AJN 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.7852 OF 2008 Karan Dileep Nevatia, Proprietor of M/s. Kunal Vintners and M/s. Sundeep Vintners, having his office at Udyog Bhavan, 250-D, Worli, Mumbia – 400 030. ) ) ) ) ) ... Petitioner Versus 1. The Union of India, through the Commerce Secretary, Ministry of Commerce & Industry, Udyog Bhavan, New Delhi – 110 011. ) ) ) ) ) 2. The State of Maharashtra, through Secretary, Home Department, Mantralaya, Mumbai – 400 032. ) ) ) ) 3. The Commissioner of State Excise, Maharashtra State, Old Custom House, Mumbai – 400 023. ) ) ) ) 4. The Collector of Mumbai (City), Old Custom House, Mumbai – 400 023. ) ) ) ... Respondents Mr. Erach Kotwal i/b Mr. Rajiv Deokar for the petitioner. Mr. D.J. Khambata, Addl. Solicitor General with Ms. S.V. Bharucha and Mr. D.A. Dube for respondent 1. AJN 2 Ms. S. S. Bhende, A.G.P. for respondents 2 to 4. CORAM : SMT. RANJANA DESAI & A.A. SAYED, JJ. DATE ON WHICH THE ORDER IS RESERVED : 16TH DECEMBER, 2009. DATE ON WHICH THE ORDER IS PRONOUNCED : 5TH JANUARY, 2010. JUDGMENT :- (Smt. Ranjana Desai, J.) 1. Rule. Respondents waive service. By consent of the parties, taken up for final hearing forthwith. 2. The petitioner is engaged in the import of foreign liquor viz. wines and distribution of the same under FL-I Licence No.113 granted by the Collector of Mumbai city. Respondent 1 is the Union of India, through the Commerce Secretary, Ministry of Commerce & Industry. Respondent 2 is the State of Maharashtra. Respondent 3 is the Commissioner of State Excise appointed under Section 3 of the Bombay Prohibition Act, 1949. Respondent 4 is the Collector of Mumbai city. AJN 3 3. Gist of the petitioner's case needs to be briefly stated. Sometime in the month of May, 2007, the petitioner filed an application with respondent 4 in the name of his proprietary concern, M/s. Kunal Vintners, for the purpose of obtaining a wholesale licence under the Bombay Prohibition Act, 1949 known as “FL-I” for distribution of wines and liquor in the State of Maharashtra. The same was granted to the petitioner on 10/6/2008 being FL-I Licence No.113. 4. On or about 8/7/1948, the Government of India became a signatory and subsequently ratified trading agreements with various countries known as the “General Agreement on Tariffs and Trade” (for short, “GATT”). The organization overseeing the multilateral trading system was then known as “GATT, 1947” and the signatory countries to the said Agreements were officially known as “GATT contracting parties”. AJN 4 5. Sometimes in the year 1994, certain amendments, popularly known as the “Dunkel Proposals” were made to GATT, 1947 and fresh agreements were entered into by the Governments of 128 countries around the world, including the Government of India, which agreements incorporated the revised and updated GATT, 1947. 6. On 1/1/1995, the World Trade Organization (for short “WTO”) replaced GATT as the organization for overseeing and regulating the functioning of the multilateral trading system. Upon signing the new WTO agreements, which included the updated GATT, 1947, these contracting countries officially became known as “WTO members”. 7. Two important principles of GATT, 1947 are (a) the “Most Favoured Nation” and (b) the “National Treatment”. The former implies that the treaty members may not discriminate against the other members of the treaty in the matters of applying the provisions of the treaty. The “National Treatment” implies that any discrimination AJN 5 against foreign products has to be made at the national borders i.e. the customs borders and once foreign goods cross the national border, they are required to be treated equally with domestically produced goods. GATT, 1947 also deals with all the subjects covered by Article 246 of the Constitution of India i.e. List I – Union List, List II – State List and List – III – Concurrent List. Under the principles of “National Treatment” of GATT, 1947, the Government of India and also the States of India including the State of Maharashtra, are bound to treat the imported goods on equal terms with domestically produced goods, once the customs duty has been paid on the imported goods and they have crossed the Customs border and there can be no discrimination between them of any nature whatsoever. 8. The contracting countries have also entered into another agreement known as “the Agreement On Subsidies And Countervailing Measures”, (for short, “SCM Agreement”). AJN 6 9. By the present petition, the petitioner is challenging the legality and constitutional validity of Notification (1) No.BWR.1105/CR-9/EXC-3 dated 31/3/2006 (2) No.MIS. 1107/CR-33(2)/EXC-3 dated 10/7/2007, (3) No.MIS. 1107/CR.33(1)/EXC-3 dated 12/11/2007, (4) No.MIS. 1107/CR-40/II/EXC-3 dated 28/8/2008, (5) No.BWR, 0509/IMP/CR-143/EXC-3 dated 22/7/2009 amending the Bombay Foreign Liquor and Rectified Spirit (Transport) Fee Rules, 1954 and (6) No.BWR.0509/IMP/CR-143/EXC-3 dated 22/7/2009 amending the Maharashtra Potable Liquor (Fixation of Maximum Retail Prices) Rules, 2009 issued by respondent 2 (for brevity, “the impugned Notifications”). According to the petitioner, by these Notifications, respondent 2 has made a hostile discrimination between locally produced wines and imported wines, thereby stifling the business of the petitioner. The case of the petitioner is that the impugned Notifications are in gross violation of the Union of India's trade agreements with 153 countries around the world AJN 7 and particularly the principle of “National Treatment” and “Agreement On Subsidies And Countervailing Measures” and also the specific direction of the year 2007 of the Union of India to the State of Maharashtra to levy duties, taxes and fees, etc. on imported spirits and wines at rates not exceeding the rates of such duties, taxes, fees, etc. levied on similar domestically produced wines and liquor. According to the petitioner, these Notifications are ultra vires, unconstitutional, arbitrary, unreasonable and unjust and are violative of Article 253, 14 and 19(1)(g) of the Constitution of India (“for short, “the Constitution”). 10. To understand the challenge raised by the petitioner, it is necessary to see what are the implications of the said Notifications as perceived by the petitioner. By impugned Notification No.BWR.1105/CR-9/EXC-3 dated 31/3/2006, respondent 2 remitted the whole of excise duty leviable under the Bombay Prohibition Act, 1949 (for short, “the said Act”) in respect of wine manufactured from the grapes produced within the State of Maharashtra and AJN 8 without using alcohol or without blending of any wines for the period upto 23/12/2011. Thus, wine produced from domestically grown grapes is offered favoured treatment in comparison with imported wines sold in Maharashtra. 11. By impugned Notification No.MIS/1107/ CR-33(2)/EXC-3 dated 10/7/2007, respondent 2 imposed additional fees/levy on imported wines and liquor. This Notification imposed Authorization Fees and Label Registration Fees on imported wines. No such fees are levied on domestically produced wines. Thus, imported wines are discriminated against in violation of GATT, 1947. 12. Respondent 2 vide impugned Notification No.MIS. 1107/C.R.33(1)/EXC-3 dated 12/11/07 revised the special fees payable on imported wines. Special fees levied on wines stood increased to 200% of the assessable value or Rs.200/- per bulk litre, whichever is higher. This again shows gross discrimination between locally AJN 9 produced wines and imported wines and is violative of GATT, 1947. 13. Respondent 2 issued impugned Notification No.MIS/1107/CR-40/ 11/EXC-3 dated 28/8/2008 after the petitioner filed Writ Petition No.2060 of 2008. A statement was made during the hearing of this petition that in view of this Notification, the petitioner's grievance would not survive. However, as a statement was made by the counsel for the petitioner that this Notification did not alleviate the petitioner's grievance, the petition was disposed of by this court on 20/10/2008 granting liberty to the petitioner to approach the respondents to explain to them that the said Notification did not alleviate their grievance. 14. Impugned Notification No.BWR.0509/IMP/CR-143/ EXC-3 dated 22/7/2009 amending the Bombay Foreign Liquor and Rectified Spirit (Transport) Fee Rules, 1954 levies Special fees and discriminates against products of AJN 10 WTO Member countries and gives uncalled for protection to domestic wine merchants. 15. Impugned Notification No.BWK.0509/IMP/CR-143/ EXC-3 dated 22/7/2009 amending the Maharashtra Potable Liquor (Fixation of Maximum Retail Prices) Rules, 2009 increases the disparity of pricing between imported wines and domestic wines particularly since the Special fees levied earlier at Rs.200/- per bulk/litre have been doubled to Rs.400/- per bulk/litre in respect of imported wines having MRP of less than Rs.900/-. 16. It is the petitioner's case that he has expended a huge amount on the business of import and distribution of foreign wines for the year 2008-2009, the petitioner has deposited Rs.4,40,000/- as wholesale licence fees. The petitioner has deposited an amount of Rs.2,50,000/- as authorization fees for the year 2008-2009. On 18/6/2008, the petitioner has paid an amount of Rs.2,50,000/- as fees for authorization to remove imported liquor from Custom AJN 11 frontier. For the year 2008-2009, the petitioner has paid Rs.1,05,000/- towards label registration charges and an amount of Rs.79,212/- towards supervision fees. While, the petitioner's wines are subject to heavy taxes in the form of `Special Fees', `Authorization Fees', `Label Registration Fees' etc., local wines are completely exempted from excise duty. The petitioner is, therefore, running heavy losses. According to the petitioner, due to the impugned discriminatory Notifications, the petitioner is not able to clear the wines from Custom Bonded Warehouses causing tremendous financial loss to him. 17. It is pointed out by the petitioner that the countries belonging to the European Union have filed a complaint with the WTO against discriminatory taxes levied by certain States in India, including the State of Maharashtra. 18. Attention of the court is drawn to letter dated 16/5/2007 addressed by the Government of India to the Chief Secretary, Government of Maharashtra, AJN 12 communicating to him that it was tentatively decided in the meeting held on 14/5/2007 under the chairmanship of the Revenue Secretary that the additional duty of customs on imports of wines and spirits would be withdrawn by the Central Government through a notification and the States would have to thereupon rationalize their duty structure for imported wines and spirits in a manner which would meet the principle of `National Treatment'. The letter refers to paragraphs 1 and 2 of Article III of the GATT and states that `National Treatment' implies that the domestic duties, taxes and fees have to be levied at the same rates on the like products of both domestic as well as imported (from other countries) origin. The State of Maharashtra is requested to review the duty structure presently applicable to imported liquor. Minutes of the meeting held under the chairmanship of the Commerce Secretary on 15/6/2007 are also on record. They inter alia record the decision taken in the meeting that the states will put in place a mechanism for the imposition of taxes / fees on imported wines and spirits in accordance with the AJN 13 principle of `National Treatment”. Several other letters addressed by the Government of India to the relevant departments of the State of Maharashtra are on record, which are in tune with the above stand of the Government of India. It is submitted that despite these repeated requests made by the Government of India, the State of Maharashtra has gone ahead and issued the impugned Notifications and persisted in giving discriminatory treatment to foreign wines. The State of Maharashtra has thus challenged the superior powers of the Government of India by violating the important principles of GATT, 1947 and “Agreement On Subsidies And Countervailing Measures”. 19. Attention of the Court is also drawn to the affidavit in reply dated 20/10/2008 filed by respondents 2, 3 and 4 in Writ Petition No.2060 of 2008 which was filed by the petitioner. In that affidavit, it is admitted that in the year, 2007, the Government of India emphasized that the principle of “National Treatment” has to be observed AJN 14 while imposing any levy on the imported wines and spirits and that the States are free to levy duties, taxes and fees, etc. on imported spirits at the rate not exceeding the rates of such duties, taxes, fees, etc. levied on domestic liquor. 20. In the circumstances, the petitioner has, inter alia, prayed that the impugned Notifications be quashed and set aside; that a writ of mandamus be issued against respondents 2, 3 and 4 restraining them from acting in furtherance and in pursuance of the impugned Notifications and that a writ of mandamus be issued against respondents 2, 3 and 4 directing them to refund to the petitioner the amounts recovered/and which are being recovered from the petitioner in pursuance of the impugned Notifications. 21. We have heard Mr. Kotwal, learned counsel appearing of the petitioner, Mr. Khambatta, learned Additional Solicitor General for respondent 1 – Union of AJN 15 India and Ms. Bhende, learned A.G.P. for the State of Maharashtra. Written submissions have been filed by the petitioner, respondent 1 and the State of Maharashtra. 22. The basic submission canvassed by Mr. Kotwal, learned counsel appearing for the petitioner is that the impugned Notifications issued by respondent 2 challenge the paramountcy and supremacy of the Union of India and are an attempt by respondent 2 to override the superior powers of the Union over the States. According to the petitioner, the impugned Notifications are in violation of Article 253 of the Constitution and of “the GATT” and its underlying principles of “Most Favoured Nation” and “National Treatment”. It is urged by the petitioner that the impugned Notifications are in violation of Article 253 of the Constitution and of “Agreement On Subsidies And Countervailing Measures” entered into by the Government of India with 153 member countries around the world. It is further urged that once the Government of India has entered into Agreements with international countries AJN 16 particularly “the GATT” and “Agreement On Subsidies and Countervailing Measures” which deal with matters which are also in the State List i.e. List II [Article 246(3)] of the Constitution, the State cannot act in contravention and in violation of the said Agreements including those matters which are in the State List. 23. Mr. Khambatta, learned ASG raised a preliminary objection to the maintainability of this petition. Mr. Khambatta referred to Article 253 of the Constitution and submitted that it is an overriding Article which starts with a non-obstante clause. It confers exclusive powers upon Parliament to make any law for implementing any Treaty, Agreement or Convention. He submitted that the foregoing provisions of this Chapter referred to in this Article pertain to Article 256 and thus even if a matter falls within the State List of the VIIth Schedule to the Constitution, if the subject matter is covered by an International Treaty, Parliament has the exclusive jurisdiction to make laws for implementing such AJN 17 International Treaty, Agreement or Convention. Mr. Khambatta submitted that Parliament has not made any law for implementation of the GATT under Article 253 of the Constitution and, therefore, the impugned Notifications cannot be struck down as being violative of Article 253 of the Constitution. In this connection, Mr. Khambatta relied on the judgment of the Supreme Court in Maganbhai Ishwarbhai Patel v. Union of India & Anr., AIR 1969 SC 783. Mr. Khambatta also relied on the judgment of the Supreme Court in State of West Bengal v. Kesoram Industries Limited & Ors., (2004) 10 SCC 201 and a judgment of this court in P.B. Samant & Ors. v. The Union of India & Anr. 1994 (4) Bom. C.R. 491. 24. Mr. Khambatta further submitted that the issue as regards the said Notifications/Rules is the subject matter of the consultations between the Union of India and European Union pursuant to the consultation request dated 25/9/2008 made by the European Union and AJN 18 circulated by the WTO. The bilateral consultations which are underway are under the “Understanding on Rules and Procedures Governing the Settlement of Disputes” (for short, “the Dispute Settlement Understanding” or “DSU”). He submitted that any alleged violation of GATT can be brought by a country which is a contracting party before the Dispute Settlement Body of the WTO. Learned ASG submitted that any consideration of these issues by this court will affect the national position which will have to be taken by the Union of India (representing the State of Maharashtra and other States of India) both in these consultations as well as (assuming any complaint is filed) before the Dispute Settlement Understanding. Mr. Khambatta submitted that the issues raised in this petition pertain to the public policy of India and the national interest of India and, therefore, the present petition filed under Article 226 of the Constitution ought not to be entertained by this court. 25. In response to the preliminary objection, Mr. Kotwal AJN 19 submitted that in P.B. Samant’s case (supra), this court has clarified that the executive power conferred under Article 73 of the Constitution is to be read along with the power conferred under Article 253 of the Constitution and in case the Government enters into any Treaty or Agreement, then in respect of the implementation thereof, it is open for Parliament to pass a law which deals with the matters which are in the State List. This court has further observed that in case Parliament is entitled to pass laws in respect of matters in the State List in pursuance of the Treaty or the Agreement, then it is difficult to appreciate how it can be held that the Central Government is not entitled to enter into Treaty or Agreement which affects the matters included in the State List. 26. Mr. Kotwal also drew our attention to the following paragraph of the Judgment of the Supreme Court in Kesoram Industries Limited's case (supra). AJN 20 “Para 264 .... India is a signatory to various international treaties and covenants and being a party to WTO and GATT, it is obligated to fulfill its trans-national obligations. If for the purpose of giving effect to the international treaties, it in exercise of its power under Article 253 of the Constitution of India had taken over the legislative field occupied by List II of the Seventh Schedule of the Constitution, no exception thereto can be taken”. Mr. Kotwal submitted that the above observations of the Supreme Court establish the applicability of GATT to India beyond doubt. 27. Mr. Kotwal also relied on People's Union for Civil Liberties v. Union of India (2005) 2 SCC 436 where the Supreme Court has held that there is a prima facie presumption that Parliament did not intend to act in breach of international law, including State treaty obligations and it is well settled that in construing any provision in domestic legislation which is ambiguous, in the sense that it is capable of more than one meaning, the meaning which conforms most closely to the provisions of any international instrument is to be AJN 21 preferred, in the absence of any domestic law to the contrary. Mr. Kotwal also relied on the judgment of this court in Manuel Theodore D'Souza's case, 2000 (2) BCR 244, where this court has reiterated the above principles. 28. We shall first deal with the preliminary objection raised by Mr. Khambatta, learned ASG. To appreciate the submissions of Mr. Khambatta, it is necessary to have a look at the relevant Constitutional provisions. 29. Chapter I of Part XI of the Constitution is captioned as “Relations Between the Union and the States”. Article 245 of the Constitution, inter alia, states that subject to the provisions of the Constitution, the Parliament may make laws for the whole or any part of the territory of India and the legislature of a State may make laws for the whole or any part of the State. Article 246 refers to the subject matter of laws made by the Parliament and by the legislatures of the States. Clause (1) thereof states that AJN 22 notwithstanding anything in clauses (2) and (3), the Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (Union List). Clause (2) states that notwithstanding anything in clause (3), Parliament and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (Concurrent List). Clause (3) thereof states that subject to clauses (1) and (2), the legislature of any State has exclusive power to make laws for such State with respect to any of the matters enumerated in List II in the Seventh Schedule (State List). Clause 4 states that the Parliament has power to make laws with respect to any matter for any part of the territory of India in a State notwithstanding that such matter is a matter enumerated in the State List. Articles 247 to 252 need not detain us. Article 253 is important. It states that notwithstanding anything in the foregoing provisions of this Chapter, the Parliament has power to make any law for the whole or any part of the AJN 23 territory of India for implementing any treaty, agreement or convention with any other country or countires or any decision made at any international conference, association or other body. Thus, this Article confers legislative power on the Parliament to legislate or enact a law inter alia for the whole or any part of the territory of India, inter alia, for implementing any treaty with any other country. Entries 10 and 14 of List I of the Seventh Schedule contain power of the Parliament to legislate in respect of treaties. 30. It is now necessary to turn to Article 73 of the Constitution, which delineates the extent of executive power of the Union. It states that the executive power of the Union shall extend (a) to the matters with respect to which the Parliament has power to make laws and it extends (b) to the exercise of such rights, authority and jurisdiction as are exercisable by the Government of India by virtue of any treaty or agreement. Proviso to this Article states that the executive power referred to in sub- AJN 24 clause (a) shall not save as expressly provided in this Constitution or in any law made by the Parliament extend in any State to matters with respect to which the legislature of the State has also power to make laws. 31. Stated in simple language the contention of the petitioner is that by issuing the impugned Notifications, the State of Maharashtra has challenged the supremacy of the Government of India. The subject matter of the international treaties also falls in the State List. Therefore, according to the petitioner, the State of Maharashtra could not have issued any Notifications which violate any of the stipulations of the said treaties. We, therefore, need to examine whether the said treaties have a force of law. Validity of the petitioner's argument needs to be examined against the backdrop of the above mentioned constitutional provisions. Fortunately for us, law in this behalf is well settled by the Supreme Court in Maganbhai's case to which our attention is drawn by Mr. Khambatta, learned ASG and, therefore, it is not AJN 25 necessary for us to conduct the exercise of interpretation of the relevant Articles. 32. In Maganbhai Patel’s case (supra), the Constitution Bench was concerned with the question whether the Award dated 19/2/1968 of the Indo-Pakistan Western Boundary Case Tribunal may be implemented by a constitutional amendment and not otherwise. It was the case of the appellant before the Constitution Bench that the Award may be implemented only by an amendment modifying the relevant provisions in Schedule I to the Constitution, because in giving effect to the Award of the Tribunal, cession of the Indian Territory is involved, and the executive is incompetent to cede Indian territory without the authority of a constitutional amendment. The Union of India contended that the Award merely fixes or demarcates the boundary between the State of Gujarat in India and West Pakistan regarding which there