Leave granted.
This Civil Appeal (arising out of S.L.P.(C) No.14286/2006) is filed by the
State of Madhya Pradesh against the judgment of the High Court dated 17th January,
2006 in Writ Petition No.9310/2005. This judgment has been followed in all conjoint
matters, namely, Civil Appeals arising out of S.L.P.(C) Nos.14287, 14288, 14290,
14291/2006 and 3788/2007.
By a Notification dated 21st February, 2005, the State Government framed a
Liquor Policy for the year 2005-2006. Clause 13 of that Policy prescribed the
procedure for depositing the licence fee by a retailer of liquor. Sub-clause (1) of Clause
13 of the Policy stipulated that the annual licence fee would be divided into 24 equal
fortnightly instalments. It further stipulated that in lieu of the quantity of liquor
purchased by the licence-holder, duty deposited at the prescribed rates shall be
adjusted against his licence fee equivalent to the demand for the concerning fortnight
(see Clause 13.1). Under Clause 13.3, it was stipulated that if any retail seller of liquor
fails to deposit the prescribed fortnightly instalment of licence fee before expiry of the
next instalment due, then the license so granted could be revoked and some other
arrangement will be made to operate the respective liquor shops. Under Clause 13.4, it
was stipulated that if any licence-holder of retail shop of any liquior deposits the
prescribed fortnightly instalment before the expiry of the fortnight but for some reason
liquor could not be supplied within the fortnight, then he shall be supplied liquor
immediately after the expiry of that fortnight.
Following the said Policy, a Circular came to be issued by the Excise
Commissioner on 9th August, 2005 clarifying certain doubts expressed by District
Excise Officers who had granted permission to supply liquor even when the deposit of
fortnightly licence fee was made belatedly. By the said Circular, it was clarified that
liquor will be supplied to the contractors in a specific fortnight against the amount
deposited and, in case, if there is short-deposit, then the duty will be deposited in the
next fortnight but no liquor will be supplied during the fortnight in respect of which
there is a default.
The said Clause 13.3 and Clause 13.4 of the Policy and the Circular referred
to above came to be challenged vide Writ Petition Nos.9310/2005, 1676/2006,
10799/2005, 11204/2005, 11202/2005 and 311/2006.
By the impugned judgment, Clauses 13.3 and 13.4 were declared to be ultra
vires Article 14 of the Constitution and Section 25 of the M.P. Excise Act, 1915. Hence
these Civil Appeals.
The key question which arises for determination in these Civil Appeals is:
What is the nature of payment which the auction purchaser makes to the State
Government as and by way of licence fee for a given fortnight? In our view, before we
come to the relevant judgments on this aspect, it may be stated that the licence fee,
payable in advance in 24 equal instalments, is in essence rent charged for parting with
the State's privilege for manufacturing and vending liquor and it is not a consideration
for sale of liquor. It is different from Issue Price. However, it has been urged before
the High Court on behalf of the auction purchaser that the licence fee contains an
element of excise duty and, consequently, the State had no authority under the Act to
impose duty in advance on undrawn liquor.
While striking down Clauses 13.3 and 13.4 of the Policy, the Division Bench
of the High Court relied upon two judgments of this Court in the case of State of
Madhya Pradesh Vs. Firm Gappulal & Ors., reported in [1976] 1 SCC 791, and in the
case of Bimal Chandra Banerjee Vs. State of M.P. etc., reported in AIR 1971 SC 517.
Before we come to the relevant judgment, at the very outset, it may be stated
that these two judgments have no application for the simple reason that there is a basic
difference between excise duty and licence fee. Both the judgments dealt with levy of
excise duty on undrawn liquor. As stated above, rental is the consideration for the
privilege granted by the Government for manufacturing and vending liquor. There is
no levy of excise duty in enforcing payment of a stipulated sum mentioned in the
licence. The concepts of advance licence fee and excise duty are entirely different and
this has been very succinctly brought out in two judgments of this Court which we shall
presently refer.
In the case of State of Orissa & Ors. Vs. Narain Prasad & Ors., reported in
(1996) 5 SCC 740, a Division Bench of this Court (B.P.Jeevan Reddy and
K.S.Paripoornan, JJ.) in a language which has all the clarity at its command, has held:-
“33. A review of the decided cases of this Court on the
subject indicates a clear shift in the way this matter has been looked
at. Initially, the matter was looked at from the point of view of the
levy of excise duty. On that basis, it was held that unless there is a
sale, no duty can be collected (Bimal Chandra Banerjee, Gappulal
and Ram Kumar). But then a different view point emerged with the
Constitution Bench decision in Har Shankar which was carried
forward in Panna Lal, Jage Ram and Y. Prabhakara Reddy. These
decisions look at the matter from the point of view of the several
payments being, in truth and effect, consideration for the grant of
privilege/licence. They point out that the excise duty is a duty on
manufacture and production and not on sale. It was a case, they
said, where the duty was being passed on to the licensee who in turn
passed it on to the consumer. What all the licensee paid, they held, is
nothing but consideration for the grant of licence and the mere fact
that the total consideration fixed comprises several elements
(including excise duty), it cannot be said that excise duty is levied
upon the licensee. In our opinion, the Orissa matters fall under the
ratio of Panna Lal and Y. Prabhakara Reddy and not under the ratio
of Bimal Chandra Banerjee, Gappulal and Ram Kumar. The
amounts mentioned in Rules 6 and 6-A, as also the undertakings
contained therein, together constitute the consideration for grant of
privilege/licence, determined by auction, as contemplated by Section
29 of the Act. As explained hereinbefore, the obligation to remit the
excise duty is independent of the sale/purchase of liquor; it is
payable on or before the specified dates every month; it is an
addition to the monthly instalment payable under Rule 6; its
remittance is not tied up to the purchase of M.G.Q. except to the
extent that the licensee has to pay the prescribed instalment of excise
duty prior to the lifting of the liquor. It, therefore, cannot be said
that there is any levy of excise duty upon the licensee. The concept
here is altogether different. It is a case where the consideration
payable by the licensee for grant of licence is made up of monthly
rental plus excise duty besides the obligation to purchase the M.G.Q.
The licensee pays the rental and excise duty as undertaken by him
under the agreement/contract executed by him and as required by
conditions of the licence under which he is doing business, i.e., as
and by way of consideration. Indeed, the Rules could have provided
that the entire amount provided under Rules 6 and 6-A should be
paid in advance before the issuance of licence in which event it could
not have been contended that it is not in consideration of grant of
licence. Merely because the Rules provide a concession and provide
for collection of the said amounts in convenient instalments spread
over the year, the nature and character of the payments cannot
change.”
The judgment of this Court in State of Orissa Vs. Narain Prasad, which has
considered the earlier two judgments of this Court, has not been considered by the
High Court in its impugned judgment.
In the case of Asstt. Excise Commissioner & Ors. Vs. Issac Peter & Ors.,
reported in (1994) 4 SCC 104, a three Judge Bench of this Court once again, speaking
through Justice Jeevan Reddy, has succinctly brought out the concept of the licence fee
payable by the auction purchaser vide para 26 which we quote in extenso hereinbelow:-
“Learned counsel for respondents then submitted that doctrine
of fairness and reasonableness must be read into contracts to which State
is a party. It is submitted that the State cannot act unreasonably or
unfairly even while acting under a contract involving State power. Now,
let us see, what is the purpose for which this argument is addressed and
what is the implication? The purpose, as we can see, is that though the
contract says that supply of additional quota is discretionary, it must be
read as obligatory —- at least to the extent of previous year's supplies –-
by applying the said doctrine. It is submitted that if this is not done, the
licensees would suffer monetarily. The other purpose is to say that if the
State is not able to so supply, it would be unreasonable on its part to
demand the full amount due to it under the contract. In short, the duty to
act fairly is sought to be imported into the contract to modify and alter its
terms and to create an obligation upon the State which is not there in the
contract. We must confess, we are not aware of any such doctrine of
fairness or reasonableness. Nor could the learned counsel bring to our notice any decision laying down such a proposition. Doctrine of fairness or the duty to act fairly and reasonably is a doctrine developed in the administrative law field to ensure the rule of law and to prevent failure of justice where the action is administrative in nature. Just as principles of natural justice ensure fair decision where the function is quasi-judicial, the doctrine of fairness is evolved to ensure fair action where the function is administrative. But it can certainly not be invoked to amend, alter or vary the express terms of the contract between the parties. This is so, even if the contract is governed by statutory provisions, i.e., where it is a statutory contract –- or rather more so. It is one thing to say that a contract –- every contract – must be construed reasonably having regard to its language. But this is not what the licensees say. They seek to create an obligation on the other party to the contract, just because it happens to be the State. They are not prepared to apply the very same rule in converse case, i.e., where the State has abundant supplies and wants the licensees to lift all the stocks. The licensees will undertake no obligation to lift all those stocks even if the State suffers loss. The one-sided obligation, in modification of express terms of the contract, in the name of duty to act fairly, is what we are unable to appreciate. The decisions cited by the learned counsel for the licensees do not support their proposition. In Dwarkadas Marfatia v. Board of Trustees of the Port of Bombay it was held that where a public authority is exempted from the operation of a statute like Rent Control Act, it must be presumed that such exemption from the statute is coupled with the duty to act fairly and reasonably. The decision does not say that the terms and conditions of contract can be varied, added or altered by importing the said doctrine. It may be noted that though the said principle was affirmed, no relief was given to the appellant in that case. Shrilekha Vidyarthi v. State of U.P. was a case of mass termination of District Government Counsel in the State of U.P. It was a case of termination from a post involving public element. It was a case of non-government servant holding a public office, on account of which it was held to be a matter within the public law field. This decision too does not affirm the principle now canvassed by the learned counsel. We are, therefore, of the opinion that in case of contracts freely entered into with the State, like the present ones, there is no room for invoking the doctrine of fairness and reasonableness against one party to the contract (State), for the purpose of altering or adding to the terms and conditions of the contract, merely because it happens to be the State. In such cases, the mutual rights and liabilities of the parties are governed by the terms of the contracts (which may be statutory in some cases) and the laws relating to contracts. It must be remembered that these contracts are entered into pursuant to public auction, floating of tenders or by negotiation. There is no compulsion on anyone to enter into these contracts. It is voluntary on both sides. There can be no question of the
State power being involved in such contracts. It bears repetition to say
that the State does not guarantee profit to the licensees in such contracts.
There is no warranty against incurring losses. It is a business for the
licensees. Whether they make profit or incur loss is no concern of the
State. In law, it is entitled to its money under the contract. It is not as if
the licensees are going to pay more to the State in case they make
substantial profits. We reiterate that what we have said hereinabove is in
the context of contracts entered into between the State and its citizens
pursuant to public auction, floating of tenders or by negotiation. It is not
necessary to say more than this for the purpose of these cases. What
would be the position in the case of contracts entered into otherwise than
by public auction, floating of tenders or negotiation, we need not express
any opinion herein.”
We are surprised that despite exhaustive exposition of law by this Court on
the nature of the payment of licence fee by the auction purchaser, the High Court in its
impugned judgment has not considered any of the above judgments while striking
down the relevant clauses of the Policy and the Circular. Moreover, the reasoning
given in the judgment is cryptic. When the High Court strikes down the
Policy/Circular as ultra vires, we expect the High Court to give detailed reasons for
saying so. No reasons are given in the impugned judgment.
Before concluding, we may state that the entire controversy arises in the
contractual field. The Sale Memo signed by the auction purchaser is nothing but the
contract. The High Court has not even considered the General Licence Conditions
stipulated in the Rules under the Act 1915 which stands incorporated in the Sale Memo
and which, inter alia, deals with payment of annual licnece fee in instalments. None of
the above facts have been considered by the Division Bench of the High Court while
proceeding to set aside Circular/Policy as ultra vires Section 25 of the M.P. Excise Act,
1915.
For the afore-stated reasons, the impugned judgment is set aside and the Civil
Appeals stand allowed with no order as to costs.
(B. SUDERSHAN REDDY) New Delhi, September 17, 2008.