IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:11.02.2009 CORAM : The Hon'ble Mrs. Justice PRABHA SRIDEVAN and The Hon'ble Mr. Justice K.K.SASIDHARAN Writ Appeal No.559 of 2007 and M.P.No.1 of 2007 1. Commissioner & Secretary to Government Prohibition and Excise Department Fort Saint George, Chennai-9. 2. The District Collector Coimbatore. 3. The Excise Officer Coimbatore. ..Appellants/Respondents Vs. 1. P.V.Suresh 2. The Tahsildar (R.R.) Trichur Kerala State. ..Respondents/Petitioners/ Respondents Writ Appeal filed against the order made in W.P.No.7238 of 1997 dated 29.08.2006. Petition presented to this court under Article 226 of the constitution of India to issue a writ of Certiorarified Madamus to call for the records issued by the 3rd respondent in R.R1. 2626/90 dated on 3.12.90 and to call for records issued by the 3rd respondent in Ref.No.7232/83/N dated 19.12.90 and quash the same and to direct the respondents 1 to 3 to refund a sum of Rs.1,14,015/-. For appellants .. Mr.A.Arumugam, Spl.G.P. For respondents .. Mr.David Tyagaraj for R1 R-2 No Appearance https://hcservices.ecourts.gov.in/hcservices/ J U D G M E N T K.K.SASIDHARAN, J. The legality of the revenue recovery proceedings initiated by the Collector of Coimbatore and transferred to the Collector, Trichur in the State of Kerala to recover the excise arrears from the first respondent is the subject matter involved in the present writ appeal. FACTUAL MATRIX :- 2.The first respondent (hereinafter referred to as "the licensee") was the successful bidder in the auction conducted by the Excise Department, Coimbatore on 26.5.1981 for the grant of privilege to conduct Arrack Shop No.69 for the Excise year 1981-82. The bid was confirmed in the name of the licensee on a monthly rent of Rs.15,555/-. The very same licensee took the privilege for the conduct of Toddy Shop No.1 at Kinathukadavu and Toddy Shop No.4 at Sivakkalampalayam in Pollachi Taluk for the Excise Year 1981-82. The shop bearing T.S.No.1was taken on a monthly rent of Rs.14,250/- and the other Shop bearing T.S.No.4 was taken on a monthly rent of Rs.7,200/-. It was the case of the licensee that without any rhyme or reason and on account of the influence exerted by some of the political leaders of the ruling party, who were inimically disposed of against him and opposed to his conducting the shop, the functioning of the Toddy shop was stopped by the authorities and a re-auction was conducted. With respect to the Arrack shop it was the grievance of the licensee that the appellants (hereinafter referred to as "the licensing authority") failed to supply the required quantity of arrack and they also failed to comply with the terms and conditions of the auction and as such he was forced to discontinue the business in arrack. Subsequently, the licensee received a notice from the second respondent calling upon him to pay a sum of Rs.2,12,807.90 stated to be the excise arrears for the year 1981-82. The said notice was challenged before the High Court of Kerala in O.P.No.560 of 1991 and the O.P was disposed by granting liberty to file appropriate proceedings before the proper forum. Accordingly the licensee filed a writ petition before this Court in W.P.No.7238 of 1997. In addition to the challenge with regard to the unsustainability of the claim made by the Licensing Authority, the licensee also challenged the fixation of notional loss. According to him there was no adjudication with respect to the liability by the Licensing Authority and he was taken by surprise on receipt of the recovery notice from the second respondent. Accordingly he prayed for quashing the recovery notice dated 3.12.1990 issued by the https://hcservices.ecourts.gov.in/hcservices/ Village Officer, Trichur and a consequential direction to the licensing authority to refund a sum of Rs.1,14,015/- deposited by him. 3.The contention of the licensee was refuted by the Government as well as the Licensing Authority and in the counter affidavit filed by the Special Secretary to the Government (Prohibition and Excise) they have detailed the events commencing from the confirmation of bid in favour of the licensee and the re-auction conducted by them on account of his failure to conduct the arrack as well as toddy shops. With respect to the Arrack Shop bearing No.69 at Vettaikaranpudur Village, it was the contention of the appellants that the licensee conducted the shop till 4.9.1981 and failed to remit the monthly kist for the month of September, 1981 as per the agreement and on account of his failure to pay the monthly kist, the Licensing Authority was constrained to re-auction the shops at the risk and cost of the licensee as provided by Tamil Nadu Toddy and Arrack Shops(Disposal in Auction) Rules, 1981 and the shops were brought to re-sale after giving due notice to the licensee. In the re-auction conducted on 25.9.1981 one Thiru R.V.Subramaniam was the highest bidder on a monthly kist of Rs.7,550/. As the amount fetched in the re-sale was very low when compared to the kist amount originally fixed, auction was conducted once again on 12.10.1981 by giving due publicity. In the re-auction conducted on 12.10.1981 one Arumugam was the highest bidder on a monthly kist of Rs.12,613/-. However the Licensing Authority was not in a position to confirm the bid in favour of the said Arumugam on account of the suit filed by the licensee in O.S.No.1027 of 1981 and the order passed by the Civil Court granting interim injunction against confirmation. There were also Writ Petitions challenging the confirmation in W.P.Nos.10121 of 1981 and 10121 of 1981. By the time the suit in O.S.No.1027 of 1981 as well as the writ petitions were disposed of, the period for which the licence has been granted in the re-auction to sell the arrack expired and as such the matter has become infructuous. However liberty was granted by this Court to the State to enforce its claim against the defaulters in appropriate proceedings. 4. With respect to Toddy Shop No.1, it was the contention of the appellants that the licensee was in arrears from September, 1981 and he voluntarily closed the toddy shop and as such the Llicensing Authority was forced to conduct re-auction. Accordingly, re-auction was conducted on 25.9.1981 and 12.10.1981. In the re-auction held on 12.10.1981 Thiru R.V.Subramaniam, made an offer for payment of kist at Rs.10,111/- per month. The said offer was accepted and bid was confirmed by the District Collector and licence was granted on 13.11.1981. In the said transaction, the Government suffered a pecuniary loss of Rs.32,100.90 on account of the default committed by https://hcservices.ecourts.gov.in/hcservices/ the licensee. Similarly with respect to Toddy Shop No.4, the licensee defaulted in payment of kist and closed the shop, which made the Government to conduct re-auction and ultimately the bid submitted by one Sri Jyothis Babu in the re-auction held on 6.10.1981 was found tobe the highest offer for a sum of Rs.2,111/- and the bid was confirmed and licence was granted to the successful bidder on 16.11.1981. In the said transaction also the Government suffered loss on account of the default committed by the licensee and the notional loss was assessed at Rs.40,712/-. 5.Accordingly the Licensing Authority quantified the notional loss in respect of these three licenses at Rs.2,12,807.90 as on 12.10.1981 and as the licensee was residing at Trichur and having property only within the jurisdiction of the District Collector, Trichur, revenue recovery proceedings were initiated and made over to the Collector of Trichur District for realisation of the amount. The appellants justified their action, as according to them it was only on account of the default committed by the licensee which made the Government to conduct re-auction and only lesser amount was received by the Government in such re-auction which prompted them to assess the notional loss and as per the terms and conditions of the auction, the said notional loss was liable to be recovered from the Ex-licensee and as such they were fully justified in invoking the provisions of the Revenue Recovery Act for the purpose of such recovery. DISPOSAL OF WRIT PETITION :- 6.The learned Single Judge was of the opinion that the recovery notice issued by the Tahsildar, Trichur was bereft of details and it was not clear as to whether the licensee was in arrears to the Government of Kerala or to any other revenue authorities. Therefore while taking note of the fact that the dispute was in relation to the payment of kist amount which has arisen in the State of Tamil Nadu and as no factual details were given in the Revenue Recovery Notice, the learned Single Judge quashed the revenue recovery proceedings and directed the appellants to refund the amount of Rs.15,000/- paid by the licensee as per the interim direction of this Court. Aggrieved by the said order, the State has filed the appeal. SUBMISSIONS :- 7. The learned Special Government Pleader appearing on behalf of the appellants submitted that the impugned recovery notice issued by the revenue authorities of Kerala was only in the statutory format prescribed both under the Tamil Nadu Revenue Recovery Act as well as https://hcservices.ecourts.gov.in/hcservices/ Kerala Revenue Recovery Act and as such the learned Single Judge was not justified in quashing the proceedings. It was the further contention of the learned Government Pleader that even before issuing the second notice in the statutory format, the licensee has filed the writ petition and as such the authorities were prevented from furnishing details and therefore the grievance of the licensee has no basis. 8. The learned counsel appearing on behalf of the licensee while supporting the order of the learned Single Judge contended that proceedings were not initiated by the Excise Authorities of Tamil Nadu demanding arrears from the licensee and as such the recovery notice issued by the revenue department of Kerala has no legal sanction and as such the learned Single Judge was right in quashing the recovery notice. The learned counsel also relied on the judgment of a Division Bench of this Court in V.D.Swami & Co. Ltd., v. Chief Engineer, Public Health Engineering Department, Government of Kerala (99 Law Weekly 917 = 1986 Writ Law Reporter 380) in support of his contention that determination or adjudication with regard to the liability was necessary before invoking the provisions of the Revenue Recovery Act and failure to make such adjudication would result in nullifying the revenue recovery proceedings. POINT FOR CONSIDERATION :- 9.There are two questions involved in the present matter, the first being, the maintainability of the writ petition challenging the revenue recovery proceedings without challenging the substantial proceedings and the second question relates to the power of the Collector of a District to execute the order of recovery issued by the Collector of another State. 10. It is found from the materials available on record that the licensee took part in the auction to exploit the privilege of conducting an Arrack shop bearing No.69 in Vettaikaranpudur Village and two Toddy shops bearing Nos.1 and 4 situated at Kinathukadavu and Sivakkalampalayam in Pollachi Taluk for the Excise year 1981-82. Even according to the licensee, he failed to conduct the Arrack/Toddy shops during the licence period on account of the hostile attitude of the appellants in the matter of conduct of toddy shops and non supply of required quantity of arrack. Therefore the confirmation of bid and parting with the privilege to do business in intoxicants in favour of the licensee is admitted. The licence was granted in accordance with the provisions of the Tamil Nadu Toddy and Arrack Shops (Disposal in Auction) Rules, 1981. Therefore the contract was a statutory one and the terms and conditions of the auction were the terms and conditions of the agreement and the Licensing Authority as https://hcservices.ecourts.gov.in/hcservices/ well as the licensee were bound by those conditions. Subsequently on account of the failure of the licensee to pay the monthly kist, the appellants were compelled to conduct re-auction with notice to the licensee. 11. With respect to the Arrack Shop there were litigations and among them there was a civil suit and the plaintiff was none other than the licensee and his prayer was against the grant of privilege in favour of the re-auction purchaser and an interim injunction was also granted by the Civil Court in his favour. Therefore on account of the said litigation, the appellants were not in a position to confirm the bid in favour of the re-auction purchaser. By the time litigations have come to an end, Excise Year 1981-82 was already over and there was no arrack sale during the said year. However the two Toddy Shops were offered for re-auction by the appellants. In the re-auction bid was only for a lesser amount, which resulted in computing the notional loss by the Licensing Authority. Therefore in exercise of the power conferred on them under Rule 21 (i) and (ii) of the Tamil Nadu and Arrack Shops (Disposal in Auction) Rules, 1981 the appellants have conducted re-auction and fixed the notional loss in respect of all the three licences held by the licensee. The total notional loss was arrived at Rs.2,12,807.90 and the proceeding computing the notional loss was sent to the licensee with a direction to clear the liability. 12. It is also found from the documents produced by the appellants that a communication was addressed to the licensee on 19.12.1990 by the Excise Officer, Pollachi calling upon him to remit the entire arrears failing which it was indicated that action would be taken to collect the dues under Recovery Recovery Act. In fact the order of the District Collector, Coimbatore as well as the statement annexed to the said order, available in the typed set of papers clearly shows the assessment of notional loss by the Excise Authorities. The factum of such fixation was also intimated to the licensee as per proceedings dated 4.8.1986. It was only on account of the failure of the licensee to pay the amount within the time granted by the appellants that the Collector of Coimbatore issued a recovery certificate invoking Section 3(1) of the Revenue Recovery Act, 1890 requesting the Collector of Trichur District in the State of Kerala to recover the amount from the licensee treating it as arrears of land revenue. Similarly, on the strength of the recovery certificate issued by the Collector, Coimbatore to the Collector, Trichur, the Tahsildar, Trichur had issued the impugned recovery notice in form No.I. 13. The recovery notice and more particularly column (iii) shows the nature of arrears and the authority from whom the recovery https://hcservices.ecourts.gov.in/hcservices/ certificate was received. The said notice in form No.I was only a preliminary notice calling upon the defaulter to pay the amount and the question of attachment and sale of the property of the licensee arises only in the event of his failure to pay the amount. It is also found from records that even before issuing the subsequent proceedings by the revenue authorities at Trichur, the licensee has filed a writ petition before the High Court of Kerala and later before this Court. Therefore we are of the view that there is no ambiguity in the notice issued by the revenue authorities of Trichur in form No.I calling upon the licensee to pay the amount. RES EXTRA COMMERCIUM 14. The business involved in the present matter is a trade in intoxicants. It is trite that there is no fundamental right to do the business in liquor. The State has the absolute right and authority to prohibit the trade in intoxicants. It is only when the State decides to part with the privilege with regard to intoxicants that the citizen gets the right to do the said business. While announcing the Excise policy from time to time the State prescribes the mode of parting with the privilege. The excise revenue is considered to be the main source of income for the Government. Therefore the State formulates its excise policy with the sole aim of getting maximum amount by way of excise duty. 15. The amount payable by a successful bidder is neither a fee in its ordinary meaning nor a tax. It is nothing but a price for the privilege parted with by the State in favour of the licensee. Since what was parted with by the State was only its privilege to do the business in intoxicants, the question of quid-pro-quo or tax element is completely absent in such transactions. The amount payable by the licensee is a fixed sum and only for the sake of convenience the licensee would be permitted to pay the licence fee in instalments. 16. Every year the State conducts the auction to part with the privilege to do business in intoxicants subject to the excise policy and it was only in pursuance of the auction notification issued by the Excise Authorities that the prospective licensee takes part in the auction. The terms and conditions of the auction for parting with the privilege is contained in the auction notification itself. The notification will be issued as per the provisions of the Excise Act and the rules framed thereunder and therefore the contract is statutory in nature and the terms and conditions of the auction notification itself would be the essential term of the contract entered into between the Government and the licensee. There was no compulsion to take part in the auction and therefore once the auction is concluded in favour of a particular licensee he is bound to https://hcservices.ecourts.gov.in/hcservices/ adhere to the terms and conditions of the contract. It is immaterial as to whether the licensee earns huge profit or suffered losses. In either case, the liability is only to pay the price fixed for parting with the privilege. 17. Since the liability is only to pay the price for the privilege, the licensees are bound to pay the privilege amount irrespective of their actual earnings. Like any other business, profits and loss are part of this trade also. In the event of making huge profits from the excise business, the licensees are not going to share the said profit with the Government and in the similar way when there is a loss, they cannot avoid the liability by pleading adverse conditions which resulted in substantial loss. Therefore in the event of closure of the business or failure to pay the monthly kist, it gives authority to the excise Department to conduct re-auction. In such re-auction, if the amount fetched was only lesser amount, compared to the monthly kist for which the bid was confirmed in favour of the original licensee, it would enable the State to recover the notional loss from the original licensee. Such conditions permitting re-auction and fixing notional loss and recovery of the amount from the defaulting licensee etc., are found in the statutory contract itself. There is no question of the defaulter challenging such re-auction or assessment of notional loss on the ground of lack of fairness or violation of the principles of natural justice. While fixing the notional loss, the State was only doing a mathematical calculation as the amount due from the original licensee has already been determined. Very often, when the State enforces the contractual obligations by directing the licensee to pay the amount as per the terms and conditions of the auction, writ petitions are filed to stall such move. It is not permissible for the excise licensees to invoke the equitable jurisdiction to avoid the contractual obligations voluntarily incurred by them. Writ petition is not maintainable in such excise contracts for the purpose of varying the terms of the contract entered into by the licensees with the State on the basis of an open auction. The terms of these contracts commonly known as "Executory Contracts" are governed by the statute. Both the rights and obligations of the licensees as well as the State are provided in the contract itself. The Licensee as well as the State is equally bound by the terms of the agreement. This Court cannot rewrite the terms of contract for the parties and jurisdiction of the Court under Article 226 of the Constitution of India is not intended for such purposes. The transaction is purely in the realm of contract and writ petition is not maintainable to avoid such contractual obligations voluntarily undertaken by the parties. 18. Similarly writ petitions challenging the action taken by the Government for recovery of the excise arrears is also not https://hcservices.ecourts.gov.in/hcservices/ maintainable unless the order fixing the liability is challenged. The assessment of notional loss is made after conducting re-auction, and by taking into account the amount fetched in such re-auction. There is no question of conducting a full fledged enquiry in such matters, as the licensees are aware of the arrears on account of their default. It is open to the licencees to challenge the proceeding fixing liability or quantum on valid grounds in the manner known to law. Unless the order fixing liability is challenged, such orders would be binding on the licensee. Therefore if the State decides to execute the order by resorting to the provisions of the Revenue Recovery Act, it would not be possible for the licensee to challenge the recovery order, there being no challenge to the order fixing primary liability. Therefore writ petition against recovery proceedings without challenging the substantial proceedings, fixing liability is not maintainable. 19.The Honourable Supreme Court in STATE OF PUNJAB v. DIAL CHAND GIAN CHAND & CO., (1983 (2) SCC 503) held that the jurisdiction under Article 226 of the Constitution of India was not intended to facilitate avoidance of obligations voluntarily incurred and observed thus:- "9. The High Court also did not appreciate that writ petition was filed by a licensee who participated in the auction with eyes wide open and on untenable plea wanted to wriggle out of the bargain. In this connection, one can advantageously refer to decision of the Constitution Bench of this Court in Har Shankar v. Dy. Excise and Taxation Commissioner1 wherein it has been held that the writ jurisdiction of the High Courts under Article 226 of the Constitution is not intended to facilitate avoidance of obligations voluntarily incurred. It was also held that by attempting to exploit the licences without the burden of licence fees subject to which the licence was granted, the licensee are seeking to work the licences on such terms as they find convenient." 20.The Honourable Supreme Court in Panna Lal v. State of Rajasthan,( AIR 1975 SC 2008 = (1975) 2 SCC 633) considered the question whether the license fee stipulated to be paid by the liquor contractors was a price or consideration or rental which the Government charges from the licensees for parting with its privilege and made the legal position thus:- https://hcservices.ecourts.gov.in/hcservices/ "20. The license fee stipulated to be paid by the appellants is the price or consideration or rental which the Government charges from the licensees for parting with its privilege in stipulated lump sum payment and is a normal incident of a trading or business transaction. This Court in the recent decision in Nashirwar v. State of M.P. and the unreported decision dated January 21, 1975 in Civil Appeal No. 365 of 1969 Har Shanker v. Deputy Excise and Taxation Commissioner held that the State has exclusive right to manufacture and sell liquor and to sell the said right in order to raise revenue. The nature of the trade is such that the State confers the right to vend liquor by farming out either by auction or by private treaty. Rental is the consideration for the privilege granted by the Government for manufacturing or vending liquor. Rental is neither a tax nor an excise duty. Rental is the consideration for the agreement for grant of privilege by the Government. 21. The licenses in the present case are contracts between the parties. The licensees voluntarily accepted the contracts. “They fully exploited to their advantage the contracts to the exclusion of others. The High Court rightly said that it was not open to the appellants to resile from the contracts on the ground that the terms of