Source: http://www.rishabhdara.com/sc/view.php?case=6073
Timestamp: 2019-04-26 00:52:17+00:00

Document:
SINGH, JASWANT SINGH, JASWANT RAY, A.N. (CJ) SARKARIA, RANJIT SINGH SHINGAL, P.N.
Evidence Act-Estoppel against Government in exercise of legislative, sovereign	or executive powers-U.P. Excise Act 1910-Sec. 24. 28, 31, 33, 40 and 41- Whether excise duty can be levied on unlifted stock of liquor.
U.P. Sales Tax	Act 1948, sec. 3A and 4-Whether exemption from	payment	of sales tax	can be withdrawn- Estoppel.
The State	of Uttar Pradesh has under the U.P. Excise Act, 1910. the exclusive right or privilege of manufacturing and selling liquor in	that State. Section ''4 of the Act provides that subject to the provisions of s. 31 the Excise Commissioner may grant to any person	a licence for	the exclusive privilege of manufacturing or of supplying	any country liquor	etc. Section 31 provides for the conditions for the	grant of licence. Section 33 invests the authority granting a licence to	require the grantee to execute a counterpart agreement in conformity with the	tenor of the licence. Section 28 authorises imposition of an excise duty or a countervailing duty by The local Government on	any excisable article. Sections 40 and 41 of the Act empower the State Government and the Excise Commissioner subject to the previous sanction of the Government to make rules. Para 38 of the Excise Manual which contains the rules made under the Act shows that there are 4 licence fee systems in vogue. One of such	systems is the auction fee system under which the amount of licence fee	is determined by competition amongst bidders at an auction.	The respondents were	the highest bidders at various auctions. Before holding the auctions, the rates of excise duty and prices of different varieties of country liquor and	also the conditions of licence were announced. No announcement was made	as to whether	the exemption from	sales tax in respect of sale	of country liquor granted by the notification dated 6-4-1959 was or was not likely to be withdrawn. one of the conditions of the licences was that the licensee shall lift each month certain quota of liquor and on the failure to lift the monthly quota the licensee shall be	liable to pay compensation to	the state Government calculated at the rate of duty per litre on the unlifted quota. On	the day following the day when the licences were granted, the Government	of U.P. issued a notification under s. 3A and 4 of the U.P. Sales Tax Act, 1948, superseding the earlier notification exempting	the payment of sales tax and imposing sales tax on the turnover in respect of country spirit at the rate of 10 P. per rupee.
The respondents	having failed	to lift and sell the minimum quotas of liquor the appellant called	upon them to pay by way of	compensation the amount; of excise duty on	the shortfalls.
Aggrieved by the demand, the respondents moved the High Court under Art. 226 of the	Constitution for issue of appropriate writ or direction	restraining the appellants from recovering	the aforesaid	amounts. The respondents in special appeals	also challenged the	notification issued under the sales Tax Act on the ground that the State Government did	not announce at the time of the action that the earlier notification was likely to be withdrawn and that the appellant informed the respondents at the time of the auction that there was	no sales tax on the sale of country liquor. The appellants were, therefore, estopped from making the demand in respect	of the	sales tax and recovering the same from them. The High Court allowed all the petitions in toto.
HELD: (1)	Neither s. 28	nor s.	29 nor any other provisions of the Act	authorise the levy of	the amounts sought to be recovered from the respondents. The demand made by the	appellant though disguised as	compensation is in reality a demand for excise duty on unlifted	quantity of liquor which is not authorised by the provisions of the Act.
[538-A-C] Bimal Chandra Banerjee v.	Stale	of Madhya Pradesh,  1 S.C.R. 844, followed.
Panna Lal	and Ors. etc. v. State of Rajasthan	and others,  I S.C.R. 219. distinguished.
CIVIL APPELLATE JURISDICTION: CIVIL APPEALS Nos: 276-395 AND 397-404 OF 1975 Appeals by Special Leave from the Judgments and orders dated 21.2.72., 8.3.72., 2].2.72., 10.3.72., 21.3.72., 16.]2.71., 24.3.72., 21.3.72.. 21.3.72., 22.3.72., 25.2.72., 8.3.72., 21.2.72., 10.3.72., 8.3.72. 10.3.72	10.3.72., 18.2.72., 16.l2.71. 9.3.73., 8.3.72.,25.2.72., 16.12.71., 25.3.72., 15.3.72., 25.3.72., 25.2.72., 25.3.72., 25.2.72., 14.3.72., .14.3.72., 21.3. 2.,14.3.72.,	14.3.72. 21.3.72.,21.3.72., 14.3.72., 25.3.72., 25.372., 21.3.72.,	21.3.72., 21.3.72, 21.3.72., 24.3.72, 24.3.72., 24.3.72.,	24.3.72., 25.3.72., 21.3.72., 3.4.72., 21.3.72.,	3.4.70. 24.3.72., 24.3.72 24.3.72., 24.3.72., 24.3.72., 24.3.72,	25.372., 25.3.72., 25.3.72	25.372., 25.372., 3.4.72.,	3.4.72., 3.4.72., 3.4.72., 3.4.72., 14-3.72. 3.9.71.,	3.9.71., 16.7.71., 14.3.71., 29.3.72., 14.3.72., 14.3.72., 14.3.72, 5.4.72., 5.4.72., 5.1.72., 5.4.72., 18-2-72.,	23.2.72., 10.3.72., 20.1.72., 9.1.72., 31.1.72.. 31.1.72.,	31.1.72., 31.1.72., 8.3.72., 2.2.72 3.2.72., 25.2.72.,	2.2.72., 10.3.72., 4.2.72., 25.9.72., 25.9.72, 6.10.72.,	1.2.73., 13.2.73., 30.1.73., 9.4.73., 13.2.73., 14.2.72.,	13.3.72., 13.3.72., 24.3.72., 18.7.72., 4.9.73.. 25.2.72,	17.5.71., 21.3.72., 3.4.72., 21.3.72., 16.7.71., 5.4.72., In Special Appeal Nos.
616, 643, 617, 644/74 and Civil Misc	Writ	Nos 2268,448,2280,2254,2255/69 and	Special Appeal	Nos 730 752, 647,615,611,648,645605,610/71 and Civil Misc. Writ	No.
149/68 and Special Appeal No.86, 796.775/71 and W.P No. 450 69 and	Writ No	451, 218, 5706 2915/69,S. A. No..690/71 C.
Misc Writ No.3037/69 and S.A. No.613/71 and C. Misc Writ No.2090/69 and	Civil Misc. Writ Nos 2094, 2119, 2122, 2172, 2188 2189 -92, 2180 2182, 2187,2256, 2273, 2274,2276-2279, 2282-2284.2334	2347,	2576,2608-2611,2649 2690,2742-2743, 2759,2760,2811,2850, 2916,2918,2919,3075,3400/69 and	543- 546,	786,1039,1246,	1248,	2169,3881, 4035,4428,4563,4821,211,250, 256, 7253, 607,	614, 618.628,7655.691-694, 729. 732. 751, 776, 787, 799. 805171 and Civil Misc. Writ	No.1525,1529,3387.7051,7253, 7588, 7575, 7980 and Special Appeal Nos.6,102, 115, 166,309/72 and 1902/73 and Special Appeal No.774171 and Civil Misc. Writ No. 2121/69,2194/69 70,3375/69 and writ Petition No.3627/70,260/71 respectively.
534 B. Sen and o. P. Rana for the Appellant.
Yogeswar Prasad, S. K. Bagga and (Mrs.) S. Bagga, for the Respondent in CA 399/75 and 400-405/75.
(Miss) Kamlesh Bansal, for Respondent in CAs. 310, 312, 238,403,357,and 313/75 L. C. Goyal, for Respondent in CA No. 396/75.
The Judgment of the Court was delivered by JASWANT SINGH, J.-This batch of 127 appeals by special leave which are directed against various judgments rendered by the	High Court of	Judicature at	Allahabad in	writ petitions and special appeals	and relate to enforcement of certain obligations of licensees for retail vend of country liquor shall be disposed of by this judgment.
The facts	leading to these appeals are The State of Uttar Pradesh has,, under the U.P. Excise Act 1910 (Act No.
IV of 1910) (herein after referred to as 'the Act') which contains provisions	relating to	all aspects	and manifestations of intoxicating liquors and	intoxicating drugs, that is to say, their	import,	export, transport, manufacture, sale and possession, the exclusive right or privilege of manufacturing and selling liquor in that State.
Section 24 of	the Act lays	down that subject to	the provisions of section 31, the Excise Commissioner may grant to any person a licence for the exclusive privilege- (1) of manufacturing or	of supplying	by wholesale, or of both, or (2) of selling by wholesale or by retail, or (3) of manufacturing or	of supplying	by wholesale, or of both and or	selling by retail any country liquor or	intoxicating drug within any local area.
(c) shall be in such form and contain	such particulars, as	the Excise Commissioner may direct either generally or in any particular instance in this behalf; and (d) shall be granted for such period as the State Government may, in like manner, direct.
Section 33	of The Act invests the authority granting a licence under the Act	to require the grantee to execute a counterpart a agreement in conformity with the tenor of his licence and to give such security for the performance of such agreement	or to make such deposit in lieu of security as such authority may think fit.
Section 28	of the	Act which deals with imposition of excise duty or countervailing duty reads:- "28. (1) Duty on excisable article.-An excise duty or a countervailing duty	as the	case may be at such rate or rates as 535 the Local	Government shall direct, may	be imposed, either A generally or for specified local area, on any excisable article- (a) imported in accordance with the provisions of section 12 (1); or (b) exported in accordance with the provisions of section 13; or (c) transported; or (d) manufactured, cultivated	or collected under- any licence granted under section 17; or (e) manufactured in any distillery established, or any distillery or brewery licensed, under section 18 ...." Section 29 of the Act lays down the manner in which the duty may be levied. One of the ways provided in the section for levy of the duty is by payment upon issue for sale from a warehouse established or licensed under section 18(d) of the Act.
Sections 40 and 41 of the Act	empower the State Government and	the Excise Commissioner (subject to	the previous sanction of the Government) to make rules for the purposes set out therein. These rules	are contain in the Excise Manual, Uttar Pradesh (Volume I).
Paragraph 38 of the Excise Manual shows that there are four licence-fee systems in vogue in	the State of Uttar Pradesh. One of such systems is 'The auction	fee system' under which the amount	of licence fees inter alia for the retail sale of' country spirit under the distillery system and for	the manufacture and retail sale of country spirit under the outstill system is determined by competition among bidders. According to paragraph 332 licences for	the wholesale and retail vend of intoxicants are usually granted for the	excise year which commences from April 1 and lasts upto March 31.
In accordance with the requirements of	the auction system, auctions were held throughout Uttar Pradesh during the months of February and March, 1969 on various dates and at various places for the grant of licences to sell country spirit by retail at the specified shops during the excise year 1969-70.
Before holding The auctions, rates of` excise duty and prices of different varieties of country liquor as also the conditions of'	licences for sale of county spirit for 1969- 7() were announced. No announcement was, however, made as to whether the exemption from sales tax in respect of sale of country liquor	granted vide Notification No.	ST 1149/X- 802(33)-51 dated April 6,, 1959. issued under section 4 of the U.P. Sales Tax Act, 1948	was or	was not likely to be withdrawn. The	respondents herein participated in	the aforesaid auctions and being	the highest bidders	were granted licences for retail sale of country spirit for the period beginning from April t, 1969 to the end of March., 1970.
536 Each one of these	licences contained infer alia	the following condition:- "3. (a) The licensee	shall lift each month	the proportionate quota for the month, if any, fixed for his vend	and deposit still head duty realisable thereon. On his	failure to	lift the monthly proportionate 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 per litre of spiced spirit and still head duty per litre of plain spirit as	may be	in the	area in	which the shop is situated on the quantity falling short of such monthly proportionate quota and such com pensation shall be paid by the 7th of the month following the month to which such shortfall relaters.
(b) He shall be bound to sell the whole quantity of country	spirit	obtained for	the shop from	the warehouse on his failure	to do so, he shall be liable to pay to the State Government compensation at the rate equal to the rate of stillhead duty per litre of spiced spirit and	stillhead duty per litre of plain spirit as may be in force in the area in	which the shop is situated on the unsold quantity	of country spirit during the	period of the contract to which the licence relates.
(c) In the event of the licensee being required to pay compensation	to State Government	under	the aforesaid condition due to the short lifting of	the quota or non-deposit of such compensation, the amount of said compensation may be realised from the amount of security deposited	by him. The resultant deficiency in the amount	of security shall be made good by	the licensee within seven days of such adjustment. Tn case the short	lifting of proportionate monthly quota or short deposit of compensation	continues for	two consecutive months	or the license fails to make up the deficiency	in the amount of security	within	the prescribed period	of seven days his licence may be cancelled in addition to the recovery of the deficiency in payment of compensation as arrears of land revenue." On the day following the commencement of the aforesaid licences i.e. on April	2, 1969, the Government of Uttar Pradesh issued	Notification No. ST-1603/X-900 (12)/67 under section	3-A and 4 of the U.P. sales Tas	Act, 1948, superseding the earlier Notification No. ST 1149/X-802 (33)- 51 dated April 6, 1959, issued under section 4 of the U. P.
Sales Tax Act, 1948, and imposing sales tax on the turnover in respect of the country spirit at the rate of ten paise per rupee at the point of retail sale with immediate effect.
The respondents herein having failed to lift and sell the minimum quotas of	liquor prescribed in their licences were required by the excise authorities of the State to pay, by way	of compensation, the amounts of excise duty leviable on the	short-falls. Aggrieved by	this demand,	the respondents moved the High Court under Articles 226 537 Of the Constitution for issue of appropriate writ or directions retraining the appellants herein from recovering the aforesaid	amounts contending inter alia that	the condition of their licences on the basis of which the demand was made was invalid,	unconstitutional and unenforceable.
The respondents	in six appeals Nos. 399 to 404 of 1975 also challenged Notification No.	ST-1608/X-900(12)/67 (dated April 2, 1969) (supra) which superseded	the earlier Notification No. ST 1149/X-802(33)51 dated April 6, 1959 and imposed sales tax on the turnover in respect of the country.
liquor at the rate of ten paise per rupee at the point of retail sale by the vendor with effect from April 2, 1969 on the ground that since the state Government did not announce at the	time of	the aforesaid auction that Notification No.
ST 1149/X-802(33)51 dated April 6, 1959, was likely to be withdrawn and the sales of country. liquor were likely to be subjected to the levy	of sales tax during the excise year and in	reply to the query made by them at the time of the auction they were told by the authorities that there was no sales tax of the sale of country liquor. the appellants herein were estopped from making the	demand in respect of sales tax and recovering the same from them. The High Court allowed all these petitions in toto. Having failed to secure certificates of	fitness from the High Court, the appellants applied for and obtained special leave to appeal from this Court.
"No tax can be imposed by any bye-law or rule or regulation	unlegs	the statute	under	which	the subordinate legislation is made specially authorises the imposition. In the present case, the legislature has levied	excise duty or countervailing	duty on the excisablc articles	which have been either imported.
exported.	transported, manufactured. cultivated or collected under any licence granted under section 13? or manufactured	in any distillery	or brewery established or licensed number the. Act; and the State Government has not been empowered to - levy any duty on liquor which the contractors failed to lift. Therefore, the State	Government was exercising a power which it did not possess	and hence the	rule imposing	the condition in the licences	and the demand notices are invalid." Thus the aforesaid question arising for determination by us stands already settled by the ratio of the decision of this Court in Bimal Chandra Banerjees case (supra.) (1)  1 S.C.R. 844.
538 It will also be noticed that neither section 28 nor section 29 nor any other provision of the Act authorises the levy of the amounts	sought	to be	recovered from	the respondents.
The decision of this Court is Panna Lal and Ors. etc.
etc. v. State of Rajasthan and ors.(1) which is sought to be relied	upon on behalf of	the appellants	is clearly distinguishable. In that case, the contractual obligation of the appellants	to pay the guaranteed sum or the stipulate(d sum mentioned in the licences was not dependent on	the quantum on liquor sold	by them and no excise duty	was charged or chargeable on undrawn liquor under the licences.
The excise duty there was collected only in relation to the quantity and quality of the country liquor which was drawn.
We have, therefore, not the lightest hesitation in holding that the demand made	by the appellants though disguised as compensation, is in reality a demand for excise duty on	the unlifted	quantity of liquor which is	not authorised by the provisions of the Act. This being the sole point involved in appeals other than Appeals Nos. 399 to 404 of 1975	the former Appeals cannot succeed. In the result they are dismissed with costs.
Appeals Nos. 399 to 404 of 1975 which raise another point as well viz. the validity of the appellants' demand from the respondents in respect of sales tax at the rate of ten paise per rupee on the retail sales of country spirit made by the latter with effect from April 2, 1969 stand on a slightly different footing. Section 3-A and 4 of the U.P.
Sales Tax Act, 1948 clearly authorise the State Government to impose sales tax. The fact that sales of country liquor had been exempted from	sales tax vide Notification No. ST 1149/X-802(33)-51 dated April 6 1959 could not operate as an estoppel against the State Government and preclude it from subjecting the	sales to tax if it felt impelled to do so in the interest of the Revenues of the State which are required for execution of the	plans designed	to meet the	ever increasing pressing needs of the developing society. It is now well settled by a catena of decision that there can be on question of	estoppel against the	Government in	the exercise of its legislative, sovereign or executive powers.
While speaking for the Court in M. Ramanathan Pillai v.
State of Kerala(2) the	learned Chief	justice quoted	with approval the following statement contained	in American Jurisprudence 2d. at page 783 paragraph 123:- "In American	Jurisprudence	2d at page	783 paragraph 123 it is stated ''Generally. a state is not subject to	an estoppel to the	same extent as an individual or a private corporation." otherwise, it might be rendered helpless to assert its powers in government. Therefore as a general rule the doctrine of estoppel will not be applied against the State in its governmental public or sovereign capacity." (1)  t S.C.R. 219 (2)  2 S.C.C. 650.
539 In State of Kerala and Anr. v. The Cawalior Rayon Silk Manufacturing (Wvg.) Co. Ltd.	Ltd.(l) where the respondent company established itself in	the State of	Kerala	for production of rayon cloth pulp on an understanding that the Government would bind itself to supply raw material	and later the Government on finding that	it was	not able to supply the material undertook not to	legislate for	the acquisition of	the private forests for a period of 60 years if the company purchased forest lands for the purpose of its supply of raw material	and accordingly, the	company	did purchase 30,00	acres of private forests from an estate for Rs. 75	lakhs for the aforesaid purpose but the Government enacted Act 26 of 1971 expropriating	vast forest areas without paying	compensation as a measure of agrarian reform whereupon the	respondent company sought to	invoke	the doctrine of equitable estoppel against the	Government, Palekar, J. delivering the majority judgment observed:- "We do not see how an agreement of the Government can preclude legislation on the subject. The High Court 'has rightly pointed out	that the surrender by	the Government of its legislative powers to	be used	for public good cannot avail the company or operate against the Government as equitable estoppel." Approving the decision of the House of Lords in Howell v. Falmouth Boat Construction Co. Ltd. ( ') where	the observations of	Lord Denning in Robertson v. Minister of Pensions (8) that the action of the War office which was an agent of the Crown in assuming authority over the matter and assuring the appellant who had been serving on the army that his disability had been accepted as attributable to military service bound the Crown and through the Crown the Minister of Pensions, who while administering	the Royal warrant issued by the Crown has to honour all assurances given by or on behalf of the Crown were unequivocally disapproved by observing that the character or an act done by an officer of a Government, however high or low in the hierarchy in face of a statutory prohibition, is not affected by the fact that it had	been induced by a misleading assumption of authority and neither a Minister. nor any subordinate officer of the Crown can, by conduct or representation, bar the Crown from enforcing a statutory prohibition. It was held by Bench of this Court ill Assistant Custodian Exacuee Property and ors.
v. Brij Kishore Agarwala and Ors(4) that	the Evacuee Department was not bound by the reply given by the Assistant Custodian to	the first respondent's enquiry that	the property in question was not an evacuee property.
Following the above decision. the High Court of Jammu & Kashmir has in Malhotra and Sons and Ors. v. Union of India and ors (5). rightly held that .- "The courts will only bind the Government by its promises to prevent manifest injustice or fraud	and will not make the Government a slave of its policy for all times to come when (1)  2 s.c.c. 713.
(2)  A.C. 837 (3)  1 K.B. 227 (4)  1 S.C C. 21.
(5) A.I.R. 1976 J. & K. 41.
540 the Government acts in its Governmental, public or sovereign capacity." We may as well refer here to the celebrated decision Of the Supreme Court of the United States in Federal	Crop Insurance Corporation v. Morrill(1). In that case where the agents	of the petitioner a wholly Government owned Corporation, created by the Federal Crop Insurance Act to insure producers of wheat against loss in yields due to unavoidable causes	including drought, advised	the respondents in	ignorance of	and contrary to the	duly promulgated controlling regulation which expressly precluded insurance coverage of spring,	wheat re-seeded on winter wheat acreage that their entire 460 acres spring wheat crop including the spring wheat which had been reseated on winter wheat acreage in the 1945 crop year was insurable by the Corporation and	recommended to the Corporation ranch office acceptance of the respondents	formal	application which, however, did not disclose that any part of the insured Crop was reseeded and the Corporation accepted the application and a few months later, most	of the respondents' crop was destroyed by drought, and the Corporation on the loss being notified to them refused to pay the loss on the ground that the wheat crop insurance regulations expressly prohibited the insurance of spring wheat which was re-seeded on winter wheat acreage,	the Court by majority held that though a private insurance Corporation would be bound	on similar facts. the same was not true	of a Government Corporation engaged in the insurance field and the latter was	not estopped from repudiating the liability.
The following observations made by the court in Federal Crop Insurance	Corporation v.	Merrill	(supra) are worth quoting:- "It is too late in the day	to urge that	the Government	is just another private litigant,	for purposes of charging it with liability,	whenever it takes over	a business therefore conducted by private enterprise	or engages in competition with private ventures.. Whatever the form in which the Government functions, anyone entering into an arrangement with the Government	takes	the risk of	having	accurately ascertained that	he who	purports to act for	the Government stays within the bounds of his authority.
And this is so even though, as here, the agent himself may have been unaware of	the limitations upon	his authority...."Men must turn square corners when	they deal with	the Government", does not reflect a callous outlook. It merely expresses the duty of all courts to observe, the conditions	defined by Congress	for charging the public treasury." In his Treatise on the Law of Estoppel,	Melville M.
Bigelow has stated that in State v. Williams,(2) State v.
Bevars,(2) and	Wallace v. Maxwell(4) it has been held that estoppel does not operate against the	Government or	its assignee.
(1) 332 U.S. 380-92 L cd. 10.
(3) 86 N. Car. 588.
541 The High Court was, therefore, clearly in error in ignoring that the Government cannot divest itself of	the right incidental to its office by conduct which, in the case or a private person,	would amount to estoppel and in characterizing the demand for sales tax made by	the appellants as illegal. Accordingly Appeals Nos. 399 to 404 of 1975	are partly allowed, and it is held that the demand made by the appellants from the respondents in these appeals in respect of sales tax on the turnover of sales of' country spirit made by them between April B, 2, 1969 and March 31, 1970 was valid and could not be struck down. The parties in these six appeals shall pay and bear their own costs.

References: Art. 226
 v.	
 v. 
 v. 
 v.

 v. 
 v. 
 v. 

v. 
 v. 
 v. 
 v.	
 v. 
 v.

 v.