STATE OF MAHARASHTRA AND ORS.versusNAGPUR DISTILLERS, NAGPUR AND ANR.

                      STATE OF MAHARASHTRA AND ORS.                                      A
                                     v.
                     NAGPUR DISTILLERS, NAGPUR AND ANR.

                                      MAY I, 2006

                 [S.B. SINHA AND P.K. BALASUBRAMANYAN, JJ.]                              B


            Constitution of India; Article 47-Bombay Rectified Spirit (Transport
      in Bond) Rules, 1951-Rule 5(2)-Levy of fees by State for transport of
     rectified spirit purchased from other distilleries to manufacturer's premises C
     for manufacture of Indian made foreign liquor-Writ Petition challenging
     levy of fees under the Rules-High count granted interim order of stay of
     demand upon an undertaking by the manufacturer till the disposal of the Writ
     Petition-Correctness of-Held, State cannot run the Government on
     undertakings-High Court was not justified in passing an unconditional
     interim order of stay-Hence, balancing the interests of the State and the D
     manufacturer, the manufaturer is directed to pay 50 per cent of license fee
     payable to the State and give an undertaking to pay the balance if the Writ
     Petition is dismissed-Bombay Prohibition Act, 1949-Bombay Rectified Spirit
     Rules, 1951-Maharashtra Distillation of Spirit and Manufacture of Potable
     Liqour Rules, 1966.
                                                                                         E
           Respondent no. 1, which is engaged in the business of manufacture and
     sale of Indian made foreign liqour (IMFL), purchases rectified spirit and extra
     neutral alcohol from other distilleries for manufacture of IMFL. The
     respondent is a licencee for possession of the rectified spirit and extra neutral
     alcohol under the Bombay Rectified Spirit Rules, 1951. Appellant State issued       F
     demand notice for payment of fee under Rule 5(2) of the Bombay Rectified
     Spirit (Transport in Bond) Rules, 1951.

           Respondents filed a Writ Petition before High Court challenging the
     demand of fee made under Rule 5 of the Bombay Rectified Spirit (Transport
     in Bo.nd) Rules, 1951. The respondents sought interim order of stay of the          G
     demand pending disposal of the Writ Petition on the ground that the High
.-   Court has granted stay of similar demand in earlier years; that the High Court
     quashed similar demand in a Writ Petition filed by another company Vam
     Organic Chemicals Ltd. and that the Supreme Court, in the appeal filed by

                                           603                                           H
    604                     SUPREME COURT REPORTS [20061 SUPP. I S.C.R.

A   the State has granted interim stay on an undertaking given by the company.
    The State contended before the High Court that the case of the respondents
    are different from the case of the Varn Organic Chemicals ltd.; that the
    accumulated liability to pay the fee would be huge and that the interests of
    the State would remain unprotected if unconditional interim order of stay is
    granted. The High Court rejected the contention of the State and granted an
B   interim order staying the recovery of fee on an undertaking by the respondents.

           In appeal to this Court, the appellant contended that the in Varn Organic
    Chemicals Ltd case, the company was a manufacturer of rectified spirit and
     it was used by the manufacturer himself; that respondent no. 1 is not a
C   licensee to manufacture rectified spirit and hence the respondent is bound to
     pay the fees under the Bombay Rectified Spirit (Transport in Bond) Rules,
    1951 of transport of rectified spirit purchased from other distilleries to its
    own premises; that the right to trade in IMFL is a mere privilege granted to
    the licensee by the State; that the respondents have not made out any prima
    facie case for the grant of an unconditional order of stay of recovery of fees
D   by the State; that the State cannot run on securities and undertakings and
     hence it was not proper for the High Court to grant the impugned interim
    order.

           The respondents contended that its case is squarely covered by the
    decision in Varn Organic Chemicals Ltd.; that there is no justification in
E   interfering with the interim order of the High Court as it had given an
    undertaking which was adequate to protect the interests of the State; that the
    State has no competence to impose such a levy; and that there is no
    justification in filing an appeal against the interim order of the High Court
    since similar orders were passed in various Writ Petitions which are pending.
F
          Allowing the appeal, the Court

           HELD: 1.1. The decision in Varn Organic Chemicals Limited. case is
    distinguishable from cases where the licensee himself does not manufacture
    the rectified spirit. The rectified spirit is not manufactured by the first
G   respondent and such spirit is not being used captively irt its own premises
    form manufacture of IMFL. Respondent No.I is purchasing rectified spirit
    or extra neutral alcohol from other manufactures and getting it transported
    to its own premises for manufacturing and bottling IMFL. This factual
    distinction apart the right to trade in liquor is only a privilege farmed out by
    the State. (609-F, G]
H
                   STATE OF MAHARASHTRA"- NAGPUR DISTILLERS, NAGPUR           605
       1.2. Any amount paid to the State, could be adjusted either towards future     A
liability or directed to be refunded by the State in case the challenge of the
licensee succeeds in the Writ Petition when it is finally heard and decided.
The only purpose for which the State undertakes liqour trade, notwithstanding
the mandate of Article 47 of the Constitution of India, is the revenue that it
generates. This aspect also cannot be lost sight of while considering the             B
balance of convenience in cases where a liqour licensee seeks an interim
order stating the fulfilment of his obligation to pay all the fees or other
charges demanded from him as such a licensee. In view of the long years it
takes for a Writ Petition to be decided finally, the licensee himself would find
it an onerous burden to pay the fees for years together in case his challenge
to the levy is ultimately rejected. The High Court was not justified in passing       C
in practical terms, an unconditional interim order of stay as sought for by
the respondents. The High Court should have paid a little more attention to
the interests of the State and the consequence arising out of its order staying
the payment of the fee merely on an undertaking by the licensee to pay it in
case at a future point of time he is found liable to pay the same. It is trite that
Government cannot run on undertakings. It has, therefore, become necessary            D
to interfere with the order of the High Court, though normally, this Court
would be reluctant, in exercise of its jurisdiction under Article 136 of the
Constitution of India, to interfere with interim orders made in pending writ
petitions. [610-E-H; 611-A]
                                                                                      E
       1.3. The interests of both would be protected if it is ordered that the
licensee is to pay 50 per cent of the license fee payable and that it should give
an undertaking to pay the balance 50 per cent in case ultimately the Writ
Petition is decided against it, within the time fixed by the High Court. This
would balance the equities and afford protection to the interests of the State
and the interests of the licensee. It would save the licensee from meeting the        F
entire liability here and now pending disposal of his challenge to the levy and
at the same time would not make his obligation too onerous, in case ultimately,
he is found not entitled to succeed in his challenge in the Writ Petition. This
would also enable the Government to realize a part of the revenue which alone
appears to be the motive in permitting the trade in liqour notwithstanding the        G
mandate of Article 47 of the Constitution of India. Thus, on a balancing of the
interests of both parties in the background of the nature of the trade and the
directive principle of State Policy in that behalf, the order of the High Court
calls for interference. (611-B-D]

      CIVIL ORIGINAL JURISDICTION: Civil Appeal No. 2381 of2006.                      H
    606                     SUPREME COURT REPORTS (2006] SUPP. I S.C.R.

A         From the Judgment/Order dated 20th July, 2004 of the High Court of
    Judicature at Bombay, Bench at Nagpur in W.P. No. 2417 of 2004.

          Soli J. Sorabjee and Ravinder Keshavrao Adsure for the Appellants.

          Uday U. Lalit, Prasenjit Keswani, Nitin Sagar, Amol Chitale and V.D.
B Khanna for the Respondents.
          The Judgment of the Court was delivered by

          P.K. BALASUBRAMANY AN, J. I. Leave granted.

C        2. This appeal by the State of Maharashtra and the Officers of the State
  Excise Department challenges an interim order passed by the Division Bench
  of the High Court of Bombay, Nagpur Bench, in a Writ Petition filed by the
  respondents herein. Respondent No. I is a partnership firm and respondent
  No.2 is a partner therof. Respondent No. I is engaged in the business of
  manufacture and sale of Indian made foreign liquor (hereinafter described as
D "IMFL") and holder of a wholesale licence under the State Government in
  Form PLL as per the Maharashtra Distillation of Spirit and Manufacture of
  Potable Liquor Rules, 1966. The said Rules are made under the Bombay
  Prohibition Act, 1949. Respondent No. I did not own a distillery and was not
  manufacturing rectified spirit and extra neutral alcohol which it required for
E manufacture of IMFL. Respondent No. I had to purchase rectified spirit and
  extra neutral alcohol from distilleries owned by others. For possession and
  use of rectified spirit including the extra neutral alcohol, license was required
  in Form R.S.11 prescribed under the Bombay Rectified Spirit Rules, 1951. The
  manufacture and sale ofIMFL is supposed to take place under the supervision
  of the staff of the State Excise Department as provided in Rule 12(2) of the
F Bombay Rectified Spirit Rules, 1951. As per Rule 17 (12) of the Maharashtra
  Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966 and as
  per condition No. I of the PLL license obtained thereunder, Respondent No. l
  as licensee, had to pay the cost of the supervisory staff to the State in terms
  of Section 58A of the Bombay Prohibition Act.
G        3. As it is elsewhere, in the State of Maharashtra also, under Section
  12 of the Bombay Prohibition Act, manufacture of liquor, construction or
  working of a distillery or brewery, import, export, transport, possession, sale     -.
  or purchase of liquor are banned. Though, under Section 13 of the Ac~ the
  bottling of liquor for sale, consumption or use of liquor is prohibited; under
H Section 11, the State has taken upon itse If the right to permit any of the
         STATE OF MAHARASHTRA v. NAGPUR DISTILLERS, NAGPUR[P.K. BALASUBRAMANYAN, J.J   607

aforesaid activities in the manner and to the extent provided for, by the                    A
provisions of the Act or any Rules, Regulations or Orders made in that behalf.
Under Section 49 of the Act, the State has the exclusive privilege of importing,
exporting, transporting, manufacturing, bottling, selling, buying, possessing
or using any intoxicant. For consideration, the State farms out the right to the
concerned licensee. The State has made rules in terms of Section 143 of the
Act prescribing fees including rent or consideration payable in respect of any               B
privilege, license, permit, pass or authorization granted or issued under the
Act.

        4. In view of the relevant provisions in the Bombay Rectified Spirit
 Rules, 195\, the Bombay Rectified Spirit (Transport in Bond) Rules 1951 are                 C
 made applicable for rectified spirit. The issue ofa transport pass is contemplated
 for the transport of rectifi~d spirit from the distillery to the factory of the user
 subject to payment of the fee prescribed under Rule 5(2) of the Bombay
 Rectified Spirit (Transport in Bond) Rules 1951. According to the State, the
 first respondent was to pay the fee at the rate of Rs.2 per litre for rectified
spirit and Rs.3 per litre for extra neutral alcohol obtained by it for manufacture           D
of IMFL. The respondents filed Writ Petition No. 2417 of 2004 in the High
Court challenging the notification dated 12.7.1999, impugning rule 5 of the
Bombay Rectified Spirit (Transport in Bond) Rules 1951 and the fee prescribed
imposed on them under the Bombay Rectified Spirit (Transport in Bond) Rules
 1951. The challenge was mainly based on a decision of the Bombay High                       E
Court in Varn Organic Chemicals Limited v. State of Maharashtra, Writ
Petition No. 2275 of2000. It was their plea that the decision in Varn Organic
Chemicals Limited covered the position regarding the fee sought to be
collected from the Respondent No. I and the demand was liable to be quashed
for the reasons stated in Varn Organic Chemicals Limited. The respondents
also sought an interim order of stay of the demand pending disposal of the                   F
Writ Petition. They pointed out that in a number of other cases including a
case of their own relating to a previous demand, interim orders of stay had
been granted and that even in the petition for special leave to appeal against
the decision in Varn Organic Chemicals Ltd (supra) being SLP (C) No. 12180
of 2001, filed in the Supreme Court, the Supreme Court has ordered Varn                      G
Organic Chemicals Limited, a licensee similarly situated, only to file an
undertaking that in case the appeal is allowed by the Supreme Court, Varn
Organic Chemicals Limited would satisfy the liability as per law and as
determined by the Supreme Court within the time fixed by the Supreme Court.
The prayer was opposed by the State. The High Court granted an interim
order staying the recovery of the fee on the strength of the decision in vam                 H
    608                    SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A   Organic Chemicals Limited and the interim order granted by this Court in the
    appeal from that decision.

           5. In its counter affidavit, the State had indicated that the position of
    the first respondent who does not manufacture rectified spirit for its own
    consumption was different from the case of Varn Organic Chemicals limited
B   and that the decision therein or the interim order made in appeal therefrom,
    does not enable the respondents herein to contend that an interim order as
    sought for by them should be granted by the Court. It was also submitted
    by the State that there was a stay as regards earlier years and if during the
    pendency of the Writ Petition the liability to pay the fee now challenged is
C   kept stayed or suspended, in case the Writ Petition were to be dismissed, the
    accumulated liability of respondent No. I would be huge and the interests of
    the State would remain unprotected and in such a situation, the balance of
    convenience was not in favour of the grant of an interim order of stay, that
    too unconditional, as has been done by that Court in some cases. The High
    Court declined to accept the distinction sought to be made by the State
D   between the present case and the case of Vam Organic Chemicals Limited
    and granted a stay of recovery, merely on an undertaking by the respondents.
    The appellants have challenged that order of the Division Bench of the High
    Court dated 20.7.2004 in this appeal.

          6. Learned Senior Counsel appearing for the appellants submitted that
E the case of Varn Organic Chemicals Limited was one where the licensee was
    a manufacturer of rectified spirit and such manufactured rectified spirit was
    being used by the manufacturer himself. Learned counsel submitted that the
    view taken by the High Court in that decision was not correct and that there
    was every chance of this Court allowing the appeal. But learned counsel
p   submitted that even assuming that the decision in Varn Organic Chemicals
    limited case was correct, the same would not cover the case of the respondents
    since the first respondent did not have a license to manufacture rectified spirit
    and respondent No. I was not a licensee which manufactured rectified spirit
    and consumed it for its own purpose of manufacturing IMFL. Learned counsel
    submitted that the fact that the first respondent purchased rectified spirit or
G   extra neutral alcohol from others and transported it to its premises for the
    purpose of manufacturing IMFL was a clear distinguishing feature and the
    first respondent had necessarily to pay the fee under the Bombay Rectified
    Spirit (Transport in Bond) Rules 1951. The State had the power to make the
    relevant Rules and to impose the impugned fee. There was no prima facie
H   case made out by the respondents for the grant of an unconditional order of
        STATE OF MAHARASHTRA•. NAGPUR DISTILLERS, NAGPUR[P.K. BALASUBRAMANY AN, J.]   609

stay in respect of the fee to be paid by the first respondent. Learned counsel              A
reminded the Court of the observations of this Court that a Government
cannot run on securities and that in cases involving revenue, interim orders
should be passed with care and caution and only on appropriate conditions.
Learned counsel submitted that the right to trade in IMFL was a mere privilege
granted to the licensee by the State.                                                       B
       7. Learned counsel for respondents, on the other hand, submitted that
the case put forward by the respondents was squarely covered by the decision
in Varn Organic Chemicals Limited and there was no justification in interfering
with the interim order passed by the High Court especially in the context of
the order passed by this Court in the appeal from the decision in Varn Organic              C
Chemicals Limited. Learned counsel submitted that the undertaking to be
given by the respondents was adequate to protect the interests of the State.
It is submitted that the fee impugned was not an impost on potable alcohol,
but on rectified spirit and the State has no competence to impose such a levy.
Learned counsel submitted that various Writ Petitions were pending in the
High Court and their final disposal was being delayed only because of the                   D
attempt of the State to stall their hearing. There was no justification in filing
an appeal only against the interim order in their case when similar orders have
been passed in various other writ petitions filed in the High Court.

      8. In reply, learned counsel for the State submitted that substantial                 E
amounts are outstanding from such licensees and it would be appropriate if
this Court passes an order that protects the interests of both sides. The State
can then move the High Court for vacation of the orders in similar cases that
are distinguishable from the case of Varn Organic Chemicals Limited.

     9. Prima facie, we find some merit in the argument that the decision in                F
Varn Organic Chemicals Limited may be distinguishable from cases where
the licensee himself does not manufacture the rectified spirit. Here, rectified
spirit is not manufactured by the first respondent and such spirit is not being
used captively in its own premises for manufacture of IMFL. Respondent
No. I is purchasing rectified spirit or extra neutral alcohol from other
manufactures and getting it transported to its own premises for manufacturing               G
and bottling IMFL. This factual distinction apart, we have to keep in mind that
the right to trade in liquor is only a privilege farmed out by the State. Article
47 of the Constitution of India clearly casts a duty on the State at least to
reduce the consumption of liquor in the State gradually leading to prohibition
itself. It appears to be right to point out that the time has come for the States           H
    610                     SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A   and the Union Government to seriously think of taking steps to achieve the
    goal set by Article 4 7 of the Constitution of India. It is a notorious fact, of
    which we can take judicial notice, that more and more of the younger generation
    in this country is getting addicted to liquor. It has not only become a fashion
    to consume it but it has also become an obsession with very many. Surely,
    we do not need an indolent nation. Why the State in the face of Article 47
B   of the Constitution of India should encourage, that too practically
    unrestrictedly, the trade in liquor is something that it is difficult to appreciate.
    The only excuse for the State for not following the mandate of Article 4 7 of
    the Constitution is that huge revenue is generated by this trade and such
    revenue is being used for meeting the financial needs of the State. What is
C   more relevant here is to notice that the monopoly in the trade is with the State
    and it is only a privilege that a licensee has in the matter of manufacturing
    and vending liquor.

           I0. It is pointed out by learned counsel for the appellants that even in
    the conditions attached to the license, there is an undertaking by the licensee
D   to pay the fees as demanded. It is his submission that there was no reason
    to water down that obligation by way of an interim order when an attempt
    is made to challenge the very imposition of the fee which a licensee had
    agreed to pay in the first instance. We see some force in the submission, but
    have to balance it with the plea that the State has no power to impose such
E   a levy. We have also to take note of the fact that after all, any amount paid
    to the State, could be adjusted either towards future liability or directed to
    be refunded by the State in case the challenge of the licensee succeeds in
    the Writ Petition when it is finally heard and decided. The only purpose for
    which the State undertakes liquor trade, notwithstanding the mandate of
    Article 47 of the Constitution of India, is the revenue that it generates. This
F   aspect also cannot be lost sight of while considering the balance of
    convenience in cases where a liquor licensee seeks an interim order staying
    the fulfillment of his obligation to pay all the fees or other charges demanded
    from him as such a licensee. There is also merit in the submission that in view
    of the long years it takes for a Writ Petition to be decided finally, the licensee
G   himself would find it an onerous burden to pay the fees for years together
    in case his challenge to the levy is ultimately rejected. We are therefore
    satisfied that the High Court was not justified in passing in practical terms,
    an unconditional interim order of stay as sought for by the respondents. The
    High Court should have paid a little more attention to the interests of the
    State and the consequences arising out of its order staying the payment of
H   the fee merely on an undertaking by the licensee to pay it in case at a future
        STATE OF MAHARASHTRA v. NAGPUR DISTILLERS. NAGPUR [P.K. BALASUBRAMANYAN, l.]   611

point of time he is found liable to pay the same. It is trite that Government                A
cannot run on undertakings. It has, therefore, become necessary to interfere
with the order of the High Court, though normally, this Court would be
reluctant, in exercise of its jurisdiction under Article 136 of the Constitution
of India, to interfere with interim orders made in pending writ petitions.

       11. Then the question is what can be an appropriate order in the case                 B
on hand. We feel that the interests of both would be protected if we were to
order that the licensee is to pay 50 per cent of the license fee payable and
that it should give an undertaking to pay the balance 50 per cent in case
ultimately the Writ Petition is decided against it, within the time fixed by the
High court. This, as we see it, would balance the equities and afford protection             C
to the interests of the State and the interests of the licensee. It would save
the licensee from meeting the entire liability here and now pending disposal
of his challenge to the levy and at the same time would not make his
obligation too onerous, in case ultimately, he is found not entitled to succeed
in his challenge in the Writ Petition. This would also enable the Government
to realize a part of the revenue which alone appears to be the motive in                     D
permitting the trade in liquor notwithstanding the mandate of Article 47 of the
Constitution of India. Thus, on a balancing of the interests of both parties
in the background of the nature of the trade and the directive principle of
State Policy in that behalf, we are satisfied that the order of the High Court
calls for interference.
                                                                                             E
       12. We therefore allow this appeal and setting aside the order of the
 High Court order that if the respondents pay one-half of the license fee
 payable by the respondents and as demanded of them and give an undertaking
that they will pay the balance 50% of the levy within the time fixed by the
High Court, if the writ petition were to be dismissed, the recovery of the                   F
 licence fee payable as per the impugned notification will be kept in abeyance
until the disposal of the writ petition by the High Court. The respondents are
given three months time from today to file a modified undertaking and to
deposit 50 per cent of the license fee payable for the Excise Year 2005-2006.
The respondents would be liable to pay 50 per cent of the license fee for the
subsequent years on or before the thirty-first of December of that year and                  G
to file undertakings in the subsequent years until the Writ Petition is heard
and finally decided by the High Court. If the respondents fail to make the
deposit and to file the undertaking as indicated above, the appellants will be
free to take all steps that are permissible under law for recovery of the entire
fee due from the respondents as may be demanded from them in accordance                      H
    612                     SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A with the relevant rules. In case the respondents succeed in their challenge in
    the writ petition, the State will be liable to refund the amount paid with interest
    thereon at the rate of 9% per annum from the date of payment till the date
    of refund. The amount will be refunded within two months of the allowing of
    the writ petition unless otherwise agreed to by the parties, regarding the
B   adjustment of that sum.

    B.S.                                                             Appeal allowed.