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Patna High Court · body

1970 DIGILAW 158 (PAT)

Shaw Brothers v. N. B. Sinha

1970-11-04

KANHAIYAJI, S.N.P.SINGH

body1970
Judgment S.N.P.Singh, J. 1. In this application under Articles 226 and 227 of the Constitution the petitioners, Shaw Brothers, have challenged the validity of the order of the Commissioner of Excise, Bihar (opposite party No. 2) as intimated to the petitioners by the Superintendent of Excise (opposite party No. 1) by Memo No. 177(10)E, dated the 1st of February, 1968, a copy of which has been made Annexure "I" to the application, and the order dated the 30th of July, 1968, passed by the Board of Revenue, Bihar in Excise Case No. 85 of 1968, a copy of which has been made Annexure "9" to the application. The petitioners have made a prayer for quashing the aforesaid two orders by ah appropriate writ. 2. The petitioners are wholesale dealers in foreign liquor and they hold a license for sale of foreign liquor (overseas and India made) to the trade, that is, other licensed dealers. The petitioners are required to pay fee annually for the license granted to them. By annexure 1 to the application, the Superintendent of Excise, Patna, directed the petitioners to deposit a sum of Rs. 13,840.00 as the amount of license fee for the year 1967-68. As stated in the application, the petitioners paid the license fee as demanded but they sent a letter of protest to the Superintendent of Excise (opposite party No. 1) on the 9th of February, 1968. A copy of the said letter has been made Annexure "2" to the application. Subsequently on the 2nd of April. 1968, the petitioners filed a writ application in this Court which was numbered as C. W. J. C. 230 of 1968. That application was permitted to be withdrawn on the 4th of April, 1968, with the following observation. "The petitioners main contention is that the fee has been so steeply enhanced as to become a tax and not a fee. He urged that the amount collected is quite disproportionate to the services rendered. This is primarily a question of fact. The petitioners may raise this point before the Board, whether in revision or appeal according to law where both parties will get ample opportunity to lead evidence to show that the rate of levy on account of its steep enhancement has ceased to be a fee and has become a tax. In view of this observation Mr. Ramanugrah Prasad wants to withdraw this writ. In view of this observation Mr. Ramanugrah Prasad wants to withdraw this writ. Permitted to be withdrawn." Thereafter the petitioners moved the Board of Revenue by filing a petition in revision under Section 8(3) of the Bihar and Orissa Excise Act, 1915 (hereafter to be called "the Act"). The Member, Board of Revenue, called for a report from the Commissioner of Excise on the various points raised by the petitioners in their revisional application. On receipt of the report from the Commissioner of Excise, the Member, Board of Revenue, heard the counsel appearing for the petitioners and ultimately by the order dated the 30th of July, 1968 (Annexure 9) rejected the application holding that the fees demanded by the Superintendent of Excise, under the orders of the Commissioner of Excise, are perfectly valid. The petitioners thereafter filed the present writ application under Articles 226 and 227 of the Constitution on the 15th of November, 1968. 3. In order to appreciate the contentions which have been raised by learned counsel appearing for the petitioners, it is necessary to refer to the relevant provisions of the Act and the Rules, "Intoxicant", as defined by Sub-section (12a) of Sec.2 of the Act, "means any liquor or intoxicating drug". "Liquor" has been defined in Sub-section (14) of Sec.2 and it "includes all liquids consisting of or containing alcohol, such as spirits of wine, spirit, wine, fermented tari, pachai and beer, and also unfermented tari, and also any other substance which the State Government may, by notification, declare to be liquor for the purposes of this Act". As provided under Sec.20 of the Act a license is required for the sale of intoxicant. Sec.38 of the Act lays down as follows: "38. Fees for terms, conditions, and form of and duration of, licenses, permits and passes:- - (1) Every license, perm it or pass granted under this Act- (a) shall be granted- (i) on payment of such fees (if any), and (ii) subject to such restrictions and on such conditions, and (b) shall be in such form and contain such particulars, as the Board may direct. (2) Every license permit or pass under this Act shall be granted for such period (if any) as may be prescribed by rule made by the State Government under Section 89, Clause (e)." Under Section 90 of the Act the Board has been authorised to make rules with regard to various matters mentioned in the section. As provided under Sub-section (7) of Section 90, the Board has been authorised to make rules "for prescribing the scale of fees or the manner of fixing the fees payable in respect of any exclusive privilege granted under Sec.22 or any license, permit or pass granted under the Act or in respect of the storing of any intoxicant". By notification dated the 29th of April, 1919, the Board made the rules in exercise of the powers conferred upon it by Section 90 of the Act. The relevant rule relating to the fee for a license for the sale of foreign liquor to the trade is Rule 106 and it reads as follows: "The fee for a license for the sale of foreign liquor to the trade shall be fixed in each case by the Commissioner on the recommendation of the Collector and shall not be less than Rs. 36/- per annum payable in advance. A trade licensee shall sell only to licensed dealers, troops or military bodies and not to the public." The above rule was substituted in place of the previous rule by Boards notification No 23-I of 1952-53, dated the 24th of March. 1952. Rule 107 prescribes the fees for all sales of foreign liquor to the public under a retail license and it reads as follows: "The fees for all sales of foreign liquor to the public under a retail license for consumption on or off the premises or both or under a hotel or a staging dak bungalow license or under a restaurant or hotel bar license, or a bar license for theatre or other places of public resort and entertainment or under a railway refreshment room on or off or both or dining car or steamer license or a license for sale by a Co-operative Society or Association shall be assessed monthly on the actual sale according to the following scale:- - Rs.a.p. (1)Spirits, wines, liquors, ordials ete. of all kinds1-8-0per quartbottle or 9-0-0per bulkGallon. (2)Beer, sort and other fermented liquors0-6-0per quartbottle or 2-4-0per bulkGallon. of all kinds1-8-0per quartbottle or 9-0-0per bulkGallon. (2)Beer, sort and other fermented liquors0-6-0per quartbottle or 2-4-0per bulkGallon. Exception-- Beer, stout and other fermented liquors sold to army, recognised officers and sergeants messes, shall not be taxed- Sales to individual members of the army are not so exempted. Each licensee shall submit a statement in the form prescribed to the Superintendent of Excise by the 7th of the month following that to which the statement relates and shall also deposit simultaneously the license fee calculated on the consumption of the month according to the scale. At the time of issuing the licence and advance fee equivalent to two months fees calculated on the average consumption of the last nine months of the year preceding that for which the license is granted shall be realised. The advance fee shall be adjusted with the license fees of February and March " 4. Mr Ramanugrah Prasad, learned counsel appearing for the petitioners, challenged the vires of Rule 106 on the following grounds, namely. (1) that the Board has got no power under Section 90(7) of the Act to delegate its functions of fixing the scale of license fee to any other officer and (2) that even if it be held that the Board has such a power, the delegation to the Commissioner under Rule 106 is excessive because the Board has fixed only the minimum and the maximum has been left to be fixed by the Commissioner without providing any guideline or criterion for the fixation of the maximum fee. Learned counsel further raised the contention that the progressive increase in the fee from year to year is in essence a tax In the guise of a fee. 5. The contention of learned counsel appearing for the petitioners that Rule 106 of the Rules framed by the Board is ultra vires of Section 90(7) of the Act does not appear to be sound. Section 90(7) of the Act empowers the Board to make rules either for prescribing the scale of fees or for the manner of fixing the fees in respect of, inter alia, any license granted under the Act. By providing in Rule 106 that the license fee for the sale of foreign liquor to the trade shall be fixed in each case by the Commissioner on the recommendation of the Collector and shall not be less than Rs. By providing in Rule 106 that the license fee for the sale of foreign liquor to the trade shall be fixed in each case by the Commissioner on the recommendation of the Collector and shall not be less than Rs. 36/- per annum payable in advance, the Board has made rule prescribing the manner for fixing the license fees for the sale of foreign liquor to the trade. If Section 90(7) of the Act would have enjoined on the Board only to make rules prescribing the license fee then the question whether the Board could delegate its powers to the Commissioner or not would have been a relevant point for consideration. It would also have been relevant for consideration whether the delegation to the Commissioner under Rule 106 is within permissible limit or Is excessive. The license fee being a charge for a special service rendered to a licensee and being supposed to be based on the expenses incurred by Government in rendering the service, it was obviously difficult for the Board to calculate the cost of service to a particular licensee from time to time and, therefore, it was left to the Commissioner of Excise to determine the fee from time to time according as the cost of service to be rendered increased or decreased. For the foregoing reasons, I hold that Rule 10¬ of the Rules framed by the Board is not ultra vires of Section 90(7) of the Act. 6. Mr. Ramanugrah Prasad had alternatively put forward the argument that as provided under Rule 106 the Commissioner of a Division is to fix the license fee for the sale of foreign liquor to the trade on the recommendation of the Collector but in the case of the petitioners the license fee has been fixed by the Commissioner of Excise and not by the Commissioner of the Division and as such the demand of Rs. 13,840.00 as the license fee on the basis of Annexure 1 is not legal. There is no substance in this contention also. The word "Commissioner", as used in the Rules framed by the Board, in exercise of the powers conferred upon it by Section 90 of the Act, has been defined in Clause (c) of the Rule 2 and it means "the Commissioner of Excise and Salt". There is no substance in this contention also. The word "Commissioner", as used in the Rules framed by the Board, in exercise of the powers conferred upon it by Section 90 of the Act, has been defined in Clause (c) of the Rule 2 and it means "the Commissioner of Excise and Salt". The word "Commissioner", therefore, occurring in Rule 106 must mean the Commissioner of Excise and not the Commissioner of a Division. 7. The broad distinction between a fee and a tax has been explained by their Lordships of the Supreme Court in a number of decisions. The leading case on the point is the case of The Commissioner, Hindu Religious Endowments, Madras V/s. Sri Lakshmindra Thirtha Swamiar, AIR 1954 SC 282 . In that case It was pointed out that- "..... The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of a common burden, while a fee is a payment for a special benefit or privilege. Fees confer a special capacity, although the special advantage, as for example, in the case of registration fees for documents or marriage licences, is secondary to the primary motive of regulation in the public interest, vide Findlay Shirras on Science of Public Finance, Volume I, page 202. Public interest seems to be at the basis of all impositions, but in a fee, it is some special benefit which the individual receives As Seligman says, it is the special benefit accruing to the Individual which is the reason for payment in the case of fees; in the case of a tax the particular advantage if it exists at all is an incidental result of State action, vide Seligmans Essays on Taxation, p. 408. If as we hold, a fee is regarded as a sort of return or consideration for services rendered, it is absolutely necessary that the levy of fees should, on the face of the legislative provision be correlated to the expenses incurred by Government in rendering the services. As indicated In Article 110 of the Constitution, ordinarily there are two classes of cases where Government imposes fees upon persons. In the first class of cases. As indicated In Article 110 of the Constitution, ordinarily there are two classes of cases where Government imposes fees upon persons. In the first class of cases. Government simply grants a permission or privilege to a person to do something, which otherwise that person would not be competent to do and extracts fees either heavy or moderate from that person in return for the privilege that is conferred. A most common illustration of this type of cases is furnished by the licence fees for motor vehicles. Here the costs incurred by the Government in maintaining an office or bureau for the granting of licences may be very small and the amount of imposition that is levied Is based really not upon the costs incurred by the Government but upon the benefit that the individual receives. In such cases, according to all the writers on public finance, the tax element is predominant, vide Seligmans Essays on Taxation, page 409, and if the money paid by licence holders goes for the upkeep of roads and other matters of general public utility, the licence fee cannot but be regarded as a tax. In the other class of cases, the Government does some positive work for the benefit of persons and the money is taken as the return for the work done or services rendered. If the money thus paid is set apart and appropriated specifically for the performance of such work and is not merged in the public revenues for the benefit of the general public, it could be counted as fees and not a tax. There is really no generic difference between the tax and fees and as said by Seligman, the taxing power of a State may manifest itself In three different forms known respectively as special assessments, fees and taxes." The same principle has been reiterated in the cases of Ratilal Panachand Gandhi v. State of Bombay, AIR 1954 SC 383 and Sri Jagannath Ramanuj Das V/s. State of Orissa, AIR 1954 SC 400 and the case of Hingir Rampur Coal Co Ltd. V/s. State of Orissa, AIR 1961 SC 459 . Thus the principle laid down by the Supreme Court is that where a levy is imposed for some social services rendered or some special work done for the benefit of those from whom payments are demanded, there is an element of quid pro quo and it will ordinarily be a fee and not a tax. In the case of AIR 1954 SC 388 referred to above, their Lordships of the Supreme Court pointed out that two elements are essential in order that a payment may be regarded as a fee. In the first place, it must be levied in consideration of certain services which the individuals accepted either willingly or unwillingly and in the second place, the amount collected must be earmarked to meet the expenses of rendering these services and must not go to the general revenue of the State to be spent for general public purpose. In paragraph 24 of the application the petitioners have alleged that the progressive increase in the fee from year to year and the increase of the fee from Rs. 6,950.00 for the year 1966-67 to Rs. 13,840.00 for the year 1967-68 tend to make the levy an imposition of tax in the guise of fee. The petitioners have further alleged that there is no correlation between the services rendered or intended to be rendered and the fee collected: that the money collected has gone into the consolidated fund of the State and has not been earmarked for any services rendered or to be rendered to the person or class of persons from whom it is collected and thus there is no element of quid pro quo. The allegations made in paragraph 24 of the application have been answered in paragraph 13 of the counter-affidavit filed on behalf of the opposite party. It has been stated therein that the progressive increase in the fee has become necessary on account of rising prices and consumption of foreign liquor; that the burden of levy is passed on directly to the consumer and as such the petitioners are not affected by the levy; that the rate of license fee levied on the petitioners is only 20 paise approximately per L.P. litre which is very low compared to the rate of duty which is levied at the rate of Rs. 26.20 paise per L.P. litre; that the Excise Department has to maintain an elaborate organisation for the proper control and supervision to sateguard the exclusive license granted to the petitioners; that the cost of maintenance of the staff has gone up from year to year and that it had increased from Rs. 31,68,270 in the year 1954 to Rs. 56,51,190 in the year 1968. 8. According to the petitioners, the grant of wholesale licence is not an exclusive privilege granted to the petitioners because there are other wholesale licensees in Patna and several others in the district. The petitioners have further alleged that no special benefit has been conferred upon the petitioners justifying progressive increase in the fee year after year. According to the petitioners, they have not been granted exclusive privilege of selling wholesale under Sec.22 of the Act. In the counter-affidavit filed on behalf of the opposite party it has been asserted that the grant of exclusive privilege does not imply the monopoly of the trade but it implies sale to retailers without any restriction throughout the State. The stand taken by the opposite party is that the grant of licence to trade is a special benefit conferred on the petitioners by the Excise Department which is not enjoyed by others, who do not have similar license granted under the Act. It has also been stated in the counter-affidavit that the exclusive privilege as defined under Sec.22 of the Act does not imply exclusive right for sale throughout the State and it does not presuppose a monopoly for the guarantee. In paragraph 18 of the counter-affidavit it has been stated as follows: "The grant of exclusive privilege for the sale of foreign liquor under Section 22 of the Bihar Excise Act is a privilege conferred on the petitioner." Mr. Ramanugrah Prasad, learned counsel appearing for the petitioners, submitted that the provisions of Sec.22 of the Act are not applicable in respect of a license for the sale of foreign liquor. There is substance in the contention raised. Ramanugrah Prasad, learned counsel appearing for the petitioners, submitted that the provisions of Sec.22 of the Act are not applicable in respect of a license for the sale of foreign liquor. There is substance in the contention raised. As provided under Sec.22 of the Act, "the State Government may grant to any person on such conditions and for such period as it may think fit, the exclusive privilege-- (a) of manufacturing, or supplying wholesale, or (b) of manufacturing and supplying wholesale, or (c) of selling wholesale or retail, or (d) of manufacturing or supplying wholesale and selling retail, or (e) of manufacturing and supplying wholesale and selling retail, any country liquor or intoxicating drug within any specified local area." Sub-section (13) of Sec.2 of the Act defines "intoxicating drug" as follows: "Intoxicating drug" means- (i) the leaves, small stalks and flowering or fruiting tops of the Indian hemp plant (Cannabis Sativa L.), including all forms known as bhang, siddhi or ganja; (ii) charas, that is, the resin obtained from the hemp plant, which has not been submitted to any manipulations other than those necessary for packing and transport; (iii) any mixture, with or without neutral materials, of any of the above forms of intoxicating drug or any drink prepared therefrom; and (iv) any other intoxicating or narcotic substance which the State Government may, by notification, declare to be an intoxicating drug, such substance not being opium, coca leaf, or a manufactured drug, as defined in Sec.2 of the Dangerous Drugs Act, 1930 (2 of 1930)." Foreign liquor though covered by the definition of "intoxicant" does not come within the definition of "intoxicating drug". No notification by the State Government was produced before us to show that foreign liquor has been declared to be an intoxicating drug under Clause (iv) of Sub-section (13) of Sec.2. It is, therefore, difficult to accept the statement made in the counter-affidavit that exclusive privilege has been granted to the petitioners under Sec.22 of the Act. 9. There can be, however, no doubt that the petitioners as licensees enjoy a special privilege. I may refer in this connection to the case of Indian Mica and Micanite Industries Ltd. V/s. State of Bihar, C. W. J. C. No. 887 of 1965 disposed of on 14-10-1966 (Pat). In that case the validity of the license fee at the rate of Rs. I may refer in this connection to the case of Indian Mica and Micanite Industries Ltd. V/s. State of Bihar, C. W. J. C. No. 887 of 1965 disposed of on 14-10-1966 (Pat). In that case the validity of the license fee at the rate of Rs. 2/- per gallon (55 paise per litre) for possession and import of denatured spirit was challenged. While considering the question whether the impugned levy was in essence a fee or a tax, a Division Bench of the Court, after examining the various provisions of the Rules made by the Board of Revenue under the Act, observed as follows: "If the various provisions of the rules made by the Board of Revenue under the Act are examined in the light of the aforesaid principles. I think it can be reasonably inferred that the impugned levy is, in essence, a fee and not a tax. The provisions of the Act make it clear that no one can possess, transport, import or export any intoxicant beyond the prescribed limit except in accordance with the licence, permit or pass, the penalty being criminal prosecution. Hence, when a manufacturer wants to keep in his possession large quantity of denatured spirit for a manufacturing purpose, he wants a special privilege or concession of immunity from prosecution. For that purpose he begs to obtain a licence or a pass on payment of requisite fees. There is thus a quid pro quo element and the immunity from prosecution is in the nature of a special benefit or privilege. Apart from these circumstances, the Excise Department have to maintain an elaborate staff not only for the purpose of ensuring that denaturation is done properly by the manufacturer but also for the purpose of seeing that the subsequent possession of denatured spirit in the hands either of a wholesale dealer or retail seller or any other licensee or permit-holder is not misused." On the similar grounds it must be held that the petitioners as wholesale licensees in foreign liquor enjoy a special benefit or privilege and there is a quid pro quo element and as such the levy of license fee imposed on the petitioners is not a tax. As stated in the counter-affidavit, the petitioners cannot prevent illicit consumption of foreign liquor without the services of the Excise Department, which has a full-fledged organisation at the State, District, Sub-divisional and Thana levels for the prosecution, detection and control over the excise offences including those relating to foreign liquor. 10. The statement made by the petitioners in the application that they have reasons to believe that the money collected as license fees has gone into the consolidated fund of the State has not been specifically controverted in the counter-affidavit filed by the opposite party. Even if the statement of the petitioners be accepted as correct, the mere fact that the license fees collected have merged into the consolidated fund of the State will not be conclusive to show that quid pro quo element is absent as pointed out by their Lordships of the Supreme Court in the case of AIR 1954 SC 282 . 11. There is another aspect of the matter which may be noticed. As stated in the counter-affidavit filed on behalf of the State, the petitioners are not affected by the levy of license fee as the burden ultimately passes on the consumer. The above statement has not been denied by the petitioners. If the petitioners are not affected by the license fee demanded from them, they are not entitled to make a grievance about the increase in the license fee. 12. Having considered all the points which were raised by Mr. Ramanugrah Prasad in course of the hearing of this application. I find no merit in the application. It is accordingly dismissed. But in the circumstances, I will make no order as to costs. 13. I agree.