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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.921­922 OF 2008  

STATE OF M.P. & ANR.   .... APPELLANTS

   VERSUS

KEDIA GREAT GALEON LTD. & ANR.        .... RESPONDENTS

J U D G M E N T

ASHOK BHUSHAN, J.

1.These   appeals   have   been   filed   by   the   State   of

Madhya Pradesh against the judgment and order dated

04.05.2000   of   the   High   Court   by   which   judgment   the

writ   petition   filed   by   the   Respondents   has   been

allowed and demand of Rs. 13,24,189.50, claiming to be

excess   expenditure   incurred   on   State   Government

establishment   on   Distillery   of   respondents   has   been

set­aside. 

2.Brief facts of the case are:

The Respondent Kedia Great Galeon Ltd. & Anr. held

a licence under Madhya Pradesh Distillery Rules, 1995

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(hereinafter   referred   to   as   Rules   1995)   for

manufacturing of Liquor/Spirit.   A notice dated 23

rd

March,   1999   was   issued   to   Respondent   No.   1   by   the

District Excise Officer, demanding an amount of Rs.

13,24,189.50   as   excess   expenditure   on   the

establishment of officers and employees as per Rule

4(41)   of   Madhya   Pradesh   Distillery   Rules,   1995

pertaining to year 1995­96, 1996­97 and 1997­98. 

3.The   Respondents   aggrieved   by   the   above   notice

filed   a   writ   petition   in   the   High   Court   of   Madhya

Pradesh, Bench at Indore being Writ Petition No. 589

of 1999. The Respondent in its writ petition placed

reliance on a judgment of this Court in  M/s. Lilasons

Breweries (Pvt.) Ltd. versus State of Madhya Pradesh

and Others, (1992) 3 SCC 293 , in which case Rule 22 of

Madhya Pradesh Brewery Rules, 1970  which also entitled

the   State   to   realise   from   the   brewery   charges   on

officers exceeding five per cent of the duty leviable

was   struck   down.   Respondents   pleaded   in   the   writ

petition that Rule 4(41) of the Rules, 1995 is also

non est  and void, consequently demand raised on the

strength of such rule is liable to be struck down. In

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the writ petition following prayers were made in Para

7 by the Respondents:

“(i)A   writ,   direction   or   order   in

the nature of mandamus or as deemed

fit   be   issued   quashing   the   order

Annexure/2  and  it  be  declared  that

no demand can be raised under Rule

4(41) of the Distillery Rules.

(ii)Such   other   relief   be   granted   as

deemed fit.

(iii) This petition be allowed with

costs.”

4.A   counter­affidavit   was   filed   by   the   State,

stating that Rule 22 of M. P. Breweries Rules, 1970 is

out of context and has no relevance since the demand

has been raised under Rule 4(41) of Rules, 1995.

5.State pleaded that demand made by the State is

proper and cannot be struck down, however, if the writ

petitioner   wishes   to   challenge   the  vires  of   Rule

4(41), same can be challenged before the Constitution

Bench.

6.A learned Single Judge allowed the writ petition

and quashed the demand notice. Learned Single Judge

although,   opined   that   Rule   4(41)   of   the   Rules   1995

appears to be ultra vires to the Madhya Pradesh Excise

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Act   beyond   the   rule   making   power,   however   since   no

such prayer is made by the writ petitioner, no order

in this behalf can be passed in the rules by Bench at

Indore.

7.Learned Single Judge, however, held that decision

of this Court in   Lilasons (Supra)  renders the demand

notice   Annexure   P.2,   as   void.   Learned   Single   Judge

also   held   that   the   demand   towards   establishment

charges is more than 150 per cent of the total income

of the distilleries on the basis of which, the demand

is arbitrary and unreasonable.

8.Aggrieved by the judgment of learned Single Judge,

the   State   filed   a   Letter   Patents   Appeal   before   the

Division Bench of the High Court, which was dismissed

on 06.09.2005, as not maintainable.

9.Aggrieved by the judgment of learned Single Judge

as well as the judgment of the Division Bench of the

High Court, these appeals have been filed by the State

of M.P.

10.We   have   heard   Shri   Ankit   Kumar   Lal,   Learned

Counsel   appearing   for   the   State   of   M.P.   and   Shri

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Jayant Kumar Mehta, learned counsel appearing for the

respondents.

11.Learned counsel for the appellants in support of

the appeal contends that the judgment of the learned

Single   Judge,   declaring   the   demand,   as   void   is

erroneous.   It   is   contended   that   the   learned   Single

Judge, relying on the judgment of   Lilasons case  had

declared the demand, as void whereas, judgment of the

Lilasons was concerned with Rule 22 of M. P. Breweries

Rules 1970, but the demand impugned before the High

Court was raised under Rule 4(41) of the Rules 1995.  

12.Learned Counsel also submits that the judgment of

Lilasons  has not been followed by this Court in some

subsequent   judgments.     It   is   submitted   that   in   the

writ petition, there was no challenge  to Rule 4(41) of

Rules 1995, hence, the demand which was fully covered

by Rule 4(41) could not have been struck down.  It is

submitted   that   Rule   4   (41)   is  intra   vires  and   the

State in accordance with the M. P. Excise Act, 1915 is

fully   entitled   to   realise   the   above   demand.     The

demand   raised   under   Rule   4(41)   was   fully   covered

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under  Section 27 and 28 of the M.P. Excise Act, 1915.

Learned Counsel submits that licensee having taken the

licence under the conditions, as contained under Rule

4(41) of Rules 1995, cannot turn round and challenge

the demand. He submits that provisions for realization

of establishment charges from licensee are contained

in different Excise Acts of various States and such

provisions have been held to be  intra vires,  by this

Court.

13.Shri   Mehta,   learned   counsel   appearing   for   the

respondents, refuting the submissions of the learned

counsel for the appellants contends that the judgment

of  Lilasons (supra)  is fully applicable in the facts

of the present case and had rightly been relied by

learned Single Judge for quashing the demand.   Learned

counsel submits that in the writ petition, there were

specific grounds, challenging the  vires of Rule 4(41)

and the mere fact that no specific relief was claimed

in the writ petition is inconsequential and this Court

can very well examine the   vires  of the rule, which

rule   is   liable   to   be   struck   down   following   the

judgment of this Court in   Lilasons (supra).    It is

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contended that the expenditure on the establishment is

claimed   as   150   per   cent   on   revenue   earned   whereas,

rule making authority has contemplated 5 per cent of

revenue to meet the establishment charges, the demand

is unreasonable and arbitrary and exorbitant.  Learned

counsel   has   relied   on   Para   9   of   the   judgment   of

learned Single Judge where the demand has been held to

be arbitrary and unreasonable. Learned Counsel further

pointed   out   that   from   the   demand   notice,   it   is

apparent that there was no revenue earned in the year

1996­97 whereas, expenditure in excess of 5 per cent

have been claimed as Rs.4,36,897/­.

14.Learned counsel further contended that the State

itself in subsequent years have changed its policy and

instead of realising the demand in excess of 5 per

cent of revenue, now a fix  amount is charged from the

licensee. He contended that there was no provision in

the Act to realise such charges prior to insertion of

Section 28­A in the  M. P. Excise Act, 1995 by  M.P. Act

No. 24 of 2000 which indicates that charges were not

recoverable from the licensee.

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15.We   have   heard   the   submissions   of   the   learned

counsel for the parties and perused the records.

16.The Trade of Liquor is in existence from the time

immemorial. All civilized societies had soon realised

the necessity to control and regulate such trade. In

an   early   decision,  Field,   J   in   Crowley   versus

Christensen   34   L   ED   620  had   made   the   following

observations in the above context:

"The   sale   of   such   liquors   in   this

way   has,   therefore,   been,   at   all

times, by the courts of every State,

considered as the proper subject of

legislative regulation. Not only may

a licence be exacted from the keeper

of the saloon before a glass of his

liquors can be thus disposed of, but

restrictions   may   be   imposed   as   to

the   class   of   persons   to   whom   they

may be sold, and the hours of the

day,   and   the   days   of   the   week   on

which   the   saloons   may   be   opened.

Their   sale   in   that   form   may   be

absolutely   prohibited.   It   is   a

question   of   public   expediency   and

public morality, and not of federal

law. The police power of the State

is  fully  competent  to  regulate  the

business – to mitigate its evils or

to suppress it entirely.   There is

no   inherent   right   in   a   citizen   to

thus   sell   intoxicating   liquors   by

retail; it is not a privilege of a

citizen of the State or of a citizen

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of the United States.   As it is a

business attended with danger to the

community, it may, as already said,

be   entirely   prohibited,   or   be

permitted   under   such   conditions   as

as   will   limit   to   the   utmost   its

evils.     The   manner   and   extent   of

regulation rest in the discretion of

the   governing   authority.   That

authority may vest in such officers

as it may deem proper the power of

passing   upon   applications   for

permission   to   carry   it   on,   and   to

issue licences for that purpose. It

is   a   matter   of   legislative   will

only.”

17.This Court in  Cooverjee B. Bharucha versus The

Excise   Commissioner,   Ajmer,   AIR   1954   SCC   220,

speaking through Mahajan, C.J.,   after approving the

above passage of  Field, J. stated: 

“These observations have our entire

concurrence   and   they   completely

negative   the   contention   raised   on

behalf   of   the   petitions.   The

provisions of the Regulation purport

to regulate trade in liquor in all

its   different   spheres   and   are

valid.”

18.Mahajan, C.J., further held in above case:

"It can also not be denied that the

State has the power to prohibit the

trades which are illegal or immoral

or   injurious   to   the   health   and

welfare   of   the   public.   Laws

prohibiting the trades in noxious or

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dangerous  goods or    trafficking in

women cannot be held to be illegal

as enacting a prohibition and not a

mere regulation.”

19.Justice   Y.   V.   Chandrachood,   speaking   through   a

Constitution Bench in  Har Shankar and Others versus

The   Deputy   Excise   and   Taxation   Commissioner   and

Others, (1975) 1 SCC 737,  referring to various earlier

Constitution Benches of this Court laid down following

in Para 45 & 47:

"45.In   Nagendra   Nath   Bora   v.

Commissioner   of   Hills   Division   and

Appeals,   Assam,   the   decisions   in

Cooverjee's   case   (supra)   and

Kidwai's case(supra) were cited by a

Constitution   Bench   as   laying   down

the   proposition   that   there   was   no

inherent right in a citizen to sell

liquor   and   that   the   control   and

restriction over the consumption of

intoxicating   liquors   was   necessary

for   the   preservation   of   public

health   and   morals   and   to   raise

revenue.”

"47.These   unanimous   decisions   of

five   Constitution   Benches   uniformly

emphasized   after   a   careful

consideration   of   the   problem

involved   that   the   State   has   the

power  to  prohibit  trades  which  are

injurious to the health and welfare

of the public, that elimination and

exclusion from business is inherent

in   the   nature   of   liquor   business,

that no person has an absolute right

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to deal in liquor and that all forms

of   dealings   in   liquor   have,   from

their inherent nature, been treated

as   a   class   by   themselves   by   all

civilized   communities.   The

contention   that   the   citizen   had

either   a   natural   or   a   fundamental

right to carry on trade or business

in liquor thus stood rejected.”

20.This   Court   in   the   above   Constitution   Bench   has

also held that one of the main purposes of selling the

exclusive rights of liquor is to raise the Revenue.

Following was stated in para 51:

"...After referring to the decisions

in   Cooverjee's   case   (supra)   and

Krishna Kumar Narula's case (supra)

it   was   observed   that   one   of   the

important   purposes   of   selling   the

exclusive  right to  vend liquor  was

to   raise   revenue   and   since   the

Government   had   the   power   to   sell

exclusive   privileges   there   was   no

basis for contending that the owner

of the privileges could not decline

to   accept   the   highest   bid   if   he

thought that  the  price  offered  was

inadequate.   Hegde, J. speaking for

the   Division   Bench   observed:(SCC

p. 44, Para 13)

The fact that the Government was

the seller does not change the legal

position once its exclusive right to

deal   with   those   privileges   is

conceded.  If  the  Government is  the

exclusive owner of those privileges,

reliance   on   Article   19(1)(g)   or

Article   14   becomes   irrelevant.

Citizens cannot have any fundamental

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right to trade or carry on business

in   the   properties   or   rights

belonging to the Government nor can

there be any infringement of Article

14, if the Government tries to get

the   best   available   price   for   its

valuable rights.”

21.While   delving   into   the   nature   of   licence   fee

charged for granting the privilege to manufacture/sale

intoxicant,   Constitution   Bench   further   laid   in   para

59:

"The amount charged to the licensees

is not a fee properly so­called nor

indeed a tax but is in the nature of

the price of a privilege, which the

purchaser has to pay in any trading

or business transactions.”

22.Those who come forward to seek the above privilege

of the State to manufacture or sell the liquor have to

abide   by   the   statutory   regulations   and   terms   and

conditions of the licence. The privilege is not thrust

upon anyone rather it is sought by intending persons

or parties by participating in auctions for settling

such right or by obtaining licence for such privilege

in accordance with the statutory provisions.

23.After   noticing   the   nature   of   the   privilege,

pertaining to manufacture and sale of intoxicant it is

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relevant   to   have   a   birds   eye   view   on   the   relevant

statutory provisions governing the field. 

24.The Central Provinces Act 1915 (M.P. Excise Act

1915 hereinafter referred to as Act 1915) was enacted

to   consolidate   and   amend   the   laws   relating   to

import­export,   transport,   manufacture,   sale   and

possession of intoxicating liquor and drugs. 

Chapter IV   of the   Act deals with manufacture,

possession   and   sale.     Section   13   provides   that   no

intoxicant shall be manufactured or collected except

under   the   authority   and   subject   to   the   terms   and

conditions   of   a   licence   granted   in   that   behalf.

Section 14 deals with establishment and licensing of

distilleries and warehouses. Section 18 deals with the

power   to   grant   lease   of   right   to   manufacture,

etc..Section 18 (1) is quoted below.

"18.1.   The   State   Government   may

lease   to   any   person,   on   such

conditions and for such period as it

may think fi9t, the right­­

(a)of   Manufacturing,   or   of

supplying by wholesale or of both,

or

(b)of  selling   by  wholesale  or  by

retail, or

(c)of   manufacturing   or   of

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supplying by wholesale, or of both,

and selling by retail,

any 1[omitted by Madhya Pradesh Act

No.   19   of   1964]”liquor   or

intoxicating   drug   within   any

specified area. 

25.Chapter V deals with the duties and fees. Section

25   (1)   deals   with   the   duty   on   excisable   articles.

Section 25 (1) is quoted below.

"25(1).   An   excise   duty   or   a

countervailing duty, as the case may

be, shall, if the State Government

so   direct,   be   levied   on   all

excisable   articles   other   than

medicinal   and   toilet   preparations

specified for the time being in the

Schedule to the Medical and Toilet

Preparation   (Excise   Duties)   Act,

1955 (No. 16 of 1955)­ 

(a)imported; or

(b)exported; or

(c)transported; or

(d)manufactured,   cultivated   or

collected under any licence granted

under section 13; or

(e)   manufactured   any   distillery

established,   or   any   distillery   or

brewery licensed, under this Act:

Provided that it shall be lawful for

the State Government to exempt any

excisable article from duty to which

the same may liable under this 

Act.”

26.Section 27 deals with payment for grant of leases.

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Section 27 is as follows: 

”27.1 Instead of or in addition to

any   duty   leviable   under   this

Chapter,   the   State   Government   may

accept   payment   of   a   sum   in

consideration   of   the   grant   of   any

lease under Sec. 18. 

27.2  Nothing   contained   in

sub­section   (1)   shall   be   construed

to   preclude   the   State   Government

from  enhancing  or  reducing  the  sum

received in consideration of a grant

of any lease under Section 18 during

the course of a financial year   or

during the currency of a licence and

power to enhance or reduce the sum

shall   include   power   to   give

retrospective   effect   to   such

enhancement or reduction from a date

not earlier than the commencement of

the financial year.”

27.Chapter VI  deals with the licences, permits and

passes. Section 28 is as follows:

"28. Form and conditions of licence

etc. 

(1).Every permit or pass issued or

licence granted under this Act shall

be issued or granted on payment of

such fees, for such period, subject

to such restrictions and conditions

and   shall   be   in   such   form   and

contain such  particulars  as may be

prescribed.

(2).The conditions prescribed under

sub­section(1)   may   require,   inter

alia the licensee to lift for sale,

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the   minimum   quantity   of   country

spirit or Indian­made liquor, fixed

for his shop and to pay the penalty

at   the   prescribed   rate   on   the

quantity of liquor short lifted.

(3).Penalty   at   the   prescribed   rate

on infraction or infringement of any

conditions laid down in sub­section

(1)   of   specifically   enumerated   in

sub­section(2) shall be leviable on

and recoverable from the licensee.”

28.Section 62 is rule making power of the State. Sub

­section 2(1) (h), which is relevant for the present

case is as follows: 

"62(1)(h). prescribing the authority

by, the form in which, and terms and

conditions  on  and  subject  to  which

any licence, permit or pass shall be

granted,   and   by   such   rules,   among

other matters­­

(i)fix   the   period   for   which   any

licence,   permit   or   pass   shall

continue in force,

(ii)prescribe the scale of fees or

the   manner   of   fixing   the   fees

payable   in   respect   of   any   such

licence, permit or pass,

(iii)   prescribe   the   amount   of

security to be deposited by holders

of any licence, permit or pass for

the performance of the conditions of

the same,

(iv)   prescribe   the   accounts   to   be

maintained   and   the   returns   to   be

submitted by licence­holders, and

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(v)prohibit   or   regulate   the

partnership in, or the transfer of,

licences;”

29.In exercise of above power, the State has framed

the rule, namely, Madhya Pradesh Distilleries Rules,

1995. Section 4(41) which is involved in the present

case is as follows:

"4(41)  If the expenditure incurred

on   the   State   Government

establishment   at   a   distillery

exceeds   five   per   cent   of   the

revenues   earned   on   the   issues   of

spirit therefrom, by export fee or

any   other   levy,   the   amount,   in

excess   of   the   aforesaid   five   per

cent,   shall   be   realised   from   the

distiller.”

30.After   noticing   the   statutory   scheme,   now   we

proceed to consider the issues raised by the learned

counsel for the parties. The first issue which is to

be   considered   is   as   to   whether   this   Court   need   to

examine the vires of Rule 4(41) of 1995 Rules, whereas

in   the   writ   petition   filed   by   the   respondents,   no

prayer was made to struck down Rule 4(41) of the Rules

1995.

31.Learned counsel for the Respondents submitted that

18

in the writ petition and in the grounds, there was a

challenge to Rule 4(41) and mere omission to claim  a

specific   relief   for   declaring   Rule   4(41)   as  ultra

vires cannot preclude examination of the  vires of Rule

4(41)   and   to   grant   necessary   declaration.   He   has

referred to Para 9 of the Writ Petition , which is to

the following effect:

"That in view of the judgment of the

Hon'ble Supreme Court in the case of

M/s.  Leela  Sons Brewery Rule  4(41)

of the Distillery Rules is also non

est and void. Consequently no demand

can   be   raised   on   the   strength   of

such   a   rule   hence   the   demand   in

Annexure/1   is   liable   to   be   struck

down.   AS per the law declared by

the Hon'ble Supreme Court  Old  Rule

22   of   the   Brewery   Rules   is   ultra

vires and consequentially Rule 4(41)

of the Distillery Rules is non est.

Hence   it   is   not   necessary   to   seek

separate relief to strike down Rule

4(41).”

32.Learned   counsel   for   the   Respondents   has   also

placed   reliance   on   the   judgment   of   this   Court   in

Godrej Sara Lee Limited versus Assistant Commissioner

(AA) and Another,   (2009) 14 SCC 338 ,   in support of

the proposition that when the order of an statutory

authority   is   questioned   on   the   ground   that   same

19

suffers from lack of jurisdiction, the fact that no

specific prayer has been made is inconsequential. In

above case, following was held in Para 12 & Para 13:

“12.It is  true that  the  appellant,

in its writ petition, has not made a

specific   prayer   that   the   said

Notification   dated   21­1­2006   was

ultra   vires   or   otherwise   illegal

but,   as   indicated   hereinbefore,   a

specific  ground in  that behalf  had

been taken in respect thereof.

13. Even otherwise, in our opinion,

the question as to whether the said

notification   could   have   a

retrospective   effect   or   retroactive

operation   being   a   jurisdictional

fact, should have been determined by

the   High   Court   in   exercise   of   its

writ jurisdiction under Article 226

of the Constitution of India as it

is well known that when an order of

a statutory authority is questioned

on the ground that the same suffers

from   lack   of   jurisdiction,

alternative remedy may not be a bar.

(See   Whirlpool   Corpn.   v.   Registrar

of   Trade   Marks   and   Mumtaz   Post

Graduate   Degree   v.

Vice­Chancellor.)”

33.The ratio of the aforesaid judgment is contained

in   para   13.   This   Court   has   laid   down   that   when   an

order of the statutory authority is questioned on the

ground   that   the   same   suffers   from   the   lack   of

20

jurisdiction   alternative   remedy   was   not   a   bar   and

Whether the notification dated 21.1.2006 could have a

retrospective effect or retroactive operation being a

jurisdiction   affect,   the   High   Court   ought   to   have

determined   the   question   in   exercise   of   its

jurisdiction.

34.The   present   is   not   a   case   where   the   District

Excise   Officer   who   has   issued   the   notice   of   demand

lacks   jurisdiction   nor   there   was   any   issue   of

retrospective or retroactive operation. The above case

in no manner helps the respondents.

35.The   second   case   relied   by   the   counsel   for   the

respondent   is  Girimallappa   versus   Special   Land

Acquisition Officer M and MIP and Another, (2012) 11

SCC 548.

36.In the above case, against an order passed by the

Reference Court, a Land Acquisition Appeal was filed

before the District Judge, seeking enhancement of the

compensation at the rate of Rs. 24000 per acre. In the

appeal before the High Court no specific amount was

demanded.

37.The District Judge allowed the claim of Rs. 24000

21

per acre against which further appeal was filed before

the High Court.   Before this Court, it was contended

that   the   High   Court   should   not   have   preferred

technicalities   over   substantial   justice   in   awarding

the compensation. Following was laid down in Para 13

&14:

“13.   It   was   not   a   case   where   an

order   could   be   challenged   on   the

ground   that   the   same   is   a   nullity

for   want   of   competence   of   the

issuing   authority   and   proper

pleadings   including   appropriate

grounds   challenging   the   same   have

been taken, but no prayer has been

made for quashing the said order. In

such an eventuality the order can be

examined only after considering the

statutory   provisions   invoked

therein.   The   court   may   reach   a

conclusion   that   the   order   suffers

from lack of jurisdiction.”

"14.   In   case,   the   petitioner   was

serious about  the  matter,  he  could

have amended the memo of appeal and

that   application   could   have   been

considered   sympathetically   by   the

High Court as held by this Court in

Harcharan  v.  State  of  Haryana.  The

facts   mentioned   in   this   petition

depict an entirely different picture

and it gives an impression as if the

High   Court   had   not   enhanced   the

compensation though demanded by the

petitioner   for   want   of   payment   of

court fees which he could not afford

to pay due to paucity of funds.”

The   above   case   also   in   no   manner   helps   the

22

respondents. 

38. There is an another reason due to which, the above

submission   of   learned   counsel   for   the   respondents

cannot be accepted. As noted above although, in Para 9

of the Writ Petition, petitioner have pleaded that in

view of the judgment of   M/s. Lilasons  Rule 4(41) of

the 1995 Rules is  non est and void. But, there was no

specific prayer in the writ petition. The reason for

not making the specific prayer declaring Rule 4(41) as

ultra vires  was not an omission or by oversight. The

pleadings   on   the   record   disclose   a   reason   for   the

above. In the counter­affidavit filed on behalf of the

State   to   the   Writ   Petition   brought   on   record   as

Annexure P. 3 in Para 2 following statement has been

made by the State:

"The  demand made  by the respondent

is proper and cannot be struck down.

However,  if the petitioner  wish to

challenge  the  vires of  Rule 4(41),

the   same   can   be   challenged   only

before the Constitutional Bench.”

39.Learned   Single   Judge,   while   deciding   the   writ

petition   has   also   in   Para   7   made   the   following

observations:

"In   view   of   the   aforesaid   legal

23

position,   the   Rule   4(41)   of   the

present Rules, 1995 also appeared to

be ultra vires the M.P. Excise Act

and beyond the rule making power of

the   State.   However,   since   no   such

prayer is made by the petitioners in

the petition and no order in this

behalf can be passed under the Rules

by this Bench at Indore.   I leave

this question here only.   However,

the   ratio   of   the   decisions   in

Lilasons   and   Kedia   Distilleries

(supra)   renders   the   demand

notice(Annexure P.2) as void.”

40.Thus from the above, it is clear that under the

Rules of the High Court, the Bench hearing the writ

petition   at   Indoor   was   not   competent   to   pass   the

order, declaring Rules  ultra vires.  The statement in

the counter­affidavit,  as noted above indicates that

there   was   some   specific   bench   for   hearing

constitutional   issues   regarding  vires  of   the   Rules.

Thus had the writ petitioner intended to challenge the

vires of the rules,  he had to file the writ petition

for   appropriate     relief   before   the     Bench   having

roster to decide the   vires.   Thus, it is clear that

writ   petitioner   never   intended   to   challenge   the

vires  of   the   Rules,   which   is   apparent   from   the

reasons, as noted above. We are thus of the considered

opinion that the something which writ petitioner never

24

intended or prayed for cannot be looked into in this

appeal.

41.The learned Single Judge, in the impugned judgment

has struck down the demand, relying on   M/s. Lilasons

(supra). As noted above, learned Single Judge in Para

7 held that the ratio of the decision in  Lilasons and

Kedia Distilleries renders the demand notice as void.

The judgment of Lilasons having been heavily relied by

learned Single Judge as well as learned counsel for

the respondents, it is necessary to notice the said

judgment in some detail.

42.In  Lilasons  case, Rule 22 of the M. P. Brewery

Rules 1970 was questioned. Rule 22 of the aforesaid

Rules has been extracted in Para 2 of the judgment

which is to the following effect:

“2. Vires of Rule 22 of the Madhya

Pradesh   Brewery   Rules,   1970   framed

under   Section   62   of   the   Madhya

Pradesh   Excise   Act,   1915   stands

questioned. That rule says:

“22.   Excise   Commissioner   to

appoint   officer   in   charge   of

brewery.—   Every   brewery   shall   be

placed   by   the   Excise   Commissioner

under   the   charge   of   an   Excise

Inspector   to   be   designated   as

officer   in   charge   of   the   brewery.

25

The Excise Commissioner will further

appoint such  other  officers of  the

Excise Department as he may deem fit

to the charge of breweries. The pay

of all such officers shall be met by

the   Government;   provided   that   when

the   annual   charges   exceed   five   per

cent   of   the   duty   leviable   on   the

issues   made   from   the   brewery   to

districts   within   the   State,   the

excess   shall   be   realised   from   the

brewer.”

43.This   Court   after   noticing   Rule   22   and   the

provisions of M.P.  Excise Act, 1915, Sections 18, 25,

27 and 28, recorded its conclusion   in paragraphs 8

and 9 which are extracted below:

“8.  Now is the demand a further

duty and hence a further tax or is

it   a   further   fee   or   consideration

for transferring the right, is the

pointed question. In   Bimal Chandra

Banerjee  v.  State   of   M.P.,   this

Court   had   the   occasion   to   examine

some of the provisions of the Act

inclusive of Sections 27 and 62(2)

(h). Under the conditions of licence

of   the   then   appellants   they   were

required to make compulsory payment

of excise duty on the quantity of

liquor   which   they   failed   to   take

delivery of, since those conditions

prescribed  the minimum  quantity of

liquor   which   they   had   to   purchase

from the Government. Releasing them

from   such   obligation,   this   Court

ruled as follows: (SCC p.471, para

12)

26

“Neither   Section   25   nor

Section 26 nor Section 27 nor

Section   62(1)   nor   clauses   (d)

and   (h)   of   Section   62(2)

empower   the   rule­making

authority   viz.   the   State

Government   to   levy   tax   on

excisable   articles   which   have

not   been   either   imported,

exported,   transported,

manufactured,   cultivated   or

collected   under   any   licence

granted   under   Section   13   or

manufactured in any distillery

established   or   any   distillery

or   brewery   licensed   under   the

Act. The legislature has levied

excise   duty   only   on   those

articles which come within the

scope   of   Section   25.   The

rule­making   authority   has   not

been   conferred   with   any   power

to   levy   duty   on   any   articles

which   do   not   fall   within   the

scope of Section 25. Therefore

it is not necessary to consider

whether any such power can be

conferred   on   that   authority.

Quite   clearly   the   State

Government   purported   to   levy

duty   on   liquor   which   the

contractors failed to lift. In

so doing it was attempting to

exercise a power which it did

not possess.

No tax can be imposed by any

bye­law   or   rule   or   regulation

unless the statute under which

the subordinate legislation is

made   specially   authorises   the

imposition   even   if   it   is

assumed that the power to tax

can   be   delegated   to   the

27

executive.   The   basis   of   the

statutory   power   conferred   by

the   statute   cannot   be

transgressed by the rule­making

authority.   A   rule­making

authority has no plenary power.

It has to act within the limits

of the power granted to it.”

The   ratio   in  Banerjee   case  was

followed in  State of M.P.  v.  Firm

Gappulal  and then again in a case

from   Uttar   Pradesh   in   Excise

Commissioner, U.P. v. Ram Kumar. Now

if the exaction under Rule 22 of the

Brewery   Rules   is   an   exaction   not

authorised under Section 25 and is

being made as if additional excise

duty,   the   three   cases   aforequoted

would nip the demand outright. But

if it is an additional payment under

Section 27 as consideration for the

grant of licence, or a further fee

or   condition   of   licence,   as

contended   by   the   respondent­State

then it may have to be sustained. It

would be relevant to take note of

another   decision   of   this   Court   in

Panna Lal  v.  State of Rajasthan   at

this stage in which the contractual

obligation   of   the   licensee   to   pay

the   guaranteed   or   stipulated   sum

mentioned   in   the   licence   was   held

not to be dependent on the quantum

of liquor held by him and no excise

duty was held charged or chargeable

on undrawn liquor under the licence.

The afore­said case cannot advance

the defence of the State for there

is no lump sum payment stipulated as

such   in   the   instant   licence.   The

licence   only   mentions   that   the

licensee   would   be   bound   by   the

28

Brewery   Rules.   The   High   Court   in

that situation went on to lean on

Sections   62(2)(h)   and   28   when

discovering   there   was   no   express

provision in the Act for realisation

of   charges   in   respect   of   pay   of

officers   posted   for   control   of

breweries. But when we analyse the

latter   part   of   Rule   22,   the

following position emerges:

(i)   The   pay   of   all   such

officers   shall   be   met   by   the

Government;   [the   Government

owns the responsibility]

(ii) if the annual charges do

not   exceed   5   per   cent   of   the

duty leviable on the issue made

from   the   brewery   to   districts

within   the   State,   nothing   is

realisable from the brewer;

(iii)   5   per   cent   of   the   duty

has been considered enough from

which   to   reimburse   the

Government for the pay of such

officers; and

(iv) in case the annual charges

exceed 5 per cent of the duty

leviable then the excess shall

be   realised   from   the   brewer,

i.e.,   to   reimburse   the

Government for the pay of all

such officers.

9. The excise duty collected goes

to the coffers of the State. The pay

of   officers   has   to   come   out   from

coffers of the State. Five per cent

of the duty leviable is assessed to

meet the pay of such officers, which

29

the Government, but for the rule, is

otherwise   supposed   to   meet.   This

part of the rule is purely internal

between   the   Government   and   its

officers.   The   licensee   is   least

concerned as to how the excise duty

leviable would be appropriated. It

is only in the case of a shortfall

when   the   excess   is   sought   to   be

realised   from   the   brewer   that   he

gets   affected.   Now   what   is   this

excess?   It   is   obviously   the   sum

which   falls   short   of   the   duty

leviable. In other words it is this

for the brewer: “You have not lifted

enough quantities of beer and sent

them to districts within the State.

Thus the State has not earned enough

excise duty resulting in a shortfall

in its 5%. That does not go to meet

the annual expenses of the officers.

Therefore   you   meet   the   shortfall,

without   lifting   the   goods.”

Therefore, the shortfall partakes of

the   same   colour   and   content.   It

cannot   for   a   moment   be   suggested

that when there is a shortfall, the

demand is as if of an “additional

fee   or   consideration”   and   not

additional   excise   duty.   It   is

obvious   from   the   language   of   the

rule that in the event of the excise

duty leviable falling short of the

expected five per cent to meet the

pays of the officers cannot be met

therefrom,   the   State   has   all   the

same   to   pay.   The   measure   goes   to

recoup the State of the charges by

demanding a sum equal to the duty

leviable   to   that   extent   without

lifting excisable articles. On this

understanding arrived at the demand

is hit, in our view, by the ratio of

Banerjee   case,  Firm   Gappulal   case

30

and  Ram   Kumar   case  and   cannot   be

sustained. Rule 22 to that extent is

ultra vires the Act and beyond the

rule­making power of the State.”

44.The basis of judgment of   Lilasons’s case (supra)

was the judgment in   Bimal Chandra Banerjee vs. State

of Madhya Pradesh Etc., 1970(2) SCC 467.     In  Bimal

Chandra   Banerjee’s   case  this   Court   had   occasion   to

examine the provisions of Madhya Pradesh Excise Act,

1915   inclusive   of   Sections   27   and   62(2)(h).   From

paragraph 8 of the judgment, as quoted above, it is

clear that compulsory payment of excise duty on the

quantity of liquor which could not be lifted by the

licensee   was   held   to   be   illegal.   In  Bimal   Chandra

Banerjee’s case it was held that rule making authority

has not been conferred with any power to levy duty on

any articles which do not fall within the scope of

Section 25 and the Legislature has levied excise duty

only on those articles which come within the scope of

Section 25, i.e., those excisable articles which have

been manufactured under any licence.  After referring

Banerjee’s   case,   Lilasons  relied   on   to   two   other

judgments,   namely,  State   of   M.P.   v.   Firm   Gapulal,

(1976) 1 SCC 791 and Excise Commissioner, U.P. v. Ram

31

Kumar, (1976) 3 SCC 540.   Both the above cases laid

down the same proposition.

45.Judgment in  Banerjee’s case  was delivered on 19

th

August, 1970. There has been amendment in Section 28

by Madhya Pradesh Act No.6 of 1995 by which provision

specific   provision   requiring   licensee   to   lift   for

sale,   the   minimum   quantity   of   country   spirit   or

Indian­made liquor, fixed for his shop and to pay the

penalty   at   the   prescribed   rate   on   the   quantity   of

liquor short lifted, has been brought in the statute

book. The Scheme of M.P. Excise Act, 1915 having been

amended by the aforesaid Act of 1995, the very basis

of   case   of  Banerjee  is   knocked   down   and   cannot   be

relied   on   in   view   of   changed   statutory   scheme.   The

judgment   in    Lilasons’   case    was   delivered   on   21

st

April,   1992   that   is   before   the   above   amendment   in

Section 28 by M.P. Act No.6 of 1995. In paragraph 9 of

the judgment in  Lilasons  it was held that when there

is   a   short­fall   in   the   lifting   of   the   enough

quantities   of   beer,   the   demand   is   for   additional

excise duty which is not permissible.  Sections 27 and

28   were   also   referred   in  Lilasons’s     case    in

32

paragraph 10. Paragraph 10 is as quoted below:

“10.  Now   with   regard   to   the

suggested wide amplitude of Section

62(2)(h)   and   Section   28   and

condition of licence, all we need to

say is that though under Section 28

licences   are   issued   on   the

prescribed forms and on payment of

such fee as prescribed and licences

containing  such particulars as the

State   Government   may   direct   etc.,

this power even though wide is yet

confined within its frame and can in

no event assume the power to impose

or   levy   a   tax   or   excise   duty   by

means of a rule without the sanction

of   the   Act.   As   we   have   analysed

earlier, the payment asked, on the

contingency   of   events,   cannot

partake the character of a fee so as

to   come   within   the   purview   of

Section 28. And if it does not the

support   of   Section   62(2)( h)   is

sterile. Seeking  help from Section

27 would also be of no avail because

the additional payment conceived of

therein is also a payment over and

above   the   duty   leviable   and   as   a

part consideration towards the grant

of any lease under Section 18. The

additional   consideration   conceived

of in Section 27 is a consideration

over and above the excise duty. The

way we have analysed Rule 22, the

terms   of   Section   27   do   not   go   to

retrieve the situation.”

46.Section 28, as noticed above, has been amended by

M.P. Act No.6 of 1995 and after amendment in Section

33

28   by   the   aforesaid   Amendment   Act,   the   contents   of

Section 28 have entirely been changed and Section 28

as   noticed   by  Lilasons   cannot   be   relied   on   for

finding out as to whether demand under Rule 4(41) is

beyond the scope of Section 28.

47.A   three­Judge   Bench   of   this   Court   in  State   of

M.P. and others vs. KCT Drinks Ltd., (2003) 4 SCC 748,

had occasion to consider the M.P. Excise Act, 1915 ,

Section   27.   In   the   above   case   condition   8   of   the

licence provides that the licensee shall pay the full

cost   of   excise   supervisory   staff   posted   at   the

premises   of   the   licensee.   Although,   judgment   of

Lilasons  was   cited   before   three­Judge   Bench   but,

however, this Court upheld Clause 8 of the licence and

laid down following in paragraphs 7 and 11:

“7.  In   view   of   Sections   18   and

27, the State Government is entitled

to   accept   payment   of   a   sum   in

consideration of grant of any lease

in lump sum in addition to any duty

leviable under the Act on terms and

conditions   which   are   mentioned   in

the licence deed. Condition 8 of the

licence provides  that the licensee

shall pay the full cost of excise

supervisory   staff   posted   at   the

premises of KCT Drinks, Mandideep,

34

District Raisen.

11.  In   view   of   the   aforesaid

settled   legal   position,   the

condition   empowering   the   State

Government   to   recover   the   actual

cost of supervisory staff posted at

the   premises   of   the   respondent

cannot   be   said   to   be   in   any   way

illegal   or   ultra   vires   as   it

constitutes   the   price   or

consideration   which   the   Government

charges to the licensee for parting

with   its   privilege   and   granting

licence. In this view of the matter,

the   impugned   judgment   and   order

passed by the High Court requires to

be set aside.”

48.Learned   counsel   for   the   appellants   has   also

rightly placed reliance on judgment of this Court in

Government of Andhra Pradesh vs. M/s. Anabeshahi Wine

and Distilleries Pvt. Ltd., (1988) 2 SCC 25.   In the

above   case,   this   Court   held   that   the   demand   with

regard to establishment charges was valid and legal.

49.In view of above, we fail to see as to how the

judgment   of   this   Court   in  Lilasons’s   case   can   be

relied by the High Court for declaring the demand as

void.

50.There is one more aspect of the matter which needs

to be considered. The demand which has been claimed

35

from the respondent pertains to 3 years’. The details

of the demand have been mentioned in the notice dated

23

rd

 March, 1999, which are to the following effect:

Year Revenue

(Rs.)

5% of

Revenue

(Rs.)

Expenditure on

salary

(Rs.)

Expenditure in

excess of 5%

(Rs.)

1995-963,08,250/-15,412.50 3,91,956/- 3,76,543.50

1996-97 - - 4,36,897/- 4,36,897.00

1997-985,55,000/-27,750.00 5,38,499/- 5,10,749.00

Total 13,24,189.50

51.The High Court in paragraph 8 of the judgment has

noticed the details of demand and it has also held the

demand to be arbitrary and unreasonable. In paragraph

8, the High  Court has stated as follows:

“8. The demand is arbitrary and

unreasonable   even   otherwise.   The

very   fact   that   the   establishment

charges to the extent of 5% ought

to be borne by the State goes to

show   that   the   expenses   on   the

establishment   are   supposed   to   be

within   reasonable   limits.   In

another   decision   in   Bihar

Distilleries   (AIR   1997   SC   1208)

the Apex Court has held that the

State   will   be   entitled   to   levy

reasonable   regulatory   fees   to

defray   the   cost   of   the   staff

posted in the distillery. It is,

however,   significant   to   read   the

impugned   notice   (Annexure   P/2).

The total income of the distillery

during the relevant years 1995­96

to   1997­98   is   shown   to   Rs.

36

8,63,250/­.   As   against   this,   the

demand   towards   establishment

charges over and above 5% has been

shown   at   Rs.13,24,189.50.   The

total   expenses   shown   in   the

establishment   are   more   than   150%

of   the   total   income   of   the

distillery. On the face of it, the

demand   is   arbitrary   and

unreasonable. On the face of it,

the   demand   is   arbitrary   and

unreasonable. It is liable to be

struck   down   on   this   count   leave

aside the question of validity of

the Rule 4(41).”

52.The   High   Court   has   observed   that   establishment

charges to the extent of  5% ought to be borne by the

State   goes   to   show   that   the   expenses   on   the

establishment   are   supposed   to   be   within   reasonable

limits   and   demand   appears   to   be   arbitrary   and

unreasonable.   But   a   perusal   of   the   writ   petition

indicates that no sufficient foundation was laid in

the   writ   petition   to   enter   into   the   issue   as   to

whether the demand is arbitrary and unreasonable. From

the   details   of   the   demand   as   noted   above,   it   is

further clear that in the demand for the year 1996­97

expenditure on salary was shown as Rs.4,36,897/­ but

no figure pertaining to the Revenue of the said year

is   mentioned,   whether   the   distillery   could   function

37

during the relevant period and without there being any

Revenue how the expenditure on salary is fastened on

respondent, is not explained.

53.Learned   counsel   for   the   respondent   has   further

stated before us that the State of Madhya Pradesh has

abandoned the Statutory Scheme as contained in Rule

4(41) and subsequently fixed amount of establishment

charges included in the licence fee. Learned counsel

for   the   State   has,   however,   refuted   the   above

submission of the learned counsel of the respondent.

Learned counsel for the respondent has also referred

to Section 28­A, which has been substituted by Madhya

Pradesh Act No.24 of 2000, which is to the following

effect:

“Section   28­A.   Payment   of

supervision   charges— The   State

Government may by general or special

order   in   writing   direct   the

manufacture,   import,   export,

transport, storage, sale, purchase,

use,   collection   or   cultivation   of

any intoxicant, denatured spirituous

preparations or hemp shall be under

the supervision of such Excise staff

as the Excise Commissioner may deem

proper to appoint in this behalf and

that   the   person   manufacturing,

importing,   exporting,   transporting,

storing, selling purchasing, using,

38

collecting   or   cultivating   the

intoxicant   or   denatured   spirituous

preparations shall pay to the State

Government   towards   supervision

charges as levy as may be imposed by

the State Government in this behalf:

Provided   that   the   State

Government may exempt any class of

person   or   any   institution   from

paying the whole or any part of such

levy.”

54.Section   28­A   being   not   in   existence   during   the

relevant period for which demand has been raised, it

is not necessary for us to consider the effect and

consequence of Section 28­A in so far as the present

case is concerned. However, taking into consideration

the   overall   circumstances,   as   noted   above,   ends   of

justice   will   be   served   in   giving   liberty   to   the

respondent   to   represent   against   the   demand   notice

dated   23

rd

  March,   1989   before   the   State.   The   State

Government  shall  consider  such  representation  taking

into   consideration   relevant   facts   relating   to

concerned years and the other factors as relevant in

the present case. In the event, such representation is

submitted   to   Appellant   No.2   within   four   weeks   from

today, the State shall consider the representation and

take   appropriate   decision   expeditiously.   It   goes

39

without   saying   that   further   steps   shall   be   taken

consequent to such decision by the State Government as

indicated above.

55.In result, the judgment of the High Court dated

04.05.2000 is set aside and the appeals are disposed

of with the directions aforesaid.

  ……………………………………………J

                                      [Ranjan Gogoi]

……………………………………………J

[Ashok Bhushan]

New Delhi

February 28, 2017.

40

ITEM NO.1A COURT NO.7 SECTION IV

(For Judgment) S U P R E M E C O U R T O F I N D I A

RECORD OF PROCEEDINGS

Civil Appeal No(s).921-922/2008

STATE OF M.P.& ANR. Appellant(s)

VERSUS

KEDIA GREAT GALEON LTD. & ANR. Respondent(s)

Date : 28/02/2017 These appeals were called on for

pronouncement of judgment today.

For Appellant(s)

Mr. Mishra Saurabh, Adv.

For Respondent(s)

Mr. Jayant Kumar Mehta, Adv.

Hon'ble Mr. Justice Ashok Bhushan pronounced the

judgment of the Bench comprising Hon'ble Mr.Justice Ranjan

Gogoi and His Lordship.

The appeals are disposed of in terms of the signed

reportable judgment.

(Ashok Raj Singh) (Mala Kumari Sharma)

Court Master Court Master

(Signed reportable judgment is placed in the file)