TaxTMI 
TaxTMI 
2003 (11) TMI 558
X X X X Extracts X X X X
X X X X Extracts X X X X
.... writ in the nature of certiorari quashing the imposition of import fee on Beer vide Order 1-D(iii) of the Punjab Excise Fiscal Orders, 1932, amended from time to time, latest being notification dated 27.03.1996 which is impugned in the writ petition and for other consequential prayers. 4. Civil Appeal Nos. 2696 and 2697 of 2003 were filed by Penguin Alcohols (P) Ltd. and Another etc. against the State of Kerala and Others against the common judgment of the High Court of Kerala dated 06.04.2001 in Writ Appeal Nos. 3 and 10 of 2001 dismissing the appeal filed by them. 5. The original petitions were filed by appellants herein against Exhibit P1 notification issued by the State of Kerala enhancing the rate of import fee from Rs. 2/- per proof litre to Rs. 5/- on Indian Made Foreign Liquor (hereinafter referred to as "IMFL"). The import fee was initially levied under Government Order, G.O.(MS) No. 57/92/TD dated 31.12.1992. The learned Single Judge upheld the levy holding that it is a fee and regulatory in nature. The appellants preferred writ appeals, which were dismissed by the Division Bench by the impugned common order in Writ Appeal Nos. 3 and 10 of 2001. 6. In both the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espondent in Civil Appeal No. 3017 of 1997 carries on wholesale trade in the State of Punjab. Under the rules, the licensee is required to obtain a licence in Form L-1, which is valid for one year. In addition to this under the Punjab Excise Fiscal Orders, 1932, the respondents is liable to pay duty/fee at the rates mentioned therein. As a result of this, the respondent has to pay excise duty/import fee as the case may be. Over and above this, there is an import fee which is levied by the State Government in exercise of its powers under Section 58 of the Act. According to learned counsel for the State of Punjab all these charges and levies are really a price for the privilege of carrying on the trade under the L-1 license as far as the privilege of importing alcohol into the State of Punjab. The impugned levy is under the Punjab Excise Act, 1914, which is a pre- Constitution Act. It is this Act which provides that no intoxicant shall be imported, exported or transported except after the payment of duty to which it may be liable under the Act. The words "duty to which it may be liable under this Act" were substituted by the words "duty of customs or excise to which it may be liable"....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Punjab Excise Fiscal Orders, 1932. On 31.01.2002, this Court passed an order which read as under: "In the course of the argument, it was noticed that the principal argument on behalf of the respondents before the High Court, which was upheld by the High Court, was that the import fee, which is the subject matter of these proceedings, had been imposed by the State of Punjab without authority of law. The response on behalf of the State of Punjab before the High Court was that the right of the respondents to import beer into the State was privilege conferred by the State upon the respondents to which Article 301 had no application because the respondents had no right to trade in liquor de hors that privilege and that the import fee was the price for the privilege. In the course of the argument before us, we asked Mr. K.K. Venugopal, learned counsel for the State, to tall us what the source of power for thew imposition of the import fee was. Mr. Venugopal referred in reply to Section 18, 19, 34, 58 and 59 of the Punjab Excise Act, 1914. In other words, the contention of the State before us is that the import fee is a fee and the respondents are required to pay such fee to bring ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....licences which are prescribed and are given. The respondent in this appeal is holding L-1 licence i.e. Wholesale and retail vend of foreign liquor to trade only. The said licence is given on fixed licence fee, which is subject to variation as per excise policy of the Government based on year to year. The State Government has incorporated as one of the terms and conditions on the L-1 holders to pay import fees also at the prescribed rate as per the Punjab Excise Fiscal Order, 1996. The respondent has been accepting the terms and conditions from 1992 onwards and acted on the same, the licence was renewed on yearly basis. 13. Similarly, under the provisions of the Punjab Liquor Permit & Pass Rules, 1932, the State Government issued permit in form L-32, in the case of import and the licensees are liable to pay permit fee at the prescribed rate. As already stated, the respondent has mixed up two different imposts. The respondent has referred to the duty paid under Rule 5 i.e. equivalent to Excise duty and fees under Order (1)(D) of the Punjab Fiscal Orders, 1932. As stated above, on imported goods by L-1 holder, there are two different and independent imposts in the shape of Excise d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n my opinion, has no force for the reasons stated and the discussions made in paragraphs supra. 17. In my opinion, Articles 302 and 304A of the Constitution of India are not attracted to the present case as the imposition of import fee does not, in any way, restrict trade commerce and intercourse among the States. In my opinion, the permissive privilege to deal in liquor is not a "right" at all. The levy charged for parting with that privilege is neither a tax nor a fee. It is simply a levy for the act of granting permission or for the exercise of power to part with the privilege. In this context, we can usefully refer to Har Shankar and Ors. etc. etc. v. The Deputy Excise and Taxation Commissioner and Ors. etc. and Panna Lal and Ors. v. State of Rajasthan and Ors.. As noticed earlier, dealing in liquor is neither a right nor is the levy a tax or a fee. Articles 301-304 will be rendered inapplicable at the threshold to the activity in question. Further, there is not even a single judgment which upholds the applicability of Articles 301-304 to the liquor trade. On the contrary, numerous judgments expressly hold these Articles to be inapplicable to trade, commerce and intercourse ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt fee is violative of Articles 303(1) and 304A of the Constitution. According to the learned counsel for the appellant/licensee, the power of the State to levy a tax or a fee should be traceable to the entries in the Seventh Schedule to the Constitution. Entry 51 of List II provides for a levy of duty of excise on alcoholic liquor for human consumption manufactured or produced in the State and countervailing duties at the same or lower rates of similar goods manufactured or produced elsewhere in India and, therefore, the State Legislature has no power to levy any countervailing duty on imported liquor in excess of the excise duty on liquor manufactured within the State. The State of Kerala imposes a countervailing duty on imported liquor which is equivalent to the excise duty paid by the manufacturers within the State. The State imposes an import fee in addition to the countervailing duty and the direct and immediate effect of the import fee is to favour local manufacturers by making the imported liquor costlier. He would further contend that Article 303(1) prohibits the State Legislature from taking discriminatory measures and Article 304A also prohibits the State from imposing s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny violation of Article 301 at that stage as right to trade in liquor is not a fundamental right. His right to import is referable to the import permit which he acquired on payment of the import fee. No further impediment has been created in the import of the liquor so that Article 301 is not attracted in relation to the payment of the import fee which was prior to getting his privilege of importing. The appellant/licensee having entered into a contractual relationship with the State obtained the privilege and enjoyed the benefit of it. It is not open to the petitioners to turn round subsequently and repudiate the obligations subject to which they obtained the privilege. Regulation in the interest of public health and order takes the case out of Article 301 and regulation for purpose of Article 301 is not confined to such regulations alone which will facilitate the trade. 21. An affidavit was also filed on behalf of the State of Kerala dated 16.04.2003 stating that the collection of import fee in the State of Kerala while issuing permit to import IMFL is referable to Sections 6 and 24 of the Abkari Act, 1977, and that it is the price payable by the grantee to the State for parti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Beverages Corporation to check diversion and misuse and the State is incurring heavy expenses for regulating import of liquor into the State. Therefore, the import fee was increased from Rs. 2/- per proof litre to Rs. 5/- per proof litre in 1995. Even after the increase in the import fee, the import of liquor to the State was steadily increasing till 1999-2000. The affidavit now filed along with the Annexures gives us a clear picture of the levy of import fee while issuing permit to import IMFL. Before the High Court, the learned counsel of the appellants therein have raised only one contention that the imposition of import fee is not in the nature of regulatory fee. It was contended on behalf of the State that the levy is permissible and authorized under Sections 6, 7, 17 and 18 of the Act and that the import fee is the only fee realized from a firm which supplies liquor to the Kerala State Beverages Corporation to be supplied to other licensees in the State and that the levy of import fee is also well founded under the Act basically referable to the legislative Entries 8 and 66 of List III of the Seventh Schedule to the Constitution. The learned Single Judge and also the learne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urant etc. Each activity is separately defined and separately itemized and separately dealt with in statute as also in the rules and involves a diverse range of separate licences, passes, permits and applications each of differing contained format and ambit. The import fee levied in the instant case is fully authorized by the 1914 Act and delegated legislation thereunder and is clearly intra vires. I have already listed in paragraphs above all the provisions authorizing the levy in question in the instant case which is mentioned in the additional affidavit of the State of Punjab. The provisions summarized above confer ample regulatory power upon the excise authority to regulate several activity related with liquor in any reasonable manner and in particular to regulate its import. The regulatory power includes power to levy a monthly fee in that regard such as the impugned import fee. Indeed levy for such fee to exclude and to keep out certain people from the liquor trade and to keep the number of persons participating in this trade within reasonable limits has been recognized by this Court in Har Shankar's case (supra) relying upon and quoting American decisions. 24. The statuto....
X X X X Extracts X X X X
X X X X Extracts X X X X
....specific context of liquor licence had this to say. "The licenses in the present case are contracts between the parties. The licensees voluntarily accepted the contracts. They fully exploited to their advantage the contracts to the exclusion of others. The High Court rightly said that it was not open to the appellants to resile from the contracts on the ground that the terms of payment were onerous. The reasons given by the High Court were that the licensees accepted the license by excluding their competitors and it would not be open to the licensees to challenge the terms either on the ground of inconvenient consequence of terms or of harshness of terms." As a matter of fact, the respondent is the only and the sole challenger of the instant levy of import fee. It is stated that no other liquor contractor or beer manufacturer or importer has challenged the import fee in Punjab at any point of time at any forum. The import fee on IMFL on rectified spirit was levied from the Year 1986 and at no time the respondent challenged the levy of import fee from 1986 onwards on IMFL and continued to import large quantities of beer and paid large sums of fee as per the prescribed rates. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion in Form PLA prescribed under the Rules to abide by the orders made under the Act and the rules could not escape their contractual liability. This Court also further held that the establishment charges demanded are in the nature of price for parting with the privilege to permit manufacture and sale of liquor and the privilege exclusively rests with the Government. 29. The same effect is the judgment of this Court in the case of Assistant Excise Commissioner and Ors. v. Issac Peter and Ors. In the context of a liquor contract, this Court held as under: ".....We are, therefore, of the opinion that in case of contracts freely entered into with the State, like the present ones, there is no room for invoking the doctrine of fairness and reasonableness against one party to the contract (State), for the purpose of altering or adding to the terms and conditions of the contract, merely because it happens to be the State. In such cases, the mutual rights and liabilities of the parties are governed by the terms of the contracts (which may be statutory in some contracts are entered into pursuant to public auction, floating of tenders or by negotiation. There is no compulsion on anyon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....State to part with those rights for a consideration and that the consideration for parting with the privilege of the State is neither excise duty nor licence fee but it is the price of the privilege. 36. In the case of State U.P. and Ors. v. Sheopat Rai and Ors. 1994 Supp (1) SCC 8 held that the term 'licence fee' in the context of the U.P. Excise Law connotes the idea of it being the consideration in money received by the Government from a private person by grant of a licence (contract) for parting in such person's favour, its exclusive privilege or right of carrying on certain activities in respect of country liquor or drugs under 'auction system' in public auctions. 37. In the case of State of Haryana and Ors. v. Lal Chand and Ors., AIR 1984 SC 1326, this Court has held that the licence fee is a price for acquiring such privilege and one who makes a bid for the grant of such privilege with a full knowledge of the terms and conditions attaching to the auction cannot be permitted to wriggle out of the contractual obligations arising out of the acceptance of his bid, by a petition under Article 226. 38. State of Punjab v. Dial Chand Gian Chand & Co. AIR 1983 SC 743 is also....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the State and the State, by the process of licensing, is parting with the said privilege and what is charged by the State is only the privilege price through the process of licensing and it is not excise duty." "The concept of excise duty on production and manufacture as understood in the Central Excise Act cannot be equated in the case of excise duty under the Abkari Act since the manufacture and the sale of liquor are the exclusive privilege of the State and the State, by the process of licensing, is parting with the said privilege and what is charged by the State is only the privilege price through the process of licensing the price and it is not excise duty." 42. The above rulings are amongst the catena of cases on the point that the rights are vested in the State which it may part with for consideration. 43. I have already dealt with the concept of contractual relationship between the State and the licensee whereunder the licensee having obtained a privilege and enjoyed the benefit of it, it is not open to the licensees to turn round subsequently and repudiate the obligations attaching with the obtained privilege. The following are the cases on the point. 44. In the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Constitution. 49. In the case of the State of Bombay v. R.M.D. Chamarbaugwala [1957] SCR 874, this Court held as under: "Gambling activities were in their very nature and essence extra-commercium although they might appear in the trappings of trade. They were considered to be a sinful and pernicious vice by the ancient seers and law-givers of India and have been deprecated by the laws of England, Scotland, United States of America and Australia. The Constitution-makers of India, out to create a welfare State, could never have intended to raise betting and gambling to the status of trade, business, commerce or intercourse. The petitioners, therefore, had no fundamental right under Article 19(1)(g) or freedom under Article 301 of the Constitution in respect of their prize competitions that could be violated and the validity of the impugned act, in pith and substance an Act relating to gambling, did not fall to be tested by Articles 19(6) and 304 of the Constitution" 50. In the case of Fatehchand Himmatlal and Ors. etc. v. State of Maharashtra, this Court held as follows: "A meaningful, yet minimal analysis of the Debt Act, read in the light of the times and circum....
X X X X Extracts X X X X
X X X X Extracts X X X X
....antee to every citizen the freedom of movement and residence throughout the country. That is achieved by Article 19(1)(d) and (e). No less important is the freedom of movement or passage of commodities from one par of the country to another. The progress of the country as a whole also requires free flow of commerce and intercourse as between different parts, without any barrier. This freedom of trade, commerce and intercourse throughout the country without any 'State barriers' is not confined to inter-State trade as well. In other words, subject to the provisions of Part XIII, no restrictions can be imposed upon the flow of trade, commerce and intercourse, not only between one State and another, but between any two points within the territory of India whether any State border has to be cross or not. It is now well settled that the regulatory measures or measures imposing compensatory taxes do not come within the purview of the restrictions contemplated by Article 301. The regulatory measures should, however, be such as do not impede the freedom of trade, commerce and intercourse. It cannot be said that the instructions conveyed by the State Government by the impugned teleprinter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onferred on the Parliament under Article 302 is not qualified by the word 'reasonable' while in Article 304(1)(b) which confers such power on the State legislature the expression 'reasonable' precedes 'restrictions' and a further check is provided by the proviso thereto. Therefore, before Article 304 comes into play, it has to be held that the prohibition introduced by the amendment on movement and transport of any particular item amounts to a restriction. Any prohibition on movement of any article from one State to another has to be examined with reference to the facts and circumstances of that particular case - whether it amounts to regulation only, taking into consideration the local conditions prevailing, the necessity for such prohibition and what public interest is sought to be served by imposition thereof." 56. In the case of State of Bihar and Ors. v. Harihar Prasad Debuka etc. AIR 1989 SC 1119, this Court observed thus: "In the instant case what is being insisted is a permit disclosing particulars of the goods to be transported. Article 304(b) clearly permits the State legislature to impose such a reasonable restriction on the freedom of trade, commerce and intercour....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... High Court in Writ Appeal Nos. 3 and 10 of 2001 is affirmed. However, there shall be no order as to costs. 59. The question involved in this batch of appeals, arising out of an order of reference made by a three Judge Bench of this Court is as to whether Article 301 of the Constitution of India (hereinafter referred to as "the Constitution") will have any application in relation to potable liquor the business whereof is said to be res extra commercium; in view of the decisions of this Court in Cooverjee B. Bharucha v. The Excise Commissioner & The Chief Commissioner, Ajmer, and Ors., [(1954) SCR 873]; The State of Bombay v. R.M.D. Chambarbaugwala [(1957) SCR 874]; Har Shanhar and Ors. v. The Deputy Excise & Taxation Commissioner and Ors., and Khoday Distilleries Ltd. and Ors. v. State of Karnataka and Ors. 60. These appeals arise out of judgments and orders passed by Punjab and Haryana High Court and Kerala High Court. The State of Punjab imposed tax on import of potable liquor manufactured in other States. The State of Kerala also imposed a similar levy. The Punjab and Haryana High Court by its judgment dated 17.01.1997 passed in Writ Petition (Civil) No. 5358 of 1996 quash....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Entry 51, List II of the Seventh Schedule to the Constitution but regulatory powers as envisaged in Entry 8 thereof. In other words, Mr. Iyer contended that the import duty has been levied not as a measure of tax but as a part of regulation on the trade. The learned counsel further contended, although such a stand has not been taken by the State before the High Court, but having regard to the well-settled principle of law as laid down by this Court and referred to hereinafter, the State can impose such duty as a price for parting with its exclusive privilege. 64. In support of the contentions the learned senior counsel appearing for the State of Punjab and that of Kerala relied upon the decisions of this Court in the cases of Har Shankar (supra), Nashirwar and Ors. v. State of Madhya Pradesh and Ors., State of Orissa and Ors. v. Harinarayan Jaiswal and Ors., State Bank of Haryana and Ors. v. Jage Ram and Ors., State of Andhra Pradesh v. Y. Prabhakara Reddy, State of U.P. and Ors. v. Sheopat Rai and Ors. 1994 Suppl. (1)SCC 8, State of Haryana and Ors. v. Lal Chand and Ors., State of Punjab v. Dial Chand Gian Chand and Company, Solomon Antony and Ors. v. State of Kerala and Or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nnot take umbrage under the privilege doctrine. Even the State, at the time of grant of licence by way of exclusive privilege, is bound by its own action, which in a given case, may attract the wrath of Article 14 of the Constitution. Reliance in this behalf has been placed on State of M.P. and Ors. v. Nandlal Jaiswal and Ors. (5) The Constitution Bench of this Court in Krishna Kumar Narula v. The State of Jammu and Kashmir and Ors. having clearly laid down that trade in liquor would come within the purview of Article 19(1)(g) of the Constitution, the State can only impose a reasonable restriction in terms of Clause (6) of Article 19 thereof. In Khoday Distilleries Ltd. (supra), this Court haying clearly held that when a licence is granted, persons similarly situated cannot be discriminated against which would clearly lead to the conclusion that not only a fundamental right in terms of Article 14 of the Constitution but also other constitutional rights including those contained in Part XIII of the Constitution are available in relation to trade in liquor. (6) In Kalyani Stores (supra), H. Anraj v. Government of Tamil Nadu and State of Madhya Pradesh v. Bhailal Bhai and Ors. t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "Rate of duty per proof litre"- (a) in item (1), against sub item (c) for the figures "4.00" the figures "3.00" shall be substituted; and (b) in item (3) against sub-item (b) for the figures "3.50" the figures "3.00" shall be substituted. 3. In the said Orders in order 1-B- (a) for the words "rupees three" the words "rupees two" shall be substituted; and (b) for Clause (iii) to the proviso, the following clause shall be substituted namely:- "(iii) the Indian Made Beer shall be at the rate of thirty-eight paise per bulk litre." 4. In the said orders in order 1-D, for item (iii), the following item shall be substituted namely:- "(iii) rupees four and sixty paise per bulk litre." II. "S.R.O. No. 330/96. In exercise of the powers conferred by sections 6, 7, 17 and 18 of the Abkari Act, 1 of 1077 and in modification of notification issued under G.O. (p) No. 24/94/TD dated 3rd March, 1994 and published as S.R.O. No. 256/94 in the Kerala Gazette Extraordinary No. 180 dated 3rd March, 1994, as subsequently amended, the Government of Kerala hereby direct that the import and export fees, the excise duty and luxury tax under the said sections shall be levied on the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed (bond or under bond) Rs. 2 per bulk litre (c) wine imported (duty paid or under Bond) Rs. 2 per bulk litre (3) In other cases: (a) Indian Made Foreign Liquor (excluding beer and wine) An equal amount to 100 per cent of its value (b) Beer Rs. 3 per bulk litre (c)Wine Rs. 3 per bulk litre IV, Medicated wine and similar preparations but not including preparations on which duty is leviable under the Medicinal and toilet preparations (Excise Duties) Act, 1955 Rs. 12 (Rupees twelve only) per proof litre Published in K.G. Ex. No. 379 dt. 29.3.1997 as S.R.O. No. 210/97 Explanation:-Where any liquor is chargeable with duty at a rate depending on the value of the liquor, such value shall be the value at which the Kerala State Beverages (Manufacturing and Marketing) Corporation Ltd., purchases such liquor from the suppliers and in case any such liquor is not purchased by the Kerala State Beverages (Manufacturing and Marketing) Corporation, such value shall be the value fixed by the Commissioner. This notification shall come into force on 1st day of April, 1996." 69. Before embarking upon the questions raised in these appeals, the relevant provisions of the Punjab Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....specified local area, on any excisable article. (a) imported, exported or transported in accordance with the provisions of Section 16; or (b) manufactured , or cultivated under any licence granted under Section 23; or (c) manufactured in any distillery established or any distillery or brewery licensed under Section 21. Provided as follows:- (i) duty shall not to be so imposed on any article which has been imported into India and was liable on importation to duty under the Indian Tariff Act, 1894, or the Sea Customs Act, 1878. Explanation:- Duty may be imposed under this, section at different rates according to the places to which any excisable article is to be removed for consumption, or according to the varying strength and quality of such article. Section 32. Manner in which duty may be levied:-Subject to such rules regulating the time, place and manner as the Financial Commissioner may prescribed such duty shall be levied rateably, on the quantity of exciseable article imported, exported, transported, collected or manufactured in or issued from a distillery brewery or warehouse; Provided that duty may be levied:- (a) on intoxicating drugs by an acreage ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ass granted under this Act shall be granted:- (a) on payment of such fees, if any. (b) Subject to such restrictions and on such conditions. (c) In such form and containing such particulars, (d) For such period, as the Financial Commissioner may direct. (2) Any authority granting a licence under this Act may require the licensee to give such security for the observance of the terms of his licence, or to make such deposit in view of security, as such authority may think fit. Section 58. Power of State Government to make Rules: (1).... (2) in particular and without prejudice to the generality of the foregoing provision, the State Government may make rules:- (d) regulating the import, export, transport or possession of any intoxicant or Excise bottle and the transfer, price or use of any type or description of such bottle. (e) regulating the period and localities for which and the persons or classes of persons to whom licenses, permits and passes for the vend by wholesale or by retail of any intoxicants may be granted and regulating the number of such licences which may be granted in any local area; (f) prescribing the procedure to be followed and the matters to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom a warehouse licensed or established under Section 14; (c) xxx (d) xxx (e) in the case of toddy, or spirits manufactured from toddy, in the form of a tax on each tree from which toddy is drawn, to be paid in such instalments and for such period as the Government may direct: or (f) by import, export or transport duties assessed in such manner as the Government may direct; or XXX (2) The luxury tax on liquor or intoxicating drugs shall be levied:- (i) in the case of any liquor in the form of a fee for licence for the sale of the liquor and in the form of a gallonage fee or vending fee, or in any one of such forms; and; (ii) in the case of an intoxicating drug, in the form of a fee for licence for the sale of the intoxicating drug. (3) The duty of excise under Sub-section (1) and the luxury tax under Sub- section (2) shall be levied at such rates as may be fixed by the Government from time to time, by notification in the Gazette, not exceeding the rates specified below:- (1) Duty of excise Maximum rates (i) Duty of excise on liquors (Indian made) Rs. 200 per proof litre or an amount equal to 200 per cent of the value of the liquor. (ii) Duty of excise on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ges (Manufacturing and Marketing) Corporation limited such value shall be the value fixed by the Commissioner." 71. Provision to grant licence is contained in Chapter VI of the Abkari Act, Section 24 whereof is as under: "24. Forms and conditions of licenses, etc:-Every license or permit granted under this Act shall be granted:- (a) on payment of such fees, if any; (b) for such period; (c) subject to such restrictions and on such conditions; and (d) shall be in such form and contain particulars - as the Government may direct either generally, or in any particular instance in this behalf." 72. The State, of Kerala raised a contention that the imposition of levy is referable to Entry 66 of List II of the Seventh Schedule to the Constitution. An additional affidavit was filed before the Kerala High Court wherein it was averred that such a levy has been imposed also by way of a regulatory fee. No plea whatsoever has been raised that such a levy is towards a price or a part of price for parting with exclusive privilege. The High Court accepted plea of the State that the levy is by way of regulatory tee in relation whereto doctrine of 'quid pro quo' has no application. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Entry 8: Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors. Entry 51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India :- (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics; but not including medicinal and toilet preparations containing alcohol or any substance included in Sub-paragraph (b) of this entry." 76. Legislative competence of the State to levy any fee is, therefore, limited to levy of countervailing duty. In other words, any levy on import can not exceed the excise duty levied on the manufacturers of the State. The State, therefore, cannot levy any duty in addition to the countervailing duty. The notification refers to excise duty and countervailing duty, which in terms of Section 3(6-B) of the Punjab Act mean any such excise duty or countervailing duty as the case may be, as is mentioned in Entry 51 of List II of the Seventh Schedule to the Constitution. The State, therefore, cannot lev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....directly cannot be done indirectly. (See Priyanka Overseas Pvt. Ltd, and Anr. v. Union of India and Ors., 1991 Supp (1) SCC 102). In relation to an administrative act it is well-settled that a statutory authority is not permitted to support its decision on a ground d'hors the ground stated in the order, (See Commissioner of Police, Bombay v. Gordhandas Bhanji, AIR 1952 SC 16 and Mohinder Singh Gill and Anr. v. The Chief Election Commissioner, New Delhi and Ors., AIR 1978 SC 851). On the same analogy, a legislation which is found to be fraud on the Constitution, cannot, inter alia, be upheld on any other ground. Entry 8 of List II of the Seventh Schedule to the Constitution does not permit the State to levy a fee on import of liquor. It deals only with production, manufacture, possession, transport, purchase, and sale of intoxicating liquors and nothing else. Entry 8 of List II, thus, does not speak of import or export. Its purpose is to regulate and not impose any statutory impost. The State in exercise of its delegated powers cannot do what would constitutionally be impermissible. 81. A subsidiary question which arises for consideration is as to whether the State of Punjab, hav....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... v. State of Madhya Pradesh etc.,; A Venkata Subba Rao v. State of Andhra Pradesh, and Attorney General v. Wilts United Dairies (1922) 91 Law Journal, KB 897. 84. In Synthetics and Chemicals Limited and Ors. v. State of UP and Ors., a Seven-Judge Bench of this Court has equated excise duty with the price for privileges. In the matter of interpretation of Constitution, the said decision has been referred to with approval in Welfare Assocn. A.R.P., Maharashtra and Anr. v. Ranjit P. Gohil and Ors. [JT 2003 (2) SC 335]. In the said seven Judge Bench decision, this Court observed thus: "On an analysis of the various Abkari Acts and Excise Acts, it appears that various provinces/States reserve to themselves in their respective States the right to transfer exclusive or other privileges only in respect of manufacture and sale of alcohol and not in respect of possession and use. Not all but some of the States have provided such reservation in their favour. The price charged as a consideration for the grant of exclusive and other privileges was generally regarded as an excise duty. In other words, excise duty and price for privileges were regarded as one and the same thing. So-called priv....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Northern Securities Co. v. U.S., 193 U.S. 197, 24 Sup. Ct, 436, 48 L.Ed. 679, to the effect that commerce is something more than traffic; "It is intercourse; it describes the commercial intercourse between nations and parts of nations in all its branches, and is regulated by prescribing rates for carrying on that intercourse." This has been practically, if not literally, quoted in all the cases cited. There is nothing in the decisions to define or limit so broad a term as intercourse, except the word commercial, usually attached to it. As it is hardly likely that the courts intended to say that commerce is intercourse in the sense in which it is defined "communication between persons or places"; Cent. Dict.: it is probable that the word was not intended to be used to express more than such intercourse as is connected with traffic and transportation with foreign countries or between the States." 90. Dealing in liquor or for that matter in lottery, tobacco is not prohibited under the Constitution. On the other hand, in the constitutional schemes itself Parliament or the State Legislature has been conferred power to regulate the said trade like any other trade. In fact India has e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es in the matter of trade and business in potable liquor have been taken by reason of a statute. All regulations on the trade, thus, must be governed by the statutes operating in the field and not by way of executive action. The provisions of the statute or the contracts made thereunder must scrupulously be followed by all concerned as they are bound by the same. When a legislation referable to Entries 8, 51 and 66 etc. had occupied the field, the State, in absence of any provision contained in the statute, cannot turn round and contend that it will exercise its power of exclusive privilege even though it had granted licence in terms of the statute. Having regard to the constitutional scheme the power of the State to undertake trade and business is referable to Article 298 of the Constitution. The duties, functions and responsibilities of a Government in a democracy are different from monarchism. Rights and privileges of a monarch cannot be equated with an elected Government in a democratic set-up. If the power of the Government in other words to deal in trade or commerce, be it liquor or any other commodity, can only be traced to Article 298 of the Constitution, it goes without sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....14. It cannot act arbitrarily or at its sweet will. It must comply with the equality clause while granting the exclusive right or privilege of manufacturing or selling liquor. It is, therefore, not possible to uphold the contention of the State Government and respondents 5 to 11 that Article 14 can have no application in a case where the licence to manufacture or sell liquor is being granted by the State Government. The State cannot ride roughshod over the requirement of that article." 94. Privilege, thus, can be claimed by a State in a 'no right' situation, namely, when citizen is not permitted to carry on trade. But once the State takes a decision to part with its privilege, it cannot make any discrimination whatsoever. Dealing in liquor by the persons in whose favour licences have been granted in terms of the statutory, enactments derive a right therefore which, cannot be said to be "Res-Extra Commercium" 95. Now comes the question as to how far and to what extent, if any, the fundamental and other rights of a citizen could be available in the matter of trade in potable liquor. Article 19(1)(g) guarantees that all citizens shall have the right to practice any profession or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reign Liquor to wholesale licencees. The said impost was challenged before the High Court of Judicature for Travancore Cochin, which was struck down by said High Court. On Appeal by State this Court while upholding the judgment of High Court observed "an impost not authorised by law cannot possibly be regarded as a reasonable restriction and must, therefore, always infringe the right of the respondent to carry on his business which is guaranteed to him by Article 19(1)(g) of the Constitution." It was held that an impost in terms of an executive order having no authority of law would be illegal imposition. 100. This principle has been affirmed by a Constitution Bench of this Court in Krishna Kumar Narula v. State of Jammu and Kashmir and Ors. After discussing all previous decisions, Subba Rao, C.J., held that "a scrutiny of these decisions does not support the contention that the court held that dealing in liquor was not business or trade. They were only considering the provisions of the various Acts which conferred a restricted right to do business. None of them held that a right to do business in liquor was not a fundamental right". It was observed that "If the activity of a de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eal exclusively in liquor is its own privilege. It does not matter as to whether such right is restricted while parting with privilege by reason of a statute in terms of Article 19(6) of the Constitution. (iv) (a) The equality clause even in the matter of carrying on trade is not available. The right of the State to part with its privilege being a superior right, the inferior right of a citizen to carry on trade shall give way to State's superior right, (b) The State while carrying on any trade or business itself cannot make any discrimination and its acts must be lair and reasonable. [See Nandlal Jaiswal (supra)] (v) The State's right is absolute when a complete prohibition is imposed and at that stage the State can part with its exclusive privilege in any manner it likes and it is also entitled to take any measures for having the best price. [See Har Shankar (supra)]. 104. In Khoday Distilleries Ltd. (supra) at pages 608-609, a Constitution Bench referred to some of the decisions as referred to hereinbefore and summed up its findings [para 60(a)(b)(e)(f)(g)]: "(a) The rights protected by Article 19(1) are not absolute but qualified. The qualifications are stated in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....different notes. They at times stand poles apart. Inconsistencies and contradictions in the said decisions are galore. Some latter Constitution Bench decisions although took note of the earlier Constitution Bench decisions, but only sought to distinguish the same and not referred the matter to a larger Bench for consideration of correctness of one view or the other. I may, therefore, proceed on the premise that some of the principles in Khoday (supra) are correct, although one may have strong reservations even in this behalf. In Khoday (supra) expressly or by necessary implication fundamental right to deal in any goods is accepted. Only exception which was made are those commodities, business of which is inherently noxious and pernicious and is condemned by the civilized society. It has sought to lay down the law that there cannot be a business in crime. 106. Dealing in a commodity which is governed by a statute cannot be said to be inherently noxious and pernicious. A society cannot condemn a business nor there exists a presumption in this behalf if such business is permitted to be carried out under statutory enactments made by the legislature competent therefore. The legislatu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atute which must conform to the provisions of Clause (6) of Article 19 of the Constitution, i.e., by making a valid law by way of a regulatory legislative enactment. 109. From the analysis of decisions rendered by this Court in Cooverjee B. Bharucha , R.M.D. Chambarbaugwala, Har Shankar or Khoday Distilleries , it will appear that a person cannot claim any right to deal in any obnoxious substance on the ground of public morality. The State, therefore, is entitled to completely prohibit any trade or commerce in potable liquor. Such prohibition, however, has not been imposed. Once a licence is granted to carry on any trade or business can it be said that a person is committing a crime in carrying on business in liquor although he strictly complies with the terms and conditions of licence and the provisions of the statute operating in the field? If the answer to the said question is to be rendered in affirmative it will create havoc and lead to anarchy and judicial vagaries. When it is not a crime to carry on such business having regard to the fact that a person has been permitted to do so by the State in compliance with the provisions of the existing laws, indisputably he acquires....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on being only that the State has a monopoly to do so. Once the State does not exercise the said right and considers it expedient to allow the citizens to carry on the business or trade, it cannot be said that the licensees do not derive any right whatsoever. Even when the State exercises such right by creating a monopoly in itself it would be subject to the same constitutional limitations as envisaged, inter alia, under Articles 14 and 301 of the Constitution; Articles 14 and 301 of the Constitution protect from the maladies of discrimination. Such discrimination may be in between persons and persons, persons and State and State and State. 112. Can a State which exercises its right to create monopoly, prevent another State to export or import its product? If in between two States such discriminations are not possible, a discrimination inter se between licensees of two States would also not be permissible. Such discrimination would also not be permissible between a State and a person carrying on similar trade or commerce in one State vis--vis a person or State carrying on business in another State, 113. Once the regulations restricting the right to carry on business in potable....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Sir. B.N. Rau in October, 1947 is in the following terms: "Subject to the provisions of any Federal Law, trade, commerce and intercourse among the units shall, if between the citizens of the Federation, be free: Provided that nothing in this section shall prevent any unit from imposing on goods imported from other units any tax to which similar goods manufactured or produced in that unit are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced: Provided further that no preference shall be given by any regulation of trade, commerce or revenue to one unit over another: Provided also that nothing in this section shall preclude the Federal Parliament from imposing by Act restrictions on the freedom of trade, commerce and intercourse among the units in the interests of public order, morality or health or in cases of emergency." 116. The marginal note appended to Sir B.N. Rau's Clause 17 to the effect "Freedom of trade, commerce and intercourse among the units" is clearly suggestive of the fact that Section 92 of the Australian Constitution provided for a comparable provision vis--vis other Constitutions. It is also benefi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been used. Such trade, commerce and intercourse is in relation to entire territory of India whether inter-State or infra-State unlike Section 297 of the Government of India Act. Article 301 makes a declaration that 'trade, commerce and intercourse throughout the territory' of India shall be free', which in turn must mean that it shall be free from control of Executive and. Legislature, I may, however, hasten to add that by reason thereof although a liberty has been granted but such liberty cannot be equated with a licence inasmuch it would be subject to restrictions. Articles 302 and 303 categorically state that there shall be no discrimination between one State and the other but restrictions inhere in such liberty as would appear from clause 2 of Article 303 of Constitution, if a situation stipulated therein arises for consideration. In other words, discrimination is at the heart of this Chapter. By reason of the said provision, the State is prohibited from imposing a tax without making any discrimination whatsoever so as to impede free flow of inter- State or intrastate trade. The State, however, is entitled to impose reasonable restrictions as also levy tax in public interest. B....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ohibit the States from making any discriminatory legislation. It is, therefore, difficult to understand as to how a prohibition can be imposed in respect of liquor in relation whereto also a legislative power has been conferred upon the State specifically in terms of Entries 8 and 51 in List II of the Seventh Schedule to the Constitution. 121. At this juncture, it is useful to refer to the decision of this Court in Atiabari Tea Company Limited (supra) wherein this Court in no uncertain terms laid emphasis upon the economic unity of the country. In that case before the Constitution Bench an argument was advanced to the effect that Article 301 is circumscribed by Article 303 but the same was not accepted. Gajendragadkar, J. (as he then was) held at pages 843-844 as follows: "In drafting the relevant Articles of Part XIII the makers of the Constitution were fully conscious that economic unity was absolutely essential for the stability and progress of the federal policy which had been adopted by the constitution for the governance of the country. Political freedom which had been won, and political unity which had been accomplished by the Constitution, had to be sustained and s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed Judge, further, emphasized the concept of freedom in the following terms at pages 564-565 of the Report- "(1) Article 301 declares a right of free movement of trade without any obstructions by way of barriers, inter-State, or intra-State or other impediments operating as such barriers. (2) The said freedom is not impeded, but, on the other hand, promoted, by regulations creating conditions for the free movement of trade, such as police regulations, provision for services, maintenance of reads provision for aerodromes, Wharfs etc., with or without compensation. (3) Parliament may by law impose restrictions on such freedom in the public interest; and the said law can be made by virtue of any entry with respect where of Parliament has power to make a law. (4) The State also, in exercise of its legislative power, may impose similar restrictions, subject to the two conditions laid down in Article 304(b) and subject to the proviso mentioned therein. (5) Neither Parliament nor the State Legislature can make a law giving preference to one State over another or making discrimination between one State and another, by virtue of any entry in the Lists, infringing the said freedom. (6) Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in Article 303(1), 304(a) would apply to trade in liquor, there cannot be any doubt in view of several Constitution Bench decisions of this Court that Article 301 will also apply thereto. [See Kalyani Stores (supra), H. Anraj (supra) and Bhailal Bhai (supra)]. 126. In A.B. Abdul Kadir and Ors. v. State of Kerala, AIR 1976 SC 182, this Court when the validity of a luxury tax (in the nature of excise duty) on tobacco was challenged as violative of Article 304(b), proceeded on the basis that the business was protected by Article 301 but rejected the plea, on the merits, holding that: the restrictions imposed were reasonable and in the public interest. 127. In Anraj's case (supra) this Court considered Entry 34 of List II in terms whereof the State Legislature has been conferred power to enact Statutes on gambling. In Maruthi Agencies, Bangalore rep. by its Proprietor v. The State of Tamil Nadu and Ors., 1997(1) MLJ 589, it was held that in the event lotteries are organized by a State, sale of tickets thereof cannot be prohibited in other States on the ground that it is gambling and prohibited by List II. If trade in liquor like gambling or betting were not to be regulated by st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ohibited. Section 3. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by conventions in the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress." 131. In the United States of America, the State has the requisite power to impose general taxes. Despite the same, an exemption granted in favour of local manufacturers vis--vis the exporters was frowned upon by the American Courts. 132. In Bacchus Imports, Ltd. v. Herbert H. Dias (82 L.Ed. 2d 200), the challenge was to the following effect: "1a. Appellants challenge the constitutionality of the Hawaii liquor tax, which is a 20% excise tax imposed on sales of liquor at wholesale. Specifically at issue are exemptions from the tax for certain locally produced alcoholic beverages. The Supreme Court of Hawaii upheld the tax against challenges based upon the Equal Protection Clause, the Import- Export Clause, and the Commerce Clause. In re Bacchus Imports, Ltd., 65 Haw 566, 656 P2d 724 (1982). We noted probable jurisdiction, 462 US 1130, 77 L.Ed 2d 1365, 103 S Ct 3109 (1983), and now-reverse." ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oster the local industries by encouraging increased consumption of their product. Surely one way that the tax exemption might produce that result is that drinkers of other alcoholic beverages might give up or consume less of their customary drinks in favor of the exempted products because of the price differential that the exemption will permit. Similarly, nondrinkers, such as the maturing young, might be attracted by the low prices of okolehao and pineapple wine. On the stipulated facts in this case, we are unwilling to conclude that no competition exists between the exempted and the nonexempted liquors." 135. As regards the State's right on economic protectionism it was said: "A finding that state legislation constitutes "economic protectionism" may be made on the basis of either discriminatory purpose, see Hunt v Washington Apple Advertising Comm'n, 432 US 333, 352-353, 53 L Ed 2d 383, 97 S Ct 2434 (1977), or discriminatory effect see Philadelphia v New Jersey, supra. See also Minnesota v Clover Leaf Creamery Co., supra, at 471, n 15, 66 L Ed 2d 659, 101 S Ct 715. Examination of the State's purpose in this case is sufficient to demonstrate the State's lack of entitlement to a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of the products of other States when introduced into the first mentioned State, is, in effect, a regulation in restraint of commerce among the States, and as such is a usurpation of the power conferred by the Constitution upon the Congress of the United States." See also I.M. Darnell & Son Co. v Memphis, 208 US 113, 52 L Ed 413, 28 S Ct 247 (1908)." 137. It was held: "We also find unpersuasive the State's contention that there was no discriminatory intent on the part of the legislature because "the exemptions in question were not enacted to discriminate against foreign products, but rather, to promote a local industry." Brief for Appellee Dias 40. If we were to accept that justification, we would have little occasion ever to find a statute unconstitutionally discriminatory. Virtually every discriminatory statute allocates benefits or burdens unequally; each can be viewed as conferring a benefit on one party and a detriment on the other, in either an absolute or relative sense. The determination of constitutionality does not depend upon whether one focuses upon the benefited or the burdened party. A discrimination claim, by its nature, requires a comparison of the two cla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the same principles as in Atiabari (supra) or Automobile (supra) have been applied by the Privy Council and the Australian Courts while interpreting Section 92 of the Australian Constitution to hold that even for any purpose for which the State has acted the legislation would not be relevant criteria for declaring it ultra vires if it is found that the same interferes with the right of trade. (See James v. Commonwealth of Australia (1936) A.C.578, North Eastern Dairy Co. Ltd. v. Dairy Industry Authority of New South Wales (1974-1975) 134 C.L.R. 559 at 581, The Commonwealth and Ors. v. Bank of New South Wales and Ors. (1949) 79 C.L.R. 497). 141. Mason, J. in Pilkington v. Frank Hammond Pty. Ltd. (1974) 131 C.L.R. 124 interpreted Section 92 of the Australian Constitution in the following terms: "The section does not in terms speak of the private right of the individual to engage in trade, commerce, and intercourse among the States; it refers to trade, commerce and intercourse among the States as an entire and total concept and provides that it is to be 'absolutely free' in the sense in which this expression has been discussed in the decided cases. In saying so much the section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es, has held as under:- "The States are certainly free to exercise the power to levy taxes on goods imported from other States/Union Territories but this freedom, or power, shall not be so exercised as to bring about a discrimination between the imported goods and the similar goods manufactured or produced in that State. The clause deals only with discrimination by means of taxation; it prohibits it. The prohibition cannot be extended beyond the power of taxation. It means in immediate context that States are free to encourage and promote the establishment and growth of industries within their States by all such means as they think proper but they cannot, in that process, subject the goods imported from other States to a discriminatory rate of taxation, i.e., a higher rate of sales tax vis-a-vis similar goods manufactured/produced within that State and sold within that State. Prohibition is against discriminatory taxation by the States. It matters not how this discrimination is brought about............. We find it difficult to appreciate how can the concept of classification be read into Clause (a) of Article 304 to undo the precise object and purpose underlying the clause. Shri V....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r rhetorical. On the other hand, 'absolutely' may have been added with the object of excluding the risk of partial or veiled infringements. In any case, the use of the language involves the fallacy that a word completely general and undefined is most effective. A good draftsman would realize that the mere generality of the word must compel limitation in its interpretation. "Free" in itself is vague and indeterminate. It must take its colour from the context. Compare, for instance, its use in free speech, free love, free dinner and free trade. Free speech does not mean free speech; it means speech hedged in by all the laws against defamation, blasphemy, sedition and so forth; it means freedom governed by law, as was pointed out in McArthur's case, Free love, on the contrary, means licence or libertinage, though, even so, there are limitations based on public decency and so forth. Free dinner generally means free of expense, and sometimes a meal open to any one who comes, subject however, to his condition or behavior not being objectionable. Free trade means, in ordinary parlance, freedom from tariffs. "Free" in Section 92 cannot be limited to freedom in the last mentioned sense. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pinion that the impugned impost cannot be upheld. 152. Before parting, however, I may notice the submission made by Mr. Iyer on behalf of the State of Kerala that the licensees, having obtained a privilege and enjoyed the benefit out of it, cannot, turn round subsequently and repudiate the obligations subject to which they obtained the privilege. The submission of Mr. Iyer is wholly mis-conceived for more than one reason. The manufacturers of liquor outside the State of Kerala did not obtain any privilege from the State. The decisions relied upon by the learned counsel, namely, Har Shankar (supra), Jage Ram (supra), Lal Chand (supra), Dial Chand Gian Chand and Company (supra), thus, cannot be said to have any application in the instant case. The decisions in these cases were rendered in the fact situation obtaining therein. The licensees therein questioned the power of the State to hold auction by the State and/or they refused to comply with the terms and conditions of licence. In tact in Harshankar (supra) the Court on the factual matrix obtaining therein clearly came to the conclusion that the writ petition was not maintainable as thereby the licensees sought avoidance from co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and Taxation Commissioner and Ors. and Khoday Distilleries Ltd and Ors. v. State of Karnataka and Ors., the principles laid down in Kalyani Stores v. State of Orissa and Ors. [(1966) 1 SCR 365], wherein Article 301 of the Constitution of India has been held to be applicable to trade in liquor, is correct. PROPOSITIONS OF LAW: 157. The following, questions inter alia are required to be answered for deductions of the propositions of law involved in the matter: 1. Whether the constitutional validity of a statute can be determined on the basis of the interpretation given to the maxim 'res extra commercium'? 2. Whether the freedom to carry on trade or business as envisaged under Article 301 of the Constitution of India can be held to be inapplicable to the trade of liquor which is permitted by the State itself? 3. If Article 14 of the Constitution of India is applicable in the matter of grant of contract by the State, in exercise of its power under Article 298 of the Constitution, can it be said that another constitutional provision, namely, Article 301 would not be applicable? 4. Whether in interpreting a constitutional provision, the Court should take into considerat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he said Act, the sources whereof are referable to Entry 8 or 51 of List II of the Seventh Schedule of the Constitution of India. The validity of the impugned provisions of the said Acts, therefore, revolves round the question as to whether the same fulfil constitutional requirements. 161. Entry 8 of List II does not envisage any control over import. Entry 51 of List II empowers the State to levy countervailing duty at the same or lower rates of excise duty levied on similar goods produced in that State. 162. Entry 8 of List II of the Seventh Schedule of the Constitution of India uses the expression 'that is to say' which is descriptive, enumerative and exhaustive and circumscribes to a great extent the scope of the said entry [See Commissioner of Sales Tax, M.P. v. Popular Trading Company, Ujjain. 163. In Indian Aluminium Company Ltd. etc. v. Assistant Commissioner of Commercial Taxes (Appeals) and Anr. etc. [(2001) 2 SCC 201] the expression 'that is to say' both in original Entry 11 and in the new Entry 67 has been held to have clearly indicated that the items mentioned therein were exhaustive. 164. It is, therefore, evident that import of liquor in terms of the licenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of India. Even if there is no express provision in the Constitution, principles of constitutionalism exist providing that, for the said purpose, the relevant statutes should also be looked into. A statute is enacted by the State Legislature or the Parliament having regard to one or the other entry made in the three lists contained in the Seventh Schedule of the Constitution. The Punjab Excise Act and the Kerala Abkari Act although pre-constitutional Acts, the subsequent amendments which are impugned in these matters must, thus, be referable either to Entry 8 or Entry 51 of List II of the Seventh Schedule of the Constitution of India. When a statute governs the trade in a particular commodity, the provisions contained therein would only regulate the same. The Constitution of India or the State Legislatures do not state that trade in liquor ipso facto is totally prohibited. States of Punjab and Kerala have not adopted any policy of prohibition whether in whole or in part. 172. For imposing total prohibition the State must formulate a policy decision having regard to Article 47 of the Constitution of India, necessitating issuance of a declaration either through legislative process....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave its play in such matters stating: "The High Court has referred to the decision in P. Crowley v. Henry Christensen [(1890) 34 Law. Ed. 620] so as to hold that a citizen has no inherent right to deal in intoxicating liquors. Therein the U.S. Supreme Court was dealing with a federal law imposing restrictions on a person dealing in retail trade in liquor without obtaining a due licence therefore. The law was upheld negativing the contention that the restriction was unreasonable. It was not held therein that trade of liquor is impermissible in all situations. Restriction in trade, therefore, would depend upon the nature of the article and the law governing the field. By reason of judicial vagaries, fundamental right under Article 19(1)(g) of the Constitution cannot be further restricted. (See Krishna Kumar Narula v. The State of Jammu, and Kashmir and Ors. AIR 1967 SC 1368). 179. With respect, I am of the opinion that constitutionality of a statute could not determined solely relying on or on the basis of the said maxim without any reference to the limitations contained in the Constitution. CASE LAWS - Analysis of: (A) Case Laws Where 'Res Extra Commercium' was applied: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tained in a teleprinter message imposing the requirement for making of an endorsement by the Deputy Marketing Officer or the Senior Marketing Officer or the physical verification of stocks of wheat during the course of transit was held to be a restriction on the freedom of trade, commerce and intercourse within the country, i.e., across the State or from one part of the State to another. The same was held to be regulatory measures as compensatory tax was imposed thereby. Such compensatory tax, as is well-settled, is permissible. (See The State of Himachal Pradesh and Ors. v. Yash Pal Garg (Dead) By LRs. and Ors. [2003(3) Supreme 759] and Jindal Strips Ltd. and Anr. v. State of Haryana and Ors. [2003 (8) SCALE 206]) 186. It is, however, relevant to note that it was categorically stated therein "The regulatory measures should, however, be such as do not impede the freedom of trade, commerce and intercourse." 187. The said decision does go to show that validity of these regulatory measures are required to be considered on the constitutional anvil on its own force. 188. In State of Tamil Nadu v. Hind Stone etc. [AIR 1981 SC 711] validity of rule 8C of the Tamil Nadu Minor Mine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Such prohibition is permissible both under Clause (6) of Article 19 and Article 302 of the Constitution. This decision is again an authority for the proposition that even in relation to essential commodities or goods over which prohibition is required to be imposed in larger public interest, the question must be tested on the anvil of Articles 19(1)(g) and 301 of the Constitution of India and not on applying an age old maxim. 193. Har Shankar (supra) was rendered in a situation where the licensee wanted to avoid the rigours of the licence. Therein the appellants applied for and accepted licence to vend foreign liquor. Licence granted to them was subject to the provisions of the Punjab Excise Act and the Rules framed thereunder. Although, the parties entered into a concluded contract, the appellant therein filed a writ petition asking for a direction quashing the auction held on March 23, 1968 and secondly, they asked that the respondents be restrained from enforcing the obligations arising under the terms and conditions of the auction. 194. In the aforementioned backdrop, the Court distinguished K.K. Narula (supra) stating: "It was unnecessary in Krishna Kumar Narula's cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on was under challenge on the touchstone of Articles 19(1)(g) and 301 of the Constitution of India. Such a legislation was found to be within the purview of Entry 8, List II of the Seventh Schedule of the Constitution of India stating: "Under Entry 8 List II in the Seventh Schedule to the Constitution of India and thereby under Sections 49 and 143(2)(V) of the Prohibition Act, the State has the exclusive right/ privilege in respect of potable liquor and the State, in our opinion, can charge any reasonable expenses or even consideration for permitting such activity by grant of licence and that the respondents ought to comply with all reasonable orders, as undertaken by them while obtaining the licence." 198. In B. R. Enterprises (supra), lottery was not held to be a trade as there no skill was involved in the game. It was held that therein there is only an element of chance in contrast to trade and commerce where there is an exchange of goods, production or properties or exchange of any article either by barter or money. The said principle would not apply herein. 199. Even in B.R. Enterprises (supra) lotteries were held to be 'goods' for the purpose of Article 298 being inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the Parliamentary competence as regard a legislation was considered. 204. The impugned duty therein, therefore, even in that case was tested on the anvil of the constitutional provisions. 205. Khoday, Distilleries (supra) is to be read as a whole. It does not say that no right can be claimed by a trader even after grant of licence. Exclusive privilege theory in Khoday Distilleries (supra) if read in its entirety would lead to the conclusion that the same had been considered only in a no right situation. 206. In Khoday Distilleries (supra) Inter alia validity of rules framed by various States was in question. Sawant, J. analyzing several decisions stated: "The proposition of law laid down there has to be read in conformity with the proposition laid down in that respect by the other decisions of this Court not only to bring comity in the judicial decisions but also to bring the law in conformity with the provisions of the Constitution. The fundamental rights conferred by our Constitution are not absolute. Article 19 has to be read as a whole. The fundamental rights enumerated under Article 19(1) are subject to the restrictions mentioned in Clauses (2) to (6) of the said....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tated as in our Constitution by Clauses (2) to (6) of Article 19. " 207. It was further observed: "Whether one states as in K.K. Narula case that the citizen has a fundamental right to do business but subject to the State's powers to impose valid restrictions under Clause (6) of Article 19 or one takes the view that a citizen has no fundamental right to do business but he has only a qualified fundamental right to do business, the practical consequence is the same so long as the former view does not deny the State the power to completely prohibit, trade or business in articles and products like liquor as a beverage, or such trafficking as in women and slaves. This Court in K.K. Narula case has not taken such view. " 208. Khoday Distilleries (supra), thus, does not suggest that there is no fundamental right to trade in liquor at all. The Court explaining the doctrine of 'res-extra commercium' observed: (a) There cannot be a business in crime; (b) What is res-extra commercium would be trade or business in liquor when it is completely prohibited; (c) The State can create a monopoly to do the business itself or through an agency in terms of Article 19(6) or otherwise; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the State has no power to ban the sale of lottery tickets. 213. One of us (Dr. AR. Lakshmanan, J.) in Maruthi Agencies, Bangalore v. The State of Tamil Nadu and Ors. [1997(1) MLJ 589] tested the validity of a statute holding that in the event lotteries are organized by the State, sale of tickets thereof cannot be prohibited in other States on the ground that the same is gambling having regard to the relevant entries in List II of the Seventh Schedule of the Constitution of India. 214. Tobacco which is as harmful as liquor had also not been brought within the purview of doctrine of res extra commercium. It had been given the protection Of the Parliamentary Act, known as Tobacco Act and thus was taken outside the purview of the State legislative competence. Apart from Kalyani Stores (supra) and H. Anraj (supra), even in State of Madhya Pradesh v. Bhailal Bhai and Ors., this Court has clearly held that Article 301 shall be applicable in relation to tobacco holding : "...There can be no doubt, therefore that even though it is the sale in Madhya Bharat of the imported goods that creates the liability to tax and not the import by itself, the trade and commerce as between Madhya Bh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rty to such whims and caprices. 219. In state of U.P. and Ors. v. Vam Organic Chemicals Ltd. and Ors., this Court while examining the validity of fees levied on denatured spirit noticed that the principles laid down in Bihar Distillery were doubted in Deccan Sugar & Abkari Co. Ltd. v. Commissioner of Excise, A.P., and referred to a larger Bench but in its decision dated 13.2.2003 in C.A. No. 4355 of 1985 - Deccan Sugar & Abkari Co. Ltd. v. Commissioner of Excise, A.P., although it followed Synthetics and Chemicals (supra) and State of UP v. Modi Distillery the decision in Bihar Distillery was not expressly overruled. The Bench, thus following Synthetics and Chemicals held that the levy of such fee was not justified in terms of Entry 66, List II of the Seventh Schedule of the Constitution of India by striking down the same. It was observed: "The question is (to borrow the language in Synthetics) whether in the garb of regulations a legislation which is in pith and substance, as we look upon the instant legislation, a fee or levy which has no connection with the cost or expenses administering the regulation, can, be imposed purely as a regulatory measure. Judged by the pith and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he same category. [See Har Shankar v. Dy Excise Commer. Of Taxation (supra), Cooverjee B. Bharucha v. Excise Commissioner [1954 SCR 873], State of UP v. Synthetics and Chemical Ltd., State of Orissa v. Harinarayan Jaiswal, Synthetic and Chemicals Ltd. v. State of UP [(1930) 1 SCC 109], In the matter of Phool Din, Narender Kumar v. Union of India; M.B. Cotton Association v. Union of India; and Hanif Quareshi Mohd. v. State of Bihar [1959 SCR 629]. 225. In Union of India and Anr. v. International Trading Co. and Anr. [2003(4) Supreme 114] this Court held: "Reasonableness of restriction is to be determined in an objective manner and from the standpoint of interests of the general public and not from the standpoint of the interests of persons upon whom the restrictions have been imposed or upon abstract consideration." 226. Those, however, who fall in exceptional categories in relation to carrying on a business, total prohibition would not be regarded as unreasonable restriction. It is also trite that in such a situation, the greater the restriction, the more would be the need of strict scrutiny by the courts. [See Narendra Kumar and Ors. v. The Union of India and Ors. - 1960 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er Article 19(1)(g) can be tested. Speaking for the Court, Saghir Ahmad, J. (as he then was), laid such considerations as follows : "(1)While considering the reasonableness of the restrictions, the court has to keep in mind the Directive Principles of State Policy. (2) Restrictions must not be arbitrary or of an excessive nature so as to go beyond the requirement of the interest of the general public. (3) In order to judge the reasonableness of the restrictions, no abstract or general pattern or a fixed principle can be laid down so as to be of universal application and the same will vary from case to case as also with regard to changing conditions, values of human life, social philosophy of the Constitution, prevailing conditions and the surrounding circumstances. (4) A just balance has to be struck between the restrictions imposed and the social control envisaged by Clause (6) of Article 19. (5) Prevailing social values as also social needs which are intended to be satisfied by restrictions have to be borne in mind. (See State of U.P. v. Kaushaliya. (6) There must be a direct and proximate nexus or a reasonable connection between the restrictions imposed and the object soug....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fall within the purview of Article 19, what was the necessity of extending the meaning of 'reasonable restrictions' to prohibition; and in some cases even with the aid of the provisions contained in the Directive Principles of State Policy in Part IV of the Constitution of India? 235. If matters in relation to such trades which are said to be obnoxious in nature, no provisions of the Constitution of India were to be made applicable, where was the need of enacting statutes prohibiting them either in whole or in part? The Parliament or the State Legislature, it" is trite, do not make legislation in vacuo. The legislations are not enacted in futility. The legislation are not only to be implemented, their constitutionality must also be judged on the touchstone of Part III and other provisions of the Constitution of India. No short-cut can be adopted to do away therewith. 236. Concededly restrictions of trade in liquor within the meaning of Article 19(1)(g) of the Constitution of India can be extended to prohibition. Such prohibition may not be permissible in other cases, as noticed hereinbefore. The decisions of this Court clearly show that such a prohibition can be imposed by la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 12(c) and (d) and Section 13(b) of the Bombay Prohibition Act, 1949 as unreasonable under Article 19(1)(f) of the Constitution because total prohibition of the same would be permissible. In K.K. Narula case (K.K. Narula v. State of J & K. it was held that there was right to do business even in potable liquor. It is not necessary to say whether it is good law or not. But this must be held that the reasoning therein would apply with greater force to industrial alcohol. " (Emphasis Supplied) 239. Thus, even therein although an occasion had arisen, a Seven-Judge Bench did not expressly over-rule K.K. Narula but applied the principles laid down therein in case of industrial alcohol. 240. In Ramana Dayaram Shetty v. The International Airport Authority of India and Ors., this Court held: "...We fail to see how the plea of contravention of Article 19(1)(g) or Article 14 can arise in these cases. The Government's power to sell the exclusive privilege set out in Section 22 was not denied. It was also not disputed that these privileges could be sold by public auction. Public auctions are held to get the best possible price. Once these aspects are recognised, there appears to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rms: "...If this be the true view and we think it is, in determining the impact of State action upon constitutional guarantees which are fundamental, it follows that the extent of protection against impairment of a fundamental right is determined not by the object of the Legislature nor by the form of the action, but by its direct operation upon the individuals rights. We are of the view that the theory that the object and form of the State action determine the extent of protection which the aggrieved party may claim is not consistent with the constitutional scheme. Each freedom has different dimensions..." 244. In certain cases even in relation to the grant of contract in liquor, Article 14 of the Constitution has been held to be applicable. Once it is held that a person, in certain situation is entitled to invoke the equality clause contained in Article 14 of the Constitution of India, there is absolutely no reason as to why Article 301 will not be applicable. 245. A 11-Judge Bench of this Court in T.M.A. Pai Foundation (supra), observed: "The question of whether there is a fundamental right or not cannot be dependent upon whether it can be made the subject-matter of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... different for country liquor and foreign liquor. The vendor is not allowed to sell country liquor to certain categories of persons, who are not specified thereunder and whereas Rule 17 of 1969 Rules categories a different list of persons. A vendor can sell foreign liquor to the driver of a vehicle but is prohibited from doing so in respect of country liquor. Foreign liquor can be sold to a railway servant on duty but not country liquor. 253. In Cooverjee Bharucha v. Excise Commissioner and Chief Commissioner, Ajmer [AIR 1954 SC 220] and Harinarayan Jaiswal (supra), this Court held that the State has exclusive right to sell liquor and to sell the said right. Both rights are, thus, different and distinct. REGULATION OF THE TRADE IN RELATION TO FOREIN LIQUOR: 254. In State of Bombay v. F.N. Balsara [AIR 1951 SC 318], this Court held : (i) A provision of law, which provided for permitting certain persons to drink and prohibited certain others from drinking, would not violate Article 14, provided such classification was reasonable. (ii) Permitting the use or consumption of foreign liquor among members of the Military and Naval Officers does not offend Article 14, as the mem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e interstate commerce and trade absolutely free. He contemplated a certain amount of legislative restrictions that could be imposed in 'public interest'. While this view was widely supported by T.T. Krishnamachari and Alladi Kuppuswami, it was contested by Pandit Thakur Das Bhargava who advocated several amendments to promote absolute free trade; as well as Dr. P.S. Deshmukh who felt that a policy should be kept very broad, for the Parliament to fill in the details at the relevant time, for the relevant place. 260. Realizing the need for some level of State regulation of trade and commerce, in the interest of the public, Dr. B.R. Ambedkar stated: "...it is not the intention to make, trade and commerce absolutely free, that is to say, deprive both the Parliament as well as the States of any power to depart from the fundamental provision that trade and commerce...has been made subject to certain limitations which may be imposed by the Parliament or ...the Legislatures of various states subject to the fact that the limitation contained in the power of Parliament to invade the freedom of trade and commerce is confined to cases arising from scarcity of goods in any part of the territ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....considered as derogatory to the very concept of freedom. He further wanted the restrictions to be qualified with the term 'reasonable' so as to enable the judiciary to adjudicate upon the reasonableness of the restrictions in public interest. [See Shiva Rao, B., Supra, p.704] 265. Taking a slightly tangential position, Dr. P.S. Deshmukh stated that, "Trade and commerce are not things which are decided once and for all; they are things that arise and grow from day to day there may be circumstances when the whole thing may have to be revised." He thus advanced the view that amendments be made to give Parliament a completely blank cheque and let them determine the policy, bearing in mind the differential leaves of advancement in various states. 266. However, all the amendments proposed to be inflicted on BR Ambedkar's Draft provisions were negatived and the Chapter was passed in its exact form. Thus, the position, as it lies, is to grant the maximum possible freedom of interstate trade and commerce. This is however, subject to a certain level of legislative restrictions in order to ensure that the greater economic interests of the country are not hampered, to make provision for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emain as it had been. [See 135 US at p.160-Gray, J. joined by Justices Harlan and Brewer]. 272. Thus, as stated by Thomas Powell Reed in an essay in 1938, "The congress has the power to keep silent. The Congress can regulate interstate commerce simply by just not doing anything about it." 273. State laws in conflict with valid Congressional enactments are inoperative so long as the national legislation remains unchanged. "If the Constitution makes the commerce power of the Congress an exclusive one over subjects for which a single uniform rule is preferable, it must be the Constitution that prohibits the states from exercising any kind of commerce power over that type of commerce as it prohibits the states form taxing the first sale of an import before bulk is broken." (See Powell, Thomas Reed, "Vagaries and Varieties in Constitutional Interpretation", p. 156) 274. The power of the Congress is concurrent with that of the states; the power of the states is concurrent with that of the Congress. The exercise of state power, however, is subject to several restrictions. It must not impose regulation in conflict with regulations of Congress. It must not, even in the absence of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovides for freedom of trade and commerce, but puts the minimum required restriction in terms of public interest. 279. The upshot of the discussions made hereinbefore would be that whereas in terms of Article 19(6) as also Article 302 of the Constitution of India in relation to a trade which is noxious in nature a complete prohibition would be permissible, the same would not mean that while permitting the trade to go on the State's action whether legislative or executive need not undergo the constitutional tests in terms of Articles 14, 19 or 301 of the Constitution of India. The argument that the relationship between State and the licensee is contractual in nature but the same would not mean that any legislative interference thereupon as a result whereof the contract becomes more burdensome would not be a subject-matter of challenge. There is no estoppel, against statute. There cannot be any waiver of fundamental right. (B)Freedom of Trade and Commerce: A very ' brief Trace of History 280. Freedom of trade was the established practice in India during the reign of the British. There were no existing interprovincial duties or trade barriers. However, with the advent of provinci....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Constitution of India. It is one thing to say that tax levied is constitutionally valid but it is another thing to say that tax although levied in exercise of its constituent power by a State Legislature, it need not undergo the test of constitutional requirement at all. The latter proposition, with utmost respect, would be totally against the letter and spirit of the Constitution of India as also constitutionalism. 287. In Saghir Abroad and Anr. v. State of U.P. and Ors. [AIR 1954 SC 728], B.K. Mukherjea, J. speaking for the Constitution Bench noticed that after the Constitution Amendment Act, 1951 in terms of Article 19(6) a three-fold provision by way of exception to or limitation upon Clause (1)(g) of the Article 19 was made stating: "In the first place it empowers the State to impose reasonable restrictions upon the freedom of trade, business, occupation or profession in the interests of the general public. In the second place it empowers the State to prescribe the professional and technical qualifications necessary for practising any profession or carrying on any occupation, trade or business. Thirdly, and this is the result of the Constitution (First) Amendment Act of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....visions of the Punjab Excise Act. 293. It is also undisputed that the State of Karala at no stage took such a stand at all. Despite the said fact, stand had now been taken that the import duty levied on beer is a part of the exclusive privilege. 294. Revenue is necessary to be raised for development of the State but the same must be done in terms of the Constitution. 295. For raising revenue, the State itself cannot take a stand which would be immoral to some of us, besides being unconstitutional. 296. A taxing statute is either constitutional or unconstitutional. 297. If a statute fails to pass the constitutional test -can it be permitted to succeed on moral or ethical values of some of us? 298. Is there no distinction between an alcohol for industrial or alcohol for human consumption? 299. Can the State be permitted to make any legislation even on industrial alcohol? 300. These are certain questions which are required to be posed and answered. 301. In S.K. Pattanaik (Dead) through LRs. v. State of Orissa and Ors. in which one of us (Hon. CJI) was a member, this Court held: ""Excise duty" and "Countervailing duty" are well-known concepts and are attracte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of any document, from ordinary real estate contracts to the Constitution, is influenced by the circumstances, mores, conventions, and prevailing notions of contemporary society; and clearly, the meanings given to words may change over the years. That which was reasonable, proper and logical in one century may be unacceptable in another. Many concerns of the yesteryear that prompted certain interpretations have now faded and been replaced with new attitudes. Ideas and feelings about labour, property, producers' and consumers' interests, the environment and human rights do not remain static. Inventions and discoveries have occurred that were beyond the contemplation of those who lived centuries ago. The certainties of one period may appear as mistakes in another. Nonetheless, the nation retains its commitment to a supreme legal document establishing the terms of the relationship between the governor and the governed. (See Siegan, Bernard H., "Economic Liberties and the Constitution", p9) 306. Many believe that the Constitution is a flexible and evolving document, always adaptable to changes in society's conditions and circumstances. Others insist that judges be strictly bound ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... impact on the fundamental right of the citizens thereby against the greater public or social interest sought to be ensured. Implementation of Directive Principles contained in Part IV is within the expression of "restrictions in the interest of the general public". 312. In other words, there exists a distinction between a fundamental right of a citizen to carry on trade in obnoxious matters under Article 19(1)(g) of the Constitution of India and freedom to carry on such trade through out the country without any hindrance or obstruction except in terms of reasonable regulations which may be made under Part XIII of the Constitution of India. INTERNATIONAL TREATIES AND COVENANTS: 313. With a view to interpret the constitutional provision, global changes and outlook in trade and commerce would be relevant factors. 314. The impugned notifications not only touch inter-state trade, it affect international trade also. "Import of liquor" envisages liquor imported both from outside the State as also outside India. International treaties and covenants, therefore, would play a significant role. 315. The national policy of globalisation of trade leading to WTO has been noticed b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....our eyes to the fact that except the State of Gujarat, no other State has imposed a complete prohibition. In fact, the States are encouraging liberalization to such an extent that in the near future alcohol beverages may be allowed to be sold in the small grocery shops. The executive authorities are contemplating to grant permission to open liquor at the Airports. The society has accepted pub culture in the metres. A view in the matter, therefore, is required to be taken having regard to the changing scenario on the basis of ground reality and not on the basis of the centuries' old maxims. Subsidies and Countervailing Duties: 319. The WTO and GATT, inter alia, provides for subsidies and countervailing duties. 320. What is a countervailing duty? 321. It is defined as, "a duty imposed [on imports] to offset the advantage to foreign producers, derived from a subsidy that their government offers for the production or export of any article taxed." [See Webster's 3rd New International Dictionary, 1993] 322. It has also been defined by Article VI of GATT as, "a special bounty levied for the purpose of offsetting any bounty or subsidy bestowed directly or indirectly, upon th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... development across the world particularly in the field of international law. 329. The judiciary cannot cling to age-old notions of any underlying philosophy behind interpretation. It has to move with the times. As Willes CJ once said, "When the nature of things changes, the rules of law must change too". (See Davies v. Powell (1737) Willes 46 at 51) This is a truism in that the legislature and, within limits, the courts should change rules to keep the law abreast of change. (See Dias Jurisprudence, 5th Edition, page 147) 330. In Francis Bennion Interpretation of Statutes, Fourth edition at page 771, it is stated: "Changes in social conditions - Where relevant social conditions have changed since the date of enactment, what was then classed as a social mischief may not be so regarded today. It is very difficult for the court to apply an enactment so as to 'remedy' what is no longer regarded as a mischief. The consequence is an interpretation that minimizes the coercive effect of the enactment and gives great weight to criteria such as the principle against doubtful penalisation." 331. While interpreting such a situation, one must take into consideration the flexibility ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny law, whether, written or unwritten, which is inconsistent with the constitution is to that extent void. 334. It was further observed : "Since para 10 introduces these exceptions to the rights and protection which people would otherwise have under the constitution, it must be construed like any other derogation from constitutional guarantees. In State v. Petrus [1985] LRC (Const) 699 at 720 in the Court of Appeal of Botswana, Aguda JA referred to Corey v Knight (1957) 150 Cal App 2d 671 and observed that - "it is another well known principle of construction that exceptions contained in Constitutions are ordinarily to be given strict and narrow, rather than broad, constructions." In case of doubt, para 10 should therefore be given a strict and narrow, rather than a broad, construction." 335. In Project Gabcikovo-Nagymaros (Op. Ind. Weeramantry) the International Court in its judgment dated 25.9.1997 at page 114, albeit in the context of ecology observed: "As this Court observed in the Namibia case, "an international instrument has to be interpreted and applied within the framework of the entire legal system prevailing at the time of the interpretation" (Legal Con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hose of the dominant opinion at the given moment, or what has been termed customary morality. The judges must consider the social consequences of the rule propounded, especially in the light of the factual evidence available as to its probable results. .. The point is rather this power must be lodged somewhere and under our Constitution and laws, It has been lodged in the Judges and if they have to fulfill their function as Judges, it could hardly be lodged elsewhere. NEED TO HAVE AN ECONOMIC INTERPRETATION : 339. The wave of privatization, multinationals influx into society, etc has lead to a very wide debate on the merits of such a scheme and the judiciary has a very wide role to play in discerning what the current position of the economic trend of the country is, bearing in mind the Constitutional goals of our Founding Fathers. Economic factors were by no means absent during the framing of the Constitution. On the contrary, in several instances economic elements were of considerable importance. 340. However, the very nature of the playing field has changed with the changes taking place in an evolving society. This is true of every society. Thus, can we still say that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l atmosphere results in foreign investment. 344. The Court having regard to globalisation should take notice of the futuristic thought in developed countries for interpretation of the Constitution in the ascertainment of meaning of the relevant provisions thereof with reference to everything which is logically relevant. 345. In "An Economic Interpretation of the Constitution of the United States" by Charles A. Beard in Chapter VI the Constitution of the United States has been read as an economic document. Referring to Hamilton, it is stated that free trade over a wide range would be reciprocal and would give great diversity to commerce enterprise and will render stagnation less liable for offering more distant markets when local demands fall off. 346. Lawrence. H. Tribe in his constitutional treatise 'American Constitutional Law', 3rd Edition emphasized upon the debate, at page 822, as regards court's new focus on economic activity citing Lopez [514 US at page 566] acknowledging that the determination whether an interstate activity is commercial or noncommercial may in some cases result in legal uncertainty. The learned author states: "As long as the Court adheres to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an the Fourteenth Amendment. In Heart of Atlanta Motel, Inc. v. United States (1964) and Katzenbach v. McClung (1964), the Supreme Court found that racial discrimination had a deleterious effect on interstate commerce and was a proper object for congressional attention. In National League of Cities v. Usery (1976), the Court struck down legislation based on the Commerce Clause for the first time in forty years when it held that the minimum wage-maximum hour requirements of the amended Fair Labor Standards Act of 1938 could not be extended to state and local government employees. Such requirements, said the Court, involved a congressional intrusion into an "attribute of state sovereignty" (p. 845). Less than a decade later the Court overruled the Usery case in Garcia v. San Antonio Metropolitan transit Authority (1985). Marshall, Taney and Waite (1937). R.S. Myers, "The Burger Court and the Commerce Clause: An Evaluation of the Role of State Sovereignty,"' Notre Dame Law Review 60 (1985); 1056-1093." 348. In United States v. Lopez [514 US 549 (1995)] the United States Supreme Court struck down a statute as beyond the Congress' Commerce power on the ground that the activity reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld come under the restrictive sway of the legislature." 351. It was observed: "It was further urged on the argument that restricting the hours of labor in the case of bakers was valid because it tended to cleanliness on the part of the workers, as a man was more apt to be cleanly when not overworked, and if cleanly then his "output" was also more likely to be so. What has already been said applies with equal force to this contention. We do not admit the reasoning to be sufficient to justify the claimed right of such interference. The state in that case would assume the position of a supervisor, or pater familias, over every act of the individual, and its right of governmental interference with his hours of labor, his hours of exercise, the character thereof, and the extent to which it shall be carried would be recognized and upheld. In our judgment it is not possible in fact to discover the connection between the number of hours a baker may work in the bakery and the healthful quality of the bread made by the workman." 352. It was held that the legislations although claimed to have been made under the police power or really purported to be for the purpose of protecting th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ociety, on the economic front, is undergoing vast changes. 358. In M.A. Murthy v. State of Karnataka and Ors., this Court held: "...The doctrine of binding precedent helps in promoting certainty and consistency in judicial decisions and enables an organic development of the law besides providing assurance to the individual as to the consequences of transactions forming part of the daily affairs." HAD KALYANI STORES (SUPRA) BEEN RENDERED PER INCURIUM : 359. Kalyani Stores (supra) is a Constitution Bench judgment. A Constitution Bench has unequivocally held that Article 301 of the Constitution of India shall apply to trade of liquor. Once this Court comes to the conclusion that doctrine of res extra commercium was not applicable, Kalyani Stores must be applied in all fours. In any event, the decision of a Constitution Bench cannot be brushed aside as having been passed 'sub silentio' or on the basis of doctrine of 'per incurium' 360. Judicial discipline envisages that a coordinate bench follow the decision of earlier coordinate bench. If a coordinate bench does not agree with the principles of law enunciated by another bench, the matter may be referred only to a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on appeal to the house of lords although the House overruled the case which bound the Court of Appeal, the House agreed that court had been bound by it see (1956) AC 104. (1955) 3 All ER 518 HL. Even if a decision of the Court of Appeal has misinterpreted a previous decision of the House of lords, the Court of Appeal must follow its previous decision and leave the House of Lords to rectify the mistake. Williams v. Glasbrook Bros Ltd (1947) 2 All ER 884 CA" 362. In Dr. Vijay Laxmi Sadho v. Jagdish [JT 2001 (1) SC 382] it has been observed as follows: "As the learned Single Judge was not in agreement with the view expressed in Devilal Case it would have been proper, to maintain judicial discipline, to refer the matter to a larger Bench rather than to take a different view. We note it with regret and distress that the said course was not followed. It is well-settled that if a Bench of coordinate jurisdiction whether on the basis of "different arguments" or otherwise, on a question of law, it is appropriate that the matter be referred to a larger Bench for resolution of the issue rather than to leave two conflicting judgments to operate, creating confusion. It is net proper to ....