Holding

Rule 22 is ultra vires the Madhya Pradesh Excise Act, 1915 as it imposes an additional excise duty without statutory sanction.

Summary

Lilasons Breweries (Pvt.) Ltd. obtained licences to operate a brewery in Madhya Pradesh and was required to pay, under Rule 22 of the Madhya Pradesh Brewery Rules, 1970, any excess of the officers' pay beyond five per cent of the excise duty levied on its beer. The brewery challenged the demand, and the Madhya Pradesh High Court upheld it, holding that the rule was a permissible condition of licence under Section 62(2)(h) and Section 28 of the Madhya Pradesh Excise Act, 1915. On appeal, the Supreme Court examined whether the rule could impose an additional excise duty without statutory authority. It held that Rule 22 effectively created an additional excise duty, which is beyond the rule‑making power conferred by the Act and therefore ultra vires. Consequently, the demand was quashed and the High Court’s order set aside.

Issues considered

Whether Rule 22 of the Madhya Pradesh Brewery Rules, 1970, which permits the State to recover from the brewer any excess of officers' pay beyond five per cent of the excise duty, is within the rule‑making power under Section 62(2)(h) of the Madhya Pradesh Excise Act, 1915.
Whether the demand under Rule 22 constitutes an additional excise duty (tax) that requires express legislative authority under Section 25 of the Act.
Whether Sections 27 or 28 of the Act can be invoked to justify the demand as a fee or consideration rather than a tax.

Legislation cited

Madhya Pradesh Brewery Rules, 1970s. Rule 22
Madhya Pradesh Excise Act, 1915s. 13, s. 18, s. 25, s. 27, s. 28, s. 62(2)(h)

Subjects

Excise dutyRule‑making powerUltra viresAdditional taxLicence conditionsMadhya Pradesh Excise ActBrewery regulations

Judgment

LILASONS BREWERIES (PVT.) LTD. A
v.
STATE OF MADHYA PRADESH AND ORS.

APRIL 21, 1992

[MADAN MOHAN PUNCHHI AND G.N. RAY, JJ.) B

Madhya Pradesh Excise Act, 1915: Sections 13,18,25,27,28 and
62(2)(h).

- Madhya Pradesh Brewery Rules, 1970: Rule 22-Nature of levy under C
c;nd validity of-Brewerie~Appointment of Excise Officers as Incharge of
breweries-Provision for pay of such Officers-Rule providing that their pay
should be met by State but when the charges exceed five per cent of the duty
leviable the excess shall be realised from the brewer-Rule 22 held ultra vires
and beyond the Rule making power of State-Levy under Rule 22 ht;ld as
additional exCise duty not actually due and not authorised by Section 25. D
Rule 22 of the Madhya Pradesh Brewery Rules, 1970 empowers the
Excise Commissioner to appoint an officer-in-charge of the brewery and
fo appoint such other officers of the excise department as he may deem fit
tO be incharge of the brewery with the object of exercising a control over E
----
the breweries. It further provides that the pay of all such officers shall be
met by the Government but in case the annual charges and pay of such
officers exceed 5% of the duty leviable on the issue made from the brewery
to the districts within the State then the excess shall be realised from the
brewer.
F
Demands raised under the said Rule on the appellant-brewery were
challenged by it and a Division Bench of the Madhya Pradesh High Court
upheld the same holding that (i) the demand under Rule 22 was in the
nature of a condition of licence for brewery; and (ii) Section 62(2)(h) read
with Section 28 of the Madhya Pradesh Excise Act, 1915 was wide enough G
to enable the State Government to make the impugned rule as a condition
of the licence.

In appeal to this Court, it was contended on behalf of the appellant-
brewery that the excise duty leviable under the Act was a tax imposed by
the State Legislature in exercise of its plenary powers and there cannot be H
595
596 SUPREME COURT REPORTS (1992] 2 S.C.R.

A a further demand, which is in the nature of an additional duty, by means
of a rule. •
On behalf of the, State it was contended that the demand under Rule
22 was nothing but a further fee or additional· consideration, apart from
Licence fee, which was neither a further duty nor a further tax and the
B demand was referable to sections 27 and 28 of the Excise Act.

Allowing the appeal and setting aside the judgment of the High
Court, this Court,

HELD : 1. Rule 22 of the Madhya Pradesh Brewery Rules, 1970 to
c the extent-it permits raising a demand, which in sum and substance is
additional excise duty, without its being actually due is ultra vires the Act
and beyond the rule making power of the State. [604 E]

2. The excise duty collected goes to the coffers of the State. The pay
D of officers have to come out from coffers of the State. Under Rule 22 five
per cent of the duty leviable is assessed to meet the pay of such officers,
which the Government, but for the Rule, is oth~rwise supposed to meet.
This part of the rule is purely internal between the Government and its
officers. The licensee is least concerned as to how t~e excise duty leviable ·
E would be appropriated. It is only in the case of a shortfall when the excess
is sought to be realised from the brewer that he gets affected. The excess ·
is obviously the. sum which falls short of the duty leviable. It cannot for a
moment be suggested that when there is a shortfall, the demand is as if of
an "additional fee or consideration" and not additional excise duty. It is
obvious from the language of Rule 22 that in the event of the excise duty
F leviable falling short of the expected five per cent to meet· the pays of the
officers cannot be met therefrom, the State has all the same to pay. The
measure under Rule 22 goes to recoup the State of the charges by demand·
ing a sum equal to the duty leviable to that extent without liftingiexciseable
articles. On this understanding arrived at the demand cannot be sustained
G and is quashed. [603 C-H~ 604-E]

3. Though under Section 28 of the Excise Act licences are issued on
-
the prescribed forms and on payment of such fee as prescribed and
licences containing such particulars as the State Government may direct
etc. this power even though wide is yet confined within its frame and can
H in no event assume the power to impose or levy a tax or excise duty by
LILASONS BREWERIES v. STATE [PUNCHHI, J.] 597

- ~
means of a rule without the sanction of the Act. The payment asked, on A
the contingency of events, cannot partake the character of a fee so as to
come within the purview of Section 28. And if it does not the support of
Section 62(2)(h) is sterile. Seeking help from Section 27 would also be of
no avail because the additional payment conceived of therein is also a
payment over and above the duty Ieviable and as a part consideration
towards the grant of any lease under Section 18. The additional considera-
B
y
tion conceived of in Section 27 is a consideration over and above the excise
duty. The terms of Section 27 do not go to retrieve the situation. [6041A-D]

Bimal Chandra Banerjee v. State ofMadhya Pradesh, [1971) 1 SCR 844;
State ofM.P. v.Finn Gappulal etc., [1976) 2SCR1041; Excise Commissioner, c
U.P. etc. etc. v.Ram Kumar etc. etc., (1976) Supp. 532, relied on.

~ Panna Lal & Ors. etc. etc. v. State of Rajasthan and Ors., [1976) 1 SCR
, 219, distinguished.

Nashirwar v. State of M.P., [1975) 2 SCR 861, referred to. D
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1265 of
1981.
,.
From the Judgment and Order dated 4.9.80 of the Madhya Pradesh
High Court in Misc. Petition No. 48 of 1978. E
~ S. K. Mehta, Dhruv Mehta, Aman Vachher and Arvind Verma for
,c
the Appellants.

B.Y. Kulkarni and S. K. Agnihotri for the Respondents.
F
The Judgment of the Court was delivered by

PUNCHHI, J. This appeal is directed against the judgmen( and
- ~. order dated September 4, 1980 of a Division Bench of the High Co~rt of
Madhya Pradesh at Jabalpur in Miscellaneous Petition No. 48 of 1918.
.....
G
Vires of rule 22 of the Madhya Pradesh Brewery Rules, 1970 fr~med
• I

under Section 62 of the Madhya Pradesh Excise Act, 1915 stands ques-
tioned. That Rule says :

-- ~ "22. EXCISE COMMISSIONER TO APPOINT OFFICER-
IN-CHARGE OF BREWERY: Every brewery shall be placed H
598 SUPREME COURT REPORTS [1992) 2 S.C.R.

A by the Excise Commissioner under the. charge of an Excise
Inspector to be designated as officer-in- charge of the brewery.
r ..--
The Excise Commissioner will further appoint such other of-
ficer of the Excise Department at,e may deem fit to the charge
of breweries. The pay of all sue officers shall be met by the
Government; provided that when the annual charges exceed
B five per cent of the duty leviable on the issue made from the
brewery to districts within the State excess shall be realised
r
from the brewer."

The roots of the Rule, through the provisions of the Madhya Pradesh
c Excise Act, require to be traced, as well as the nature of the exaction
provided in it. A broad framework of the working of the Act would thus
be necessary.
-(
The State has the exclusive right or privilege of manufacture or sale
of liquor. There is no fundamental right of any citizen to carry on trade /.
D
and business of liquor. This is the settled position of law. See in this-
connection Nashirwar v. State of M.P., [1975) 2 SCR 861, a case under the
Madhya Pradesh Excise Act and other cases of the same strand. It is open
to the State through its Government to part with those rights in regard to . ·r
liquor and intoxicants for a consideration. Any citizen wanting to do the
E business in liquor or intoxicants in the State of Madhya Pradesh has to seek
permission under the Madhya Pradesh Excise Act, 1915. Section 13 of the
~
Act provides .inter alia that no intoxicant shall be manufactured' or col- ,,
lected, no liquor shall be bottled for sale, no distillery or brewery shall be
constructed or worked and no person shall use or have in ·his possession
any materials, still, utensil, implement or apparatus whatsoever for the
F purpose of manufacturing any intoxicant other than tari, except under the
authority and subject to the terms and conditions of a licence granted in
that behalf. Section 18 empowers the State Government to lease to any
person on such conditions and for such period as it may think fit, the right
, ~r
of manufacturing, supplying or selling of any liquor or intoxicating drug
within ~y specified area. For the purpose there is a duty leviable and other ......
G
fees collectable. Chapter V of the Act is earmarked for the purpose.
Th~rein Section 25 provides that Excise Duty is payable on all excisable
articles imported, exported, transported, manufactured, cultivated or colc
lected under any licence or manufactured in any distillery established, or
any distillery or brewery licensed under the Act. In the same Chapter is r~
H Section 27 which enables the Government to get payment for grant of
LILA$0NS BREWERIES v. STATE [PUNCHHI, J.] 599

leases. It says : A
"27. PAYMENT FOR GRANT OF LEASES - Instead of or
in addition to any duty leviable under this Chapter, the State
Government may accept paym~nt of a sum in consideration of
the grant of any lease under Section 18."
B
It is evident from a bare reading of the aforesaid provision that two
situations are envisaged. The first situation is when duty is leviable under
Chapter V, die Government may accept instead a sum in substitution of
the duty, in consideration of the grant of a lease under Section 18. The
second situation is that the Government may accept payment of an addi- C
tional sum ewer and above the duty leviable under Chapter V, in considera-
tion of the grant of a lease under Section 18. Section 28 in the following
Chapter then provides for the forms and conditions of licences and fees
charged thereon. It provides that every licence, permit or pass granted
under t~e Act shall be granted on payment of such fees, if any, for such D
period, subject to such restrictions, and on such conditions, and shall be in
such form and contain such particulars as the State Government may direct
either generally by Rules made under Section 62 or in any particular
instance. Section 62 contains the Rule making power of the Government
on the usual pattern. Sub-section (I) of Section 62 vests the power for the
purpose in the State Government, and sub- section (2) enumerates specific E ·
subjects, in particular and without prejudice to the generality otherwise of
the rule making power. In particular Clause (h) of sub-section (2) of
Section 62 permits the State Government to prescribe the authority by, the
form in_ which, and terms and conditions subject to which any licence,
permit or pass shall be granted. It is in its rule making power, that the State F
Government framed the Madhya Pradesh Brewery Rules, 1970, from
amongst which Rule 22 stands above-quoted, vires of which was challenged
before the High Court, though unsuccessfully, for which purpose effort
stands renewed.

The appellant is a company carrying on business in the manufacture G
and sale of beer. For the purpose it has established a brewery in the
industrial area at Bhopal. It has obtained three licences in the requisite
forms for manufacturing, bottling and sale of beer. It is aggrieved against
the recovery of annual charges relating to the pay of the officer-in-charge
etc. of the brewery from the brewer to the extent such charges exceed· 5 H
...
600 SUPREME COURT REPORTS '[1992) 2 S.C.R.

A per cent of the duty leviable on the issue made from the .brewery to the
districts within the State. The appellant claims relief of quashing of the
demand notice in respect of those charges. The High Court negatived the
plea of the appellant taking the view that the licences in Form B-1-A, which
is a licence to work a brewery in private premises, issused to the appellant
is specifically in terms subject to the Madhya Predesh Brewery Rules. And
B since there was an obligation laid on the brewer under Rules 22, that if
annual pay of the officers-in-charge etc. of the brewery exceeded 5 percent
of the duty leviable, the excess had to be realised from the brewer. It was
viewed as a condition of licence for working the brewery and well within
the rule making power conferred under Section 62(2)(h) read with Section
c 28 of the Act, where under the State Government coUld lay down· terms and
conditions subject to which licence could be granted. Support for the view
was taken by the High Court from the first part of Rule 2~ empowering
the Excise Commissioner to appoint an officer-in-charge of the brewery
and to appoint such other officers of the excise department as he may deem
D fit to be incharge of the brewery with the object of exercising a control over
the breweries, as also perform duties assigned to these officers under Rules
23 to 26 which by themselves .were reasonable. And since those were
reasonable, the provision made in the latter part of Rule 22 that in case
the annual charges and pay of such officers exceeded 5 per cent of the duty
leviable on the issue made from the brewery to districts within the State,
E the excess to be realised from the brewer was also reasonable. The High
Court in conclusion expressed itself as follows :

"It is true that the Act provides for payment of excise duty as
consideration for grant of licence and does not specifically
provide for realisation of charges in respect of pay of officers
F
posted for control of breweries. But in our view Section
62(2)(h) read with Section 28 is wide enough to enable the State
Government to make the impugned rule as a condition of the
licence."

G The appellant maintains that though the excise duty leviable under
the Act is a tax imposed by the State Legislature in exercise of its plenary
power there cannot be a further demand, which is the nature of an
additional duty, by means of a rule. On the basis of Section 18 it is
contended that a lease is granted subject to payment of duty leviable only
H under Chapter V and not otherwise. The State Government under Section
LILASONS BREWERIES v. STATE [PUNCHHI, J.] 601

27, may forego the excise duty and accept payment of a sum in con~idera A
tion of the grant of any lease under Section 18 in its stead. The State
Government, while keeping the duty leviable under Chapter V inta~t may
accept an additional payment of a sum in consideration of the grant of a
lease under Section 18. The appellant maintains that the instant demand
raised is not referable at all to Sections 27 and 18. The stand of the State
B
is based on the literal reading of Rule 22. The State terms the additional
( payment as "a further fee apart from licence fee on the brewer in case the
charges of supervision exceed 5 per cent of the duty leviable on the issue
made from the brewery to various districts in the State." It has also been
maintained that the charge created under Rule 22 is nothing but a further
fee or additional consideration, which is neither a further duty nor a further c
tax. The exaction is suggestive of roots in Sections 27 and 28. '

Now is the demand a further duty and hence a further tax or is, it a
further fee or consideration for transferring the right, is the pointed
question. In Bimal Chandra Banerjee v. State of Madhya Pradesh, [1971] 1
SCR 844, this Court had the occasion to examine some of the provisions
D
of the Act inclusive of Sections 27 and 62(2)(h). Under the conditions of
licence of the then appellants they were required to make compulsory
payment of excise duty on the quantity of liquor which they failed to take
delivery of, since those conditions prescribed the minimum quantity of
liquor which they had to purchase from the Government. Releasing them E
from such obligation, this Court ruled as follows : .

"Neither s. 25 or s. 26 s. 27 or s.62(1) or cls.(d) and (h) 'of
s.62(2) empower the rule making authority viz. the St~te
Government to levy tax on excisable articles which have n,ot F
been either imported, exported, transported, manufacturep,
cultivated or collected under any licence granted under s.13 or
manufactured in any distillery established or any distillery 0r
brewery licensed under the Act. The legislature has levied
excise duty only on those articles which come within the scope
of s.25. The rule making authority has not been conferred with G
any power to levy duty on any articles which do not fall withih
. the scope of s.25. Therefore it is not necessary to consider
whether any such power can be conferred on that authority.
Quite clearly the State Government purported to levy duty oq.
liquor which the contractors failed to lift. In so doing it was H
602 SUPREME COURT REPORTS (1992] 2 S.C.R'.

A attempting to exercise a power which it did not possess.

No tax can be imposed by any bye-law or rule or regulation
unless the statute under which the subordinate legislation is
made specially authorises the imposition even if it is assumed
that the power to taX can be delegated to the executive. The
B basis of the statutory power conferred by the statute cannot be
transgressed by the rule making authority. A rule making
authority has no plenary power. It has to act within the limit~
of the power granted to it."

C The ratio in Banerjee's case (supra) was followed in State of M.P. v.
Firm Gappulal etc., (1976) 2 SCR 1041 and then again in a case from Uttar
Pradesh in Excise Commissioner, U.P. etc. etc. v. Ram Kumar etc. etc., (1976]
(Supp.) 532. Now if the exaction under Rule 22 of the Brewery Rules is an
exaction not authorised under Section 25 and is being made as if additional
D excise duty, the three cases afore-quoted would nip the demand outright.
But if it is an additional payment under Section 27 as consideration for the
grant of licence, or a further fee or condition of licence, as contended by
the respondent-State then it may have to be sustained. It would be relevant
to take note of another decision of this Court in Pa,,na Lal & Ors. etc. etc.
v. State of Rajasthan and Ors., (1976] 1 SCR 219 at this stage in which the ·
E contractual obligation .of the licensee to pay the guaranteed or stipulated
sum mentioned in the licence was held not to be dependent on the
quantum of liquor held by him and no excise duty was held charged or
chargeable on undrawn liquor under the licence. The aforesaid case:cannot -.
advance the defence of the State for there is no lumpsum payment stipu-
F lated as such in the instant licence. The licence only mentions that the
licensee would be bound by the Brewery Rules. The High Court in that
--
situation went on to lean on Sections 62(2)(h) and 28 when discovering
there was no e:xpress provision in the Act for realisation of charges in
respect of pay of officers posted for control of breweries. But when we
G analyse the latter part of Rule 22, the following position emerges : -
(i) the pay of all such officers shall be met by the Government;
[the government owns the responsibility]

(ii) if the annual charges do not exceed 5 per cent of the duty
H leviable on the issue made from the brewery to districts
LILASONS BREWERIES v. STATE [PUNCHHI, J.] 603

within the State, nothing is realisable from the brewer; A
~
'
~ (iii) 5 per cent of the duty has been considered enough from
which to reimburse the Government of the pay of such
officers; and

(iv) in case the annual charges exceed 5 per cent of the duty B
leviable then the excess shall be realised from the brewer,
i.e., to reimburse the Government for the pay ·of all such
officers.

The excise duty collected goes to the coffers_ of the State. The pay of
officers have to come out from coffers of the State. Five per cent of the
c
duty leviable ,is assessed to meet the pay of such officers, which the
~- Government, but for the Rule, is otherwise supposed to meet. This part of
the rule is purely internal between the Government and its officers. The
licensee js least concerned as .to how the excise duty leviable would be
appropr:iated. It is only in the case of a shortfall when the excess is sought D
to be realised from the brewer that. he gets affected. Now what is this
excess? It is obviously the sum which falls short of the duty leviable. In
other words it is this for the brewer : "You have not lifted enough quantities
of beer and sent them to distincts within the State. Thus the State has not
earned enough excise duty resulting in a short fall in its 5%. That does not E
)-_- go to meet the annual expenses of the officers. Therefore you meet the
=t shortfall, without lifting the goods.~. Therefore, the shortfall partakes the
same colour and content. It cannot 'for a moment be suggested that when
there is a shortfall, the demand is as if of an "additional fee or considera-
- tion" and not additional excise duty. It is obvious from the language of the
Rule that in the event of the excise duty leviable falling short of the
F
expected five per cent to meet the pays of the officers cannot be met
therefrom, the State has all the sameto pay. The measure goes to recoup
.............,
the State of the charges by demanding a sum equal to the duty leviable to
that extent.without ~ing exciseable artid~s. ·on this understanding arrived
at the demand is hit, in t r view, by the ratio of Bar(erjee's case, firm G
Gappulal's case and Ram umar's case (supra), and cannot be sustained.
Rule 22 to that extent is ultra vires the Act and beyond the rule making
power of the State. ·
~.
Now with regard to the suggested wide amplitude Section 62(2)(h) H
604 SUPREME COURT REPORTS [1992) 2 S.C.R.
.
A and Section 28 and condition of licence,· all we need to say is that though
under Section 28 licences are issued on the prescribed forms and on
payment of such fee as prescribed and licences containing such particulars
as the State Government may direct etc. this power even though wide is
yet confined within its frame and can in no event assume the power to
B impose or levy a tax or excise duty by means of a rule without the sanction
of the Act. As we have analysed earlier, the payment ~sked, on the
contingency of events, cannot partake the character of a fee so as to come

C
witlii.n the purview of Section 28. And if it does not the support of Section
62(2)(h) is sterile. Seeking help from Section 27 would also be of no avail·
because the additional payment conceived of therein is also a payment over
and above the duty leviable and as a part consideration towards the grant
-
of any lease under Section 18. The additional consideration conceived of
in Section 27 is a consideration over and above the excise duty. The way
we have analysed Rule 22, the terms of Section 27 do not go to retrieve
the situation. •
D
For the aforesaid reasons, this appeal is allowed, the judgment and
order of the High Court of Madhya Pradesh is set aside, declaring Rule
22 to the extent it permits raising a demand, which in sum and substance
is additional excise duty, without its being actually due; as ultra vires the
Act and beyond the rule making power of the State. The demand raised
E against the appellant is therefore quashed. The appellant shall have his
costs.

'.T.N.A. Appeai allowed.

}-