S. K. G. Sugar Limited v. State of Bihar — 1993 DIGILAW 282 (PAT)

JUDGMENT Aftab Alaim, J. In this application under Articles 226 and 227 of the Constitution, the petitioner seeks to challenge t he orders whereby penalty has been imposed for default in supply of country liquor during the month of February, 1978 by the petitioner which was given the exclusive privilege of supplying whole sale country spirit in the district of Rohtas for the excise period 1.4.1977 to 31.3.1980. The original order dated 10.5.1982 was passed by the Commissioner of Excise, Bihar, Patna, a copy of which is to be found at Annexure 1. The Commissioner's order was taken by the petitioner before the Board of Revenue under Section of the Bihar Excise Act, 1915 (hereinafter to be referred as 'the Act'). The Board of Revenue vide its resolution dated 3.6.1983 turned down the petitioner's appeal and confirmed the order imposing penalty. It, however, allowed concession to the extent that the petitioner may pay the amount of the penalty without any interest thereon. A copy of the Board's resolution has been enclosed as Annexure 2 to the writ petition. 2. It is to be noted at this stage that the penalty has been demanded from the petitioner in terms of clauses 7 and 7 A of the licence in Form No. 27 under which a whole sale supplier, who has been granted the exclusive privilege in terms of Section 22 of the Act is obliged to make the supplies. 3. The facts of the case are brief and can be stated thus: In terms of Section 22 of the Act read with clause 1 (8) of the instructions issued by the Board of Revenue, terms were invited for grant of exclusive privilege of wholesale supply of spirit to Government Ware Houses for the period 1.4.1977 to 31.3.1980. It is the admitted position that the tender notice incorporated the conditions for grant of exclusive privilege and the conditions so incorporated in the notice included those contained in clauses 7 and 7A of the licence in Form no. 27. At this stage, it will be useful to take a look at clauses 7 and 7A which are re-produced below: "7. 27. At this stage, it will be useful to take a look at clauses 7 and 7A which are re-produced below: "7. The licensee shall be bound to supply to licensed vendors by way of sale, at any warehouse at which the sale of spirit under the licence is for the time being permitted, spirit of the quantity or quantities and description or descriptions mentioned in the passes produced by them. 7 A. Failure to supply spirit as specified in condition 7 supra shall entail penalty at the discretion of the Commissioner of Excise. The penalty may extend to the amount of duty on the spirit demanded by the licensed vendors but not supplied together with compensation for any loss that may fall on Government in consequences of this failure to supply spirit". In response to the notice, the petitioner also submitted tenders admittedly for all the districts including Rohtas. Initially the petitioner was granted exclusive privilege of supplying whole sale spirit to several districts which did not include Rohtas. The exclusive privilege of the supply of spirit in the district of Rohtas was initially granted to one Sheo Narain Jaiswal. It appears, however, that Sheo Narain Jaiswal failed to make the necessary supplies and on his failure the district of Rohtas was also given in the allotment of the petitioner. The allotment of Rohtas to the petitioner along with three other districts was made by the Excise Commissioner, Bihar vide his letter dated 21.4.1977 addressed to the Collectors of the respective districts a copy of this letter has been enclosed as Annexure 4. The letter having narrated the failure of the aforesaid Jaiswal to make the necessary supply went on to advice that a provisional decision had been taken to get the supplies made to these districts through the petitioner. It is important to note that this letter also reiterated that the conditions of supply (through S. K. G.) shall remain as prescribed earlier. A copy of this letter was also sent to the petitioner. On the same day (21.4.1977) Form no. 27 was submitted before the Collector, Rohtas for his signature on the licence after it was duly signed by one Rajendra Kumar on behalf of the petitioner company and binding it to all the terms and condition of the licence. The licence, however, remained unsigned by the Collector and it never received his signature. 27 was submitted before the Collector, Rohtas for his signature on the licence after it was duly signed by one Rajendra Kumar on behalf of the petitioner company and binding it to all the terms and condition of the licence. The licence, however, remained unsigned by the Collector and it never received his signature. It is, however, undeniable that immediately after the issuance of the Commissioner's letter on 21.4.1977 and the submission of the form of the licence, duly signed on behalf of the petitioner, the company started supplying whole sale spirit in all the warehouses of Rohtas. It appears that in February, 1976, 5682.00 L. P. Litres of spirit could not be made available to the retail vendors of the district holding due permits issued by the Excise authorities in their favour on account of default in the whole sale supply of the spirit by the petitioner. This led to a loss of revenue to the State to the tune of Rs.77,843.40. Accordingly, on the direction of the Excise Commissioner, a notice was issued to the petitioner to show cause by 2.3.1982 why a penalty equivalent to the amount of loss of excise be not imposed against him. The petitioner vide its letter dated 9.2.1982 sought time till March 23, 1982 for filing his show cause. Again on 19.3.1982 further time till May 25, 1982 was asked for. Finally, no show cause was furnished and accordingly by the impugned letter a penalty amounting to Rs.77,843.40 was imposed against the petitioner. 4. Mr. G. P. Bimal, learned counsel for the petitioner assailed the imposition of penalty on the ground that it was based on clauses 7 and 7 A of an alleged licence which was nonexistent in the eye of law. He submitted that in terms of Sub-section (2) of Section 22 of the Act a grantee of any privilege under that Section was obliged to commence the supply of spirit only after he had received a licence in Form no. 27. He further submitted that the necessary licence could be issued either by the Collector of the district or the Excise Commissioner and by no one else. 27. He further submitted that the necessary licence could be issued either by the Collector of the district or the Excise Commissioner and by no one else. He further pointed out that though the licence in its prescribed form, duly signed by the petitioner's agent, had been submitted before the Collector, it was never signed either by the Collector of Rohtas or by the Excise Commissioner and hence no licence in Form 27 ever came into existence and consequently there were no clauses 7 and 7A on which the imposition of penalty could be based. 5. In my opinion, the submission is unacceptable as it overlooks a number of other circumstances. First, the conditions contained in Clauses 7 and 7 A of the licence were fully incorporated in the tender notice and the petitioner had submitted its tender (for the district of Rohtas also) in response to that notice, being quite aware of the conditions of supply. Secondly, the Commissioner's letter dated 21.4.1977 on the basis of which the petitioner commenced its supplies to the district of Rohtas also reiterated that the conditions of supply would remain as prescribed earlier. In other words, the petitioner was made doubly aware of the conditions of supply. Furthermore by causing its agent to execute the form of licence the petitioner company firmly bound itself to the conditions of the licence and it cannot take advantage of the fact that the Collector omitted to put his signature on the licence. Moreover, the petitioner having acted on the basis of the exclusive privilege granted to it for supplying whole sale spirit in the district and having derived benefit out of the privilege it is now estopped from taking the plea that it was not liable for any default on its part on the ground that no licence had come into existence for want of the signature of the Collector on the same. This aspect of the matter was considered by a five judges Bench of the Supreme Court in the case of Har Shankar vrs. Deputy Excise and Taxation Commissioner, AIR 1975 SC 1121 . In para 16 of the judgment, the Supreme Court observed as follows: "16. Those interested in running the country liquor vends offered their bids voluntarily in the auctions held for granting licences for the sale of country liquor. Deputy Excise and Taxation Commissioner, AIR 1975 SC 1121 . In para 16 of the judgment, the Supreme Court observed as follows: "16. Those interested in running the country liquor vends offered their bids voluntarily in the auctions held for granting licences for the sale of country liquor. The terms and conditions of auctions were announced before the auctions• were held and the bidders participated in the auctions without a demur and with full knowledge of the commitments which the bids involved. The announcement of conditions governing the auctions were in the nature of an invitation to an offer to those who were interested in the sale of country liquor. The bids given in the auctions were offers made by prospective vendors to the Government. The Government's acceptance of those bids was the acceptance of willing offers made to it. On such acceptance the contract between the bidders and the Government became concluded and a binding agreement came into existence between them. The successful bidders were then granted licences evidencing the terms of contract between them and the Government, under which they became entitled to sell liquor. The licensees exploited the respective licences for a portion of the period of their currency, presumably in expectation of a profit. Commercial considerations may have revealed an error of judgment in the initial assessment of profitability of the adventure but that is a normal incident of all trading transactions. Those who contract along with open eye must accept the burdens of the contract along with its benefits. The power of the Financial Commissioner to grant liquor licences by auction and to collect licence fees through the medium of auction cannot by writ petitions be questioned by those who, had their venture succeeded, would have relied upon those very powers to found a legal claim. Reciprocal rights and obligations arising out of contract do not depend for their enforceability upon whether a contracting party finds it prudent to abide by the terms of the contract. By such a test no contract could ever have a binding force". Again in para 22 of the judgment, the Supreme Court said as follows: "22. The writ jurisdiction of High Court under Article 226 of the Constitution is not intended to facilitate avoidance of obligations volui1tarily incurred." I thus find no merit in this submission advanced by Mr. By such a test no contract could ever have a binding force". Again in para 22 of the judgment, the Supreme Court said as follows: "22. The writ jurisdiction of High Court under Article 226 of the Constitution is not intended to facilitate avoidance of obligations volui1tarily incurred." I thus find no merit in this submission advanced by Mr. Bimal and it is to be recorded only to be rejected. 5A. The next submission advanced by Mr. Bimal was more fundamental and sought to strike at the very roots of the authorities' power to demand any penalty for default in supply of spirit. Mr. Bimal submitted that the conditions contained in clauses 7 and 7 A of the licence were ultra vires the Act inasmuch as these were aimed to realise excise duty on unsupplied/unsold spirit. Referring to clause 7 A of the licence, Mr. Bimal submitted that the manifest object was to realise duty on the spirit demanded by the licenced vendors but not supplied by the whole sale supplier. He also referred to the impugned orders passed by the Excise Commissioner and the Member, Board of Revenue whether the demand has been described as the 'loss of duty' (Annexure 1) and 'penal duty' vide Annexure 2. He then referred to Section 27 of the Act which is the charging Section and empowers the State to impose duty on import, export, transport and manufacture of any excisable article. Section 27 of the Act is re-produced below: "27. Power to impose duty all import, export, transport and manufacture. - (1) An excise duty or a countervailing duty, as the case may be, at such rate or rates as the State Government may direct, may be imposed, either generally or for any specified local area on- (a) any excisable article imported, or (b) any excisable article exported, or (c) any excisable article transported, or (d) any excisable article (other than tari) manufactured under any licence granted in respect of clause (a) of Section 13, or (e) any hemp plant cultivated, or any portion of such plant collected, under any licence granted in respect of clause (b) or clause (c) of Section 13, or (f) any excisable article manufactured in any distillery or brewery licenced, established, authorised or contained under this Act". Mr. Mr. Bimal submitted that realisation of the loss of duty on account of default in supply amounted to imposition of duty on undrawn spirit; in other words on spirit which had not been imported, exported, transported, manufactured etc. and, therefore, the condition incorporated in clause 7 A of the licence was ultra vires the Act. In support of his contention Mr. Bimal relied upon a Supreme Court decision in the case of Bimal Chandra Banerjee vs. State of Madhya Pradesh, A. I. R. 1971 S. C. 517. He also relied upon the case of Excise Commissioner, U. P. vs. Ram Kumar, A. I.R. 1976 S. C. 2237 which cited with approval (vide paras 14 and 15) the earlier Supreme Court decision in Bimal Chandra Banerjee's case. He also relied upon the case of State of Madhya Pradesh vrs. Firm Gappulal AIR 1976 SC 633 . This decision relying upon Bimal Chandra Banerjee's case also said that any levy of excise duty on undrawn liquor imposed by the State was an exercise of power which the State did not possess. o. It is indeed true that in case the amount demanded from the petitioner is characterized as 'excise duty' and the authority for t he demand is sought to be found in Section 27 of the Act, then certainly the action of the Excise Commissioner and the Member, Board or Revenue is without any authority or jurisdiction inasmuch as any demand of duty on undrawn/unsupplied spirit is not warranted under Section 27 of the Act and the decisions relied upon by Mr. Bimal apply with full force. 7. It is, however, to be noted that there is another provision in the Act contained in Section 22 that relates to the grant of exclusive privilege of manufacture and sale of country liquor. Section 22 is re-produced below: "22. Grant of exclusive privilege of manufacture and sale of country liquor or intoxicating drugs or denatured spirit or any other intoxicant. It is, however, to be noted that there is another provision in the Act contained in Section 22 that relates to the grant of exclusive privilege of manufacture and sale of country liquor. Section 22 is re-produced below: "22. Grant of exclusive privilege of manufacture and sale of country liquor or intoxicating drugs or denatured spirit or any other intoxicant. - (1) The State Government may grant to any person, on such conditions and for such period as it may think fit, the exclusive privilege- (a) (i) of manufacturing or supplying wholesale or (ii) of manufacturing and supplying wholesale, or (iii) or selling wholesale or retail, or (iv) of manufacturing or supplying wholesale and selling retail, or (v) M manufacturing and supplying wholesale and selling retail, any country liquor or intoxicating drug within any specified local, or (b) of manufacturing, storing, using, possessing, exporting, importing, including wholesale or retail sale of liquor which after manufacture is denatured to render it unfit for human consumption and is thereby termed as denatured spirit, and any other intoxicant: Provided that public notice shall be given of the intention to grant any such exclusive privilege, and that any objection made by any person residing within the area affected shall be considered before an exclusive privilege is granted. (2) No grantee of any privilege under Sub-section (1) shall exercise the same unless or until he has received a licence in that behalf from the Collector or the Excise Commissioner". (emphasis added) From Section 22 it is manifest that it is within the right of the State to part with the privilege to carryon the manufacture or trading in country liquor on such conditions as it may think tit and in my considered opinion the stipulations contained in clauses 7 and 7A of the licence arc nothing but conditions for the grant of the exclusive privilege of wholesale supply of country liquor in a particular district. Notwithstanding, the unhappy expressions used by the Commissioner and the Member, Board of Revenue the demand of the penalty is based on the conditions for the grant of exclusive privilege to the petitioner. Notwithstanding, the unhappy expressions used by the Commissioner and the Member, Board of Revenue the demand of the penalty is based on the conditions for the grant of exclusive privilege to the petitioner. This condition was declared in the tender notice and it was reiterated in the letter of the Excise Commissioner, dated 21.4.1977 and the petitioner being fully aware of this condition attached to the grant entered into the contract of supply of country spirit and derived benefits from the contract. I am supported in my view by a Supreme Court decision in the case of State of Haryana vs. Jage Ram and others, A.I.R. 1980 S.C. 2018. In this case relying upon the earlier decision of the Supreme Court in Har Shankar's case, the Court observed vide para 19 as follows: "19. On this consideration also, apart from the validity of the preliminary objection, the respondents writ petition is liable to fail. The amount which the respondents agreed to pay to the State Government under the terms of the auction is neither it free property so-called which would require the existence of a quid pro quo, nor indeed is the amount in the nature of excise duty, which by reason of the constitutional constraints has to be primarily a duty on the production or manufacture of goods produced or manufactured within the country. The respondents cannot, therefore, complain that they are being asked to pay "excise duty" or "still-head duty" on quota of liquor not taken, lifted or purchased by them. The respondents agreed to pay a certain sum under the terms of the auction and the Rules only prescribe a convenient mode whereby their liability was spread over the entire year by splitting it up into fortnightly installments. The Rules might as well have provided for payment of a lump sum and a very issuance of the licence could have been made to depend on the payment of such sum. If it could not be argued in that event that the lump sum payment represented excise duty, it cannot be so argued in the• present event merely because the quota for which the respondents gave their bid is required to be multiplied by a certain figure per proof litre and further because the respondents were given the facility of paying the amount by installments while lifting the quota from time to time. What the respondents agreed to pay was the price of a privilege which the State parted with in their favour. 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". Significantly, in this case the Court also noticed the there decisions relied upon by Mr. Bimal, namely, Bimal Chandra Banerjee's case (supra), State of Madhya Pradesh vs. Firm Gappulal etc. (supra) and Excise Commissioner, U.P. vs. Ram Kumar (supra) and distinguished those cases in paras 21 and 22 in the following words: "21. Strong reliance was placed by the respondents on the decisions of this Court in Bimal Chandra Banerjee v. State of Madhya Pradesh, (1971) 1 S.C.R. 844 : ( AIR 1971 SC 517 ), State of Madhya Pradesh v. Firm Gappulal etc. (1976) 2 S.C.R. 1041 : (AIR 1976 S. C. 633) and Excise Commissioner, U.P., Allahabad v. Ram Kumar, (1976) supp. SCR 532: (AIR 1976 S. C. 2237) in support of their contention that what they are called upon to pay by the Government is excise duty. In Bimal Chandra Banerjee, it was held by this Court that the levy of excise duty on undrawn liquor was beyond the power of the State Government and that, therefore, the rule imposing the condition to that effect was invalid. That decision was followed in the Madya Pradesh Case where also, the licensees were required to pay what was described as "Pratikar" which was nothing but excise duty on undrawn liquor. The same situation obtained in the U. P. case because, the real nature of the payment which the licensees were required to• make there was excise duty on undrawn liquor. 22. These decisions cannot help the respondents because the true position, as stated earlier, is that the amount which the respondents are called upon to pay is not excise duty on undrawn liquor but is the price of a privilege for which they offered their bid at the auction of the vend which they wanted to conduct". The decision in the case of State of Haryana vrs. Jage Ram (Supra) was followed in the case of State of Andhra Pradesh vs. Y. Prabhakara Reddy, A.I.R. 1987 S. C. 933. The decision in the case of State of Haryana vrs. Jage Ram (Supra) was followed in the case of State of Andhra Pradesh vs. Y. Prabhakara Reddy, A.I.R. 1987 S. C. 933. After noting and distinguishing Bimal Chandra Banerjee's case, this decision also said in para 14 as follows: "14. The learned counsel for the State of Andhra Pradesh relied on Har Shankar v. Dy. Excise and Taxation Commissioner ( AIR 1975 SC 1121 ), Panna Lal v. State of Rajasthan ( AIR 1975 SC 2008 ) (supra) and State of Haryana v. Jage Ram ( AIR 1980 SC 2018 ) (Supra). In Har Shankar's case, it was held by a Constitution Bench of the Court (Chandrachud, J. speaking for the Court) that since rights in regard to intoxicants belonged to the State, it was open to the Government to part with those rights for a consideration. In a scheme providing for the parting of the right for a consideration, it was not of the essence whether the amount charged to the licensees was predetermined or whether it was left to be determined by bids offered in auctions. The power of the Government to charge a price for parting with its right and not the mode of fixing that price was constituted the essence of the matter. Nor indeed did the lable affixed to the price determined either the true nature of the charge left by the Government or its right to levy the same. The amount charged was neither a fee properly so-called nor indeed a tax but was in the nature of a price of the privilege which the purchaser had to pay in any trade or business transaction. Once it was appreciated that the auctions were only a mode or medium for ascertaining the best price obtainable for the grant of a privilege to sell liquor, there would be no further contradiction in them." In my considered opinion, therefore, the conditions incorporated in clauses 7 and 7A of the licence arc to be viewed as part of the price which the State demanded for grant of the exclusive privilege to the petitioner and the petitioner agreed to pay the price by undertaking the wholesale supply to the district. 8. Mr. 8. Mr. Bimal also contended that clauses 7 and 7A had no application in this case inasmuch as the State had not suffered any loss of duty on account of default in the supply of liquor. According to him, the default in February, 1978 was made good by the petitioner in the subsequent months and, therefore, there was no question of any default on that score. Mr. Bimal further submitted that as there was no evidence that any retail vend had remained closed for any day, the question of any loss of revenue to the State did not arise in this case. 9. A Counter affidavit has been filed in this case in para 15 whereof the details have been furnished regarding the challan numbers, quantities of liquor etc. to be issued against the retail vends which could not be honoured and supply could not be made available to the retail vendors on account of the non-supply by the petitioner. The details relate to the different warehouses in the district, namely, Bikramganj, Sasaram etc. In that view, it is not possible for me to hold that there was no loss of excise duty on account of non-supply by the petitioner. Further more it is to be noted that the conditions contained in clause 7A is a penal provision and a penalty can be imposed in disregard of any loss of revenue suffered by the State. As stated in the counter affidavit, clause 7A of the licence is intended to ensure a regular supply of spirit and the compensation for any loss of revenue is only incidental. 10. Mr. Bimal next contended that the Commissioner had passed the exparte order behind the back of the petitioner and without giving it a due opportunity of hearing. It was contended by him that the order of the Commissioner should be struck down for being in breach of the principle of natural justice. In this regard he relied upon a decision reported in A. I. R. 1973 Patna 111 I am afraid, I do not find any substance in this submission either. The petitioner was given a notice to appear on 22.8.1982. It sought two extensions of dates vide its letters dated 9.2.1982 and 19.8.1982 and the Commissioner's order was passed on 10.5.1982 after giving the petitioner adqeuate opportunity to present its case. The petitioner was given a notice to appear on 22.8.1982. It sought two extensions of dates vide its letters dated 9.2.1982 and 19.8.1982 and the Commissioner's order was passed on 10.5.1982 after giving the petitioner adqeuate opportunity to present its case. In my view, therefore, the Commissioner rightly remarked that more than adequate opportunity had been allowed to the petitioner. 11. For all these reasons stated above, I see no merit in this application and the same is accordingly dismissed. There shall be no order as to costs.