TaxTMI 
TaxTMI 
2026 (3) TMI 99
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....y 27, 2018. 2. The brief backdrop of the case is that the respondent no. 1-Company owns and operates a four-star Hotel in Kolkata. Originally a Private Limited Company, respondent no. 1 became a deemed Public Limited Company by operation of an amendment in Section 43-A(1B) of the Company Act, 1956. Again, on February 26, 2002, the respondent no. 1-Company was converted into a Private Limited Company by operation of law. 3. In the year 2009, a query was raised by the State-Authority as to why renewal of the Excise license was made in the name of "New Kenilworth Hotel Private Limited", whereas the original excise licenses were granted in the name of "New Kenilworth Hotel Limited", to which the respondent no. 1-Company responded by its letter dated November 3, 2009. 4. By a Memo dated September 9, 2013, the appellant No. 4 demanded a sum of Rs. 22,50,000/- on account, inter alia, of "change in management and in status of the Company", as new Directors were inducted in the Company. Despite the ensuing correspondence between the parties, the respondent no. 1 made payment of the said amount for renewal of its excise licenses under protest. 5. By a further Memo dated July 5, 2....
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.... inter alia, that if Clause (d) is suitably "read up", the zone of exemption for a Private Limited Company from payment of license fees would be increased and made equal to that a Public Limited Company. 12. Learned Advocate General (AG), appearing for the appellant, argues that the grant of excise license involves parting with a privilege of the State as contemplated in Sections 22 and 23 of the Bengal Excise Act, 1909 (hereinafter referred to as "the BE Act"). Section 38 of the said Act permits charging of fees for grant of license, permit or pass under the Act, whereas Section 42 empowers the State Government to cancel or suspend the license, permit or pass. Section 86 of the BE Act, it is submitted, empowers the State Government to frame Rules for various enactments including prescribing the scale of fees and regulating the time, place, manner of payment of such fees. 13. Learned AG argues that there is no fundamental right of citizens to carry on business in liquor. 14. It is further argued that Private Limited Companies are closely held companies whereas Public Limited Companies are widely held, in which the public are substantially interested. On such premise, it is....
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.... 4 SCC 366. 21. Citing State of Bombay and another v. F.N. Balsara, reported at (1951) SCC 860, learned AG argues that there was no wrong in the Legislature according special treatment to persons who fall under a class by themselves, in the context of applicability of Article 14 of the Constitution. 22. In State of W.B. v. Anwar Ali Sarkar, reported at (1952) 1 SCC 1, a Constitution Bench of the Hon'ble Supreme Court observed that a systemic arrangement of things into groups or classes in accordance with some definite scheme does not offend Article 14 of the Constitution of India and that any and every differentiation is not contrary to the said Article. 23. Relying on of A.P. v. McDowell & Co., reported at (1996) 3 SCC 709, and State of Punjab v. Devans Modern Breweries Ltd., reported at (2004) 11 SCC 26, learned AG argues that the Government being the exclusive owner of the privilege to sell liquor, reliance on Articles 19(1) (g) and 14 of the Constitution becomes irrelevant, since fundamental rights are not applicable to liquor business. 24. It is next argued by learned AG that the doctrine of quid pro quo is inapplicable in the field of regulatory fees. Fees in the ....
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....te Limited Company. Thus, the said provision, it is contended, is discriminatory without any reasonable premise, between Private and Public Limited Companies. 33. It is argued that the expression "change in management" in the 2009 Rules has to construed in the context of the object of the Rules, which in turn has to be culled out from Sections 86(7) and 86(9)(viii). On a conjoint reading of the charging provision and the exempting provision, it would be evident that the object of the transfer is to regulate the transfer of the excise license. The said object would also be evident from an analysis of the 2009 Rules which provides that while any change in management or the Board of Director of a Private Limited Company and Public Limited Company are both required to be brought to the notice of the Collector, only in cases which amount to transfer of a license, consequential fees for change in management is also to be levied on such transfer. Thus, there must be a "transferee" within the meaning of Rule 4(3), whose eligibility has to be assessed by the Collector and in that context, the necessity of change in management has to be reassessed. Every change in management, either by wa....
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....s in a completely different manner. 40. Learned senior counsel next seeks to distinguish the judgments cited by the appellants. 41. Upon hearing the parties and considering the materials on record as well as the impugned judgment, the court arrives at the following findings: Exemption in licence fee - whether State largesse 42. Learned AG has raised a question as to whether a concession or a privilege in respect of grant of licence can be termed as a largesse at all. 43. Distribution of largesse may come in different forms. It may be undertaken by way of grant of benefits to a particular individual/entity or class of individuals/entities can be both in positive and negative modes. 44. An example of positive grant of largesse is distribution of State resources such as land, employment, etc., which may also come in the form of incentives. 45. On the other hand, a negative distribution of largesse would come in the shape of disincentives or exemptions granted to particular entities or class of entities while depriving others, which would create a dent in the public exchequer by waiver of fees/revenue which could be earned by the State. 46. To consider whether a....
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....e considered as a whole. The said Rules are set out hereinbelow: "1. Short title.- These rules shall be called the West Bengal Excise (Change in Management) Rules. 2009. 2. Application.- These rules shall apply in case of change in management of all excise licences granted under the Bengal Excise Act, 1909 and rules framed thereunder, except for those licences which are settled by auction. 3. Definitions.- In these rules, unless there is anything repugnant to the subject or context, the words and expressions used shall have the same meaning as respectively assigned to them in the Bengal Excise Act, 1909 and rules framed thereunder. 4. Procedure for application for change in management - (1) The application for change in management of an excise license may be made to the Collector in whose jurisdiction the site is situated. No application for change in management of a license shall be considered unless it is accompanied by an appropriate receipted Treasury Challan showing payment of a non-refundable application fee similar to the one applicable for grant of a new excise license in the same category in the same local area. Provide....
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....ategory in the same local area. Provided also that in cases where changes occur without the prior approval of the State Government or without the prior permission of the Collector and the approval of the Excise Commissioner as the case may be. the Collector shall forthwith ask the society, or the co-operative society or the company to show cause within seven days as to why the licence should not be taken to be determined, consider the explanation if any and send his opinion and recommendation along with the explanation to the Excise Commissioner soon thereafter. The Excise Commissioner or the State Government as the case may be. shall thereupon review the case after granting the party an opportunity' of being heard and pass orders which may be final. (3) On receipt of the application, the Collector, under whose jurisdiction the site is situated, shall hold such enquiries as he may deem fit. In making such enquiries, the Collector shall consider whether the proposed transferee(s) is/are fit and eligible to hold an excise license and, whether the said change in management is necessary for the proper management of the licence. (4) The Collector shall thereaf....
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....iety registered under the West Bengal Societies Registration Act, 1961 and when the Partnership firm/ Society / Co-operative Society is newly re-constituted by way of selection from amongst the legal heir(s) or representative(s) of such deceased member(s) and the surviving members) and when such newly selected legal heir(s) or representative(s) is/are willing and otherwise eligible to hold the license along with the surviving member(s); (d) death of director(s) of a Private Limited Company. (e) death or change in management in the usual course of business of a public limited company, incorporated under the Companies Act, 1956. (2) No initial grant fee shall be payable in case of Government Undertakings where the management is changed in the usual course of business. 6. Change of name:-An application for change of name and style of an establishment having excise license shall be accompanied by a non-refundable application fee similar to the amount applicable at the time of grant of a new excise license of the same category in the same local area. No initial grant fee shall be realized in such circumstances. Approval for such change of name and sty....
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....cil of India v. Biyani Shikshan Samiti, reported at (2022) 6 SCC 65, it was reiterated by the Hon'ble Supreme Court that a challenge to a subordinate legislation on the ground of arbitrariness can only be upheld when it is found that it is not in conformity with the statute or offends Article 14 of the Constitution of India. Although the Hon'ble Supreme Court went on to observe that it would be wrong for the Court to substitute its own opinion for that of the Legislature or its delegate as to what principle or policy would best serve the objects and purposes of the Act, nonetheless, the ground of arbitrariness was retained as a valid yardstick of challenge under Article 14 of the Constitution of India. 55. Again, in Cellular Operators Assn. of India v. TRAI, reported at (2016) 7 SCC 703, the Hon'ble Supreme Court laid down the tests of challenging subordinate legislations, one of which is manifest arbitrariness/unreasonableness and the other is violation of fundamental rights and/or any other provision of the Constitution of India. 56. Let us now consider the scope of challenge in the present case in conformity with the above broad principles. At the outset, it must be noted ....
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....Court clearly recognized the applicability of Article 14 even in case of exemptions regarding liquor business and reiterated that exemption could be given to a particular class as opposed to the others. However, in the case at hand, the argument of the respondents revolves around unjust exemption being given to different entities within the same class, that is, limited companies. 59. In State of W.B. v. Anwar Ali Sarkar, reported at (1952) 1 SCC 5, the Hon'ble Supreme Court observed that a systematic arrangement of things into groups or classes in accordance with the same definite scheme does not offend Article 14 of the Constitution of India. There cannot be any quarrel with such proposition in principle. 60. Again, in State of A.P. v. McDowell & Co., reported at (1996) 3 SCC 709, the Hon'ble Supreme Court held that due to the vicious and pernicious nature of intoxicating liquors, dealing in the said commodity is res extra commercium (outside commerce). The Hon'ble Supreme Court also took into consideration Article 47 of the Constitution of India, which mandates the State to endeavour to bring about prohibition in such businesses. In the said context, the Hon'ble Supreme Cou....
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....s in judicial review on the ground of violation of Article 14 of the Constitution of India. 66. Even otherwise, the imposition of initial licence fee here is directly relatable to the privilege of operating a liquor sale/dealership outlet and, inter se grantees of such licence who have similar characteristics, there cannot be any discrimination without intelligible differentia having a nexus with the object sought to be achieved by such distinction. 67. Rather, the proposition in Ramana Dayaram Shetty v. International Airport Authority of India, reported at (1979) 3 SCC 489 is apt in the context of the present case. The Hon'ble Supreme Court, relying on V. Punnen Thomas v. State of Kerala, reported at AIR 1969 Ker 81 and Erusian Equipment & Chemicals Ltd. v. State of West Bengal and another, reported at (1975) 1 SCC 70, held therein that the Government is not and should not be as free as an individual in selecting the recipients of its largesse. Whatever its activity, the Government is still the Government and will be subject to restraints, inherent in its position in a democratic society. A democratic Government cannot lay down arbitrary and capricious standards for the choi....
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.... necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It was also held to be well-established by the decisions of the Hon'ble Supreme Court that Article 14 condemns discrimination not only by a substantive law but by a law of procedure. 70. Applying such principle, in the present case, it is evident that the discrimination sought to be meted out against private limited companies, as opposed to public limited companies, in respect of granting exemption in payment of initial licence fee for change in management in the usual course of business, does not have a rational nexus with the object sought to be achieved, by imposing licence fees. The underlying refrain of the entire 2009 Rules is that in case of change in management, barring inevitable ones such as due to death of a director or change in usual course of business (over which the company does not have any control), it will be deemed that there is an implicit transfer of management and accordingly necessary approval/regularization has to be obtained and license fees have to be paid afresh as if a new entity comes in place of the older one. However, the very....
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.... expression "usual course of business" is a sufficient check and bound to such arbitrary alteration in management intending to transfer the interest in the management of the company to a different body altogether. 74. Hence, there is neither any rationale nor reasonableness behind such an intra-class discrimination between similarly placed entities, that is, limited companies. 75. Insofar as IFB Agro Industries Ltd. and Another v. State of W.B. and others, reported at 2022 SCC OnLine Cal 3707 is concerned, the learned Single Judge, in our view rightly, held in paragraph no.9 thereof that levy of a fee is different in concept and source from levy of tax, as fees are a sort of return or consideration for service rendered and entail an element of quid pro quo for their imposition whereas the power to impose a tax is different. 76. Even if we do not rely on the concept of change in management, discussed in the context of company jurisprudence in paragraph no. 6 of the said decision (as there might be some distinction between the operation of the Companies Act, 1956 or 2013 and the purpose of the present Rules, which govern regulation and imposition of fees for excise licence),....
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....f excess initial licence fees, on a particular group of entities as opposed to another, despite both coming within the same genre of entities, having similar characteristics vis-à-vis the restriction imposed. 85. Thus, the last-mentioned decision is not of much relevance in the present context. Private vs. Public Limited Companies 86. The moot question involved here is whether there is a reasonable nexus between the distinction created between public and private limited companies and the object of the 2009 Rules. As stated in Rule 2 of the said Rules, the Rules would apply in case of change in management of all excise licences granted under the BE Act and Rules framed thereunder, except for those licences which are settled by auction. 87. Hence, the application of the Rules is universal. 88. A mere perusal of the provisions of Rule 4 clearly exhibit that even in the perception of the State, as reflected in the said Rule, no line of distinction has been drawn vis-à-vis change in management between private and public limited companies. 89. The proviso to sub-rule (1) of Rule 4 provides universal exemption from the minimum five-year rule if change is re....
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....e, going by Rule 4, even in the perception of the State, as reflected in the Rules, the parameters applicable to change in management are the same for both private and public limited companies. 96. However, a marked distinction is drawn in Rule 5. Although under sub-rule (1) of Rule 5, the Collector, after getting approval of the State Government or the Excise Commissioner, as the case may be, shall allow change in management of a licence after realising 1½ times the initial grant fee similar to that applicable for grant of a new excise licence of the same category or the same local area, the proviso stipulates exemptions in respect of payment of initial grant fee in case of change of management. 97. All on a sudden, going against the grain of the rest of the 2009 Rules, a distinction is drawn between public and private limited companies in the exemption clauses, inasmuch as Clause (d) of the proviso stipulates only change of management in case of death of Directors to be eligible for exemption for a private limited company, whereas Clause (e) stipulates that even apart from death, change in management in the usual course of business would also make a public limited co....
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....widely held and closely held companies, since unlike closely held companies, in the case of widely held companies, the public have a predominant voice in their management. 103. However, the said ratio is not applicable to the present case, since all public limited companies are not "widely held companies", in which the public are substantially interested. The reliance of the State on the said judgment is erroneously premised, seeking to equate all public limited companies with companies in which the public are substantially interested, merely because the word "public" is common between the two. In order to understand the fallacy in the said logic, we are to look at the structure of limited companies. The primary distinction between a public and the private limited company is that while in the former, the shares are open to the public, in the latter, the shares are closely held, there being a limit to the shares which are permissible to be circulated. However, fact remains that even in public limited companies, the profits and dividends earned by the company and/or the loss incurred by the same are distributed among the specific shareholders who have a say in the management. It i....
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....e concerned, in the specific context of change in management, we do not find any dissimilarity between public and private limited companies insofar as change in 'usual course of business' is concerned. By circumscribing the change in management by the expression "in usual course of business", such change is restricted only to inevitable and unavoidable alterations in the management, necessary in the usual course of running the company. Thus, the element of voluntary and deliberate act of a company to transfer its management by way of alteration therein is taken out by confining the change in management only to the usual course of business, arising out of business exigencies. Insofar as such limited change in management is concerned, there is neither any intelligible differentia nor any reasonableness in the discrimination between public and private limited companies. 109. Hence, the aforesaid decision cannot come to the aid of the appellants in the present context. Applicability of the 2020 Rules 110. In State Bank of India v. V. Ramakrishnan, reported at (2018) 17 SCC 394, relied on by the State, the Hon'ble Supreme Court observed that in the said case, the amendment was ....
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....n the definition clauses in both the 2005 Rules, which preceded the 2009 Rules, and the 2009 Rules itself, respectively Rules 2 and 3 thereof, provided that in the Rules, unless there is anything repugnant to the subject or context, the words or expressions used shall have the same meaning as respectively assigned to them in the BE Act and the Rules framed thereunder. However, there was no definition of the expression "change in management" in either the BE Act or the Rules framed therein. 115. Conspicuously, in the Preamble of Notification No. 212-F.T. dated February 11, 2020, issued in exercise of powers conferred by Sections 85 and 86 of the BE Act, it was clearly provided that the amendments to the 2009 Rules incorporated thereby were to come into force "with immediate effect". There is no element of clarification of anything which was already there in the 2009 Rules, since the 2009 Rules were completely devoid of any definition whatsoever of "change in management". 116. The said logic is further strengthened by the fact that the proposed amendment provided that in the 2009 Rules, the original Rule 3 (referred to above) would be "substituted" and an entirely new regime of....
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....ading up the provisions of Clause (d), the learned Single Judge struck down Clause (d) in the same breath by holding the same to be ultra vires the Constitution of India. 123. The devices of "reading up" and "reading down" provisions of statutes and subordinate legislation have been formulated by Courts to save the Constitutionality of statutory provisions and to retain the provisions in the statute book. Hence, if a provision is read up or down to bring it within the domain of Constitutional validity, it would be a contradiction in terms if the said provision is struck down in the same breath. 124. Also, the effect of totally striking down Clause (d) would be counter-productive and defeat the very intent of reading up, not only because the provision would then be deleted altogether from the Rules but also because of the devastating effect of such deletion on the very entities which are intended to be the beneficiaries of such reading up. 125. In the event Clause (d) of the proviso to Rule 5(1) is struck down in its entirety, the exemption given to private limited companies in respect of remission of initial grant fee of licence in case of change in management would be alt....