ivil Appeal No 1665 and 1666 of 1970
From the order dated the 25th July 1968 of the Punjab and Haryana High Court in LPA Nos
230  240 of 1968
MS Dhillon for the Appellant in both the appeals
Tirath Singh Munjral GK Arora SS Munjral and Gautam Bannerjee for the Respondents in both the appeals
The Judgment of the Court was delivered by KOSHAL J
By this judgment we shall dispose of Civil Appeals Nos
1665 and 1666 of 1970 in which common questions of law have arisen for determination by this Court
The facts leading to the two appeals are undisputed and may be briefly stated thus
Licences to run liquor vends in various parts of Punjab during the financial year 1965 66 were sold by public auction shortly before the 1st April 1965
Auctions were held at numerous places subject to identical conditions which were supplied to the bidders in writing
Condition No 8 which is material for our purposes is reproduced below That the licensee shall lift each month the proportionate quota for the month fixed for his vend s or deposit still head duty realisable thereon
In the event of any deficiency in the amount of still head duty realisable from the lifting of the full proportionate quota due to the short lifting of the quota by the licensee or non deposit of the amount of the still head duty the said deficiency may be realised from the amount of security deposited by 689 him at the time of grant of licence
The resulting deficiency in the amount of security shall be made good by the licensee within 7 days of such adjustment
In case the short lifting of proportionate quota or short deposit of still head duty continues for two consecutive months or the licensee fails to make up the deficiency in the amount of security within the prescribed period of 7 days his licence may be cancelled in addition to the recovery of deficiency in still head duty
 Ajudhia Nath who figures as respondent No 1 in each of the two appeals and who carries on business of selling country liquor either in his own name or in the name and style of Ms Ajudhia Nath Bal Mukand a business concern arrayed as respondent No 2 in Civil Appeal No 1665 of 1970 was the highest bidder for the auctions pertaining to 5 villages situated in the district of Amritsar and a couple of villages in Ferozepur district
Accordingly the auctions were sanctioned in his favour and he was granted the necessary licences under the relevant provisions of the Punjab Excise Act hereinafter referred to as the Act and the rules framed thereunder
The licensee started his liquour selling business in the said seven villages on the 1st April 1965
By the close of the financial year 1965 66 however he was unable to lift the minimum quota of country liquor and also failed to deposit the still head duty which became payable by him under condition No 8 above extracted
He made applications claiming relief in the matter of payment of sums which had fallen due and such relief was granted to him in part by the Excise  Taxation Commissioner Punjab on the ground that sales of country liquor had been adversely affected by reason of the movement of population in the border areas of Punjab on account of the hostilities which broke out between India and Pakistan in the month of September 1965
Not satisfied with the relief so granted Ajudhianath filed two petitions under article 226 of the Constitution of India before the High Court of Punjab and Haryana claiming inter alia that still head duty was an excise duty which could be levied only on manufacture of goods and which he was not liable to pay by reason of the admitted fact that he was not a manufacturer of liquor
A grouse was also made by him of the fact that the applications claiming relief had been decided without affording to him an opportunity of being heard
One of those petitions Civil Writ Petition No 2034 of 1966 related to 690 vends functioning in the two villages of Ferozepur District while the other Civil Writ Petition Nos 2035 of 1966 covered the 5 vends located in the 5 villages of Amritsar District
The petitions were allowed by a single order dated the 9th May 1967 passed by DK Mahajan J on the sole ground that a similar petition Civil Writ Petition No 2021 of 1966 had been allowed by Gurdev Singh J on the 27th March 1966
The proceedings for the recovery of the short fall in the deposit of still head duty by Ajudhia Nath which had been initiated by the State of Punjab and its concerned officers appellants Nos 1 to 4 in each of the appeals before us were quashed and the Excise and Taxation Commissioner Punjab appellant No 2 in both the appeals was directed to dispose of the cases of the respondents in accordance with law after hearing the petitioners
DK Mahajan J adopted all the reasons on which Gurdev Singh J had based his order above mentioned
Letters Patent Appeals preferred by the 4 appellants to the Division Bench of the High Court were summarily dismissed by Mehar Singh and Tuli JJ for the reason that a Letters Patent Appeal against the judgment of Gurdev Singh J above mentioned had met the same fate
It is against the judgment of the Division Bench which is dated the 29th August 1969 that each of the appeals before us has been filed
Mr Dhillon learned counsel for the appellants had drawn our attention to The State of Punjab vs Balbir Singh and Others which reversed the judgment of Gurdev Singh J mentioned above and has contended that the very basis of the impugned judgment has consequently fallen to the ground
The contention is correct
As pointed out in Balbir Singh s case supra the judgment of Gurdev Singh J in Civil Writ Petition No 2021 of 1966 had proceeded merely on the ground that the petitioner firm therein had not been given an opportunity of being heard in relation to the demand notice issued to it for payment of the still head duty on the entire minimum quantity of liquor which that firm was required to lift under the licence
In differing with the view 691 expressed by Gurdev Singh J this Court made a reference to the following observations of Chandrachud J as he then was in Har Shanker and Others vs The Dy
Excise  Taxation Commissioner and Others which was followed in Shyam Lal vs State of Punjab The announcement of conditions governing the auctions was in the nature of an invitation to an offer to those who were interested in the sale of country liquor
The bids given in the auctions were offers made by prospective vendors to the Government
The Government s acceptance of those bids was the acceptance of willing offers made to it
On such acceptance the contract between the bidders and the Government became concluded and a binding agreement came into existence between them
The successful bidders were then granted licences evidencing the terms of contract between them and the Government under which they became entitled to sell liquor
The licensees exploited the respective licences for a portion of the period of their currency presumably in expectation of a profit
Commercial considerations may have revealed an error of judgment in the initial assessment of profitability of the adventure but that is a normal incident of the trading transactions
Those who contract with open eyes must accept the burdens of the contract along with its benefits
The powers of the Financial Commissioner to grant liquor licences by auction and to collect licence fees through the medium of auctions cannot by writ petitions be questioned by those who had their venture succeeded would have relied upon those very powers to found a legal claim
Reciprocal rights and obligations arising out of contract do not depend for their enforceability upon whether a contracting party finds it prudent to abide by the terms of the contract
By such a test no contract could ever have a binding force and concluded that the demand for the short fall in still head duty was based on the term of a binding contract and that it sought to enforce the liabilities arising out of mutually agreed conditions of auction
Such a demand in the opinion of this 692 Court could not be equated with a notice requiring the liquor vendor to show cause why his licence should not be cancelled
In making this distinction this Court further relied upon State of Punjab vs Mulkh Raj and Co wherein it was observed It was also held there that a cancellation of the licence under section 36 of the Punjab Excise Act 1914 had to take place quasi judicially after due service of the notice on the licensee to show cause why it should not be cancelled
Although the merits of the last mentioned proposition need not be examined by us as it rests on a sound footing yet we find it difficult to uphold the order that the demand for a sum of Rs 36636
On account of short fall should also be quashed on account of non compliance with rules of natural justice in cancelling the licence in proceedings under section 36 of the Act
We think that the two liabilities were erroneously considered by the High Court to be inextricably linked up      
We do not think that even if the respondent ought to have been given a hearing before cancelling the licence this would dispense with his liability to deposit the amount of balance of the licence fee or invalidate the notice of demand for it Thus the proposition is by now well settled that although an opportunity of being heard has to be given to a liquor vendor when his licence is sought to be cancelled the same principle of natural justice does not come into play when the demand is merely for payment of a sum becoming due under the conditions subject to which the licence was granted and this proposition fully covers these appeals
The demands for payment of the amount of the still head duty which had become due under the contracts accepted by the respondents and had remained unpaid were demands arising under condition No 8 above extracted and had therefore resulted from the terms of those contracts
No question of affording to the respondents any opportunity of being heard thus arises and the impugned judgment is therefore liable to be reversed
693 4
Faced with the above situation Shri Munjral learned counsel for the respondents raised the following two contentions a Still head duty is a duty of excise which could only be levied on a manufacturer and not on a mere vendor of goods manufactured by others
b If the still head duty mentioned in condition No 8 above extracted cannot be regarded as a duty of excise it nevertheless amounts to a tax of some other kind for levying which the State lacks authority
Reliance in connection with contention a is placed on Entry 51 of List II forming part of Schedule VII to the Constitution of India and on section 31 of the Punjab Excise Act
The relevant portions of these provisions state Entry 51 Duties of Excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India  a alcoholic liquors for human consumption 
Section 31 An excise duty or a countervailing duty as the case may be at such rate or rates as the State Government shall direct may be imposed either generally or for any specified local area on any excisable article a imported exported or transported in accordance with the provisions of section 16 or b manufactured or cultivated under any licence granted under section 20 or c manufactured in any distillery established or any distillery or brewery licenced under section 21 694 These provisions leave no room for doubt that a duty of excise on alcoholic liquors meant for human consumption cannot be recovered from the respondents because none of the 3 clauses of section 31 covers their business activities
But then the first part of contention a that still head duty is a duty of excise cannot be accepted in view of the dicta in Har Shankar and others vs The Dy
Excise  Taxation Commissioner and others supra and The State of Punjab vs Balbir Singh and others supra to the effect that the short fall in still head duty represents nothing but sums recoverable by the appellants under the terms of a contract which was entered into by the respondents with their eyes open and that the latter cannot be allowed to have the best of both the worlds by exploiting the contract so long as it suits them and by repudiating it if and when it does not work to their advantage
Shri Munjral has vehemently contended that still head duty is only another name for excise duty inasmuch as it is nothing more or less than a duty leviable on the manufacture of alcoholic liquor
For this proposition he places reliance on a Division Bench judgment of the High Court of Punjab  Haryana in Ms Bhajan Lal Saran Singh  Co vs The State of Punjab and others the approval of that judgment by this Court in Civil Appeals Nos
1042 and 1043 of 1968 decided on 21st August 1972 State of Madhya Pradesh vs Firm Gappulal etc
and Excise Commissioner UP Allahabad and others vs Ram Kumar and others
These authorities however are of no help to him because in every one of them the still head duty which was mentioned in the condition corresponding to condition No 8 in the present case was either expressly stated to be an excise duty or was assumed to be a duty of that character
In fact in the case of Ms Bhajan Lal Saran Singh it was conceded on behalf of the State before the High Court that still head duty was an excise duty and that is why the nature of the charge as excise duty was taken for granted before the High Court as well as in this Court
No question was either raised or decided as to whether it could at all be regarded as an excise duty
However in later cases namely Har Shankar and others vs The Dy
Excise  Taxation Commissioner and others supra and The State of Punjab vs Balbir Singh and others supra the demand for still head duty recoverable under condition No 8 above extracted was specifically 695 held to be a demand for money which had become due under an obligation created by terms of the contract
It is too late in the day therefore for Shri Munjral to contend that such a demand should be considered as one covering excise duty
He however relies on the following passage in Har Shankar and others vs The Dy
Excise  Taxation Commissioner and others supra The second decision on which the appellants laid stress was rendered by the High Court of Punjab and Haryana in Jage Ram vs State of Haryana CW No 1376 of 1961 decided on March 12 1968
The argument is that this decision is based on the earlier decision of the High Court in Bhajan Lal vs State of Punjab CW No 538 of 1966 decided on February 6 1967 that the decision in Bhajan Lal s case was confirmed in appeal by this Court CA Nos 1042 and 1043 of 1968 decided on August 21 1972 that there is no material difference between the rules and the procedure adopted in the instant cases and those which were struck down in Bhajan Lal s case and therefore the rules and the procedure followed herein must also be struck down for the same reasons
This argument overlooks the significant difference between the rules struck down in Bhajan Lal s case and in Jage Ram s case and the amended Rules now in force
Under the old Rule 36 23 A still head duty which was admittedly in the nature of excise duty was payable by the licencee even on quota not lifted by him
The Rule and Condition No 8 founded on it were therefore struck down in Bhajan Lal s case as being beyond the scope of entry 51 of List II the taxable event under the impugned Rule being the sale and not the manufacturer of liquor
Rule 36 was amended on March 31 1967 in order to meet the Judgment in Bhajan Lal s case but the High Court found in Jage Ram s case that even under the amended Rule still head duty which was in the nature of excise duty was payable on unlifted quota of liquor
The position obtaining under the Rules as amended on March 22 1968 which are relevant for our purposes is in principle different as the still head duty is now only 0 64 paise as against Rs 1760 per litre which was in force under the old Rules and excise duty as such is no longer payable on unlifted quota
The principle governing the decisions in Bhajan Lal s 696 case and Jage Ram s case cannot therefore apply any longer
Emphasis supplied Special stress has been laid by Shri Munjral on the underlined portion of the passage above extracted and it is contended by him that the judgments in the cases of Jage Ram and Bhajan Lal were neither disapproved nor dissented from but were merely distinguished in Har Shankar s case that while pointing out the distinction this Court took it for granted that in those earlier cases the charge of still head duty amounted to an excise duty and that condition No 8 as obtaining in the present case being identical with the corresponding condition in those cases it must be held that Har Shankar s case is an authority for the proposition that the said condition No 8 seeks to levy nothing but excise duty in the form of still head duty
A careful perusal of the passage cited which appears at first sight to lend colour to the contention leaves no room for doubt however that in deciding Har Shankar s case this Court was not called upon to adjudicate on the Constitutional propriety of condition No 8 above extracted nor with the question as to the nature of the levy covered by that condition
All that the Court said was that the corresponding condition in Har Shankar s case was a very different condition which could in no manner be construed to levy an excise duty
Besides it was pointed out in the passage above quoted that the still head duty mentioned in the relevant condition in the earlier cases which was indentical with condition No 8 was admittedly a duty of excise a fact to which we have already adverted while holding that condition No 8 does not involve the imposition of a duty of exercise but makes provision only for recovery of sums becoming due under a contract
We may also point out that the respondents are not connected in any manner whatsoever with the manufacture of alcoholic liquor and there was therefore no question at all of levying a duty of excise on their operations which were confined merely to the sale of liquor manufactured by others and which therefore commenced only after the process of manufacture was completely over
For all these reasons we repel the contention under examination
Contention b is also without substance and need not detain us long
For one thing it was never raised at any earlier stage and its consideration is bound to work prejudice to the cause of the appellants
Secondly as already pointed out above there 697 is no impediment in the way of the demand being regarded as the enforcement of an obligation arising under the contracts which the respondents had entered into and exploited so long as the same worked to their advantage and which were fully permissible under sub section 3 of section 34 of the Punjab Excise Act
That sub section states  3 Every licence permit or pass granted under this Act shall be granted a on payment of such fees if any b subject to such restrictions and on such conditions c in such form and containing such particulars d for such period as the Financial Commissioner may direct
According to Shri Munjral the payment of licence fees is provided for in the conditions of auction apart from condition No 8 and therefore the latter cannot be regarded as providing for anything but the levy of a duty of excise or of some other kind
The argument is fallacious in view of the language of clause b of the sub section just above reproduced
That clause allows the imposition of conditions on the grant of a licence in addition to the payment of the licence fees which is a matter covered by clause a
Condition No 8 is therefore fully enforceable and there is no reason why still head duty should be regarded as a tax of any kind whatsoever
For the reasons stated both the appeals are accepted and the impugned judgment
which cannot be sustained is reversed so that both the petitions under article 226 of the Constitution of India filed by the respondents before the High Court and accepted by it are dismissed
However we leave the parties to bear their own costs
VDK Appeals allowed


Summary:
Condition 8 of the licence to run liquor vends in various parts of Punjab during the financial year 1965 66 laid down i the licensee shall lift each month the proportionate quota for the month fixed for his vends or deposit still head duty realisable thereof ii Any deficiency in the amount of still head duty realisable from the lifting of the full proportionate quota due to the short lifting of the quota by the licensee or non deposit of the still head duty may be realised from the amount of security deposited by the licensee at the time of grant of licence iii the resultant deficiency in the amount of security shall be made good by the licensee within seven days of such adjustment and iv if there is short lifting of proportionate quota or short deposit of still head duty continues for two consecutive months or the licensee fails to make up the deficiency in the amount of security within the prescribed period of seven days his licence may be cancelled in addition to the recovery of still head duty
Respondent Ajudhia Nath who was granted the necessary licences under the relevant provisions of the Punjab Excise Act and the Rules framed thereunder was unable to lift the minimum quota of country liquor and also failed to deposit the still head duty which became payable by him under condition No 8
On an application made by him claiming relief in the matter of payment of sums which had fallen due such relief was granted to him in part by the Excise and Taxation Commissioner Punjab on the ground that the liquor trade was badly affected by reason of the movement of population in the border area of Punjab on account of the hostilities which broke out between India and Pakistan in the month of September 1965
Not satisfied with the relief so granted Ajudhia Nath filed two petitions under Article 226 of the Constitution before the High Court of Punjab and Haryana claiming inter alia that still head duty was an excise duty which could be levied only on manufacture of goods and which he was not liable to pay by reason of the admitted fact he was not a manufacturer of Liquor and that he was not given the opportunity of being heard in the matter covered by the applications claiming relief
The petitions were allowed and the Letters Patent Appeals preferred by the State were dismissed
Hence the appeals by special leave
687 Allowing the appeals the Court  HELD 1
The demand for the short fall in still head duty was based on the terms of a binding contract and it sought to enforce the liabilities arising out of mutually agreed conditions of auction
Such a demand could not be equated with a notice requiring the liquor vendor to show cause why his licence should not be cancelled
Although an opportunity of being heard has to be given to a liquor vendor when his licence is sought to be cancelled the same principle of natural justice does not come into play when the demand is merely for payment of a sum becoming due under the conditions subject to which the licence was granted
691 G H 692A E F Har Shankar and others vs The Dy
Excise  Taxation Commissioner and others  Shyam Lal vs State of Punjab AIR 1976 SC 2045 State of Punjab vs Mulkh Raj and Co AIR 1977 SC 1550 and The State of Punjab vs Balbir Singh and others AIR 1977 SC 1717 followed
A combined reading of Entry 51 of List II of Schedule VII to the Constitution of India and section 31 of the Punjab Excise Act no doubt makes it clear that a duty of excise on alcoholic liquors meant for human consumption cannot be recovered from a person unless any one of the three clauses of section 31 covers his business activities
693 C D 694A 2 2
Still head duty is not a duty of excise in view of the dicta laid down by the Supreme Court to the effect that the short fall in still head duty represents nothing but sums recoverable from the licensees under a contract which was entered into by them with their eyes open and that they cannot be allowed to have the best of both the words by exploiting the contract so long as it suits them and by repudiating it if and when it does not work to their advantage
694 B C Har Shankar and others vs The Dy
Excise  Taxation Commissioner and others  State of Punjab vs Balbir Singh and others AIR 1977 SC 1717 applied
Condition No 8 of the licence does not involve the imposition of a duty of excise but makes provision only for recovery of sums becoming due under a contract
The licensees are not connected in any manner whatsoever with the manufacture of alcoholic liquor and there was therefore no question at all of levying a duty of excise on their operations which were confined merely to the sale of liquor manufactured by others and which therefore commenced only after the process of manufacture was completely over
696 E G Ms
Bhajan Lal Saran Singh  Co vs State of Punjab and others 1967 Current Law Journal Punjab and Haryana 460 State of MP vs Firm Goppulal   Excise Commissioner UP Allahabad and others vs Ram Kumar and others  distinguished 3 1
On the facts of this case still head duty cannot be regarded as a tax of some other kind nor can the question whether it does amount to such a tax 688 for levying which the State lacks authority be allowed to be raised since it was never raised at any earlier stage and its consideration is bound to work prejudice to the cause of the appellants
Further there is no impediment in the way of the demand being regarded as the enforcement of an obligation arising under the contracts which the licensees had entered into and exploited so long as the same worked to their advantage and which were fully permissible under sub section 3 of section 34 of the Punjab Excise Act
696 H 697 A B 3 2 Clause b of sub section 3 of section 34 of the Punjab Excise Act allows impositions of conditions on grant of the licences in addition to the payment of the licence fees which is a matter covered by clause a
Condition No 8 is therefore fully enforceable and there is no reason why still head duty should be regarded as a tax of any kind whatsoever
697 D E