TaxTMI 
TaxTMI 
2016 (6) TMI 603
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....he Punjab Excise Act, 1914 (in short, "the Act") and the Punjab Liquor Licence Rules, 1956 (for brevity, "the Rules") as Excise department has no power/authority to add, delete or cancel any kind of category of licence in the Excise policy without amending the relevant Acts and the Rules where there is a chart of liquor licences. Further prayer has been made for a direction to the respondents to bring clear cut transparency in the procedure for allotment of L-1A licence by holding draw of lots. Direction has also been sought to the respondents to decide the legal notice dated 17.2.2016, Annexure P.2 submitted by the petitioner and to stay operation of issuance of L-1A licence till the pendency of the present writ petition. 3. A few facts relevant for the decision of the controversy involved as narrated in CWP No.5593 of 2016. The petitioner is engaged in the business of liquor trade for the past so many years in the State of Punjab. In the month of March 2016, the State of Punjab announced its Excise policy for the year 2016-17 under the Act and the Rules. In the previous excise policy for the last year, there were different classes of licences mentioned in the Rules. The contro....
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....rtment for creation of new category i.e. L-1A licence for their own economic interest. The petitioner avers that there is no power with the excise department to add or cancel any classification of the licensees in the excise policy without amending the Act and the Rules. Further, it is also not specified who is the competent authority to grant the L-1A licence and who is responsible to legally monitor or scrutinize the application for grant of L- 1A licence. No criteria has been prescribed for the manufacturer to give letter of consent if more than one person shows interest for its L-1A licence. The projected number of IMFL L-1A licensees in the State of Punjab is fixed at three and there will be just two L-1A liquor licence for Beer in the entire State of Punjab which would lead to monopolization of liquor trade in the State of Punjab. Still further, the term Arms Length Distance for grant of L-1A licence only to the persons who are in any way not related to the manufacturing company is a very subjective term. The petitioner also sent a legal notice cum representation dated 17.3.2016, Annexure P.2 to the respondents but no reply has been received from the department. Hence the ins....
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....valid as the policy was issued on 13.3.2016 whereas Punjab Liquor Excise Rules, 1956 were amended incorporating Licence 1-A in modified form on 23.3.2016? ii) Whether the sub clause (ii) of Clause 2.14 of the Excise Policy 2016-17 is justified and sustainable in law or not? 9. No debate is required on Issue No.1 as the matter is no longer res integra. The unanimous view of five Constitution Bench decisions in State of Bombay and another vs. F.N.Baisana, (1951) 2 SCR 682, Cooverjee B.Bharucha vs. Excise Commissioner and the Chief Commissioner, Ajmer and others, AIR 1954 SC 220, State of Assam vs. N.Kidwai, Commissioner of Hills Division and Appeals, Shillong, (1957) 1 SCR 295, Nagendra Nath Bora and another vs. The Commissioner of Hills Division and Appeals, Assam and others, (1958) 1 SCR 1240 and Amar Chandra Chakraborty vs. Collector of Excise, Government of Tripura and others, (1973) 1 SCR 533, emphasized that the trades which were injurious to health and welfare of the public could be restricted by the State and that elimination and exclusion from the business was inherent in the nature of liquor business as it was treated as a class by themselves by all civilized societie....
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....The fundamental rights guaranteed in Article 19(1)(a) to (g) are, therefore, to be read along with the said qualifications. Even the rights guaranteed under the Constitutions of the other civilized countries are not absolute but are read subject to the implied limitations on them. Those implied limitations are made explicit by clauses (2) to (6) of Article 19 of our Constitution. (b) The right to practise any profession or to carry on any occupation, trade or business does not extend to practising a profession or carrying on an occupation, trade or business which is inherently vicious and pernicious, and is condemned by all civilised societies. It does not entitle citizens to carry on trade or business in activities which are immoral and criminal and in articles or goods which are obnoxious and injurious to health, safety and welfare of the general public, i.e., res extra commercium, (outside commerce). There cannot be business in crime. (c) Potable liquor as a beverage is an intoxicating and depressant drink which is dangerous and injurious to health and is, therefore, an article which is res extra commerce being inherently harmful. A citizen has, therefore, no fundamental r....
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.... method adopted is not discriminatory. (i) The State can carry on trade or business in potable liquor notwithstanding that it is an intoxicating drink and Article 47 enjoins it to prohibit its consumption. When the State carries on such business, it does so to restrict and regulate production, supply and consumption of liquor which is also an aspect of reasonable restriction in the interest of general public. The State cannot on that account be said to be carrying on an illegitimate business. (j) The mere fact that the State levies taxes or fees on the production, sale and income derived from potable liquor whether the production, sale or income is legitimate or illegitimate, does not make the State a party to the said activities. The power of the State to raise revenue by levying taxes and fees should not be confused with the power of the State to prohibit or regulate the trade or business in question. The State exercises its two different powers on such occasions. Hence the mere fact that the State levies taxes and fees on trade or business in liquor or income derived from it, does not make the right to carry on trade or business in liquor a fundamental right, or even a leg....
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.... out, requires the State to endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and all drugs which are injurious to health. For the same reason, the Bench held, the State can treat a monopoly either in itself or in an agency created by it for the manufacture, possession, sale and distribution of liquor as a beverage. The holding is emphatic and unambiguous. Yet an argument is sought to be built upon certain words occurring in clauses (e) and (f) of the summary contained in para 60 of the decision. In these clauses, it was observed that creation of a monopoly in the State to deal in intoxicating liquors and the power to impose restrictions, limitations and even prohibition thereon can be imposed both under clause (6) of Article 19 or even otherwise. Seizing upon these observations, Shri Ganguly argued that this decision implicitly recognises that business in liquor is a fundamental right under Article 19(l)(g). If it were not so, asked the learned counsel, reference to Article 19(6) has no meaning. We do not think that any such argument can be built upon the said observations. In clause (e), the Bench held, a monopoly in the ....
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....mar Chandra Chakraborty v. Collector of Excise, Government of Tripura, AIR 1972 SC 1863, State of Bombay vs. R.M.D.Chamarbaugwala, AIR 1957 SC 699, State of Orissa v. Harinarayan Jaiswal, AIR 1972 SC 1816 and Nashirwar etc. vs. State of M.P. and others, AIR 1975 SC 360 and has held that there is no fundamental right to do the business or deal in intoxicants. 26. Another constitution Bench of the Supreme Court in Khoday Distilleries Ltd. And Others v. State of Karnataka and Others, (1995)1 SCC 574 after taking note of all previous decisions on the nature of right to deal in business of liquor summarized the law on the subject as follows: "60. We may now summarise the law on the subject as culled from the aforesaid decisions. (a) The rights protected by Article 19(1) are not absolute but qualified. The qualifications are stated in clauses (2) to (6) of Article 19. The fundamental rights guaranteed in Article 19(1) (a) to (g) are therefore, to be read along with the said qualifications. Even the rights guaranteed under the Constitutions of the other civilized countries are not absolute but are read subject to the implied limitations on them. Those implied limitations ar....
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....s are quoted as under:- "The State under its regulatory power has the power to prohibit absolutely every form of activity in relation to intoxicants, its manufacture, storage, export, import, sale and possession. No one can claim as against the State the right to carry on trade or business in liquor and the State cannot be compelled to part with its exclusive right or privilege of manufacturing and selling liquor. But when the State decides to grant such right or privilege to others the State cannot escape the rigour of Article 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." In In Khoday Distilleries Ltd. and Others v. State of Karnataka and Others [(1995) 1 SCC 574], a Constitution Bench of this Court upon referring to a large number of dec....
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.... 1958 SC 398); Amar Chakraborty's case (1973) 1 SCR 533 = (AIR 1972 SC 1863) and the RM DC case 1957 SCR 874 = (AIR 1957 SC 699) as interpreted in Harinarayan Jaiswal's case (1972) 3 SCR 784 = (AIR 1972 SC 1816) and Nashirwar's case (AIR 1975 SC 360). There is no fundamental right to do trade or business in intoxicants. The State, under its regulatory powers, has the right to prohibit absolutely every form of activity in relation to intoxicants its manufacture, storage, export, import, sale and possession. In all their manifestations, these rights are vested in the state and indeed without such vesting these can be no effective regulation of various forms of activities in relation to intoxicants...." In State of MP and others etc. v. Nand Lal Jaiswal and others etc, AIR 1987 SC 251, in paras 32 and 33, it was observed:- "32..Now, it is true and it is well settled by several decisions of this court including the decision in Har Shanker v. Deputy Excise & Taxation Commr. (1975) 3 SCR 254 : (AIR 1975 SC 1121) that there is no fundamental right in a citizen to carry on trade or business in liquor. The State under its regulatory power has the power to prohibit ab....
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....omic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. We quoted with approval the following admonition given by Frankfurter, J. in Morey v. Doud, (1957) 354 US 457: "In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events self limitation can be seen to be the path to judicial wisdom and institutional prestige and stability." What we said in that case in regard to legislation relating to economic matters must apply equally in regard to executive action in the field of economic activities, though the executive decision may not be placed on as high a pedestal as legislative judgment in so far as judicial deference is concerned. We must not ....
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....he view taken by this court in K.K.Narula case as well as in the second Synthetics and Chemicals Ltd. Case is not contrary to the aforesaid view which has been consistently taken by this court so far." This was also reiterated by majority of Judges in State of Punjab and another v. Devans Modern Breweries Ltd. And another, (2004) 11 SCC 26. It was observed in para 113:- "In my opinion, Articles 301 and 304(a) of the Constitution 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 v. Dy. Excise and Taxation Commr.(AIR 1975 SC 1121 and Panna Lal v. State of Rajasthan (1975 (2) SCC 633). 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 act....
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....of the two schemes subject to their satisfying the conditions required in the scheme. The High Court, therefore, was right in its conclusion that the Government is not barred by the promises of legitimate expectations from evolving new policy in the impugned notification." In Common Cause, a Registered Society v. Union of India and others, AIR 1999 SC 2979, it was observed:- "43. Government decisions regarding award of contracts are also open to judicial review and if the decisionmaking process is shown to be vitiated by arbitrariness, unfairness, illegality and irrationality, then the Court can strike down the decision- making process as also the award of contract based on such decision. This was so laid down by this Court in Tata Cellular v. Union of India, (1994) 6 SCC 651 : AIR 1996 SC 11 : (1994 AIR SCW 3344). Initially the Supreme Court was of the opinion that while the decision-making process for award of a contract would be amenable to judicial review under Articles 226 or 32 of the Constitution, a breach of a contractual obligation arising out of a contract already executed would not be so enforceable under such jurisdiction and the remedy in such cases would l....
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.... "59. Powers of Financial Commissioner to make rules.- The Financial Commissioner may, by notification, makes rules. (a) regulating the manufacture, supply, storage or sale of any intoxicant, including :- (i) the character, erection, alteration, repair inspection, supervision, management and control of any place for the manufacture, supply, storage or sale of such article and the fitting, implements, apparatus and register to be maintained therein ; (ii) the cultivation of the hemp plant and the collection of spontaneous growth of such plant and the preparation of any intoxicating drug. (iii) the tapping of drawing of tari from any tari producing tree. (b) regulating the bottling of liquor for purposes of sale ; (c) regulating the deposit of any intoxicant in a warehouse and the removal of any intoxicant from any warehouse or from any distillery or brewery. (d) prescribing the scale of fees or the manner of fixing the fees payable in respect of any licence, permit or pass or in respect of the storing of any intoxicant; (e) regulating the time, place and manner of payment of any duty or fee; (f) prescribing the authority by, the restric....
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.... and renew the licences are specified. Part I of the table deals with Foreign Liquor and refers to various categories of liquor licences. Rule 24 of the Rules specifies the kind of fees payable in respect of licences which are issued under the Rules whereas under Rule 25 of the Rules, the amount of fixed fee and security in respect of different kinds of licences thereunder has been specified. The category of licences that may be granted on fixed fee by inviting applications for a licencing unit has been prescribed under Rule 35 of the Rules. Rule 36 of the Rules prescribes the procedure for the grant of licences. Special conditions for grant of licences have been enumerated in Rule 38 of the Rules. The relevant portion of these rules is quoted below:- "Rule 24. The fees payable in respect of licences under these rules are of the following kind:- a) fixed fee; b) assessed fees; and c) fees fixed by auction; and d) tender fee; Rule 25: (1) The amount of fixed fee and security in respect of different kinds of licenses, granted under these rules, shall be as follows:- Sr.No. Kind of licence Rate of annual licence fee (Rs.) Rate of s....
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....Rs. 10 crore Rs. 55,000/- (vi) A zone/group of units of L/fee above Rs. 10 crore Rs. 70,000/- The fee shall not be refundable or adjustable. If the first or any subsequent allotment procedure is cancelled by the department or, any application form is rejected by the department being invalid and not put to draw of lots, then the amount of application fee shall be refunded to the concerned applicant, after deducting two thousand rupees per application as processing fee. Out of the total proceeds from the sale of application form, fifty percent shall be deposited in Development Fund constituted under the Punjab Development Fund Act, 2014 (Punjab Act No. 1 of 2015). The application forms shall be serially numbered at three places, i.e. in the application form, in the slip of draw of lots and on the receipt, issued to the applicant." xxxxxxxxxxxxxxxxxxxxx Rule 38 "The licences shown in this rule are granted subject to the special conditions noted under each in addition to the conditions laid down in Rule 37. xxxxxxxxxxxxxxxxxxxxxx "(e) The licensee shall purchase Indian Made Foreign Liquor, Beer, Wine and Ready to Drink Beverages....
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....of the Rules as notified in 2011 is as under:- "L-1A. A wholesale vend of Indian Made Foreign Liquor, Imported Foreign Liquor including BIO Brands, Beer, Ready to drink beverages and Wine to the trade only authorized to purchase and import liquor from any other State and from any foreign country." As per the aforesaid amendment, L-1A licencee was added who could purchase the liquor manufactured outside the State of Punjab and outside the country. 21. In exercise of powers conferred by Section 59 of the Act, the Excise Commissioner, Punjab exercising the power of the Financial Commissioner issued Punjab Liquor Licence (Amendment) Rules, 2016 vide which notification No.G.S.R.19/P.A.1/1914/5.59/Amd.(127)/2016 dated 23.3.2016 has been issued assigning new terminology to licence L-1A which is in the following terms:- L-1A (IMFL) Whole sale vend of Indian Made Foreign Liquor (except Beer), Wine and Ready to Drink beverages to the L-1 licensee only, authorized to purchase liquor from distilleries, bottling plants and wineries (manufacturing units of IMFL, Wine and RTD) from both, within and outside the State. Fixed fee Collector with the prior approval of Excise commi....
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..... The relevant observations of the Bench are quoted below:- "37. Scope of interference in policy matters in exercise of powers of judicial review is well settled by a catena of decisions. In T.N. Education Deptt., Ministerial and General Subordinate Services Assn. v. State of T.N., (1980) 3 SCC 97 the Supreme Court while noticing the jurisdictional limitation to analyse and to find fault with the policy held that the Court in exercise of its power of judicial review cannot sit in judgment over the policy matters except on limited grounds., namely, whether the policy is arbitrary, mala fide, unreasonable or irrational. Each State is empowered to formulate its own liquor policy. 38. In Nandlal Jaiswal and others (Supra) the Supreme Court held that while considering the applicability of Article 14 of the Constitution in case pertaining to trade or business in liquor, the Court would be slow to interfere with the policy laid down by the State Government for grant of licence for manufacture and sale of liquor. More over, grant of licence for manufacture and sale of liquor would essentially be a matter of economic policy where the Court would hesitate to intervene and strike down w....
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....he Court will not interfere with such matter. 40. In a recent decision of Supreme Court rendered in case of Villianur Iyarkkai Padukappu Maiyam v. Union of India and Others, (2009) 7 SCC 561, the Supreme Court once again reiterated that in the matters of economic policy the scope of judicial review is very limited and the Court will not interfere with economic policy of the State unless the same is shown to be contrary to any statutory provision or the Constitution. The court cannot examine the relative merits of different economic policies and cannot strike down a policy merely on the ground that another policy would have been fairer and better. Wisdom and advisability of economic policy are ordinarily not amenable to judicial review. It was further held that in matters relating to economic issues, the Government while taking the decision has right to 'trial and error' so long it is bona fide and within the limits of the authority. For testing the correctness of a policy the appropriate forum is Parliament and not the Courts. It was further held that there is always a presumption that Governmental action is reasonable and in public interest and it is for the party chall....
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....iquor on the ground of Article 14 was reiterated by the Full bench in the following words:- "42. Let us now examine the challenge to the new policy on the ground that same is discriminatory or arbitrary and violative of Article 14 of the Constitution of India. In order to deal with question of infringement of constitutional guarantee contained in Article 14 it would be expedient to notice case law on the subject. 43. In Cooverjee B. Bharucha (supra) the Constitution Bench of the Supreme Court while dealing with the provisions of Ajmer Excise Regulations repelled the challenge on the ground of violation of Article 19 (6) of the Constitution of India and held as under: "Elimination and exclusion from business is inherent in the nature of liquor business and it will hardly be proper to apply to such a business principles applicable to trades which all could carry. The provisions of the regulation cannot be attacked merely on the ground that they create a monopoly. Properly speaking, there can be a monopoly only when a trade which could be carried on by all persons is entrusted by law to one or more persons to the exclusion of the general public. Such, however, is not th....
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....ness in liquor. Properly speaking there can be a monopoly only when a trade which could be carried on by all persons is entrusted by law to one or all persons to the exclusion of general public. Such however, is not the case with the business of liquor. (ii) Trade or business in liquor has from its inherent nature been treated by State or society as a special category and must be treated a class by itself and cannot be placed on same pedestal as other trades while considering the applicability of Article 14. (iii) Where the State Government frames a policy with the object to secure or ensure maximum revenue for parting with its privilege to deal in liquor, action of the State Government cannot be assailed on the ground that it infringes Article 14." 26. In the backdrop of the settled legal principles noticed hereinabove, the question of challenge to creation of licence L-1A category in the Excise Policy 2016-17 may be dealt with. Licence L-1A category was created by amendment made in the Punjab Liquor Licence Rules, 1956 vide notification issued in 2011 in exercise of power under Section 59 of the Act as noted above. However, on 23.3.2016, the new notification ....
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....manufacturing company has been authorized to issue the authority/consent letter to one person/company/firm/organization for the issuance of license L-1A by the competent authority. According to the petitioners, sub clause (ii) of Clause 2.14 of the Excise Policy for the year 2016-17 prescribes that the manufacturing company cannot issue the consent letter to more than one person/company/firm/organization, but in the entire policy, no criteria or parameters have been laid down for the manufacturers for issuing the consent letter. Even no parameters or criteria have been laid down for cancellation of the consent/authority letter issued by the manufacturing unit and, therefore, ultra vires. 29. It is trite law that whenever a contract is to be awarded or a licence is to be given, the public authority is under legal obligation to adopt transparent and fair method for making selections so that all the eligible persons/aspirants get a fair opportunity of competition. In other words, wherever issue of disposal of public property is concerned either by issuance of licence or otherwise, the State and its agencies/instrumentalities are required to adopt a rational method for its disposal ....
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....ely to be misused by unscrupulous people who are only interested in garnering maximum financial benefit and have no respect for the constitutional ethos and values. In other words, while transferring or alienating the natural resources, the State is duty-bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate in the process." 30. Further, in Reliance Energy Ltd. v. Maharashtra State Road Development Corpn. Ltd., (2007) 8 SCC 1, following its earlier decision in Union of India (UOI) and another vs. International Trading Co. and another, (2003) 5 SCC 437, the Apex Court observed as under:- 36. We find merit in this civil appeal. Standards applied by courts in judicial review must be justified by constitutional principles which govern the proper exercise of public power in a democracy. Article 14 of the Constitution embodies the principle of "nondiscrimination". However, it is not a free-standing provision. It has to be read in conjunction with rights conferred by other articles like Article 21 of the Constitution. The said Article 21 refers to "right to life". It includes "opportunity". In our view, as held in the latest judgme....
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....ontractual matters, fails to satisfy the test of reasonableness, it would be unconstitutional. 15. While the discretion to change the policy in exercise of the executive power, when not trammelled by any statute or rule is wide enough, what is imperative and implicit in terms of Article 14 is that a change in policy must be made fairly and should not give the impression that it was so done arbitrarily or by any ulterior criteria. The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touchstone irrespective of the field of activity of the State is an accepted tenet. The basic requirement of Article 14 is fairness in action by the State, and non-arbitrariness in essence and substance is the heartbeat of fair play. Actions are amenable, in the panorama of judicial review only to the extent that the State must act validly for a discernible reason, not whimsically for any ulterior purpose. The meaning and true import and concept of arbitrariness is more easily visualised than precisely defined. A question whether the impugned action is arbitrary or not is to be ultimately answered on the facts and circumstances of a given cas....
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....ct is likely to be awarded or a licence or permission is likely to be given, he would immediately make an application and would become entitled to stand first in the queue at the cost of all others who may have a better claim. 95. This Court has repeatedly held that wherever a contract is to be awarded or a licence is to be given, the public authority must adopt a transparent and fair method for making selections so that all eligible persons get a fair opportunity of competition. To put it differently, the State and its agencies/instrumentalities must always adopt a rational method for disposal of public property and no attempt should be made to scuttle the claim of worthy applicants. When it comes to alienation of scarce natural resources like spectrum etc., it is the burden of the State to ensure that a nondiscriminatory method is adopted for distribution and alienation, which would necessarily result in protection of national/public interest. 96. In our view, a duly publicised auction conducted fairly and impartially is perhaps the best method for discharging this burden and the methods like firstcome- first-served when used for alienation of natural resources/....
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....atedly upheld such actions. The judiciary tests such deviations on the limited scope of arbitrariness and fairness under Article 14 and its role is limited to that extent. Essentially, whenever the object of policy is anything but revenue maximisation, the executive is seen to adopt methods other than auction. 130. A fortiori, besides legal logic, mandatory auction may be contrary to economic logic as well. Different resources may require different treatment. Very often, exploration and exploitation contracts are bundled together due to the requirement of heavy capital in the discovery of natural resources. A concern would risk undertaking such exploration and incur heavy costs only if it was assured utilisation of the resource discovered: a prudent business venture would not like to incur the high costs involved in exploration activities and then compete for that resource in an open auction. The logic is similar to that applied in patents. Firms are given incentives to invest in research and development with the promise of exclusive access to the market for the sale of that invention. Such an approach is economically and legally sound and sometimes necessary to spur resea....
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....ness, unreasonableness, discrimination, non-transparency, favouritism or nepotism in the award of authority/consent letter to an applicant. Thus, sub clause (ii) to that extent would not satisfy the mandate of reasonableness as enshrined under Articles 14 and 19(1)(g) of the Constitution of India. 33. In all fairness, we proceed to deal with two ancillary points raised by learned Advocate General. Firstly, the locus standi of the petitioners and maintainability of the petitions was questioned on the ground that the petitioners had never approached any distillery or the manufacturer for the grant of consent/authority letter as envisaged under sub clause (ii) of clause 2.14 of the Excise Policy 2016-17. Next, it was urged that the writ petition was liable to be dismissed on the ground that necessary parties who had been awarded L-1A licence in pursuance to consent/authority letter issued by the distillery or the manufacturer have not been impleaded as party-respondents in the writ petition. 34. It has been claimed in the writ petition that the petitioner is engaged in the business of liquor trade for the past so many years in the State of Punjab and the newly added/created L-1A....