Case: State of Haryana and Others Vs. Lal Chand and Others

On March 11, 1969, the Deputy Excise &Taxation Commissioner, Hissar held an auction for grating the right to sell country liquor for Mandi Dabwali for the year 1969-70 at the Collectorate. At the commencement of the auction, the Deputy Excise &Taxation Commissioner had read out the auction announcements and conditions of auction as required under r. 36(4) of the Punjab Liquor Licence Rules, 1956 (Rules for short). The respondents Messrs Lal Chand Bal Raj etc. offered the highest bill of Rs. 10, 11, 000 and their bid was provisionally accepted by the Deputy Excise &Taxation Commissioner and they were declared to be the highest bidder as required under r. 36(22) of the Rules. Subsequently, the bid was accepted by the Excise &Taxation Commissioner exercising the powers of the Financial Commissioner on March 21, 1969 as required under r. 36(22) of the Rules. The respondents however failed to deposit Rs. 50, 550 as security amount as required under r. 36(22A) and thereby contravened condition No. 15(i) of the conditions of auction and r. 36(23) of the Rules. They were accordingly served with a notice dated April 9, 1969 by the Deputy Excise &Taxation Commissioner requiring them to show cause why the licence for country liquor vend, Mandi Dabwali should not be put to re-auction under r. 36(23A) of the Rules and the deficiency in price and all expenses of such re-auction recovered from them in the manner laid down in s. 60 ofthe Punjab Excise Act, 1914. in response to the same, the respondents by their letter dated April 12, 1969-tried to wriggle out of their contractual obligations by saying that before the auction it was announced that no wine shop shall be opened within a radius of three miles of liquor vend, Mandi Dabwali, but across the border the State Government of Punjab had sanctioned the establishment of a Iiquor shop at village Killianwali which was hardly 2-1/2 miles from the State border and this would mean that there would be two country liquor shops one at Mandi Dabwali in the State of Haryana and the other at village Killianwali in the State of Punjab and this was in breach of condition No. 13(iii) read with r. 37(8B) of the Rules, as applicable to the State of Haryana. Upon this basis, the respondents represented that before requiring them to deposit the security amount, they should be given an assurance that no other liquor shop would be opened.Although in the show-cause notice, the respondents were intimated that in case they desired to be heard in person, they should appear before the Deputy Excise &Taxation Commissioner at Chandigrah on April 14, 1969, but none of them turned up on that date. On the same day, the Deputy Excise &Taxation Commissioner rejected t he representation of the respondents and directed re-sale of the licence for retail vend of the country liquor shop at Mandi Dabwali for the year 1969-70 under r. 36(23) of the Rules. The respondents have purposely kept back the reply that they received from the Deputy Excise &Taxation commissioner conveying the rejection of their representation which intimated to them that the licence for retail vend of country liquor shop at Mandi Dabwali would be re-auctioned on April 23, 1 969 at the Collectorate, Hissar. By his letter dated April 15, 1969 addressed to all the Excise &Taxation Officers in the State, the Deputy Excise &Taxation commissioner forwarded the notice of re-auction asking them to give wide publicity to the notice alongwith the announcements to be made at the time of re-auction. Copies of the circular letter and the notice of re-auction were sent not only to the commissioner, Ambala and all the Deputy Commissioners in the State but also to the Chief Secretaries and the Excise Commissioners of different States and they were also requested to give wide publicity in their States regarding the re-auction of the licence. At the time of re-auction held on April 23, 1969, there were as m any as 52 bidders and ultimately the liquor vend, Mandi Dabwali was re-sold at the highest bid of Rs. 6, 65, 000 for the remaining part of the financial year. On May 8, 1969, the respondents were served with a notice of demand of Rs. 3, 46, 000 representing the loss on re-sale. The High Court by the JUDGMENT under appeal, quashed the notice of demand following the decision in Kanhiya Lal Bhatia &Co. v. State of Haryana &Ors.The High Court following its decision in Kanhiya Lalls case, supra, held th at the State Government had no authority to demand the amounts for failure of which the vends were put to re-auction on the ground that the licence fee levied was in the nature of excise duty. Recently, this Court has in State of Haryana v. Jage Ram &Ors. reversed the decision of the High Court in Kanhiya Lals case, supra, and held that the amounts which the State Government had changed to the respondents were neither in the nature of a tax nor in the nature of an excise duty but were in the nature of a price which the State Government were entitled to charge as consideration for parting with its privilege in favour of the licensees. That being so, the appeals must succeed on this short ground alone. Normally, this would have entailed remitting the writ petitions to the High Court for a decision on merits but looking to the fact that the demands raised were for the financial year 1969-70, we felt that no useful purpose would be served in remitting the matter to the High Court and heard the parties on merits.Apart from the question of validity of the charge which is common to both the appeals, the questions raised in the two appeals are distinct and separate and they will have to be dealt with separately.

Reasoning:
There was a fundamental breach of an essential condition by the respondents. In a commercial contract of this nature, for the performance of which a definite time has been fixed and the contract specifies the mode of payment i.e. specifies the dates on which The installments of the licence fee are to be paid, time is of the essence of the contract. R.36(23)(1) of the Rules specifically makes time of the essence. It therefore follows that payment to the installments on the due dates was a condition pre-requisite to the performance of the contract, and that the failure of the respondents to make such payments relieved the State Government of their obligations. The Excise &Taxation Commissioner would therefore have been justified if he had cancelled the licence under r. 36(23) and put the liquor vend to reauction for the remaining period of the financial year. Instead of taking this drastic step of cancellation of contract, the Deputy Excise &Taxation Commissioner served the respondents with the impugned notice of demand for payment of the first fortnightly installment of Rs. 13, 000. The respondents were bound to pay the defaulted installment on the due date but without complying with the notice of demand moved the High Court under Art. 226 of the Constitution challenging the demand on the ground that the licence fee partakes of the nature on an excise duty. As already stated, the High Court following its decision in Kanhiya Lals case struck down the notice of demand. The result has been that the respondents enjoyed the privilege of retail vend of country liquor, Butana for the entire period without payments of any licence fee.