1996 (9) TMI 599 - SC - Central Excise

Supreme Court upholds Rule 6-A(3) validity

STATE OF ORISSA & ORS. Versus NARAIN PRASAD & ORS., ETC. ETC.

STATE OF ORISSA & ORS. Versus NARAIN PRASAD & ORS., ETC. ETC. - 1997 AIR 1493, 1996 (5) Suppl. SCR 465, 1996 (5) SCC 740, 1996 (8) JT 50, 1996 (6) SCALE ... Issues Involved:1. Validity of Rule 6-A(3) under the Orissa Excise (Exclusive Privilege) Rules, 1970.2. Obligation to remit excise duty independent of lifting Minimum Guaranteed Quantity (MGQ).3. Enforceability of contractual obligations undertaken by licensees.4. Scope of Article 226 of the Constitution in challenging contractual obligations.5. Applicability of precedents set by prior Supreme Court judgments.Detailed Analysis:1. Validity of Rule 6-A(3) under the Orissa Excise (Exclusive Privilege) Rules, 1970:The respondents contended that Rule 6-A(3) is ultra vires the rule-making power of the Government and outside the purview of the Bihar and Orissa Excise Act, 1915. They argued that excise duty should only be levied on the sale of liquor, and collecting duty on unlifted liquor amounts to an unauthorized levy. The Supreme Court, however, found that Rule 6-A(3) is valid and framed within the powers conferred by Section 89 of the Act. The rule was deemed to be a condition of the license, and the obligation to pay excise duty was independent of the actual lifting of the MGQ.2. Obligation to Remit Excise Duty Independent of Lifting MGQ:The Court emphasized that the duty to remit excise duty as per Rule 6-A is a distinct obligation separate from the duty to lift the MGQ. The excise duty for the month must be remitted in two equal installments by the fifth and fifteenth of the month, irrespective of whether the MGQ has been lifted. The consequences of non-payment are specified in clauses (3) and (4) of Rule 6-A, making the obligation mandatory and emphatic.3. Enforceability of Contractual Obligations Undertaken by Licensees:The respondents had voluntarily entered into contracts with the Government of Orissa, agreeing to lift a specified quantity of liquor each month and remit the excise duty accordingly. The Supreme Court held that the respondents cannot wriggle out of these contractual obligations. The Court referenced the Constitution Bench decision in Har Shankar, which stated that individuals who enter into contracts with their eyes open and operate under those contracts cannot later challenge the validity of the obligations they voluntarily undertook.4. Scope of Article 226 of the Constitution in Challenging Contractual Obligations:The Supreme Court held that the extraordinary jurisdiction of the High Court under Article 226 is discretionary and should not be used to aid individuals seeking to avoid their contractual obligations. The High Court should not have entertained the writ petitions challenging the demand notices, as the respondents were essentially trying to avoid obligations they had voluntarily accepted.5. Applicability of Precedents Set by Prior Supreme Court Judgments:The Supreme Court analyzed several precedents, including Bimal Chandra Banerjee v. State of Madhya Pradesh, Panna Lal v. State of Rajasthan, and State of Andhra Pradesh v. Y. Prabhakara Rao. The Court concluded that the present case falls within the ratio of Panna Lal and Prabhakara Reddy, where the payments were considered as part of the consideration for the grant of the privilege/license, rather than a levy of excise duty on unlifted liquor. The Court distinguished the present case from Bimal Chandra Banerjee, where the focus was on the levy of excise duty without sale.Conclusion:The Supreme Court allowed the appeals, setting aside the judgments and orders of the High Court. The writ petitions filed by the respondents were dismissed with costs. The Court reiterated that the obligation to remit excise duty is independent of the lifting of MGQ and that the respondents cannot challenge the validity of the rules or their contractual obligations under Article 226.