State of Kerala and Ors vs P.J. Joseph
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: supreme-court
Case Number: Appeal (civil) 172 of 1954
Decision Date: 18 December 1957
Coram: S.R. Das, T.L.V. Aiyyar, S.K. Das, A.K. Sarkar, V. Bose
The appeal, identified as Appeal (civil) 172 of 1954, was filed by the State of Kerala and others against P.J. Joseph. The appeal was brought before the Supreme Court of India on 18 December 1957, with a certificate of fitness issued under Article 132(1) of the Constitution of India. The petition challenged a judgment and order dated 24 October 1952, which had been pronounced by a Division Bench of the High Court of Judicature for Travancore‑Cochin in Writ Petition No. 32 of 1952. That writ petition had been presented before the High Court on 26 March 1952 by the respondent, P.J. Joseph. The case was heard by a bench consisting of Chief Justice S.R. Das, together with Justices T.L.V. Aiyyar, S.K. Das, A.K. Sarkar and V. Bose. The judgment was delivered by Chief Justice S.R. Das.
The factual background began in 1945 when the respondent, P.J. Joseph, operated as a wholesale dealer in foreign liquor in Ernakulam, which at that time lay within the former State of Cochin. The State of Cochin was governed by the Cochin Abkari Act, enacted as Act 1 of 1077 M.E., while the neighbouring State of Travancore was regulated by the Travancore Abkari Act, enacted as Act IV of 1073 M.E. The Travancore administration had framed rules under its Abkari Act, and these rules were published in the Official Gazette under Section 65 of the Travancore Act. Under Travancore practice, each licence‑holder was assigned a quota for the sale of various categories of foreign liquor; no commission was levied on sales within the quota, but a commission of twenty per cent was imposed on any sale that exceeded the quota.
In Cochin, no rules under its Abkari Act had been issued until 2 June 1949, when a set of regulations was published in the Cochin Sarkar Gazette under Section 69 of the Cochin Act. Shortly thereafter, on 1 July 1949, the two states of Travancore and Cochin were merged to form the United State of Travancore‑Cochin. The respondent obtained his wholesale licences under the Cochin Abkari Act, Act 1 of 1077 M.E. At the moment of the integration, he possessed a licence for the fiscal year 1125 M.E., covering the period from 17 August 1949 to 16 August 1950. He subsequently secured another licence for the period from 17 August 1950 to 31 March 1951, and a further licence for the period from 1 April 1951 to 31 March 1952. All three licences were wholesale licences authorising the sale of foreign liquor, Indian‑made foreign spirits, Indian‑made wines and beer brewed in India, with the explicit condition that the goods were not to be consumed on the licensed premises. The licences were issued in Form No. F.L. 1, as prescribed by Rule 7 of the Cochin Rules. Clause (1) of each licence limited the privilege to sales made to other wholesale or retail licence‑holders; any sale to persons who were not licence‑holders was prohibited, except when such sales were made in sealed receptacles and only to the extent and in the manner that might be permitted by the Commissioner.
The licence terms also stipulated that any single transaction with a person who was not a licence‑holder could not involve a quantity smaller than one pint. By an order dated 19 December 1949, marked as Exhibit B, the Board of Revenue of the United State of Travancore Cochin—one of the appellants in the present proceeding—communicated to the respondent that a specific sale quota for dealings with non‑licence‑holders had been fixed for him as set out in that order. Subsequently, a memorandum identified as Exhibit C and issued by the Assistant Excise Commissioner on 23 June 1951, and later endorsed by the Excise Inspector of Ernakulam on 1 July 1955, informed the respondent that he was required to pay a commission on any sales that exceeded the fixed quota. The commission was to be calculated at a rate of twenty per cent of the respondent’s cost price for the excess quantity sold. The respondent contested this requirement, asserting that the excise authorities possessed no legal authority to determine his quota or to impose a commission on sales beyond that quota. He further complained that the authorities had no power to assign different quotas to different licence‑holders, a practice he said resulted in unfair discrimination in violation of Article 14 of the Constitution. In addition, the respondent argued that the two orders together placed an unreasonable restriction on his liberty to conduct his business and thereby infringed his fundamental right guaranteed under Article 19(1)(g) of the Constitution. On the basis of these contentions, the respondent filed a writ petition before the High Court on 26 March 1952, seeking relief from the measures imposed by the excise authorities.
The appellants, who were the respondents to the writ petition, filed a counter‑affidavit that was affirmed by the Assistant Excise Commissioner of Ernakulam. In that affidavit they explained that a quota system had long been applied in the Travancore region and that the Government had recently extended the same system to the Cochin area in order to achieve uniformity across the two territories. Accordingly, the Board of Revenue fixed a sale quota for each foreign‑liquor licence‑holder operating in the Cochin area, including the present respondent, and applied the same commission rate that was already being levied in Travancore. The appellants further pointed out that the respondent’s licence for the period 17 August 1950 to 31 March 1951, and his subsequent licence covering 1 April 1951 to 31 March 1952, were issued only after the quota had already been determined; therefore, the respondent could not now lawfully challenge the quota that had been fixed prior to his acquisition of the licences. They submitted that, under the provisions of the Cochin Abkari Act and the rules framed thereunder, the excise authorities were empowered to regulate retail sales by establishing a quota for each foreign‑liquor licence‑holder and by imposing a commission on any quantity sold beyond that quota. The appellants maintained that the restriction was a reasonable measure taken in the public interest, aligned with the State’s Abkari policy, and that it did not constitute any unfair discrimination against the petitioner.
The respondents contended that no unreasonable restriction had been imposed on the petitioner and that therefore there was no breach of Article 14 or Article 19(1)(g) of the Constitution. They maintained that the imposition of a twenty per cent commission on sales in excess of the prescribed quota was lawful and did not offend any constitutional provision. According to them, the commission could readily be passed on to the ultimate consumers, so that the petitioner suffered no real injury. The respondents further pointed out that the Secretary of the Travancore Wine Merchants Association had applied for an extension of the system of levying a commission on foreign‑liquor sales to the Cochin area, and that the Government had allowed such an extension as a matter of general policy. In response to the counter‑affidavit, the present respondent filed a reply affidavit addressing the allegations contained therein.
The matter was then placed before a Division Bench of the High Court of Judicature for Travancore‑Cochin. During the final arguments, the learned Government Pleader, who represented the excise authorities and the State—both respondents in the writ petition—produced a document marked as Exhibit 1 to support his claim that an implied contract existed for the payment of the twenty per cent commission. Exhibit 1 consisted of a letter dated 6 July 1950, addressed from the Secretary of the Board of Revenue to the Revenue Department of the Travancore‑Cochin Government. The letter referred to a request from the Secretary of the Travancore Wine Merchants Association seeking sanction for additional foreign‑liquor quotas for wholesale licence‑holders in the Cochin area, on the condition that a commission of twenty per cent of the liquor price be paid on any quantity sold beyond the fixed quota. The letter further observed that, for the sake of uniformity, the Government might permit excess quotas to wholesale licence‑holders in Cochin provided the same twenty per cent commission was levied on the excess sales, and it concluded by urging the Board to obtain a prompt Government order on the matter. Below the main text, an endorsement was reproduced, which read: “ORDER D. DIS. NO. 5208/50/RD DATED 14‑7‑1950. Sanction is accorded for extra quota of foreign liquor being allowed to wholesale licence‑holders in Cochin on payment by them of a commission at twenty per cent of the price of liquor. The commission so realised from the wholesale licence‑holders in the Cochin area will be credited to Government. By order of His Highness the Raj Pramukh, (Sd.) Assistant Secretary. To The Secretary Board of Revenue, The Accountant General.” After hearing both sides, the Division Bench, after an extensive discussion of the issues, held that the fixation of quotas for sale to non‑licence‑holders and the imposition of a twenty per cent commission on sales exceeding those quotas were unauthorised and illegal. The Court also found that the collection of the commission from the petitioner—by threatening to close his shop after the filing of the writ petition—was illegal. Consequently, the High Court allowed the writ petition.
After hearing the parties, the High Court allowed the writ petition. It directed the excise authorities to return the sum that had been collected from the petitioner, who was now the respondent, and to refrain from fixing any quota or imposing any commission until a law expressly authorised such levy or collection. The Court also ordered that the costs of the proceedings be paid. The respondents in the original writ petition, who were now the appellants before this Court, applied for and obtained a certificate of fitness for appeal under Article 132(1) of the Constitution and subsequently filed the present appeal. While the appeal was pending, the States were reorganised, and the newly created State of Kerala, which incorporated the former United State of Travancore‑Cochin, was substituted as one of the appellants. Consequently, the appeal was pursued before this Court on behalf of the new State of Kerala together with the other respondents.
The counsel supporting the appeal argued that the order dated 14 July 1950, which appeared at the foot of Exhibit 1, was a statutory order issued by the State pursuant to Section 17 of the Cochin Abkari Act of 1077 M.E. That provision, they said, authorised the Diwan to prescribe a duty, if so directed, on all liquors and intoxicating drugs sold anywhere in the Cochin State. In response, the counter‑affidavit contended that the Secretary of the Wine Merchants Association had sought to extend the system of charging a commission to the Cochin area and that the Government had allowed this extension as a matter of general policy. The counter‑affidavit made no reference to any statutory order issued under Section 17, nor was any such order alleged before the High Court or produced in this Court. Moreover, there was no evidence that a copy of the alleged order had been published in the official Gazette or communicated to the respondent. On 19 December 1949, the respondent received only a letter (Exhibit B) from the Secretary of the Board of Revenue fixing his quota for sales to non‑licensees, and on 23 June 1951, he received a memorandum (Exhibit C) from the Excise Division Office, Ernakulam, instructing Excise Inspectors to demand a 20 percent commission on sales exceeding that quota. Neither document referred to the purported 14 July 1950 order. The endorsement attached to Exhibit 1, in its terms and form, did not appear to be an order issued by the State under the powers conferred by Section 17; rather, it seemed to be an intimation to the Board of Revenue that the Government had sanctioned extra quotas of foreign liquor for wholesale licencees on condition of payment of the commission. The State itself had not issued any order fixing an extra quota for any licencee or imposing a commission; it had merely authorised the excise authorities to allow extra quotas subject to the commission.
The instruction required wholesale licensees in Cochin to pay the prescribed commission and stipulated that any commission collected from those licensees in the Cochin area must be credited to the Government. The document was essentially a departmental instruction, stating that the excise authorities could permit extra quotas to wholesale licensees provided the requisite commission was paid. It was on the basis of this departmental instruction that the excise authorities transmitted Exhibits B and C to the present respondent. In the view expressed, Exhibit (1) does not constitute a statutory order that fixes any quota or imposes any commission. Accordingly, it was held that the High Court should not have allowed the appellants to introduce and file Exhibit (1) during the final argument, nor should it have been used against the respondent. Further, Section 18 of the Cochin Abkari Act, which apparently was not brought to the attention of the High Court, provides, without its proviso, that duty may be levied in one or more of the following manners: (a) by an excise duty charged on spirits or beer based on the quantity produced, passed out, or on the quantity of materials used or on the degree of attenuation as prescribed by the Diwan; (b) by a duty rateably charged on intoxicating drugs based on the quantity produced, manufactured, or issued from a licensed warehouse; (c) by a sum paid in consideration of any exclusive or other privilege relating to the manufacturing or supplying by wholesale, the selling by retail, or both, of country liquor or intoxicating drug in any local area for any specified period; (d) by fees on licences for manufacture or sale; (e) by a tax on each toddy‑tree in the case of toddy or spirits manufactured from toddy, payable in instalments as directed by the Diwan; and (f) by import, export or transport duties assessed as directed by the Diwan, subject to the conditions stated in the provision. It is evident that none of these multiple methods authorized the imposition of a commission on the sale of foreign liquor by a wholesale licencee beyond his quota, except for clause (d). According to clause (d), any duty on foreign liquor exceeding the quota may be levied only by imposing a fee on the licence for the sale of such foreign liquor.
The licenses that were the subject of the dispute had been issued pursuant to the Cochin Abkari Act 1 of 1077 M.E. and the regulations framed under that Act on 2 June 1949. At the time the licenses were granted, Rule 7 of those regulations specified the form to be used for licences authorising the sale of foreign liquor. The prescribed form, designated Form F.L. 1, was intended for a wholesale licence that permitted the holder to vend foreign liquor for consumption off the premises. Rule 7 further mandated that a licence in Form F.L. 1 be granted by the Board of Revenue upon payment of an annual fee of two thousand rupees. All of the licences issued to the respondent were in the shape of Form F.L. 1, and the respondent duly paid the stipulated fee of two thousand rupees for each licence.
The State’s attempt to levy an additional duty on the sale of foreign liquor, invoking sections 17 and 18 of the Act and characterising the levy as a fee on licences for sale, would in effect alter the terms laid down in Rule 7. Such an alteration could not be effected by a mere administrative imposition; it would constitute an amendment of the rule under which the licences had originally been issued. Section 69 of the Act governs the manner in which any rule or notification made under the Act acquires legal effect. Section 69 requires that every rule or notification be published in the Cochin Sarkar Gazette. Once published, the rule or notification becomes part of the Act and possesses the force of law. Moreover, any variation, suspension, or annulment of a published rule must itself be effected by a rule or notification that is similarly published in the Gazette.
Rule 7, which governed the issuance of the licences in question, was duly published in the Cochin Sarkar Gazette and therefore enjoyed the status of law. Consequently, any modification to Rule 7 could only be made by a subsequently published rule or notification. The endorsement appearing at the foot of Exhibit (1) was presented as a statutory order made under section 17 and was said to vary Rule 7 by increasing the licence fee with a twenty‑percent commission. However, that endorsement was not published in the Cochin Sarkar Gazette. Because it lacked the required publication, the endorsement could not be regarded as a valid rule or notification possessing the force of law. Even if the endorsement were construed as a rule, the omission of Gazette publication rendered it legally ineffective, and the additional levy could not be said to rest on any authorized law.
Counsel for the respondent argued that the endorsement was not a rule or notification but an order, and therefore not subject to the publication requirement of section 69. Nevertheless, section 18 serves as the implementing mechanism for section 17, and the alleged order did not fall within clause (d) of section 18, which deals with the imposition of fees on licences for sale. As a result, the endorsement could not be sustained as a lawful exercise of the statutory power conferred by sections 17 and 18.
The Court noted that counsel was unable to point to any other provision in the Act that would permit the making of an order such as the one appearing at the foot of Exhibit 1, nor could counsel demonstrate under what legal provision such an order could acquire legal effect without being published in the official Gazette. Assuming that the endorsement at the foot of Exhibit 1 was indeed an order, the Court held that because it had not been published in the official Gazette, it could not, by virtue of Section 69, vary Rule 7, which expressly fixes the fee on licences in Form F L 1 at Rs 2,000 per annum. The Court further observed that the impost in question was merely an executive order, and even if it qualified as an order, it possessed no authority of law to support it and therefore constituted an illegal imposition. The Court then referred to its earlier explanations in Mohammad Yasin v. Town Area Committee Jalalabad 1952 SCR 572: 1952 AIR(SC) 115) (A) and again in Bengal Immunity Co. Ltd. v. State of Bihar 1955‑2 SCR 603 at p. 681: 1955 AIR(SC) 661 at p. 693) (B), stating that an impost not authorised by law cannot be regarded as a reasonable restriction and consequently always infringes the respondent’s constitutional right to carry on his business guaranteed by Article 19(1)(g). On this basis, the Court decided that it was unnecessary to comment on the remaining points raised in the High Court’s judgment and, for the reasons set out above, ordered that the appeal be dismissed with costs.