Citation Codes

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Case Number

M.P. No. 19 of 1970

Advocates

For applicant -- G.P. Patankar
For opposite party - P.L. Dube
Govt. Advocate

Judges

Shiv Dayal
K.K.Dube

Acts

section 25 or section 27 or section 62 (1) or clauses (d) and (h) of section 62 (2)
sections 25, 27, 62 (1) and 62 (2) (d) and (h) of the Excise Act.
ARTICLE 226 CONSTITUTION OF INDIA
SECTION 62 EXCISE ACT
rule 2-C of the Rules
section 62 (2) (d)
rule 2-C

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Smart Summary

Judicial Opinion Summary — Shivdayal J.

Factual and Procedural Background

The petitioner filed a writ petition under Article 226 of the Constitution of India seeking a writ of mandamus restraining the State of Madhya Pradesh, the Excise authorities and the Collector, Gwalior from enforcing a notice of demand (Annexure 2) issued by the Collector. The demand notice sought recovery of Rs. 2,90,502.76 P. as arrears of land revenue.

The factual background is that in an auction of country-liquor shops the petitioner, being the highest bidder, obtained a group of five shops at Gwalior for the year 1969–70 (April 1, 1969 to March 31, 1970). One term of the sale memorandum required the contractor to lift a prescribed minimum quantity of liquor and to pay duty (or consolidated duty) at the prevailing rate; failure to lift the minimum would attract payment of duty on the shortfall. Acting under that contractual framework, the District Excise Officer issued the demand notice for arrears, which the petitioner challenged as not being authorised by law.

The learned judge considered statutory provisions of the Excise Act (notably sections 25, 26, 27 and section 62), rules framed thereunder, relevant demand notices and prior Supreme Court decisions. The petition was allowed; the impugned demand notice was quashed, parties were directed to bear their own costs and the security amount was ordered to be refunded to the petitioner.

Legal Issues Presented

Whether the State Government (or rule-making authority under the Excise Act) is authorised to levy duty on liquor that a contractor did not lift despite a contractual minimum-lift obligation.
Whether a rule or subordinate legislation made under section 62 of the Excise Act can lawfully impose a tax/duty (or equivalent) on excisable articles that were not produced, imported, transported, manufactured, cultivated or collected under licences — i.e., outside the scope of sections 25/26/27.
Whether the amounts demanded from the petitioner are properly characterised as "duty" (or loss of duty) or whether they are genuine contractual "compensation" recoverable by the State for non-performance, and whether such compensation (if equated to loss of duty) is authorised by law.
Whether the petitioner is estopped from challenging the demand by virtue of having run the shops under the contract.

Arguments of the Parties

Petitioner's Arguments

The demand notice is ultra vires because the levy (duty on liquor not lifted by the contractor) is not authorised by the Excise Act or subordinate legislation; hence the notice cannot be enforced.

State Government / Excise Authorities' Arguments

The State contended that what was being sought was not "duty" but "compensation" for the contractor's non-performance of the licence/sale-memo conditions; therefore the demand was not an unauthorised levy of excise duty.
The learned Government Advocate relied on rules made under section 62(2)(d) and (h) (specifically rule 2-C published in the M.P. Gazette, January 6, 1965) to justify recovery of a specified sum for shortfall in monthly minimum issues ("compensation").
It was also argued (late in submissions) that the petitioner was estopped from attacking terms of the contract because he had run the shops under it.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bimal Chand Banerjee v. State of M.P. (1971 MPLJ 168 = 1970 JLJ 902 (S.C.))	Held that sections 25, 27 and section 62 (1) and clauses (d) and (h) of section 62(2) do not empower the rule‑making authority to levy tax/duty on excisable articles which have not been supplied/imported/manufactured etc. The rule‑making authority cannot impose a tax beyond the statutory basis.	The court applied this Supreme Court ruling to conclude that levying duty on liquor not lifted by a contractor is not authorised by law and that any rule purporting to authorise such a levy is ultra vires; the court held that the Supreme Court's reasoning "fully applies to the present case."
Jagannath Prasad v. State of M.P. (Civil Appeal No. 308 of 1970; decided with Bimal Chand Banerjee, Supreme Court judgment dated August 19, 1970)	The common Supreme Court judgment examined the scope of sections 25, 27, 62(1) and 62(2)(d),(h) and concluded the rule‑making authority could not lawfully impose such a duty; emphasised that subordinate legislation cannot transgress statutory limits.	The court relied on this decision (together with Bimal Chand) as binding authority that demands for duty on unlifted liquor (or corresponding compensation) were not authorised; hence the impugned demand had to be quashed.
Thakur Amar Singhji v. State of Rajasthan; AIR 1955 SC 504	Principle cited: there can be no estoppel against statute.	The court relied on this authority to reject the State's contention that the petitioner was estopped from challenging the demand because he had run the shops under the contract.

Court's Reasoning and Analysis

The court began by identifying the statutory and contractual context: an excise licencee customarily pays three items (licence fee, price of liquor purchased from the State, and excise duty on purchased liquor). The impugned demand sought a fourth item — payment described as "duty" or equivalent on liquor that the contractor had not lifted though contractually bound to do so.

The court examined relevant statutory provisions (sections 25, 26 and section 62 of the Excise Act) and concluded that none authorised levying duty on excisable articles that were never lifted/produced/imported/etc. In particular, section 26 authorises duty on materials used but not on materials not lifted; section 62's rule-making power did not empower a rule to levy duty on unlifted liquor. Therefore, prima facie, levying duty on unlifted liquor was not authorised by the statute and any rule purporting to allow it would be ultra vires.

The court relied on the Supreme Court's common judgment in Bimal Chand Banerjee and Jagannath Prasad (Aug 19, 1970) which expressly held that the rule‑making authority had not been conferred power to levy such a tax and that subordinate legislation cannot transgress the statutory basis; those rulings quashed similar notifications and demand notices. The judge observed that that ruling "fully applies to the present case."

The State's alternative case was that the sum demanded was "compensation" for breach of a contractual obligation and not a "duty." The court scrutinised the documentary materials (sale memorandum, licence clauses and the tabular statement annexed to the sale memo) and found intrinsic and contextual evidence that the Hindi word used by the Excise authorities had been used as an equivalent of the English word "duty." The documents repeatedly used the term in contexts where the amount equated precisely to the rates of duty reflected in the licence and the tabular calculations (for example, the rate Rs. 9.40 P. per proof litre appearing both in the duty calculations and in licence clauses 2(c) and 2(d)). The court held that reading the word as genuine contractual "compensation" in those contexts would render the documents absurd or meaningless.

The court further noted the rule (rule 2‑C, M.P. Rules) which used the term "compensation" but observed that in earlier Supreme Court consideration the rule language referring to a "deficit of monthly average of total minimum duty" made clear that the "compensation" was in substance an amount corresponding to the loss of duty. Hence, if levying duty on unlifted liquor is unauthorised, any purported compensation that is merely compensation for that loss of duty is also unauthorised.

The court rejected the State's estoppel argument — relying on the Supreme Court authority that there can be no estoppel against statute — and therefore the petitioner was not barred from challenging the demand as ultra vires.

The judge expressly refrained from deciding whether, apart from "loss of duty", the State might have a right to claim genuine contractual damages recoverable by the State as a civil claim; the court limited its decision to the question of recovery as duty/compensation for loss of duty and did not adjudicate broader legislative competence or alternate remedies.

Holding and Implications

HOLDING: The petition is allowed and the impugned demand notice is quashed.

Implications:

Direct effect: The particular demand for Rs. 2,90,502.76 P. as set out in the notice is quashed; the parties are directed to bear their own costs and the amount of security deposited by the petitioner is to be refunded.
Scope: The court applied existing Supreme Court authority (Bimal Chand Banerjee and Jagannath Prasad) to hold that levying duty on liquor not lifted (and compensation measured by loss of such duty) is not authorised by law; the decision invalidates the impugned demand but does not purport to create a novel rule of law beyond applying the cited authorities. The court declined to determine whether the State may have a separate right to recover ordinary contractual damages (not measured as loss of duty) by other means.

Disposition

Petition allowed. Impugned demand-notice quashed. Parties to bear their own costs. Security amount to be refunded to the petitioner.

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Gappolal v. State Of M.P. And Other

Shivdayal J.:-

By this petition under Article 226 of the Constitution of India the petitioner seeks a writ of mandamus directing the State of Madhya Pradesh and the Excise authorities and the Collector, Gwalior, not to enforce the notice of demand (Annexure 2) issued by the Collector.

2. In an auction of country liquor shops the petitioner being the highest bidder, got a group of five shops situate at Gwalior for the period 1969-70 (from April 1, 1969 to March 31, 1970). One of the terms of the sale memo was that the contractor would have to lift a prescribed minimum quantity of liquor and pay duty or consolidated duty at the prevalent rate, otherwise he would have to pay duty on the quantity short of the minimum prescribed. In accordance with this condition the District Excise Officer, Gwalior, issued a notice of demand for Rs. 2,90,502.76 P. as arrears of land revenue and threatened to recover the amount as such. The petitioner challenges this notice of demand and contends that the demand is not authorised by law.

3. The petitioner's contention is that the demand notice is ultra vires because duty on liquor not lifted by the contractor is not authorised by law.

4. An excise licensee has to pay (i) the prescribed licence fee, which licence gives the licensee privilege of selling liquor in a shop; (ii) the price of liquor which he purchases from the State Government, and (iii) excise duty on the liquor so purchased by him. What has been demanded in this case under the impugned notice of demand is a fourth item, i. e. duty on liquor not lifted by the contractor who was bound to lift under the conditions prescribing minimum quantity. The question is whether the State Government is authorised to levy duty on liquor which the contractor did not lift. Sections 25 and 26 do not authorise levying of such duty. Under section 26 duty may be levied on quantity of materials used but not on the quantity of materials not lifted. Nor section 62 of the Excise Act, which confers rule making power, empowers the State Government to levy duty on liquor which a contractor does not lift. Therefore, it must be said that the levying of duty on liquor not lifted by a contractor is not authorised by law. Any rule made by the State Government which authorises levying of such duty is also ultra vires as it is in transgression of the power conferred by the statute.

5. This position of the law is settled in Bimal Chand Banerjee v. State of M. P.; 1971 MPLJ 168=1970 JLJ 902 (S.C.) and Jagannath Prasad v. State of M. P.; (Civil Appeal No. 308 of 1970) which appeals were decided by their Lordships of the Supreme Court by a common judgment dated August 19, 1970 on a consideration of sections 25, 27, 62 (1) and 62 (2) (d) and (h) of the Excise Act. Their Lordships held :--

"Neither section 25 or section 27 or section 62 (1) or clauses (d) and (h) of section 62 (2) empower the rule making 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 licenced under the Act .......... The 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... .... Quite early 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 bye-law 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 executive. The basis of the statutory power conferred by the statute cannot be transgressed by the rule making authority. A rule making authority has no plenary power. It has to act within the limits of the power granted to it."

"In that view of the matter the Supreme Court allowed the writ petitions and quashed the notification as well as the demand notices. That railing fully applies to the present case."

6. It is contended for the State Government that what has been demanded is not “duty” but 'compensation' for the petitioner's non-performance of the conditions of the licence. A great deal of stress is laid on the Hindi word which was employed in the sale memorandum and licence but there is clear intrinsic evidence to show that this Hindi word was being used by the Excise authorities as equivalent of 'duty'. At many places the Exercise authorities have consistently used the word “duty which unequivocally denotes that they translate the word 'duty' into For instance, see clause 29 (7) of the sale memo where the word has been put within brackets just after the word 'duty'. It leaves no doubt that the word has been used as equivalent of 'duty'. It is not possible to interpret the word as 'compensation' in these contexts. This is not all. In the tabular statement annexed to the sale-memo which shows the calculations of the duty fixed, again the Word has been given within brackets to indicate that it is equivalent of 'duty' in the major heading of columns 11, 12 and 13 and also in the foot-note. This is further fortified by the fact that in the licence clauses (2) (c) and (2) (d) the rate of which has been shown is exactly the same which is given in the tabular statement showing 'duty'. For instance, if the amount of duty for spiced liquor is divided by the quantity of liquor in column 6 the coefficient is the rate of duty and that very rate i. e. Rs. 9.40 P. per proof litre is entered in the licence. It is not possible to read the word in the said tabular statement or in clauses 2 (c) and 2 (d) of the Licence as to mean 'compensation'.

7. We shall now refer to the nomenclature employed by the Excise authorities in these various demand notices.

TABLE

M.P. No. Year of Contract What demanded

10/69 1967-68 'minimum guarantee' (duty)

109/69 1967-68 'minimum guarantee'

18/70 1968-69 'minimum guarantee'

20/70 1968-69 'minimum guarantee'

111/69 1968-69 'HINID MATTER'

19/70 1969-70 'Arrears of land revenue'

(i) Thus in the demand-notice in M. P. 10/69 what was demanded was 'duty' in terms and it was also specified that that duty was in respect of minimum guarantee.

"(ii) The demand-notice in Misc. Petition No. 111/69 is rather elaborate. It clearly speaks of the mind of the Excise authorities. There the contractor is told that in respect of his contract had been fixed. But he lifted liquor of less which resulted in deficit."

Here deficit means loss of duty. The word is necessarily used here as equivalent of 'duty'. It is not possible to read it as meaning 'compensation' because otherwise the notice becomes absurd.

(iii) In Misc. Petitions Nos. 109/69, 18/70 and 20/70 what was demanded was 'minimum guarantee'.

(iv) In Misc. Petition No. 19/70 the expression used is simply 'arrears of land revenue'. Neither 'duty' nor 'compensation' nor 'minimum guarantee' has been used.

8. The learned Government Advocate relied on the rules framed by the State Government which were published in the Madhya Pradesh Government Gazette (Extraordinary) dated January 6, 1965, in exercise of the power conferred by section 62 (2) (d) and (h). The relevant rule 2-C may be reproduced here : --

"The minimum quantity for taking issues from the warehouse for sale is fixed at ...... P. litres spiced spirit, and ...... P. litres plain. On your failure to take, in any month, the monthly average of the total minimum quantity, you shall he liable to pay compensation to the State Government at the rate of Rs ......... per P. litre spiced spirit and Rs ......... per P. litre plain spirit falling short of such monthly minimum average and such compensation shall be paid by the 10th day of the month next following the month to which such short fall relates."

In the Supreme Court ruling Bimal Chand v. State of M. P. (supra) the rule which was made by a notification published on January 7, 1970, is quoted. It corresponds to rule 2-C of the Rules published on January 6, 1965, with the difference which is reproduced below :-

In the Rules of 1970 the words :

“the deficit of monthly average of total minimum duty”. (Italicised by us.) were used, while in the 1965 Rules the word 'compensation' which is specified in the licence, as payable if the minimum quantity of liquor was not lifted, is at the same rate of duty which was fixed for the respective liquor. In other words, the word 'compensation' referred to the “loss of duty” What The contractor had to compensate was the loss of such duty as the State Government would have got from him if he had lifted the liquor.

"9. Now if the levying of duty on liquor not lifted is not authorised by law, any compensation for loss of such duty as could not be levied must necessarily he held to be not authorised by law. Therefore, the demand of compensation for loss of such duty as is not authorised by law, must also be struck down on the authority of the Supreme Court ruling cited above."

10. At this juncture it is urged by the learned Government Advocate that 'compensation' stipulated in the Sale-Memo, licence and the demand-notice is not for loss of duty but it is for other things. In our opinion this contention is clearly an after-thought and cannot be accepted. The Excise authorities equated the word 'compensation' with 'duty' and used them as synonymous. Moreover, it is not possible to read the word 'compensation' in its true connotation, and not as an equivalent of 'duty', in these documents because then they would be rendered absurd and without meaning. For instance, in the tabular statement the major heading of columns 11, 12 and 13 reads thus:

"The prescribed amount of duty compulsorily payable by the Contractor to Government for sale of liquor."

Below these words are written “duty.” If the word is read as 'compensation', the whole thing becomes without meaning. The foot-note fortifies the above interpretation.

11. It must be concluded from the above discussion that (i) Levy duty on liquor not lifted by the contractor is not authorised by law although there may be a guarantee to lift a prescribed minimum quantity; (ii) What was demanded was 'duty', not 'compensation'. The Excise authorities had been wrongly employing the Hindi word for 'duty'. The respondents now want to take advantage of their erroneous translation; (iii) In essence the impugned demand-notice is in respect of that 'duty' which is shown in Annexure to the Sale-Memo, and which corresponds to the rate of 'duty' incorporated in the licence in clause 2 (c) and 2 (d) as payable in case of minimum quantity prescribed was not lifted; (iv) Even assuming (but not holding) that the word was used for 'compensation' the compensation which has been demanded is for loss of such duty as would have been payable if the liquor had been lifted; (v) As levying of duty on liquor not lifted by the contractor is not authorised by law, it necessarily follows that compensation for loss of such duty is also not authorised by law.

12. What has been demanded from the petitioner is not 'compensation' nor' damages' for breach of contract. It is not necessary for us to enter into the question whether 'compensation' can be recovered as arrears of land revenue. Nor are we called upon to consider whether the State Government had legislative competence to make Rules for recovery of 'compensation' under the Excise Act as being beyond the purview of Entry 51 of Schedule II of the Constitution of India. Today we say nothing about the right, if any, of the respondent State Government to demand and recover from the petitioners 'compensation' as damages for breach of contract, but not for 'loss of duty' on the liquor not lifted by the contractor.

13. The learned Government Advocate before concluding his address contended that the petitioner is estopped from challenging the demand notice inasmuch as by virtue of the contract he ran the shops and he cannot now challenge the validity of the terms of conditions of the contract. This contention must be rejected as there can be no estoppel against statute. (See, Thakur Amar Singhji v. State of Rajasthan; AIR 1955 SC 504.

14. This petition is allowed. The impugned demand-notice is quashed. In the circumstances of the case the parties shall bear their own costs. The amount of security shall be refunded to the petitioner.

Petition allowed.

Gappolal v. State Of M.P. And Other

Judicial Opinion Summary — Shivdayal J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

State Government / Excise Authorities' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Disposition

Gappolal v. State Of M.P. And Other

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