C. I. (India) Ltd. And Ann Etc v. State Of Bihar — 1996 DIGILAW 539 (PAT)

Judgment D. P. Wadhwa, Aftab Alam and j. JJ. 1. What will be the effect of an upward revision of excise duty on the consolidated price (of which excise duty is admittedly a fraction) at which the suppliers are required to sell country liquor to the retail licencees under a four-year contract granted to them by the government. This is the common question which arises for consideration in the six writ-petitions in this batch, hence, these cases have been heard together and are being disposed of by this judgment. 2. The material facts are brief and without much controversy. A notice dated 3.6.1995 was published in the bihar Gazette (extra-ordinary) of the same date inviting tenders for the grant of exclusive privilege for the wholesale supply of country spirit in sachets/bottles for the period from July 1, 1995 to march 31, 1999. The tenderers were required to submit before the authorities of the Excise Department a project report in which, among other details, the price at which the tenderer was prepared to make the supply of country spirit to the retail licensees was also to be indicated. The quoted price was further to be reduced into its various elements, such as, sacheting/bottling expenses, cost of the sachet film, cost of spirit and the tax leviable thereon etc. The petitioners and several others submitted their tenders along with the required project report stating the rates at which they were willing to make the supplies to the different area mentioned in the tender notice. The Member, board of Revenue invited the tendereres for negotiations for fixing the rates at which country spirit would be supplied in sachets/bottles to the retail licences from the warehouses. Following detailed negotiations between tenderers on the one hand and the authorities of the Excise Department on the other, it was agreed that the wholesale supply of country spirit will be made to the retail licensees at the following unified rates: 2_459_PatLJR1_1997.htm It is an admitted position that the aforesaid prices were inclusive of (i) Excise duty, (ii) Licence fee, (iii) all kinds of shortages/wastages and (iv) cost of spirit, etc. It is also admitted that at the time the aforesaid prices were determined, the excise duty leviable on country spirit was Rs.26/- per L. P. litre. It is also admitted that at the time the aforesaid prices were determined, the excise duty leviable on country spirit was Rs.26/- per L. P. litre. 3 Following the finalisation of the price on the basis of the negotiations between the parties, 15 persons, including the writ petitioners received the grant of exclusive privilege for the wholesale supply of country liquor in terms of Sec.22 of the Excise Act. The grant was for a period from July 1, 1995 to March 31 1999 and was communicated to the grantees under letter nos.2379, 2387 all dated 23.6.1995 issued to the 15 tenderers. All the letters contained identical terms and conditions and clause 5 contained therein stipulated that the supply of country spirit would be made to the retail licen-cees at the rates mentioned here-in-above. Following the grant of exclusive privilege, licencees in form 27 were also issued in favour of the grantees are required under Sec.22 (2) of the Excise Act. 4. While the aforesaid grants made in favour of the petitioners were subsisting, the State Government in exercise of its power under Sec.27 of the Act, issued a notification on 3.3.1996 making an upward revision in the rate of the excise duty leviable on country spirit and enhanced the rate from Rs.26/- to Rs.35/- per L. P. litre. The enhancement of excise duty on country spirit was not simultaneously followed by revision of its wholesale price which was left fixed at the rates stipulated in clause 5 of the grant and this understandably caused resentment to the petitioners who came to this Court in these writ petitions. In these writ petitions, though the action of the State Government in issuing the notification dated 3.3.1996 enhancing the rate of excise duty was also challenged, the petitioners, realising the futility of such a challenge, focused mainly on the alternative relief claimed by them, that is, a direction to the respondent authorities to similarly revise the wholesale price of country spirit to be supplied by them to the retail licencees. 5. 5. Some similar writ petitions were also filed before the Ranchi Bench of this Court and is one of them (CWJC)No.1224/1996 (R), a Bench of this court made observations indicating that it would be appropriate for the Board of revenue to take a decision in this matter and it was also left open for the board to examine the grantees claim and take a decision on it regardless of the pendency of these cases before this court. Following the observation/directions by this Court, the Member, Board of Revenue took up the matter for consideration and heard the wholesellers (the grantees of the exclusive privilege), the retailers and the representative from the Excise Department of the Government. The retailers and the Excise department opposed the whole-sellers plea for a proportionate increase in the wholesale price of country liquor. According to the retailers in the market for country liquor was not in a position to bear any significant increase in price; any enhancement of the wholesale price would, therefore, adversely affect its sale and it would become difficult for the retailers to achieve the sale of their minimum guarantee quota. Similarly opposing the plea of the wholesellers, the Excise Department maintained that during the past months, there had been a perceptible fall in the price of rectified spirit. According to the excise authorities, the average price of rectified spirit, including sales tax. , etc. , at the time of the grant of the privilege was about Rs.10/- per L. P. Litre which had now fallen down to about Rs. II- per l. P. Litre. It was accordingly contended on behalf of the State that in case the wholesale price of country spirit was increased, taking into account only the upward revision of Excise Duty, it would leasd to the wholesellers making quite unintended profits. 6. On a consideration of the rival pleas the Member, Board of Revenue, by order dated 21.5.1996 held as under: "on careful consideration of the submissions of counsel and the documents on record, I come to the conclusion that it would be appropriate to fix the wholesale price of country spirit by taking into account enhanced excise duty from Rs.26 per L P. Litre to Rs.35 per L P. Litre and the reduced average price of rectified spirit from Rs.10 Per L. P. Litre to Rs.7 per L. P. Litre. The calculation charts submitted by the excise authorities is enclosed with this observation, which has been signed by me. " 7. The manner in which the rates country spirit were re-determined in that order is as follows: 8. From the above it is manifest that while redetermining the wholesale price of country spirit, the Member, board of Revenue though took into reckoning the enhanced excise duty, he did not allow a proportionate increase in the wholesale price by taking into account the reported fall by about 30% in the cost of rectified spirit. The order of the Board of Revenue thus gave the petitioners only a partial relief. 9. The above-mentioned order passed by the Board of Revenue on 21.5.1996 has been brought on the record along with amendment petition and the petitioners seek to challenge this order in so far as it redetermines the wholesale price of country liquor by taking the cost price of spirit at Rs.7/-per L. P. litre instead of Rs.10/- per L. P. litre. 10. Mr. Ram Balak Mahto and Mr. Y. V Giri appearing on behalf of the petitioners in these writ petitions supmitted that though it was fully open to the Government to enhance the excise duty in exercise of its power under Sec.27 of the Excise Act, it was not open to the Member, Board of Revenue to redetermine the wholesale price of country liquor by unilaterally taking into account the alleged fall in the cost price of the spirit, more so as it earlier cost price had been agreed upon by the parties on the basis of negotiations and it had been solemnised as one of the conditions (vide clause 5) of the grant which is to remain subsisting till 31.3.1999. 11. A counter-affidavit has been filed on behalf of the respondent authorities, which adopts the same reasoning as the order of the Board of revenue, that is to say, after the grant of privilege, there had been a perceptible reduction in the cost of rectified spirit and hence for revising the wholesale price it was necessary to take into consideration that factor also, (see paragraphs 11, 16 and 18 of the counter-affidavit ). The respondents also enclosed two cash memos, dated 7.3.1996 and 30.11.1995 (Annexures b and b/1, respectively) in which the rates of rectified spirit were shown as rs.8.50 and Rs.8/- per pulk litre, respectively. 12. Mr. The respondents also enclosed two cash memos, dated 7.3.1996 and 30.11.1995 (Annexures b and b/1, respectively) in which the rates of rectified spirit were shown as rs.8.50 and Rs.8/- per pulk litre, respectively. 12. Mr. Dilip Jerath, learned counsel also sought to intervene on benefit of the retail licensees and made submissions opposing the relief (5)claimed by the petitioners in these cases. 13. Before proceeding to examine the merits of the contending claims of the parties, it would be appropriate to bear in mind that in case of the duty of excise, it is permissible to pass it on to the consumer and there is no provision of law or any term or condition of the grant of exclusive privilege, which would put the wholesale supplier under an obligation to personally bear the payment of excise duty on country liquor. The wholesale supplier collects the duty of excise from the retailer merely as an agent of the Government and passes it on to the Government. In that view, it does not require any elaborate arguments to see that an enhancement in the rate of excise duty should be logically followed by a corresponding increase in the wholesale price of country liquor. The Board of Revenue also seems to have accepted this position in principle and it has, therefore, taken into account the enhanced excise duty while redetermining the wholesale price. The question, however, remains as to whether it is permissible to take into consideration the reported fall in the cost of rectified spirit, while redetermining the wholesale price of country liquor because of an upward revision in excise duty. We were initially attracted by the submission advanced on behalf of the state that 35% (approx.) increase in the excise duty was more or less set-off, by a 30% reduction in the cost price of rectified spirit and hence for all practical purposes, there was hardly any need to revise the wholesale price of country liquor and at best a marginal increase should have been just and proper; and in this case, the Board of Revenue had allowed an increase of more than 10% in the wholesale price of country liquor. 14. On closer examination of the facts and circumstances, however, we are of the opinion that the contention raised on behalf of the State is quite fallacious and unacceptable and there is considerable substance in the petitioners grievances. 14. On closer examination of the facts and circumstances, however, we are of the opinion that the contention raised on behalf of the State is quite fallacious and unacceptable and there is considerable substance in the petitioners grievances. We are of this view for the following reasons: I. Mere rise and fall in the cost of rectified spirit on its own would not occasion a revision of the wholesale price of country liquor and had there been no increase In the excise duty, the reported fall in the cost of rectified spirit would not have made it permissible for the respondent authorities to review or redetermine the wholesale price of country spirit. Such a review of the agreed wholesale price merely on the basis of any change in the cost of rectified spirit has neither taken place in the past nor is a permissible in law. Having regard to the facts and circumstances of this case, we are of the opinion that the reported reduction in the cost of rectified spirit has been set up merely as an excuse to keep the wholesale price of country liquor pegged down, notwithstanding the increase in the excise duty. II. Secondly, there is no evidence before us to justify the presumption that the reported fall in the cost of rectified spirit is not a transitory phenomenon and is likely to hold for the rest of the period of the grant, in the counter affidavit merely two cash memos have been enclosed which were issued in November, 1995 and march, 1996. There is not even an averment made in the counter-affidavit that the fall in the cost of rectified spirit was on account of factors which were likely to persist till the end of the grant and would hold the price, till March, 1989, at its reduced level. There is also no averment and in fact there cannot be any such averment that in case the price of rectified spirit rose up, the authorities would again review the wholesale price and would allow a proportionate upward revision in the wholesale price of country liquor. III. Thirdly, the argument based on the reported reduction in the cost of rectified spirit is entirely fallacious as it does not take into account the binding nature of contract relating to the grant of exclusive privilege to the petitioners. III. Thirdly, the argument based on the reported reduction in the cost of rectified spirit is entirely fallacious as it does not take into account the binding nature of contract relating to the grant of exclusive privilege to the petitioners. The wholesale price of country liquor was agreed between the parties on the basis of negotiations and one of its factors, the cost of rectified spirit was taken to be Rs.107- per l. P. Litre. The parties to the contract, therefore, are bound by that price and it is not open to the State to reduce it unilaterally and regardless of the protests made by the other contracting party in S. K. G. Sugar Limited vs. State, A. I. R.1975 pat.123, a Bench of this Court invoked the principle of promissory estoppel to issue direction to the State Government to make payment to the wholesale supplier at the rate promised by the State in its letter to the supplier. The claim of the petitioners in these cases is founded on such stronger grounds as in these cases there is not merely a promise made by the state in a letter but there is a formal grant of exclusive privilege in terms of Section 22 followed by the issuance of a licence under Sec.22 (2) of the Excise Act. In gthe facts and circumstances of this case it must, therefore, be held that the action of the authorities in patent disregard of a binding contract is quite unreasonable and arbitrary and violative of the constitutional guarantee under Article 14. 15. We also see no substance in the contention that a proportionate increase in the wholesale price would lead to high profits to the petitioners. The profits as long as they are not unlawful, cannot be legally objected to. Moreover, in case there was an increase in the cost of rectified spirit, the petitioners would have incurred loss, but that would not have justified the lowering down of the wholesale price of country liquor. 16. The Addl. Advocate-General no. II in course of his submission has relied upon clause 13 of the letter dated June 23, 1995. Mr. Dilip Jerath has similarly relied upon clause 18 of the licence issued to the petitioners under form 27. We are unable to see how those provisions can be of any help to the respondents and the intervenors. The Addl. Advocate-General no. II in course of his submission has relied upon clause 13 of the letter dated June 23, 1995. Mr. Dilip Jerath has similarly relied upon clause 18 of the licence issued to the petitioners under form 27. We are unable to see how those provisions can be of any help to the respondents and the intervenors. We rather think that on the contrary clause 18 of the licence supports the petitioners case by stipulating that a change in the duty of excise would not affect the terms and conditions of the grant in other words, the cost of rectified spirit which was agreed upon between the parties in fixing the wholesale price of country liquor at the time of the grant would remain unaffected by the increase in the rate of excise duty and hence the revision of the wholesale price of country liquor is to be made only on the basis of the enhanced excise duty. 17. For the reasons stated above, we are of the opinion that the petitioners are entitled to the relief claimed by them and we accordingly direct the Member, Board of Revenue to re-determine the wholesale price of country liquor taking into account only to increase in the rate of excise duty and on the basis of the cost of rectified spirit being Rs.10/- Per L. P. litre. In the result, these applications are allowed. There will be, however, no order as to costs. Applications Allowed.