Supreme Court of India
GOVERNMENT OF MAHARASHTRAversusM/S. DEOKARS DISTILLERY
- Citation
- 2003 INSC 159
- Decided
- 10 March 2003
- Disposal
- Appeal(s) allowed
- Bench
- V N KHARE
Holding
Section 58A of the Bombay Prohibition Act authorises the State to recover all costs of excise supervision, including amounts arising from retrospective pay‑scale revisions, and the licencees are bound by their contractual undertaking to pay such charges.
Summary
The Supreme Court examined whether the Government of Maharashtra could demand additional supervision charges from Deokar's Distillery after the State revised its civil service pay scales with retrospective effect. The licencees had paid supervision fees in advance as required by the Bombay Prohibition Act, 1949 and related rules, and argued that the State could not recover differential amounts retrospectively. The Court held that Section 58A of the Prohibition Act gives the State full power to recover all costs of excise supervision, including amounts arising from later pay‑scale revisions, and that such charges form part of the price for the exclusive privilege of a liquor licence. The licencees’ undertaking to obey all orders under the Act binds them to the contractual liability, and the principle of promissory estoppel does not apply. Consequently, the High Court’s quashing of the demand notices was set aside and the appeals were allowed.
Issues considered
- Whether Section 58A of the Bombay Prohibition Act empowers the State to levy supervision charges retrospectively on the basis of pay‑scale revisions.
- Whether the demand notices for differential supervision charges are valid despite the licencees' prior payment in advance.
- Whether the licencees' contractual undertaking to abide by all orders under the Act precludes them from escaping liability for additional charges.
- Whether the High Court erred in applying the ratio of Polychem Ltd. v. State of Maharashtra to the present facts.
- Whether the principle of promissory estoppel can be invoked to bar retrospective recovery of supervision charges.
Legislation cited
- Bombay Prohibition Act, 1949s. 114, s. 143(2)(4), s. 49, s. 58A
- Constitution of Indias. Article 162, s. Article 309 (proviso), s. Seventh Schedule List II Entry 8
Subjects
supervision chargesretrospective levyBombay Prohibition Actlicencee contractual liabilitypromissory estoppelexclusive privilegepay scale revisionArticle 309Article 162state monopoly
Judgment
A GOVERNMENT OF MAHARASHTRA -~
v.
MIS. DEOKAR'S DISTILLERY
MARCH I 0, 2003
B [V.N. KHARE, CJ., S.B. SINHA AND DR. AR. LAKSHMANAN, JJ.]
Bombay Prohibition Act, 1949-Sections 58A, 49, 114 and 143(2)(4):
Maharashtra Distillation of Spirit and Manufacture of Potable Liquor
c Rules, [966- Sections 17(12), 17(43):
Maharashtra Country Liquor Rules, 1973-Sections 6(12), 6(36):
Maharashtra Civil Services (Revised Pay) Rules, 1998:
D Constitution of India, 1950-Seventh Schedule, List Il, Entry 8, Article
309 proviso thereto and Article 162:
Excise supervision of manufacturer of potable and country liquor-
Supervision charges-Paid in advance-Revision of pay scale of the
supervising staff with retrospective effect-Demand of differential amount-
E Whether permissible-At the time of obtaining licence undertaking by
manufacturers to abide by all the Rules made under the Act-Held: The
demand of supervision charges is permissible under Section 58A even
retrospectively as the Section has no /imitation to the effect that costs are to
be recovered only in advance-Right to deal in liquor not being afiindamental
right, State has exclusive right/privilege in respect ofpotable liquor and can
F
charge any reasonable expenses or consideration for permitting such activity
by grant of licence-Licensee having undertaken to abide by all reasonable
orders under the Act, cannot wriggle out of the contractual liability voluntarily
incurred-Del!land notice also not liable to be challenged in absence of
challenge to notification revising the pay scale and the administrative
G instruction to carry out the executive fanction under Section 58A-Maharashtra
Foreign Liquor (Storage in Bond) Rules, 1964-Rule 7.
Respondent-companies were holding licence in Form PLL for
manufacture of Indian made foreign liquor prescribed under the
provisions of the Maharashtra Distillation of Spirit and manufacture of
H 852 ·-.
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY 853
Potable Liquor Rules, 1966 and also licence in Form CLL prescribed under A
the provisions of Maharashtra Country Liquor Rules, 1973 for
manufacture oi Country liquor made under Bombay Prohibition Act,
1949. Under Section 58-A of the Act State Government is empowered to
permit the manufacture and other related activities in respect of any
intoxicant under the supervision of excise staff and cost of such staff is to
be made to the State Government by the manufacturers. The cost of such B
staff is required to be paid to the State Government by the licensee in
advance as per Rule 17(12) of 1966 Rules and Rule 6(12) of 1973 Rules.
The pay scales and other allowances of Government employees are fixed
by the State Government. The Commissioner as empowered by the State
Government, issues circulars for levy and recovery of supervision charges C
based on the pay scales and other allowances of the Government employees
fixed by the State Government under the Rules and Government
• Resolutions made under proviso to Article 309 of the Constitution of India,
in respect of the excise staff posted for supervision.
State Government by notification dated 10.12.1998 promulgated D
Maharashtra Civil Services (Revised Pay) Rules, 1998 under its power
vested by Article 309 of the Constitution whereby the pay scales of
Government employees were revised and fixed with retrospective effect.
Thereafter by circular dated 30.7.1999 orders were issued for carrying
out executive function under Section 58-A of the Act and Article 162 of E
the Constitution. Pursuant thereto demand notices were issued by
appellant No.4 to the respondent-companies to pay the differential amounts
of cost of supervision on account of revision of pay scales with retrospective
effect.
Respondent-companies informed appellant No.4 that they had p
already paid the supervision charges in advance and hence were not liable
to pay the differential amount as they would not be able to pass on the
burden of the same to the purchasers. Appellant No.4 rejected the reply
and directed to pay the differential amount.
Writ Petition was filed challenging the demand on the ground that G
the challenge sought to be raised by them to the impugned demand notices
had already been concluded in their favour in the case of JE Bilimoria and
Sons v. State of Maharashtra and Ors., (1999) Mh. LJ (II) 1079, and the
same was confirmed in Polychem Ltd. and Anr. v. State of Maharashtra and
Ors., (1998] 6 sec 196. State objected to the petition on the ground that H
854 SUPREME COURT REPORTS [2003] 2 S.C.R.
A the judgment in J.E. Bilimoria's case was no longer good law in view of
the Full Bench judgment of the High Court in Mohan Meakin Ltd. and Anr.
v. State of Maharashtra and Ors., (1993) Mh LJ (1)-13 Bilimoria 's case was
overruled and the view taken by another Division Bench of High Court
in Gustad Mayur Irani v. State of Maharashtra, (1991) 51 ELT 232 (Born.)
was confirmed.
B
High Court held that the case was squarely covered by decision in
JE Bilimoria's case which was confirmed by Supreme Court in Polychem 's
case and the State was bound by the Supreme Court decision. Therefore,
the demand notices were quashed and set aside and hence the Writ Petition
c was allowed.
In appeal to this Court, the State contended that Polychem 's case was
distinguishable; that to recover the cost of supervision as per the pay scales "
of its employees from the licensees is an executive function of the State
Government under Section SSA of the Act and Article 162 of the
D Constitution which is carried out by circular issued by the Commissioner
and, therefore, it is not a case of any lugislation imposing liability with
retrospective effect by a delegated authority; that factually there was no
effective representation to the licensee that the cost of supervision charges
for the incoming quarter was fixed for the said quarter and will not be
increased with retrospective effect; that the respondent was not and is not
E prevented from recovering this additional cost from his further sales; that
the judgment in Polychem 's case was required to be read with decision in
Mohan Meakin 's case in which earlier decision in Bilimoria 's case was
overruled.
F
Respondent-companies contended that appellants while issuing
demand notices did not consider the fact that the excise duty was to be
.
levied on the basis of manufacturing cost and supervision charges which
formed part of the manufacturing cost and that the fact that the
manufacturing cost was ultimately to be passed on to the customers, .___,,
therefore, the manufacturers are not in a position to recover, when the
G goods are already issued for sale and released from warehouse; that
appellants were not entitled to recover supervision charges retrospectively;
that the term "cost of the supervision charges" is not that equivalent to
salaries or wages; that the question of law raised in the case has already
been decided in the Polychem 's case; and that when it has been conclusively
H held by High Court that the rule making authority did not have the power
GOVT OF MAHARASHTRA v. DEOKAR'S DISTILLERY 855
to recover the supervision charges retrospectively, the appellants cannot A
rely on any rules enacted by any rule making authority to justify the
retrospective demand which had been struck down by High Court.
Allowing the appe.il, the Court
HELD: Per Dr. AR. lakshmanan, J (For himself and VN. Khare, CJ) B
I. There exists full power under Section SSA of Bombay Prohibition
Act, 1949 to levy and recover all costs of supervision and, therefore, no
limitation can be read into the power to recover all costs present, future
and past which are/or were actually incurred by the State Government in
view of payments made/to be made to its employees posted for excise C
supervision, in spite of provisions of Rule 17(12) of Maharashtra
. Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966 and
Rule 6(12) of Maharashtra Country Liquor Rules, 1973. As per the well-
settled rule of interpretation that the words in a provision are to be given
their normal meaning as understood by the common man or by the trade D
.• as well as the widest meaning unless there is any limitation in that
provision itself, the words "the cost of such staff shall be paid to the State
Government" used in Section SSA of the Prohibition Act would include
in their meaning all the costs incurred by the State Government for the
purpose of disbursing pay and other allowances to the Government
employees posted for supervision, whether recovered in advance or in due E
course the additional amounts which become recoverable on account of
upward revision of pay scales with retrospective effect, because there is
no limitation of any kind in Section SSA of the Prohibition Act to the effect
that the costs are to be recovered only in advance, and that too only such
costs as could be worked out on the date of demand or to the effect that F
the burden of additional amounts on account of revision of pay scales with
retrospective effect should not be recovered from the liquor licensee.
[SS2-G, H; SS3-A-C[
2. The question of application of principle of promissory estoppel
would not arise as for administrative convenience only the costs are G
calculated and recovered in advance from the licensee. Therefore, Rule
17(12) of the Rules of 1966 or under Rule 6(12) of the Rules of 1973 could
not be construed as an effective representation that no further cost would
be recovered when provision under Section SSA of the Prohibition Act is
clearly to the effect that the licensee has to bear the entire cost of the
supervisory staff. Rule 17(12) of the Rules of 1966 and Rule 6(12) of the H
856 SUPREME COURT REPORTS [2003) 2 S.C.R.
A Rules of 1973 providing for recovery of supervision charges in advance,
do not direct that differential amounts are not to be recovered, if pay scales
are revised. On the other hand, the aforesaid Rules are to be read with
other provisions giving residuary powers in both the sets of Rules viz. Rules
17(43) of the Rules of 1966 and Rule 6(36) of the Rules of 1973, which
direct that the licensee shall comply with all orders issued under the
B Prohibition Act and Section 11 of the Prohibition Act clearly provides that
the State Government may permit business in liquor subject to the manner
and to the extent provided by the provisions of this Act or any Rules,
Regulations or orders made or in accordance with the terms and conditions
of the licence, permit, pass or authorization granted thereunder. 1883-D, GI
c 3. In the present case, the licensees gave an undertaking at the time
of obtaining grant or renewal of the licence in the application form itself,
both under the Rules of 1966 and the Rules of 1973, that they would abide
..
by all orders made under the Prohibition Act and the Rules. Under Rule
17(43) of the Rules of 1966 and under Rule 6(36) of the Rules of 1973,
D there are resideuary power of making a demand in special circumstances
not foreseen in Rule 17(12) of the Rules of 1966 or Rule 6(12) of the Rul:es
of 1973. It is seen from Rule 17(43) of the Rules of 1966 that the licensee
shall abide by all the Rules, Regulations and orders made from time to
time under the Act. A similar provision also exists under Rule 6(36) of
E the Rules of 1973. The object of Section SSA of the Prohibition Act and
the intention of the Legislature could not be anything other than that the
entire cost incurred by the Government on account of pay-scales paid to
the Government employees posted for supervision should be paid by the
licensee and that this cost should not be met from the Government
exchequer. (884-D-F)
F
4. The legal licensee does not have a fundamental right to deal in
liquor under Entry 8, List II in the Seventh Schedule to the Constitution
of India and thereby under Sections 49 and 143(2)(u) of the Prohibition
Act, the State has the exclusive right/privilege in respect of potable liquor
and the State can charge any reasonable expenses or even consideration
G for permitting such activity by grant of licence and that respondents ought
fo comply with all reasonable orders as undertaken by them while
obtaining the licence. Once the liquor licensee has undertaken to abide
by all reasonable orders under the Prohibition Act while obtaining the
licence, they cannot wriggle out of the contractual liability voluntarily
H incurred by. them. [885-A-CJ
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY 857
5. The impugned demand notice was also in the nature of demanding A
balance of the price of the exclusive privilege which would become final
only on issue of the Notification order under Article 309, the bulk of which
have already been recovered in advance, which privilege exclusively vests
with the Government considering effect of provisions especially Section
49 and Section 143(2)(u) of the Prohibition Act. The establishment charges
demanded are in the nature of price for parting with the privilege to B
permit manufacture and sale of liquor, and the privilege exclusively vests
with the Government. (885-D, El
Government of Andhra Pradesh v. Mis. Anabeshahi Wine p:nd Distilleries
Pvt. Ltd., (1988) 2 SCC 25, relied on. C
6. The impugned demand notice was nothing but final settlement of
accounts communicated by appellant No.4, one contracting party to the
other contracting party, the respondents, in terms of the contract executed
between them, which is executed at the time of grant/renewal of the licence.
The contract is executed after the licensee gives the undertaking in the D
application in Form PLA prescribed under the Rules of 1966 or the licence
in Form CLA prescribed under the Rules of 1973, to abide by directions/
orders and complies all other requirements and when the application is
accepted by the appellants by grant/renewal of the licence. The
respondents/licensees, therefore, cannot wriggle out of the contractual
obligation of payment of the entire cost of supervision regarding which E
they receive a final account or bill through the impugned demand notice
and, therefore, the respondents ought to pay the amount demanded.
(887-E-GJ
7. What the respondents agreed to pay was the price of an exclusive F
privilege which the State parted with in their favour. They cannot,
therefore, avoid their liability by contending that the payment which they
were called upon to make is truly in the nature of excise duty and that no
such duty can be imposed on liquor not lifted or purchased by them. The
respondents, must fail in their contention both on account of the objection
to the maintainability of the appeals and on merits concerning the nature G
of the payment which they are liable to make. (887-H; 888-A-BJ
8. The judgment of this Court in Polychem 's case was delivered on
the basis of a concession by the Government advocate that supervision
charges are collected only in advance, when under the residuary powers
under Rule 17(43) of the Rules of 1966 and Rule 6(36) of the Rules of 1973, H
858 SUPREME COURT REPORTS [2003] 2 S.C.R.
A additional amounts were or could be demanded, as also directly under
Section SSA and Section 114 of the Prohibition Act. ISS6-G, HI
Polychem ltd. and Anr. v. State of Maharashtra and Ors., 1199S! 6 SCC
196, distinguished.
B JE. Bilimoria and Sons v. State of Maharashtra and Ors., 119901
Mh.L.J.(II) 1079, disapproved.
Gustad Mayur Irani v. State of Maharashtra and Ors., 119911 (SI) 232
(Born.) and Mohan Meakin Ltd. and Anr. v. State of Maharashtra and Ors.,
(19931 Mh.L.J. (I) 13, approved.
c
Income-tax Officer v. M.C. Ponnoose, AIR (1970) SC 3SS; State Bank
of Haiyana and Ors. v. Jage Ram and Ors., (19SOJ 3 SCC S99 and Assistant
Collector Central Excise v. National Tobacco Co., AIR (19721 SC 2563,
referred to.
D 9. High Court is not right in quashing the demand notice issued by
appellant No. 4, without examining the validity of or quashing
Maharashtra Civil Services (Revised) Pay Rules, 199S and the
consequential circular letter dated 30.7.1999 issued by appellant No.2, since
the demand notice was merely a consequential communication issued in
E furtherance of the Rules of 199S and the circular letter dated 30.7.1999.
The statutory provision under Article 309, namely, the Notification dated
I0.12.199S and the consequential administrative instructions/orders issued
for carrying out the executive function under Section SSA of the
Prohibition Act and Article 162 namely, the circular letter dated 30.7.1999
had not been challenged by the respondents herein and, therefore, they
F were not entitled to challenge the demand notice which was merely a
consequential communication. !SS7-B-DJ
Per SB. Sinha, J (Dissenting)
I.I. Although a citizen has no fundamental right to carry on trade
G or business in potable liquor, but when he is permitted to carry on such
business, he would be entitled to claim equal right as against other citizens.
In absence of the State imposing any prohibition or monopolizing the
business, the same may be carried on by the licensee without being
subjected to any discrimination. Such a right although may not be elevated
H to the status of a fundamental right but all the same it is a right. ISSS-G I
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY 859
Khoday Distilleries ltd. v. State of Karnataka, 119951 I SCC 574, A
referred to.
1.2. Section 58A of the Act mandates that the cost of the excise
supervision would be borne by the licensees. The mode and manner of
realization of such costs, however, has been laid down only in the Rules
and/or the conditions of the licence. Such cost of excise supervision does B
not constitute 'tax' or 'fee' but a part of the price for grant of exclusive
- privilege to the licensee for carrying on his business. The price required
to be paid is, thus, a contractual one. The charges, thus can be levied either
prior to entering into contract or during the currency thereof. 1889-B, CJ
1.3. By reason of the provisions of the Rules or terms of conditions C
of licence, the demand on account of excise supervision charges was to be
made in advance. The State is entitled to fix the cost of supervision charge
from time to time but the same has to be done during the currency of
contract and not thereafter as there does not exist any contract to the
contrary. [890-B, CJ D
1.4. Interpretation of a statute, it is trite, must be made on a conjoint
reading of the Act, Rules made thereunder as also the terms and conditions
of the licence. Section 58A of the Act does not provide for the mode and
.manner for recovery of the cost cf excise supervision. It has been provided
for in the Rules as also the conditions of licence. The rule when validly E
made forms part of a statute. It cannot be said that a statutory rule can
be ignored on the ground that the same was made only for administrative
purposes. It cannot further be said that the conditions of the licence can
be interpreted in such a manner so as to impose upon the licensee a burden
which was not contemplated at the time when licence had been granted F
and/or during the currency thereof. 1890-D, El
Government ofAndhra Pradesh v. Mis. Anabeshahi Wine and Distilleries
Pvt. Ltd., [1988! 2 SCC 25, relied on.
1.5. The option of the licensee to take or not to take a licence, would, G
thus depend upon the price which was to be fixed. The risk involved in
the matter may be reasonably certain. A licensee before entering into a
contract is entitled to know what price he has to pay for the grant of
exclusive privilege or what are the risks involved in it. A price, thus, must
be predetermined and cannot be redetermined and/or demanded after a
period of four years of the expiry of the licence. (891-El H
860 SUPREME COURT REPORTS [2003) 2 S.C.R.
A 1.6. The rights and obligations of the parties to a contract are mutual.
Both the State and the Licensee are bound by it. When a contract is a
statutory one, the terms and conditions of a statute, the statutory rules
would govern the contract. A court of law shall not for the purpose of
interpretation of the terms of the contract read the provisions of statute
B in such a way as a result whereof additional liability may be imposed on
a party to the contract. [891-G I
Assistant Excise Commissioner and Ors. v. Issac Peter and Ors., [1994[
4 SCC l 04, referred to.
1.7. The reason why a manufacturer must have a fair knowledge
C about his liability for obtaining a licence would be that he may during
the currency of the licence fix the price of liquor in such a manner so that
all charges payal;>le by him may be passed on to the consumers. Such costs
cannot be recovered after the demands are made long after the contract
has been worked out. It will be preposterous to suggest that the liability
D in respect of the increased costs of excise supervision for one licensing year
can be passed on to his consumers after four years or more. [891-H; 892-A]
1.8. A party to a statutory contract is bound to discharge his
obligations in terms of the provisions of the Act, Rules or conditions of
licence as they stood. He is also entitled to enforce his rights. No executive
E order, can be issued after a long time to fasten a new liability upon the
licensee particularly when grant of licence for each year would result in a
separate contract which may not only provide for a different price but
also different terms and conditions as well as the mode and manner in
which the rights of the parties thereto are required to be exercised and/
F or the obligations are to be discharged, more so when one contracting
party has no say therein. By reason of an executive act a liability cannot
be created with retrospective effect. The said rule shall squarely apply also
in relation to a statutory contract. Furthermore, the statutory authority
has been enjoined with a duty to follow the mode as regards recovery of
the costs of excise supervision. The mode and manner thereof having been
G fixed, the statutory authorities ordinarily must follow the procedure laid
down therefor. [892-C-E[
1.9. State in pursuance of its welfare activities may increase the pay
of its employees with retrospective effect but such burden cannot be passed
on to a licensee by an unilateral act on its part. For enforcing the same,
H there must be a contract to the contrary. 1892-F[
"".
'
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY 86 J
1.10. It may be true that under the rules or conditions of licence, A
the licensee is bound to comply with the provisions of the Act, rules and
regulations and conditions of the licence but such undertaking and/or
liability comes to an end with the cessation of contract. 1893-D)
1.11. State of Maharashtra did not expressly protect themselves that B
the respondents must pay any amount by way of increase in wages
pursuant to or in furtherance of the recommendations made by the Fifth
Pay Commission with retrospective effect. Having not done so, they are
not entitled to claim the same from the licencees. 1895-D-EI
1.12. A definite price is an essential element of a binding agreement C
and although a definite price need not be stated but assertion thereof either
by reason of express reason or implied reason is imperative. [897-B]
1.13. An act on the part of the State to increase wages of its
I employees is a welfare act. When such increase takes place with
'
retrospective effect the validity thereof can be upheld only because it is D
for the benefit of the employees. Such a beneficial act on the part of the
State, however, would not bind a third party. An increase in wages by the
State with retrospective effect was an unilateral act on the part of the State.
If it was intended to be passed on by the State to the respondent the same
ought to have been the subject matter of a specific contract so as to avoid
the uncertainty of the terms of contract as contemplated under Section E
20 of the Indian Contract Act. The rule of construction of a contract is
that if the terms of the agreement are so vague and indefinite that it may
not be ascertained with reasonable certainty as regards intention of the
parties, the same would not be enforceable at law. Meaning of a contract
must be clear on its face. In any event, in the instant case, the contract p
had been worked out. Once the contract had been worked out, a fresh
liability cannot be thrust upon a contracting party. 1897-D-FJ
Black Diamond Beverages and Anr. v. Commercial Tax Officer, Central
Section Assessment Wing, Calcutta and Ors., 11998 j 1 SCC 458, relied on.
G
Conway Brothers and Savage v. Mulhern and Co., (Limiled) Vol. XVII
(1900-1901) The Times Law Reports 730; American Commerce Company
(Limited) v. Frederick Boehm (Limited), Vol. XXXV 1918-19 The Times
Law Reports 224; Occidental Crude Sales Inc. v. Lats is, (1976 Vol. 2 Lloyd's
LR 412 and Love v. Norman Wrighl (Builders) Limited Law Reports, (1944)
lKR~~re~redm. H
862 SUPREME COURT REPORTS (2003] 2 S.C.R.
A Hals bury 'slaws of Englana: 4th Edition, Volume 41; Halsbury's Laws
of England, Fourth Edition, Reissue, referred to.
2. There is no rule of practice or precedent that where a Bench of
the High Court is faced with two conflicting views; one rendered by this
Court and another by a Full Bench of the same High Court; both have to
B be read together. In fact both can't be so read unless the decisions are
such which can be explained and the ratio of one may be held to be not
applicable in the fact of the matter. In the instant case, the views of the
full Bench and this Court are diametrically opposite and thus both the
c!ecisions could not have been given effect to simultaneously by reading
C them together or otherwise. 1897-G, H; 898-A, BJ
CIVIL APPEL LA TE JURISDICTION : Civil Appeal No. 7399 of .,
2001.
From the Judgment and Order dated 9.8.2000 of the Mumbai High 'Ir
D Court in C.R.P. Nos. 3754 of 2000.
WITH
C.A. No. 7400/2001 and 1302 of 2003.
Soli J. Sorabjee, Attorney General, U.U. Lalit, S.S. Shinde, Arun
E Pednekar and V.N. Raghupathy for the Appellants.
V.B. Joshi, for the Respondent.
The Judgment of the Court was delivered by
F AR. LAKSHMANAN, J. These three appeals are diiected against the
final judgment and order passed by the High Court of Judicature of Bombay
in Writ Petition Nos. 3754/2000, 3753/2000 and 3898/2000. The common
questions that arise in these appeals are as to whether the State of Maharashtra
is empowered to charge from the liquor licencees, under the Bombay
G Prohibition Act, 1949 (hereinafter referred to as "the Prohibition Act"), at
whose premises Government staff is posted for supervision as perthe provision
of Section 58A, are governed by the Maharashtra Civil Services (Revised
Pay) Rules, 1998 and other rules, resolutions made by the State Government
under the power vested in it by the proviso to Article 309 of the Constitution,
to fix the pay and other allowances of its employees, for levy and recovery
H of the cost of supervision to be paid to the State Governiiient as contemplated
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [AR. LAKSHMANAN, J] 863
under Section 58A of the Act or not? The further question may also arise as A
to whether the Commissioner is entitled to recover the supervision charges
retrospectively and raise demands for, inter alia, arrears of supervision charges
as per the circular letter No. SUC I 091/197 /Revised/I.!. 96/13-A dated
30.7.1999 for carrying out provisions of Sections 58A and 114 of the
Prohibition Act and carrying out an executive function under Article 162 of
the Constitution and/or a lawful order under the Act, falling under Sections B
58A and 114 of the Prohibition Act or Rule 17(4n of the Rules of 1966 and
Rule 6(36) of the Rules of 1973?
The respondents are holding a licence in Form P.L.L. for manufacture
of Indian made foreign liquor, prescribed under the provisions of the C
Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules,
1966 (hereinafter referred to as "the Rules of 1966") and also holds a licence
in Form C.L.J. prescribed under the provisions of the Maharashtra Country
Liquor Rules, 1973 (hereinafter referred to as "the Rules of 1973") for
manufacture of Country liquor, made under the provisions of the Prohibition
Act. All transactions pertaining to receipt, transport, storage of spirit and D
manufacture, bottling and issues of the liquor manufactured are required to
be under excise supervision under both of the aforesaid 5ets of Rules. Under
Section 58A of the Prohibition Act, the State Government is empowered to
permit the manufacture and other related activities in respect of any intoxicant
under the supervision of excise staff and the cost of such staff is to be paid E
to the State Government by the manufacturer. The cost of such staff is required
to be paid to the State Government by the licensee in advance as per sub-rule
(12) of Rule 17 of the Rules of 1966 and sub-rule (12) of Rule 6 of the Rules
of 1973. The pay scales and other allowances of Government employees are
fixed by the State Government by issue of Rules and Government Resolutions
under the power vested in it by the proviso to Article 309 of the Constitution F
of India. The Commissioner, as empowered by the State Government, issues
circulars for levy and recovery of supervision charges based on the pay
scales and other allowances of the Government employees fixed by the State
Government under the Rules and Government Resolutions made under Article
309 in respect of the excise staff posted for supervision. Demand notices G
were issued by appellant No.4 - the Sub-Inspector of State Excise to the
respondents to pay the differential amounts of cost of supervision on account
of revision of pay-scales with retrospective effect ordered vide Government
Notification, Finance Department dated I 0.12.1998, as per the revised pay
scales for one Sub-Inspector and two constables. By the aforesaid Notification,
the State of Maharashtra had promulgated, under the power vested in it by H
864 SUPREME COURT REPORTS [2003) 2 S.C.R.
A the proviso to Article 309 of the Constitution, the Maharashtra Civil Services
(Revised Pay) Rules, 1998 (hereinafter referred to as "the Rules of 1998"),
whereunder the pay scales of Government employees were revised and fixed
with retrospective effect from 1.1.1996. It was pointed out that because of the
increase in the cost of supervision with effect from 1.1.1996, vide aforesaid
Notification dated I 0.12.1998, on account of revision of pay scales and
B transport charges of the employees posted for supervision, it was necessary
to increase the said charges, which should be paid by the respondent within
15 days. The respondent, vide his letter dated 2.3.1999, informed the Sub-
Inspector that he had already paid the supervision charges in advance, he
would not be able to pass on the burden of the differential amount to his
C purchasers and that he was not liable to pay the differential amount. By
reminder letter dated 24.3.2000, appellant No.4 rejected the reply of the
respondent and directed him to pay the differential amount. The respondent
questioning the above letter, preferred Writ Petition No. 3754/2000 in the
Bombay High Court contending that, inter alia, in view of the decision of this
Court in Polychem Ltd and Anr. v. State of Maharashtra and Ors. reported
D in [l 998J 6 sec 196, the demand notice was liable to be quashed and set
aside. The appellants filed a reply to the writ petition and denied the contention
of the respondent herein. The writ petition came up for admission before the
High Court and the learned Judges observed that they were allowing the
petition at the stage of admission itself in view of the judgment in Po/ye hem's
E case (supra), without considering the submissions of the appellants that on
certain facts and aspects the ratio of the Polychem judgment was not applicable
to the case of the respondent, as set out in the affidavit in reply. However,
learned counsel appearing for the respondents herein, contended before the
High Court of Bombay that the challenge sought to be raised by them to the
impugned demand notices has already been concluded in their favour in the
F case of JE. Bilimoria & Sons v. State of Maharashtra and Ors. reported in
1999 Mh.L.J. (JI) 1079, wherein a similar issue was considered by the Division
Bench and it was held therein that the demand notice of the differences of
the supervision charges with retrospective effect was without jurisdiction.
Thus, the notice -in that case was quashed and set aside. Learned counsel
G further contended that the aforesaid judgment of the High Court of Bombay
in JE. Bilimoria 's case (supra) has been confirmed by this Court in the case
of Polychem (supra) wherein this Court was pleased to hold that the payment
of supervision charges with retrospective effect was without jurisdiction and
the impugned demand of differences of supervision charges retrospectively
could not be sustained. Learned counsel appearing for the respondents therein
H (appellants herein) contended that the judgment of the Division Bench of the ,
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [AR. LAKSHMANAN, J.] 865
Bombay High Court in the case of JE. Bilimoria (supra) was no longer a A
good law in view of the Full Bench judgment of the said Court in the case
of Mohan Meakin Ltd. and Anr. v. The State of Maharashtra and Ors. reported
in 1993 Mh.L.J. (1) 13. The Full Bench while resolving the conflict did not
approve the view taken in the case of J.E. Bilimoria (Supra) and overruled
the same and confirmed the view of another Division Bench of the High
Court of Bombay in the case of Gustad Mayur Irani v. The State of B
Maharashtra reported in 1991 (51) ELI 232 (Born.) [W.P.No.940/1982]. It
was, therefore, submitted that the ratio of the decision in J.E. Bilimoria 's
case (supra) has no application in the facts and circumstances of the present
case. It was further contended that under Section 58A of the Prohibition Act,
the State Government has the power to recover from a licensee a cost of the C
staff appointed to supervise the licensed premises for excise purposes. The
Maharashtra Foreign Liquor (Storage in Bond) Rules, 1964 (hereinafter
referred to as "the Rules of 1964) also provide that the State Government can
recover from the licensees the cost of staff appointed at the licensed premises/
bonded warehouse for excise supervision. It was further urged that condition
No.3 of the licence requires the petitioners to pay such amount of cost as D
determined by the respondents, appellants herein, in advance before the
beginning of every quarter. This condition is merely for administrative
convenience and it does not prevent the State Government from recovering
the cost of such staff subsequently, especially when both Section 58A of the
Prohibition Act as well as Rule 7 of the 1964 Rules do not prescribe any time E
within which such cost has to be recovered. It was further contended that in
view of the application of recommendations of the Fifth Pay Commission,
the Dearness Allowance and other emoluments payable, inter alia, to such
supervisory staff have been increased with effect from 1.1.1996 and the cost
of supervision charges has proportionately gone up and this is to be recovered
from the licensee. It was further submitted that. the increased cost, however, F
has to be determined from 1.1.1996 because of the retrospective raise granted
to the staff by the Government and that the licensee do not have any say in
the salary and other emoluments paid to such staff. It was also contended that
under Section 58A of the Prohibition Act and the relevant Rules, there is a
clear existing statutory liability on the licensees to pay the cost of the G
supervisory staff and what is sought to be recovered from the respondents
herein is the increased cost of such supervision which has been taken place
from 1.1.1996 and the demand was made when the cost increased.
The Division Bench held that the case on hand is squarely covered by
the decision of the Bombay High Court in JE. Bilimoria 's case (supra) and H
866 SUPREME COURT REPORTS [2003] 2 S.C.R.
A that the view taken by the Bombay High Court has been confirmed by this
Court in Polychem 's case (supra) wherein it was held that the State Government
is not empowered to collect supervision charges with retrospective effect
under the Prohibition Act. The Division Bench held that they are bound by
the aforesaid view taken by this Court and, therefore, they have no other
alternative but to quash and set aside the demand notices issued by respondent
B No.4 dated 22.3.2000 and 19.2.2000 in W.P.No. 3753/2000 and W.P.No.
3754/2000 respectively. The writ petition was allowed and the rule made
absolute in terms of prayer clause (a) in both the petitions with no order as
to costs.
C Aggrieved by the orders passed by the Born bay High Court in the
above writ petitions, these appeals by way of special leave petitions were
filed by the Government of Maharashtra and others reiterating the contentions
raised before the Bombay High Court.
We heard Mr. Soli J. Sorabjee, learned Attorney General, appearing for
D the appellants and Mr. V.B. Joshi, learned counsel, appearing for the
respondents.
The learned Attorney General submitted that the High Court erred in
solely relying upon the judgment passed by this Court in the case of Po/ye hem
(supra) without considering the distinguishing facts and circumstances, as
E submitted by the appellants in the case of the respondents and without
considering certain other decisions of this Court on the basis of which these
appellants had submitted that the ratio of Polychem 's judgment was not
applicable to the case of the respondents. He further submi~ed that the High
Court erred in not appreciating the proper effect of the concerned provisions
F and directions under the Act and under the Constitution which have to be
considered together with relevant statutory provisions and the consequential
directions. The learned Attorney General invited our attention to Sections
11, 12, 13 and 49 of the Act, which read as under:
"11. Notwithstanding anything contained in the following provisions
of this Chapter, it shall be lawful to import, export, transport,
G
manufacture, bottle, sell, buy, possess, use or consume any intoxicant
or hemp or to cultivate or collect hemp or to tap any toddy producing
tree or permit such tree to be tapped or to draw toddy from such tree
or permit toddy to be drawn therefrom in the manner and to the
extent provided by the provisions of this Act or any rules, regulations
H or orders made or in accordance with the terms and conditions of a
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [AR. LAKSHMANAN, J.] 867
licence, permit, pass or authorisation granted thereunder. A
12. No person shall-
(a) manufacture liquor;
(b) construct or work any distillery or brewery;
B
(c) import, export, transport or possess liquor; or
(d) sell or buy liquor.
13. No person shall-
(a) bottle any liquor for sale; c
(b) consume or use liquor; or
(c) use, keep or have in his possession any materials, still, utensils,
imp1ements or apparatus whatsoever for the manufacture of any
liquor.
D
49. Notwithstanding anything contained in this Act, the State
Government shall have the exclusive right or privilege of importing,
exporting, transporting, manufacturing, bottling, selling, buying,
possessing or using any intoxicant, hemp or toddy, and whenever
under this Act or any licence, pennit, pass, thereunder any fees are
levied and collected for any licence, pennit, pass, authorisation or E
other permission given to any person for any such purpose, such fees
shall be deemed to include the rent or consideration for the grant of
such right or privilege to that person by or on behalf of the State
Government."
F
Our attention was also drawn to sub-section (1) of Section 114, sub-
section (1), Clause (u) of sub-section (2) of Section 143 and Section 58A of
the Prohibition Act read prior to 18.5.1998 which run as follows:
"114(1) All duties, taxes, fines (except fines imposed by a Court) and
fees leviable under any of the provisions of this Act or in respect of G
any licence, permit, pass or authorisation granted under it, and the
cost of the supervising staff appointed under Section 58-A, may be
recovered from any person liable to pay the same or from his surety,
if any, as if they were arrears of land revenue.
143(1) The State Government may make rules for the purpose of H
868 SUPREME COURT REPORTS [2003] 2 S.C.IR.
A carrying out the provisions of this Act or any other law for the time
being in force relating to excise revenues.
(2) In particular and without prejudite to the generality oftl}e foregoing
provisions, the State Government may make rules,-
(u) prescribing the fees (including rent or consideration) payable in
B
respect of any privilege, licence, permit, pass or authorisation granted
or issued under this Act.
58A. The State Government may by general or special order direct
that the manufacture, import, export, transport, storage, sale, purchase,
c use, collection or cultivation of any intoxicant, denatured spirituous
preparation, hemp, mhowra flowers, or molasses shall be under the
supervision of such Prohibition and Excise or Police staff as it may
deem proper to appoint, and that the cost of such staff shall be paid
to the State Government by the person manufacturing, importing,
exporting, transporting, storing, selling, purchasing, using, collecting
D or cultivating the intoxicant, denatured spirituous preparation, hemp,
mhowra flowers or molasses:
Provided that, the State Government may exempt any clause of persons
or institutions from paying the whole or any part of the cost of such
staff."
E
It is useful, in this context, to refer to the relevant Rules, which read
as follows:
"2(3) "Excise supervision" means the supervision of foreign liquor in
relation to its receipt. issues, transport and storage in bond by member
F of the staff of the Prohibition and Excise Department appointed in
that behalf by the Commissioner.
7. Appointment of staff - The Commissioner may appoint such staff
at the bonded warehouse for excise supervision as he deems necessary
and the cost of such staff shall be paid to the State Government by
G the licensee as provided by an order under Section 58A of the Act."
CONDITION NOS. 3,10,l l & 12 OF THE LICENCE IN FORM
B.W.l GRANTED UNDER THE RULES OF 1964:
3. The licensee shall pay to the State Government, in advance, at the
H beginning of each quarter commencing from the date of the licence,
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [AR. LAKSHMANAN, J] 869
such cost of the staff appointed at the licensed premises for the purpo~e A
of excise supervision as may be fixed by the Commissioner frol:n
time to time.
10. No foreign liquor shall be removed by the licensee from the
licensed pre111ises for consumption within the State except with
previous permission of the Collector, in writing and on payment of B
excise duty and fees and under a pass granted under the Maharashtra
Foreign Liquor (Storage and Supply) Regulations 1964.
Provided that, foreign liquor may be removed in bond by the
licensee from his licensed premises for supply to another license
holding a B. W. I license in the State, under a pass granted by the C
Collector under the Maharashtra Foreign Liquor (Storage and Supply)
Regulations, 1964.
11. The license shall abide by the conditions of this licence and the
provisions of the Bombay Prohibition Act. 1949, and the rules,
regulations and orders made thereunder. D
12. The licensee shall obey all lawful orders issued from time to time
by the Commissioner, the Collector or the Superintendent of
Prohibition and Excise.
The inaugural part of the Maharashtra Civil Service (Revised Pay) E
Rules, 1998.
In exercise of the powers conferred by the proviso to Article 309 of
the Constitution of India, the Governor of Maharashtra is pleased to
make the following rules namely:
I. Short title:- These rules may be called the Maharashtra Civil Services
F
(Revised Pay) Rules, 1998.
Sub-rule (12) of Rule 17 of the Rules of 1966:
All transactions pertaining to the receipt, transport, storage of spirit
and manufacture, bottling and issues of potable liquor shall be under G
excise supervision. The Director may appoint such staff at the
manufactory for excise supervision as is considered necessary and
the cost of such staff shall be paid to the State Government by the
licensee annually in advance.
Sub-rule (12) of rule 6 of the Rules of 1973: H
870 SUPREME COURT REPORTS [2003] 2 S.C.R.
A All transaction pertaining to the receipt, transport and storage of spirit
and country liquor and manufacture, bottling and issues of country
liquor shall be under excise supervision. The Commissioner shall,
according to the direction made under Section 58A of the Act by the
State Government, station such staff at the Manufactory for excise
supervision as is considered necessary and the cost of such staff shall
B be paid to the State Government by the manufactory licensee quarterly
in advance.
Sub-ru!e (43) of Rule 17 of the Rules of 1966 under which the license
in Form P.LL has been granted to the respondent reads as under
C The licensee shall abide by all rules, regulations and orders made
from time to time under the Act.
Under sub-rule (I) of rule 15 and sub-rule (2) of Rule 16 of the Rules
of 1966, the applicant/licensee, has to give following undertaking in
the application for grant or renewal of the licence to manufacture
D liquor, in the application in Form P.L.A. prescribed under the Rules
of 1966 for grant/renewal of the licence:
I/We agree to abide by the terms and ·conditions of the licence which
may be granted/renewed, and the provisions of the Bombay Prohibition
Act, 1949 and the rules, regulations and orders made thereunder.
E
Sub-rule (36) of rule 6 of the Rules of 1973:
6(36) A manufactory licensee shall abide by all rules, regulations and
orders made from time to time under the Act.
In the application form C.L.A. prescribed under rules 3(1) and 4(2)
F of the Rules of 1973, for grant/renewal of the C.L.I licence, the
applicant/licensee has to give the following undertaking:
4. I/We agree to abide by the terms and conditions of the licence
which may be granted/renewed, and the provisions of the Bombay
Prohibition Act, 1949, and the rules, regulations and orders made
G thereunder.
Condition No.17 of the licence in Form C.L.I. prescribed under the
Rules of 1973, which is granted to a manufacturer of country liquor:
The licensee shall abide by the conditions of this licence and the
H provisions of the Bombay Prohibition Act, 1949, the rules, regulations
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [AR. LAKSHMANAN, J J 87 J
- and orders made thereunder and shall given an undertaking to that A
effect in Form CL.XX.
Undertaking in Form CL.XX prescribed under condition No.17 of the
licence in Form C.L.I. prescribed under the Rules of 1973:
"I/We.hereby undertake to abide by the conditions of the licence in B
Form CL.I. that may be granted/renewed in my/our favour and the
provisions of the Bombay Prohibition Act, 1949 and the Maharashtra
Country Liquor Rules, 1973 and other relevant rules, regulations and
orders made thereunder from time to time.
Signature of the licensee/applicant" C
Learned Attorney General drew our attention to the Notification dated
10.12.1998 issued by the Finance Department of the Government of
Maharashtra which runs as follows:
"GOVERNMENT OF MAHARASHTRA
D
FINANCE DEPARTMENT
Mantralaya, Mumbai 400 032, dated 10th December, 1998
NOTIFICATION
E
No. RPS 1298/C.R. 13/98/SER-10- In exercise of the powers conferred
by the proviso to Article 309 of the Constitution of India, the Governor
of Maharashtra hereby makes the following rules, namely:-
1. Short title and commencement
F
(i) These rules may be called the Maharashtra Civil Services (Revised
Pay) Rules, 1998.
(ii) They shall be deemed to have come into force on the 1st day of
January, 1996."
Learned Attorney General contended that the High Court of Bombay
G
erred in not appreciating the true nature of the levy and recovery of supervision
charges and of the transaction between the State Government and the licensee
in respect of levy and recovery of supervision charges under Section 58A of
the Prohibition Act. He further submitted that the basis on which the levy on
cost of supervision was governed and the nature of the levy and recovery H
872 SUPREME COURT REPORTS [2003] 2 S.C.R.
A through executive orders were not put in issue in Polychem 's case (supra). It
also does not appear to have been brought to the notice of this Court that the
pay scales which were revised with retrospective effect under the 'Maharashtra
Civil Services (Revised Pay) Rules, 1998 (hereinafter referred to as "the
Rules of 1998") were made by the State of Maharashtra under the powers
vested in it by the proviso to Article 309 and the levy and recovery of cost
B of supervision from the licensee was through executive instruction based on
the aforesaid Rules of 1998. It was also submitted that the question as to
whether the word "cost" was used in Section 58A of the Prohibition Act as
meaning "fee" in the technical sense was not canvassed in the Polychem 's
case (supra). According to the learned Attorney General, to recover the cost
C of supervision as per the pay scales of its employees from the licensees is an
executive function of the State Government under Section 58A of the
Prohibition Act and Article 162 of the Constitution, which is carried out by
issuing circular letter dated 30. 7 .1999 issued by the Commissioner and,
therefore, it is not a case of any legislation imposing liability with retrospective
effect by a delegated authority.
D
It was argued that the licensees were well aware that they have to pay
additional amounts periodically at least about once or twice in a year on
account of retrospective revision of various allowances and which they had
paid and, therefore, factually there was no effective representation to the
E licensee that the cost of supervision charges for the incoming quarter was
fixed for the said quarter and will not be increased with retrospective effect.
Quoting the circular letters, it was argued that the said letters establish that
there was no question of any remote circumstance of increase in cost of
supervision with retrospective effect in the case of the respondent including
other licensees and, therefore, the High Court has erred in applying the ratio
F of the Polychem 's case (supra) to the case of the respondent on the facts of
the case submitted for consideration with reference to the above quoted circular
letters according to which recovery of additional amounts towards arrears of
supervision charges was effected during the previous years.
Learned Attorney General further submitted that the respondent was
G not and is not prevented from recovering this additional cost from his further
sales as observed by the Full Bench of the Bombay High Court in paragraph
13 of the judgment in Mohan Meakin 's case (supra) and which view was not
before this Court in the case of Polychem (supra) and, therefore, the High
Court ought to have appreciated that ratio of the Polychem 's judgment (supra)
H was, therefore, not applicable to the case of the respondents on facts as well
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [AR. LAKSHMANAN, J.J 873
as in law. A
Learned Attorney General, in support of his contentions, placed strong
reliance on the following judgments:
I. Government of Andhra Pradesh v. Mis. Anabeshahi Wine and
Distilleries Pvt. Ltd reported in (1988] 2 sec 25 (delivered on B
16.2, 1988).
2. JE. Bilimoria & Sons v. State of Maharashtra and Ors. reported
in 1990 Mh.L.J. (II) 1079 (delivered on 1.8.1989).
3. Gustad Mayur Irani v. State of Maharashtra and Ors. reported in
1991(51) ELT 232(Bom.) (delivered on 12.9.1990). C
4. Mohan Meakin Ltd and Anr. v. State of Maharashtra and Ors.,
reported in 1993 Mh.L.J.(I) 13 ( Full Bench judgment delivered
on 8.9.1992).
5. Mis Vidarbha Wine Traders v. State of Maharashtra and Ors., D
delivered by the High Court of Bombay on 24.2.1994.
6. Order dated 5.9.1994 passed by this Court in S.L.P.(C)No.15159-
15167/1994 (CC2653 I) (Vidarbha Wine Traders and Ors. v. State
of Maharashtra).
7. Polychem Ltd. and Anr. v. State of Maharashtra and Ors. reported E
in (1998) 6 sec 196 (delivered on 4.8.1998)
Placing reliance on the above cited rulings, the learned Attorney General,
submitted that the High Court ought to have appreciated that the judgment of
this Court in Polychem 's case was required to be read with the decision of
the Full Bench of the High Court in Mohan Meakin's case in which the F
earlier decision in JE. Bilimoria's case was overruled on entirely different
reasons than those given in the judgment of the High Court in Gustad Mayur
!rani's case, in Writ Petition No. 2718/1991 Mis. Vidarbha Wine Traders v.
State ofMaharashtra and Ors. and order dated 5.9.1994 of this Court rejecting
the Special Leave Petition (c) No. 15159-15167/1994 (CC 26531) filed by G
Mis Vidarbha Wine Traders and 15 other licensees. It was further submitted
that the various reasons in Mohan Meakin 's case upholding the demand for
recovery of differential amounts of supervision charges were not rejected on
the basis of any discussion by the High Court in the impugned judgment.
Mr. V.B. Joshi, learned counsel appearing for the respondents, in reply, H
874 SUPREME COURT REPORTS [2003] 2 S.C.R.
A submitted that the appellants while issuing demand notice did not consider
the fact that the Excise duty is to be leviea on the basis of manufacturing cost
and supervision charges which form part of the manufacturing cost and that
the fact that the manufacturing cost is ultimately to be passed on the customers
and, therefore, the manufacturers are not in a position to recover when the
B goods are already issued for sale and released from warehouse. He further
submitted that the appellants are not entitled to recover the supervision charges
retrospectively and that the supervision charges are paid well in advance at
the beginning of every quarter and without payment of those charges, no
manufacturing activities could be carried out. It was further submitted that
the term "cost of the supervision charges" is not that equivalent to salary or
C wages and that the demand notice is without authority of law. He further
urged that the appellants cannot recover the amount arbitrarily which is not
just and proper and that since the demand notice is not legal and not
maintainable, the same is not binding upon the respondents and, therefore,
the respondents are not liable to pay the same and, therefore, the High Court
of Bombay has rightly quashed the demand notice issued by the appellants.
D Mr. V.B. Joshi further urged that the question of law raised in the special
leave petition is no longer res integra and it has been decided against the
appellants in Polychem 's case (supra). By these appeals, the appellants seek
review of the aforesaid judgment of this Court long after the said judgment
has become final. It was further submitted that it is totally incorrect for the
E appellants to submit that the decision of this Court in Polychem 's case (supra)
is liable to be read with the decision of the Full Bench of the High Court of
Bombay in the case of Mohan Meakin (supra). It was further submitted that
the Full Bench decision of the Bombay High Court upheld the view taken by
the Division Bench of the same High Court in Gustad Mayur !rani's case
(supra), wherein it has been held that the liability to pay the supervision
F charges and the quantum of two different concepts that the liability is not
imposed with retrospective effect but merely reduced are revised with
retrospective effect. According to the learned counsel, in Polychem 's case
(supra), this Court had considered the judgment of the Division Bench in
Gus tad Mayur Irani 's case (supra) as well as the conflicting judgments of the
G Division Bench of the same High Court in the case of J.E. Bilimoria (supra).
In other words, although the Full Bench judgment in Mohan Meakin "s case
(supra) was not brought to the notice of this Court while deciding the same
question raised in Polychem 's case (supra). The reasoning given in Custad
Mayur irani 's case (supra) was considered and rejected by this Court. It was,
therefore, submitted that in deciding Polychem 's case (supra), this Court has
H impliedly overruled the decision of the High Court in Mohan Meakin "s case
'(.
' .
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY (AR. LAKSHMANAN, J.] 875
(supra) and that the contention of the appellants that the said judgment of this A
Court is liable to be read with Mohan Meakin's case (supra) is without merit
and deserves to be rejected. Mr. V.B. Joshi further submitted that when it has
been conclusively held by the High Court that the rule making authority does
not have the power to recover the supervision charges retrospectively, the
appellants cannot rely on any rules enacted by any rule making authority to B
justify the retrospective demand which has been struck down by the High
Court of Bombay.
Before proceeding further to consider the rival submissions, it would
be beneficial to consider the various judgments cited by the learned Attorney
General in its chronology. The first in the series is the judgment of this Court C
in the case of Mis Anabeshahi Wine and Distilleries Pvt. Ltd (supra). In this
case, the respondent-Distillery obtained a distillery licence under the Andhra
Pradesh Distillery Rules, 1970 and has been carrying on the business of
manufacture and sale of wine and other allied products. The excise authorities
posted one Inspector, one Sub-Inspector and four Constables at the
respondent's factory premises and re9ulred the respondent to pay their salaries D
and allowances etc. in pursuance of Section 28(2) of the Andhra Pradesh
Excise Act, i 968. The respondent-Distillery having failed to get any redress,
filed writ petition challenging the demand on various grounds. The contentions
raised on behalf of the respondent-Distillery found favour with the High
Court which, by the judgment appealed against allowed the respondent's writ E
petition. In this Court, it has been urged by the State Government that the
High Court committed an error in appreciating the true nature of the demand
and the demand was in the nature of price for pa1iing with the privilege
which privilege exclusively vested with the Government, Having considered
the respective submissions, this Court accepted the submission made by learned
counsel for the appellant-State. Before this Court, it has not been disputed F
that the business which the respondent has been carrying on could not have
been carried on by it unless licence had been granted to it under the said Act
and the Rules. This Court, after considering the rival submissions, observed
in paragraph 5 which runs as follows:
"The perusal of the aforesaid provisions of the Act and the Rules G
leaves no manner of doubt that it was open to the appellant to grant
the exclusive privilege of manufacturing and selling wine etc. to the
respondent only provided it was, apart from making any other payment,
also willing to pay the salaries and allowances referred to in the
aforesaid provisions which for the sake of convenience have been H
876 SUPREME COURT REPORTS [2003] 2 S.C.R.
A described as establishment charges, and which were sought to be
recovered as such under the impugned notice of demand. The
respondent-Company was not under any obligation to take the licence.
It was open to it to have refrained from taking any licence under the
Act and the Rules if it was not willing to pay the price as required
by the Government for the grant of privilege to manufacture and sell
B
intoxicants. The nature of the payment which a licensee such as the
respondent is required to make to the State by reason of the State
parting with the privilege in regard to manufacture sale etc. of
intoxicants came up for consideration before a Constitution Bench of
·-
this Court in Har Shankar v. Deputy Excise and Taxation
C ·Commissioner. It was held that the amounts charged to the licensees
are neither in the nature of tax nor excise duty, but constituted the
price or consideration which the government charges to the licensees
for parting with its privileges and granting them to the licensees."
In the case of J.E. Bilimoria (supra), the judgment was delivered on
D 1.8.1989 by the Nagpur Bench of the Bombay High Court. Seventeen writ
petitions were filed challenging the authori1y of the respondent-State to recover
excise duty on breakages caused in transit or in the Bonded Warehouse, by
recourse to the circulars issued by the Commissioner of Prohibition ,and
Excise and the difference in the suq,ervision charges leviable under Section
E 58A of the Prohibition Act. With regard to the supervision charges, it was
urged that Section 5SA of the Prohibition Act vested the State Government
with the power of imposing supervision charges in respect of the goods
mentioned therein by the persons who were engaged in the concerned activity,
and since Section 58A of the Prohibition Act imposed the liability, it was
open to the State Government to vary the quantum, taking into account the .
F circumstances, and it was not necessary to have a clear provision for recovering i
the amount and no question of retrospective operation of the rule or provision
arose in these circumstances. The grievance of the petitioners before the High
Court was thai the supervision charges have actually been recovered much in
excess of the actual salary of the staff employed in the licensed premises and
G that because there were revisions in salary of Government servants and some
audit objections were raised, the respondents started taking action for recovery
of supervision charges with retrospective effect from 5.5.1970 on the strength
of the circular dated 7.4.1981. The Bombay High Court held that neither of
these provisions clothe the State Government or the Commissioner with the
authority to charge the supervision charges with retrospective effect. Obviously,
H when Section 58A of the. Prohibition Act uses the words "the cost of such
GOVT. OF MAHARASHTRA i< DEOKAR'S DISTILLERY [AR. LAKSHMANAN, J) 877
staff shall be paid to the State Government" that would have reference to the A
cost of the staff as obtaining for the period during whic~ the goods are stored
in the bonded warehouse and not the incidence which the State would have
to bear by reason of such a remote circumstance as the upward revision of
the pay scales of its own employees at a later date. The Bombay High Court
held that even apart from the absence of the provisions allowing retrospective
recovery, the State would be estopped from asking for the difference on the B
basis of unanticipated escalation in the costs of supervision at a later point
of time and, therefore, the Court held that no claim for the difference in the
cost of supervision could be made by issuing the circular dated 7.4.198 L In
the result, the High Court quashed the circular and restrained the State from
claiming any levy, charge or excise duty on the debonded goods on the basis C
of those circulars and communications. The High Court, in coming to the
conclusion, relied upon the judgment in the case of Mis. Mc Dowell & Co.
Ltd. v. Commercial Tax Officer reported in AIR (1977) SC 1459.
The judgment in Gustad Mayur !rani's case (supra) [W.P.No. 940/
1982 delivered on 12.9.1990] was rendered by the Division Bench of the D
High Court of Bombay. The writ petitioner, in the said case, carries on
business and deals in trade and import of foreign liquor including Indian
· made foreign liquors and also holder of licence issued under the provisions
of the Prohibition Act and the Rules made under the Rules of 1963 and 1964.
The writ petitioner contended before the High Court that Section 58A of the E
Prohibition Act does not empower the respondents to impose the fees with
retrospective effect and that the demand made in the year 1982 for the period
commencing from 1974 onwards is unreasonable and, therefore, the demand
notice should be struck down on the ground of unreasonableness. The judgment
-~
in the case of Mis. Anabeshahi Wine and Distilleries Pvt. Ltd (supra) was
cited before the Division Bench. The judgment rendered by the learned single F
Judge in W.P.No. 631/1982 (Maneckjee Majshedjee v. The State of
Maharashtra and Ors.) raising an idc~ical contention was also cited. Pendse
J., by his judgment, turned down the contention and held that what is required
by the State Government under Section SSA of the Prohibition Act is the fees
for the service rendered and not the tax and that the said section enables the
State Government to appoint staff under whose supervision the importation G
or storage of liquor will be carried out and the cost of such staff can be
recovered from the importer. The learned single Judge also held that the mere
fact that the charges are recovered after passage of time would not make
recovery defective or without authority. The contention that the recovery was
made with retrospective effect was turned down by holding that the liability H
_}
878 SUPREME COURT REPORTS [2003] 2 S.C.R.
A to pay charges was undertaken and what is being recovered is only the --~
difference in rates of charges and the liability and the quantum are two
different concepts and the liability is not imposed with retrospective effect
but merely rates are revised with retrospective effect. The learned Judges of
the Division Bench affirmed the view taken by the learned single Judge as
correct and upheld the same. On the facts and circumstances of the case, the
B Bench was not inclined to hold that the demand suffers from unreasonable
delay and, therefore, must be struck down and the demand does not suffer
from any infirmity.
In the case of Mohan Meakin (supra) which was decided on 8.9.I 992,
C the State of Maharashtra was seeking to recover supervision charges under
Section 58A of the Prohibition Act with retrospective effect. It was contended
that the demand for supervision charges was bad in law. Before the Full
Bench, the judgment of the learned Single Judge (Pendse, J.) of the Bombay
High Court who negatived the contentions of the petitioners by his judgment
dated 19.6.1986 and the judgment of the Division Bench of the Bombay
D High Court in J.E. Bilimoria's case (supra) was also cited. The Division
Bench which decided Bilimoria 's case (supra) did not agree with the decision
of Pendse, J. which was brought to its notice and decided the issue in favour
of the respondent-Distillery before it. The issue relating to "retrospective"
supervision charges again came up for consideration before the Division
E Bench of the Bombay High Court consisting of Pendse and Da Silva, JJ. in
the case of Gustad Mayur Irani (supra).
It seems that the judgment of the Division Bench of the High Court of
-
Bombay, Nagpur Bench was not brought to the notice of the Division Bench
of the Bombay High Court. The Division Bench of Bombay High Court "
p followed the judgment ofFwdse, J., referred to earlier, and decided the issue
of supervision charges against the petitioners by its judgment dated 12.9.1990.
There are, thus, two conflicting judgments of the two Division Benches of
the High Court of Bombay on the question of supervision charges. When the
matter came up for hearing before another Division Bench, the Division
Bench referred the matter to the Full Bench as there was a conflict of decisions
G of two Division Benches of the said Court.
Jn the instant case, we are concerned with regard to Section 58A of the
Prohibition Act. Before the Full Bench, the Distillery-Mohan Meak.in
contended that there is no provision under the Prohibition Act or under any
H of the Rules for recovery of supervision charges retrospectively and that
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [AR. LAKSHMANAN, J] 879
under Condition No.3, they are required to pay the cost of the staff appointed A
at the licensed premises in advance at the beginning of each quarter, which
they have done and, therefore, they cannot now be asked to pay increased
charges with retrospective effect from 5.5. I 970. The petitioners, in respect of
their contentions, relied on a decision of this Court in the case of Income-tax
Officer v. M.C. Ponnoose reported in AIR (1970) SC 385 wherein this Court
has observed that while it is open to a sovereign Legislature to enact laws B
which have retrospective operation, the Courts will not ascribe retrospectively
to new laws unless by express words or necessary implication, it appears that
such was the intention of the Legislature. Speaking for the Bench, Mrs.
Sujata Manohar, J., as she then was, has observed that the ratio of the said
judgment has no application to the facts of the case before them and that C
Condition No. 3 of the licence requires the petitioners to pay such amount of
costs as determined by the respondents in advance before the beginning of
every quarter and that this condition is merely for administrative convenience.
It does not prevent the State Government from recovering the cost of such
staff subsequently, especially when both Section 58A of the Prohibition Act
as well as Rule 7 do not prescribe any tiine limit within which such cost has D
to be recovered. The Full Bench further held that the demand for additional
charges has been made by the State Government from the petitioners when
the charges increased and hence the increased charges which have been
demanded from the petitioners are from 5.5.1970 and that under Section 58A
of the Prohibition Act and the relevant Rules, there is a clear existing statutory E
liability on the licensees to pay the cost of the supervisory staff and there is
no change in the statutory liability. The Full Bench also held that the Division
Bench at Nagpur in the case of JE. Bilimoria (supra) is not right when it says
that the cost of the staff which is required to be paid under Section 58A of
the Prohibition Act has a reference only to the cost of the staff as obtaining
for the period during which the goods are stored in the bonded warehouse. F
Adding further, the Full Bench has observed that the cost is undoubtedly
of the staff who is deployed at the bonded warehouse. But Section 58A of
the Prohibition Act does not prescribe any date or period during which such
cost should have accrued. If such costs arise at a later date by reason of a
retrospective revision in the pay scales of the staff so deployed, the petitioners G
are bound to pay such revised cost in view of the clear provisions of Section
58A of the Prohibition Act. The claim, therefore, of the petitioners that they
are not liable to pay the additional charges sought to be collected from them
under the circular of 9.2.1979 must be rejected.
H
880 SUPREME COURT REPORTS (2003] 2 S.C.R.
A The Full Bench of the Bombay High Court overruled the judgment in
J.E. Bilimoria's case (supra) and approved the judgment in Gustad Mayur
/rani's case (supra) by Pendse and Da Silva, JJ.
We may now refer to the judgment dated 24.2.1994 of the learned
Single Judge of the Bombay High Court, Nagpur Bench in W.P.(C)No. 2718/
B 1991 etc. filed by Mis. Vidarbha Wine Traders and Ors. The common question
involved in these writ petitions is regarding the power of the State Government
to recover the supervision charges with retrospective effect. Before the learned
single Judge, the decisions in J.E. Bilimoria 's case, Gustad Mayur Irani 's
case and the Full Bench decision in Mohan Meakin 's case were cited. The
C learned single Judge held that since the Full Bench has now answered the
issue and held that J.E. Bilimoria 's case (supra) was not correctly decided,
the State Government is entitled to recover the supervision charges
retrospectively. In that view of the matter, the learned single Judge dismissed
the writ petitions. Against the said decision, S.L.P .(C)No/1994 (CC 26531)
was filed in this Court. This Court, upon hearing the counsel appearing on
D either side, condoned the delay and dismissed the special leave petition on
5.9.1994. The very same question was raised before this Court in the above
special leave petition as to whether the State Government is empowered to
collect differential supervision charges with retrospective effect under Section
58A of the Prohibition Act. Before this Court, the judgments in J.E. Bilimoria
E (supra), Mc Dowell and l.T.O. v. I.CM Ponnoose were cited. It was submitted
before this Court, by the appellant-Company, that the impugned judgment of
the Division Bench runs counter to an earlier judgment of the Division Bench
of the same. High Court on the same point and that another Division Bench
in J.E. Bilimoria 's case (supra) has quashed the similar demand of differential
supervision charges retrospectively and, therefore, the judgment under appeal
F ignoring the earlier judgment of the Division Bench on the same point cannot
be sustained. This· Court has also noticed that the judgment in Bilimoria 's
case (supra) was not challenged by the Revenue as per the information passed
on by the learned counsel appearing for the respondents. We have already
noticed that this judgment was rendered by this Court in Polychem 's case --.......
G (supra) on 4.8.1998. Unfortunately, the judgment rendered in Gustad Mayur
Irani 's case (supra), Mohan Meakin 's case (supra) and the order passed by
this Court in S.L.P.(C)/94 (CC 26531) filed by Vidarbha Wine Traders
dismissing the special leave petition were not cited. This Court observed as
follows;
"As observed in(/. T.O. v. I.MC.-Poonnoose), it is open to a sovereign
H
GOVT. Of MAHARASHTRA v. DEOKAR'S DISTILLERY [AR. LAKSHMANAN, J.] 881
legislature to enact laws which have retrospective operation. Even A
when Parliament enacts retrospective laws, such laws are no doubt
prime facie of questionable policy, and contrary to the general principle
that legislation by which the conduct of mankind is to be regulated
ought, when introduced for the first time, to deal with future acts, and
· ought not to change the character of past transactions carried on upon
the faith of the then existing law. The Courts will not, therefore, B
ascribe retrospectivity to new laws affecting rights unless by express
words or necessary implication, it appears that such was the intention
of the legislature. Here, it.does not appear to us that Section 58A of
the Bombay Prohibition Act permitted the Government retrospectively
to raise the quantum of costs, nor is there any warrant to infer that C
there was delegation to the rule-making authority to charge the amount
of costs on the basis of the events which could not have been
anticipated at the time the costs were assessed."
This Court further, in paragraph 8, held as follows:
D
"On a scrutiny of these two Division Bench judgments, the view
taken in JE. Billimoria case commends to us and we are of the view
that the reasonings given therein are well founded. We are, therefore,
of the view that the impugned demand of differential supervision
charges retrospectively cannot be sustained and accordingly the
judgment under appeal is set aside and Writ Petition No. 1672 of E
1983 filed by the Company stands allowed. The question posed at the
beginning is answered in the negative."
- We may also be benefitted by the decision rendered by a Bench of
three Judges of this Court in State Bank of Haryana and Ors. v. Jage Ram
and Ors. reported in (1980] 3 SCC 599. In this case, the Excise and Taxation F
Commissioner, Haryana announced, by publication of a notice, that excise
auctions for the financial year 1967-69 will be held on 27.3.1967 and that the
terms and conditions in regard to the auction ofretail vends of country spirits
were set out in a pamphlet issued along with the notice and in the auction
held for the retail vend, the respondents offered the highest bid for a quota G
of 62, I 00 proof litres for which they became liable, under Condition 14(iii)
of the auction, to pay an amount calculated at the rate of Rs.17 .60 per litre.
On the bid being knocked in their favour, the respondents deposited I/24th
of the total amount payable by them, by way of security for the due
performance of the terms of the auction, as required by condition l 5(i) of the
- auction and Rule 36(22-A) of the Punjab Liquor Licence Rules, 1956 as H
882 SUPREME COURT REPORTS [2003) 2 S.C.R.
A amended. In this case, after accepting the terms and conditions in regard to
the auction of retail vends of country spirit, the licensee failed to comply
with the conditions of the contract. The said Rules required the licensee to
pay an amount by way of charge divided in equal instalments in a year and
on default in payment of any instalment, the State was justified in re-auctioning
and recovering the resulting loss, if any, from the defaulter. This was the
B question in the appeal. This Court held as follows:
"Those who offer their bids voluntarily in auctions do so with a full
knowledge of the tenns and conditions attaching to the auctions and
they cannot be permitted to wriggle out of the contractual obligations .
arising out of the acceptance of their bids. The occurrence of a
c commercial difficulty, inconvenience or hardship in the performance
of those conditions, like the sale of liquor being less in summer than
in winter, can provide no justification for not complying with the
terms of the contract which they had accepted with open eyes. Such
vendees, therefore, cannot invoke the writ jurisdiction of the High
D Court to avoid the contractual obligations incurred by them voluntarily.
The amounts, which are charged to the licensees who offer their
bids in auction sales of vends are neither tax, nor fee properly so
called which would require the existence of a quid pro quo, nor in the
nature of excise duty, which by reason of the constitutional constraints
E as to be primarily a duty on the production or manufacture of goods
produced or manufactured within the country. The true nature of the
charge which the Government levies in such cases is that it is a price
which the State charges as a consideration for parting with its privileges
in favour of the licensee. Such a charge is a nonnal incident of a
F
trading or business transaction. Since rights in regard to the
manufacture and sale of intoxicants are vested in the State, it is open
..
to it to part with those rights for consideration."
In the background of above decided cases, we shall now consider the
case on hand. We have already extracted the relevant provisions, the Rules,
G the Regulations and the circular letters issued by the State Government. As
per the well-settled rule of interpretation that the words in a provision are to
be given their normal meaning as understood by the common man or by the
trade as well as the widest meaning unless there is any limitation in that
provision itself. The words "the cost of such staff shall be paid to the State
Government" used in Section 58A of the Prohibition Act, in our view, would
H include in their meaning all the costs incurred by the State Government for
GOVT. OF MAHARASHTRA 1·. DEOKAR'S DISTILLERY tAR LAKSHMANAN, .I] 883
the purpose of disbursing pay and other allowances to the Government A
employees posted for supervision, whether recovered in advance or in due
course the additional amounts which become recoverable on account of upward
revision of pay scales with retrospective effect, because there is no limitation
of any kind in Section 58A of the Prohibition Act to the effect that the costs
are to be recovered only in advance, and that too only such costs as could B
be worked out on the date of demand or to the effect that the burden of
additional amounts on account of revision of pay scales with retrospective
effect should not be recovered from the liquor licensee. In our view, there
exists full power under Section 58A of the Prohibition Act itself to levy and
recover all costs of supervision and\ therefore, no limitation can be read into
the power to recover all costs present, future and past which are/or were C
actually incurred by the State Government in view of payments made/to be
made to its employees posted for excise supervision, in spite of provisions of
sub-rule (12) of Rule 17 of the Rules of I966 and sub-rule (12) of Rule 6 of
the Rules of 1973.
It was submitted on behalf of the appellants that for administrative
D
convenience only the costs are calculated and recovered in advance from the
licensee and, therefore, sub-rule 12 of Rule 17 of the Rules of 1966 or under
sub-rule 12 of Rule 6 of the Rules of 1973 could not be construed as an
effective representation that no further cost would be recovered when provision
under Section 58A of the Prohibition Act is clearly to the effect that the E
licensee has to bear the entire cost of the supervisory staff and, therefore, the
question of application of principle of promissory estoppel, as argued by the
learned counsel for the respondents, would not arise. The Full Bench of the
Bombay High Court also ruled accordingly. Further Rule 17(12) of the Rules
of 1966 and Rule 6(12) of the Rules of 1973 providing for recovery of F
supervision charges in advance, do not direct that differential amounts are
not to be recovered, if pay scales are revised. On the other hand, the aforesaid
Rules are to be read with other provisions giving residuary powers in both
the sets of Rules viz. Rule 17(43) of the Rules of I966 and Rule 6(36) of the
Rules of 1973, which direct that the licensee shall comply with all orders
issued under the Prohibition Act and Section 11 of the Prohibition Act clearly G
provides that the State Government may permit business in liquor subject to
the manner and to the extent provided by the provisions of this Act or any
Rules, Regulations or orders made or in accordance with the terms and
conditions of the licence, permit, pass or authorization granted thereunder.
This Court in Assistant Collector Central Excise v. National Tobacco H
884 SUPREME COURT REPORTS (2003] 2 S C.R.
A Co. reported in AIR (1972) SC 2563 observed that it is a well established
rule of construction that a power to do something essential for the proper and
effectual performance of the work which the statute has in contemplation
may be implied and as there was no express prohibition in the Central Excises
and Salt Act, 1944 and the Rules thereunder against making an assessment
B by the authorities at any other time, from provisions of Section 4 of the 1944
Act and Rule JOA of the Central Excise Rule~ an implied power to carry out
assessment not specifically provided for could be inferred. It was observed
in paragraph 31 of the aforesaid judgment, inter alia, that "There is no express
prohibition anywhere against an assessment at any other time in the
circumstances of a case like the one before us where no "assessment", as it
C is understood in law, took place at all. On the other hand, Rule I OA indicates
that there are residuary powers of making a demand in special circumstances
not foreseen by the framers of the Act and the rules. "
In the case on hand, the licensees gave an undertaking at the time of
obtaining grant or renewal of the license in the application form itself, both
D under the Rules of 1966 and the Rules of 1973, that they would abide by all
orders made under the Prohibition Act and the Rules. Under Rule 17(43) of
the Rules of 1966 and under Rule 6(36) of the Rules of 1973, there are
residuary powers of making a demand in special circumstances not foreseen
in Rule 17(12) of the Rules of 1966 or Rule 6(12) of the Rules of 1973. It
E is seen from ~.!!_le 17f'.f11of the Rules of 1966 that t~e licens~e shall abide
by all the Rµles, Regtriafions and orders made from time to time under the
Act. A similar provision also exists under Rule 6(36) of the Rules of 1973.
The object of Section 58A of the Prohibition Act and the intention of the
Legislature, in our opinion, could not be anything other than that the entire
cost incurred by the Government on account of pay-scales paid to the
F Government employees posted for supervision should be paid by the licensee
and that this cost should not be met from the Government exchequer.
We have already extracted the relevant undertaking that the respondents
had given in the application in Form P.L.A. prescrfoed under the Rules of
G 1966 and application in Form C.L.A. prescribed under Rules of 1973. Apart
from the undertaking under Condition No. 17 of the licence in Form C.L.A.
for grant or renewal of licence that the orders made from time to time under
the Act shall be complied with. Sub-rule 43 of Rule 17 of the Rules of 1966
and sub-rule (36) of Rule 6 of the Rules of 1973 also prescribed that the
licensee shall abide by the orders made from to time under the Prohibition
H Act and these ate the provisions which give residuary powers to the petitioners,
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [AR. LAKSHMANAN, J.] 885
inter alia, direct to pay the supervision charges. A
The legal licensee does not have a fundamental right to deal in liquor
under Entry 8, List II in the Seventh Schedule to the Constitution of India
and thereby under Sections 49 and I43(2)(u) of the Prohibition Act, the State
has the exclusive right/privilege in respect of potable liquor and the State, in
our opinion, can charge any reasonable expenses or even consideration for B
permitting such activity by grant of licence and that respondents ought to
comply with all reasonable orders, as undertaken by them while obtaining the
licence. This factor, the High Court, has not appreciated. Once the liquor
licensee has undertaken to abide by all reasonable orders under the Prohibition
Act while obtaining the licence, they cannot wriggle out of the contractual C
liability voluntarily incurred by them.
The order of the High Court is bad in law. The High Court, in our view,
has erred in not appreciating the impugned demand notice was also in the
nature of demanding balance of the price of the exclusive privilege which
would become final only on issue of the Notification, order under Article D
309, the bulk of which have already been recovered in advance, which privilege
exclusively vests with the Government considering effect of provisions
especially Section 49 and Section 143(2)(u) of the Prohibition Act. In our
opinion, the establishment charges demanded are in the nature of price for
parting with the privilege to permit manufacture and sale of liquor, and the E
privilege exclusively vests with the Government.
We have already noticed the observations made by this Court in the
case of Mis Anabeshahi Wine and Distilleries Pvt. Ltd.( supra). In this context,
it is well-settled by catena of decisions of this Court that there is no
fundamental right to trade in liquor and State can charge consideration for F
granting the privilege in respect of potable liquors for raising revenue as
ruled in Mis. Anabeshahi Wine's judgment (supra).
As already noticed, the High Court has failed to appreciate that the
judgment of this Court in Polychem 's case (supra) was required to be read
with the decision of the Full Bench of the said Court in Mohan Meakin's case G
(supra) in which the earlier decision in J.E. Bilimoria 's case (supra) was
overruled on entirely· different reasons than those given in the judgment of
the High Court in Gustad Mayur irani 's case (supra), the judgment dated
24.2.1994 in W.P.No. 2718/1991 and Mis. Vidarbha Wine Traders v. State
of Maharashtra and order dated 5.9.1994 of this Court rejecting S.L.P.(C)No/ H
1994 (CC 26531) filed by Vidarbha Wine Traders & fifteen other licensees.
886 SUPREME COURT REPORTS [2003] 2 S. C.R.
A lnspite of the above position including different reasons given in the
Full Bench judgment than those~ Gustad Mayur /rani's case (supra) and in
the rejection of the special leave petition filed by Vidarbha Wine Traders,
learned counsel for the respondents is unable to give any reasons for
establishing that the Full Bench decision in the Mohan Meakin 's case (supra)
was not correct and the High Court has also not given any reasons in the
B impugned judgment for disagreeing with the reasons given in the Full Bench
judgment in the Mohan Meakin 's case: (supra).
We have perused the judgment in Po!ychem 's case (supra) which was
delivered on the basis of a concession and incorrect information submitted by
C the learned advocate appearing for the State of Maharashtra. The above facts
and the legal position that the J.E. Bi!imoria decision was overruled long
back in the Full Bench judgment in the case of Mohan Meakin (supra) and
which Full Bench judgment was already confirmed by this Court by order
dated 8.9 .1994 rejecting the Special Leave Petition No .... ./1994 (CC 26531)
filed by Vidarbha Wine Traders and 15 other· licensees were not placed for
D consideration of this Court in the Polychem 's case by the State of Maharashtra
as would be seen from the fo Ilowing observation in Polychem 's case, inter
a!ia, that "It is common ground that these supervision charges are collected
in advance at the beginning of each quaiter ....... We presume that this Division ·
Bench judgement was not brought to the notice of the latter Division Bench;
E otherwise they would not have taken diametrically opposite view without
referring the issue to a larger Bench. We further notice that the judgment in
J.E. Bilimoria's case was not challenged by the Revenue as per the information
passed on by Mr. Nargolkar, learned counsel for the respondents."
It appears that the learned counsel appearing for the State of Maharashtra
p had not sought any instruction in the Po/ychem'case (supra) before making
any statement in rc~pect of J.E. Bilimoria judgment (supra),. when it was
already overruled long back in the judgment of the Mohan Meakin 's case
(supra). Therefore, the correct facts and the legal position, as submitted above,
could not be placed for consideration of this Court in the Polychem matter.
We are, therefore, of the opinion that the judgment of this Court in Polychem 's
G case was delivered on the b~sis of a C0n:ession by the learned Government
advocate when he conceded that supervision charges are collected only in
advance, when under the residuary powe:rs under Rule 17(43) of the Rules of
1966 and Rule 6(36) of the Rules of 1973, additional amounts were or could
be demanded, as also directly under s,ection 58A and Section 114 of the
H Prohibition Act. In our opinion, the High Court has erred in not appreciating
GOVT. OF MAHARASHTRA"· DEOKAR'S DISTILLERY [AR. LAKSHMANAN, l] 887
the submissions of the appellants that the judgment in the case of Polychem A
appears to have been delivered on the basis of a concession/in~orrect
information and its ratio ought to be applied to the facts placed for
consideration and the issues considered and decided.
This apart, the High Court has also not right in rejecting the writ petition
of the respondents at the threshold. The High Court has failed to notice B
another important factor that the statutory provision under Article 309, namely,
the Notification dated I 0.12.1998 and the consequential administrative
instructions/orders issued for carrying out the executive function under Section
58A of the Prohibition Act and Article 162 namely, the circular letter dated
30.7.1999 had not been challenged by the respondents herein and, therefore, C
they were not entitled to challenge the demand notice which was merely a
consequential communication. The High Court, therefore, is not right in
quashing the demand notice issued by appellant No.4, namely, the Sub-
Inspector of State Excise, in-charge of the manufactory of the respondent,
without examining the validity of or quashing the Rules of 1988 and the
consequential circular letter dated 30.7.1999 issued by appellant No.2, namely, D
the Commissioner, since the demand notic~ was merely a consequential
communication issued in furtherance of the Rules of 1998 and the circular
letter dated 30.7.1999.
For the aforesaid reasons, we are of the opinion that the impugned
demand notice was nothing but final settlement of accounts communicated E
by appellant No.4, one contracting party to the other contracting party, the
respondents, in terms of the contract executed between them, which is executed
at the time of grant/renewal of the licence. The contract is executed after the
licensee gives the undertaking in the application in Form P.L.A. prescribed
under the Rules of 1966 or the licence in Form C.L.A. prescribed under the F
Rules of 1973, to abide by directions/orders and complies all other
requirements and when the application is accepted by the appellants by grant/
renewal of the licence. The respondents/licensees, therefore, cannot wriggle
out of the contractual obligation of payment of the entire cost of supervision
regarding which they receive a final account or bill through the impugned
demand notice and, therefore, the respondents ought to pay the amount G
demanded.
As pointed out by Y.V. Chandrachud, C.J., as he then was, what the
respondents agreed to pay was the price of a exclusive privilege which the
State parted with in their favour. They cannot, therefore, avoid their liability H
.-
888 SUPREME COURT REPORTS [2003) 2 S.C.R.
A by contending that the payment which th('Y were called upon to make is truly
in the nature of excise duty and that no such duty can be imposed on liquor
not lifted or purchased by them. The respondents, in our view, must fail in
their contention both on account of the ot~ection to the maintainability of the
appeals and on merits concerning the nature of the payment which they are
liable to make.
B
For the foregoing reasons, we allow all the appeals and set aside the
impugned judgments. However, there shall be no order as to costs.
S.B. SINHA, J. I regret to be unable to persuade myself to concur with
the opinion of my learned Brother Hon'ble Dr. Justice AR. Lakshmanan for
C whom I have the highest respect.
Concededly a citizen of India in vi1~w of a catena of decisions of this
Court has no fundamental right to carry on trade or business in potable
liquor. The St<.te indisputably has a right to regulate or prohibit business in
D potable liquor as a beverage or otherwise keeping in view the fact that the
same is dangerous and injurious to health and is, therefore, an article which
is res extra commercium being inherently harmful. The State is, therefore,
entitled to completely prohibit a trade or business in liquor and create
monopoly either in itself or in an agency created by it or take over such
activities itself. For the purpose of selling the licence it can adopt any mode
E with a view to maximise its revenue so long as the method adopted is not
discriminatory.
However, when the State permits trade or business in potable liquor,
the citizen has the right to carry on trade or business subject to the limitations,
if any, and the State cannot make discrimination between the citizens who
F are qualified to carry on the trade or business. [See Khoday Distilleries Ltd.
v. State of Karnataka, [1995] I SCC 574.
Although a citizen has no fundamental right to carry on trade or business
in po¥1ble liq~or, but when he is permitted to carry on such business, he
G would be entitled to claim equa! right as against other citizens. Jn absence of
the State imposing any prohibition or monopolizing the business, the same
may be carried on by the licensee without being subjected to any
discrimination. Such a right although may not be elevated to the status of a
fundamental right but all the same it is a right.
H The Bombay Prohibition Act, 1949 regulates the rights of the distillers
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [S.B. SINHA, l.J 889
in carrying on business. It is beyond any cavil that a right to carry on business A
in liquor being not absolute, the same would be subject to such restrictions
and limitations as may be imposed by law.
Section 58A of the Act mandates that the cost of the excise supervision
would be borne by the licensees.
B
The mode and manner of realisation of such costs, however, has been
laid down only in the rules and/or the conditions of the licence. Such cost of
excise supervision does not constitute 'tax' or 'fee' but is a part of the price
for grant of exclusive privilege to the licensee for carrying on his business.
The price required to be paid is, thus, a contractual one. The charges, thus,
can be levied either prior to entering into contract or during the currency C
thereof.
But can it be said that by reason thereof, the State is entitled to recover
the difference in the salaries of the employees after the currency of the
licence is over is the primal question involved in this appeal? By reason of D
the Maharashtra Civil Services (Revised Pay) Rules, 1998, a retrospective
effect and retrospective operation was given to the recommendations of the
Fifth Pay Revision Commission with effect from 1.1.1996. A purported circular
enabling the State to recover the difference in wages was issued in December
1999 and the impugned demand notices were issued in 2000. The rules, the
circulars as also the demands were indisputably made/issued after the licensing E
period was over.
Rule 17 of Maharashtra Distillation of Spirit and Manufacture of Potable
Liquor Rules, 1966 inter alia that the licensee is to pay the amount as and
when a demand therefor is made. Clause ( 12) of Rule 17 of the rules was
amended on 15.8.1974 providing that the cost of excise supervision should F
be paid to the State Government by the licensee annually in advance.
Furthermore, condition No.2 of the licence is in the following terms :
"(2) In addition to the fee mentioned above, the licensee shall pay
quart~rly in advance such charges as the Government of Maharashtra G
(hereinafter referred to as "Government") may, from time to time, fix·
in this behalf towards the costs on account of salary, dearness
allowance, compensatory allowance and other charges, namely,
contingent expe11diture, if any, and the leave and pension charges of
such Prohibition and Excise staff as the Commissioner of Prohibition
and Excise (hereinafter referred to as "Commissioner") may think it H
890 SUPREME COURT REPORTS (2003] 2 S.C.R.
A necessary to employ for the purpose of supervising the operations of
manufacture, storage and issues of spirit by the licensee." (Emphasis
supplied)
It is, therefore, clear that by reason of the provisions of the Rules or
terms of conditions of licence, the demand on account of excise supervision
B charges was to be made in advance.
Such charges are required to be paid by the licensee quarterly in advance.
The State is entitled to fix the cost of supervision charge from time to time
but the same has to be done during the currency of contract and not thereafter
as there does not exist any contract to the contrary.
c
Interpretation of a statute, it is trite, must be made on a conjoint reading
of the Act, rules made thereunder as also the terms and conditions of the
licence. Section 58A of the Act does not provide for the mode and manner
for recovery of the cost of excise supervision. It has been provided for in the
D rules as also the conditions of licence. The rule when validly made forms part
of a statute. Can it be said that a statutory rule can be ignored on the ground
that the same was made only for administrative purposes? Can i1 further be
said that the conditions of the licence can be interpreted in such a manner so
as to impose upon the licensee a burden which was not contemplated at the
time when licence had been granted and/or during the currency thereof ?
E Answer to both the questions, in my opinion, should be rendered in the
negative.
This Court in Government of Andhra Pradesh v. Mis Anabeshahi Wine
and Distilleries Pvt. Ltd., (1988] 2 SCC 25 while considering the validity of
Section 28(2) of the A.P. Excise Act, 1968 which is in pari materia with
F Section 58 of the Bombay Prohibition Act, observed :
" ........ A predetermined amount equivalent to or even higher than the
amount which is sought to be recovered by 1he appellant from the
respondent calculated for the entire period of the licence could have
been demanded in a lump sum as price for parting with the privilege
G and ii could not have been challenged hy the respondent in view of
the principle enunciated by this Court in the aforesaid cases. Simply
because the demand was spread over with a view to making it just
and reasonable so as to represe:nt the actual expenditure incurred by
the government to maintain the requisite excise staff at the factory
H premises of the respondent as contemplated by the relevant provisions
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [S.B. SINHA, J.] 89]
of the Act and the Rules, it would not become illegal and vulnerable." A
(Emphasis Supplied)
This Court, therefore, held that the amount should be predetermined at
the time of entering into contract. Such an amount, however, may be spread
over with a view to making it just and reasonable. This Court further observed:
B
"5. The perusal of the aforesaid provisions of the Act and the Rules
leaves no manner of doubt that it was open to the appellant to grant
the exclusive privilege of manufacturing and selling wine etc. to the
respondent only provided it was, apart from making any other payment,
also willing to pay the salaries and allowances referred to in the C
aforesaid provisions which for the sake of convenience have been
described as establishment charges, and which were sought to be
recovered as such under the impugned notice of demand. The
respondent-Company was not under any obligation to take the licence.
It was open to it to have refrained from taking any licence under the
Act and the Rules if it was not willing to pay the price as required D
by the government for the grant of privilege to manufacture and sell
intoxicants."
The option of the licensee to take or not to take a licence, would, thus
depend upon the price which was to be fixed. The risk involved in the matter
may be reasonably certain. A licensee before entering into a contract is entitled E
to know what price he has to pay for the grant of exclusive privilege or what
are the risks involved in it. A price, thus, must be predetermined and cannot
be redetermined and/or demanded after a period of four years of the expiry
of the licence.
The rights and obligations of the parties to a contract are mutual. Both F
the State and the Licensee are bound by it. When a contract is a statutory one,
the terms and conditions of a statute, the statutory rules would govern the
-- contract. (See Assistant Excise Commissioner and Ors. v. Issac Peter and
Ors., repo11ed in (1994) 4 SCC 104) A court of law shall not for the purpose
of interpretation of the terms of the contract read the provisions of statute in G
such a way as a result whereof additional liability may be imposed on a party
to the contract.
The reason why a manufacturer must have a fair knowledge about his
liability for obtaining a licence would be that he may during the currency of
the licence fix the price of liquor in such a manner so that all charges are H
892 SUPREME COURT REPORTS (2003] 2 S.C.R.
A payable by him may be passed on to the consumers. It would not be correct
to contend that such costs can be recovered after the demands are made long
after the contract has been worked out. It will be preposterous to suggest that
the liability in respect of the increased costs of excise supervision for one
licensing year can be passed on to his consumers after four years or more.
B It is trite that the rights and obligations of the parties will come to an
end with the cessation of the contract unless there exists a contract contrary
thereto. In other words, in a case where the liability of a contracting party
would extend beyond the contract period, an express stipulation in that behalf
must be !Jlade in the contract itself.
c A party to a statutory contract is bound to discharge his obligations in
terms of the provisions of the Act, Rules or conditions of licence as they
stood. He is also entitled to enforce his rights. No executive order, in my
opinion, can be issued after a long time to fasten a new liability upon the
licensee particularly when grant of licence for each year would result in a
D separate contract which may not only provide for a different price but also
different terms and conditions as well as the mode and manner in which the
rights of the parties thereto are required to be exercised and/ or the obligations
are to be discharged; more so when one contracting party has no say therein.
It is well-settled that by reason of an executive act a liability cannot be
E created with retrospective effect. The said rule shall squarely apply also in
relation to a statutory contract. Furthermore, the statutory authority has been
enjoined with a duty to follow the mode as regards recovery of the costs of
excise supervision. The mode and manner thereof having been fixed, the
statutory authorities ordinarily must follow the procedure laid down therefor.
F State in pursuance of its welfare activities may increase the pay of its
employees with retrospective effect but such burden cannot be passed on to
a licensee by an unilateral act on its part. For enforcing the same, there must
be a contract to the contrary.
It is one thing to say that a little deviation in the procedure may not
G prejudice a party to the contract but it is another thing to say that a fresh/ new
liability is created by an executive act by giving a complete go-by to the
contractual terms.
The period of licence determines the period of contract and, thus, no
recovery of any demand made in respect thereof is permissible in law.
H
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [S.B. SINHA, J.] 893
The matter may be considered from another angle. The licence of the A
licensee after 1996 might not have been renewed. Licence for each year is
a f: ~sh grant and, thus, the liability of a licensee in relation to the licensing
• year s:i.far as the price for grant of exclusive privilege is concerned must be
held to be payable only within the year during which the contract remain in
force. For the purpose of entering into a contract with the State, the licensee B
has to pay different price for each contract. The said Act, the rules made
thereunder or the conditions of licence do not postulate that a part of the
price can be demanded even after the contract comes to an end.
It may be one thing to say that the liability of the licensee had been
determined pursuant to or in furtherance of a decision taken by the State in C
terms of the provisions of a statute or otherwise within the period during
which the licence was in force but it is another thing to say that the decision
had been taken after expiry of the licence as a result whereof the liability of
the licensee is determined after the period of contract is over. It may be true
that under the rules or conditions of licence, the licensee is bound to comply
with the provisions of the Act, rules and regulations and conditions of the D
licence but such undertaking and/or liability comes to an end with the cessation
of contract.
In Ha/sbwy's Laws of England, 4th Edition, Volume 41, the law is
stated thus:
E
''677. Effect of revenue duties on price. Whoever may be liable and
on whatever event for the payment of customs or excise duty or value
added tax, the amount of the duty is usually passed on to the buyer
as part of the price. It is the responsibility of the seller to. quote an
inclusive price if he wishes, and if he fails to do so he cannot later p
recover the duty payable as an addition to the contract price. However,
where a new or increased customs or excise duty or value added tax
is imposed after the making of the contract, but before delivery of the
goods in the case of customs or exr.ise duty, or supply of the goods
in the case of value added tax, the duty or increase of d,uty, if paid
by the seller, may, unless otherwist agreed, be added to the price; G
and conversely where a duty is repealed or reduced, if the seller has
had the benefit of the alteration, the duty or reduction may be deducted
from the price. As regards customs or excise duty, but not value
added tax, in addition '.o the actual amount of the duty to be added
or deducted there may also be added or deducted a sum representing H
894 SUPREME COURT REPORTS (2003] 2 S.C.R.
A the expenses incurred or saved, as the case may be, as a result of the
additional or repealed duty. The amount of such expenses, if not
agreed upon by the parties, is settled in default of agreement by the
revenue authorities." ''
Section 62 of the Sale of Goods Act, 1930 reads thus :
B
"Exclusion of implied terms and conditions.-Where any right, duty or
liability would arise under a contract of sale by implication of law,
it may be negatived or var.ied by express agreement or by the course
of dealing between the parties, or by usage, if the usage is such as to
bind both parties to the contract."
c
A change in the amount of c.onsideration not only must be specifically
provided in the contract but the same must also undergo a strict test.
In Conway Brothers and Savage v. Mulhern and Co. (Limited),
[Vol.XVII (1900-1901) The Times Law Reports 730], sub-section (I) of
D Section I 0 the Finance Act, 190 I interpretation whereof fell for consideration
was in the following terms :
"Where any new Customs import duty or Excise duty is imposed,
or where any Customs import duty or Excise duty is increased, and
any goods in respect of which the duty is payable are delivered after
E
the day on which the new or increased duty takes effect in respect of
a contract made before that day, the seller of the goods may, in the
absence of agreement to the contrary, recover as an addition to the
contract price a sum equal to any amount paid by him in respect of
the goods on account of the new duty or the increase of duty, as the
F case may be."
Interpreting the said prov:ision, as regard the defendant's plea of
realisation of additional tax in future deliveries, it was held that the said Act
cannot be applied retrospectively so as to impose an additional liability upon
the buyer, save and except when a contrary intention is clearly manifested.
G
In American Commerce Company (Limited) v. Frederick Boehm
(Limited) [Vol. XXXV 1918-19 The Times Law Reports 224] interpreting
the said provision, it was observ1~d:
"His Lordship read the se·ction and said that as it was a c.i.f. contract
H there would have been no obligation on the vendors to pay any duty
-
GOVT. OF MAHARASHTRA v. DEOKAR'S DISTILLERY [S.B. SINHA, l.] 895
-- at all in the absence of the special provision that the sale was to be
duty paid. Mr. Neilson had contended that those words meant that
A
both the old duty and the new duty should be borne by the sellers,
but he could not accept that contention. The case was one, in his
opinion, to which the section directly applied, and the words "duty
paid" did not constitute an agreement to the contrary within the B
meaning of the section.
As to the further point that the time for performance was extended
by agreement, there was in law a new agreement. That was made on
April 2, and the date for fixing the amount of duty payable would
therefore be that day. But the increased duty did not come into force C
until April 23, so the fact that the time had been extended would not
held the defendants. The defendants should have protected themselves
by expressly providing that the sellers must pay any increased duty
which might be imposed, and as they had not done so the plaintiffs
must have the benefit of the statute and would have judgment, with
costs." D.
In the instant case also the State of Maharashtra did not expressly
protect themselves that the respondents must pay any amount by way of
increase in wages pursuant to or in furtherance of the recommendations made
by the Fifth Pay Commission with retrospective effect. Having not done so, E
they are not entitled to claim the same from the licensees.
In Occidental Crude Sales Inc. v. Latsis, [1976) Vol. 2 Lloyd's LR 412
despite provision in the contract that buyer has to bear all charges, fees, dues,
and taxes which would not be deemed to be new charges, it was observed:
F
"The seller accordingly wishes to guard against a possible loss-making
situation which could be extremely serious for him. That is the purpose
of cl. 11.1. However, the buyer, in his tum, could not be expected to
accept an open-ended commitment to bear any increase in cost which
might be imposed upon the seller or the producer of the oil. He
would wish to have the choice of accepting the increase and going on G
with the contract or of not accepting it and terminating the contract."
These decisions are pointers to the fact that even in relation to the
increase in duty, the same, subject to an express contract, shall be operative
only during the currency of the contract and not beyond the same. H
896 SUPREME COURT REPORTS [2003] 2 S.C.R.
A In Love v. Norman Wright (Builders), Limited [Law Reports 1944 (1)
K.B. 484], while answering a question as regards levy of purchase tax under
Section 27 of the Finance Act, 1940, it was observed :
"The matter really becomes clear when s.28 is considered. That
section has the same Object as s. IO of the Finance Act, 190 I, which,
B dealing with the imposition of new duties, whether of customs or
excise, gives the seller of goods under a contract made before the
new duties were imposed the right to add the amount to the contract
price, or, if the duties are abolished or decreased, allows the buyer to
reduce the price by the amount of the reduced duty. So, with regard
c to purchase tax. No doubt in the great majority of cases the seller
would pass on the burden of th'e tax to the buyer; Consequently, this
section provides, by sub-s. I, that he may do so in respect of a contract
made before the tax was imposed but which would be subject to tax
when the time for the performance arrived, and sub-s.2 gives a
corresponding right to the buyer to make a deduction if the tax is
D reduced after the r,ontract is made. In either case the right is given
only in the absence of agreement to the contrary, and in the case of
a buyer only "if the seller has had ...... the benefit of the tax not
becoming chargeable "or becoming chargeable at the reduced rate."
Observe that sub-s. I allowed an addition to, and sub-s.2 a reduction
E from, the consideration, that is, the price. Similarly, s.21; sub-s. 1,
which provides for the ascertainment of a wholesale value of goods
in respect of which tax is chargt:able, says that it is to be "the price
which ..... the goods would fetch .... .if"no tax were chargeable in respect
of the sale," thus indicating an assumption that normally the tax will
be added to the purchase price by the seller. ..... "
F
It was further observed :
" ...... Where an article is taxed, whether by purchase tax, customs duty
or excise duty, the tax becomes part of the price wltich ordinarily the
buyer will have to pay. The price of an ounce of tobacco is what it
G is because of the rate of tax, but on a sale there is only one
consideration, though made up of cost plus profit plus tax. So, if a
seller offers goods for sale, it is for him to quote a price which
includes the tax if he desires to pass it on to the buyer. If the buyer
agrees to. the price it is not for him to consider how it is made up, or
G whether the seller has included tax or not."
~'
\
GOVT. o.>!" \1AHARASHTRA v. DEOKAR'S DISTILLERY [S.B. SINHA, J.] 897
The said decision has been followed by this Court in Black Diamond A
Beverages and Anr. v. Commercial Tax Officer, Central Section, Assessment
Wing, Calcutta and Ors., [ 1998] I SCC 458.
It is well-settled that a definite price is an essential element of a binding
agreement and although a definite price need not be stated but assertion
thereof either by reason of express reason or implied reason is imperative. B
In para 59 of Hals bury 's Laws of England, Fourth Edition, Reissue, the
law is stated thus :
"59. Adjustment of contracts on changes in customs or excise duties
or value added tax. Whoever may be liable and on whatever event for C
the payment of customs or excise duty or VAT, the amount of the
duty is usually passed on to the buyer as part of the price."
An act on the part of the State to increase wages of its employees is a
welfare act. When such increase takes place with retrospective effect the
validity thereof can be upheld only because it is for the benefit of the D
employees. Such a beneficial act on the part of the State, however, would not
bind a third party. An increase in wages by the State with a retrospective
effect was an unilateral act on the part of the State. If, it will bear repetition
to state, if it was intended to be passed on by the State to the respondent !ht.
same ought to have been the subject matter of a specific contract so as to E
avoid the uncertainty of the terms of contract as contemplated under Section
29 of the Indian Contract Act. The rule of construction of a contract is that
if the terms of the agreement are so vague and indefinite that it may not be
ascertained with reasonable certainty as regard intention of the parties, the
same would not be enforceable at law. Meaning of a contract must be clear
on its face. In any event, in the instant case, the contract had been worked F
out. Once the contract had been worked out, a fresh liability cannot be thrust
upon a contracting party.
--- It is now accepted that the decision of the Full Bench of the Bombay
High Court in Mohan Meakin 's case was not brought to the notice of the
Bench deciding Po/ychem. The parties referred to two conflicting views of G
the High Court. This Court applied its mind and approved the judgment
rendered by the Division Bench in Bilimoria 's case. There is no rule of
practice or precedent that where a' Bench of the High Court is faced with two
conflicting views; one rendered by this Court and another by a Full Bench
of the same High Court; both have to be read together. In fact both can't be H
898 SUPREME COURT REPORTS (2003] 2 S.C.R.
A so read unless the decisions are such which can be explained and the ratio
of one may be held to be not applicable in the fact of the matter. In the
instant case, the views of the Full Bench and this Court are diametrically
opposite and thus both the decisions could not have been given effect to
simultaneously by reading them together or otherwise.
B For the aforementioned reasllns, I am of the opinion that the impugned
judgment cannot be faulted. These appeals are therefore, dismissed.
K.K.T. Appeals allowed.
----
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