Case: State of Punjab and Others Vs. Ajudhia Nath and Another

2. The facts leading to the two appeals are undisputed and may be briefly stated thus. Licences to run liquor vends in various parts of Punjab during the financial year 1965-66 were sold by public auction shortly be fore the 1st April, 1965. Auctions were held at numerous places subject to identical conditions which were supplied to the bidders in writing. Condition No. 8 which is material for our purposes is reproducedthe licensee s hall lift each month the proportionate quota for the month fixed for his vend (s) or deposit still-head duty realisable thereon. In the event of any deficiency in the amount of still-head duty realisable from the lifting of the full proportionate quota due to the short lifting of the quota by the licensee or non-deposit of the amount of the still-head duty, the said deficiency may be realised from the amount of security deposited by him at the time of grant of licence. The resulting deficiency in the amount of security shall be made good by the licensee within 7 days of such adjustment. In case the short lifting of proportionate quota or short deposit of still-head duty continues for two consecutive months or the licensee fails to make up the deficiency in the amount of security within the prescribed period of 7 days, his licence may be cancelled in addition to the recovery of deficiency in still-headNath who figures as respondent No. 1 in each of the two appeals and who carries on business of selling country liquor either in his own name or in the name and style of M/s. Ajudhia Nath Bal Mukand (a business concern arrayed as respondent No. 2 in Civil Appeal No. 1665 of 1970) was the highest bidder for the auctions pertaining to 5 villages situated in the district of Amritsar and a couple of villages in Feroze pur district. Accordingly the auctions were sanctioned in his favour and he was granted the necessary licences under the relevant provisions of the Punjab Excise Act (hereinafter referred to as the Act) and the rules framed thereunder.The licensee started his liquour selling business in the said seven villages on the 1st April, 1965. By the close of the financial year 1965-66, however, he was unable to lift the minimum quota of country liquor and also failed to deposit the still-head duty which became payable by him under condition No. 8 above extracted. He made applications claiming relief in the matter of payment of sums which had fallen due and such relief was granted to him in part by the Excise &Taxation Commission er, Punjab, on the ground that sales of country liquor had been adversely affected by reason of the movement of population in the border areas of Punjab on account of the hostilities which broke out between India and Pakistan in the month of September 1965. Not satisfied with the relief so granted Ajudhianath filed two petitions under article 226 of the Constitution of India before the High Court of Punjab and Haryana claiming, inter alia, that still-head duty was an excise duty which could be levied only on manufacture of goods and which he was not liable to pay by reason of the admitted fact that he was not a manufacturer of liquor. A grouse was also made by him of the fact that the applications claiming relief had been decided without affording to him an opportunity of being heard. One of those petitions (Civil Writ Petition No. 2034 of 1966) related to vends functioning in the two villages of Ferozepur District, while the other (Civil Writ Petition Nos 2035 of 1966) covered the 5 vends located in the 5 villages of Amritsar District. The petitions were allowed by a single order dated the 9th May, 1967 passed by D.K. Mahajan, J., on the sole ground that a similar petition (Civil Writ Petition No. 2021 of 1 966) had been allowed by Gurdev Singh, J., on the 27th March, 1966. The proceedings for the recovery of the short fall in the deposit of still-head duty by Ajudhia Nath which had been initiated by the State of Punjab and its concerned officers (appell ants Nos. 1 to 4 in each of the appeals before us) were quashed and the Excise and Taxation Commissioner, Punjab (appellant No. 2 in both the appeals) was directed to dispose of the "cases" of the respondents "in accordance with law after hearing the petitioners". D.K. Mahajan, J., adopted all the reasons on which Gurdev Singh, J., had based his order above mentioned.Letters Patent Appeals preferred by the 4 appellants to the Division Bench of the High Court were summarily dismissed by Mehar Singh and Tuli, JJ., for the reason that a Letters Patent Appeal against the judgment of Gurdev Singh, J., above mentioned had met the same fate.It is against the judgment of the Division Bench (which is dated the 29th Au gust, 1969) that each of the appeals before us has been filed.

Court's reasoning:
The contention is correct. As pointed out in Balbir Singhs case (supra) the judgment of Gurdev Singh, J., in Civil Writ Petition No. 2021 of 1966 had proceeded merely on the ground that the petitioner-firm therein had not been given an opportunity of being heard in relation to the demand notice issued to it for payment of the still-head duty on the entire minimum quantity of liquor which that firm was required to lift under the licence. In differing with the view expressed by Gurdev Singh, J., this Court made a reference to the following observations of Chandrachud, J., (as he then was) in Har Shanker and Others v. The Dy. Excise &Taxation Commissioner and Others which was followed in Shyam Lal v. State ofannouncement of conditions governing the auctions was in the nature of an invitation to an offer to those who were interested in the sale of country liquor. The bids given in the auctions were offers made by prospective vendors to the Government. The Governments acceptance of those bids was the acceptance of willing offers made to it. On such acceptance, the contract between the bidders and the Government became concluded and a binding agreement came into existence between them. The successful bidders were then granted licences evidencing the terms of contract between them and the Government, under which they became entitled to sell liquor. The licensees exploited the respective licences for a portion of the period of their currency, presumably in expectation of a profit. Commercial considerations may have revealed an error of judgment in the initial assessment of profitability of the adventure but that is a normal incident of the trading transactions. Those who contract with open eyes must accept the burdens of the contract along with its benefits. The powers of the Financial Commissioner to grant liquor licences by auction and to collect licence fees through the medium of auctions cannot by writ petitions be questioned by those who, had their venture succeeded, would have relied upon those very powers to found a legal claim. Reciprocal rights and obligations arising out of contract do not depend for t heir enforceability upon whether a contracting party finds it prudent to abide by the terms of the contract. By such a test no contract could ever have a bindingconcluded that the demand for the short-fall in still- head duty was based on the term of a binding contract and that it sought to enforce the liabilities arising out of mutually agreed conditions of auction. Such a demand, in the opinion of this Court, could not be equated with a notice requiring the liquor vendor to show cause why his licence should not be cancelled. In making this distinction this Court further relied upon State of Punjab v. Mulkh Raj and Co. wherein it waswas also held there that a cancellation of the licence under section 36 ofthe Punjab Excise Act, 1914, had to take place quasi-judicially after due service of the notice on the licensee to show cause why it should not be cancelled. Although, the merits of the last mentioned proposition need not be examined by us as it rests on a sound footing, yet, we find it difficult to uphold the order that the demand for a sum of Rs. 36, 636. On account of short-fall should also be quashed on account of non-compliance with rules of natural justice in cancelling the licence in proceedings under section 36 of the Act. We think that the two liabilities were erroneously considered by the High Court t o be inextricably linked up.....................................We do not think that, even if the respondent ought to have been given a hearing before cancelling the licence, this would dispense with his liability to deposit the amount of balance of the licence fee or invalidate the notice of demand forthe proposition is by now well-settled that although an opportunity of being heard has to be given to a liquor vendor when his licence is sought to be cancelled, the same principle of natural justice does not come into play when the demand is merely for payment of a sum becoming due under the conditions subject to which the licence was granted, and this proposition fully covers these appeals. The demands for payment of the amount of the still head duty which had become due under the contracts accepted by the respondents and had remained unpaid were demands arising under condition No. 8 above extracted a nd had, therefore, resulted from the terms of those contracts. No question of affording to the respondents any opportunity of being heard thus arises and the impugned judgment, is, therefore, liable to bethe proposition is by now well-settled that although an opportunity of being heard has to be given to a liquor vendor when his licence is sought to be cancelled, the same principle of natural justice does not come into play when the demand is merely for payment of a sum becoming due under the conditions subject to which the licence was granted, and this proposition fully covers these appeals. The demands for payment of the amount of the still head duty which had become due under the contracts accepted by the respondents and had remained unpaid were demands arising under condition No. 8 above extracted a nd had, therefore, resulted from the terms of those contracts. No question of affording to the respondents any opportunity of being heard thus arises and the impugned judgment, is, therefore, liable to beprinciple governing the decisions in Bhajan Lals case and Jage Rams case cannot, therefore, apply any longer". (Emphasisstress has been laid by Shri Munjral on the underlined portion of the passage above extracted and it is contended by him that the judgments in the cases of Jage Ram and Bhajan Lal were neither disapproved nor dissented from but were merely distinguished in Har Shankars ca se, that while pointing out the distinction this Court took it for granted that in those earlier cases the charge of still-head duty amounted to an excise duty and that condition No. 8 as obtaining in the present case being identical with the corresponding condition in those cases, it must be held that Har Shankars case is an authority for the proposition that the said condition No. 8 seeks to levy nothing but excise duty in the form of still-head duty. A careful perusal of the passage cited (which appears at first sight to lend colour to the contention) leaves no room for doubt, however, that in deciding Har Shankars case this Court was not called upon to adjudicate on the Constitutional propriety of condition No. 8 above extra cted, nor with the question as to the nature of the levy covered by that condition. All that the Court said was that the corresponding condition in Har Shankars case was a very different condition which could in no manner be construed to levy an exc ise duty. Besides, it was pointed out in the passage above quoted that the still- head duty mentioned in the relevant condition in the earlier cases (which was indentical with condition No. 8) was admittedly a duty of excise-a fact to which we hav e already adverted while holding that condition No. 8 does not involve the imposition of a duty of exercise but makes provision only for recovery of sums becoming due under a contract. We may also point out that the respondents are not connected in an y manner whatsoever with the manufacture of alcoholic liquor and there was, therefore, no question at all of levying a duty of excise on their operations which were confined merely to the sale of liquor manufactured by others and which, therefore, commenced only after the process of manufacture was completely over. For all these reasons, we repel the contention underto Shri Munjral the payment of licence fees is provided for in the conditions of auction apart from condition No. 8 and, therefore, the latter cannot be regarded as providing for anything but the levy of a duty of excise or of some other kind. The argument is fallacious in view of the language of clause (b) of the sub-section just above reproduce d. That clause allows the imposition of conditions on the grant of a licence, in addition to the payment of the licence fees which is a matter covered by clause (a). Condition No. 8 is, therefore, fully enforceable and there is no reason why still-head duty should be regarded as a tax of any kind whatsoever.