Holding

The Court held that the respondent did not violate the licence terms, the cancellation and forfeiture were improper, and the security amount must be refunded with interest.

Summary

The Commissioner of Excise cancelled the wholesale and retail licences of Manoj Ali (respondent) and forfeited his security on the ground that a large quantity of IMFL and beer was seized from a room in the premises, which the department claimed was under his possession. The respondent contended that the seized stock belonged to the previous licencee and that he had not obtained vacant possession of that room. The Board of Revenue, the High Court and the Supreme Court examined the evidence, including affidavits of the former licencee, his watchman and the chowkidar, which admitted that the liquor remained in the former licencee's possession. The Court held that the department failed to verify the stock as required by Rule 22 and acted arbitrarily, and that there was no mens rea on the part of the respondent to justify cancellation or forfeiture. Consequently, the licences were not properly cancelled and the security amount was ordered to be refunded with interest. The appeals of the Commissioner and the State were dismissed.

Issues considered

The respondent violated any term or condition of the licence by possessing the seized liquor?
Whether cancellation of the licence and forfeiture of security are justified absent proof of mens rea?
Whether the Excise Department complied with its statutory duty of stock verification under Rule 22 and Section 34 of the Rajasthan Excise Act?
Whether a presumption of liability can be raised against the new licencee for stock left by the previous licencee?
Whether the principle of proportionality bars forfeiture of a large sum on a technical ground

Legislation cited

Dangerous Drugs Act, 1930
Indian Penal Code, 1860s. 482, s. 483, s. 484, s. 485, s. 486, s. 487, s. 488, s. 489
Narcotic Drugs and Psychotropic Substances Act, 1985
Opium Act, 1878

Subjects

Excise licence cancellationForfeiture of securityStock verificationMens reaProportionalityStatutory dutyRule 22Section 34Rajasthan Excise Act

Judgment

COMMISSIONER EXCISE AND ANR. A
v.
MANOJ ALI AND ANR.

OCTOBER 19, 2006

[S.B. SINHA AND DALVEER BHANDARI, JJ.] B

Rajasthan Excise Act, 1950-Section 34-Lecensee was granted
wholesale and retail licenses for Indian Made Foreign Liquor and Beer on
expiry of the period of licenses granted to an erstwhile licensee-Licensee
proposed to occupy the same premises which was used by the erstwhile C
licensee-Revenue seized bottles of liquor from one of the rooms of the
premises-Licensee, in reply to the show-cause notices issued by the Revenue,
contended that the seized bottles belonged to the erstwhile licensee and that
the room in the premises was not handed over to the licensee-Revenue
cancelled the licences of the licensee and forfeited the security amount- D
Board of Revenue allowed the appeal of the licensee-High Court dismissed
the Writ Petition of the Revenue-Correctness of-Held, on facts and records,
seized bottles of liquor were supplied to the erstwhile licensee and that the
room, from where the seizure was made, was still in possession of the erstwhile
licensee-Hence, the cancellation of the licences of the licensee held to be
improper-Revenue directed to refund the security amount to the licensee E
with interest.
Respondents were granted wholesale and retail licences for Indian Made
Foreign Liquor (IMFL) and Beer by appellants on expiry of the period of
licenses granted to an erstwhile licensee. The appellants inspected the
premises of the erstwhile licensee and issued a report stating that there was F
no stock of liquor in the premises. The respondent proposed to occupy the
same premises, which was used by the erstwhile licensee. In the meantime,
the appellants conducted a raid in the premises and seized a large number of
liquor bottles from one of the rooms in the premises. The appellants initiated
a criminal proceeding against the respondents. The appellants also issued a
show-cause notice to the respondents as to why the licences granted to them G
-· should not be cancelled. The respondents replied to the show-cause notice
contending that the room, from where the bottles of liquor were seized, was
still in possession of the erstwhile licensee and that it was not handed over to
him; and that the Department has falsely proceeded against them to suppress
691 H
692 SUPREME COURT REPORTS (2006] SUPP. 7 S.C.R.

A its fault of not verifying the stock of liquor in the room on the expiry of the
licence of the erstwhile licensee. The appellants rejected the cont_entions of
the respondents, cancelled the licences granted to the respondents and
forfeited the security amount of the respondents.
The respondents preferred an appeal before Board of Revenue. The
B Board allowed the appeal and remanded back to the appellants to pass a justified
judgment after probing all the facts and records in respect of the case and
after giving sufficient opportunity of adduction of evidence to the respondents.
The appellants and the respondents filed Writ Petitions before High Court
questioning the legality of the order of the Board of Revenue. Single Judge
of the High Court. dismissed the Writ Petition of the appellants on the ground
C that the State had not preferred an appeal and allowed the Writ Petition of
the respondents on the ground that there was no ground for justification of
the cancellation of the licences granted to the respondents. The appellants
filed a Writ Appeal before the High Court. The High Court allowed the Writ
Appeal and upheld the oruer of the Board of Revenue. The appellants and the
D respondents filed Special Leave Petitions before this Court. This Court
remanded back the matter to the High Court to consider the case afresh on
merits. The Division Bench of the High Court upheld the judgment and order
passed by the Single Judge. Hence the appeals by the appellants and the State.
The appellants contended that the respondents were in possession of
E the premises from where the bottles of liquor were recovered and hence they
must be held to have violated the terms and conditions of the licences; that
the respondents never informed them that the possession of one of the rooms
in the premises was still in the possession of the erstwhile licensee; and that
there is no illegality committed by the appellants in directing cancellation of
licenses and consequently forfeiture of the security amount.
F The respondents contended that they should not be penalised for no fault
on their part and the violation of the terms and conditions of the licence by
the erstwhile licensee.
Dismissing the appeals, the Court
G HELD: I.I. The officers of the Excise Department, although are duty
bound to oversee strict observance of the terms and conditions of licence as
also the provisions of the Rajasthan Excise Act, 1950 and the Rules framed
thereunder by the licensee, their conduct should be above board. Exercise of
--
a statutory function cannot be and should not be arbitrary and capricious.
The action on the part of the statutory authority should be bona fide.
H [701-El --
COMMISSIONER. EXCISE v. MANOJ ALI 693
l.2. The Commissioner of Excise did not bestow any serious attention A
to the contentions raised by the respondents, which was required to be done.
The statement of the respondents may be a self-serving statement; but when
a statement was made which was supported by sufficient evidence, it was
obligatory on the part of the authorities of the Excise Department to take into
consideration the same. It was the solemn duty on the part of the excise
authorities of the State to undertake an exercise of verification of stock. For B
reasons best known to them, they chose to hurry through the process of
cancellation of both the licences of the respondents, although there has been
no violation of the terms and conditions of the licences granted to the
respondents. Having regard to the materials on record, the respondents did
not receive vacant possession of that part of the premises from which the C
bottles of liquor were recovered. Once it has been held that the room in
question was in possession of the erstwhile licensee, penal action should have
been taken against him and not against the respondents. (703-B-EI

l.3. The appellants have admitted the fact that the seized bottles were
supplied to the erstwhile licensee; that they were in his possession; and that D
they had not been transferred to the respondents. Once the appellants admitted
the facts, it was not necessary for the respondents to prove their innocence
by adducing any further evidence. Things admitted need not be proved.
(706-C-D(

' 1.4. Existence of mens rea would be an essential ingredient for forming E
an opinion that licence validly held by a person should be cancelled. Forfeiture
of the amount of security should not be held to be a logical conclusion on
cancellation of licence. Licences should be directed to be cancelled only
·because there has been some technical violation on the part of the licensee.
[706-EI p
1.5. The appellants should not be permitted to forfeit a huge sum of
money legitimately belonging to the respondents on a technical plea that he
should have informed them that he had not obtained the possession of a part
of the tenanted premises. (706-G-H(
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4564 of2006. G
;
From the Final Judgment and Order dated 6. 7.2006 of the High Court of
Judicature for Rajasthan at Jodhpur in D.B. Civil Special Appeal No. 355/2005
and D.B.C.M.A. No. 42/06.

H
694 SUPREME COURT REPORTS [2006) SUPP. 7 S.C.R.

A WITH

C.A. Nos. 4566, 4568 and 4567 of 2006.

Gopal Subramanium, A.S.G., Sushi! Kumar Jain, H.D. Thanvi, Puneet
Jain and Sarad Singhania for the Appellants.
B
S. Ganesh, Narendra M. Sharma and Rajesh Prasad Singh for the
Respondents.

The Judgment of the Court was delivered by

C S.B. SINHA, J. Leave granted.

Wholesale and retail licences for Indian Made Foreign Liquor (for
short, 'IMFL') and Beer for the District ofBikaner for the year 2004-05 were
given to one Rampa! Rajkishan. It had its wholesale and retail godown near
Old Cold Storage, Tulsi Circle, Bikaner. The said licensee submittoo a plan
D of the premises to be used as a wholesale godown. It came to an end on
31.03.2005. With a view to grant retail and wholesale licences both for
country liquor and IMFL, tenders were invited by Appellants herein.
Respondent was found to be the highest bidder. His tender was accepted.
Licences were granted to him. He proposed to occupy the same premises
which had been taken on rent by the erstwhile licensee. Before commencement
E of his business in terms of the said licences, he submitted the same plan of
the premises for carrying out his business. Indisputably, the plans submitted
by Rampa! Rajkishan and Respondent were identical. An Excise Inspector
conducted a purported inspection of the wholesale and retails godown of
Rampa! Rajkishan on ·expiry of the period of licence. He purportedly has
F shown in his report that no stock of liquor was available.
It has, however, not been disputed that although the erstwhile licensee
was under a statutory obligation in terms of Rule 22 to make a declaration as
to whether any stock was held by him, as on 31.03.2005, the same was not
complied with. A provisional licence was issued to Respondent. He took
G delivery of some IMFL products also. A permanent licence, however, was
granted on 27.04.2005. In the meanwhile, a purported raid was conducted in
the premises. From one of the rooms a large number of bottles of different
sizes were found. They were seized. On the premise that the room in
question was in possession of Respondent herein, a criminal proceeding was
H initiated against him. A-show cause notice was also issued on 27.04.2005 as
COMMISSIONER EXCISE v. MANOJ ALI [S.B. SINHA. J.] 695
to why his licences should not be cancelled. Indisputably, inspection was A
carried out both on 31.03.2005 and 11.04.2005 in the absence of Respondent
or his employees. Curiously, the Inspector who purported to have carried out
the inspection of the godown of the erstwhile licensee himself pointed out
that unauthorized excisable articles were to be found in a room. In the cause
shown by Respondent in response to the show-cause notice issued in that B
behalf, a stand was taken by him that the bottles of liquor recovered from the
said room had been in possession of the erstwhile licensee. He had appointed
a Chowkidar for the said purpose. It was categorically stated in his reply :

"4. That when the said Godown was taken for rent by the Applicant
a room where Ex contractor had kept English Liquor and Beer, C
was not given in the possession of the Applicant. The Applicant
had no direct or indirect concern with this liquor and the Beer.
5. That the Ex. contractor had left with the keys of the Godown
keeping us in dark without the knowledge of the Department of
Excise. Despite our efforts he was not available as the Ex.
Contractor being from out of Rajasthan State (from State of D
Haryana) could not be contacted. The Department of Excise
Bikaner falsely proceeded against me in order to suppress its
fault, as the remaining stock of foreign liquor and beer of Ex
contractor should have been under rule taken possession of at
11.00 P.M. on 31.3.2005." E
A further show cause notice was issued on 13.05.2005 as to why his
licence for wholesale trade of IMFL and Beer and for the trade of country
liquor should also not be cancelled in view of the conditions Nos. 9.2 and
9.3 of the country liquor licence and condition no. 17 of the IMFL licence.
F
He replied to the said show cause notice on 28.05.2005 raising similar
contentions.

The Commissioner of Excise directed cancellation of Respondent's licence
holding that as indisputably a large number of bottles of IMFL and Beer,
which neither contained the hologram, nor any maximum retail price mentioned G
on the labels, were recovered from a room which was within the premises
shown to be in his possession, he had violated the conditions of the licence,
. stating :

" ... Therefore, storage of the stock of this liquor and Beer recovered
H
696 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A from the Godown of Non-Applicant is absolutely illegal and is violation
of the terms of the permit of the wholesale shops of foreign liquor.
Thus, both the facts have not been denied by Non-Applicant Sh.
Manoj Ali that the place of recovery of the illicit liquor was a part of
the Godown sanctioned to him and it is not disputed even that the
entries of the stock recovered were not found in his stock Register.
B He is thus liable for a thing found in the Godown sanctioned to him
and on this ground the case Uis 19/54 of Rajasthan Excise Act read
with section 58(c) of the Act has been registered against the Non
Applicant Sh. Manoj Ali ...."

C An appeal thereagainst preferred by him before the Board of Revenue,
however, was allowed, opining :

" ... When the licensee has the case that if batch No. of the stock
recovered and seized had been checked it would have been established
that recovered stock had been lifted by the previous licensee from a
D Brewe1y/Distillery under the permit granted by the Department. It
would ·be clear from it as to what Batch Nos. were mentioned in the
Bill/Invoice issued by Distillery Brewery so that by tallying them with
the Batch No. stated on the recovered liquor it would have been
proved that the recovered liquor had been issued to the previous
licensee. It should have been talliedwith the stock and issue Registers
E also. If it had been checked the position would have become clear
whether the stock had been obtained by the previous licensee under
a permit or not or whether it was entered in the stock and issue
Registers or not. In case in checking such entries had not been found
was not the liquor supplied to the previous licensee only that the
charge of keeping illicit liquor could have been established against
F
the existing licensee. When clear and particular statement has been
made by the licensee in his statement it was required to conduct
thorough enquiry for even departmental action under the provisions
of the Act which was not done by the Subordinate Court. Simply on
receipt of the counter it passed the order to cancel the licence on the
G basis of summary proceeding which is not just. Registration of a
crime does not mean that the guilt has been proved against the
licensee and he should be punished by canceling his licence. If on
the said enquiry it had been found that it was the stock left by the
previous licensee under the permit and it is entered in his stock
register and issue register the recovered stock remained lying from
H
COMMISSIONER EXCISE v. MANOJ ALI [S.B. SINHA..!.] 697
1.4.2005 to 11.4.2005 to accomplish certain ulterior motive because of A
carelessness of the Department Officers and in order to avoid to pay
the Revenue by the previous licensee, to the extent that the posted
concerned Inspector did not inspect the Godown during this period
even though it was responsibility of the Inspector."

The matter was remanded back to the Commissioner of Excise asking B
him to pass a 'justified judgment' keeping in view the observations made
therein and after probing all the facts and records in respect of the case and
after giving sufficient opportunity of adduction of evidence to the licensee.

Both the Commissioner of Excise and Respondent preferred writ petitions
before the High Court questioning the legality of the said order. Whereas the C
writ petition filed by Appellants was dismissed, inter a/ia, on the ground that
the State had not preferred any appeal, the writ petition filed by Respondent
was allowed, holding that there was no justification for cancellation of either
of the licences and in particular the one for dealing in country liquor.
D
A Division Bench of the High Court in an intra-court appeal modified
the judgment of the learned Single Judge holding the judgment of the Board
of Revenue should have been upheld in its entirety and dismiss the writ
petitions filed by both the contractor as also by the Department, directing :

"In the result, the order of the learned single Judge is modified E
to the extent that quashing of the orders of the Excise Commissioner
dated 30.5.2005 and 28.6.2005 would stand but subject to enquiry
followed by a fresh order to be passed by the Excise Commissioner
in accordance with law as directed by the Board of Revenue by its
order dated 6. 7.2005. The writ petitions preferred by the department
as well as the contractor would stand dismissed." F
Special Leave Petitions were filed by both the parties before this Court.
In view of the stand taken by both the parties that the matter should not have
been remitted to the Commissioner of Excise, this Court set aside the said
order with a request to the High Court to consider the matter afresh on merits. G
The Division Bench of the High Court by reason of the impugned judgment
has upheld the judgment and order passed by the learned Single Judge. The
Commissioner of Excise and the State are in appeal before us.

Before the High Court the erstwhile licensee had filed an affidavit.
Affidavit had also been affirmed by the Chowkidar. The High Court gave an H
698 SUPREME COURT REPORTS (2006) SUPP. 7 S.C.R.

A opportunity to Appellants to produce documents.
On elaborate discussions of all the contentions raised before the High
Court, the Division Bench held that Respondent was not at fault. However,
having regard to the fact that the period of licence had expired, the direction
to forfeit the security and the licence fee was held to be unsustainable and
B the same was directed to be refunded to the contractor. As regards the claim
of the contractor for damages by way of loss of profit, it was held that the
same may be the subject-matter of separate suit for damages.

A short question which arises for consideration before us is as to
C whether in the peculiar facts and circumstances of the case, Respondent can
be said to have violated the terms and conditions of the licence granted in
his favour.

Mr. Gopal Subramanium, the learned Additional Solicitor General
appearing on behalf of Appellants, has taken us through the entire records
D and questioned almost each and every finding of the Division Bench. It was
submitted that even assuming that the findings of the Board of Revenue and
the learned Single Judge of High Court to the effect that the bottles of IMFL
were recovered from the premises belonging to the erstwhile licensee were
correct; in view of the fact that Respondent was in possession and control
of the premises, he must be held to have violated the terms and conditions
E of the licence and thus no illegality can be said to have been committed by
the Commissioner of Excise in directing cancellation of licence and
consequently forfeiture of the amount of security.

Mr. S. Ganesh, the learned Senior Counsel appearing on behalf of
Respondent, on the other hand, contended that the High Court has proceeded
F to determine the issues o:ri concession made by the learned counsel appearing
on behalf of Appellants and they should not be permitted to resile therefrom.
According to the learned counsel, Respondent cannot be penalized for no
fault on his part and violation of the terms and conditions of the licence by
the erstwhile licensee.
G
Clauses 9.2, 9.3 and 22 of the licence read as under :

"92 If the officer issuing the permit or a higher authority has a belief
at any time that the permit is not keeping his shop running or is
not running it properly or is directly or indirectly involved in
H evasion of excise duty and other excise charges or for any proper
COMMISSIONER EXCISE v. MANOJ ALI [S.B. SINHA, J.] 699
and sufficient reasons in that case his permit may be cancelled. A
93 During the period of a permit if a crime is registered or he is
convicted for the offence under the Rajasthan Excise Act, 1950,
Narcotics Drugs and Psychotropic Substances Act, 1985 or under
the Acts mentioned in Section 34 of the Excise Act 1950 and
under the section mentioned therein the permit may be cancelled. B
22. In a case of expiry of the period of the licence or cancellation of
the licence due to any other reason, the licensee shall have to
communicate the information about the remaining stocks of !MFL
and Beer and all the records, immediately to the Excise Inspector
of his area. Entire records will have to be deposited by him in C
the office of the Excise Inspector, immediately. Up to disposal,
the remaining stocks in balance, shall be stored as such place in
the joint supervision of the Excise Inspector and the previous
licensee, where the trade was being carried out, and up to the
disposal, the rent, electricity expenses and any other surcharges
etc., shall be payable to the previous licensee himself. The D
balance stock could be transferred to the new licensee or would
be disposed off by the department through the prescribed
procedure, but the outgoing licensee shall not be entitled to
receive back the amount of any kind of fees etc. remitted against
the stock. But the outgoing licensee will be entitled and shall E
have right to the cost of the goods recovered by the disposal
and the duty inherent in the stocks."

Section 34 of the Rajasthan Excise Act, 1950 reads as under :

"34. Power to cancel and suspend licences.-{!) Subject to such
restrictions as the State Government may prescribe, the authority F
granting any licence, permit or pass under this Act may cancel or
suspend it -
(a) if it is transferred or subject by the holder thereof without the
permission of the said authority; or
G
(b) if any duty or fee payable by the holder thereof be not duly
paid; dr
(c) in the event of any breach by the holder of such licence,
permit or pass or by his servant or by anyone acting on h"is
behalf with his express or implied permission, of any of the terms H
700 SUPREME COURT REPORTS (2006) SUPP. 7 S.C.R.

A or conditions of such licence, permit or pass; or
(d) if the holder thereof is convicted of any offence punishable
under this Act or any other law for the time being in force relating
to revenue or of any cognizable and non-bailable offence or any
offence punishable under the Dangerous Drugs Act, 1930 (Central
B Act 11 of 1930) or any law relating to merchandise marks or of
any offence punishable under sections 482 to 489 (both inclusive)
of the Indian Penal Code; or
(e) where a licence, permit or pass has been granted on the application
of the grantee of an exclusive privilege under this Act, on the
C requisition in writing of such grantee; or
(f) if the conditions of the licence, permit or pass provide for such
cancellation or suspension at will.
(2) When a licence, permit, or pass held by any person is cancelled
under sub-section (I), the authority aforesaid may cancel any other
D licence, permit or pass granted to such person under this Act or any
other law for the time being in force reiating to excise, revenue or
under the Opium Act, 1878 (Central Act I of I 878).

(3) The holder of a licence, permit or pass shall not be entitled to
any compensation for the cancellation or suspension thereof under
E this section nor to a refund of any fee paid or deposit made in respect
thereof."

Certain facts are not disputed. The same premises which were the
subject-matter of the plans submitted by Respondent herein were being
occupied by the erstwhile licensee. Indisputably, he had been carrying on
F his business under valid licences granted in his favour. A large number of
bottles of IMFL liquor were found in one of the rooms in the said tenanted
premises, which were being used by him for his retail business. He did not
issue any declaration in terms of Rule 22 referred to hereinbefore. No physical
verification had been made. A certificate was issued by the Inspector, the
G genuineness whereof is open to question. The High Court on appreciation
of the entire evidence had made terse comments in regard to the conduct of
the said Inspector. The said certificate issued by him in regard to the
purported verification of the stock held by the erstwhile licensee as on
31.03 .2005 is also seriously open to question. Respondent was given a
provisional licence. He had been given a permanent licence only on 27.04.2005.
H
;
. r
COMMISSIONER EXCISE v. MANOJ ALI [S.B. S)NHA, l.] 701
·· · He had paid a hug~ amount towards licence fee and more than Rs. Four A
Crores by way of securitJ. Some stock was released in his favour on 08.04.2005.
In effect and substance, he was yet to ·start his business. The raid in the
premises was conducted on· I 1.04.2005. A. show-cause notice had been·
issued on the premise that the subject-matter of seizure was the stock owned.
and possessed by Respond'<mt. Before the High Court, however, Appellants
had taken a different stand. ·In view of the affidavits of tlie partner of the B
erstwhile licensee as also another employe·e and the Chowkidar, not only the
ownership of the seized liquor was admitted, but it was also acc~p!ed that the
entire excise duty. in respect of the said quality of liquor hacfbeen p~icl.by
the . former licensee ... The fact 'that --keeping
. . . ·- ' .;
in view fue batc;I!
-·-;.. numbers and
other particulars, the stock had been released in fa¥our of the erstwhile C ·
liceriSee .is yet agai~ ·!lot in disPu~e.- ' .. · '_; . _
. '
' . ' .
One of the contentions, which has, however, beeJJ, raised is that
Respondent had not informed the department that he had.not been able to
obtain possession ~f one of the rooms which was being used by the erstwhile
licensee for .vending _IMFL and Beer in retail. D
a
Initiation of proceeding for cancellation of a ficence leads fo serious
consequences. The Commissioner of Excise 'is a statutory authority. ·The
officers of the excise departl"ent although are duty bound to oversee strict
.observance of the terms and conditions of licence as also the provisions of
the Excise Act and the rules framed thereunder by the licensee, their conduct E
should· be: above board. Exercise of a statutory function cannot be and
\ .~h·o~Jd not be arbitrary' and capricious.. It may not be on whims and caprice.
The action on the part of the statutory authoriiy, ,it goes without saying,
should be bona fide.
F
. We have noticed hereinbefore that the authorities did not insist upon
the erstwhile licensee to carry out his statutory obligations in terms of Rule
. 22 of the. Act. . we·
fail to understand as to how in absence of such a statutory
decl~ration, ~ purported. certificate was issued by the Inspector. The report
prepared by him was contained in an inter-departmental correspondence. The
High' Court had doubted the bona fide of the Inspector iri view of his .G
conduct, which has been brought on records. We agree with its observations.
The findings of the High Court are based on two affidavits, one affirmed by
Rarnpal on behalf of the firm Mis Rampal Rajkishan and another by Rajkishan.
The categorical admission made by them t~at the seized stock was forming
the balance .stock held under their licence and they had not delivered H
702 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A possession of the room to Respondent has been accepted by the High Court.
The High Court furthermore has accepted the affidavit ofNaresh Kumar, who
was appointed as a watchman on behalf of the previous licensee. The
Chowkidar has also categorically stated that his employer did not hand over
possession of the entire premises to Respondent. An unequivocal statement
was made by him in the affidavit that the stock of the previous licensee had
B still been lying in the said premises till 11.04.2005, although an authorized
departmental official should have taken over the stock from his possession
immediately after 31.03.2005.

The notices dated 27.04.2005 and 13.05.2005 did not pertain to the
C intended cancellation of the country liquor licence. The High Court had
noticed that on the same day i.e. 13.05.2005, the Additional Commissioner,
Rajasthan Excise, Bikaner wrote to the District Excise Officer inviting his
attention to the application of the contractor enclosing therewith the
aforementioned affidavit ofNaresh Kumar. The said letter was not responded
to by the District Excise Officer until after decision of the Board of Revenue
D on 06.07.2005.

The Division Bench itself compared the plans of both M/s Rampa!
Rajkishan and Respondent. They were found to be identical. It was noticed
that the plan was submitted by Respondent before he started his business.
It was held :
E
"From the comparison of three site plans Schedule A, B and C, they
leave no round of doubt that IMFL and beer bottles without hologram
and MRP was recovered from that pat of the plan submitted by the
respondent contractor for approval which was formerly approved as
retail godown of IMFL and beer for the period from 17.6.2004 to
F 31.3.2005."

Admission made on behalf of Appellants before the High Court is also
explicit, which the Division Bench of the High Court recorded in the following
terms:
G "In pursuance of our specific query during the course of hearing, it
was clearly stated by the learned counsel for the Excise Department
that not it cannot be disputed that the recovered stock of IMFL and
beer was authorizedly issued to the previous licensee and was part
of the same issue."
H
COMMISSIONER EXCISE v. MANOJ ALI [S.B. SINHA, J.] 703
Before the High Court there was no dispute that stock recovered from A
the disputed premises had been issued to the previous licensee before
31.03.2005. Evidently, thus, it was the balance stock that remained in its
hands which had not been surrendered or accounted for.

It is unfortunate, as has been observed not only by the Division Bench
of the High Court but also by the Board of Revenue as also the learned Single B
Judge, that the Commissioner of Excise did not bestow any serious attention
to the contentions raised by Respondent, which was required to be done. The
statement of Respondent may be a self-serving statement; but when a
statement was made which was supported by sufficient evidence, it was
obligatory on the part of the authorities of the Excise Department to take into C
consideration the same. It was the solemn duty on the part of the excise
authorities of the State to undertake an exercise of verification of stock. For
reasons best known to them, they chose to hurry through the process of
cancellation of both the licences of Respondent, although there has been no
violation of the tenns and conditions of the licence granted to Respondents
at least in relation to the licence in respect of country liquor. D
Having regard to the materials brought on records, the Board of Revenue,
the learned Single Judge as also the Division Bench satisfied themselves that
Respondent did not receive vacant possession of that part of the premises
from which lMFL and Beer bottles without hologram and MRP tags were
recovered. Once it was held that the room in question was in possession of E
the erstwhile licensee, penal action should have been taken against him and
not against Respondents.

As regards the purported inspection report whereupon the learned
Additional Solicitor General laid great emphasis, the High Court opined :
F
"Nothing has been stated by the appellants at any stage whether
the records of previous licensee was surrendered to authority at the
expiry of period of licences and whether stock position tallied with the
register. It is the basic requirement under the licence that at the close
of licence the licensee shall surrender all registers required to be G
maintained and the Excise Authorities are required to verify the
correctness of stock as per register with physical verification. In
absence of such verification with record, the .conclusion cannot be
drawn that at the close of licence the licensee has disposed off all the
supplies made to it and nothing remained in stock. This is finnly
H
704 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A established from the facts of the case that while inspector purports
to have reported stock supplied to previous licensee to be nil, yet
huge quantity of IMFL/beer bottles supplied to previous licensee
remained undisposed off and found to be lying in the very same
premises where they ought to have been at the close of licence until
its disposal by the Excise authorities in accordance with law. Until
B verification of balance stock with register is made, no presumption of
correctness of reports submitted by the inspectors in the circumstances
of the present case can be drawn. Reference in this connection can
be made to clause 22 of licence issued to previous licensee which
supports the above conclusion."
c It was further observed :

" ... Even from the admitted position, it was not possible to have removed
such a large quantity of liquor from the place of its search until
31.03.2005 and then to bring it back to the same place. In ordinary
D course of human behaviour also, it would not have been conduct or
removing and bringing it back because continued storing in the same
premises of balance stock was otherwise justified under the terms of
licence of previous licensee."

Analyzing the purported stock report, the High Court was of the view:
E
"While the wholesale stock register were brought before the Court_
for perusal to suggest that stock as per the whole stock register was
Nil as on 28.3.2005, but no such attempt was even made in respect of
retail licence. The records about the retail licence were not referred
to us nor it was asserted that the retail stock register and other record
F of retail licence was delivered to the Excise Department by the previous
licensee or is in their possession and the stock position was verified.
In fact, that cannot be in view of admitted position that stock of
IMFL/beer seized on 12.4.2005 was part of supplies made to previous
licensee authorisedly.

G The report of the search party is conspicuously silent about the
fact that substantial part of IMFL seized on 11.4.2005/12.4.2005 is
manufactured out of rectified spirit which was prohibited to be sold .-
in the market under the new Excise policy, 2005-2006. Notwithstanding
this fact was brought to the notice by the contractor in his defence,
the Commissioner also did not take notice of this fact. Obviously, this
H
COMMISSIONER EXCISE v. MANOJ ALI [S.B. SINHA. J.] 705
fact explains the conduct of the previous licensee. On wholesale A
licence credit is taken on excise duty paid on supplies received by him
when the same is remained to retail vend and excise duty becomes
payable by the retail vendor as and when it disposed it off. However,
on the balance stock, at the end of the licence, he becomes liable to
pay excise duty on such balance stock. Since stock was not
transferable to new contractor as per the new policy and no recovery B
of that amount was possible and liability to pay excise duty was to
fall on the previous licensee and unless the stock left with previous
licensee are surrendered and accounted for in terms of the licence,
they continued to remain in the same premises, where the licensee was
authorized to conduct his business. The fact corroborate the stand C
taken by the current contractor that IMFL/beer bottles recovered from
the disputed premises were part of the supplies made to previous
licensee who has left the place without surrendering the stock and
same remained stored in the premises where from he was authorized
to conduct his trade. The possession of such premises never came
to the new contractor could not be said to have come in conscious D
possession of the liquor recovered from the disputed premises."

The High Court noticed the conduct of Hajja Ram, Inspector, in the
following terms :

" .... We have also noticed from the record that Hajja Ram was the E
person who is alleged to have reported on 31.3.2005. He is the person
who is called by the Deputy Excise Superintendent to be present at
the time of search on 11.4.2005. He is the person who is appointed
mother (sic) and he is the person who during the search instigate
about the opening of close room with shuttet lock by asserting that F
unauthorized excisable articles are to be found therein are strongly
suggestive of the fact that it was in know of the Inspector that stock
of previous licence stored in the approved premises was lying therein.
The fact that current contractor has submitted the plan of the whole
premises; which was originally submitted by the previous licensee for
approval, it is highly probable that he got the contractor unaware G
about the fact of huge quantity of IMFL and beer lying therein.
Apparently, it is not the case of the Department that the previous
licensee has ever accounted for balance remained with him. When the
recovered stock was part of the excisable articles issued to the previous
licensee, until the same has been accounted for by him and were H
706 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A available for acquisition by others there cannot be any presumption
against the subsequent contractor. We are of the opinion that in
absence of such link evidence having been established that there was
conscious transfer of excisable articles in favour of subsequent
licensee, he could not have been held liable for the recovery of said
articles from the premises which were approved in favour of the
B previous licensee for conduct of his business."

A presumption in law as was urged by the learned Additional Solicitor
General could have been raised to the effect that the stock belonged to
Respondent, but in view of the materials on records, the said presumption
C stood rebutted. It may be reiterated that now it has not been disputed that
the goods were supplied to the erstwhile contractor. He had paid the excise
duty. Moreover, he categorically admitted that the excise articles were in his
possession. The said goods had not been transferred to the new licensee.
Appellants conceded before the High Court in regard thereto. Once Appellants
admit the aforementioned facts, it was not necessary even for Respondent
D herein to prove his innocence by adducing any further evidence. Things
admitted need not be proved.

Existence of Mens Rea in a case of this nature would be an essential
ingredient for forming an opinion that licence validly held by a person should
be cancelled. Forfeiture of the amount of security should not be held to be
E a logical conclusion on cancellation of licence. Licences should not be
directed to be cancelled only because there has been some technical violation
on the part of the licensee.

The fact that Respondent for all intent and purport had not been
allowed to carry on any business is of some significance. Even why the
F directions of the Board of Revenue were not carried out and the Commissioner
of Excise filed a writ petition is beyond comprehension.

Although the State of Rajasthan is before us now, it did not join the
Commissioner of Excise before the High Court. It became wiser only after
G dismissal of the writ petitions. In any view of the matter, the doctrine of
proportionality should have been invoked. Appellants should not, in our
considered opinion, be permitted to forfeit a huge sum of money legitimately
belonging to Respondents on a technical plea that he should have informed
them that he had not obtained the possession of a part of the tenanted
premises.
H
COMMISSIONER EXCISE v. MANOJ ALI (S.B. SINHA, J.] 707

The affidavit might have been filed before the Division Bench of the A
High Court, but no objection thereto was taken. In fact, as noticed hereinbefore,
Appellants themselves urged before this Court that the entire matter on merits
should be determined by the High Court. Having lost before the Board of
Revenue, the learned Single Judge and the Division Bench, Appellants cannot
now ask us to interfere with the findings of facts. Even otherwise, there is
no justifiable reason to do so. B
We have been taken through the judgments of the Board of Revenue,
learned Single Judge as also the Division Bench and other materials and we
are satisfied that the findings arrived at by them are correct. We have,
therefore, no hesitation in coming to the conclusion that there is no merit in C
these appeals. They are dismissed accordingly.

Appellants hereby are directed to refund the entire amount of security
within a period of four weeks from today, failing which the same shall carry
interest @ 12% p.a. till actual payment. Appellants must also pay and bear
the cost of Respondent in these appeals which is quantified at Rs.1,00,000/ D
- (Rupees one lakh only).

B.S. Appeals dismissed.