TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 930
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....anium, learned senior counsel for the appellant, submitted that the creation of a monopoly by the State in favour of a private entity, to trade in liquor, is contrary to Article 19(6) of the Constitution of India. The impugned order acknowledges that it would lead to serious distortions in the market, yet erroneously declines interference holding that once the matter moves from State control into the hands of private enterprise, the restrictions applicable to the State cease to apply. Reliance was placed on Akadasi Padhan vs. State of Orissa, AIR 1963 SC 1047, to contend that if a monopoly is created by the State in its favour, the same cannot be constitutionally permitted if the private agents appointed pursuant thereto, act as independent entities. Sri Subramanium also relied on Khoday Distilleries Ltd. vs. State of Karnataka (I), (1995)1 SCC 574, to submit that once the State parts with its privilege to trade in liquor, in favour of private individuals, the rigours of Article 14 will continue to apply to provide equal opportunity to all desirous to do so. Alternatively, it was submitted that the absence of sufficient checks and balances gives untrammeled and uncanalised powers t....
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....cise license providing for cancellation also if the conditions of the license were not followed. The grant of a monopolistic license as the agent of the State Government was permissible in the law for trade in liquor. 5 5. We have considered the submissions on behalf of parties. The appellant assails the amended Rule 24(i-eeee) as ultra vires the provisions of the Act. Integral to the issue is whether the state government is competent to issue licences for a local area alone under Section 58(2)(e) of the Act, while the Excise Commissioner, a sub-delegate of the Financial Commissioner is competent under Section 13(b) read with Section 59(a) to issue L-1BF licence for the entire state under the amended rule, notwithstanding the prohibition in Section 13(a) to the delegation of powers under Section 58 by the State Government. The amended Rule 24(i-eeee) relevant to the controversy reads as follows: " (xiv) for clause (i-eeee), the following clause shall be substituted, namely: - (i-eeee) For a license in form L-1BF - (a) Reserve price shall be Rs. 50,00,00,000/-. (b) The license in form L-1BF shall be allotted through e-bidding to the highest bidder. (c) There shall be ....
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....o the discussion are also Rules 3 and 4 which provide as follows : "3. The authority given by these rules to grant and renew licenses is, in each case, subject to the restrictions contained in the Punjab Intoxicants License and Sale Order as to the localities in which licenses may be granted and the number of licenses which may be granted in any local area, and to such reservations from the general superintendence of the Financial Commissioner as the State Government may notify under Section 8 of the Punjab Excise Act, 1914. 4. Every license shall be granted to a particular licensee in respect of particular premises/area." 9. Chapter D of the Punjab Intoxicants License and Sales Orders, 1956 (hereinafter referred to as 'the Order') provides for the number of licences and reads as under : "6. The number of liquor vends except vends licenced in form L-2 for the wholesale and retail sale of foreign liquor to the public only and drug shops, which may be licenced in any local area, shall be the number which the Financial Commissioner, subject to the control of the State government considers necessary. The number of L-2 vends, which may be licenced in any local area, shall be th....
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.... to any local area comprised therein, and as regards purchasers generally or any specified class of purchasers, and generally or for any specified occasion, the maximum or minimum quantity or both of any intoxicant which for the purposes of this Act may be sold by retail and by wholesale. 6. Power to limit application of notifications, permits, etc., made under this Act.- Where under this Act any notification is made, any power conferred, any appointment made or any license, pass or permit granted, it shall be lawful to direct - (a) That it shall apply to the whole of Punjab or to any specified local area or areas; xxxxx" The power to declare by notification that a licence granted shall be applicable to the entire State is exclusively vested in the State Government under Section 6(a) of the Act. 13. The High Court has held that in contradistinction to Section 58(2)(e) of the Act, which limits the powers of the State Government to grant of licence for a local area, the Excise Commissioner, as the delegatee of the Financial Commissioner, was competent under Section 59(a) to grant a single L-1BF licence for the entire State. "59. Powers of Financial Commissioner to make r....
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....he agency or under the supervision of its own officers; (iii) for ascertaining whether such spirit has been denatured; (h) providing for the destruction or other disposal of any intoxicant deemed to be unfit for use; (i) regulating the disposal of confiscated articles; (j) prescribing the amount of security to be deposited by holders of leases, licenses, permits or passes for the performance of the conditions of the same." 14. The nature of powers conferred under Section 59 of the Act, make it manifest that it is but a regulatory power available only after a license is granted to the licensee for a local area, to ensure supply, storage, sale or otherwise that the conditions of the license are adhered to and necessary directions can also be given for the purpose. 15. The Excise Commissioner, a sub-delegate of the Financial Commissioner, in exercise of the powers conferred under section 59 of the Act by virtue of the Haryana Government Excise and Taxation notification dated 01.04.2016, made the impugned amendment to the Haryana Liquor License Rules, 1970. The same were notified on 29.03.2017. These rules were called the Haryana Liquor License (Amendment) Rules, 2017. R....
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....ule making power of the State Government to frame such rule. The court further held that fixing limit of rate of admission was an absolute necessity in the interest of the general public and the restriction so placed was reasonable and in public interest...." 18. The Financial Commissioner was therefore not competent to amend the Rules with regard to grant of number of licences for the entire state, and which power was exclusive to the State Government under Section 6 read with Section 13(a) and 58(2)(e) of the Act. In conclusion, we hold that Rule 24(i-eeee) as amended by the Financial Commissioner in exercise of powers under Section 59(a) of the Act is ultra vires the powers of the Financial Commissioner under the Act and is therefore struck down. In view of Rule 24(i-eeee) itself having been struck down, it is not considered necessary to discuss or consider the other grounds of challenge raised. 19. The appeal is allowed. CJI. RANJAN GOGOI And J. NAVIN SINHA JUDGMENT K. M. Joseph , J. 1.Having perused the judgment authored by brother Justice Navin Sinha notwithstanding the highest respect that I maintain for him, I express my inability to accept the reasoning given in sup....
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....d) In case no eligible bid equal to or above the reserve price is received for the lone L-1BF license, the same shall be allotted exclusively to a Government owned entity on the terms and conditions as decided by the Government. The permit and brand label fee shall be levied as under to procure Stock of liquor by the L-1BF licensee." 4.The ground which failed to persuade the Division Bench of the High Court but which has found acceptance at the hands of my learned Brother Sinha J. is that the impugned rule is ultra vires, the power of the Finance Commissioner under Section 59 of the Punjab Excise Act, 1914 (hereinafter referred to as "the Act"). The argument of the appellant is that the power to make a rule regarding number of licenses is with the State Government and it is said power which has been usurped by the Financial Commissioner in purported exercise of the power under Section 59 of the Act. To put it differently, the question would be whether the power is vested with the State Government under Section 58 or with the Financial Commissioner under Section 59 of the Act. It is but natural that I set out the provisions of Section 58 and 59 of the Act. "58. Power of State Gov....
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....obtained there under:- (m) prohibiting within the State the circulation, distribution or sale ofany newspaper, book, leaflet, booklet, or other publication printed and published outside the State which contains any advertisement or matter of the nature described in clause (1); (n) declaring any newspaper, book, leaflet, booklet or other publication, wherever printed or published, containing any advertisement or matter [of the nature described in clause (1)] to be forefeited to the State Government; and (o) implementing generally the policy of prohibition. (3) Previous publication of rules -The power conferred by this section of making rules is subject to the condition that the rules be made after previous publication.59. Powers of Financial Commissioner to make rules -The Financial Commission may, by notification, make rules. Provided that any such rules may be made without previous publication if State Government consider that they should be brought into force at once. (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 ....
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....onfiscated articles; (j) prescribing the amount of security to be deposited by holders of leases, licenses, permits or passes for the performance of the conditions of the same." 5.The case of the appellant is built around the provisions contained in Section 58(2)(e) of the Act. 6.The Punjab Excise Act, 1914 as extended to the State of Haryana contains the following provisions inter alia: Section 5 of the said Act reads as follows: "5.Power of State Government to declare limit of sale by retail and by wholesale. - The [State] Government may by notification declare with respect either to the whole of [Haryana] or to any local area comprised therein, and as regards purchasers generally or any specified class of purchasers, and generally or for any specified occasion, the maximum or minimum quantity or both of any [intoxicant] which for the purposes of this Act may be sold by retail and by wholesale." (emphasis supplied) The expression "any local area" stands out in the said statutory provision as distinct from the whole of Haryana. It is to be noted that Section 5 does not deal with the rule making power of the State. In fact, it relates to the maximum and minimum quantity....
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....f licences for sale. Sub-section (1) of the said provision reads as follows: "35. (1)Grant of lincenses for sale. -Subject to the rules made by the Financial Commissioner under the powers conferred by this Act, the Collector may grant licenses for the sale of any [intoxicant] within his district." (emphasis supplied) 11.Coming to Section 58 undoubtedly what is pressed before us by the appellant is a specific provision contained in Section 58(2)(e). Breaking down the said sub-section, in my view produces the following inevitable result. The State Government has the power to frame rules. 1) To regulate the periods of licences, permits and passes either wholesale or retail; 2) To regulate the localities for which wholesale or retail licences, permits or passes may be granted. 3) To regulate the persons or classes of persons to whom the licences, permits or passes may be granted either by way of a wholesale or retail licence; 12.The latter part of Section 58(2)(e) on the other hand also permits the Government to regulate by rules, the number of such licences which may be granted in any local area. Therefore, it is clear that it is in respect of the licences which are refer....
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....e said rule reinforces the view that the expression "number of licences" which may be granted in the local area is within the exclusive domain of the State Government and reliance placed by the appellant on the number of licences which may be granted in Section 58(2)(e) to strike at the impugned rule which is otherwise sourced under Section 59 is without any basis. In other words going through both the Act and the Rules, a distinction is made between the whole of the State and the local area. In regard to rule making power, undoubtedly, the legislature has specifically conferred rule making power qua the number of licences in any local area upon the State. Unless it can be reasoned that the powers to regulate sale of liquor within the meaning of Section 59 which is undoubtedly placed on the shoulders of the financial Commissioner would not include the power to make rules in regard to the number of licences for the State as a whole, the argument of the appellant must fail. 15.The word `regulate' in fact came to be considered by the decision of this Court in D.K. Trivedi and Sons v. State of Gujarat 1986 (Suppl.) SCC 20. The matter arose under Section 13 inter alia of the Mines and ....
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....ences, (ii) mining leases, (iii) minerals mined, quarried, excavated or collected; **** (r) any other matter which is to be, or may be, prescribed under this Act." 17.However, having regard to the connotation of the word 'regulate' it would include power to control the sale of liquor under the Act. Control of sale is possible by providing for licences as it is through licencing that the authority can provide for conditions under which the sale could be best controlled. If the power to regulate include the power to stipulate licences it undoubtedly also would include power to provide for number of licences qua the State as a whole a matter which I have reasoned does not fall under Section 58(2)(e) of the Act. 18.In the judgment of this court in Khoday Distilleries Ltd. and Others v. State of Karnataka and Others reported in 1996 (10) SCC 304, the issue arose under the Karnataka Excise Act, 1965. Undoubtedly, there is a provision therein which is pari materiawith Section 58(2)(e) of the Punjab Excise Act in the Karnataka Excise Act, 1965 which has been extracted at para 8 of the said judgment. The case in fact related to a distributor licence and not wholesale or retail lic....
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....ws prohibiting trades in noxious or dangerous goods or trafficking in women cannot be held to be illegal as enacting a prohibition and not a mere regulation. The nature of the business is, therefore, an important element in deciding the reasonableness of the restrictions. The right of every citizen to pursue any lawful trade or business is obviously subject to such reasonable conditions as may be deemed by the governing authority of the country essential to the safety, health, peace, order and morals of the community. Some occupations by the noise made in their pursuit, some by the odours they engender, and some by the dangers accompanying them require regulation as to the locality in which they may be conducted. Some, by the dangerous character of the articles used, manufactured or sold, require also special qualification in the parties permitted to use them, manufacture or sell them. The Court in this connection referred to the observations of Field, J. in P. Crowley v. Henry Christensen; 34 L ED 620 : 137 US 86 (1890) a part of which is as follows: "The sale of such liquors in this way has, therefore been, at all times, by the courts of every State, considered as the proper su....
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.... the State action and the taboo against arbitrariness must inform the State action once it decides to permit trade in liquor. It is to be noticed that the introduction of the rule was primarily to earn maximum profits. The case of the state is that introduction of the rule has enabled collection of greater amounts by way of revenue. This cannot be said to be entirely an irrelevant consideration. Going too far in these matters may involve the court making a foray into the ordinarily forbidden territory of policy. 23.No doubt, the appellant draws our attention to the recent decision of this Court in The Kerala Bar Hotels Association & Another v. State of Kerala & Others AIR 2016 SC 163. In fact, one the contentions of the appellants was that the state had 3 options. The first is prohibition, the second is State monopoly in manufacture or trade and the third was to allow private players into the business in which everyone has a right to partake in the business. The court went on to hold inter alia as follows: "24.We disagree with the submissions of the Respondents that there is no right to trade in liquor because it is res extra commercium. The interpretation of Khodayput forward b....
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....ration was in a different factual matrix. I do not think that the earlier view taken by this Court both in Cooverjee B. Bharucha Vs. Excise Commissioner and the Chief Commissioner, Ajmer and Others AIR 1954 SC 220 and Khodays' case(supra) in relation to the effect of throwing open the right to obtain an exclusive privilege not flowering into a monopoly has not been overridden. 26.The third complaint of the appellant is this. The assumption of the monopolistic position by the licensee would lead to arbitrary and unfair practices which would leave the members of the appellant without redress. The High Court, it is pointed out has rejected the contention by essentially reasoning that the licensee as long as it confirms to the conditions and law is a free agent and shut out the prospect of judicial review. This is what the High Court finds:- "32.There may be some safeguards within the policy which protect the rights of the upstream licenses such as manufacturers as well as the downstream licenses i.e. the purchasers, such as, retailers and holders of licences for bars, clubs and restaurants. There is no doubt, however, that a sole wholesaler can pick and choose the parties that he w....
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....xclusion of all others. It is also entitled to engage private parties to do so. The State cannot pick and choose who to deal with. Absent any special circumstances, the State would be bound to consider the claim of every party that is otherwise eligible to undertake the work. However, once the State parts with its rights to construct a building and hands it over to a private enterprise, the matter ends there so far as it concerns the work that it has contracted to the private party. The contractor is not bound to call for tenders in respect of every item involved in the construction. Thecontractor is not bound to consider the application of every party for the supply of material required for the construction of the buildings. The contractor is entitled to obtain the material from such parties as it desires and on such terms and conditions that the contractor desires. The suppliers of the material would not be entitled to compel the contractor to afford them an opportunity of supplying the material. The rules of the game that apply to a State or an instrumentality of the State do not apply to such contractors." 27.In this case, in fact, Mr. Gopal Subramanium, learned senior counsel....
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.... of the state within the meaning of Article12 of the Constitution. It is a trite law that an effort at bringing a body within Article 12 must originate specifically in the pleadings. 29.Pleadings in this case on this point is conspicuous by its absence. 30.The appellant would point out that in fact, after the new regime has been put in place, 5 star hotels were not being provided sufficient stocks of BIO products being supplied by the members of the appellant. Further it is pointed out that immediately upon grant of the licence in 2017, there has been a sudden decline in the sales of BIO prod8ucts supplied by the members of the appellant. The reason for this decline is sought to be placed at the door step of the sole licensee. The appellant has pointed out that there has been sudden decline of 25% in the supply of BIO brands of United Spirits Ltd.. There is a reference of 30% decline of BIO products of Pernod Ricard as well. There has been significant rise of the product of Pernod Ricard in the neighboring states of Rajasthan and Delhi, itis pointed out. 31.I would notice that many of the contentions of the appellant are in the form of apprehensions about what may happen in futu....