ivil Appeal Nos
437448 Of 1978 Etc
From the Judgment and Order dated 181
1977 of the Andhra Pradesh High Court in Writ Petition No 4485 3399 4979 5819 of 1974
YS Chitale Soli J Sorabjee PP Rao AS Nambiar A Chitale TVSN Chari N Mathur W Quadri Ms V Grover Ms Sunita Mudigouda TD Ramayya A Mariarputham TC Gupta KVG Rama Rao and G Narayana Rao for the appearing parties
The Judgment of the Court was delivered by CHINNAPPA REDDY J
The primary question involved in these appeals and petitions is whether under the Excise Law  prevailing in the State of Andhra Pradesh the Govern ment is entitled to claim from the Excise Contractors who have failed to lift the Minimum Guaranteed Quantity  of liquor the amount said to represent the excise duty compo nent  in the issue price of liquor relating to such unlifted quantity of liquor
A full bench of three judges of the High Court of Andhra Pradesh in V Narasimha Rao vs Superintend ent of Excise AIR 1974 AP 157 held that the Government could but this view was overruled by a Full Bench of Five Judges of the same High Court in Atluri Brahmanandam vs Tahsildar of Gannavaram AIR 1977 AP 196 where it was held that the Government could not
It is the judgment of the Full Bench of Five Judges which is in question in the ap peals and petitions filed by the Government
With a view to cure the defects pointed out by the Full Bench of Five Judges and to validate the demands raised by the Government the Andhra Pradesh Legislature enacted the Andhra Pradesh Excise Amendment Act X of 1984
Demands raised pursuant to the Amending Act were upheld by the High Court by a later judgment
The aggrieved Excise Contractors have filed ap peals and they are also before us
In some cases the con tractors who had originally succeeded because of the deci sion of the Five Judge Full Bench were again called upon to make good the deficit after the Amending Act was passed
They questioned the fresh demands but failed in the High Court
Their petitions for Special Leave to Appeal are also before us
517 Entry 51 of List II of the seventh schedule to the Constitution empowers the State to levy duties of Excise on alcoholic liquors for human consumption not including medicinal and toilet preparations containing alcohol manu factured or produced in the State  and counter availing duties on such alcoholic liquors manufactured or produced elsewhere in India
An Excise duty levied by the State on alcoholic liquors is therefore
primarily a duty on the manufacture or production of such alcoholic liquors
Section 210 of the Andhra Pradesh Excise Act
18 defines Excise Duty or Countervailing duty to mean the duty of Excise or countervailing duty as the case may be mentioned in Entry 51 is List II of the Seventh Schedule to the Constitu tion Excise Revenue  is defined by s212 to mean Rev enue derived or derivable from any duty fee tax rent fine penalty or confiscation levied imposed or ordered under the provisions of this Act or other law for time being in force elating to intoxicating drugs 
Section 17 of the Act before and after the amendment was and is as follows Section 17 before amendment Section 17 as amended by Act No10 of 1984
Power to grant lease Sec 17 Grant of exclusive i The Government may sub privilege of manufacture etc ject to such conditions as 1 subject to the provisions they may deem fit to impose of s28 and any rules made grant for a fixed period to in this the Govt
may subject any person at any place a to such conditions as they lease jointly or severally may deem fit to impose grant for the supply manufacture for a fixed period to any or sale of any intoxicant
person at any place a lease or licence or both either Explanation A lease shall jointly or severally for the not take effect until the exclusive privilege collector or any other comp etent officer has issued i of manufacturing or of a licence under this Act
supplying by wholesale or of both or 2 The Government may ii or selling by wholesale confer on any officer the or by retail or power mentioned in sub 519 section1
iii of manufacturing Or Of supplying by wholesale or of both and of selling by retail any liquor or other intoxicant within any such area in the State as may be specified in the said order
Explanation A lease shall not take effect until the Collector or any other competent officer has issued a licence under this Act
2 The Government may confer on any officer the power mentioned in sub section 1
 Sections 21 and 22 which remained unchanged are as follows Section 21 Excise duty or Countervailing duty on excisable articles 1 The Govt
may by notification levy an excise duty on any excisable article manufactured or produced in the State at such rate not exceeding the rates mentioned in the Schedule as may be specified in the notification
2 The Govt
may by notification levy a countervailing duty on any excisable article manufactured or produced elsewhere in India and imported into the State at such rate as may be specified in the notification which may not exceed the rates on excise duty on similar excisable articles levied under sub section1
3 Different rates may be specified in sub section1 and 2 for different kinds of excisable articles and different modes of levying duties under s22
Section 22 Modes of levying duties The excise duty and the countervailing duty under s21 shall be levied in one or more of the following modes a rateably on the quantity of any excisable article produced or manufactured in or issued from a distillery brewery or manufactory or warehouse or imported into the State 520 b in the case of spirits or other liquors produced in any distillery brewery or manu factory in according with its quality or strength or in accordance with such scale of equivalents calculated on the quantity of materials used or by the degree or attenua tion of the wash or wort as the case may be prescribed c In the case of today in the form of a tax on each variety of excise tree from which teddy is drawn having due regard to the period during which such tree is capable of yielding today d by fees on licences for the manufacture supply or sale of any excisable article
 Section 23 before and after amendment was as follows Section 23 before amend Section 23 as substituted by ment Act 10 of 1984 Excise duty in respect of Sec 23 Payment for exclu lease Notwithstanding any sive privilege Instead of or thing in Sections 21 and in addition to any excise 22 the sum accepted in con duty or fees leviable under sideration of the grant sections 21 and 22 the of any release relating to Commissioner or any any other any excisable article under competent officer may accept section 17 shall be the excise payment of a sum in consi duty or countervailing deration of the grant of duty payable in respect of lease or licence or both the excisable article in for the exclusive privilege addition to any duty or in respect of the liquor or fees paid under s21  22
any other intoxicant under sec
Validation Where before the commencement of this Act
 any issue price which includes excise duty also has been collected or recovered from the licensee in respect of short drawn 521 or undrawn minimum guaranteed quantity of arrack in pursu ance of rule 15 of the AP Excise Arrack Retail Vend and Special conditions of Licences Rules 1969 by deducting such price from the advance money paid by the licensee then notwith standing anything contained in any judgment decree or order of any court tribunal or other authority to the contrary the price so col lected or recovered shall be deemed to be and shall be deemed always to have been validly collected or recov ered as consideration for the grant of lease or licensee or both to the lessee or licen see for the exclusive privi lege in respect of sale of liquor in accordance with the provisions of the principal Act as amended by this Act as if the amendments made to the principal Act by a sections 2 and 3 of this Act had been in force at all material times and accordingly a all acts proceedings or things done or taken by the State Govtor by any officer of the State Govt
or by any other authority in connection with the collection of such price shall for all purposes be deemed to be and to have always been done or taken in accordance with law b no suit or other proceeding shall be maintained or contained in any Court or before any authority 522 for the refund of and no enforcement Shall be made by any Court of other authority of any decree or order directing the refund of any such price which has been collected as if the provisions of the principal Act as amended by this Act had been in force at all material times
 The first entry in the Schedule to the Act is as follows No Description of Mode of levying Maximum rate excisable article duty of duty 1
Arrack on the quantity Rupees eight per issued from the litre of the distillery of ware strength of house
proof spirit
 We mentioned earlier that the Andhra Pradesh Legislature amended the Andhra Pradesh Excise Act to nullify the effect of the Full Bench judgment in Atluri Brahmanandam vs Tahsil dar of Gannavaram supra
We may refer to the provisions of the amending Act
Section 2 of the Amending Act provides for the substitution of a new section 17 for the old
section 17
We have already extracted both the old and the new sections
Sec tions 3 of the amending Act provides for the substitution of old s23 by a new s23
We have already extracted both the old and the new sections
Section 4 of the amending Act provides for the Validation of earlier demands made in respect of issue price of short drawn minimum guaranteed quantity of liquor
It is necessary to set out the whole of this provision
It is as follows 4
Validation Where before the commence ment of this Act any issue price which includes excise duty also has been collected or recovered from the licensee in respect of short drawn or undrawn minimum guaranteed quantity of arrack in pursuance of rule 15 of the Andhra Pradesh Excise Arrack Retail Vend and Special Conditions of Licences Rules 1969 by deducting such price from the advance money paid by the licensee then notwith standing 523 anything contained in any judgment decree or order of any court tribunal or other authori ty to the contrary the price so collected or recovered shall be deemed to be and shall be deemed always to have been validly collected or recovered as consideration for the grant of lease or licence or both of the lessee or licensee for the exclusive privilege in re spect of sale of liquor in accordance with the provisions of the principal Act as amended by this Act as if the amendments made to the Principal Act by sections 2 and 3 of this Act had been in force at all material times and accordingly  a all acts proceedings or thing done or taken by the State Government or by any offi cer of the State Government or by any other authority in connection with the collection of such price shall for all purposes be deemed to be and to have always been done or taken in accordance with law
b no suit or other proceeding shall be maintained or continued in any court or before any authority for the refund of and no enforcement shall be made by any Court or other authority of any decree or order direct ing the refund of any such price which has been collected and which would have been validly collected as if the provisions of the Principal Act as amended by the Act had been in force at all material times
 The Andhra PradeshArrack Retail Vend Special Condi tions of Licences Rules 1969 were made by the Government of Andhra Pradesh in exercise of the powers conferred by various provisions of the Andhra Pradesh Excise Act
Rule 7 obliges the licensee to buy arrack from a recognised dis tillery warehouse or depot as may be allotted by the de partment at the issue price as notified by the Commissioner from time to time
Rule 11 provides for remittences of duty etc
into the Government treasury
Rule 15 deals with mini mum guaranteed quantity of liquor
It is necessary to ex tract the first two clauses of rule 15 and they are as follows 15
Minimum guaranteed quantity of arrack 1 No licensee shall purchase arrack less than the speci fied minimum guaranteed quantity in any month
If in any month quantity less than the minimum guaranteed 524 quantity fixed for that month is drawn at the end of that month issue price to the extent of deficit purchase shall be deducted from the advance money paid by the licensee under the minimum quantity of arrack guaranteed by him and the licensee shall be called upon to indemnity the amount so adjusted by the end of the succeeding month in which short drawn quantity had occured
Provided that the Excise Superintendents may permit the licensee to lift the short drawn minimum guaran teed quantity of the previous month in the succeeded month for special reasons expert for the month of September unless the licensee has committed default in lifting the minimum guaranteed quantity for two successive months Provided further that where the Commissioner deems it necessary to permit a shop keeper to draw the deficit quantity short drawn in any month in the subsequent he shall obtain the prior approval of the Government for grant ing such permission
2 Where a licensee fails to lift the arrack as permitted by the Excise Superintendent or to indemnity the advance amount so adjusted by the end of the succeeding month in which the short drawal of quantity had occurred the right acquired by the defaulting licensee shall be reauctioned forthwith
 Rule 17 prescribes every licensee shall be bound by the provisions of Andhra Pradesh Excise Act 1968 and the rules and orders made under from time to time
 The Andhra Pradesh ExciseLease of fight to sell liquor in retail rules 1969 are another set of rules made under the various provisions of Andhra Pradesh Excise Act
Rule 2ix defines rental to mean the rent payable in respect of a shop or group of shops in consideration of the grant of lease for sale of liquor 
Rule 3 provides for the lease of the fight to sell liquor in retail
Clause 1 of Rule 3 may be usefully extracted here and it is as follows 3
Lease to right to sell liquor in retail 1 Subject to the provisions of these rules every lease of right to sell 525 liquor in retail shall be granted by auction
The lease shall ordinarily be for a period of one excise year Provided that where the Commissioner considers it necessary to grant the lease of right to sell liquor in retail in any other manner he shall do so with the prior approval of the Government
 The rest of the rules relate to the procedure to be followed at the auction and thereafter
Rule 16 requires the auction purchaser to pay 2 per cent of the annual rental as earnest money together with one month s rental on the day of auction immediately after the acceptance of tender or bid as the case may be
The earnest money and one month s rental are to be in addition to the deposit of rental prescribed by Rule 18
Rule 181 provides for the deposit by auction purchaser within fifteen days from the date of auction two months  rental in cash or in fixed deposit certificates
Rule 21 provides for execution of counterpart agreement by the licensee in form 42
This is required to be done before taking out a licence in respect of lease granted to him for the sale of liquor
Rule 22 provides that the lease shall not take effect until the auction purchaser obtains a li cence
Rule 24 prescribes that every auction purchaser shall be bound by all the provisions of the Excise Laws which are in force or which may come into force and of the rules or orders made from time to time by the Government or Commis sioner or by the competent authority
The prescribed form for the counterpart agreement provides among other thing for an undertaking that the licensee shah abide by all the provisions of the Andhra Pradesh Excise Act and the Rules and Orders thereunder existing and also those that would be issued from time to time in that respect
The Andhra Pradesh Excise Lease of right to sell liquor in retail Rules 1969 and the Andhra Pradesh ExciseArrack Retail Vend Special Conditions for Licences Rules were duly amended in 1984
It is to be mentioned here that the issue price of arrack is notified well in advance of the Excise year and the minimum guaranteed quantity of liquor is also fixed in regard to each shop well in advance of the auction
The issue price is always a definite sum per bulk litre of liquor
The notification specifying the issue price does not attempt to split up the issue price into various components such as cost price Excise duty transport charges etc
Cost price Excise duty and transport charges are not separately and individually charged
Issue price is the sum total of whatever has gone into the price of liquor at the time it is issued and it is a single pre determined definite sum and not the total 526 of separate sums representing so many specified components
For example the issue price of arrack for the year 197980 was notified in the following manner In exercise of the powers conferred by Rule 71 of the Andhra Pradesh Excise Arrack Retail sale Special Conditions for Licences Rules 1969 the Commissioner of Excise Andhra Pradesh hereby notifies the issue price of arrack for the Excise Year 1979 80 at Rs510 per bulk liter of 30x UP strength and Rs3 per bulk liter of 60x UP strength
 It is however not disputed that excise duty does enter the determination of the issue price but that has nothing to do with the excise contractor whose obligation is to pay the whole of the issue price
As we said the issue price as well as minimum guaranteed quantity are both fixed well in ad vance and it is with full knowledge of the issue price and the minimum guaranteed quantity that every bidder partici pates in the auction
We wish to emphasise here that the issue price  is that which is not notified as issue price and not its components if any
These components which have come together to become issue price  are not to be separat ed again
To borrow the analogy of Chemistry it is a chemi cal compound and not a mechanical mixture
Excise duty loses its identity as it were and becomes an inseparable part of issue price 
The learned counsel for the contractors however argued that excise duty was admittedly a part of issue price and that the legislature while amending the Excise Act in 1984 had also recognised the distinctive duty element in issue price
He also invited our attention to Narasimha Rao vs Superintendent of Excise supra
It is true that it is not disputed that the element of excise duty has entered the issue price but that does not mean that it continues to retain its character as Excise duty
In V Narasimha Rao vs Superintendent of Excise supra the High Court of Andhra Pradesh after refering to Rule 11 of the retail vend Rules observed that it could be safely taken that the three items namely duty cost and sales tax constituted the issue price
It is one thing to say that several elements enter into the determination of issue price but it is altogether a different thing to say that these erstwhile constituent elements retain their character and individually as such even after determination of issue price
In the statement of objects and reasons of the amend ing Act there is reference to issue price  together with excise duty  and issue price including excise duty 
In s4 of the amending Act there is a reference to issue pricewhich includes excise duty also 
These references to issue 527 price and excise duty are made in the context of the judg ment of the Five Judge Full Bench of the Andhra Pradesh High Court which has treated excise duty as a severable element of issue price the effect of which was sought to be got rid by the amending Act
It was in that context that there was a reference to the excise duty element of issue price
We do not think that it is permissible for us to hold that the element of excise duty which has gone into the determination of issue price continues to retain its individual character so as to be capable of being severed and dealt with sepa rately
Basing himself on an observation made in Panna Lal vs State of Rajasthan  it was argued by the learned counsel on behalf of the Excise Contractors that issue price can only relate to liquor drawn by the contrac tors and cannot pertain to undrawn liquor
There can be no question that issue price must generally relate to liquor which is drawn by the Contractors but it does not follow therefrom that issue price cannot be adopted by agreement between the parties as the measure of compensation to be paid in the case of undrawn liquor
In fact it may not be quiet correct even to view it as compensation as we shall presently see
It is no more and no less than the price which the contractor agrees to pay for the grant of the privilege to sell liquor drawn or undrawn
We may now examine the situation as it obtained before the amending Act 1984
It is well settled that all right in regard to manufacture and sale of intoxicants vest in the State
It is open to the State to part with those rights for a consideration
The consideration for parting with the privilege of the State is neither Excise duty nor Licence fee but it is the price of the privilege
Section 17 of the Andhra Pradesh Excise Act as it stood before the amendment provided for the grant of a lease for the manufacture or sale of an intoxicant subject to such conditions as the Government deemed fit to impose
It also provided that a lease shall not take effect until a licence under the Act was also issued
Section 21 provided for the levy of Excise duty on excisable articles and s22 prescribed the mode of levy of excise duty
Section 23 provided that notwithstand ing anything in sec
21 and 22 the sum accepted in consid eration for the grant of any lease under section 17 was to be the excise duty payable in respect of that excisable article
The marginal note of s23 is Excise duty in respect of lease
Rental we have seen has been defined in the Andhra Pradesh Lease of fight to sell liquor in retail Rules 1969 as meaning the rent payable in respect of a shop or group of shops in consideration of the grant of lease for the sale of liquor
Rule 3 prescribes that every lease of right 528 to sell liquor in retail shall be granted by auction
Rule 7 of the Andhra Pradesh Arrack Retail Vend Special Conditions of Licences Rules prescribes that the licensee shall pur chase arrack from the distillery warehouse or depot allot ted by the Government and shall pay issue price as notified by the Commissioner from time to time
Rule 15 provides for the purchase of a specified minimum guaranteed quantity of arrack every month and for the adjustment of the issue price in case of any short fall in the purchase of the minimum guaranteed quantity of liquor
Thus reading sections 17 and 23 of Andhra Pradesh Excise Act together with the Andhra Pradesh Excise Lease of Right to sell liquor in retail Rules 1969 and Andhra Pradesh Retail Vend Special Condi tions of Licences Rules the picture which emerges is that the privilege of selling liquor which includes the lease of the shop for an area and the licence to sell liquor therein may be granted by the State by public auction subject to 1 payment of rental being the highest bid at the auction It is to be noted here that rental is the rent payable in consideration of grant of lease for the sale of liquor but it is not the sale or exclusive consideration for the lease 2 the requirement that the licensee shall purchase arrack at the issue price and 3 the further requirement that the licensee shall purchase a minimum guaranteed quan tity of arrack which he has to make good in case of short fall
The consideration for the grant of the privilege to sell liquor is not merely the rental to be paid by the lessee but also the issue price of the arrack supplied or treated as supplied in case of short fall which is also to be paid by the lessee licensee
There is no question of the lessee licensee having to pay the excise duty though it may be that the issue price is arrived at after taking into account the excise duty payable
If this is the true posi tion the question arises whether the contractor can claim to deduct from the issue price payable by him in respect of short drawn arrack the amount said to be attributable to excise duty
Once we have understood the true nature of issue price  and the true consideration for the grant of the exclusive privilege to sell liquor the question posed in the previous paragraph is not difficult to answer
We have guidance from several decisions of this Court
The first of the cases on which the learned counsel for the liquor contractors relied was that of Bimal Chandra Banerjee vs State of Madhya Pradesh  The successful bidders at an excise auction who had failed to take delivery of the prescribed minimum quantity of liquor which they were required to sell under the condition of auction were called upon to pay excise duty on the quantity of liquor which they had failed to take
Clause 2c of the 529 notification prescribing the conditions of auction provided that the contractor had to make good every month the defi cit of monthly average of the total minimum duty
The court found that none of the provisions of the Act empowered the rule making authority viz the State Government to levy tax on excisable articles which had not been either imported exported transported manufactured cultivated or collected under any licence or manufactured in any distillery estab lished or distillery or brewery licenced under the Act
The Court said 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 by law or rule or regulation unless the statute itself under which the subordinate legislation is made specially authorises the imposition even if it is assumed that the power to tax can be dele gated to the executive
 This was clearly a case where the State purported to levy excise duty on the unlifted quantity of liquor  and this could not be done under the authority of law
The second case on which the learned counsel relied was that of State of Madhya Pradesh vs Firm Gappulal etc
  In that case there was no dispute that the demand made on the contractors was in respect of duty on liquor which had not been lifted
It was held that the demand could not be made
The decision of the court in Panna Lal s case was distinguished on the ground that in that case there was not levy of excise duty in enforcing the payment of the guaranteed sum or the stipulated lump sum mentioned in the licences
It was also pointed out that in Panna Lal s case the excise duty component of the issue price was found to be a measure of the quantum of or extent of the conces sion or the remission to be given to the liquor contractors
The lump sum amount payable for the exclusive privilege was not to be confused with the issue price
In essence it was said what was sought to be recovered from the liquor con tractors in Panna Lal s case was the shortfall occasioned on account of failure on the part of liquor contractors to fulfil the terms of licence
Gappulal s case is not of any assitance to the contractors in the present case as what was sought to be recovered there was undoubtedly excise duty which was not leviable on unlifted liquor
The third case relied on by the learned counsel for the con 530 tractors was that of Excise Commissioner Uttar Pradesh vs Ram Kumar The licence granted to each of the contractors in this case provided that on his failure to lift the monthly proportonate quota in any month he shall be liable to pay compensation to the State Government at the rate equal to the rate of still head duty  on the quantity falling short of such monthly proportionate quota
The contractors having failed to lift or sell the minimum quantity of quota of liquor were required to compensate the State as provided by the licence
The Court held that the demand though disguised as compensation was in reality a demand for excise duty on the unlifted quantity of liquor and that was not authorised by the provisions of the Act
Thus we see that in Bimal Chandra Banerjee s case and Gappulal s case what was sought to be recovered was excise duty and in Ram Kumar s case also what was sought to be recovered was excise duty though disguised as compensation
Such excise duty on unlifted liquor was not leviable
Refer ring to these cases Chandrachud CJ
observed in State of Haryana vs Jage Ram  In Bimal Chandra Banerjee s case it was held by this court that the levy of excise duty on undrawn liquor was beyond the power of the State Government and that therefore the rule imposing the condition to that effect was invalid
That decision was followed in State of Madhya Pradesh vs Firm Gappulal where also the licensees were required to pay what was described as Pratikar  which was nothing but excise duty on undrawn liquor
The same situa tion obtained in Excise Commissioner vs Ram Kumar because the real nature of the payment which the licensee were required to pay there was excise duty on undrawn liquor
These decisions cannot held the respondents because the true position as we stated earlier is that the amount which the respondents are called upon to pay is not excise duty on undrawn liquor but is the price of a privilege for which they bid at the auction of the vend which they wanted to conduct
 The learned counsel for the State of Andhra Pradesh relied on Har Shankar  Ors vs The Dy
Excise  Taxation Commr
 Ors
   Panna Lal vs State of Rajasthan supra and State of 531 Haryana vs Jage Ram supra
In Har Shankar s case it was held by a Constitution Bench of the Court Chandrachud J speaking for the Court that since rights in regard to intoxicants belonged to the State it was open to the Gov ernment to part with those rights for a consideration
In a scheme providing for the parting of the right for a consid eration it was not of the essence whether the amount charged to the licences was pre determined or whether it was left to be determined by bids offered in auctions
The power of the Government to charge a price for parting with its rights and not the mode of fixing that price was constituted the essence of the matter
Nor indeed did the label affixed to the price determine either the true nature of the charge left by the Government or its rights to levy the same
The amount charged was neither a fee properly so called nor indeed a tax but was in the nature of a price of the privi lege which the purchaser had to pay in any trade or business transaction
Once it was appreciated that the auctions were only a mode or medium for ascertaining the best price ob tainable for the grant of a privilege to sell liquor there would be no further contradiction in them
In Panna Lal s case the court held The agreements gave the liquor contractors an exclusive privilege to sell country liquor in a specified area for the period fixed for a stipulated sum of money for enjoying the privilege
If the contractors do not sell any liquor they are yet bound to pay the stipu lated sum
If they sell liquor they are given the benefit of remission in the price of the exclusive privilege
The measure for this remission is the excise duty leviable to the extent that the liquor contractor can neutra lise the entire amount of exclusive privilege in the excise duty payable by them
If the contractors fail to lift adequate quantity of liquor and thereby fail in neutralising the entire price of exclusive privilege the contractors are not called upon to pay excise duty
 It was held that there was no leviable excise duty in en forcing the payment of the guaranteed sum or the stipulated lump sum mentioned in the licence
We have already referred to the references made to rental  and issue price 
We finally come to the State of Haryana vs Jage Ram supra which we may now take to be the last word on the subject
Chandrachud CJ spoke for the Court and said The amount which the respondents agreed to pay to the 532 State Government under the terms of the auc tion is neither a fee properly so called which would require the existence of a quid pro quo nor indeed is the amount in the nature of excise duty which by reason of the constitu tional constraints had to be primarily a duty on the production or manufacture of goods produced or manufactured within the country
The respondents cannot therefore complain that they are being asked to pay excise duty  or stillhead duty on quota of liquor not taken lifted or purchased by them
The respondents agreed to pay a certain sum order the terms of the auction and the Rules only prescribe a convenient mode whereby their liability was spread over the entire year by splitting it up into fortnightly instalments
The Rules might as well have provided for payment of a lump sum and the very issuance of the licence could have been made to depend on the payment of such sum
If it could not be argued in that event that the lumpsum payment represented excise duty it cannot be so argued in the present event merely because the quota for which the respondents gave their bid is re quired to be multiplied by a certain figure per proof litre and further because the re spondents were given the facility of paying the amount by instalments while lifting the quota from time to time
What the respondents agreed to pay was the price of a privilege which the State parted with in their favour
They cannot therefore avoid their liability by contending that the payment which they were called upon to make is truly in the nature of excise duty and that no such duty can be imposed on liquor not lifted or purchased by them
The result of our discussion is that even prior to the 1984 amendment the amount which each of the contractors was required to pay or have adjusted was not excise duty on undrawn liquor but was part of the price which he had agreed to pay for the grant of the privilege to sell liquor
The judgment of the High Court of Andhra Pradesh in Atluri Brahmanandam vs Tahsildar of Gannnvaram supra is reversed
The appeals filed by the State of Andhra Pradesh are al lowed
We mentioned that in order to remedy the situation resulting from the Full Bench judgment of the Andhra Pradesh High Court the Andhra Pradesh Legislature enacted the Andhra Pradesh Excise Amendment Act 10 of 1984
In the view that we have now taken the amendment of the Act has become a needless exercise
However we 533 may briefly consider the attack on the amending Act
It was argued that the amending Act did not effectually remove the vices or defects pointed out by the Full Bench in Brahmanan dam s case supra as secs
21 and 22 were left in tact
It was said that without amending secs
21 and 22 the amend ment of sec
23 effected by the Andhra Pradesh Legislature led no where towards achieving the result aimed at by the Legislature
Nor could the Legislature validate the demands earlier made and struck down by the courts merely by enact ing that the demands were to be deemed to be valid without removing the vices or defects from which those demands suffered
We are not inclined to agreed with these submis sions Sec
17 of the Andhra Pradesh Excise Act which deals with the grant of the fight to sell liquor has been substan tially amended
Even the marginal note has been changed from power to grant lease to grant of exclusive privilege of manufacture etc
 The new sec
17 makes it clear that what is proposed to be granted is the exclusive privilege to manufacture or sell liquor in the shape of a lease or li cence or both
The explanation makes it clear that the lease shall not take effect unless a licence is issued
Having regard to the vital amendment of sec
17 no further amend ment of secs
21 and 22 was necessary
The consequential amendment to sec
23 has however been made
Again the mar ginal note has been changed from excise duty in respect of lease to payment for exclusive privilege
 It is now specified in the new section that the payment of the same in consideration of the grant of lease or licence or both for the exclusive privilege is to be instead of or in addition to any excise duty or fees leviable in secs
21 and 22
We are therefore satisfied that the amendments effected to secs
17 and 23 have fulfilled the object of removing the vices or defects pointed out by the Full Bench in Atluri Brahmanandam s case if indeed there were defects or vices
In the result the petitions for special leave to appeal filed against the judgments of the Andhra Pradesh High Court upholding the amending Act and the demands made by the excise authorities are dismissed
PSS Appeals  Petitions dismissed


Summary:
Section 17 of the Andhra Pradesh Excise Act 1968 as it stood at the relevant time provided for the grant of lease for the manufacture or sale of an intoxicant
It also pro vided that a lease shall not take effect until a licence under the Act was also issued
Section 23 provided that the sum accepted in consideration for the grant of any lease under s17 was to be the excise duty payable in respect of that excisable article
Rule 3 of the Andhra Pradesh Lease of Right to Sell Liquor in Retail Rules 1969 prescribes that every lease of right to sell liquor in retail shall be granted by auction
Rule 7 of the Andhra Pradesh Arrack Retail Vend Special Conditions of Licences Rules 1969 requires the licences to purchase arrack from the distillery warehouse or depot allotted by the Government and to pay issue price  as notified
Rule 15 provides for the purchase of a specified minimum guaranteed quantity of arrack every month and for the adjustment of the issue price in case of any short fail in the purchase of the minimum guaranteed quantity of liq uor
A question arose as to whether under the Excise Law prevailing in the State the Government was entitled to claim from the excise contractors who failed to lift the minimum guaranteed quantity of liquor the amount said to represent the excise duty component in the issue price of liquor relating to such unlifted quantity of liquor
A Full Bench of three Judges of the High Court in V Narasimha Rao vs Superintendent of Excise AIR held in favour of the Government
It took the view that three items namely duty cost 514 and sales tax constituted the issue price
This view howev er was overruled by the Full Bench of Five Judges of the same High Court in Atluri Brahmanandam vs Tahsildar of Gannavaram AIR wherein it was held that the Government could not do so
It treated the excise duty as a severable element of issue price
That judgment was assailed in the appeals and petitions filed by the Government
To nullify the effect of that judgment and to validate the demands raised by the Government the State Legislature enacted the Andhra Pradesh Excise Amendment Act X of 1984
The amended s17 provides for grant of lease or licence for exclusive privilege of manufacture supply by wholesale or sale of any liquor or other intoxicants
The new s23 empow ers the competent officer to accept payment of a sum in consideration of the grant of lease or licence or both for the exclusive privilege in respect of the liquor or any other intoxicant under s17
Section 4 of the Amending Act provides for the validation of earlier demands made in respect of issue price of short drawn minimum guaranteed quantity of liquor
Demands raised pursuant to the Amending Act were upheld by the High Court by a later judgment
The aggrieved excise contractors filed appeals to this court
Some of the contractors who had originally succeeded because of the decision of Five Judges Bench and were again called upon to make good the deficit after the Amending Act was passed having failed in the High Court filed special leave petitions to this Court
It was contended for the aggrieved contractors that what was sought to be recovered from them was excise duty on unlifted quantity of liquor which was not authorised by the provisions of the Act as the excise duty being a part of the issue price it could only elate to liquor drawn by them and not pertain to undrawn liquor that without amending ss21 and 22 of the Excise Act the amendment of s23 affect ed by the Legislature led nowhere towards achieving the result aimed at by the Legislature and that the Legislature could not validate the demands earlier made and struck down by the Courts merely by enacting that the demands were to be deemed to be valid without removing the vices and the defects
Disposing of the appeals and the special leave petitions the Court HELD 11 Once issue price  is determined its compo nents such as excise duty cost price transport charges etc
cease to retain their individual character
They cannot then be severed from the issue 515 price and dealt with separately
The Five Judges Bench of the High Court was therefore wrong in holding that excise duty was a severable element of issue price
526H 527A B 12 Issue price is the sum total of whatever has gone into the price of liquor at the time it is issued and it is a single pre determined definite sum per bulk litre and not the total of separate sums representing to many specified components
The issue price  is that which is notified as issued price and not its components if any
These compo nents which have come together to become issue price  are rendered incapable of being separated again
Excise duty loses its identity as it were and becomes an inseparable part of issue price 
525H 526A A lessee licensee therefore was not entitled to claim deduction from the issue price payable by him in respect of short drawn quantity of arrack the amount attributable to the excise duty
528F V Narasimha Rao vs Superintendent of Excise AIR 1974 AP 157 distinguished
Atluri Brahamanandam vs Tahsildar of Gannavaram AIR 1977 AP 196 overruled
21 The issue price is no more and no less than the price which the contractor agrees to pay for the grant of the privilege to sell liquor drawn or undrawn
The minimum guaranteed quantity of liquor as well as the issue price are both fixed well in advance of the auction in regard to each shop and it is with full knowledge of the issue price and the minimum guaranteed quantity that every bidder partici pates in the auction
1527D 526C D 22 There can be no question that issue price must generally relate to liquor which is drawn by the contractor but it does not follow therefrom that issue price cannot be adopted by agreement between the parties as a measure of compensation to be paid in the case of undrawn liquor
527C D Panna Lal vs State of Rajasthan  referred to
31 Even prior to the 1984 amendment the amount which each of the contractors was required to pay or to have adjusted was not excise duty on undrawn liquor but was part of the price which he had agreed to pay for the grant of the privilege to sell liquor
527D 516 32 All rights in regard to manufacture and sale of intoxicants vest in the State
It is open to the State to part with those rights for a consideration
The considera tion for parting with the privilege of the State is neither excise duty nor licence fee but it is the price of the privilege
S27E F 33 Reading sections 17 and 23 of the Andhra Pradesh Excise Act 1968 together with the Andhra Pradesh Excise Lease of Right to Sell Liquor in Retail Rules 1969 and Andhra Pradesh Arrack Retail Vend Special Conditions of Licences Rules 1969 makes it evident that the privilege of selling liquor which includes the lease of the shop for an area and the licence to sell liquor therein may be granted by the State by public auction subject to 1 payment of rental being the highest bid at the auction 2 the re quirement that the licensee shall purchase arrack at the issue price and 3 the further requirement that the licen see shah purchase a minimum guaranteed quantity of arrack which he has to make good in case of short fail
The consid eration for the grant of the privilege to sell liquor is not merely the rental to be paid by the lessee but also the issue price of the arrack supplied or treated as supplied in case of short fail which is also to be paid by the lessee licensee
There is no question of the lessee licensee having to pay the excise duty though it may be that the issue price is arrived at after taking into account the excise duty payable
S28B E Panna Lal vs State of Rajasthan   State of Haryana vs Jage Ram  and Har Shankar  Ors
vs The Dy
Excise  Taxation Commr
 Ors
   referred to
Bimal Chandra Banerjee vs State of Madhya Pradesh   Madhya Pradesh vs Firm Cappulal etc
  and Excise Commissioner Uttar Pradesh vs Ram Kumar 1976 Suppl SCR 532 distinguished
The new s17 of the Excise Act makes it clear that what is proposed to be granted is the exclusive previlege to manufacture or sell liquor in the shape of a lease or li cence or both
The explanation makes it clear that the lease shall not take effect unless a licence is issued
Having regard to the vital amendment of section 17 no further amendment of s21 and 22 was necessary
In the new s23 it is now specified that the payment in consideration of the grant of lease or licence or both for the exclusive privilege is to be instead of or in addition to any excise duty or fees leviable in ss21 and 22
The amendments effected to ss17 and 23 517 therefore have fulfilled the object of removing the vices or defects in the Act if indeed there were any
533C F