SOLOMON ANTONY AND ORS. v. STATE OF KERALA AND ORS

Citation: [2001] 2 S.C.R. 53

Court: Supreme Court of India

Bench: A.S. ANAND, S. RAJENDRA BABU, R.C. LAHOTI

Judgment text

SOLOMON ANfONY AND ORS. )... v. STATE OF KERALA AND ORS. FEBRUARY 22, 2001 [DR. A. S. ANAND, C. J. , S. RAJENDRA BABU AND R. C. LAHOTI, JJ. ] Excise l.

Aws : Kera/a Abkari Shops (Disposal in Auction) Rules, 1974: Rule 8(1) (as amended in 1993)-Rectified spirit-Import of- Countervailing duty-Levy of-Pennits granted to contractors to import or purchase designated quantum ofduty-paid rectifiedspirit-Such rectifiedspirit could be obtained either from the distilleries within the State or from those outside the State-Godowns were allowed to be opened to store rectified spirit or manufactured arrack on payment of prescribed annual rent-Demand of excise duty raised on rectified spirit-Rate of excise duty also increased- Validity of-Held: Excise duty on the designated quantum ofrectified spirit is payable as a consideration for parting with the privilege ofvending arrack- Duty payable on unlifted quota ofrectified spirit is part ofthe amount payable as 'kist'-Hence, levy ofexcise duty justified-KeralaAbkari Shops (Disposal in Auction) Amendment Rules, I993, R. 8-Kerala Abkari Act, Ss. 17 and I8.

The appellants-contractors were granted permits for import or purchase of designated quantum of duty-paid rectified spirit under Rule 8(1) of the Kerala Abkari Shops (Disposal in Auction) Amendment Rules, 1993. The contractors/licensees could obtain the duty-paid rectified spirit either from the distilleries in the State or from those in other States. The contractors were allowed to open godowns to store duty-paid rectified spirit and for storage of manufactured arrack on payment of prescribed annual rent. The appellant-contractors filed writ petitions before the High Court challenging the demand, and the increase in the rate, of excise duty on the designated quantity of rectified spirit.

The appellants contended that the levy of excise duty on rectified spirit not actually imported was violative of Sections 17 and 18 of the Kerala Abkari Act; that the increase in the rate of excise duty was arbitrary; that no rectified spirit was produced in the State and, therefore, levy of countervailing duty was impermissible in law. A The High Court dismissed the writ petitions. Hence this appeal. ~ Dismissing the appeal, the Court HELD : 1. Permit is granted to the contractors to import or pur· chase a designated quantum of duty-paid rectified spirit and excise duty on the designated quantum of rectiiied spirit has to be paid each month which will be utilised for the purpose of manufacture of arrack and the 'kist' amount payable would include the excise duty on the designated quantum .. of rectified spirit. It means that the consideration for parting with the privilege of vending arrack would include the consideration equivalent to excise duty on the rectified spirit.

Therefore, if the contractors with their eyes wide open have accepted the terms of payment of consideration of the 'kist' inclusive of an amount equivalent to excise duty on rectified spirit, -+ there is no substance in the appellants' argument that the excise duty payable even by way of 'kist' is in the nature of a tax or levy and not leviable under law by the State. The duty payable on unlifted quota of rectified spirit is also part of the amount payable as 'kist' on the desig· nated quantity. [61-A-C; DJ 2. The contractors are required to pay the consideration payable to ~ the State for sale of the liquor, namely, arrack and by importing desig· nated quantity of rectified spirit in respect of which the consideration payable is equivalent to excise duty.

Thus the High Court is justified in holding that the contractors are bound to pay the amount which is a measured excise duty payable on the designated quantum of rectified spirit in terms of Rule 8 of the Kerala Abkari Shops (Disposal in Auction) Rules, 1974 and had undertaken in the agreements executed by them. (63-B-C] State ofHaryana v. ! age Ram, (1980] 3 SCR 746; State ofA. P. v. Y. Prabhakara Reddy, [1987) 2 SCC 136; State ofRajasthan v. Nandlal, [1993) Supp. 1 SCC 681, relied on. Synthetics and Chemicals Ltd. v. State ofU. P. , (1990) 1 SCC 109, held inapplicable. .... CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4726-4728 · of 1994. r From the Judgment and Order dated 30. 3. 94 of the Kerala High Court ~in W. A. Nos, 1334, 1339 and 1343 of 1993. A. WITH C. A. Nos. 4729-37, 4738, 4739, 4740-42, 4743, 4744-45, 4746-50, 4751-65, 4790, 4791-97, 4883,4884-86, 4887, 4888, 6111-12, 6113 of 1994, 94195, 4115-16, 6679-82, 6815 of 1995, SLP(C) No. 4122198. H. N.

Salve, Solicitor General, Joseph Vellapalli, P. Krishnamoorthy, --{, D. D. Thakur, E. M. S. Anam, Fazlin Anam, Romy Chacko, Rajiv Mehta, Dilip Pillai, M. P. Vinod, N. N. Bhatt, Roy Abraham, George Poonthotham, Ms. Baby Krishnan, G. Prakash, Ms. Malini Poduval, Ms. Lan Singlu Rongmei and Manukrishnan for the appcaiing parties. The Judgment of the Court was delivered by RAJENDRA BABU, J. For the excise year 1992-93 the State had monopoly in the matter of supply of arrack. The privilege of vending the arrack was obtained through a licence and the licensees got their supply only through the State owned or ·conn·olled distilleries. Such licensees were not allowed to import any arrack or rectified spirit from outside the State. In the excise yeai· 1993-94 commencing from April I, 1993 the State modified the policy in this regard by G. O. (MS) No. 18/93ffD dated February 8, 1993. The .. _..

modifications effected in the policy are as follows :- (a) Abkari shops were to be auctioned groupwise. (b) In the matter of supply of rectified spirit, the existing system was to be discontinued, instead permits will be given to the contractors (licensees) to bring "a designated quantum of rectified spirit dete1mined in relation to the auction amount". ;> -justified. The undisputed facts are as follows: On March 4, 1993, notice [G. 0. (P) No. 32/93ffD] was published in the Kerala Gazette regarding the sale of privilege of vending toddy, arrack and foreign liquor including coco-brandy in independent retail shops. It was made clear in the notice that the auction sale will be held subject to the conditions set forth in the Rules.

The Abkari Policy for the year 1993-94 was armounced to the effect that the system of tender-cum- auction would continue and in the matter of snpply of rectified spirit the existing system will be discontinued and instead permits will be given to the contractors to bring a designated quantum of rectified spirit determined in relation to the auction amount amongst other factors. On March 4, 1993, the Rules were amended so as to substitute sub-rule (I) of Rule 8 by the following: "(! ) Before starting the auction in each group of arrack shops, the auctioning officer shall announce in the auction hall that permits will be issued to the contractors to import/purchase a designated quantum of duty paid rectified spirit. The contractors will be given No Objection Certificate and import/transport permits based on their requests, by the Asst. Excise Commissioner concerned. The contractors shall remit the excise duty on the designated quantum of rectified spirit in each month.

The licence shall purchase/import the duty paid rectified spirit from the distilleries in the State or from the Distilleries in other States. However, in issuing permits, preference will be given to the contractors to lift whatever quantity that can be supplied by the Public Sector Distilleries in the State. The said Rules were further amended on March 31, 1993 so as to include the following clause: IN PERMANENT AGREEMENT FORM NO. ii under the heading "agreement" in the second paragraph after the words "kist amount'', the following words shall be inserted namely: "and excise duty on designated quantum of rectified spirit on the establishment. " On March 29, 1993, the notification was amended to enhance the rate -" of duty from Rs. 5 per bulk litre to Rs. 10/-per bulk litre, which was to come into effect from April 1, 1990.

If the contractors have agreed to participate in the auction sale in terms of the notificatious issued and the amended mies, it would make it clear that the kist amount would include excise duty on designated quantum of rectified spirit on the ·establishment. The argument put forth now is that the excise duty on designated quantum of rectified spirit is payable only in terms of the Act and the rules which is in the nature ofa tax or a levy and the State Government is not competent to levy such excise duty on rectified spirit which is non- - potable alcohol. This argument ignores the fact that the permit is granted to A. the contractors to import or purchase a designated quantum of duty paid rectified spirit and excise duty on the designated quantum of rectified spirit has to be paid each month which will be utilized for the purpose of manufacture of arrack and the kist amount payable would include the excise duty on the designated quantum of rectified spirit.

It means that the consideration for parting with the privilege of vending arrack would include the consideration equivalent to excise duty on the rectified spirit. Therefore, as is often said by this Court, if the contra;tors with their eyes wide open have accepted the terms of payment of consideration of the Kist inclusive of an amount eqn! valent to excise duty on rectified spiri~ we find no substance in the argument advanced on behalf of the appellants that the excise duty payable even by way of Kist is in the nature of a tax or a levy and not leviable under law by the State. Another facet of this contention is that even in cases of non-utilization of the quota of rectified spirit permitted to be imported or drawn from State Distilleries the State is demanding the excise duty on the emire quantity.

Again, this submission loses sight of the te1ms of the agreement to the effect that duty payable on unlifted quota ofrectified spirit is also part of the amount payable as kist on the designated quantity. The aforesaid two aspects have been effectively dealt with in some of the decisions of this Court to which ·-,.. we will advert now. Jn fact, in the State ofHaryana & Ors. v. ]age Ram & Ors. , [1980] 3 SCR 746, this Court had occasion to consider a somewhat similar question. In that case, Jage Ram held a ·re. tail licence to vend liquor on payment of licence fee calculated at Rs. 17. 60 per litre for a quota of 62. 100 proof litre. He defaulted in making the instalment payable by him and his licence was cancelled. Thereafter, the retail vend was re-auctioned at his risk which resulted in a loss to the State to the extent of Rs. 7,41,577. 40, which amount he was called upon to pay.

He filed a writ petition in the High Court contending that the licence fee was not a fee but a 'still head' duty or an excise duty, and the rule requiring the payment of such duty even when no quota of alcohol was actually lifted by the licensee was unconstitutional and the rationale to raise this contention was that there could be no liability to pay still head duty or excise duty unless the licensee lifted the liquor. The High Court upheld the contention and quashed the levy. On appeal by the State, Chandrachud C. J.

succinctly and with his usual felicity of expression sununed up the position in law as under: - "the amount which the respondents agreed to pay to the State Government under the terms of the auction is neither afee properly socalled which would require the existence of a quid pro quo, nor indeed is the amount in the nature ofexcise duty, which by reason of the constitutional constraints has to be primarily a duty on the production or manufacture ofgoods producedurmanufacturedwithin the country. The respondents cannot, therefore, complain that they are being asked to pay 'excise duty' or 'still-head duty' on quota of liquor not taken, lifted or purchased by them. The respondents agreed to pay a certain sum under the terms of the auction and the Rules only prescribe a convenient mode whereby their liability was spread over the entire year by splitting it up into fortnightly instalments.

The Rules might as well have provided for payment of a lump sum and the very issuance of the licence could have been made to depend on the payment of such sum. If it could not be argued in that event that the lump sum payment represented excise duty, it cannot be so argued in lhe present event merely because lhe quota for which lhe respondents gave tl1eir bid is required to be multiplied by a certain figure per proof litre and furtl1er because the respondents were given the facility of paying lhe amount by instalments while lifting the quota from time to time. What the respondents agreed to pay was the price of a privilege which the State parted with in their favour. "[emphasis supplied] To similar effect, this Court again in State of Andhra Pradesh v. Y.

PrabhakaraReddy, [1987] 2 SCC 136, stated that under a public auction the licence to sell liquor might be granted by the State subject to (1) payment of rental being the highest bid at the auction, (2) tl1e requirement that the licensee shall purchase arrack at the issue price, and (3) the further requirement that the licensee shall purchase a minimum guaranteed quantity of arrack, which he has to make good in case of short fall. In that case, it was noticed that the consideration for the grant of the privilege to sell liquor is not merely the rental to be paid by tl1e contractor but also the issue price of the arrack supplied or treated as supplied in case of short fall, which is also to be paid by the contractors.

It was further observed that there is no question of the contractors having to pay the excise duty though it may be that the issue price is arrived at after taking into account the excise duty payable and eventually held that the amount payable by the contractors was not excise duty on undrawn liquor, but was part of the price which they had agreed to pay for the grant of the privilege to sell liquor. This view is again reiterated ,I. in the decision in State ofRajasthan & Ors. v. Nandlal & Ors. , [1993] Supp. 1 sec 681. The facts as stated above make it clear that the contractors are required to pay the consideration payable to the State for sale of the liquor, namely arrack and by importing designated quantity of rectified spirit in respect of which the consideration payable is equi. valent to excise duty.

Thus the High Court is justified in holding that the contractors are bound to pay the amount which is a measured excise duty payable on the designated quantum of rectified spirit in terms of rule 8 of the Rules and had undertaken in the agreements executed by them. The other point raised is in relation to the enhancement of the rate of excise duty from Rs. 5 per bulk litre to Rs. IO per bulk litre of arrack made on 29. 3. 1993. The learned Single Judge took the view that Rule 8(9) of the Rules enabled the Government to enhance the excise duty only if it is found necessary and the learned Single Judge found that there was no necessity for enhancement. While the justification offered is that in respect of imported rectified spirit the duty payable on one litre of arrack 75' proof worked out to Rs. 85. 73 whereas even the enhancement to Rs. 10/- imposed only a duty of Rs. 22. 13.

In other words, the argument was that this enhancement was ynecessary to balar,ce the duty on imported rectified spirit. On this basis the Division Bench upheld the revision in excise duty from Rs. 5 per bulk litre to Rs. I0 per bulk litre of arrack. If it is the excise duty and the Govenunent has found certain rate to be appropriate, we do not think that it would be open to arrack. In this case, explanation was offered by the Government to make such adjustments in the matter of excise duty payable on bulk litre of arrack. Therefore, we find no substance in the challenge to this enhancement. In this view of the matter, we find no substance in any one of the contentions raised on behalf of the appellants. These appeals and the special ... leave petition, therefore, deserve to be and stand dismissed. In the circumstances of the case, there shall be no orders as to costs. V. S. S. Appeals and Petition dismissed. ·r