1975 (1) TMI 89 - SC - Customs

Supreme Court affirms Financial Commissioner's authority on liquor licensing rules & fees, rejects unconstitutionality claim

The Supreme Court upheld the High Court's judgment, affirming the Financial Commissioner's authority to frame rules for granting liquor licences through ... Contractual nature of auction bids - licence fee as price of a state-granted privilege (not fee or tax in technical sense) - power of Financial Commissioner to prescribe fees and to authorise grant of licences by auction - state regulatory monopoly over manufacture, sale and possession of intoxicants - applicability of amended rules to licences effective after commencement date - recovery of excise revenue and contractual dues under excise recovery provisionsContractual nature of auction bids - Bids made in the auctions and acceptance by the Government constituted binding contracts and a writ under Article 226 was not an appropriate remedy to avoid contractual obligations. - HELD THAT: - The conditions announced before the auctions were invitations to offer; the bids were offers which, on acceptance by the Government, resulted in concluded contracts evidenced by licences in Form L 14A. Bidders participated with full knowledge of terms and exploited licences for part of their currency. The Court held that those who contract with open eyes cannot impeach their contractual obligations by writ petitions; contractual duties cannot be avoided merely because commercial expectations proved erroneous.The preliminary objection was upheld: the writ petitions could not be used to wriggle out of contractual obligations arising from accepted auction bids.Licence fee as price of a state-granted privilege (not fee or tax in technical sense) - state regulatory monopoly over manufacture, sale and possession of intoxicants - Amounts realised as 'licence fee' or 'fixed fee' under the Rules are properly characterised as the price of a privilege granted by the State and need not bear a quid pro quo to be a 'fee' in the technical sense, nor are they necessarily an excise duty. - HELD THAT: - The Court explained the distinctive characters of tax, fee and excise duty. The sums charged by auction or as fixed fees are the consideration for parting with State privileges to sell intoxicants and are incidents of the State's trading/privilege granting power under Article 298 and the statutory scheme. The label 'fee' in the Act and Rules is not used in a narrow technical sense requiring a direct relation to services rendered; high licence fees can legitimately serve regulatory ends and to secure revenue produced as a result of the system.The licence/fixed fees challenged are lawful as prices for State granted privileges and not invalid for lack of quid pro quo or because they are not excise duties.Power of Financial Commissioner to prescribe fees and to authorise grant of licences by auction - The Financial Commissioner has power under section 34 read with the rule making power in section 59(d) to frame rules authorising grant of licences by auction and to prescribe the manner of fixing fees. - HELD THAT: - Section 34 empowers licences to be granted on payment of such fees and subject to such conditions as the Financial Commissioner may direct; section 59(d) authorises rules prescribing scales or manner of fixing fees. Auctions are merely a mode for ascertaining the best price for the privilege; Rule 36 (or Rule 35 as referred) directing that licences may be granted on fees fixed by auction falls within the rule making competence. Consequently there is no contradiction in referring to 'auction fees' in the rules.Rules authorising auctions and the Financial Commissioner's exercise of power to prescribe fees/manner of fixation are intra vires the Act.Distinction from earlier decisions striking down auction linked levies - The impugned auctions and rules are not vitiated by the earlier decisions in Bhajan Lal and Jage Ram because the present rules differ in principle and do not impose excise (still head) duty on unlifted quota as previously struck down. - HELD THAT: - Bhajan Lal and Jage Ram invalidated provisions which in substance imposed still head duty (an excise) on quota not lifted by licensees. The present amendments reduce still head duty and alter the scheme so that excise duty is no longer payable on unlifted quota in the manner previously criticised. Therefore the principle of those earlier decisions does not invalidate the present rules and auctions.The reliance on Bhajan Lal and Jage Ram does not render the present auctions or rules invalid.Applicability of amended rules to licences effective after commencement date - Amendments to the Rules made in March 1968 applied to licences renewed in January 1968 where such licences were effective from April 1, 1968. - HELD THAT: - Licences renewed before January 20 were to be effective from April 1. Rules amended in March 1968 came into force before April 1 and therefore govern licences effective thereafter. The Financial Commissioner may prescribe fees by rules and such authorization operates on licences to be effective after the commencement of the amended rules.The appellants whose licences were renewed in January 1968 are liable to pay fixed fees under the amended Rules effective from April 1, 1968.Recovery of excise revenue and contractual dues under excise recovery provisions - Amounts due under the auction based licence fees and under the contract are 'excise revenue' or amounts due to Government on account of contracts relating to excise revenue and are recoverable under section 60(1). - HELD THAT: - Section 3(9) defines 'excise revenue' broadly to include revenue derivable from any payment, fee or tax imposed under the Act or other liquor laws. Amounts charged as licence or fixed fees fall within 'excise revenue' and, where due under contract, within sums recoverable as amounts due to Government on account of contracts relating to excise revenue. Section 60(1) thus authorizes recovery by processes for arrears of land revenue.The State may recover the demanded payments by the statutory modes provided for recovery of excise revenue.Final Conclusion: All appeals dismissed. The Court upheld the validity of auctions and amended rules as means for fixing licence fees, treated the amounts charged as prices for State granted privileges recoverable as excise revenue, affirmed the Financial Commissioner's rule making power to authorise auctions and fees, held that auction bids constituted binding contracts not susceptible to collateral attack by writ, and declined costs. Issues Involved:1. Jurisdiction of the Excise and Taxation Commissioner.2. Authority of the Financial Commissioner under Section 34 of the Punjab Excise Act, 1914.3. Nature of the levy imposed through auctions.4. Competence of the State Government to impose a tax or excise duty.5. Delegation of power to levy taxes.6. Relationship between the licence fee and services rendered.7. Rule fixing the maximum price of liquor.Detailed Analysis:1. Jurisdiction of the Excise and Taxation Commissioner:The appellants argued that the Excise and Taxation Commissioner lacked jurisdiction to determine the method of disposal of country liquor vends. The High Court, however, held that the Financial Commissioner had the jurisdiction to determine the method of disposal of country liquor vends.2. Authority of the Financial Commissioner under Section 34 of the Punjab Excise Act, 1914:The appellants contended that the power conferred by Section 34 did not extend to disposing of country liquor vends by auction. The High Court rejected this contention, stating that Section 34 empowered the Financial Commissioner to grant licences on payment of fees and subject to conditions as directed.3. Nature of the Levy Imposed Through Auctions:The appellants argued that the levy imposed through auctions was a tax and not a licence fee. The High Court found that the rules under which the impugned auctions were held were substantially different from those under which the auctions challenged in Jage Ram's case were held. The Supreme Court concurred, stating that the amounts charged were not a tax nor an excise duty but the price of a privilege.4. Competence of the State Government to Impose a Tax or Excise Duty:The appellants argued that the State Government alone was competent to impose a tax or excise duty under the Act, and this power could not be delegated. The High Court held that the State Legislature was competent to regulate the business of vending intoxicating liquors, and the Financial Commissioner had the jurisdiction to determine the method of disposal of country liquor vends.5. Delegation of Power to Levy Taxes:The appellants contended that Section 34 did not provide guidelines for the delegation of power to levy taxes, making the delegation excessive. The High Court rejected this, stating that Section 34 was not an instance of delegated legislation.6. Relationship Between the Licence Fee and Services Rendered:The appellants argued that the licence fee did not bear a reasonable relationship to the services rendered to the licensees. The High Court held that the licence fees charged for regulating trade in intoxicating liquors did not have to conform to the requirement of a quid pro quo for services rendered.7. Rule Fixing the Maximum Price of Liquor:The appellants challenged the rule fixing the maximum price at which liquor could be sold as ultra vires of the rule-making powers of the Financial Commissioner. The High Court held that the fixation of the maximum price was part of the power to regulate the trade in liquor.Conclusion:The Supreme Court dismissed the appeals, upholding the High Court's judgment. It was held that the Financial Commissioner had the power to frame rules for granting liquor licences by auction and to collect licence fees. The amounts charged were not a tax nor an excise duty but the price of a privilege. The appellants' contention that the levy was unconstitutional was rejected, and it was affirmed that the State Government had the exclusive right to regulate the business of vending intoxicating liquors. The appellants were also found to be bound by the contractual obligations arising from their bids in the auctions.