. (3) Parliament may by law impose
\nrestrictions on such freedom in the public interest; and the said law can
\nbe made by virtue of any entry with respect where of Parliament has power
\nto make a law. (4) The State also, in exercise of its legislative power,
\nmay impose similar restrictions, subject to the two conditions laid down in
\nArticle 304(b) and subject to the proviso mentioned therein. (5) Neither
\nParliament nor the State Legislature can make a law giving preference to
\none State over another or making discrimination between one State and
\nanother, by virtue of any entry in the Lists, infringing the said freedom.
\n(6) This ban is lifted in the case of Parliament for the purpose of dealing
\nwith situations arising out of scarcity of goods in any part of the
\nterritory of India and also in the case of a State under Article 304(b),
\nsubject to the conditions mentioned therein. And (7) The State can impose a
\nnon-discriminatory tax on goods imported from other States or the Union
\nterritory to which similar goods manufactured or produced in that State are
\nsubject.\n<\/p>\n
124. ‘Commerce and intercourse’ include trade in all its manifestations,
\nObstructions or impediments to the free flow of trade would be violative of
\nthe freedom declared by Article 301. Subba Rao, J., in the said case held
\nat page 548 as under:\n<\/p>\n
“The next question is, where is it free? The second, expression “throughout
\nthe territory of India” demarcates the extensive field of operation of the
\nsaid freedom. The said intercourse shall be free throughout the territory
\nof India. The use of the words ‘territory of India” instead of ‘among the
\nseveral States” found in the American Constitution or “among the States”
\nfound in the Australian Constitution, removes all inter-State or intra-
\nState barriers and brings out the idea that for the purpose of the freedom
\ndeclared, the whole country is one unit. Trade cannot be free through-out
\nthe territory of India, if there are barriers in any part of India, be it
\ninter-State or intra-State. So long as there is impediment to that freedom,
\nits nature or extent is irrelevant. The difference will be in degree and
\nnot in quality. The freedom declared under Article 301 may be defined as a
\nright to free movement of persons or things, tangible or intangible,
\ncommercial or non-commercial, unobstructed by barriers inter-State or
\nintra-State or any other impediment operating as such barriers. To State it
\ndifferently all obstructions or impediments whatever shape they may take,
\nto the free flow or movement of trade, or non-commercial intercourse,
\noffend Article 301 of the Constitution except in so far as they are saved
\nby the succeeding provisions,”\n<\/p>\n
125. It is beyond any cavil of doubt that Part XIII of the Constitution
\ncontains a principle of importance as regards economic sovereignty and
\nintegrity of India by doing away the trade barriers as also an attempt by
\nthe State to provide economic protection to the States. Once, it is held
\nthat the limitation upon the legislative power stipulated in Article
\n303(1), 304(a) would apply to trade in liquor, there cannot be any doubt in
\nview of several Constitution Bench decisions of this Court that Article 301
\nwill also apply thereto. [See Kalyani Stores (supra), H. Anraj (supra) and
\nBhailal Bhai (supra)].\n<\/p>\n
126. In A.B. Abdul Kadir and Ors. v. State of Kerala, AIR 1976 SC 182, this
\nCourt when the validity of a luxury tax (in the nature of excise duty) on
\ntobacco was challenged as violative of Article 304(b), proceeded on the
\nbasis that the business was protected by Article 301 but rejected the plea,
\non the merits, holding that: the restrictions imposed were reasonable and
\nin the public interest.\n<\/p>\n
127. In Anraj’s case (supra) this Court considered Entry 34 of List II in
\nterms whereof the State Legislature has been conferred power to enact
\nStatutes on gambling. In Maruthi Agencies, Bangalore rep. by its Proprietor
\nv. The State of Tamil Nadu and Ors., 1997(1) MLJ 589, it was held that in
\nthe event lotteries are organized by a State, sale of tickets thereof
\ncannot be prohibited in other States on the ground that it is gambling and
\nprohibited by List II. If trade in liquor like gambling or betting were not
\nto be regulated by statutes it is difficult to comprehend as to why entries
\nin respect thereof have been made in the Seventh Schedule to the
\nConstitution.\n<\/p>\n
128. The American decisions relied upon before this Court may not be held
\nto have any application having regard to the fact that trade in liquor in
\nthe United States of America was completely prohibited at one point of time
\nbut the same was modified by reason of Constitution Twenty-first Amendment.
\nLet me now take the case of 21st Amendment in US Constitution. In the
\nConstitution of the United States, an express provision guaranteeing
\nfreedom from inter-State trade and commerce does not exist. There only the
\nCongress is empowered to regulate commerce. In the States freedom on trade
\nand commerce clause only provides for a limitation upon the power of the
\nState Legislature but not Congress and the freedom is confined to the
\ninter-State aspect.\n<\/p>\n
129. In Southern Pacific Co. v. State of Arizona (1945) 325 US 761, it is
\nstated:\n<\/p>\n
“For a hundred years it has been accepted constitutional doctrine that the
\ncommerce clause, without the aid of congressional legislation, thus affords
\nsome protection from state legislation inimical to the national commerce,
\nand that in such cases, where Congress has not acted, this Court, and not
\nthe State legislature, is under the commerce clause the final arbiter of
\nthe competing demands of state and national interests”.
\nIt is further stated:\n<\/p>\n
“The Commerce Clause is a grant of authority to Congress, and not a
\nrestriction on the authority of that body.”\n<\/p>\n
130. In the United States, the inter-State restraint trade as such is
\nprohibited but a State is not denuded of its power imposing general taxes
\nunder its taxing power. The state has also the power to regulate such
\naspects of commerce which do not require a new form of national control,
\n(See BobLo Excursion Company v. People of the State of Michigan, (1948) 333
\nUS 28). Furthermore, in United States a complete prohibition was imposed.
\nThe said prohibition was sought to be relaxed by 21st Amendment which is in
\nthe following terms:\n<\/p>\n
“Section 1. The eighteenth article of amendment to the Constitution of the
\nUnited States is hereby repealed.\n<\/p>\n
Section 2. The transportation or importation into any State, Territory, or
\npossession of the United States for delivery or use therein of intoxicating
\nliquors, in violation of the laws thereof, is hereby prohibited.
\nSection 3. This article shall be inoperative unless it shall have been
\nratified as an amendment to the Constitution by conventions in the several
\nStates, as provided in the Constitution, within seven years from the date
\nof the submission hereof to the States by the Congress.”\n<\/p>\n
131. In the United States of America, the State has the requisite power to
\nimpose general taxes. Despite the same, an exemption granted in favour of
\nlocal manufacturers vis–vis the exporters was frowned upon by the
\nAmerican Courts.\n<\/p>\n
132. In Bacchus Imports, Ltd. v. Herbert H. Dias (82 L.Ed. 2d 200), the
\nchallenge was to the following effect:\n<\/p>\n
“1a. Appellants challenge the constitutionality of the Hawaii liquor tax,
\nwhich is a 20% excise tax imposed on sales of liquor at wholesale.
\nSpecifically at issue are exemptions from the tax for certain locally
\nproduced alcoholic beverages. The Supreme Court of Hawaii upheld the tax
\nagainst challenges based upon the Equal Protection Clause, the Import-
\nExport Clause, and the Commerce Clause. In re Bacchus Imports, Ltd., 65 Haw
\n566, 656 P2d 724 (1982). We noted probable jurisdiction, 462 US 1130, 77
\nL.Ed 2d 1365, 103 S Ct 3109 (1983), and now-reverse.”\n<\/p>\n
133. White, J, speaking for the majority stated the law thus:
\n“3. A cardinal rule of Commerce Clause jurisprudence is that “no State,
\nconsistent with the Commerce Clause, may ‘impose a tax which discriminates
\nagainst interstate commerce…by providing a direct commercial advantage to
\nlocal business.'” Boston Stock Exchange v State Tax Comm’n, 429 US 318,
\n329, 50 L Ed 2d 514, 97 S Ct 599 (1977)(quoting Northwestern States
\nPortland Cement Co. v Minnesota, 358 US 450, 458, 3 L Ed 2d 421, 79 S ct
\n357, 67 ALR2d 1292 (1959)), Despite the fact that the tax exemption here at
\nissue seems clearly to discriminate on its face against interstate commerce
\nby bestowing a commercial advantage on okolehao and pineapple wine, the
\nState argues – and the Hawaii Supreme Court held – that there is no
\nimproper discrimination.”\n<\/p>\n
134. The Court noticed:\n<\/p>\n
“(4a, 5) Much of the State’s argument centers on its contention that
\nokolehao and pineapple wine do not compete with the other products sold by
\nthe wholesalers. The State relies in part on statistics showing that for
\nthe years in question sales of okolehao and pineapple wine constituted well
\nunder one percent of the total liquor sales in Hawaii. It also relies on
\nthe statement by the Hawaii Supreme Court that “we believe we can safely
\nassume these products pose no competitive threat to other liquors produced
\nelsewhere and consumed in Hawaii,” In re Bacchus Imports, Ltd., 65 Haw, at
\n582, n 21, 656 P2d, at 735, n 21, as well as the court’s comment that it
\nhad “good reason to believe neither okolehao nor pineapple wine is produced
\nelsewhere.” Id., at 582, n 20, 656 P 2d, at 735, n 20. However, neither the
\nsmall volume of sales of exempted liquor nor the fact that the exempted
\nliquors do not constitute a present “competitive threat” to other liquors
\nis dispositive of the question whether competition exists between the
\nlocally produced beverages and foreign beverages; instead, they go only to
\nthe extent of such competition. It is well settled that “we need not know
\nhow unequal the Tax is before concluding that it unconstitutionally
\ndiscriminates.” Marryland v. Louisiana, 451 US 725, 760, 68 L Ed 2d 576,
\n101 S Ct 2114 (1981).\n<\/p>\n
The State’s position that there is no competition is belied by its
\npurported justification of the exemption in the first place. The
\nlegislature originally exempted the locally produced beverages in order to
\nfoster the local industries by encouraging increased consumption of their
\nproduct. Surely one way that the tax exemption might produce that result is
\nthat drinkers of other alcoholic beverages might give up or consume less of
\ntheir customary drinks in favor of the exempted products because of the
\nprice differential that the exemption will permit. Similarly, nondrinkers,
\nsuch as the maturing young, might be attracted by the low prices of
\nokolehao and pineapple wine. On the stipulated facts in this case, we are
\nunwilling to conclude that no competition exists between the exempted and
\nthe nonexempted liquors.”\n<\/p>\n
135. As regards the State’s right on economic protectionism it was said:
\n“A finding that state legislation constitutes “economic protectionism” may
\nbe made on the basis of either discriminatory purpose, see Hunt v
\nWashington Apple Advertising Comm’n, 432 US 333, 352-353, 53 L Ed 2d 383,
\n97 S Ct 2434 (1977), or discriminatory effect see Philadelphia v New
\nJersey, supra. See also Minnesota v Clover Leaf Creamery Co., supra, at
\n471, n 15, 66 L Ed 2d 659, 101 S Ct 715. Examination of the State’s purpose
\nin this case is sufficient to demonstrate the State’s lack of entitlement
\nto a more flexible approach permitting inquiry into the balance between
\nlocal benefits and the burden on interstate commerce. See Pike v Bruce
\nChurch. Inc., 397 US 137, 142, 25 L Ed 2d 174, 90 S Ct 844 (1970). The
\nHawaii Supreme Court described the legislature’s motivation in enacting the
\nexemptions as follows:\n<\/p>\n
“The legislature’s reason for exempting “ti root okolehao’ from the
\n‘alcohol tax’ was to ‘encourage and promote the establishment of a new
\nindustry,’ S.L.H. 1960, c 26; Sen Stand Comm Rep No. 87, in 1960 Senate
\nJournal, at 224, and the exemption of ‘fruit wine manufactured in the State
\nfrom products grown in the State’ was intended ‘to help’ in stimulating
\n‘the local fruit wine industry’. S.L.H. 1976, c 39; Sen Stand Comm Rep No.
\n40S-76, in 1976 Senate Journal, at 1056.” In re Bacchus Imports, Ltd. supra
\nat 573-574, 656 P2d, at 730.\n<\/p>\n
Thus, we need not guess at the legislature’s motivation, for it is
\nundisputed that the purpose of the exemption was to aid Hawaiian industry.
\nLikewise, the effect of the exemption is clearly discriminatory, in that it
\napplies only to locally produced beverages, even though it does not apply
\nto all such products. Consequently, as long as there is some competition
\nbetween the locally produced exempt products and non-exempt products from
\noutside the State, there is a discriminatory effect,”\n<\/p>\n
136. The Learned Judge proceeded to observe:\n<\/p>\n
“No one disputes that a State may enact laws pursuant to its police powers
\nthat have the purpose and effect of encouraging domestic industry. However,
\nthe Commerce Clause stands as a limitation on the means by which a State
\ncan constitutionally seek to achieve that goal. One of the fundamental
\npurposes of the Clause “was to insure …against discriminating State
\nlegislation.” Welton v Missouri, 91 US 275, 280, 23 L Ed 347 (1876). In
\nWelton, the Court struck down a Missouri statute that “discriminated in
\nfavor of goods, wares, and merchandise which are the growth, product, or
\nmanufacture of the State, and against those which are the growth, product
\nor manufacture of other states or countries…” Id., at 277, 23 L Ed 347.
\nSimilarly, in Walling v Michigan, 116 US 446, 455, 29 L Ed 691, 6 S Ct 454
\n(1886), the Court struck down a law imposing a tax on the sale of alcoholic
\nbeverages produced outside the State, declaring:\n<\/p>\n
“A discriminating tax imposed by a State operating to the disadvantage of
\nthe products of other States when introduced into the first mentioned
\nState, is, in effect, a regulation in restraint of commerce among the
\nStates, and as such is a usurpation of the power conferred by the
\nConstitution upon the Congress of the United States.”
\nSee also I.M. Darnell & Son Co. v Memphis, 208 US 113, 52 L Ed 413, 28 S Ct
\n247 (1908).”\n<\/p>\n
137. It was held:\n<\/p>\n
“We also find unpersuasive the State’s contention that there was no
\ndiscriminatory intent on the part of the legislature because “the
\nexemptions in question were not enacted to discriminate against foreign
\nproducts, but rather, to promote a local industry.” Brief for Appellee Dias\n<\/p>\n
40. If we were to accept that justification, we would have little occasion
\never to find a statute unconstitutionally discriminatory. Virtually every
\ndiscriminatory statute allocates benefits or burdens unequally; each can be
\nviewed as conferring a benefit on one party and a detriment on the other,
\nin either an absolute or relative sense. The determination of
\nconstitutionality does not depend upon whether one focuses upon the
\nbenefited or the burdened party. A discrimination claim, by its nature,
\nrequires a comparison of the two classifications, and it could always be
\nsaid that there Was no intent to impose a burden on one party, but rather
\nthe intent was to confer a benefit on the other. Consequently, it is
\nirrelevant to the Commerce Clause inquiry that the motivation of the
\nlegislature was the desire to aid the makers of the locally produced
\nbeverage rather than to harm out-of-state producers.”\n<\/p>\n
138. The learned Judge explained the application of 21st Amendment by
\nposing the question:\n<\/p>\n
“Whether the interests implicated by a state regulation are so closely
\nrelated to the powers reserved by the Twenty-first Amendment that the
\nregulation may prevail, notwithstanding that its requirements directly
\nconflict with express federal policies.”\n<\/p>\n
and answered the same :\n<\/p>\n
“Approaching the case in this light, we are convinced that Hawaii’s
\ndiscriminatory tax cannot stand. Doubts about the scope of the Amendment’s
\nauthorization notwithstanding, one thing is certain: The central purpose of
\nthe provision was not to empower States to favor local liquor industries by
\nerecting barriers to competition. It is also beyond doubt that the Commerce
\nClause itself furthers strong federal interests in preventing economic
\nBalkanization. South-Central Timber, Development, Inc. v Wunnicke, 467 US
\n82, 81 L Ed 2d 71. 104 S Ct 2237 (1934); Hughes v Oklahoma, 441 US 322, 60
\nL Ed 2d 250, 99 S Ct 1727 (1979); Baldwin v G.A.F. Seelig, Inc., 294 US
\n511, 79 L Ed 1032, 55 S Ct 497, 101 ALR 55 (1935). State laws that
\nconstitute mere economic protectionism are therefore not entitled to the
\nsame deference as laws enacted to combat the perceived evils of an
\nunrestricted traffic in liquor. Here, the State does not seek to justify
\nits tax on the ground that it was designed to promote temperance or to
\ncarry out any other purpose of the Twenty-first Amendment, but instead
\nacknowledges that the purpose was “to promote a local industry.” Brief for
\nAppellee Dias 40. Consequently, because the tax violates a central tenet of
\nthe Commerce Clause but is not supported by any clear concern of the
\nTwenty-first Amendment, we reject the State’s belated claim based on the
\nAmendment.”\n<\/p>\n
139. The minority opinion, however, proceeded on the basis that by reason
\nof Twenty-first Amendment, the State has the power to create a monopoly.
\nSuch constitutional permissibility is absent from our constitutional
\nscheme.\n<\/p>\n
140. It may be noticed that the same principles as in Atiabari (supra) or
\nAutomobile (supra) have been applied by the Privy Council and the
\nAustralian Courts while interpreting Section 92 of the Australian
\nConstitution to hold that even for any purpose for which the State has
\nacted the legislation would not be relevant criteria for declaring it ultra
\nvires if it is found that the same interferes with the right of trade. (See
\nJames v. Commonwealth of Australia (1936) A.C.578, North Eastern Dairy Co.
\nLtd. v. Dairy Industry Authority of New South Wales (1974-1975) 134 C.L.R.
\n559 at 581, The Commonwealth and Ors. v. Bank of New South Wales and Ors.
\n(1949) 79 C.L.R. 497).\n<\/p>\n
141. Mason, J. in Pilkington v. Frank Hammond Pty. Ltd. (1974) 131 C.L.R.
\n124 interpreted Section 92 of the Australian Constitution in the following
\nterms:\n<\/p>\n
“The section does not in terms speak of the private right of the individual
\nto engage in trade, commerce, and intercourse among the States; it refers
\nto trade, commerce and intercourse among the States as an entire and total
\nconcept and provides that it is to be ‘absolutely free’ in the sense in
\nwhich this expression has been discussed in the decided cases. In saying so
\nmuch the section protects the right of the individual to engage in inter-
\nState trade, commerce and intercourse but it needs to be recognized that
\nthis protection is incidental to, and in a sense consequential upon, the
\nprotection which is given to the entire concept of inter-State trade,
\ncommerce and intercourse., including the various acts and transactions by
\nwhich it is constituted.”\n<\/p>\n
142. Reference in this connection may also be made to North Eastern Dairy
\nCo. Ltd. v. Dairy Industry Authority of New South Wales (1974-1975) 134
\nC.L.R. 559, at 615).\n<\/p>\n
In India, the constitutional guarantee under Article 301 of the
\nConstitution is more extensive than either in United States or Australia.
\nThe decisions of United States Supreme Court and Australian Supreme Court
\nas also the Privy Council, as referred to hereinbefore, clearly demonstrate
\nthat in these countries, although States have more constitutional freedom
\nbut despite the same Commerce Clause received ample protection at the hands
\nof the Judiciary.\n<\/p>\n
143. Subba Rao, J. in Automobile case (supra) observed:
\n“The freedom declared under Article 301 may be defined as a right to free
\nmovement of persons or things, tangible or intangible, commercial or
\nnoncommercial, unobstructed by barriers, inter-State or infra-State or any
\nother impediment operating as such barriers. To state it differently, all
\nobstructions or impediments, whatever shape they may take, to the free flow
\nor movement of trade, or non-commercial intercourse, offend Article 301 of
\nthe Constitution except in so far as they are saved by the succeeding
\nprovisions.”\n<\/p>\n
144. The public character theory although is an important, but has a
\nlimitation on the individual right which is guaranteed; having regard to
\nthe fact that legislative restriction ultimately permits the individual
\nState to go ahead, only subject to the reasonable restriction. The rule
\nagainst enacting protectionist measures has also been noticed by the High
\nCourt of Australia in Cole v. Whitfield and Anr. (1987-1988) 165 CLR 360,
\nsettling a long debate.\n<\/p>\n
145. In Shree Mahavir Oil Mills and Anr. v. State of J & K and Ors., this
\nCourt while rejecting an argument of justification of exemption from sales
\ntax of small scale industrial units within the State of J & K on the ground
\nthat the commodity produced within the State and that produced in other
\nStates and sold in J & K, constitute different classes, has held as under:-
\n“The States are certainly free to exercise the power to levy taxes on goods
\nimported from other States\/Union Territories but this freedom, or power,
\nshall not be so exercised as to bring about a discrimination between the
\nimported goods and the similar goods manufactured or produced in that
\nState. The clause deals only with discrimination by means of taxation; it
\nprohibits it. The prohibition cannot be extended beyond the power of
\ntaxation. It means in immediate context that States are free to encourage
\nand promote the establishment and growth of industries within their States
\nby all such means as they think proper but they cannot, in that process,
\nsubject the goods imported from other States to a discriminatory rate of
\ntaxation, i.e., a higher rate of sales tax vis-a-vis similar goods
\nmanufactured\/produced within that State and sold within that State.
\nProhibition is against discriminatory taxation by the States. It matters
\nnot how this discrimination is brought about…………. We find it
\ndifficult to appreciate how can the concept of classification be read into
\nClause (a) of Article 304 to undo the precise object and purpose underlying
\nthe clause. Shri Verma repeatedly stressed that the object underlying the
\nimpugned measure is a laudable one and that it seeks to serve and promote
\nthe interest of the State of Jammu and Kashmir which is economically and
\nindustrially an undeveloped State, besides being a disturbed State. We may
\nagree on this score but then the measures necessary in that behalf have to
\nbe taken by the appropriate authority and in the appropriate manner. Part
\nXIII of the Constitution itself contains adequate provisions to remedy such
\na situation and there is no reason why the necessary measures cannot be
\ntoken to protect the edible oil industry in the State in accordance with
\nthe provisions of the said Part.”\n<\/p>\n
146. It is thus evident that any manner of extension of protection to trade
\nor business within the frontiers of State, at the cost of free inter-State
\ntrade or commerce will not stand the test of Article 301. The scheme of
\ncompensatory taxes, operate in an entirely different sphere. They cannot be
\nconfused with measures which are both in form and substance protectionist
\nimpositions.\n<\/p>\n
147. In Brown v. Maryland (1827) 12 Wheat 419, the US Supreme Court in the
\ncontext of the competence of the States to enact and impose a duty on
\nimports or exports has held that the power to regulate inter state commerce
\nin non-discriminatory fashion and “to break down or to eliminate barriers
\nto trade amongst the States” is an essential federal power. It has,
\ntherefore, been said that in the absence of such a power “local interest
\nexerting powerful influences in State Legislatures would, in the long run
\nprefer home industries over those that are out of state, establish tariff
\nbarriers, or employ other means tending to Balkanize the nation into
\nhostile trade areas,” [See also William O, Doughlas J; From Marshall to
\nMukherjea: Tagore Law Lectures 1956 P. 169].\n<\/p>\n
148. In James v. Commonwealth of Australia 1936 AC 578, referring to
\nMcArthur’s case 28 CLR 530 it was held:\n<\/p>\n
“It is now convenient to examine the actual language of the Constitution so
\nfar as relevant, in order to ascertain its true construction. The first
\nquestion is what is meant by “absolutely free” in s. 92, It may be that the
\nword “absolutely” adds nothing. The trade is either free or it is not free.
\n“Absolutely” may perhaps be regarded as merely inserted to add emphasis.
\nThe expression “absolutely free” is generally described as popular or
\nrhetorical. On the other hand, ‘absolutely’ may have been added with the
\nobject of excluding the risk of partial or veiled infringements. In any
\ncase, the use of the language involves the fallacy that a word completely
\ngeneral and undefined is most effective. A good draftsman would realize
\nthat the mere generality of the word must compel limitation in its
\ninterpretation. “Free” in itself is vague and indeterminate. It must take
\nits colour from the context. Compare, for instance, its use in free speech,
\nfree love, free dinner and free trade. Free speech does not mean free
\nspeech; it means speech hedged in by all the laws against defamation,
\nblasphemy, sedition and so forth; it means freedom governed by law, as was
\npointed out in McArthur’s case, Free love, on the contrary, means licence
\nor libertinage, though, even so, there are limitations based on public
\ndecency and so forth. Free dinner generally means free of expense, and
\nsometimes a meal open to any one who comes, subject however, to his
\ncondition or behavior not being objectionable. Free trade means, in
\nordinary parlance, freedom from tariffs.\n<\/p>\n
“Free” in Section 92 cannot be limited to freedom in the last mentioned
\nsense. There may at first sight appear to be some plausibility in that
\nidea, because of the starting-point in time specified in the section,
\nbecause of the sections which surround Section 92, and because the proviso
\nto Section 92 relates to customs duties. But it is clear that much more is
\nincluded in the term; customs duties and other like matters constitute a
\nmerely pecuniary burden; there may be different and perhaps more drastic
\nways of interfering with freedom, as by restriction or partial or complete
\nprohibition of passing into or out of the State.\n<\/p>\n
Nor does “free” necessarily connote absence of discrimination between
\ninter-State and intra-State trade. No doubt conditions restrictive of
\nfreedom of trade among the States will frequently involve a discrimination;
\nbut that is not essential or decisive. An Act may contravene Section 92
\nthough it operates in restriction both of intra-State and of inter-State
\ntrade.”\n<\/p>\n
149. However, in India Part XIII of the Constitution relates both to inter-
\nState trade and commerce as also intra-State trade.\n<\/p>\n
150. In Fox v. Robbins [8 CLR 115], It was held:\n<\/p>\n
“Section 92 of the Constitution does not reframe State Acts by making new
\naffirmative legislation not contemplated by the State Parliament. It
\nprevents adverse discrimination from being lawful; so far as the Act can be
\neffectively worked in conformity with the constitutional requirement it
\nstill stands; so far as it cannot it simply ceases to operate.”\n<\/p>\n
151. Once it is held that the principle of res-extra commercium is not
\napplicable, the decisions in Kalyani Stores (supra), H. Anraj (supra) and
\nBheilal Bhai (supra) having been rendered by a Constitution Bench would
\nconstitute binding precedents Once it is held that the Legislature has no
\npower to levy any excise duty on imported liquor in excess of the
\ncountervailing duty within the State, having regard to the constitutional
\nlimitation imposed in terms of Entry 51, List II of Seventh Schedule to the
\nConstitution, such discriminatory levy must be held to be violative of
\nArticle 303(1) and 304(a) of the Constitution. As import fee is an impost
\nthus, levy thereof in addition to countervailing duty would clearly attract
\nthe wrath of Article 304(a) of the Constitution. It has not been and could
\nnot have been contended that the tax is compensatory in nature as was the
\ncase in Automobile (supra). I am, therefore, of the opinion that the
\nimpugned impost cannot be upheld.\n<\/p>\n
152. Before parting, however, I may notice the submission made by Mr. Iyer
\non behalf of the State of Kerala that the licensees, having obtained a
\nprivilege and enjoyed the benefit out of it, cannot, turn round
\nsubsequently and repudiate the obligations subject to which they obtained
\nthe privilege. The submission of Mr. Iyer is wholly mis-conceived for more
\nthan one reason. The manufacturers of liquor outside the State of Kerala
\ndid not obtain any privilege from the State. The decisions relied upon by
\nthe learned counsel, namely, Har Shankar (supra), Jage Ram (supra), Lal
\nChand (supra), Dial Chand Gian Chand and Company (supra), thus, cannot be
\nsaid to have any application in the instant case. The decisions in these
\ncases were rendered in the fact situation obtaining therein. The licensees
\ntherein questioned the power of the State to hold auction by the State
\nand\/or they refused to comply with the terms and conditions of licence. In
\ntact in Harshankar (supra) the Court on the factual matrix obtaining
\ntherein clearly came to the conclusion that the writ petition was not
\nmaintainable as thereby the licensees sought avoidance from compliance of
\ncontractual terms and licensing conditions and, thus, they were not
\nentitled to any relief. The writ petitioners before the High Court had not
\nquestioned any of the terms and conditions of the licence. In Kerala case
\nthey are not even licensees at all. They are manufacturers of potable
\nliquor, licences wherefor had been granted by other States. The State of
\nKerala has not parted any privilege in their favour. Even otherwise when
\nthe legislative competence of a State is in question, the same goes to the
\nroot of the jurisdiction. Once it is found that the State Legislature has
\nexceeded its jurisdiction in imposing the impugned levy, the same being a
\nfraud on the Constitution cannot be sustained on the procedural doctrine of
\nestoppel or waiver.\n<\/p>\n
153. For the reasons aforementioned. Civil Appeal No. 3017 of 1997 is
\ndismissed and impugned judgment rendered by the Punjab and Haryana High
\nCourt quashing the Notification impugned before it is upheld. On 23.7.1998
\nwhen prayer for grant of interim relief was being considered, a prayer was
\nmade by Shri Harish N. Salve, learned Senior Counsel, appearing on behalf
\nof the State of Punjab, to the effect that operation of impugned judgment
\nrendered by the High Court may be stayed as the State was ready to
\nundertake before this Court to refund the amount that would be realized by
\nway of import duty together with interest thereon @ 15% per annum to the
\nrespondents in the event of dismissal of State’s appeal by this Court and
\nthe said prayer having been acceded to, this Court stayed the operation of
\nthe judgment rendered by the High Court upon the aforesaid undertaking. In
\nview of this, the State of Punjab is hereby directed to refund the amount
\nthat has been realized by it by way of import duty to the respondents
\ntogether with interest thereon @ 15% per annum from the date of its
\nrealization till payment, which must be made within a period of three
\nmonths.\n<\/p>\n
154. Civil Appeal Nos. 2696-2697 are allowed and the Notification impugned
\nbefore the Kerala High Court is quashed.\n<\/p>\n
155. There shall be no order as to costs.\n<\/p>\n
___________________________________________________________________________<\/p>\n
S.B. Sinha, J.\n<\/p>\n
THE REFERENCE:\n<\/p>\n
156. A three-Judge Bench of this Court has made a reference to the
\nConstitution Bench for deciding as to whether, having regard to the
\ndecisions of the Constitution Benches of this Court in State of Bombay v.
\nR.M.D. Chamarbaugwala<\/a> [(1957) SCR 874], Har Shankar and Ors. etc. etc. v.
\nDeputy Excise and Taxation Commissioner and Ors. and Khoday Distilleries
\nLtd and Ors. v. State of Karnataka and Ors., the<\/a> principles laid down in
\nKalyani Stores v. State of Orissa and Ors.<\/a> [(1966) 1 SCR 365], wherein
\nArticle 301 of the Constitution of India has been held to be applicable to
\ntrade in liquor, is correct.\n<\/p>\n
PROPOSITIONS OF LAW:\n<\/p>\n
157. The following, questions inter alia are required to be answered for
\ndeductions of the propositions of law involved in the matter:\n<\/p>\n
1. Whether the constitutional validity of a statute can be determined on
\nthe basis of the interpretation given to the maxim ‘res extra commercium’?\n<\/p>\n
2. Whether the freedom to carry on trade or business as envisaged under
\nArticle 301 of the Constitution of India can be held to be inapplicable to
\nthe trade of liquor which is permitted by the State itself?\n<\/p>\n
3. If Article 14 of the Constitution of India is applicable in the matter
\nof grant of contract by the State, in exercise of its power under Article
\n298 of the Constitution, can it be said that another constitutional
\nprovision, namely, Article 301 would not be applicable?\n<\/p>\n
4. Whether in interpreting a constitutional provision, the Court should
\ntake into consideration international treaties and covenants covering the
\nsubject-matter and having regard to the social milieu?\n<\/p>\n
5. Whether Kalyani Stores (supra), having been rendered by a Constitution
\nBench, is it permissible for another coordinate bench to ignore the said
\ndecision relying on or on the basis of subsequent decisions which either
\nhad not discussed the said decision nor overruled the same?\n<\/p>\n
158. The Punjab and Haryana High Court applied Kalyani Stores (supra) for
\nstriking down the provisions contained in Sections 16 and 31 of the Punjab
\nAct, 1932. The Kerala High Court, however, dismissed the writ petition
\nupholding the validity of Section 17 of the Kerala Abkari Act, 1902 on the
\nsole ground that by reason of the notification impugned in the writ
\npetition a regulatory fee was imposed. The Kerala High Court, therefore,
\nhad no occasion to deal with the questions involved herein.
\nLEGISLATIVE COMPETENCE:\n<\/p>\n
159. The Acts are pre-constitutional ones but the impugned amendments
\nthereto and\/or notifications issued thereunder are post-constitutional.
\nSuch legislative power of the State admittedly must be traceable to any of
\nthe three Entries, viz., 8, 51 and 66 of List II of the Seventh Schedule of
\nthe Constitution of India, which read as under :\n<\/p>\n
“8. Intoxicating liquors, that is to say, the production, manufacture,
\npossession, transport, purchase and sale of intoxicating liquors.\n<\/p>\n
51. Duties of excise on the following goods manufactured or produced in the
\nState and countervailing duties at the same or lower rates on similar goods
\nmanufactured or produced elsewhere in India :-\n<\/p>\n
(a) alcoholic liquors for human consumption;\n<\/p>\n
(b) opium, Indian hemp and other, narcotic drugs and narcotics; but not
\nincluding medicinal and toilet preparations containing alcohol or any
\nsubstance included in sub-paragraph (b) of this entry.;\n<\/p>\n
66. Fees in respect of any of the matters in this List, but not including
\nfees taken in any court.”\n<\/p>\n
160. Laws relating to imposition of duty of excise is within the
\nlegislative competence of the Parliament in terms of Entry 84, List I of
\nthe Seventh Schedule of the Constitution of India. One of the exceptions to
\nthe said field is imposition of duty on alcoholic liquor for human
\nconsumption, which is exclusively within the legislative competence of the
\nState. The States of Punjab and Kerala exercised its constitutional power
\nin enacting the said Act, the sources whereof are referable to Entry 8 or
\n51 of List II of the Seventh Schedule of the Constitution of India. The
\nvalidity of the impugned provisions of the said Acts, therefore, revolves
\nround the question as to whether the same fulfil constitutional
\nrequirements.\n<\/p>\n
161. Entry 8 of List II does not envisage any control over import. Entry 51
\nof List II empowers the State to levy countervailing duty at the same or
\nlower rates of excise duty levied on similar goods produced in that State.\n<\/p>\n
162. Entry 8 of List II of the Seventh Schedule of the Constitution of
\nIndia uses the expression ‘that is to say’ which is descriptive,
\nenumerative and exhaustive and circumscribes to a great extent the scope of
\nthe said entry [See Commissioner of Sales Tax, M.P. v. Popular Trading
\nCompany, Ujjain.<\/a>\n<\/p>\n
163. In Indian Aluminium Company Ltd. etc. v. Assistant Commissioner of
\nCommercial Taxes (Appeals) and Anr. etc. [(2001) 2 SCC 201] the expression
\n‘that is to say’ both in original Entry 11 and in the new Entry 67 has been
\nheld to have clearly indicated that the items mentioned therein were
\nexhaustive.\n<\/p>\n
164. It is, therefore, evident that import of liquor in terms of the
\nlicences granted under the provisions of a statute cannot be the subject-
\nmatter of regulation within the purview of Entry 8 of List II of the
\nSeventh Schedule of the Constitution of India.\n<\/p>\n
165. Furthermore, on a plain reading of Entry 51 no duty can be imposed on
\nimport of liquor over and above the countervailing duty. Ex-facie,
\ntherefore, the imposition of import duty on liquor is unconstitutional.\n<\/p>\n
166. For determining the legislative competence reference to Directive
\nPrinciples contained in Part IV of the Constitution of India may be proper
\n(as was done in Welfare Association ARP Maharashtra and Ors. v. Ranjit P.
\nGohil and Ors.<\/a> reported in 2003 (2) SCALE 288) but not when the
\nconstitutionality of a taxing statute is in question.\n<\/p>\n
RIGHT OF STATE TO CARRY ON BUSINESS:\n<\/p>\n
167. The right of a State to carry on business of liquor as being a part of
\nits exclusive privilege must be traced to Article 298 of the Constitution
\nof India. [See Kapila Hingorani v. State of Bihar<\/a>].\n<\/p>\n
168. While granting largess or licence in such trade, the State must
\nexercise its functions under Article 298 within the parameters of the
\nconstitutional scheme, which would include imposition of such regulation
\nand would not be violative of Article 301 of the Constitution of India.\n<\/p>\n
RES EXTRA COMMERCIUM:\n<\/p>\n
169. In R.M.D. Chamarbaugwala (supra), Har Shankar (supra) and Khoday
\nDistilleries Ltd. (supra), this Court relying on or on the basis of a maxim
\n‘res extra commercium’ observed that trade in liquor is not a fundamental
\nright within the meaning of Article 19(1)(g) of the Constitution of India.\n<\/p>\n
170. The Constitution Bench of this Court in those decisions had neither
\nreferred to nor discussed the dictionary or legal meaning of ‘res extra
\ncommercium’ which means those things which had been dedicated to the
\npublic, such as public roads, rivers, title of owners etc. The question,
\ntherefore, is whether the said maxim can be applied in relation to a trade
\nthe field whereof is covered by legislative enactments? Answer to the said
\nquestion, as would appear from the discussions made hereinafter must be
\nrendered in the negative.\n<\/p>\n
171. As a sovereign prior to coming into force of the Constitution of
\nIndia, the State may have exclusive privilege to do business in liquor but
\nall post-constitutional statutes and actions taken thereunder must relate
\nto a source of power under the Constitution of India. Even if there is no
\nexpress provision in the Constitution, principles of constitutionalism
\nexist providing that, for the said purpose, the relevant statutes should
\nalso be looked into. A statute is enacted by the State Legislature or the
\nParliament having regard to one or the other entry made in the three lists
\ncontained in the Seventh Schedule of the Constitution. The Punjab Excise
\nAct and the Kerala Abkari Act although pre-constitutional Acts, the
\nsubsequent amendments which are impugned in these matters must, thus, be
\nreferable either to Entry 8 or Entry 51 of List II of the Seventh Schedule
\nof the Constitution of India. When a statute governs the trade in a
\nparticular commodity, the provisions contained therein would only regulate
\nthe same. The Constitution of India or the State Legislatures do not state
\nthat trade in liquor ipso facto is totally prohibited. States of Punjab and
\nKerala have not adopted any policy of prohibition whether in whole or in
\npart.\n<\/p>\n
172. For imposing total prohibition the State must formulate a policy
\ndecision having regard to Article 47 of the Constitution of India,
\nnecessitating issuance of a declaration either through legislative process
\nor through executive instructions.\n<\/p>\n
173. For judging the validity of taxing statutes, Part IV of the
\nConstitution or Article 47 will have no role to play. Recourse to Part IV
\nor Part IVA of the Constitution can only be taken as regard interpretation
\nof a legislative enactment for giving effect to objects and purport thereof
\nand not for any other purpose. A statute imposing a levy or tax must not
\nonly satisfy the tests of Article 245 of the Constitution but also other
\nprovisions of the Constitution.\n<\/p>\n
174. Trade in liquor is regulated by statutes and, thus, if it is carried
\nout within the parameters of the regulatory provisions and subject to
\nobservance of the terms and conditions of the licence, it would be legal.
\nAll rights and obligations flowing from the grant of such licence being
\nmutual would be binding on the parties.\n<\/p>\n
175. If the Constitution or the relevant statutes do not prohibit carrying
\nout a trade\/business, the courts cannot do so by taking recourse to
\ninterpretive process or on the supposed grounds of public morality.\n<\/p>\n
176. Whereas lottery was looked down upon in Chambarbaugwala (supra) and
\nB.R. Enterprises etc. v. State of UP and Ors. etc. with reference to
\nscriptures which are thousands years old, the Court did not make a similar
\nattempt in case of Indian Made Foreign Liquor or Imported Liquor nor
\nconsidered that sacramental wine has received statutory protection under
\nthe laws validly enacted. [As for example see Bombay Sacramental Wine
\nManufacturing Rules, 1950 framed under the Bombay Prohibition Act, 1949.
\nSacramental wine refers both to Christian and Hindu tenets.]<\/p>\n
177. In India Handicrafts Emporium and Ors. v. Union of India and Ors.,<\/a> a
\nthree-Judge Bench of this Court had noticed how education was held to be
\noutside the purview of ‘occupation’ within the meaning of Article 19(1)(g)
\nof the Constitution of India in Unni Krishnan, JP and Ors. v. State of
\nAndhra Pradesh but stood overruled by an eleven-Judge Bench of this Court
\nin T.M.A. Pai Foundation and Ors. v. State of Karnataka and Ors.<\/a> following
\nSodan Singh and Ors. v. New Delhi Municipal Committee and Ors. The<\/a> said
\nview has been reiterated by a Constitution Bench in Islamic Academy of
\nEducation and Anr. v. State of Karnataka and Ors.<\/a> [JT 2003 (7) SC 1].\n<\/p>\n
178. In Indian Handicrafts Emporium (supra), this Court pointed out that
\njudicial vagaries should not be permitted to have its play in such matters
\nstating:\n<\/p>\n
“The High Court has referred to the decision in P. Crowley v. Henry
\nChristensen [(1890) 34 Law. Ed. 620] so as to hold that a citizen has no
\ninherent right to deal in intoxicating liquors. Therein the U.S. Supreme
\nCourt was dealing with a federal law imposing restrictions on a person
\ndealing in retail trade in liquor without obtaining a due licence
\ntherefore. The law was upheld negativing the contention that the
\nrestriction was unreasonable. It was not held therein that trade of liquor
\nis impermissible in all situations.\n<\/p>\n
Restriction in trade, therefore, would depend upon the nature of the
\narticle and the law governing the field. By reason of judicial vagaries,
\nfundamental right under Article 19(1)(g) of the Constitution cannot be
\nfurther restricted. (See Krishna Kumar Narula v. The State of Jammu, and
\nKashmir and Ors. AIR<\/a> 1967 SC 1368).\n<\/p>\n
179. With respect, I am of the opinion that constitutionality of a statute
\ncould not determined solely relying on or on the basis of the said maxim
\nwithout any reference to the limitations contained in the Constitution.
\nCASE LAWS – Analysis of:\n<\/p>\n
(A) Case Laws Where ‘Res Extra Commercium’ was applied:\n<\/p>\n
180. In Chamarbaugwala (supra), this Court applied the doctrine of res
\nextra commercium having regard to the obnoxious nature of trade but in
\nsubsequent decisions the said principle had been extended mechanically to
\ntrade of liquor without tracing the history as to whether Indian Made
\nForeign Liquor (IMFL) or the other expensive liquors imported from foreign
\ncountry would fall in that category. No discussions have been made as to in
\nwhich areas and in relation to which stratas of the society consumption of
\nliquor was looked down upon. The fact that at different ages, at least in
\nrespect of liquor in higher echelons of the society drinks became a part of
\n‘culture’ was not taken into consideration.\n<\/p>\n
181. For the purpose of determination of the issue, the Courts were
\nrequired to take into consideration, the history, the social perceptions
\nvis–vis the state policy and other relevant factors before arriving at a
\ndecision that it is necessarily a ‘social evil’. Law is not to be laid down
\nhaving regard to the perceptions of a Judge but on premises having a solid
\nfoundation therefore, both on facts as well as in law.\n<\/p>\n
182. The question is required to be considered in today’s scenario (which
\nwould be discussed a little later), but is suffice it to point out at this
\nstage that what was frowned upon a few decades back, has received the
\nacceptance of society today.\n<\/p>\n
183. In R.M.D. Chambarbaugwala (supra), with highest respect, a wrong
\napproach was adopted holding that the Constitution-makers of India, out to
\ncreate a welfare State, could never have intended to raise betting and
\ngambling to the status of trade, commerce or intercourse without taking
\ninto consideration the fact that there exists legislative entries therefore
\nand thus the field is covered by Article 245 of the Constitution.\n<\/p>\n
184. In Fatehchand Himmatlal and Ors. v. State of Maharashtra,<\/a> this Court
\nupheld the validity of the Maharashtra Debt Relief Act, 1976 holding that
\nevery systematic, profit-oriented activity, however, sinister, suppressive
\nor socially diabolic, cannot, ipso facto, exalt itself into a trade. The
\nvalidity of the Act was upheld on the touchstone – of Article 304(b) of the
\nConstitution of India. The binding decision of Kalyani Stores (supra),
\nunfortunately was not noticed.\n<\/p>\n
185. In Bishamber Dayal Chandra Mohan etc. v. State of U.P. and Ors. etc.
\n[AIR 1982 SC 33] an order contained in a teleprinter message imposing the
\nrequirement for making of an endorsement by the Deputy Marketing Officer or
\nthe Senior Marketing Officer or the physical verification of stocks of
\nwheat during the course of transit was held to be a restriction on the
\nfreedom of trade, commerce and intercourse within the country, i.e., across
\nthe State or from one part of the State to another. The same was held to be
\nregulatory measures as compensatory tax was imposed thereby. Such
\ncompensatory tax, as is well-settled, is permissible. (See The State of
\nHimachal Pradesh and Ors. v. Yash Pal Garg (Dead) By LRs. and Ors.<\/a> [2003(3)
\nSupreme 759] and Jindal Strips Ltd. and Anr. v. State of Haryana and Ors.
\n[2003 (8) SCALE 206])<\/p>\n
186. It is, however, relevant to note that it was categorically stated
\ntherein “The regulatory measures should, however, be such as do not impede
\nthe freedom of trade, commerce and intercourse.”\n<\/p>\n
187. The said decision does go to show that validity of these regulatory
\nmeasures are required to be considered on the constitutional anvil on its
\nown force.\n<\/p>\n
188. In State of Tamil Nadu v. Hind Stone<\/a> etc. [AIR 1981 SC 711] validity
\nof rule 8C of the Tamil Nadu Minor Mineral Concession Rules, 1959 came to
\nbe questioned. The said rule was made by the State in exercise of its power
\nconferred upon it under Section 15 of the Mines and Minerals (Regulation
\nand Development) Act, 1957. By reason of said rule lease of quarrying in
\nrespect of black granite was proposed to be granted only, in favour of any
\ncorporation wholly owned by the State. Such a power also exists in the
\nCentral Government under Section 17A of the 1957 Act. As the said rule had
\nnothing to do with inter-State trade or commerce, it was held that the same
\nwas outside the purview of Article 301 and in any event would come within
\nthe purview of Article 305.\n<\/p>\n
189. We are not at all concerned with the said question, as therein the
\nCourt was dealing with question of State monopoly created under a statute.\n<\/p>\n
190. We may notice that such monopoly has also been held to be permissible
\nin terms of the provision of Motor Vehicles Act, 1988.\n<\/p>\n
191. In State of Tamil Nadu and Ors. v. Sanjeetha Trading Co. and Ors.,<\/a> a
\ncomplete prohibition was issued on export of certain items from the
\nconcerned States. The question which arose for consideration of the Court
\nwas whether such a complete prohibition on export was permissible. It was
\nheld:\n<\/p>\n
“The framers of the Constitution neither wanted to ensure the freedom of
\ntrade and commerce on the pattern of the freedom guaranteed by Section 92
\nof the Australian Constitution nor they thought it proper that the
\ndifferent States should have unfettered and unrestricted power while
\nimposing prohibitions on inter-State trade. In the larger interest of the
\nnation, there must be free flow of trade, commerce and intercourse both
\ninter-State and intra-State but at the same time the regional problems
\ncannot be Ignored altogether. Whenever there is a clash between the
\nnational interest and the interest of the State because of which any crisis
\nis created, the Union has power of intervention. According to us, the
\nexpression “free trade” cannot be interpreted in an unqualified manner. Any
\nprohibition on movement of any article from one State to another has to be
\nexamined with reference to the facts and circumstances of that particular
\ncase-whether it amounts to regulation only, taking into consideration the
\nlocal conditions prevailing, the necessity for such prohibition and what
\npublic interest is sought to be served by imposition thereof…”\n<\/p>\n
192. Such prohibition is permissible both under Clause (6) of Article 19
\nand Article 302 of the Constitution. This decision is again an authority
\nfor the proposition that even in relation to essential commodities or goods
\nover which prohibition is required to be imposed in larger public interest,
\nthe question must be tested on the anvil of Articles 19(1)(g) and 301 of
\nthe Constitution of India and not on applying an age old maxim.\n<\/p>\n
193. Har Shankar (supra) was rendered in a situation where the licensee
\nwanted to avoid the rigours of the licence. Therein the appellants applied
\nfor and accepted licence to vend foreign liquor. Licence granted to them
\nwas subject to the provisions of the Punjab Excise Act and the Rules framed
\nthereunder. Although, the parties entered into a concluded contract, the
\nappellant therein filed a writ petition asking for a direction quashing the
\nauction held on March 23, 1968 and secondly, they asked that the
\nrespondents be restrained from enforcing the obligations arising under the
\nterms and conditions of the auction.\n<\/p>\n
194. In the aforementioned backdrop, the Court distinguished K.K. Narula
\n(supra) stating:\n<\/p>\n
“It was unnecessary in Krishna Kumar Narula’s case (supra) to examine the
\nquestion from this broader point of view, as the only contention bearing on
\nthe constitutional validity of the provision impugned therein was not
\npermitted to be raised as it was not argued in the High Court. The
\ndiscussion of the question whether a citizen has a fundamental right to do
\ntrade or business in liquor proceeded in that case, avowedly, from a desire
\nto clear the confusion arising from the “different views” expressed by the
\ntwo Judges of High Court. This may explain why the Court restricted its
\nfinal conclusion to holding that dealing in liquor is business and the
\ncitizen has a right to do business in that commodity. The court did not
\nsay, though such an implication may arise from its conclusion, that the
\ncitizen has a fundamental right to do trade or business in liquor. If we
\nmay repeat, Subba Rao, C.J. said :\n<\/p>\n
We, therefore, hold that dealing in liquor is business and a citizen has a
\nright to do business in that commodity; but the State can make a law
\nimposing reasonable restrictions on the said right, in public interests.
\nIt is significant that the judgment in Krishna Kumar Narula’s case does not
\nnegate the right of the State to prohibit absolutely all forms of
\nactivities in relation to intoxicants. The wider right to prohibit
\nabsolutely would include the narrower right to permit dealings in
\nintoxicants on such terms of general application as the State deems
\nexpedient.”\n<\/p>\n
195. It is relevant to note that in Har Shankar (supra) itself, it was
\nstated.:\n<\/p>\n
“Since rights in regard to intoxicants belong to the State, it is open to
\nthe Government to part with those rights for a consideration. By Article
\n298 of the Constitution, the executive power of the State extends to the
\ncarrying on of any trade or business and to the making of contracts for any
\npurpose.”\n<\/p>\n
196. In State of Bihar and Ors. v. Harihar Prasad Debuka<\/a> etc. [AIR 1989 SC
\n1119] the question was answered again on the anvil of Article 304(b) of the
\nConstitution of India.\n<\/p>\n
197. Government of Maharashtra and Ors. v. Deokar’s Distillery<\/a> has no
\napplication in the present case. The question which arose for consideration
\ntherein was as to whether the exercise of power under Section 58A of the
\nBombay Prohibition Act, 1949 so as to recover the arrears of salaries of
\nthe officers deputed for excise supervision was permissible. It was not a
\ncase where an executive action was under challenge on the touchstone of
\nArticles 19(1)(g) and 301 of the Constitution of India. Such a legislation
\nwas found to be within the purview of Entry 8, List II of the Seventh
\nSchedule of the Constitution of India stating:\n<\/p>\n
“Under Entry 8 List II in the Seventh Schedule to the Constitution of India
\nand thereby under Sections 49 and 143(2)(V) of the Prohibition Act, the
\nState has the exclusive right\/ privilege in respect of potable liquor and
\nthe State, in our opinion, can charge any reasonable expenses or even
\nconsideration for permitting such activity by grant of licence and that the
\nrespondents ought to comply with all reasonable orders, as undertaken by
\nthem while obtaining the licence.”\n<\/p>\n
198. In B. R. Enterprises (supra), lottery was not held to be a trade as
\nthere no skill was involved in the game. It was held that therein there is
\nonly an element of chance in contrast to trade and commerce where there is
\nan exchange of goods, production or properties or exchange of any article
\neither by barter or money. The said principle would not apply herein.\n<\/p>\n
199. Even in B.R. Enterprises (supra) lotteries were held to be ‘goods’ for
\nthe purpose of Article 298 being included in the expression ‘trade and
\nbusiness’. Despite holding that Articles 301 and 304 of the Constitution of
\nIndia were not applicable, it having realised that Section 5 of the
\nLotteries Act was without any guidelines read down the provisions thereof
\nevidently to bring it within the purview of Articles 14 and 246 of the
\nConstitution of India.\n<\/p>\n
200. The reasoning in the aforesaid judgment in the case of B.R.
\nEnterprises v. State of UP (supra) – (2 Hon’ble Judges) is contrary to and
\nin conflict with the earlier decisions in the cases of (i) H. Anraj and
\nOrs. v. State of Maharashtra<\/a> (ii) H. Anraj v. State of Tamil Nadu, (iii)
\nState of Haryana v. Suman Enterprises and Ors.<\/a>\n<\/p>\n
201. The Court noticed that in Krishna Kumar Narula, a Constitution Bench
\nhas held that a right to trade in liquor was business but committed a
\nmanifest error in jumping to the conclusion that it was reversed in Khoday
\nDistilleries (supra), which was neither in fact done nor could be done as
\nboth of the judgments were rendered by coordinate benches. K.K. Narula
\n(supra) was only sought to be explained in Khoday Distilleries (supra).\n<\/p>\n
202. In Sat Pal and Co. and Ors. v. Lt. Governor of Delhi and Ors. the<\/a>
\nquestion which arose for consideration was as to whether the Parliament’s
\npower to legislate in respect of Union Territory was plenary and unfettered
\nby entries in the Lists of the Seventh Schedule of the Constitution of
\nIndia having regard to Entry 97, List I of the Seventh Schedule of the
\nConstitution. It was held :\n<\/p>\n
“Accordingly, if excise or countervailing duty could be levied on country
\nliquor manufactured or imported into Delhi, albeit other conditions for the
\nlevy of such duty being fulfilled, Parliament would not lack competence to
\nlevy the same only because levy of such duty on alcoholic liquors for human
\nconsumption is within the competence of a State. But it must be confessed
\nthat as country liquor is not manufactured in Delhi, the Parliament could
\nnot under Entry 51 of the State List levy either excise or countervailing
\nduty on it. Merely because Parliament could not levy countervailing duty on
\ncountry liquor imported into Delhi because country liquor is not
\nmanufactured in Delhi, it does not exhaust the power of Parliament to levy
\nsome other duty on the import of liquor if it is otherwise constitutionally
\npermissible.”\n<\/p>\n
(Emphasis supplied)<\/p>\n
203. Thus, in that case also the Parliamentary competence as regard a
\nlegislation was considered.\n<\/p>\n
204. The impugned duty therein, therefore, even in that case was tested on
\nthe anvil of the constitutional provisions.\n<\/p>\n
205. Khoday, Distilleries (supra) is to be read as a whole. It does not say
\nthat no right can be claimed by a trader even after grant of licence.
\nExclusive privilege theory in Khoday Distilleries (supra) if read in its
\nentirety would lead to the conclusion that the same had been considered
\nonly in a no right situation.\n<\/p>\n
206. In Khoday Distilleries (supra) Inter alia validity of rules framed by
\nvarious States was in question. Sawant, J. analyzing several decisions
\nstated:\n<\/p>\n
“The proposition of law laid down there has to be read in conformity with
\nthe proposition laid down in that respect by the other decisions of this
\nCourt not only to bring comity in the judicial decisions but also to bring
\nthe law in conformity with the provisions of the Constitution. The
\nfundamental rights conferred by our Constitution are not absolute. Article
\n19 has to be read as a whole. The fundamental rights enumerated under
\nArticle 19(1) are subject to the restrictions mentioned in Clauses (2) to
\n(6) of the said article. Hence, the correct way to describe the
\nfundamental, rights under Article 19(1) is to call them qualified
\nfundamental right’s. To explain this position in law, we may take the same
\nillustration as is given in K.K. Narula case. The citizen has undoubtedly a
\nfundamental right to carry on business in ghee. But he has no fundamental
\nright to do business in adulterated ghee. To expound the theme further, a
\ncitizen has no right to trafficking in women or in slaves or in counterfeit
\ncoins or to carry on business of exhibiting and publishing pornographic or
\nobscene films and literature. The illustrations can be multiplied. This is
\nso because there are certain activities which are inherently vicious and
\npernicious and are condemned by all civilised communities. So also, there
\nare goods, articles and services which are obnoxious and injurious to the
\nhealth, morals, safety and welfare of the general public. To contend that
\nmerely because some activities and trafficking in some goods can be
\norganised as a trade or business, right to carry on trade or business in
\nthe same should be considered a fundamental right is to beg the question.
\nThe correct interpretation to be placed on the expression “the right to
\npractise any profession, or to carry on any occupation, trade or business”
\nis to interpret it to mean the right to practise any profession or to carry
\non any occupation, trade or business which can be legitimately pursued in a
\ncivilised society being not abhorrent to the generally accepted standards
\nof its morality. Human perversity knows no limits and it is not possible to
\nenumerate all professions, occupations, trades and businesses which may be
\nobnoxious to decency, morals, health, safety and welfare of the society.
\nThis is apart from the fact that under our Constitution the implied
\nrestrictions on the right to practise any profession or to carry on any
\noccupation, trade or business are made explicit in Clauses (2) to (6) of
\nArticle 19 of the Constitution and the State is permitted to make law for
\nimposing the said restrictions. In the present case, it will be Clause (6)
\nof Article 19 which places restrictions on the fundamental right to do
\nbusiness under Article 19(1)(g). These restrictions and limitations on
\nfundamental right are implicit and inherent even in the fundamental rights
\nspelt out in the American Constitution, although they are not explicitly
\nstated as in our Constitution by Clauses (2) to (6) of Article 19. ”\n<\/p>\n
207. It was further observed:\n<\/p>\n
“Whether one states as in K.K. Narula case that the citizen has a
\nfundamental right to do business but subject to the State’s powers to
\nimpose valid restrictions under Clause (6) of Article 19 or one takes the
\nview that a citizen has no fundamental right to do business but he has only
\na qualified fundamental right to do business, the practical consequence is
\nthe same so long as the former view does not deny the State the power to
\ncompletely prohibit, trade or business in articles and products like liquor
\nas a beverage, or such trafficking as in women and slaves. This Court in
\nK.K. Narula case has not taken such view. ”\n<\/p>\n
208. Khoday Distilleries (supra), thus, does not suggest that there is no
\nfundamental right to trade in liquor at all. The Court explaining the
\ndoctrine of ‘res-extra commercium’ observed:\n<\/p>\n
(a) There cannot be a business in crime;\n<\/p>\n
(b) What is res-extra commercium would be trade or business in liquor when
\nit is completely prohibited;\n<\/p>\n
(c) The State can create a monopoly to do the business itself or through an
\nagency in terms of Article 19(6) or otherwise;\n<\/p>\n
(d) Restrictions and limitations on the trade or business in potable liquor
\ncan be both under Article 19(6) or otherwise;\n<\/p>\n
(e) When the State permits trade or business in the potable liquor with or
\nwithout limitation, the citizen has the right to carry on trade or business
\nsubject to the limitations, if any, and the State cannot make a
\ndiscrimination between the citizens who are qualified to carry on the trade
\nor business.\n<\/p>\n
209. The various rights granted in favour of a citizen under the provisions
\nof the Constitution must be considered to be an amalgam of rights. Such
\nrights are required to be given effect to and when a law is enacted or an
\nexecutive instruction is issued prohibiting or regulating such rights, the
\nconditions precedent therefore under the relevant Constitutional provisions
\nindividually and separately are required to be fulfilled. [See R.C. Cooper
\nv. Union of India.\n<\/p>\n
(B) Case Laws where the said Doctrine was not applied :\n<\/p>\n
210. In H. Anraj v. State of Tamil Nadu (2 Hon’ble Judges) firstly this
\nCourt held (i) lotteries were “goods” in part and could be amenable to levy
\nof Sales Tax; and (ii) quashed and struck down the notification of the
\nState of Tamil Nadu exempting the lotteries organized by the State of Tamil
\nNadu from levy of sales tax as violative of Articles 14, 301 and 304 since
\nby such discrimination it affected the free flow of trade and commerce. It
\nwas held that the lotteries would be covered under Articles 301 to 304 of
\nthe Constitution of India.\n<\/p>\n
211. Secondly, this Court in the case of H. Anaraj v. State of Maharashtra
\nreported in held that the subject “lotteries organized by the Government of
\nIndia or the Government of State” is carved out the subject “betting and
\ngambling” in Entry 34 List II to the 7th Schedule to the Constitution of
\nIndia and placed in Entry 40 List 1 to the 7th Schedule of the Constitution
\nof India and as such Parliament alone can make law in respect of lotteries
\ncovered by Entry. 40. Thus if the legislative power relating to the
\nlotteries organized by the Government of India or the government of State
\nare especially carved out of the State List to the Union List, then the
\npower is consciously taken away from the States and Parliament alone will
\nhave the legislative power on the subject.\n<\/p>\n
212. The Constitution Bench of this Court divided lotteries into five
\ncategories laying down the law that the State has no power to ban the sale
\nof lottery tickets.\n<\/p>\n
213. One of us (Dr. AR. Lakshmanan, J.) in Maruthi Agencies, Bangalore v.
\nThe State of Tamil Nadu and Ors. [1997(1) MLJ 589] tested the validity of a
\nstatute holding that in the event lotteries are organized by the State,
\nsale of tickets thereof cannot be prohibited in other States on the ground
\nthat the same is gambling having regard to the relevant entries in List II
\nof the Seventh Schedule of the Constitution of India.\n<\/p>\n
214. Tobacco which is as harmful as liquor had also not been brought within
\nthe purview of doctrine of res extra commercium. It had been given the
\nprotection Of the Parliamentary Act, known as Tobacco Act and thus was
\ntaken outside the purview of the State legislative competence. Apart from
\nKalyani Stores (supra) and H. Anraj (supra), even in State of Madhya
\nPradesh v. Bhailal Bhai and Ors.,<\/a> this Court has clearly held that Article
\n301 shall be applicable in relation to tobacco holding :
\n“…There can be no doubt, therefore that even though it is the sale in
\nMadhya Bharat of the imported goods that creates the liability to tax and
\nnot the import by itself, the trade and commerce as between Madhya Bharat
\nand other parts of India is directly impeded by this tax…”
\n(C) Some decisions where this court enforced the rights of a grantee:\n<\/p>\n
215. In State of Bihar and Ors. v. Industrial Corporation Pvt. Ltd. and
\nOrs.<\/a> reported in 2003 (9) SCALE 169, it was held:\n<\/p>\n
“…Revenue being a subject-matter of legislation in terms of Entry 8 of
\nList II of the Seventh Schedule of the Constitution of India, the recovery
\nthereof must be made in terms of the provisions of a legislative Act
\nenacted pursuant thereto arid not by reason of any executive fiat.”\n<\/p>\n
216. In Industrial Corporation Pvt. Ltd. (supra), it was further held :
\n“In the present case, what we find is that before creating a demand of
\npenal duty or penalty, there was no adjudication by any authority as regard
\nto the breach committed by the respondents. We also find that no
\nopportunity of any kind was offered to the respondents before the demand as
\nregard the penal duty was pressed against the respondents. The matter was
\nnot even examined as to what was the reason for shortfall in the production
\nof rectified spirit. The Molasses Act does not provide for imposition of
\nsuch penalty in the event of shortfall of spirit. It must, therefore,
\nnecessary be held that the imposition of the impugned penalty being against
\nthe principles of natural justice is illegal and void.
\nThe statutory authorities must act within the four-corners of a statute.
\nThey could take recourse to the proceedings for levy of penalty and the
\nrecovery thereof from the respondents only in the event there existed any
\nagreement or statutory provision therefore. Such a power did not exist in
\nthe Commissioner of Excise or the superintendents of Excise who had issued
\nthe impugned demand notices.”\n<\/p>\n
217. In that case, therefore, it was laid down that the executive
\nauthorities of the State in exercise of their purported regulatory power
\ncannot hold the people who are legally carrying on their business in liquor
\nin ransom. They, on the ground of contractual power or otherwise, cannot be
\npermitted to travel beyond the four-corners of a statute by levying any
\npenalty or any other amount which is not contemplated thereunder.\n<\/p>\n
218. The aforementioned decision is also an authority for the proposition
\nthat rule of law must prevail. The country is governed by the rule of law
\nand not by whims and caprice of the executive authorities. The court cannot
\nbe a party to such whims and caprices.\n<\/p>\n
219. In state of U.P. and Ors. v. Vam Organic Chemicals Ltd. and Ors.,<\/a> this
\nCourt while examining the validity of fees levied on denatured spirit
\nnoticed that the principles laid down in Bihar Distillery were doubted in
\nDeccan Sugar & Abkari Co. Ltd. v. Commissioner of Excise, A.P., and<\/a>
\nreferred to a larger Bench but in its decision dated 13.2.2003 in C.A. No.
\n4355 of 1985 – Deccan Sugar & Abkari Co. Ltd. v. Commissioner of Excise,
\nA.P.,<\/a> although it followed Synthetics and Chemicals (supra) and State of UP
\nv. Modi Distillery the<\/a> decision in Bihar Distillery was not expressly
\noverruled. The Bench, thus following Synthetics and Chemicals held that the
\nlevy of such fee was not justified in terms of Entry 66, List II of the
\nSeventh Schedule of the Constitution of India by striking down the same. It
\nwas observed:\n<\/p>\n
“The question is (to borrow the language in Synthetics) whether in the garb
\nof regulations a legislation which is in pith and substance, as we look
\nupon the instant legislation, a fee or levy which has no connection with
\nthe cost or expenses administering the regulation, can, be imposed purely
\nas a regulatory measure. Judged by the pith and substance of the impugned
\nlegislation, we are definitely of the opinion that these levies cannot be
\ntreated as part of regulatory measures…”\n<\/p>\n
220. Yet again in State of UP and Ors. v. Jagjeet Singh and Ors.<\/a> [JT 2003
\n(8) SC 40] a three-Judge Bench of this Court while interpreting Rule 34 of
\nU.P. Excise Licenses (Tender-cum-Auction) Rules, 1991 vis–vis Para 179 of
\nthe Excise Manual enforced the right of the liquor vendors as regard
\nremission of fee in terms thereof. The said decision is, therefore, an
\nauthority for the proposition that the rights contained in the statutory
\nrules can be enforced in a given situation. Thus, it cannot said that the
\nlicensees have no enforceable right at all.\n<\/p>\n
221. The statute lays down that the Acts regulating the trade would be
\nlawful, if done in the manner and to the extent provided by the provisions
\nthereof or any rules, regulations or orders made thereunder.\n<\/p>\n
222. As the matter has been discussed by B.N. Agrawal, J. in some details,
\nit is not necessary to notice other judgments herein.
\nAPPLICATION OF THE CONSTITUTIONAL PROVISIONS:\n<\/p>\n
223. Part III of the Constitution of India, in general, and Articles 14 and
\n19, in particular, not only intend to confer very valuable rights to the
\ncitizens but also provides for protection from the legislative and
\nexecutive vagaries. The legislature as also the executive in terms of the
\nprovisions of the Constitution of India must not only act within the
\nconstitutional parameters but also act reasonably and in public interest. I
\nmay, however, hasten to add that the rights under Articles 14 and 19 are
\nnot absolute. Article 19 provides for reasonable restrictions.\n<\/p>\n
224. What is the meaning of ‘reasonable restriction’ is the question.
\nArticle 19(1)(g) of the Constitution guarantees to all citizens to practice
\nany profession, or to carry on any occupation, trade or business. Clause
\n(6) of Article 19 empowers the State to make laws imposing reasonable
\nrestrictions on the exercise of the right in the interest of general
\npublic. Freedom under Article 19(1)(g), however, can be completely
\ncurtailed in certain circumstances but it would depend upon the nature of
\nthe mischief which is sought to be remedied. For the aforementioned purpose
\ndealing in liquor, trading in dangerous goods as explosives, trafficking in
\nwomen, toutism, essential commodities and realisation of tax have been
\nplaced in the same category. [See Har Shankar v. Dy Excise Commer. Of
\nTaxation<\/a> (supra), Cooverjee B. Bharucha v. Excise Commissioner<\/a> [1954 SCR
\n873], State of UP v. Synthetics and Chemical Ltd., State of Orissa v.
\nHarinarayan Jaiswal, Synthetic and Chemicals Ltd. v. State of UP [(1930) 1
\nSCC 109], In the matter of Phool Din, Narender Kumar v. Union of India<\/a>;
\nM.B. Cotton Association v. Union of India; and Hanif Quareshi Mohd. v.
\nState of Bihar [1959 SCR 629].\n<\/p>\n
225. In Union of India and Anr. v. International Trading Co. and Anr.<\/a>
\n[2003(4) Supreme 114] this Court held:\n<\/p>\n
“Reasonableness of restriction is to be determined in an objective manner
\nand from the standpoint of interests of the general public and not from the
\nstandpoint of the interests of persons upon whom the restrictions have been
\nimposed or upon abstract consideration.”\n<\/p>\n
226. Those, however, who fall in exceptional categories in relation to
\ncarrying on a business, total prohibition would not be regarded as
\nunreasonable restriction. It is also trite that in such a situation, the
\ngreater the restriction, the more would be the need of strict scrutiny by
\nthe courts. [See Narendra Kumar and Ors. v. The Union of India and Ors.<\/a> –
\n1960 (2) SCR 3751.\n<\/p>\n
227. As regard application of strict scrutiny test see also Saurabh
\nChoudhary v. Union of India<\/a> [2003 (9) SCALE 272].\n<\/p>\n
228. In Municipal Corporation of the City of Ahmedabad and Ors. v. Jan
\nMohammed Usmanbhai and Anr.,<\/a> this court held:\n<\/p>\n
“15. Before proceeding to deal with the points urged on behalf of the
\nappellants it will be appropriate to refer to the well-established
\nprinciples in the construction of the constitutional provisions. When the
\nvalidity of a law placing restriction on the exercise of a fundamental
\nright in Article 19(1)(g) is challenged, the onus of proving to the
\nsatisfaction of the court that the restriction is reasonable lies upon the
\nState. If the law requires that an act which is inherently dangerous,
\nnoxious or injurious to the public interest, health or safety or is likely
\nto prove a nuisance to the community shall be done under a permit or a
\nlicence of an executive authority, it is not per se unreasonable and no
\nperson may claim a licence or a permit to do that act as of right…”\n<\/p>\n
229. It was observed:\n<\/p>\n
“Where, however, power is entrusted to an administrative agency to grant or
\nwithhold a permit or licence in its uncontrolled discretion the law ex
\nfacie infringes the fundamental right under Article 19(1)(g). Imposition of
\nrestriction on the exercise of a fundamental right may be in the form of
\ncontrol or prohibition.\n<\/p>\n
“20. The tests of reasonableness have to be viewed in the context of the
\nissues which faced the legislature. In the construction of such laws and in
\njudging their validity, courts must approach the problem from the point of
\nview of furthering the social interest which it is the purpose of the
\nlegislation to promote. They are not in these matters functioning in vacuo
\nbut as part of society which is trying, by the enacted law, to solve its
\nproblems and furthering the moral and material progress of the community as
\na whole…”\n<\/p>\n
230. The matter has also received the attention of a two-Judge Bench of
\nthis Court in B.P. Sharma v. Union of India<\/a> [2003 [6) SCALE 498] wherein
\nthis Court upon noticing a catena of decisions observed :
\n“…On consideration of a catena of decisions on the point, this Court, in
\na case reported in , M.R.F. Ltd. v. Inspector, Kerala Government and Ors.,<\/a>
\nhas laid certain tests on the basis of which reasonableness of the
\nrestriction imposed on exercise of right guaranteed under Article 19(1)(g)
\ncan be tested. Speaking for the Court, Saghir Ahmad, J. (as he then was),
\nlaid such considerations as follows :\n<\/p>\n
“(1)While considering the reasonableness of the restrictions, the court has
\nto keep in mind the Directive Principles of State Policy.
\n(2) Restrictions must not be arbitrary or of an excessive nature so as to
\ngo beyond the requirement of the interest of the general public.
\n(3) In order to judge the reasonableness of the restrictions, no abstract
\nor general pattern or a fixed principle can be laid down so as to be of
\nuniversal application and the same will vary from case to case as also with
\nregard to changing conditions, values of human life, social philosophy of
\nthe Constitution, prevailing conditions and the surrounding circumstances.
\n(4) A just balance has to be struck between the restrictions imposed and
\nthe social control envisaged by Clause (6) of Article 19.
\n(5) Prevailing social values as also social needs which are intended to be
\nsatisfied by restrictions have to be borne in mind. (See State of U.P. v.
\nKaushaliya.<\/a>\n<\/p>\n
(6) There must be a direct and proximate nexus or a reasonable connection
\nbetween the restrictions imposed and the object sought to be achieved. If
\nthere is a direct nexus between the restrictions and the object of the Act,
\nthen a strong presumption in favour of the constitutionality of the Act
\nwill naturally arise. (See Kavalappara Akottarathil Kochuni v. State of
\nMadras and Kerala, O.K. Ghosh<\/a> v. E.X. Joseph.”\n<\/p>\n
231. The question has also been considered in Indian Handicrafts Emporium
\n(supra) wherein this Court held :\n<\/p>\n
“In Narender Kumar and Ors. v. Union of India and Ors.,<\/a> this Court while
\ninterpreting the word ‘restrictions’ held as follows:
\n“It is reasonable to think that the makers of the Constitution considered
\nthe word “restriction” to be sufficiently wide to save laws “inconsistent”
\nwith Article 19(1), or “taking away the rights” conferred by the Article,
\nprovided this inconsistency or taking away was reasonable in the interests
\nof the different matters mentioned in the clause. There can be no doubt
\ntherefore that they intended the word “restriction” to include cases of
\n“prohibition” also. The contention that a law prohibiting the exercise of a
\nfundamental right is in no case saved, cannot therefore be accepted.” (See
\nalso State of Maharashtra v. Mumbai Upnagar Gramodyog Sang.<\/a>\n<\/p>\n
232. In Saurabh Chaudhri (supra), V.N. Khare, CJI speaking for the majority
\nstated:\n<\/p>\n
“Constitutional interpretation is a difficult task. Its concept varies from
\nstatute to statute, fact to fact, situation to situation and subject matter
\nto subject matter…”\n<\/p>\n
233. It was observed:\n<\/p>\n
“…The courts shall all along strive hard for maintaining a balance. While
\ninterpreting the Constitution, we must notice the following view of Justice
\nHolmes expressed in Missouri v. Holland [252 US 416 (433)] :
\n“When we are dealing with Words that also are a constituent act, like the
\nConstitution of the United States, we must realise that they have called
\ninto life a being the development of which could not have been foreseen
\ncompletely by the most gifted of its begetters. It was enough for them to
\nrealise or to hope that they had created an organism, it has taken a
\ncentury and has cost their successors much sweat and blood to prove that
\nthey created a nation. The case before us must be considered in the light
\nof our whole experience and not merely in that of what was said a hundred
\nyears ago.”\n<\/p>\n
234. If by reason of judicial interpretation it is held that those trades
\nwhich are obnoxious in nature would not fall within the purview of Article
\n19, what was the necessity of extending the meaning of ‘reasonable
\nrestrictions’ to prohibition; and in some cases even with the aid of the
\nprovisions contained in the Directive Principles of State Policy in Part IV
\nof the Constitution of India?\n<\/p>\n
235. If matters in relation to such trades which are said to be obnoxious
\nin nature, no provisions of the Constitution of India were to be made
\napplicable, where was the need of enacting statutes prohibiting them either
\nin whole or in part? The Parliament or the State Legislature, it” is trite,
\ndo not make legislation in vacuo. The legislations are not enacted in
\nfutility. The legislation are not only to be implemented, their
\nconstitutionality must also be judged on the touchstone of Part III and
\nother provisions of the Constitution of India. No short-cut can be adopted
\nto do away therewith.\n<\/p>\n
236. Concededly restrictions of trade in liquor within the meaning of
\nArticle 19(1)(g) of the Constitution of India can be extended to
\nprohibition. Such prohibition may not be permissible in other cases, as
\nnoticed hereinbefore. The decisions of this Court clearly show that such a
\nprohibition can be imposed by laying down a law only in the event that the
\ntrade in relation thereto is noxious ones and not otherwise. The
\ndistinction made by this Court in a large number of judgments is to be
\napplied in proper perspective, insofar as the words trade in liquor will
\ncarry two different meanings – one in respect of trade which are noxious or
\npernicious and the others which are not. If it is held that Article 19 of
\nthe Constitution of India and for that matter any other provision of the
\nConstitution of India including Article 301 will not have any application
\nin relation to pernicious or obnoxious trade, the State will not be
\nentitled to issue any prohibitory order in relation thereto. The very fact
\nthat this Court in no uncertain terms held that the trade in liquor can be
\nprohibited being noxious or pernicious, it implicitly goes to show that
\nprohibition of such a trading activity must be referable to legislations
\nmade in terms of Clause (6) of Article 19 of the Constitution of India
\nwhich is itself an indication of the fact that there exists a right to
\ncarry on the trade in terms of Article 19(1)(g) of the Constitution of
\nIndia. While making such a legislation the Parliament or the State
\nLegislatures, as the case may be, impose prohibition either in whole or in
\npart or may only provide for regulatory measures.\n<\/p>\n
237. There are decisions of this Court which have held that Article 19(1)\n<\/p>\n
(g) will not apply so long as the trade in liquor is prohibited. The
\nConstitution Bench of this Court in Khoday Distilleries (supra) clearly
\nheld that a citizen will have no fundamental right to carry on such trade
\nwhich is illegal and would lead to commission of penal offences. The
\nlogical corollary of the said decision would be that a citizen will have a
\nright including a fundamental right to carry on the said trade or business
\nwhen the same would not lead to a penal or criminal offence or has not
\ndeclared the same to be otherwise illegal.\n<\/p>\n
REGULATORY POWER OF THE STATE:\n<\/p>\n
238. In Synthetics and Chemicals Ltd. (supra), this Court held:
\n“76. Balsara case (1951 SCR 682) dealt with the question of reasonable
\nrestriction on medicinal and toilet preparations. In fact, it can safely be
\nsaid that it impliedly and sub-silentio clearly held that medicinal and
\ntoilet preparations would not fall within the exclusive privilege of the
\nStates. If they did there was no question of striking down of Section 12(c)
\nand (d) and Section 13(b) of the Bombay Prohibition Act, 1949 as
\nunreasonable under Article 19(1)(f) of the Constitution because total
\nprohibition of the same would be permissible. In K.K. Narula case (K.K.
\nNarula v. State of J & K.<\/a> it was held that there was right to do business
\neven in potable liquor. It is not necessary to say whether it is good law
\nor not. But this must be held that the reasoning therein would apply with
\ngreater force to industrial alcohol. ”\n<\/p>\n
(Emphasis Supplied)<\/p>\n
239. Thus, even therein although an occasion had arisen, a Seven-Judge
\nBench did not expressly over-rule K.K. Narula but applied the principles
\nlaid down therein in case of industrial alcohol.\n<\/p>\n
240. In Ramana Dayaram Shetty v. The International Airport Authority of
\nIndia and Ors.,<\/a> this Court held:\n<\/p>\n
“…We fail to see how the plea of contravention of Article 19(1)(g) or
\nArticle 14 can arise in these cases. The Government’s power to sell the
\nexclusive privilege set out in Section 22 was not denied. It was also not
\ndisputed that these privileges could be sold by public auction. Public
\nauctions are held to get the best possible price. Once these aspects are
\nrecognised, there appears to be no basis for contending that the owner of
\nthe privileges in question who had offered to sell them cannot decline to
\naccept the highest bid if he thinks that the price offered is inadequate.
\nIt will be seen from these observations that the validity of Clause (6) of
\nthe Order dated January 6, 1971 was upheld by this Court on the ground that
\nhaving regard to the object of holding the auction, namely, to raise
\nrevenue, the Government was entitled to reject even the highest bid, if it
\nthought that the price offered was inadequate. The Government was bound to
\naccept the tender of the person who offered the highest amount and if the
\nGovernment rejected all the bids made at the auction, it did not involve
\nany violation of Article 14 or 19(1)(g). This is a self-evident proposition
\nand we do not see how it can be of any assistance to the respondents.”\n<\/p>\n
241. In Har Shankar and Ors. v. Dy. Excise and Taxation Commissioner<\/a>
\n(supra), this Court held:\n<\/p>\n
“…The state, under its regulatory powers, has the right to prohibit
\nabsolutely every form of activity in relation to intoxicants – its
\nmanufacture, storage, export, import, sale and possession. In all their
\nmanifestations, these rights are vested in the State and indeed without
\nsuch vesting there can be no effective regulation of various forms of
\nactivities in relation to intoxicants. In American Jurisprudence”, Volume
\n30 it is stated that while engaging in liquor traffic is not inherently
\nlawful, nevertheless it is a privilege and not a right, subject to
\ngovernmental control (page 538). This power of control is an incident of
\nthe society’s right to self-protection and it rests upon the right of the
\nstate to care for the health, morals and welfare of the people. Liquor
\ntraffic is a source of pauperism and crime (pp. 539, 540, 541).”\n<\/p>\n
242. In order to determine whether total prohibition would be reasonable
\nthe Court has to balance the direct impact on the fundamental right of the
\ncitizens thereby against the greater public or social interest sought to be
\nensured. Implementation of Directive Principles contained in Part IV is
\nwithin the expression of restrictions in the interest of the general
\npublic. (See also Municipal Corporation of the City of Ahmedabad and Ors.
\nv. Jan Mohammed Usmanbhai and Anr.)<\/a><\/p>\n
243. In Rustom Cavasjee Cooper and Ors. v. Union of India<\/a> [AIR 1970 SC
\n564], the law is stated in the following terms:\n<\/p>\n
“…If this be the true view and we think it is, in determining the impact
\nof State action upon constitutional guarantees which are fundamental, it
\nfollows that the extent of protection against impairment of a fundamental
\nright is determined not by the object of the Legislature nor by the form of
\nthe action, but by its direct operation upon the individuals rights.
\nWe are of the view that the theory that the object and form of the State
\naction determine the extent of protection which the aggrieved party may
\nclaim is not consistent with the constitutional scheme. Each freedom has
\ndifferent dimensions…”\n<\/p>\n
244. In certain cases even in relation to the grant of contract in liquor,
\nArticle 14 of the Constitution has been held to be applicable. Once it is
\nheld that a person, in certain situation is entitled to invoke the equality
\nclause contained in Article 14 of the Constitution of India, there is
\nabsolutely no reason as to why Article 301 will not be applicable.\n<\/p>\n
245. A 11-Judge Bench of this Court in T.M.A. Pai Foundation (supra),
\nobserved:\n<\/p>\n
“The question of whether there is a fundamental right or not cannot be
\ndependent upon whether it can be made the subject-matter of controls.”\n<\/p>\n
246. It is relevant to note that two of the Hon’ble Judges were parties to
\nKalyani Stores (supra) as also to Krishna Kumar Narula (supra) which again
\nbeing a Constitution Bench judgment wherein it has been held that a person
\nhas a fundamental right under Article 19(1)(g) to carry on trade or
\nbusiness in liquor. K.K. Narula (supra) has not been overruled. The same
\nholds the field. In that view of the matter, we cannot ignore K.K. Narula
\n(supra).\n<\/p>\n
247. Furthermore, there exists a distinction between a fundamental right of
\na citizen to carry on business in noxious or pernicious trade under Article
\n19(1)(g) of the Constitution of India and freedom to carry on such trade
\nthrough out the country without any hindrance or obstruction except in
\nterms of reasonable regulations which may be made under Article 304(b) of
\nthe Constitution of India.\n<\/p>\n
ARTICLE 14 – SOME FACETS OF COUNTRY AND FOREIGN LIQUOR, DIFFERENCE BETWEEN:\n<\/p>\n
248. The equality clause contained in Article 14 of the Constitution of
\nIndia recognizes that reasonable classification is permissible. Article 14
\nhas been held to be applicable at all stages for grant of a contract.\n<\/p>\n
249. It is interesting to note that Rule 39 of the Maharashtra Country
\nLiquor Rules, 1973 and Rule 17 of the Maharashta Foreign Liquor (Sale on
\nCash, Register of Sales etc.) Rules, 1969 prohibits the vendors from
\nselling foreign liquor or the country liquor :\n<\/p>\n
250. Rule 17 of the Maharashtra Foreign Liquor (Sale on Cash, Register of
\nSales etc.) Rules, 1969 prescribes that no vendor is to sell foreign liquor
\nto the following class of persons :\n<\/p>\n
 A Police Officer in uniform;\n<\/p>\n
 A Prohibition and Excise Officer on duty;\n<\/p>\n
 A Railway servant on duty;\n<\/p>\n
 An insane person; or
\n A person who is intoxicated.\n<\/p>\n
251. Rule 39 of the Maharashtra Country Rules, 1973 provides that a retail
\nlicense shall not sell country liquor to the following categories of
\npersons, namely :\n<\/p>\n
 A lunatic insane person;\n<\/p>\n
 Person who is in an intoxicated State;\n<\/p>\n
 Person known or suspected to be participating in any rioting or
\ndisturbance of peace; and
\n The Armed Forces of the Union, Member of the Police Force, the
\nProhibition and the Excise Department, State Transport and Railway
\nDepartment or driver of a motor vehicle, when on duty or in uniform, or
\nboth.\n<\/p>\n
252. The comparison of these two lists reveals that the categories of
\npersons are different for country liquor and foreign liquor. The vendor is
\nnot allowed to sell country liquor to certain categories of persons, who
\nare not specified thereunder and whereas Rule 17 of 1969 Rules categories a
\ndifferent list of persons. A vendor can sell foreign liquor to the driver
\nof a vehicle but is prohibited from doing so in respect of country liquor.
\nForeign liquor can be sold to a railway servant on duty but not country
\nliquor.\n<\/p>\n
253. In Cooverjee Bharucha v. Excise Commissioner and Chief Commissioner,
\nAjmer<\/a> [AIR 1954 SC 220] and Harinarayan Jaiswal (supra), this Court held
\nthat the State has exclusive right to sell liquor and to sell the said
\nright. Both rights are, thus, different and distinct.\n<\/p>\n
REGULATION OF THE TRADE IN RELATION TO FOREIN LIQUOR:\n<\/p>\n
254. In State of Bombay v. F.N. Balsara<\/a> [AIR 1951 SC 318], this Court held<\/p>\n
:\n<\/p>\n
(i) A provision of law, which provided for permitting certain persons to
\ndrink and prohibited certain others from drinking, would not violate
\nArticle 14, provided such classification was reasonable.\n<\/p>\n
(ii) Permitting the use or consumption of foreign liquor among members of
\nthe Military and Naval Officers does not offend Article 14, as the members
\nof such Force could be regarded as a class by themselves, and such
\nclassification was reasonable.\n<\/p>\n
(iii) Restrictions, which are imposed for securing the objects, which are
\nenjoined by the Directive Principles of State Policy in the Constitution,
\nmay be regarded as reasonable restrictions within the meaning of Clauses
\n(2) and (6) of Article 19 of the Constitution of India.\n<\/p>\n
(iv) When restrictions imposed by a law on the exercise of Fundamental
\nRights are reasonable in respect of certain items and unreasonable in
\nrespect of certain other items, the law as a whole will not be void when
\nthe offending provisions are severable; the provisions of the law imposing
\nunreasonable restrictions alone would be void, and those provisions which
\nimpose reasonable restrictions will be valid.\n<\/p>\n
(v) Prohibition of possession, consumption, buying or selling of wines by a
\nlaw is a reasonable restriction upon the right to “acquire, hold and
\ndispose of property” conferred by Article 19(1)(f) having regard to the
\nDirective Principles in Article 47.\n<\/p>\n
255. In Fatehchand (supra), also a distinction was made between money-
\nlending amongst commercial community as integral to trade which was held to
\nbe trade and a narrow noxious category of money-lending where there is no
\nflow of trade, no movement of commerce, no promotion of intercourse, no
\nservicing of business, but merely stagnates rural economy, strangulates the
\nborrowing community and turns malignant in its repercussions.
\n[Italics is mine for emphasis]<\/p>\n
256. A similar distinction was noticed in Synthetics and Chemicals Ltd. v.
\nState of UP in the following terms:\n<\/p>\n
“…In other words, excise duty and price for privileges were regarded as
\none and the same thing. So-called privilege was reserved by the State
\nmostly in respect of country liquor and not foreign liquor which included
\ndenatured spirit.”\n<\/p>\n
257. The seven-Judge Bench, therefore, made a distinction between a country
\nliquor and a foreign liquor.\n<\/p>\n
ARTICLE 301:\n<\/p>\n
(A) The Constitutional Assembly Debates:\n<\/p>\n
258. It is trite that in interpreting constitutional provisions, reference
\nto constitutional debates is permissible. [See T.M.A. Pai Foundation
\n(supra)]<\/p>\n
259. This Article was introduced in its final form by B.R. Ambedkar on 8th
\nSeptember 1949. [See Constitutional Assembly Debates, 8th September, 1949,
\nVol. 9, p. 1124] Ambedkar’s esteemed view was not to make interstate
\ncommerce and trade absolutely free. He contemplated a certain amount of
\nlegislative restrictions that could be imposed in ‘public interest’. While
\nthis view was widely supported by T.T. Krishnamachari and Alladi
\nKuppuswami, it was contested by Pandit Thakur Das Bhargava who advocated
\nseveral amendments to promote absolute free trade; as well as Dr. P.S.
\nDeshmukh who felt that a policy should be kept very broad, for the
\nParliament to fill in the details at the relevant time, for the relevant
\nplace.\n<\/p>\n
260. Realizing the need for some level of State regulation of trade and
\ncommerce, in the interest of the public, Dr. B.R. Ambedkar stated:
\n“…it is not the intention to make, trade and commerce absolutely free,
\nthat is to say, deprive both the Parliament as well as the States of any
\npower to depart from the fundamental provision that trade and
\ncommerce…has been made subject to certain limitations which may be
\nimposed by the Parliament or …the Legislatures of various states subject
\nto the fact that the limitation contained in the power of Parliament to
\ninvade the freedom of trade and commerce is confined to cases arising from
\nscarcity of goods in any part of the territory of India and in the case of
\nstates, it must be justified on the grounds of public interest…the action
\nof the states in invading the freedom of trade and commerce in the public
\ninterest is also made subject to the condition that any Bill affecting the
\nfreedom of trade and commerce shall have previous sanction of the
\nPresident; otherwise the State would not be in a position to undertake such
\na legislation…”\n<\/p>\n
[See Constitutional Assembly Debates,
\n8th September, 1949, Vol.9, pp. 1124-25]<\/p>\n
261. This point of view was supported by T.T. Krishnamachari who in reply
\nto the strong stand taken by Pandit Bhargava stated that the entire Chapter
\nprovides the maximum possible amount of liberty for trade and commerce. It
\nprovides the maximum amount, of concession that can be given to maintain
\nconsistency with the future economic improvement of the country. But he
\nstrongly emphasized that, “the world has well-high come to the position
\nwhen trade and commerce cannot run without control and some kind of
\ndirection by the government.” He realized that the restrictions cannot be
\nwhittled down, if there is to be economic progress, when he stated,
\n“A certain amount of freedom of trade and commerce has to be permitted. No
\ndoubt restrictions by the State have to be prevented so that particular
\nidiosyncrasies of some people in power or narrow provincial policies of
\ncertain states should not be allowed to come into play and effect the
\ngeneral economy of the country. That I think is amply covered… certain
\namount of powers in regard to restriction on trade is necessary and has
\nbeen provided for. ”\n<\/p>\n
[See Constitutional Assembly Debates, 8th September, 1949, Vol.9, p. 1139]<\/p>\n
262. He also believed that the State should be given the right and the
\nCentre should only interfere if the economic and fiscal policy of the
\nCentre is unduly interfered with.\n<\/p>\n
263. While justifying why a certain level of restrictions were required,
\nT.T. Krishnamachari drew largely from the Australian experience wherein it
\nwas believed that absolute freedom of trade and commerce was running
\ncontrary to the purpose of the State and in turn the citizens.\n<\/p>\n
264. However, in sharp contrast to these views, Pandit Thakur Das Bhargava
\nwanted interstate trade and commerce to be almost absolutely free. The only
\nrestrictions to this absolute freedom would be in emergencies. Any other
\nrestrictions would be considered as derogatory to the very concept of
\nfreedom. He further wanted the restrictions to be qualified with the term
\n‘reasonable’ so as to enable the judiciary to adjudicate upon the
\nreasonableness of the restrictions in public interest. [See Shiva Rao, B.,
\nSupra, p.704]<\/p>\n
265. Taking a slightly tangential position, Dr. P.S. Deshmukh stated that,
\n“Trade and commerce are not things which are decided once and for all; they
\nare things that arise and grow from day to day there may be circumstances
\nwhen the whole thing may have to be revised.” He thus advanced the view
\nthat amendments be made to give Parliament a completely blank cheque and
\nlet them determine the policy, bearing in mind the differential leaves of
\nadvancement in various states.\n<\/p>\n
266. However, all the amendments proposed to be inflicted on BR Ambedkar’s
\nDraft provisions were negatived and the Chapter was passed in its exact
\nform. Thus, the position, as it lies, is to grant the maximum possible
\nfreedom of interstate trade and commerce. This is however, subject to a
\ncertain level of legislative restrictions in order to ensure that the
\ngreater economic interests of the country are not hampered, to make
\nprovision for public interest, and to make way in times of emergencies.
\nHowever, it was the very obvious intent of the Constitutional Framers to
\nplace only this minimum level of restrictions on the freedom of trade and
\nbusiness. Any restriction, not falling within these categories will be bad
\nin law and will run contrary to the intention behind its presence in the
\nConstitution.\n<\/p>\n
267. External aids such as the Constitution Assembly Debates are an able
\nguide for discerning the meaning behind a particular provision and in
\nexactly what light their interpretation should take place. The debates in
\nthe Constitution Assembly would show how Article 301, on the one hand, is
\nmore near the Australian Constitution provisions contained in Sections 92
\nand 99 and different in material particulars from the American
\nConstitution.\n<\/p>\n
268. Sections 92 and 99 of the Australian Constitution along with Section
\n297 of the Government of India ct, 1935 served as a source for Article 301.
\nThese provisions in the Australian Constitution serve to guarantee an
\nomnibus right of interstate trade and commerce. Being so absolute, they
\nacted as barriers to many measures of economic reform undertaken by the
\ngovernment.\n<\/p>\n
269. The Commerce Clause in the American Constitution is in sharp contrast.
\nReferred to as the ‘dormant’ clause it simply states that, “the Congress
\nShall have power… to regulate commerce among the several states.” [See
\nU.S. Constitution, Article 1, p.8 Clause 3].\n<\/p>\n
270. The interpretation of this ambiguous clause has been equally varied.
\nThe courts have held that the ‘very silence’ in these words delimits an
\nimplied negative against unduly burdensome or discriminatory state or local
\ninterferences with free trade across state lines. [See Tribe, Lawrence H.
\n“Constitutional Choices”, p.34]. This was primarily the view taken in Leisy
\nv. Hardin [See 135 US 100 at pp 109-110] by Justice Fuller who was in the
\nmajority while striking down an Iowa statute prohibiting sale of
\nintoxicating liquor. He said that, “the Congress’ silence with respect to
\nan area of interstate commerce-that is, its non-enactment of any law either
\nregulating that area or allowing states to do so -indicates its will that
\nsuch commerce shall be free and untrammeled.”\n<\/p>\n
271. However, the minority did not agree. They read into the silence and
\ninaction precisely the opposite- that Congressional intent that the law
\nshall remain as it had been. [See 135 US at p.160-Gray, J. joined by
\nJustices Harlan and Brewer].\n<\/p>\n
272. Thus, as stated by Thomas Powell Reed in an essay in 1938, “The
\ncongress has the power to keep silent. The Congress can regulate interstate
\ncommerce simply by just not doing anything about it.”\n<\/p>\n
273. State laws in conflict with valid Congressional enactments are
\ninoperative so long as the national legislation remains unchanged. “If the
\nConstitution makes the commerce power of the Congress an exclusive one over
\nsubjects for which a single uniform rule is preferable, it must be the
\nConstitution that prohibits the states from exercising any kind of commerce
\npower over that type of commerce as it prohibits the states form taxing the
\nfirst sale of an import before bulk is broken.” (See Powell, Thomas Reed,
\n“Vagaries and Varieties in Constitutional Interpretation”, p. 156)<\/p>\n
274. The power of the Congress is concurrent with that of the states; the
\npower of the states is concurrent with that of the Congress. The exercise
\nof state power, however, is subject to several restrictions. It must not
\nimpose regulation in conflict with regulations of Congress. It must not,
\neven in the absence of conflict, impose regulations if the Congress is
\ndeemed to have occupied the field. The states may not tax interstate and
\nforeign commerce (See Powell, Thomas Reed, “Vagaries and Varieties in
\nConstitutional Interpretation”, p. 180). There is no Cooley law governing
\nstate taxation. Marshall, J. in Brown v. Maryland, a case involving state
\ntax on selling imported goods wholesale, wherein the tax discriminated
\nagainst selling goods of foreign origin, but Marshall did not base
\ncondemnations on that ground. He held that the Constitutional ban on state
\ntaxation of imports keeps the state from subjecting them to a general non-
\ndiscriminatory tax, so long as they remain imports. (See Powell, Thomas
\nReed, “Vagaries’ and Varieties in Constitutional Interpretation”, p. 181)<\/p>\n
275. As regard whether state laws regulating commerce could be valid, there
\nwas a series of tests evolved. The first was the dichotomy evolved by
\nMarshall, J. between ‘commerce’ and ‘police’ powers. This evolved primarily
\nbecause states had waged destructive wars on each other. A common diagnosis
\nwas that state governments had been too responsive to local economic
\ninterests; with the result that interstate economic competition was more
\nthrough political processes than through the marketplace.\n<\/p>\n
276. So while one set of views asked for complete state freedom to regulate
\n(successors of Marshall), others asked for the Central power instead. Soon
\nevolved a new dichotomy of ‘local’ and ‘national’. This came about in
\nCooley v. Board of Wardens of the Port of Philadelphia, [See 53 US (12 How)
\n299 (1851).] which claimed that even though the Pennsylvania statute
\nconcerned manifestly and predictably affected interstate commerce, the
\nsubject being regulated was ‘local’ and not ‘national’.\n<\/p>\n
277. Later the debate moved from here to the test of ‘direct’ and
\n‘indirect’ – State regulations affecting interstate commerce were struck
\ndown by the Court if the regulatory impact upon interstate commerce was
\ndeemed so substantial to be a ‘direct’ burden.\n<\/p>\n
278. Thus, from an overview of all the above views in the American and
\nAustralian Constitutions one can conclude that the Indian provisions for
\nfree trade and commerce are more explicit. While the Australian
\nConstitution failed to expressly define restrictions, the American
\nConstitution defined the clause in an extremely ambiguous manner. The
\nIndian Constitution provides for freedom of trade and commerce, but puts
\nthe minimum required restriction in terms of public interest.\n<\/p>\n
279. The upshot of the discussions made hereinbefore would be that whereas
\nin terms of Article 19(6) as also Article 302 of the Constitution of India
\nin relation to a trade which is noxious in nature a complete prohibition
\nwould be permissible, the same would not mean that while permitting the
\ntrade to go on the State’s action whether legislative or executive need not
\nundergo the constitutional tests in terms of Articles 14, 19 or 301 of the
\nConstitution of India. The argument that the relationship between State and
\nthe licensee is contractual in nature but the same would not mean that any
\nlegislative interference thereupon as a result whereof the contract becomes
\nmore burdensome would not be a subject-matter of challenge. There is no
\nestoppel, against statute. There cannot be any waiver of fundamental right.
\n(B)Freedom of Trade and Commerce: A very ‘ brief Trace of History<\/p>\n
280. Freedom of trade was the established practice in India during the
\nreign of the British. There were no existing interprovincial duties or
\ntrade barriers. However, with the advent of provincial autonomy, it was
\nconsidered necessary to have a statutory basis. Accordingly, Section 297 of
\nthe Government of India Act, 1935 prohibited Provincial governments from
\nimposing barriers on trade within the country. They also could not levy
\ntax, cess, toll or other due which discriminated between goods manufactured
\nin one locality and similar goods manufactured elsewhere. [See Shiva Rao,
\nB. “The Framing of India’s Constitution”, p.699].\n<\/p>\n
281. This trend of thought prevailed even at the stage of the framing of
\nthe Constitution. In the historical backdrop of the formation of an All-
\nIndia Union, it was felt that such a Union would be meaningless and devoid
\nof purpose if trade and commerce throughout India were not free.\n<\/p>\n
282. Thus, from a single glance at the documents and debates that went into
\nthe framing of the Constitution, one can discern that this strand of
\nthought was still extremely prevalent during the drafting of the
\nConstitution. However, it was met with a worthy and able opponent- one that
\nwarned of the danger behind the taking such and absolute view.
\n(C) Constitutional Intent Behind Article 301:\n<\/p>\n
283. Article 301 of the Constitution of India provides that trade, commerce
\nand intercourse throughout India shall be free and subject only to the
\nprovisions of Part XIII of the Constitution. This Article seeks to limit
\nthe legislative powers of the State in matters relating to interstate
\ncommerce, trade and intercourse.\n<\/p>\n
284. The object behind Article 301 is to ensure that the economic unity of
\nIndia may not be broken up by internal barriers. [See Atiabari Tea Co. v.
\nState of Assam<\/a> – AIR 1961 SC 232] Further, unlike the Fundamental right
\nprovided to citizens only under Article 19(1)(g), Article 301 seeks to
\nextend its benefits to all individuals.\n<\/p>\n
285. This is the basis of operation of Article 301. The essence of Article
\n301 is a right of free movement of trade without any barrier whether inter-
\nState or intra-State. It is also not in dispute that the taxes which have
\ndirect impact on the flow of trade and commerce constitute a violation of
\nArticle 301 unless the legislation is brought within the scope of Article
\n302, 304 and 305. [See Jindal Strips Ltd. and Ors. v. State of Haryana and
\nOrs. – JT 2003 (8) SC 62].\n<\/p>\n
LEVY OF TAXES :\n<\/p>\n
286. Imposition of tax is a constitutional function. No tax can be levied
\nexcept in terms of Article 265 of the Constitution of India. It is one
\nthing to say that tax levied is constitutionally valid but it is another
\nthing to say that tax although levied in exercise of its constituent power
\nby a State Legislature, it need not undergo the test of constitutional
\nrequirement at all. The latter proposition, with utmost respect, would be
\ntotally against the letter and spirit of the Constitution of India as also
\nconstitutionalism.\n<\/p>\n
287. In Saghir Abroad and Anr. v. State of U.P. and Ors. [AIR 1954 SC 728],
\nB.K. Mukherjea, J. speaking for the Constitution Bench noticed that after
\nthe Constitution Amendment Act, 1951 in terms of Article 19(6) a three-fold
\nprovision by way of exception to or limitation upon Clause (1)(g) of the
\nArticle 19 was made stating:\n<\/p>\n
“In the first place it empowers the State to impose reasonable restrictions
\nupon the freedom of trade, business, occupation or profession in the
\ninterests of the general public. In the second place it empowers the State
\nto prescribe the professional and technical qualifications necessary for
\npractising any profession or carrying on any occupation, trade or business.
\nThirdly, and this is the result of the Constitution (First) Amendment Act
\nof 1951 – it enables the State to carry on any trade or business either by
\nitself or through a corporation owned or controlled by the State to the
\nexclusion of private citizens wholly or in part.”\n<\/p>\n
288. It was observed:\n<\/p>\n
“As has been held by this Court in the case of Cooverjee v. The Excise
\nCommissioner, etc. ([1954] S.C.R. 873) whether the restrictions are
\nreasonable or not would depend to a large extent on the nature of the trade
\nand the conditions prevalent in it.”\n<\/p>\n
289. It was categorically held:\n<\/p>\n
“With regard to the second point also we do not think that the learned
\nJudges have approached the question from the proper stand point. There is
\nundoubtedly a presumption in favour of the constitutionality of a
\nlegislation. But when the enactment on the face of it is found to violate a
\nfundamental right guaranteed under Article 19(1)(g) of the Constitution, it
\nmust be held to be invalid unless those who support the legislation can
\nbring it within the purview of the exception laid down in Clause (6) of the
\narticle. If the respondents do not place any materials before the Court to
\nestablish that the legislation comes within the permissible limits of
\nClause (6), it is surely not for the appellants to prove negatively that
\nthe legislation was not reasonable and was not conducive to the welfare of
\nthe community. ”\n<\/p>\n
290. The Court clearly held that impost not authorized by law cannot be a
\nreasonable regulation.\n<\/p>\n
291. The submission of Mr. P.N. Mishra and Mr. Iyer could have been
\nappreciated had the State in terms of Article 47 of the Constitution of
\nIndia imposed a total prohibition or even a partial prohibition. The State
\nof Punjab and Kerala have not only imposed no prohibition, they, not only,
\nwith a view to encourage industrial development had been encouraging
\nestablishment of all types of industries including those producing Indian-
\nMade Foreign Liquors. India is also importing liquor manufactured in other
\ncountries.\n<\/p>\n
292. It will appear from the order dated 31.1.2002 passed by his Court that
\non a query made by this Court, Mr. K.K. Venugopal for the State of Punjab
\ncategorically stated that the source of power for imposition of the import
\nfee was Sections 18, 19, 34, 58 and 59 of the Punjab Excise Act, 1944. Even
\nbefore this Court, at that stage, the validity of the said fee was not
\nreferred to the right of exclusive privilege irrespective of the provisions
\nof the Punjab Excise Act.\n<\/p>\n
293. It is also undisputed that the State of Karala at no stage took such a
\nstand at all. Despite the said fact, stand had now been taken that the
\nimport duty levied on beer is a part of the exclusive privilege.\n<\/p>\n
294. Revenue is necessary to be raised for development of the State but the
\nsame must be done in terms of the Constitution.\n<\/p>\n
295. For raising revenue, the State itself cannot take a stand which would
\nbe immoral to some of us, besides being unconstitutional.\n<\/p>\n
296. A taxing statute is either constitutional or unconstitutional.\n<\/p>\n
297. If a statute fails to pass the constitutional test -can it be
\npermitted to succeed on moral or ethical values of some of us?\n<\/p>\n
298. Is there no distinction between an alcohol for industrial or alcohol
\nfor human consumption?\n<\/p>\n
299. Can the State be permitted to make any legislation even on industrial
\nalcohol?\n<\/p>\n
300. These are certain questions which are required to be posed and
\nanswered.\n<\/p>\n
301. In S.K. Pattanaik (Dead) through LRs. v. State of Orissa and Ors. in
\nwhich one of us (Hon. CJI) was a member, this Court held:
\n“”Excise duty” and “Countervailing duty” are well-known concepts and are
\nattracted in different situations, “Excise duty” is essentially a duty on
\nmanufacture of goods, and the taxable event is the manufacture of the
\nexcisable goods. “Countervailing duty”, on the other hand, is imposed when
\nexcisable articles are imported into the State, in order to counterbalance
\nthe excise duty, which is leviable on similar goods if manufactured within
\nthe State. So far as countervailing duty is concerned, the incidence of the
\nimpost is on the import of the excisable articles, i.e., at the time of
\nentry into the State.”\n<\/p>\n
302. In Aristocrat Agencies, Hyderabad v. Excise Superintendent, Hyderabad
\nand Ors.<\/a> [(2001) 1 SCC 496] in which Lahoti, J. was a member, this Court
\nheld:\n<\/p>\n
“In our opinion, the demand of differential amount of countervailing duty
\nfrom the appellant, under the circumstances, was perfectly justified since
\ndemand was made on the basis of the duty as in force on the date of import
\nof the consignment into the State. The duty was to be assessed and
\ncollected as in force at the time of obtaining the permit.”\n<\/p>\n
303. The terms “Excise Duty”, “Countervailing Duty”, “import duty” are not
\nterms of art. They are made part of the interpretation section contained in
\nthe respective Excise Acts.\n<\/p>\n
304. Similarly, “Licence Fee” and “Fixed Fee” are also defined. Each term
\nmust be held to have been used by the Legislature with a view to achieve a
\ndefinite purpose. One term should not be read as supplement to other. In
\nthat view of the matter, import duty cannot be held to be a part of
\nexclusive privilege and, thus, part of a licence fee. If this distinction
\nis borne in mind the statutory injunction contained in Article 301 of the
\nConstitution of India as also Section 33A of the Punjab Excise Act can be
\ngiven an economic, purposive and textual meaning. Import duty which is
\nlevied under Section 17 of the Kerala Abkari Act and Section 34 of the
\nPunjab Excise Act cannot be read to be a part of the licence fee which is
\ncollected at the time of grant of licence that is by way of parting of its
\nright of exclusive privilege. (See Harinarayan Jaiswal (supra) and State of
\nU.P. v. Sheopat Rai,<\/a> 1994 Supp (1) SCC 8)<\/p>\n
PRINCIPLES GOVERNING INTERPRETATION OF CONSTITUTION:\n<\/p>\n
305. Constitution being the most important legal document, presents the
\nmost trying construction problems. (See Siegan, Bernard H., “Economic
\nLiberties and the Constitution”, p.8) “Interpretation of any document, from
\nordinary real estate contracts to the Constitution, is influenced by the
\ncircumstances, mores, conventions, and prevailing notions of contemporary
\nsociety; and clearly, the meanings given to words may change over the
\nyears. That which was reasonable, proper and logical in one century may be
\nunacceptable in another. Many concerns of the yesteryear that prompted
\ncertain interpretations have now faded and been replaced with new
\nattitudes. Ideas and feelings about labour, property, producers’ and
\nconsumers’ interests, the environment and human rights do not remain
\nstatic. Inventions and discoveries have occurred that were beyond the
\ncontemplation of those who lived centuries ago. The certainties of one
\nperiod may appear as mistakes in another. Nonetheless, the nation retains
\nits commitment to a supreme legal document establishing the terms of the
\nrelationship between the governor and the governed. (See Siegan, Bernard
\nH., “Economic Liberties and the Constitution”, p9)<\/p>\n
306. Many believe that the Constitution is a flexible and evolving
\ndocument, always adaptable to changes in society’s conditions and
\ncircumstances. Others insist that judges be strictly bound by its words and
\nby the historical record of what the framers of both the original text and
\nthe amendments intended.\n<\/p>\n
307. A constitutional provision should always receive a fair, liberal and
\nprogressive interpretation so that its true objects might be promoted. By
\nthis it can fulfil the aspirations of the people at large.\n<\/p>\n
308. To achieve the above goal, the Organic method of interpretation which
\nis now universally accepted, requires us to see the present social
\nconditions and interpret the Constitution in a manner so as to resolve the
\npresent difficulties. The social conditions existing at the time when the
\nConstitution was made may be very different from the present conditions and
\nhence if we interpret the Constitution from the angle of the Constitution
\nmakers we may arrive at a completely outdated and unrealistic view. As
\nJustice Marshall observed in McCulloch v. Maryland, (1819) 4 Wheat 316
\n“this provision is made in a Constitution, intended to endure for ages to
\ncome, and consequently to be adopted to the various crises of human
\naffairs”. So “a Constitutional provision will not be interpreted in the
\nattitude of a lexicographer, with one eye on the provision and the other on
\nthe lexicon. The meaning of the word or expression used in the Constitution
\noften is coloured by the context in which it occurs, the simpler and more
\ncommon the word or expression, the more meanings and shades of meanings it
\nhas, It is the duty of the Court to determine in what particular meaning
\nand particular shade of meaning the word or expression was Used by the
\nConstitution makers and in discharging the duty the Court will take into
\naccount the context in which it occurs, the object to serve which in war
\nused, its collocation, the general congruity with the concept or object it
\nwas intended to articulate and a host of other consideration.\n<\/p>\n
309. The interpretative changes in the Constitution must not only be
\nconsidered from its plain language for the purport and object it seeks to
\nachieve but also having regard to the international treaties and
\nconventions but also principles of interpretation governing the same.\n<\/p>\n
310. The necessity of interpretative changes having regard to the changing
\nscenario has recently been noticed by this Court in its several decisions.\n<\/p>\n
311. In order to determine whether total prohibition would be reasonable
\nthe Court has to balance the direct impact on the fundamental right of the
\ncitizens thereby against the greater public or social interest sought to be
\nensured. Implementation of Directive Principles contained in Part IV is
\nwithin the expression of “restrictions in the interest of the general
\npublic”.\n<\/p>\n
312. In other words, there exists a distinction between a fundamental right
\nof a citizen to carry on trade in obnoxious matters under Article 19(1)(g)
\nof the Constitution of India and freedom to carry on such trade through out
\nthe country without any hindrance or obstruction except in terms of
\nreasonable regulations which may be made under Part XIII of the
\nConstitution of India.\n<\/p>\n
INTERNATIONAL TREATIES AND COVENANTS:\n<\/p>\n
313. With a view to interpret the constitutional provision, global changes
\nand outlook in trade and commerce would be relevant factors.\n<\/p>\n
314. The impugned notifications not only touch inter-state trade, it affect
\ninternational trade also. “Import of liquor” envisages liquor imported both
\nfrom outside the State as also outside India. International treaties and
\ncovenants, therefore, would play a significant role.\n<\/p>\n
315. The national policy of globalisation of trade leading to WTO has been
\nnoticed by a Constitution Bench of this Court in Islamic Academy of
\nEducation (supra) stating :\n<\/p>\n
” …The right of a minority is a human right, so also the right of
\ndevelopment. Thus, subject to reasonable restrictions, any unaided
\ninstitution imparting professional courses may although exercise greater
\nautonomy in the matter of management and determination of the fee
\nstructure, it will have a limited right so far as the right to admit
\nstudents is concerned. T.M.A. Pai Foundation says that merit shall be the
\ncriteria. Right, of development finds place in WTO and GATT. It takes into
\nconsideration globalisation and opening up of economy. Excellence in
\nprofessional education must be viewed from the economic interest in the
\ncountry. In order to compete with the other developed countries, GDP of
\nIndia should be around 15% instead of present rate of 5%. This can be
\nachieved only by producing students of excellence, which can be achieved
\nonly by encouraging institutions of excellence imparting professional
\neducation to those who are meritorious. Giving encouragement to the
\nstudents, having better merit will, thus, have a direct nexus with the
\neconomic and consequently the national interests of the country. The right
\nof development from the human right point of view must be construed
\nliberally.”\n<\/p>\n
316. It was further observed :\n<\/p>\n
“Having regard to globalisation and opening up of the market, the State
\nexpects various medical colleges and educational institutions and
\nuniversities to move in. Under WTO and GATT human development has taken its
\nfirm root. A decent life to the persons living in the society in general is
\nperceived.”\n<\/p>\n
GLOBALISATION:\n<\/p>\n
317. Globalisation has brought a radical change in the economic and social
\nlandscape of the country. Its impact on Constitution and constitutionalism
\nis significant. As and when occasion arises the interface between the
\nglobalisation and constitutionalism whether from economic perspective or
\nhuman rights perspective is required to be seriously gone into. Often the
\neconomic changes in the country relating to regulation of markets brought
\nabout competition law leading to substantial erosion of administrative law
\nby private law are matters which eventually would fall for our decisions.
\nThe Court will have to take a realistic view in interpretation of
\nConstitution having regard to the changing economic scenario.\n<\/p>\n
318. Can we shut our eyes to the fact that except the State of Gujarat, no
\nother State has imposed a complete prohibition. In fact, the States are
\nencouraging liberalization to such an extent that in the near future
\nalcohol beverages may be allowed to be sold in the small grocery shops. The
\nexecutive authorities are contemplating to grant permission to open liquor
\nat the Airports. The society has accepted pub culture in the metres. A view
\nin the matter, therefore, is required to be taken having regard to the
\nchanging scenario on the basis of ground reality and not on the basis of
\nthe centuries’ old maxims.\n<\/p>\n
Subsidies and Countervailing Duties:\n<\/p>\n
319. The WTO and GATT, inter alia, provides for subsidies and
\ncountervailing duties.\n<\/p>\n
320. What is a countervailing duty?\n<\/p>\n
321. It is defined as, “a duty imposed [on imports] to offset the advantage
\nto foreign producers, derived from a subsidy that their government offers
\nfor the production or export of any article taxed.” [See Webster’s 3rd New
\nInternational Dictionary, 1993]<\/p>\n
322. It has also been defined by Article VI of GATT as, “a special bounty
\nlevied for the purpose of offsetting any bounty or subsidy bestowed
\ndirectly or indirectly, upon the manufacture, production or export of any
\nmerchandise.” [See WTO in the New Millenium, 5ed., p.123].\n<\/p>\n
323. What is the rationale behind the imposition of a countervailing duty?\n<\/p>\n
324. The economic rationale is very doubtful, as the effect of a
\ncountervailing duty is to make the product more expensive in the importing
\ncountry. However, there has been some level of an explanation provided.
\nEvery time a tariff barrier is negotiated and agreed on, WTO members have
\nreasonable expectations that they, can profit from the conditions of
\ncompetition established in the market of the member, binding its tariff and
\ngain market share. Moreover, members have ‘paid’ for the binding by
\npromising to open up their market, that is, by binding their own tariffs.
\nWTO members may not frustrate their promises by subsidising their domestic
\nindustry producing the product for which a tariff binding, has been
\npreviously offered. If this were allowed WTO members might lose the
\nincentive to make concessions in the future. [See “The World Trade
\nOrganisation-Law, Practice and Policy” by Mitsuo Matsushita, Thomas J.
\nSchoenbaum & Petros C. Mavroidis P.279].\n<\/p>\n
325. We need not go into the question in details as regard the provisions
\nof subsidies as found placed in GATT. But it may be relevant to note the
\nimpact of subsidies on international trade. (See Jackson, John J., in “The
\nJurisprudence of GATT and WTO” pp 434-5.)<\/p>\n
CHANGING SCENARIO:\n<\/p>\n
326. Socialism might have been a catchword from our history. It may be
\npresent in the Preamble of our Constitution. However, due to the
\nliberalization policy adopted by the Central Government from the early
\nnineties, this view that the Indian society is essentially wedded to
\nsocialism is definitely withering away.\n<\/p>\n
327. Although, the United States is guided by a capitalist philosophy
\nunlike the socialist policy laid down in the Indian Constitution, the very
\nfact that changes in society have to be reflected in the interpretation of
\nthe Constitution, while still preserving the core constitutional intent of
\nthe Constitutional makers is a factor to be reckoned with. This has never
\nbeen more important than in the age of globalization when vast changes are
\ntaking place both at the social and political levels.
\nConstitution: How should be interpreted in Present. Day Scenario:\n<\/p>\n
328. Legal history is a good guide for the purpose of appreciating the
\nlegal development across the world particularly in the field of
\ninternational law.\n<\/p>\n
329. The judiciary cannot cling to age-old notions of any underlying
\nphilosophy behind interpretation. It has to move with the times. As Willes
\nCJ once said, “When the nature of things changes, the rules of law must
\nchange too”. (See Davies v. Powell (1737) Willes 46 at 51) This is a truism
\nin that the legislature and, within limits, the courts should change rules
\nto keep the law abreast of change. (See Dias Jurisprudence, 5th Edition,
\npage 147)<\/p>\n
330. In Francis Bennion Interpretation of Statutes, Fourth edition at page
\n771, it is stated:\n<\/p>\n
“Changes in social conditions – Where relevant social conditions have
\nchanged since the date of enactment, what was then classed as a social
\nmischief may not be so regarded today. It is very difficult for the court
\nto apply an enactment so as to ‘remedy’ what is no longer regarded as a
\nmischief. The consequence is an interpretation that minimizes the coercive
\neffect of the enactment and gives great weight to criteria such as the
\nprinciple against doubtful penalisation.”\n<\/p>\n
331. While interpreting such a situation, one must take into consideration
\nthe flexibility in law as has been highlighted by this Court in M.V. Al
\nQuamar v. Tsavliris Salvage (International) Ltd. and Ors.<\/a> [(2000) 8 SCC
\n278] wherein it was opined:\n<\/p>\n
’43. The two decisions noted above in our view deal with the situation
\namply after having considered more or less the entire gamut of judicial
\nprecedents. Barker, J’s judgment in the New Zealand case ((1980) 1 – NZLR
\n104 (NZSC)) very lucidly sets out that the court has to approach the modern
\nproblem with some amount of flexibility as is now being faced in the modern
\nbusiness trend. Flexibility is the virtue of the law courts as Roscoe Pound
\nputs it. The pedantic approach of the law courts are no longer existing by
\nreason of the global change of outlook in trade and commerce. The
\nobservations of Barker, J. and the findings thereon in the New Zealand case
\n((1380) 1 NZLR 104 (NZSC)) with the longish narrations as above, depicts
\nour inclination to concur with the same, but since issue is slightly
\ndifferent in the matter under consideration, we, however, leave the issue
\nopen, though the two decisions as above cannot be doubted in any way
\nwhatsoever and we feel it expedient to record that there exists sufficient
\nreasons and justification in the submission of Mr. Desai as regards the
\ninvocation of jurisdiction under Section 44-A of the Code upon reliance on
\nthe two decisions of the New Zealand and Australian Courts.”\n<\/p>\n
332. There cannot be any doubt whatsoever that a law which was at one point
\nof time was constitutional may be rendered unconstitutional because of
\npassage of time. (See Kapila Hingorani (supra) and John Vallamattom and
\nAnr. v. Union of India<\/a> [JT 2003 (6) SC 37]).\n<\/p>\n
333. In R v. Hughes [[12 BHRC 243 = (2002) UKPC 12], the Privy Council
\nobserved:\n<\/p>\n
“Under the constitution the people of St. Lucia enjoy certain fundamental
\nrights and freedoms. The supremacy of those constitutional rights and
\nfreedoms is secured by Section 120 of the constitution :
\n“This Constitution is the supreme law of Saint Lucia and, subject to the
\nprovisions–of Section 41 of this Constitution, if any other law is
\ninconsistent with this Constitution, this Constitution shall prevail and
\nthe other law shall, to the extent of the inconsistency, be void.”
\nThe constitution controls not only the statute law but any law in force in
\nSt. Lucia, including ‘any unwritten rule of law’ (Section 124). Therefore,
\nunless para 10 applies, any law, whether, written or unwritten, which is
\ninconsistent with the constitution is to that extent void.\n<\/p>\n
334. It was further observed :\n<\/p>\n
“Since para 10 introduces these exceptions to the rights and protection
\nwhich people would otherwise have under the constitution, it must be
\nconstrued like any other derogation from constitutional guarantees. In
\nState v. Petrus [1985] LRC (Const) 699 at 720 in the Court of Appeal of
\nBotswana, Aguda JA referred to Corey v Knight (1957) 150 Cal App 2d 671 and
\nobserved that –\n<\/p>\n
“it is another well known principle of construction that exceptions
\ncontained in Constitutions are ordinarily to be given strict and narrow,
\nrather than broad, constructions.”\n<\/p>\n
In case of doubt, para 10 should therefore be given a strict and narrow,
\nrather than a broad, construction.”\n<\/p>\n
335. In Project Gabcikovo-Nagymaros (Op. Ind. Weeramantry) the
\nInternational Court in its judgment dated 25.9.1997 at page 114, albeit in
\nthe context of ecology observed:\n<\/p>\n
“As this Court observed in the Namibia case, “an international instrument
\nhas to be interpreted and applied within the framework of the entire legal
\nsystem prevailing at the time of the interpretation” (Legal Consequences
\nfor States of the Continued Presence of South Africa in Namibia (South West
\nAfrica) notwithstanding Security Council Resolution 276 (1970), Advisory
\nOpinion, I.C.J. Reports 1971, p. 31, para 53), and these principles are
\n“not limited to the rules of international – law applicable at the time the
\ntreaty was concluded.”\n<\/p>\n
336. In People’s Union for Civil Liberties and Anr. v. Union of India and
\nAnr.<\/a> it held :\n<\/p>\n
“…It is established that fundamental rights themselves have no fixed
\ncontent, most of them are empty vessels into which each generation must
\npour its content in the light of its experience. The attempt of the court
\nshould be to expand the reach and ambit of the fundamental rights by
\nprocess, of judicial interpretation. The Constitution is required to be
\nkept young, energetic and alive”.\n<\/p>\n
Public Policy:\n<\/p>\n
337. The matter is covered by statutory provisions. The court cannot
\ninterpret on equality, freedom or commerce clauses of the Constitution in
\nsuch a manner so as to take away the rights and obligations created under a
\nstatute on the ground of public morality or otherwise. When a statute
\npermits a trade, morality takes a back seat as ‘legislature’ as contra
\ndistinguished from ‘judiciary’ is supposed to be the authority to consider
\nthe morality or otherwise of certain things prevailing in the society.\n<\/p>\n
338. This Court in Murlidhar Agarwal and Anr. v. State of U.P. and Ors.
\nwhile dealing with the concept of ‘public policy’
\nobserved thus:-\n<\/p>\n
“…Public policy does not remain static in any given community. It may
\nvary from generation to generation and even in the same generation. Public
\npolicy would be almost useless if it were to remain in fixed moulds for all
\ntime.\n<\/p>\n
… The difficulty of discovering what public policy is at any given moment
\ncertainly does not absolve the judges from the duty of doing so. In
\nconducting an enquiry, as already stated, Judges are not hide-bound by
\nprecedent. The Judges must look beyond the narrow field of past precedents,
\nthough this still leaves open the question, in which direction they must
\ncast their gaze. The judges are to base their decision on the opinions of
\nmen of the world, as distinguished from opinions based on legal learning.
\nIn other words, the judges will have to look beyond the jurisprudence and
\nthat in so doing, they must consult not their own personal standards or
\npredilections but those of the dominant opinion at the given moment, or
\nwhat has been termed customary morality. The judges must consider the
\nsocial consequences of the rule propounded, especially in the light of the
\nfactual evidence available as to its probable results. .. The point is
\nrather this power must be lodged somewhere and under our Constitution and
\nlaws, It has been lodged in the Judges and if they have to fulfill their
\nfunction as Judges, it could hardly be lodged elsewhere.\n<\/p>\n
NEED TO HAVE AN ECONOMIC INTERPRETATION :\n<\/p>\n
339. The wave of privatization, multinationals influx into society, etc has
\nlead to a very wide debate on the merits of such a scheme and the judiciary
\nhas a very wide role to play in discerning what the current position of the
\neconomic trend of the country is, bearing in mind the Constitutional goals
\nof our Founding Fathers. Economic factors were by no means absent during
\nthe framing of the Constitution. On the contrary, in several instances
\neconomic elements were of considerable importance.\n<\/p>\n
340. However, the very nature of the playing field has changed with the
\nchanges taking place in an evolving society. This is true of every society.
\nThus, can we still say that the same economic interests that the
\nConstitutional Framers sought to achieve exist in the same form even today,
\nbearing in mind the changes that have taken place due to the onslaught of
\nglobalization in the last 2 decades? All these factors have to borne in
\nmind while an interpretation of the Constitution has to take place.\n<\/p>\n
341. Opposition will rise to every conceivable change in socio-political-
\neconomic scenarios. Some persons are by nature, conservative in their
\nsubconscious evaluation of change. They refuse to acknowledge man’s power
\nto make his own history and they explicitly reject the notion that observed
\ninstitutions of interaction are in themselves, products of intended human
\naction. (See Buchanan, James A., “Sources of Opposition to Constitutional
\nReform”, in McKenzie, Richard B., “Constitutional Economics”, at p.22) Thus
\nany change proposed to be made by the lawmakers or the judiciary will meet
\nwith a certain level of opposition, but that does not mean that age-old
\nnotions are clung to. The impact of changes in society also has to be
\nreflected in the lawmaking process.\n<\/p>\n
342. In interpretation of the provisions of the Constitution especially
\nthose provisions dealing with the regulation of economy of the nation must
\nreceive such interpretation which fosters economic growth. The stagnatic
\neconomy of any nation has a bane for the world economy. Keeping this in
\nview the interpretation, of the Constitution should receive such a
\ntreatment which would be in tune with the original intention of the
\nConstitution makers.\n<\/p>\n
343. The ultimate duty to achieve and maintain integrity of the nation vis-
\n-vis life lies on the Union. It is for this reason though law and order is
\nincluded in the List II of the Seventh Schedule of the Constitution of
\nIndia, national security, internal security and policy powers to regulate
\nvarious aspects of social, political and economic conduct of human beings
\nvested in the Union Parliament. Further by reason of Article 352, it is the
\nparliament which can take over the administration of any state. These are
\nintended to maintain integrity and push economy forward. A growing economy
\nresults in more industries and more jobs. When people are employed the
\npurchasing power will go up the per capita income will go up resulting in
\nmore payment for goods. This again requires more industries. In the long
\nrun, subject to providing congenial atmosphere results in foreign
\ninvestment.\n<\/p>\n
344. The Court having regard to globalisation should take notice of the
\nfuturistic thought in developed countries for interpretation of the
\nConstitution in the ascertainment of meaning of the relevant provisions
\nthereof with reference to everything which is logically relevant.\n<\/p>\n
345. In “An Economic Interpretation of the Constitution of the United
\nStates” by Charles A. Beard in Chapter VI the Constitution of the United
\nStates has been read as an economic document. Referring to Hamilton, it is
\nstated that free trade over a wide range would be reciprocal and would give
\ngreat diversity to commerce enterprise and will render stagnation less
\nliable for offering more distant markets when local demands fall off.\n<\/p>\n
346. Lawrence. H. Tribe in his constitutional treatise ‘American
\nConstitutional Law’, 3rd Edition emphasized upon the debate, at page 822,
\nas regards court’s new focus on economic activity citing Lopez [514 US at
\npage 566] acknowledging that the determination whether an interstate
\nactivity is commercial or noncommercial may in some cases result in legal
\nuncertainty. The learned author states:\n<\/p>\n
“As long as the Court adheres to the principle that a limitless commerce
\npower is inconsistent with the text and structure of the Constitution and
\nbelieves that its role is to strike down legislation that exceeds the
\ncommerce power (rather than relying on Congress to exercise self-
\nrestraint), it will need to apply some sort of administrable test to
\ndistinguish among classes of activities. It could seek to limit
\ncongressional power through a highly sensitive test for measuring the
\nexistence of “substantial effects on commerce,” but the interconnectedness
\nof our society and the fact that every act has “economic” consequences
\ncombine to suggest that, with respect to almost any activity, one could
\nmake a strong argument that its repetition all over the country probably
\nwill substantially affect commerce. If any activity can meet the
\nsubstantial effects test, then the only other possibility may be the one
\nthe court pursued: limiting the category of activities that can be
\naggregated in the first place – for example, by focusing on “commercial”
\nactivities as Lopez appears to have done. If that proved unworkable in
\npractice, then the Court may find itself unable, after all, to effectuate
\nany substantive limits on Congress’ commerce power – unless the Court takes
\nthe truly dramatic step of rejecting entirely the substantial effects test
\nand the aggregation principle that is its companion, as Justice Thomas
\nurged in his solo concurrence, advocating the overruling of such
\nfoundational landmarks as Wickard v. Filburn, NLRB v. Jones & Laughlin
\nSteel Corp., and Katzenbach v. McClung.”\n<\/p>\n
347. The history of commerce power of the United States vis–vis the
\ndecisions of the Supreme Court is stated in ‘The Oxford Companion to the
\nSupreme Court of the United States’ edited by Kermit L. Hall, 1992 edition
\nwherein under the heading ‘Commerce Power Today’ it is stated:
\n“Commerce Power Today: During the fifty years following the post-New Deal
\nera Congress expanded national regulation into myriad aspects of the
\nnational life, using the Commerce Clause as the constitutional base, all
\nwith the Supreme Court’s approval. One of the most significant areas of
\nnational intervention was that of racial discrimination. In 1964 Congress
\nenacted a Civil Rights Act banning racial discrimination in hotels, motels,
\nrestaurants, theaters, and motion picture houses throughout the country,
\nnow based on the Commerce Clause rather than the Fourteenth Amendment. In
\nHeart of Atlanta Motel, Inc. v. United States (1964) and Katzenbach v.
\nMcClung (1964), the Supreme Court found that racial discrimination had a
\ndeleterious effect on interstate commerce and was a proper object for
\ncongressional attention.\n<\/p>\n
In National League of Cities v. Usery (1976), the Court struck down
\nlegislation based on the Commerce Clause for the first time in forty years
\nwhen it held that the minimum wage-maximum hour requirements of the amended
\nFair Labor Standards Act of 1938 could not be extended to state and local
\ngovernment employees. Such requirements, said the Court, involved a
\ncongressional intrusion into an “attribute of state sovereignty” (p. 845).
\nLess than a decade later the Court overruled the Usery case in Garcia v.
\nSan Antonio Metropolitan transit Authority (1985). Marshall, Taney and
\nWaite (1937). R.S. Myers, “The Burger Court and the Commerce Clause: An
\nEvaluation of the Role of State Sovereignty,”‘ Notre Dame Law Review 60
\n(1985); 1056-1093.”\n<\/p>\n
348. In United States v. Lopez [514 US 549 (1995)] the United States
\nSupreme Court struck down a statute as beyond the Congress’ Commerce power
\non the ground that the activity regulating was neither a part of nor at a
\nsubstantial fact upon interstate commerce. The decision recognizes a debate
\nas regard Congress’ commerce power. Commenting upon Lopez, the learned
\nAuthor States:\n<\/p>\n
“It is by no means certain, of course, that future applications of Lopez
\nwill turn entirely, or even predominantly, on deciding whether a regulated
\nactivity is sufficiently “commercial” to qualify for the “substantial
\neffects” test and the aggregation principle. The Lopez Court did not
\nexpressly hold that only economic or commercial activities could be
\nregulated by Congress whenever they meet these impact tests. Lopez relied
\nultimately on the more general meta- principle that upholding the Gun-Free
\nSchool Zones Act as a regulation of activity substantially affecting
\ncommerce “would require us to conclude that the Constitution’s enumeration
\nof powers does not presuppose something not enumerated… This we are
\nunwilling to do.”\n<\/p>\n
349. The American decisions are replete with conflicting views taken from
\ntime to time from Gibbons v. Ogden [22 US (9Wheat) 1 (1824) to NLRB v.
\nJones & Laughlin Steel Corp. [301 US 1 (1937) and Katzenbach v. McClung
\n[379 US 294 (1964)] as to whether the Congress should be the sole authority
\nto control the commerce clause or not. [See ‘A Book of Legal Lists’ by
\nBernard Schwartz, ‘A History of the Supreme Court’ by Bernard Schwartz and
\n‘American Constitutional Law’ by Lawrence H. Tribe]<\/p>\n
350. In Joseph Lochner v. People of the State of New York [1908 US 937] a
\nquestion arose as to whether a legislation in limiting of employment in
\nbakeries to sixty hours a week and ten hours a day is constitutional. The
\nlaw was struck down stating:\n<\/p>\n
“It is also urged, pursuing the same line of argument, that it is to the
\ninterest of the state that its population should be strong and robust, and
\ntherefore any legislation which may be said to tend to make people healthy
\nmust be valid as health laws, enacted under the police power. If this be a
\nvalid argument and a justification for this kind of legislation, it follows
\nthat the protection of the Federal Constitution from undue interference
\nwith liberty of person and freedom of contract is visionary, wherever the
\nlaw is sought to be justified as a valid exercise of the police power.
\nScarcely any law but might find shelter under such assumptions, and
\nconduct, properly so called, as well as contract, would come under the
\nrestrictive sway of the legislature.”\n<\/p>\n
351. It was observed:\n<\/p>\n
“It was further urged on the argument that restricting the hours of labor
\nin the case of bakers was valid because it tended to cleanliness on the
\npart of the workers, as a man was more apt to be cleanly when not
\noverworked, and if cleanly then his “output” was also more likely to be so.
\nWhat has already been said applies with equal force to this contention. We
\ndo not admit the reasoning to be sufficient to justify the claimed right of
\nsuch interference. The state in that case would assume the position of a
\nsupervisor, or pater familias, over every act of the individual, and its
\nright of governmental interference with his hours of labor, his hours of
\nexercise, the character thereof, and the extent to which it shall be
\ncarried would be recognized and upheld. In our judgment it is not possible
\nin fact to discover the connection between the number of hours a baker may
\nwork in the bakery and the healthful quality of the bread made by the
\nworkman.”\n<\/p>\n
352. It was held that the legislations although claimed to have been made
\nunder the police power or really purported to be for the purpose of
\nprotecting the public health and welfare, in reality are passed through
\nother motives.\n<\/p>\n
353. Justice Holmes in his dissenting view, however, resented the economic
\ntheory governing the majority judgment.\n<\/p>\n
354. In India even such a debate is necessary having regard to the
\nprovisions contained in Part XIII of the Constitution of India in terms
\nwhereof the State in relation to certain matters may have a regulatory or
\ntaxing power but the same would be subject to the commerce clause.\n<\/p>\n
PRECEDENT:\n<\/p>\n
355. Doctrine of precedent is a well-accepted principle. A ruling is
\ngenerally considered to be binding on lower courts and courts having a
\nsmaller Bench structure.\n<\/p>\n
“A precedent influences future decisions. Every decision is pronounced on a
\nspecific set of past facts and from the decision on those facts a rule has
\nto be extracted and projected into the future. No one can foresee the
\nprecise situation that will arise, so the rule has to be capable of
\napplying to a range of broadly similar situations against a background of
\nchanging conditions. It has therefore to be in general terms and
\n‘malleable’… No word has one proper meaning, nor can anyone seek to fix
\nthe meaning of words for others, so the interpretation of the rule remains
\nflexible and open-ended. (See Dias Jurisprudence, 5th Edition, page 136)”\n<\/p>\n
356. However, although a decision has neither been reversed nor overruled,
\nit may cease to be ‘law’ owing to changed conditions and changed law. This
\nis reflected by the principle ‘cessante ratione cessat ipsa lex’.
\n“…It is not easy to detect when such situations occur, for as long as the
\ntraditional theory prevails that judges never make law, but only declare
\nit, two situations need to be carefully distinguished. One is where a case
\nis rejected as being no longer law on the ground that it is now thought
\nnever to have represented the law; the other is where a case, which is
\nacknowledged to have been the law at the time, has ceased to have that
\ncharacter owing to altered circumstances. (See Dias Jurisprudence, 5th
\nEdition, page 146-147)”\n<\/p>\n
357. It is the latter situation which is often of relevance. With changes
\nthat are bound to occur in an evolving society, the judiciary must also
\nkeep abreast of these changes in order that the law is considered to be
\ngood law. This is extremely pertinent especially in the current era of
\nglobalization when the entire philosophy of society, on the economic front,
\nis undergoing vast changes.\n<\/p>\n
358. In M.A. Murthy v. State of Karnataka and Ors.,<\/a> this Court held:
\n“…The doctrine of binding precedent helps in promoting certainty and
\nconsistency in judicial decisions and enables an organic development of the
\nlaw besides providing assurance to the individual as to the consequences of
\ntransactions forming part of the daily affairs.”\n<\/p>\n
HAD KALYANI STORES (SUPRA) BEEN RENDERED PER INCURIUM :\n<\/p>\n
359. Kalyani Stores (supra) is a Constitution Bench judgment. A
\nConstitution Bench has unequivocally held that Article 301 of the
\nConstitution of India shall apply to trade of liquor. Once this Court comes
\nto the conclusion that doctrine of res extra commercium was not applicable,
\nKalyani Stores must be applied in all fours. In any event, the decision of
\na Constitution Bench cannot be brushed aside as having been passed ‘sub
\nsilentio’ or on the basis of doctrine of ‘per incurium’<\/p>\n
360. Judicial discipline envisages that a coordinate bench follow the
\ndecision of earlier coordinate bench. If a coordinate bench does not agree
\nwith the principles of law enunciated by another bench, the matter may be
\nreferred only to a larger bench. (See Pradip Chandra Parija v. Pramod
\nChandra Patnaik,<\/a> followed in State of Tripura v. Roop Chand Das and Ors.,
\nBut no decision can be arrived at contrary to or inconsistent with the law
\nlaid down by the coordinate bench. Kalyani Stores (supra) and K.K. Narula
\n(supra) both have been rendered by the Constitution Benches. The said
\ndecisions, therefore, cannot be thrown out for any purpose whatsoever; more
\nso when both of them if applied collectively lead to a contrary decision
\nproposed by the majority.\n<\/p>\n
361. In Halsbury’s Laws of England (Fourth Edition) Vol. 26, at pages
\n297-298, Para 578, it is stated:\n<\/p>\n
” A decision is given per incuriam when the court has acted in ignorance of
\na previous decision of its own or of a court of coordinate jurisdiction
\nwhich covered the case before it, in which case it must decide which case
\nto follow Young v. Bristol Aeroplane Co. Ltd. (1944) 1 KB 718 at 729 (1944)
\n2 ALT ER 293 at 300. In Hudderfield Police Authority v. Waton (1947) KB 842
\n(1947) 2 All ER 193 or when it has acted in ignorance of a House of Lords
\ndecision, in which case it must follow that decision; or when the decision
\nis given in ignorance of the terms of a statute or rule having statutory
\nforce Young v. Bristol Aeroplane Co. Ltd (1944) 1 KB 718 at 729 (1944) 2
\nAll ER 293 at 300. See also Lancaster Motor Col. (London Ltd. v. Bremith
\nLtd. (1941) 1 KB 675 For a Divisional Court decision disregarded by that
\ncourt as being per incuriam, See Nicholas v. Penny (1950) 2KB 466, 1950 2
\nAll ER 89. A decision should not be treated as given per incuriam, however,
\nsimply because of a deficiency of parties, Morvelle ltd. v. Wakeling (1955)
\n2 QB 379 (1955) 1 ALL ER 708 C. or because the court had not the benefit of
\nthe best argument, Bryers v. Candadian Pacific Streampships ltd. (1957) 1
\nQB 134, (1956) 3 All ER 560 CA Per Singleton LJ, affd Sub nom. Candadian
\nPacific Streampship Ltd. v. Bryers (1958) AC 485, (1957) 3 ALL ER 572. and,
\nas a general rule, the only cases in which decision should be held to be
\ngiven per incuriam are those given in ignorance of some inconsistent
\nstatute or binding authority A. and J. Mukclow Ltd. v. IRC (1954) Ch. 615.
\n(1954) 2 All ER; 508 CA, morelle Ltd. v. Wakeling (1955) 2 QB 379, (1955) 1
\nAll ER 708 CA, See also Bonsor v. Musicians Union (1954) Ch. 479 (1954) 1
\nALL ER 822 CA, where the per incuriam contention was rejected and on appeal
\nto the house of lords although the House overruled the case which bound the
\nCourt of Appeal, the House agreed that court had been bound by it see
\n(1956) AC 104. (1955) 3 All ER 518 HL. Even if a decision of the Court of
\nAppeal has misinterpreted a previous decision of the House of lords, the
\nCourt of Appeal must follow its previous decision and leave the House of
\nLords to rectify the mistake. Williams v. Glasbrook Bros Ltd (1947) 2 All
\nER 884 CA”\n<\/p>\n
362. In Dr. Vijay Laxmi Sadho v. Jagdish<\/a> [JT 2001 (1) SC 382] it has been
\nobserved as follows:\n<\/p>\n
“As the learned Single Judge was not in agreement with the view expressed
\nin Devilal Case it would have been proper, to maintain judicial discipline,
\nto refer the matter to a larger Bench rather than to take a different view.
\nWe note it with regret and distress that the said course was not followed.
\nIt is well-settled that if a Bench of coordinate jurisdiction whether on
\nthe basis of “different arguments” or otherwise, on a question of law, it
\nis appropriate that the matter be referred to a larger Bench for resolution
\nof the issue rather than to leave two conflicting judgments to operate,
\ncreating confusion. It is net proper to sacrifice certainty of law.
\nJudicial decorum, no less than legal propriety forms the basis of judicial
\nprocedure and it must be respected at all costs”.\n<\/p>\n
363. In State of Bihar v. Kalika Kuer<\/a> @ Kalika Singh and Ors. [JT 2003 (4)
\nSC 489], a Bench of this Court upon taking a large number of decisions into
\nconsideration observed :\n<\/p>\n
“Looking at the matter, in view of what has been held to mean by per
\nincuriam, we find that such element of rendering a decision in ignorance of
\nany provision of the statute or the judicial authority of binding nature,
\nis not the reason indicated by the Full Bench in the impugned judgment,
\nwhile saying that decision in the case of Ramkrit Singh (supra) was
\nrendered per incuriam.”\n<\/p>\n
364. It was further opined:\n<\/p>\n
“…The earlier judgment may seem to be not correct yet it will have the
\nbinding effect on the letter bench of coordinate jurisdiction. Easy course
\nof saying that earlier decision was rendered per incuriam is not
\npermissible and the matter will have to be resolved only in two ways –
\neither to follow the earlier decision or refer the matter to a larger Bench
\nto examine the issue, in case it is felt that earlier decision is not
\ncorrect on merits.”\n<\/p>\n
365. It is also trite that the binding precedents which are authoritative
\nin nature and are meant to be applied should not be ignored on application
\nof the doctrine of sub silentio or per incurium without assigning specific
\nreasons therefore. I, for one, do not as to how Kalyani Stores (supra) and
\nK.K. Narula (supra) read together can be said to have been passed sub
\nsilentio or rendered per incurium.\n<\/p>\n
CONCLUSION:\n<\/p>\n
366. The propositions of law which emerge from the discussions made
\nhereinbefore are :\n<\/p>\n
(1) The maxim ‘res extra commercium’ has no role to play in determining the
\nconstitutional validity of a statute.\n<\/p>\n
The State, in its discretion having regard to the provisions contained in
\nArticle 47 of the Constitution of India may part with its right of
\nexclusive privilege but once it does so, the grant being subject to the
\nterms and conditions of a statute, the common law principle based on the
\nmaxim ‘res extra commercium’ shall have no application in relation thereto.
\n(2) When the constitutionality of a taxing statute is questioned, the same
\nhas to be judged on the touchstone of the constitutional provisions
\nincluding Article 301 thereof. The freedom guaranteed under Article 301 of
\nthe Constitution of India may not be considered in isolation having regard
\nto the expression contained therein that such freedom is subject to Part
\nXIII of the Constitution of India.\n<\/p>\n
(3) The right to carry on trade in liquor is a fundamental right within the
\nmeaning of Article 19(1)(g) of the Constitution of India and the State may,
\nhowever, legislate prohibiting such trade either in whole or in part in
\nterms of Clause (6) of thereof.\n<\/p>\n
(4) Article 14 is applicable in the matter of grant by the State and, thus,
\nthere is no reason as to why grantee would not be entitled to invoke the
\ncommerce clause contained in Article 301 of the Constitution of India.
\n(5) In interpreting the constitutional provisions, the court should take
\ninto consideration the implication of its decision having regard to the
\ninternational treaties dealing with countervailing duty, etc.
\n(6) The decision of Kalyani Stores (supra) being an authoritative
\npronouncement, the same is binding irrespective of the fact as to whether
\ntherein the decisions of this Court in Chamarbaugwala (supra), Har Shankar
\n(supra) and Khoday Distilleries (supra) have been referred to or not,
\nkeeping in view the fact that even in K.K. Narula (supra), another
\nConstitution Bench has held that trade in liquor is a fundamental right.\n<\/p>\n
367. Before parting, I may observe that it had been my endeavour not to
\nrepeat the reasonings of B.N. Agrawal, J. with whom I respectfully agree
\nand, with utmost respect, I dissent from the views of the majority.\n<\/p>\n
368. In view of the majority opinion rendered by Hon’ble Dr. Justice AR.
\nLakshmanan, on behalf of himself, Hon’ble the Chief Justice and Hon’ble Mr.
\nJustice R.C. Lahoti, Civil Appeal No. 3017 of 1997 is allowed and Civil
\nAppeal Nos. 2696-2697 of 2003 are dismissed. There shall be no order as to
\ncases.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India State Of Punjab And Anr vs Devans Modern Brewaries Ltd. And … on 20 November, 2003 Author: A Lakshmanan Bench: V.N.Khare Cji, R.C.Lahoti, B.N.Agrawal, S.B.Sinha, Ar. Lakshmanan CASE NO.: Appeal (civil) 3017 of 1997 PETITIONER: State of Punjab and Anr. RESPONDENT: Devans Modern Brewaries Ltd. and Anr. DATE OF JUDGMENT: 20\/11\/2003 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-31461","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nState Of Punjab And Anr vs Devans Modern Brewaries Ltd. 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