Holding

The Supreme Court upheld the import fees as valid regulatory levies that are the price for the State’s exclusive privilege, rejecting the challenge under Articles 301, 303 and 304.

Summary

The State of Punjab and the State of Kerala imposed import fees on liquor imported into their territories. Licensees challenged these fees, arguing they were unconstitutional taxes that violated Articles 301, 303 and 304 of the Constitution and that liquor trade is "res extra commercium". The Court held that the fees are regulatory levies representing the price for the State’s exclusive privilege to grant import permits, not taxes, and are within the State’s legislative competence under the Punjab Excise Act, 1914 and the Kerala Abkari Act, 1977. Consequently, the Punjab appeal was allowed and the Kerala appeals were dismissed, upholding the validity of the import fees.

Issues considered

The constitutional validity of the import fee/levy imposed by Punjab and Kerala on liquor imports.
Whether the levy constitutes a price for parting with the State’s exclusive privilege and is therefore a permissible regulatory levy.
Whether trade in liquor is covered by the doctrine of res extra commercium and falls within the scope of Articles 301, 303 and 304 of the Constitution.

Legislation cited

Constitution of Indias. Article 19(1)(g), s. Article 19(6), s. Article 265, s. Article 298, s. Article 301, s. Article 302, s. Article 303, s. Article 304, s. Article 305, s. Article 306, s. Article 30I, s. Article 366(10), s. Article 372, s. Article 47
Kerala Abkari Act, 1977s. 17, s. 18, s. 6, s. 7
Punjab Excise Act, 1914s. 16, s. 17, s. 18, s. 19, s. 31, s. 3(12), s. 32, s. 33, s. 33-A, s. 34, s. 3(9), s. 58, s. 59

Subjects

import dutyexciseliquorres extra commerciumArticle 301Article 19Article 14regulatory levystate monopolyconstitutional lawtrade and commerce

Judgment

A ST ATE OF PUNJAB AND ANR.
V.

MIS. DEV ANS MODERN BREWERIES AND ANR. ETC.

NOVEMBER 20, 2003

B [V.N. KHARE, CJ., R.C. LAHOTI, B.N. AGRAWAL, S.B. SINHA
AND DR. AR. LAKSHMANAN, JJ.]

Constitution of India :

C Arts. I9(/)(g) and (6) and 47 and Schedule Vll List 11 Entry 8-Trade
or business in intoxicating liquor-Nature of-Held, Is not a fandamental
right-Trade in liquor is considered inherently noxious, pernicious and is res
extra commercium.

D Arts. 30I, 304-Trade in liquor-Applicability of-Permissive privilege
to deal in liquor not being a right, Aris. 30 I to 304 are rendered inapplicable
lo trade, commerce and intercourse in liquor at the threshold-Freedom to
trade not available to liquor since it is a noxious substance injurious to public
health, public order and morality-Thus trade in liquor is res extra
commercium-Jurisprudence-law and Morality.
E
Art. 30 I-Scope offreedom-Regulations-Regulation for the purpose
of Art. 30I is not confined to regulation which facilitates trade alone but
includes regulation imposed in the interest ofpublic health, public order and
morality.

F Arts. 305, 30I to 304, 366(IO) and 372-Punjab Excise Act, I9I4-
Validity of-Held, is an existing law under Art.366(10) and its continued
application is saved by Art. 372-lrrespective of whether or not Arts.30I-304
applicable to trade in liquor, the Act is saved by Art.305.

Arts. 30I to 304, 245, 246, 265, 366(28) and Schedule Vil list 11 Entries
G 8,5I,62 and 66--levy by State for parting with privilege to trade in liquor-
Regulation of-Mode and Scope-Imposition of a levy in addition to any
counterveiling duty levied under list 11 Entry 5 I, on imports of liquor into a
State-Whether violative ofArts.30I and 304(a)-Held, levy imposed by Stale
for parting with privilege to trade in liquor is neither a tax nor a fee-It is
H 930
ST ATE v. DEY ANS MODERN BREWERIES 931
simply a levy/consideration for the act of granting permission or for exercise A
of power to part with the said privilege-Modalities of the levy offees or the
quantum thereof has no bearing on its legal pedigree-Trade in liquor is res
extra commercium and regulation of trade in liquor is the hallmark of State
action-Such regulation can be and normally is through the mode of imposition
of levies-State Government has unfettered powers to regulate the export/
import/sale of intoxicants-In addition to levy of excise and counter-veiling B
duties, there is no bar on the State to charge any other fees on account of
consideration for the privilege provided to a licensee to trade in liquor-
Imposition of said import duty is in exercise of the regulatory powers of the
State-Thus it does not attract the bars ofArts. 301 and 304(a) as the imposition
ofsuch import fee does not in any way restrict trade, commerce and intercourse C
among the States-Hence Or 1-D (iiij of the Punjab Excise Fiscal Orders,
1932 constitutionally valid-So also Kera/a Notification dated 31.12.1992
raising import duty on IMFlfrom Rs. 2 to Rs.5 is also constitutionally va/id-
Arts.246,265 and Schedule VII list II Entry 8-lmposition of levy not named
in the parent Act-Validity of-Held, if the levy is actually imposed by delegated
legislation under the parent Act, the same would be valid and not ultra vires D
thereof-Administrative law-Ultra Vi~es-Grounds for plea of

Arts.298, 14, 246, 265 and Schedule VII list //-Entries 8,51,62 and
66-Arbitrariness-liquor licence-Conditions of-Change in on the basis of
excise policy of State Government-Rate of import duty levied on liquor E
increased after grant of licence-Permissibility of-The licensee besides
payment of duty, is to comply with such conditions as the State Government
may impose while formulating the excise policy for the year concerned-
Having accepted the contracts/licences and having folly exploited the advantage
flowing from it to the exclusion of others and having reaped rich commercial
benefits from that activity, it is not open to wriggle out from the contract by F
challenging inter alia any particular condition thereof

Arts. 141and13-Stare decis-limils of-Discussed

Art.141-Supreme Court vis-a-vis itself......Coordinate Bench decision to
be followed-In case of disagreement, matter to be referred to larger Bench. G
Excise laws :

Punjab Excise Act, 1914-Ss.58, 59, 16 to 19, 31to35 and 3(9), IO and
12-Nature and Scope of-Validity of Or. 1-D(iii) of the Punjab Excise Fiscal
Orders, 1932-Held, Or 1-D (iiij is not ultra vires the .sections of the 1914 H
932 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A Act-Fee imposed being nothing but a facet and manifestation ofthe regulation
of liquor trade by the State, it is valid as a regulatory levy under Art.304-
Punjab Excise Act, 1914-S.34-'Fee'-Meaning of-Hot used in the strict
sense to attract doctrine of quid pro quo---'Fee'-Meaning of-Grant of
licences under s.34 rlw Part A of the 1956 Rules-levy of additional duties
and change in rates of duty levied on liquor after grant of licence-
B Permissibility of-Punjab liquor licence Rules, 1956-Part A-Kera/a Akbari
Act,1077-Ss.6 and 24-G.O.(MS) No. 57192/TD dated 31.12.1992 (as
amended)-Validity of-Government Contracts/Tenders.

Kera/a Akbari Act, 1977-Ss.6 and 24-GO(MS) No.57192/TD dated
C 31. 12.1992 (as amended)-Nature and validity of-Held, levy authorized by
Ss.6 and 4 of the 1977 Act-Neither an excise nor countervei/ing duty under
Schedule VI/ list If Entry 51 but a collection falling under list II ofEntry 8-
Jnterpretation of Statutes-Particular statutes or provisions-Provision
empowering delegated/Subordinate legislation-Discussed.

D Administrative law-Subordinate legislation-Effect ot When, validity
made-same as that of the parent statute.

Words & Phrases: 'Fee'-Meaning of

The appeals relate to the constitutional validity of the imposition of
E import duty levied by the State of Punjab and the State of Kerala on the
import of potable liquor from other States. While the Punjab and Haryana
High Court has quashed the notification imposing such a levy the Kerala
High Court has upheld the notification levying import duty on potable
liquor. Hence the appeals.

F Before this Court, the following questions arose for consideration.

(i) Whether the impugned notifications issued by the State of Punjab
and that of Kerala are illegal being fraud on the Constitution.

(ii) Whether the import duty can be said to have been validly imposed
G having regard to the doctrine of 'exclusive privilege' of the State to deal
in obnoxious matters?

(iii) Whether dealing in liquor which is said to be 'res extra
commercium' would nonetheless attract Part XIII of the Constitution?

H Allowing the appeal of the Punjab State and dismissing the appeals
ST ATE v. DEV ANS MODERN BREWERIES 933
of the licensee-appellants from Kerala, the Court A
HELD : (Per Majority - Dr. AR.. lakshmanan for himself & for V.N.
Khare, CJ. and R.C. lahoti, J).

I.I. The State Government is competent and empowered to regulate
the import and export of liquor. There are 21 types of licences which are B
prescribed and are given. The respondent in this appeal is holding L-1
licence i.e. wholesale and retail vend of foreign liquor to trade only. The
said licence is given on fixed licence fee, which is subject to variation as
per excise policy of the Government based on year to year. The State
Government has incorporated as one of the terms and conditions on the
L-1 holders to pay import fees also at the prescribed rate as per the Punjab C
Excise Fiscal Order, 1996. The respondent has been accepting the terms
and conditions from 1992 onwards and acted on the same and the licence
was renewed on yearly basis. [962-D-E]

1.2. Under the provisions of the Act, the State Government issued D
permit in the case of import and the licensees are liable to pay permit fee
at the prescribed rate. The respondent has mixed up two different imposts.
The respondent has referred to the duty paid under Rule 5 i.e. equivalent
to Excise duty and fees under Rule (1) (D) of the Punjab Fiscal Orders,
1932. On imported goods by L-1 holder, there are two different and
independent imposts in the shape of Excise duty under Rule 5 and import E
fee under Rule (l)(D) of Punjab Excise Fiscal Orders, 1932. In addition
he has to pay licence fee under the Punjab Liquor Licence Rules, 1956,
which is fixed on yearly basis. Thus as per provisions of Section 58(0) as
well as Section 59(D) the State Government has power to regulate the
import and price of any description of bottle and the scale of the fee and F
the manner of the fee payable by any licensee. [962-F-H; 963-A]

1.3. The amount charged is not a fee nor a tax but it is in the nature
of price of a privilege which the purchaser has to pay in any trading and
business in noxious article/goods. The collection of such amount in the
shape of import fee does not form part of the general revenue of the State. G
[963-8-C)
1.4. Articles 302 and 304A of the Constitution of India are not
attracted to the present case as the imposition of import fee does not, in
any way, restrict trade commerce and intercourse among the States. The
permissive privilege to deal in liquor is not a "right" at all. The levy H
934 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A charged for parting with that privilege is neither a tax nor a fee. It is
simply a levy for the act of granting permission or for the exercise of power
to part with the privilege. Dealing in liquor is neither a right nor is the
levy a tax or a fee. Articles 301-304 will be rendereC: inapplicable at the
threshold to the activity in question. Further, there is not even a single
B judgment which upholds the applicability of Articles 301-304 to the liquor
trade. On the contrary, numerous judgments expressly hold these Articles
to be inapplicable to trade, commerce and intercourse in liquor.
1963-G-H; 964-A, BJ

Har Shankar and Ors. etc. etc. v. The Deputy Excise and Taxation
C Commissioner and Ors. etc. etc., AIR (1975) SC 1121; Panna Lal ar.d Ors.
v. State of Rajasthan and Ors., 11975] 2 SCC 633; The State of Bombay v.
R.M.D. Chamarbaugwala, 11957] SCR 874 and Mis. Sat Pal and Co. and
Ors. v. Lt. Governor of Delhi and Ors., 11979] 4 SCC 232, relied on.

2.1. The State has the right to prohibit every form of activity in
D relation to intoxicants including its import. Though it is alleged by the
appellant that the State has discriminated against, the same has not been
substantiated or established by any material. The State of Kerala, has
granted such permit to the Beverages Corporation on their paying the fee
fixed for the purpose as per notification enabling the Corporation to
import liquor from the petitioners/licensees and others. The import fee so
E paid is passed on to the consumers. It is purely a contractual dealing
between the State a;id the importer and, therefore, no question of violation
of Article 301 can arise. The importer had no anterior right to import
liquor and hence cannot complain of any violation of Article 301 at that
stage as right to trade in liquor is not a fundamental right. His right to
p import is referable to the import permit which he acquired on payment
of the import fee. No further impediment has been created in the import
of the liquor so that Article 301 is not attracted in relation to the payment
of the import fee which was prior to getting his privilege of importing.
The appellant/licensee having entered into a contractual relationship with
the State obtained the privilege and enjoyed the benefit of it. It is not open
G to the petitioners to turn round subsequently and repudiate the obligations
~ubject to which they obtained the privilege. Regulation in the interest of
public health and order takes the case out of Article 301 and regulation
for purpose of Article 301 is not confined to such regulations alone which
will facilitate the trade. 1965-H; 966-A-EJ
H
ST ATE v. DEY ANS MODERN BREWERIES 935
2.2. As compensatory or regulatory levies have always been held to A
be valid and permissible under Articles 301 and 304, it is undeniable that
regulations deemed necessary and apposite are liable to be imposed on
liquor trade more than any other activity since the former is cons;dered
inherent are noxious, pernicious and res extra commercium. Regulation
is thus the hall-mark of the State action in respect of liquor and that
regulation can be and indeed normally is through the mode of imposition B
of levies which levy is also necessary to regulate by keeping out and
excluding persons entering the liquor trade. [968-B-D)

Har Shankar and Ors. etc. etc. v. The Deputy Excise and Taxation
Commissioner and Ors. etc., AIR (1975) SC 1121, relied on. C
Atiabari Tea Co., Ltd v. The State of Assam and Ors., [1961) l SCR
809; The Automobile Transport (Rajasthan) Ltd v. The State ofRajasthan and
Ors., (1963) 1 SCR 491; State of Bihar v. Chambers of Commerce, (1996)
103 STC l; Godfrey Ltd. v. State ofRajasthan, (2001) 121STC54 and Jindal
Strips Limited and Ors. v. State of Haryana, (2002) 19 PHT 299, referred D
to.

3.1. The statutory provision in question must be interpreted and read
broadly and not narrowly. The approach must be to uphold the validity
of the impugned delegated legislation by a process of fair and broad
reading of the statutory mandate. Even if the Act does not specifically E
provide for the levy in question by name to provide statutory authority
for its imposition by delegated legislation and the levy is actually imposed
by the delegated legislation made under that Statute, the same r. ould be
valid and not ultra vires. In the instant case, the levy has been imposed by
the Punjab Fiscal Orders as amended from time to time under specific F
statutory authority to issue such orders under Sections 58 and 59 of the
Act, in particular, and other provisions of the Act. Since the rule making
power has not been shown to be bad, the Punjab Fiscal Orders, once made
have the effect of the Statute itself and become part of the Statute since
they have been made under valid rule making power. The statutory
provisions of the Punjab Act and the Rules amply delineate that regulatory G
power and the impugned import fee is nothing but a facet and
manifestation of that regulation by the State. Hence, the levy in question
is valid as a regulatory levy which has consistently been held on the
touchstone of Article 304. [969-B-E]

3.2. The issuance of liquor licence constitutes a contract between the H
936 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A parties i.e. between Excise Authorities on the one hand and the individual
applicant contractor on the other. The respondent having accepted the
contracts/licences, having fully exploited the advantage flowing from the
contract to the exclusion of others and having reaped rich commercial
benefits from that activity, it is not open to the contractor to wriggle out
B from the contract by challenging, inter alia, any particular condition of
that contract/licence. [969-F-GI

Har Shankar and Others etc. etc. v. The Deputy Excise and Taxation
Commissioner and Ors. etc., AIR (1975) SC 1121 and Panna Lal and Ors.
v. State of Rajasthan and Ors., (19751 2 SCC 633, relied on.
c 3.3. The import fee on IMFL on rectified spirit was levied from the
Year 1986 and at no time the respondent challenged the levy of import
fee from 1986 onwards on IMFL and continued to import large quantities
of beer and paid large sums of fee as per the prescribed rates. The writ
petition was filed only in April, 1996. The respondent accepted the burden
D of this contract and obviously did so because he enjoyed the benefits
flowing from this contract. Having done so, he cannot and should not be
allowed to wriggle out of his contractual and licence obligation.
(970-D-E(

Govt. of Maharashtra and Ors. v. Mis. Deokar's Distiller, (20031 5 SCC
E 669 and Asstt.Excise Commissioner and Ors. v. Issac Peter and Ors., [1994)
4 sec 104, relied on.

Kalyani Stores v. The State of Orissa and Ors., (1966) l SCR 865,
distinguished.

F 4. Rights are vested in the State which it may part with for a
consideration. [979-E(

Har Shankar and Ors. etc. etc. v. The Deputy Excise and Taxation
Commissioner and Ors. etc., AIR (1975) SC 1121; Nashirwar and Ors v. State
of Madhya Pradesh and Ors., (1975( l SCC 29; State ofOrissa and Ors. v.
G Harinarayan Jaiswal and Ors., (1972) 2 SCC 36; State of Andhra Pradesh
v. Prabhakara Reddy, AIR (1987) SC 933; State of U.P. and Ors. v. Sheopat
Rai and Ors., (1994( Supp 1 SCC 8; State of Punjab v. Mis. Dial Chand Gian
Chand & Co., AIR (1983) SC 743; Khoday Distilleries Ltd and Ors. v. State
of Karnataka and Ors., [1995( l SCC 574; Solomon Antony and Ors. v. State
H of Kera/a and Ors., 12001( 3 SCC 694 and Kera/a Distilleries and Allied
ST ATE v. DJOV ANS MODERN BREWERIES 937
Products Limitedv. Assistant Commissioner (Assessment)(/), Commercial Tax, A
Special Circle, Palakkad and Ors., (2000) Vol. 117 STC 553, relied on.

5. In contractual relationship between the State and the licensee
whereunder the licensee having obtained a privilege and enjoyed the
benefit of it, it is not open to the licensees to turn round subsequently and
repudiate the obligations attaching with the obtained privilege. B
State of Haryana and Ors. v. Jage Ram and Ors., AIR (1980) SC 2018;
State of Haryana and Ors. v. Lal Chand and Ors., [1984] 3 SCC 634 and
State (If Punjab v. Mis Dial Chand Gian Chand and Company, (1983] 2 SCC
503, relied on.
c
6. The freedom guaranteed by Article 301 is not available in liquor
because it is a noxious substance injurious to public health, order and
morality. Regulations for the purpose of Article 301 is not confined to
regulations which will facilitate the trade. (974-F]

The State of Bombay v. R.MD. Chamarbaugwala, (1957] SCR 874; D
Mis Fatehchand Himmatlal and Ors. etc. v. State of Maharashtra, (1977] 2
SCC ~70; B.R. Enterprises etc. v. State of U.P. and Ors. etc., [1999] 9 SCC
700; Mis. Bishamber Dayal Chandra Mohan etc. etc. v. State of U. P. and Ors.
etc. etc., AIR (1982) SC 33, State of Tamil Nadu v. Mis. Hind Stone etc. etc.,
AIR (1981) SC 711; State of Tamil Nadu and Ors. v. Mis. Sanjeetha Trading E
Co. and Ors., (1993] 1 SCC 236 and State of Bihar and Ors. v. Harihar
Prasad Debuka etc., AIR (1989) SC 1119, relied on.

7. High Court of Punjab proceeded to decide the case on a total
wrong assumption that the import fee levied is in the nature of duty which
cannot be imposed under the Excise Act, 1984 when, in fact, the import F
fee· levied is the price for parting with the privilege given to the licensee
to import beer into the State and, therefore, the same is within the
competence of the State to impose import fee. The licensee besides the
payment of duty etc. is to comply with such conditions as the State
Government may impose while formulating the excise policy for the G
concerned year. The State, is competent and entitled to impose excise duty
or counterveiling duty. Besides there is no bar on the State to charge any
other fees on account of consideration for the privilege provided to the
licensee to trade in liquor which privilege he did not otherwise have.
Therefore, the licensee is liable to com ply with the other conditions
imposed by the State Government from time to time. The levy in dispute H
,

938 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A under challenge is an import levy. It is neither duty nor counterveiling
duty. It is part of the consideration money i.e. the price oi the privilege
given to the licensees for dealing in liquor. (979-D-FI

Ka!yani Stores v. The State of Orissa and Ors., (196611 SCR 865, held
inapplicable.
B
8. Punjab Excise Act, 1914 is an existing law under Clause 10 of
Article 366 of the Constitu~ion of India and its continued application is
saved by Article 372 of the Constitution of India. It is also saved by Article
305 of the Constitution from attark under Articles 301 and 303 of the
C Constitution. It is well within the legislative competence of the State.
(979-G-HI

Ka/yani Stores v. The State of Orissa and Ors., (196611SCR865, held
inapplicable.

B.N. Agrawal, J (Dissenting) :
D
I. An excise duty can be imposed on manufacturer of goods only in
terms of statute made by the Parliament. An exception thereto has been
made in the case of liquor in terms whereof the State Legislature has been
empowered to levy excise duty by reason of Entries 8 and 51 of List II of
E the Seventh Schedule to the Constitution. Legislative competence of the
State to levy any fee is, limited to levy of counterveiling duty. The State,
cannot levy any duty in addition to the counterveiling duty. The
notification refers to excise duty and counterveiling duty, which in terms
of Section 3(6-8) of the Punjab Act mean any such excise duty or
counterveiling duty as the case may be, as is mentioned in Entry 51 of
F List II of the Seventh Schedule to the Constitution. The State, therefore,
cannot levy any import fee over and above the excise duty/counterveiling
duty, having regard to the said definition. Sections 17 and 18 of the Abkari
Act, which are in pari materia with Sections 31 and 32 of the Punjab Act,
are referable to Entry SI alone. As Entry 51 puts an embargo on the State
G to make a legislation, there cannot be any gainsaying that any levy in terms
of Sections 17 and 18 of the Abkari Act would be subject thereto.
(997-G, H; 998-A-EI

2. In view of Article 366(28) of the Constitution, a regulatory impost
would, come within the purview of the tax. A fee in terms of the
H constitutional schemes may be either a regulatory licence fees or a fee in
STA TE v. DEY ANS MODERN BREWERIES 939

lieu of rendition of service. When no service is rendered a fee can be A
justified only by way of licence fees. Such impost, however, would be a
tax and, thus, would clearly be referable to Entry 51 of Lis.t II to the
Constitution and not Entry 66 thereof. 1998-G, HI

Corporation ofCalcutta and Anr. v. liberty Cinema; 1196512 SCR 477;
D.C. Gouse & Co. etc. v. State of Kera/a and Anr. etc., (1980) l SCR 804 B
and Hindustan Times and Or.s. v. State of U.P. and Anr., JT (2002) 9 SC
317, relied on.

3.1. The State while imposing import duty has exercised its power
under the statute. The impugned notifications in no uncertain terms and C
unequivocally refer to the source of power therefor. The functions of the
State to impose a fee or tax in terms of the provisions of the statute is a
legislative function. Such legislative function must be attributed to the
source of the State's power in terms of Entry 51 of List II to the
Constitution and not otherwise. If the legislations in question are found
to be unreasonable in nature or fraud on the Constitution, it would not D
be permissible for the State to turn round and contend that such imposts
are not being levied in exercise of its taxation power but attributable to
its regulatory power is a well-settled principle of law that a thing which
cannot be done directly cannot be done indirectly. [999-B-DI

Priyanka Overseas Pvt. Ltd. and Anr. v. Union ofIndia and Ors., [1991] E
Supp 1 SCC 102, referred to.

3.2. In relation to an administrative act, it is well settled that a
statutory authority is not permitted to support its decision on a ground
d'hors the ground stated in the order. On the same analogy, a legislation
which is found to be fraud on the Constitution, cannot, inter alia, be upheld F
on any other ground. Entry 8 of List II of the Seventh Schedule to the
Constitution does not permit the State to levy a fee on import of liquor. It
deals only with production, manufacture, possession, transport, purchase
and sale of intoxicating liquors and nothing else. Entry 8 of List II, thus,
does not speak of import or export. Its purpose is to regulate and not G
impose any statutory impost. The State in exercise of its delegated powers
cannot do what would constitutionally be impermissible. 1999-D-Fl

Commissioner of Police, Bombay v. Gordhandas Bhanji, AIR (1952)
SC 16 and Mohinder Singh Gill and Anr. v. The Chief Election Commissioner,
New Delhi and Ors., AIR (1978) SC 851, relied on. H
940 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A 4. In Sub-Section (I) ofSeotion 33A of the Punjab Act, provision has
been made permitting the State to continue to levy any duty which it had
lawfully been levying immediately before the commencement of the
Constitution. The said provision is in tune with Article 305 of the
Constitution, therefore, the same calls for a strict construction. Sub-section
B (3) of Section 33A is couched in negative language by reason whereof
power of the State to levy any duty has been taken away in the event
thereby any discrimination is made in favour of goods manufactured or
produced in the State and similar goods manufactured or produced in
another locality. Clearly such a provision is in consonance with Article
304 of the Constitution. If by reason of a statute an embargo ha~ been
C placed on the State's power to levy any fee, it is beyond any cavil of doubt
that such a levy cannot be held to be justified by reason of an executive
action or otherwise. [999-G, H; 1000-A, B]

5. By reason of provisions of the Abkari Act or the Punjab Act, no
power has been conferred upon the State to impose any import fee over
D and above the excise dutylcounterveiling duty. It is not disputed that such
counterveiling duty has been levied and the licensees pay the same. The
power to levy fee and the power to grant licences, permits and passes occur
in different chapters of the Acts. The powers under different chapters are
required to be exercised for different purposes. One is legislative in
E character and the other refers to executive action. Furthermore, under
the Punjab Act fees for grant of licences, permits and passes are required
to be paid on the terms as the Financial Commissioner may direct. Having
regard to the fact that the Financial Commissioner is the statutory
authority in relation thereto, the State cannot be said to have any
jurisdiction thereover, particularly, in the matter of levy of import fee
F which clearly is referable to Chapter V of the Punjab Act and has nothing
to do with grant of licence occurring in Chapter VI. (1000-C-E)

6. Having regard to Article 265 of the Constitution a tax must be
imposed by a statute. Even such impost is impermissible by any bye-law
or rule. [1000-FI
G
Bimal Chandra Banerjee v. State of Madhya Pradesh etc., [1970[ 2 SCC
467 and A Venkata Subba Rao v. State of Andhra Pradesh, [19651 2 SCR
577, referred to.

Allorney General v. Wilts United Dairies, (1922) 91 Law Jourual, KB
H 897, referred to.
STA TE v. DEV ANS MODERN BREWERIES 941
7. Excise duty has been equated with the price for privileges. A
[1000-GI

Synthetics and Chemicals Limited and Ors. v. State of UP and Ors.,
[199011SCC109 and Welfare Assocn. A.R.P. Maharashtra and Anr. v. Ranjit
P. Gohil and Ors., JT (2003) 2 SC 335, followed.
B
8. Dealing in liquor or for that matter in lottery, tobacco is not
prohibited under the Constitution. On the other hand, in the constitutional
schemes itself Parliament or the State Legislature has been conferred
power to regulate the said trade like any other trade. In fact India has
entered into trade agreements to deal in liquor with other sovereign C
countries. India has entered into International treaties in the matter of
foreign investment in liquor. Trade in liquor finds place in World Trade
Organization (WTO) and General Agreement on Trade and Tariff
(GAfr>· In terms of the WTO and GATT guidelines have been laid down
as regards import and export of potable liquor. India, as a signatory to
WTO and GATT, is expected to follow the said guidelines. It is expected D
to remove all trade barriers subject to the other provisions contained
therein. It is also supposed to levy taxes/ counterveiling duties in terms of
such international treaties. No constitutional provision or statute prohibits
trade in liquor. Article 47 of the Constitution empowers the State to impose
prohibition. Once a prohibition is imposed by any State in exercise of said E
powers, indisputably no person will have any right to deal in potable
liquor. [1002-F-H; 1003-A, BJ

9.1. Applicability of Res-extra commercium is a judge made law.
Constitution does not provide for it. Even if Entries 8, 51 and 54 of List
II, on the other hand, lead to the conclusion that the State has the F
legislative power to make regulatory enactment in the spheres provided
for them, the State indisputably may exercise its right to prohibit dealings
in liquor either wholly or partially but if it allows trade and business in
liquor by parting with its exclusive privilege a presumption will arise unless
contrary intention is shown in the statute or licence granted therefor that
it has not retained unto itself a right to deal with a part of the trade itself G
or through its agency. In the Kerala matter the State has given the
monopoly to trade in liquor in favour of the Kerala State Beverages
Corporation. Nowhere it is stated either by way of counter-affidavit or
under the statute that the State has reserved unto itself any right in the
matter relating to carrying on trade or business in potable liquor. As soon H
942 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A as a licence is granted upon receipt of a fee fixed by it, the State would be
presumed to part with its entire privilege. To say that while exercising its
·regulatory power for the purpose of controlling the trade and business in
potable liquor, it has reserved unto itself a part of its exclusive privilege,
would not be correct unless the same is explicitly pleaded and proved.
11003-B-Fl
B
9.2. Regulatory measures in the matter of trade and business in
potable liquor have been taken by reason of.a statute. All regulations on
the trade, thus, must be governed by the statutes operating in the field
and not by way of executive action. The provisions of the statute or the
C contracts made thereunder must scrupulously be followed by all concerned
as they are bound by the same. When a legislation referable to Entries 8,
51 and 66 etc. had occupied the field, the State, in absence of any provision
contained in the statute, cannot turn round and contend that it will exercise
its power of exclusive privilege even though it had granted licence in terms
of the statute. Having regard to the constitutional scheme the power of
D the State to undertake trade and business is referable to Article 298 of
the Constitution. The State while exercising its constitutional power under
Article 298 of the Constitution cannot itself be an extra constitutional
authority so as to violate the constitutional provisions. It like any other
trader must confine itself within the four corners of the statutes governing
E the field which are enacted in terms of one entry or the other made in
any of the three lists to the Seventh Schedule of the Constitution.
(1003-F-H; 1004-A-CJ

9.3. A State may be entitled to either completely prohibit a trade or
business in liquor and create monopoly either in itself or in any other
F agency and furthermore it can for the purpose of selling the licence adopt
any mode with a view to maximize its revenue but while doing so it must,
not act arbitrarily. The State while carrying on business by way of parting
with its privilege or distribution of largesse must conform to the equality
clause enshrined in Article 14 of the Constitution. 11004-C, DJ

G 9.4. Privilege, thus, can be claimed by a State in a 'no right' situation,
namely, when citizen is not permitted to carry on trade. But once the State
takes a decision to part with its privilege, it cannot make any
discrimination whatsoever. Dealing in liquor by the persons in whose
favour licences have been granted in terms of the statutory enactments
derive a right therefor which cannot be said to be "Res-Extra Commercium"
H 110os-q
STATE v. DEV ANS MODERN BREWERIES 943
State of MP. and Ors. v. Nandlal Jaiswal and Ors., 119861 4 SCC 566, A
relied on.
Black's Law Dictionary; Trayner's Latin Maxims, Fourth Edn.; Words
and Phrases, Volume l /5A and Bouvier's Law Dictionary, Vol.I, Third Edn.;
referred to.
10.1. Article 19(l)(g) guarantees that all citizens shall have the right B
to practice any profession or to carry on any occupation, trade or business.
However, in terms of Article 19(6) this right can be restricted by a statute
imposing reasonable restrictions. A combined reading of clauses (1) and
(6) of Article 19 makes it clear that a citizen has a fundamental right to
carry on any trade or business and the State can make a law imposing C
reasonable restrictions on the said right in the interest of the general
public. It is, therefore, obvious that unless dealing in liquor is excluded
from 'trade or business', a citizen has a fundamental right to deal in that
commodity. (1005-D-F)
The State of Bombay and Anr. v. F.N. Balsara, 11951) SCR 682; D
Cooverjee B. Bharucha v. The Excise Commissioner, Ajmer and Ors., (1954)
SCR 873; Saghir Ahmad and Anr. v. State of UP. and Ors., AIR 1954 SC
728; State of Kera/a and Ors. v. P.J. Joseph, AIR (1958) SC 296; Krishna
Kumar Narula v. State of Jammu and Kashmir and Ors., (1967) 3 SCR 50;
The State of Bombay v. R.M.D. Chamarbangwa/a, (1954) SCR 873 and Har
Shankar and Ors. v. The.Deputy Excise Taxation Commissioner and Ors., E
(1975) 1 sec 837, referred to.
P. Crowley, Chief of Police of the City and County of San Fancisco,
California v. Henry Christenses, (1890) 34 Law. Ed. 620(A), referred to.
• 10.2. A person cannot claim any right to deal in any obnoxious
substance on the ground of public morality. The State, therefore, is entitled F
to completely prohibit any trade or commerce in potable liquor. When it
is not a crime to carry on such business having regard to the fact that a
person has been permitted to do so by the State in compliance with the
provisions of the existing laws, indisputably he acquires a right to carry
on business. Even in respect to trade in food articles or other essential G
commodities either complete prohibition or restrictions are imposed in the
matter of carrying on any trade or business, except in .terms of a licence
granted in that behalf by the authorities specified in that behalf. The
distinction between a trade or business being carried out legally or illegally
having regard to the restrictions imposed by a statute would have,
therefore, to be judged by the fact as to whether such business is being H
944 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A carried out in compliance of the provisions of the statute(s) operating in
the field or not. The doctrine of res extra commercium, thus, would not be
attracted, when a person carries on business under a licence granted in
terms of the provisions of the regulatory statutes. (1010-G-H; lOll-A-DJ
"
io.3. No case and in particular the decisions relied upon by the
B counsel appearing .on behalf of the State of Punjab and that of Kera la had
evolved a principle that despite paying a large amount of licence fees and
despite fulfilment of terms and conditions of licence and other statutory
provisions, the trade or business carried out by the licensee shall be at an
eternal peril, wllich may at any point of time be determinated or a new
tax imposed or thtj. be proceeded against at the whims or caprice of the
C executive wing of the State. In our constitutional scheme such a situation
is unthinkable. The country is governed by rule of law and despite
existence of a valid legislation operating in the field, executive whims or
caprice cannot be permitted to have any role to play. Validity of a tax
imposed by the State Legislature, thus, must be determined on the
D constitutional anvil of the legislative competence and not on any other
basis. The decisions of this Court which had no occasion to consider these
aspects of the matter can be of no assistance and would not constitute
binding precedents. [1011-D-GJ
Bhavnagar University v. Palitana Sugar Mill (P) ltd. and Ors., [2003)
E 2 sec lll, relied on.
10.4. The right of the State to carry on trade or business under
Article 298 of the Constitution would be subject to the same constitutional
limitations in the matter of carrying on trade or business in liquor as in
other cases, the distinction being only that the State has a monopoly to
do so. Once the State does not exercise the said right and considers it
F expedient to allow the citizens to carry on the business or trade, it cannot
be said that the licensees do not derive any right whatsoever. Even when
the State exercises such right by creating a monopoly in itself, it would be
subject to the same constitutional limitations as envisaged, inter alia, under
Articles 14 and 301 of the Constitution, which protect from the maladies
G of discrimination. Such discrimination may be in between persons and
persons, persons and State and State and State. [IOll-G-H; 1012-A, BJ

10.5. Once the regulations restricting the right to carry on business
in potable liquor is attributed to reasonable restrictions and public interest
clause, contained in clause (6) of Article 19 of the Constitution, the
H fundamental right to carry on trade under Article 19 is conceded. Once
STATE v. DEV ANS MODERN BREWERIES 945
such a right is conceded, it cannot be said that although a person has a A
Fundamental Right to carry on trade or business for the purpose of Article
19(1)(g), subject to imposition of reasonable restrictions by a law made
in terms of clause (6) of Article 19, he does not have such a right in terms
of Article 301 of the Constitution or for that matter Article 14 thereof.
Articles 303 and 304 of the Constitution also provide for imposition of B
restrictions and thus even a freedom guaranteed to a person under Article
301 is not an absolute one, but subject to the constitutional limitations
provided therefor. Article 301 confers freedom but not a licence. The
protection from discrimination as envisaged in Khoday Distilleries would
not only operate against the State which is the licensor but having regard
to the constitutional goals to be achieved by the commerce clause contained C
in Article 301, must be extended to another State which seeks to impose
restrictions on import. [1012-D-G)

Khoday Distilleries Ltd. and Ors. v. State of Karnataka and Ors., (1995)
1 sec 574, referred to.

10.6. An inhibition by Article 301 has been provided to the effect D
that the Legislature shall not interfere in the commerce between the State
and State as also to the effect that the Legislature of a State shall not give
any preference to one State over the other. Article 301 of the Constitution
in no uncertain terms provides for freedom in the matter of trade,
commerce and intercourse. Such trade, commerce and intercourse are E
inter-State as also intra-State. By reason of Part XIII of the Constitution,
the Constitution makers sought to evolve a high policy. On a comparison
made between Section 297 of the Government oflndia Act, 1935 with Part
XIII of the Constitution, it will be found that the latter is wider than the
former. The said part of the Constitution is a self-contained part. Several
improvements made in Part XIII of the Constitution as compared to F
Section 297 are worth taking note of. By reason of the said provisions,
the entire country has been considered to be one economic unit. It now
embraces within its fold both 'commerce and trade' and not 'trade' alone.
'Commerce' was provided for in Entry 27 of List II only under the 1935
Act. Part XIII, however, refers to the relevant entries contained in all the G
Lists of Seventh Schedule to the Constitution. (1014-8-E)

10. 7. The limitation of power as regards legislative competence of
the State and the Parliament having regard to clause 2 of Article 303 and
sub-clauses (a) and (b) of Clause (1) of Article 304 is clear pointer of the
new dimension given to Article 301 of the Constitution. Even if a H
946 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A comparison is made between the terminologies used in Article 301 on the
one hand and Articles 19 and 298 on the other, it would be evident that
whereas in the former 'trade, commerce and intercourse' have been used
but in the latter only the words 'trade or business' have been used. Such
trade, commerce and intercourse is in relation to entire territory of India
·B whether inter-State or intra-State unlike Section 297 of the Government
of India Act. Article 301 makes a declaration that 'trade, commerce and
intercourse throughout the territory of India shall be free', which in turn
must mean that it shall be free from control of Executive and Legislature.
By reason thereof although a liberty has been granted but such liberty
cannot be equated with a licence inasmuch it would be subject to
C restrictions. Articles 302 and 303 categorically state that there shall be
no discrimination between one State and the other but restrictions inhere
in such liberty as would appear from clause 2 of Article 303 of the
Constitution, if a situation stipulated therein arises for consideration. By
reason of the said provision, the State is prohibited from imposing a tax
without making any discrimination whatsoever so as to impede free flow
D of inter-State or intra-State trade. The State, however, is entitled to impose
reasonable restrictions as also levy tax in public interest. But the same
indisputably would be subject to the conditions laid down in Articles 303
and 304 of the Constitution. (1014-E-H; 1015-A, Bl •
United States v. Patterson, 55 Fed. Rep. 605, referred to.
E
11. It is beyond any cavil of doubt that Part XIII of the Constitution
contains a principle of importance as regards economic sovereignty and
integrity of India by doing away the trade barriers as also an attempt by
the State to provide economic protection to the States. Once, it is held that
the limitation upon the legislative power stipulated in Article 303(1), 304(a)
F would apply to trade in liquor, there cannot be any doubt in view of several
Constitution Bench decisions of this Court that Article 301 will also apply
thereto. [1018-F, GI
Kalyani Stores v. The State of Orissa & Ors., 119661 I SCR 865 and
H. Anraj v. Govt. of Tamil Nadu, 1198611 SCC 414, relied on.
G Atiabari Tea Company Limited v. The State of Assam and Ors., (1961)
I SCR 809 and The Automobile Transport (Rajasthan) Ltd v. The State of
Rajasthan and Ors., [196311 SCR 491, referred to.
12.1. In India, the constitutional guarantee under Article 301 of the
Constitution is more extensive than either in United States or Australia.
H The decisions of United States Supreme Court and Australian Supreme
STATE~. DEV ANS MODERN BREWERIES 947
Court as also the Privy Council, clearly demonstrate that in these A
countries, altho!lgh States have more constitutional freedom but despite
the same Commerce Clause received ample protection at the hands of the
Judiciary. (1025-G-H; i026-AI

12.2. Any manner of extension of protection to trade or business
within the frontiers of State, at the cost of free inter-State trade or B
commerce will not stand the test of Article 301. The scheme of
compensatory taxes, operate in an entirely different sphere. They cannot
be confused with measures which are both in form and substance
protectionist impositions. (1027-D, E)

A.B. Abdul Kadir and Ors. v. State of Kera/a, AIR (1976) SC 182; H. C
Anraj v. Government of Tamil Nadu, (1986) 1SCC414; Mis. Maruti Agencies,
Bangalore rep. by its Proprietor v. The State of Tamil Nadu and Ors., (1997)
1 MLJ 589; Atiabari Tea Company Limited v. The State of Assam and Ors.,
(1961) 1 SCR 809 and Shree Mahavir Oil Mills and Anr. v. State of J &K
and Ors., (1996] 11 sec 39, referred to. D
Southern Pacific Co. v. State of Arizona, (1945) 325 US 761; Fox v.
Robbins, 8 CLR 115; Bob-Lo Excursion Company v. People of the State of
Michigan, (1948) 333 US 28; James v. Commonwealth of Australia, (1936)
A.C.578; North Eastern Dairy Co. Ltd. v. Dairy Industry Authority of New
South Wales, (1974-1975) 134 C.L.R. 559; The Commonwealth and Ors. v. E
Bank ofNew South Wales & Ors., (1949) 79 C.LR. 497; Pilkington v. Frank
Hammond Pty. Ltd., (1974) 131 C.L.R. 124; Cole v. Whitfield & Anr., (1987-
1988) 165 CLR 360 and Brown v. Maryland, (1827) 12 Wheat 419 and Fox
v. Robbins, 8 CLR 115, referred to.

13. Once it is held that the principle of res-extra commercium is not F
applicable, the decisions in Kalyani Stores, H. Anraj and Bhailal Bhai
having been rendered by a Constitution Bench would constitute binding
precedents. Once it is held that the Legislature has no power to levy any
excise duty on imported liquor in excess of the counterveiling duty within
the State, having regard to the constitutional limitation imposed in terms G
of Entry 51, List II of Seventh Schedule to the Constitution, such
discriminatory levy must be held to be violative of Article 303(1) and
304(a) of the Constitution. As import fee is an impost, thus, levy thereof
in addition to counterveiling duty would clearly attract the wrath of Article
304(a) of the Constitution. It has not been and could not have been
contended that the tax is compensatory in nature as was the case in H
948 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A Automobile Association. Thus, the impugned impost cannot be upheld.
(1029-C-EI

Kalyani Stores v. The State of Orissa and Ors, [196611 SCR 865; H
Anraj v. Government a/Tamil Nadu, (198611SCC414 and State of Madhya
Pradesh v. Bhailal Bhai and Ors., (1964] 6 SCR 261, relied on.
B
Har Shankar and Ors. v. The Deputy Excise & Taxation Commissioner
and Ors., (19751 1 SCC 737; State of Haryana and Ors v. Lal Chand and
Ors, (1984] 3 SCC 634 and State of Purijab v. Mis. Dial Chand Gian Chand
and Company, (19831 2 SCC 503; held inapplicable.

C 14. The writ petitioners before the High Court had not questioned
any of the terms and conditions of the licence. In Kera/a case they are not
even licensees at all. They are manufacturers of potable liquor, licences
wherefor had been granted by other States. The State of Kerala has not
parted any privilege in their favour. Even otherwise when the legislative
D competence of a State is in question, the same goes to the root of the
jurisdiction. Once it is found that the State Legislature has exceeded its
jurisdiction in imposing the impugned levy, the same being a fraud on the
Constitution cannot be sustained on the procedural doctrine of estoppel
or waiver. ( l 030-A, Bl

E Per SB. Sinha, J. (Dissenting from majority and concurring with B.N.
Agrawal, J.)
1. While granting largesse or licence in such trade, the State must
exercise its functions under Article 298 within the parameters of the
constitutional scheme, which would include imposition of such regulation
p and would not be violative of Article 301 of the Constitution of India.
(1033-F, GI

Kapila Hingorani v. State of Bihar, [2003 ) 6) SCC 1, referred to.

2.1. The maxim 'res extra commercium' has no role to play in
G determining the constitutional validity of a statute. The State, in its
discretion having regard to the provisions contained in Article 47 of the
Constitution of India may part with its right of exclusive privilege but once
it does so, the grant being subject to the terms and conditions of a statute,
I
the common law principle based on the maxim 'res extra commercium' shall
H have no application in relation thereto. (1083-G-H; 1084-A, BJ
ST ATE v. DEY ANS MODERN BREWERIES 949
2.2. The statute lays down that the Acts regulating the trade would A
be lawful, if done in the manner and to the extent provided by the
provisions thereof or any rules, regulations or orders made thereunder.
(1047-C, DI

State of Bombay v. R.M.D. Chamarbaugwala, (1957( SCR 874; Har
Shankar and Ors. etc. etc. v. Deputy Excise & Taxation Commissioner and B
Ors., (1975] 3 SCR 254; Khoday Distilleries Ltd. and Ors. v. State of
Karnataka and Ors., (1995( 1 SCC 574; Kalyani Stores v. State of Orissa
and Ors., (1966] l SCR 865; Commissioner of Sales Tax, M.P. v. Popular
Trading Company, Ujjain, (2000] 5 SCC 5ll; Indian Aluminium Company
Ltd. etc. v. Assistant Commissioner of Commercial Taxes (Appeals) and C
Another etc., [2001] 2 SCC 201; Welfare Association ARP Maharashtra and
Ors. v. Ranjit P. Gohil and Ors., (2003) 2 SCALE 288; Kapila Hingorani v.
State ofBihar, (2003] 6 SCC 1; B.R. Enterprises etc. v. State of UP and Ors.,
etc., [1999] 9 SCC 700; India Handicrafts Emporium and Ors. v. Union of
India and Ors., (2003] 7 SCC 589; Unni Krishnan, JP and Ors. v. State of
Andhra Pradesh, [1993] 1 SCC 645; T.MA. Pai Foundation and Ors. v. State D
ofKarnataka and Ors., [2002] 8 SCC 481; Sadan Singh and Ors. v. New Delhi
Municipal Committee and Ors., (1989] 4 SCC 155; Islamic Academy of
Education and Anr. v. State of Karnataka and Ors., JT (2003) 7 SC 1; Mis
Fatehchand Himmatlal and Ors. v. State of Maharashtra, (19771 2 SCC 670;
Mis Bishamber Dayal Chandra Mohan etc. v. State of U.P. and Ors. etc., AIR E
(1982) SC 33; The State of Himachal Pradesh and Ors. v. Yash Pal Garg
(Dead) By LRs. and Ors., (2003) 3 Supreme 759; Jindal Strips Ltd. and Anr.
v. State of Haryana and Ors., (2003) 8 SCALE 206; State of Tamil Nadu v.
Mis Hind Stone etc., AIR (1981) SC 711; State of Tamil Nadu and Ors. v. Ml
s Sanjeetha Trading Co. and Ors., (199311 SCC 236; State ofBihar and Ors.
v. Harihar Prasad Debuka etc., AIR (1989) SC 1119; Government of F
Maharashtra and Ors. v. Deokar's Distillery, (2003( 5 SCC 669; H. Anraj
and Ors. v. State of Maharashtra, (1984] 2 SCC 292; H. Anraj v. State of
Tamil Nadu, (1986] 1 SCC 414; State of Haryana v. Mis. Suman Enterprises
and Ors., (1994] 4 SCC 217; Mis. Sat Pal and Co. and Ors. v. Lt. Governor
of Delhi and Ors., (1979] 4 SCC 232; R.C. Cooper v. Union of India, AIR G
(1970) SC 564; Mis. Maruthi Agencies, Bangalore v. The State of Tamil Nadu
and Ors., (1997) 1 MLJ 589; State of Madhya Pradesh v. Bhailal Bhai and
Ors., (1964) 6 SCR 261; Stale of Bihar and Ors. v. Industrial Corporation
Pvt. Ltd. and Ors., (2003) 9 SCALE 169; State of U.P. and Ors. v. Varn
Organic Chemicals Ltd. and Ors., JT (2003) 8 SC 1: [2003[ 8 SCC 270;
Deccan Sugar & Abkari Co. Ltd v. Commissioner of Excise, A.P., [19981 3 H
950 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A SCC 272; State of UP v. Modi Distillery, [1995) 5 SCC 753 and Synthetics
and Chemicals Ltd. v. State of UP., [1990( l SCC 109, referred to.
3.1. If by reason of judicial interpretation it is held that those trades
which are obnoxious in nature would not fall within the purview of Article
19, what was the necessity of extending the meaning of 'reasonable
B restrictions' to prohibition; and in some cases even with the aid of the
provisions contained in the Directive Principles of State Policy in Part IV
of the Constitution of India. (1051-E-F)
3.2. The Parliament or the State Legislature, it is trite, do not make
legislation in vacuo. The legislations are not enacted in futility. The
C legislation are not only to be implemented, their constitutionality must also
be judged:·on the touchstone of Part Ill and other provisions of the
Constitution of India. No short-cut method can be adopted to do away
therewith. J1051-G-H)
3.3. Concededly restrictions of trade in liquor within the meaning
D of Article' 19(l)(g) of the Constitution of India can be extended to
prohibition. Such prohibition may not be permissible in other cases. The
decisions of this Court clearly show that such a prohibition can be imposed
by laying down a law only in the event that the trade in relation thereto
is noxious ones and not otherwise. The distinction made by this Court in
a large number of judgments is to be applied in proper perspective, insofar
E as the words trade in liquor will carry two different meanings - one in
respect of trade which are noxious or pernicious and the others which are
not. If it is held that Article 19 of the Constitution of India and for that
matter anj other provision of the Constitution of India including Article
301 will net have any application in relation to pernicious or obnoxious
F trade, the State will not be entitled to issue any prohibitory order in
relation th~reto. The very fact that this Court in no uncertain terms held
that the.trade in liquor can be prohibited being noxious or pernicious, it
i111plicitly ~s to show that prohibition of such a trading activity must be
. .referable to legislations made in terms of clause (6) of Article 19 of the
CoBStitutilln of India which is itself an indication of the fact that there
G .exists a richt to carry on the trade in terms of Article 19(l)(g) of the
Constitution of India. While making such a legislation the Parliament or
the State Legislatures, as the case may be, impose prohibition either in
whole or in part or may only provide for regulatory measures.
)1052-A-D)
H 3.4. There are decisions of this Court which have held that Article
STATE v. DEV ANS MODERN BREWERIES 951
19(1)(g) will not apply so long as the trade in liquor is prohibited. The A
Constitution Bench of this Court in Khoday Distilleries clearly held that a
citizen will have no fundamental right to carry on such trade which is
illegal and would lead to commission of penal offences. The logical
corollary of the said decision would be that a citizen will have a right
including a fundamental right to carry on the said trade or business when
the same would not lead to a penal or criminal offence or has qotdeclared . .B
the same to be otherwise illegal. (1052-E, FI

Har Shankar and Ors. etc. etc. v. Deputy Excise & Taxation
Commissioner and Ors.. [1975I 3 SCR 254; Cooverjee B. Bharuijia v. Excise"~ ·
Commissioner, (1954[ SCR 873; State of UP v. Synthetics and Chemical Lf4; C
[1980I 2 SCC 441; State of Orissa v. Harinarayan Jaiswal, [1972I 2 SC<:;.·
36; Synthetic and Chemicals Ltd v. State of UP, [19901 I SC~ 109; In the ·
matter of Phool Din, AIR (1952) All 491; Narender Kumarv. Union ofIndia, .. ·
[1960I 2 SCR 375; MB. Cotton Association v. Union of India, AIR (1954)
SC 634; Hanif Quareshi Mohd. v. State of Bihar, [1959I SCR 6;9; Union of
India and Anr. v. International Trading Co. and Anr.. (2003) 4 Supreme 114; D
Saurabh Choudhary v. Union of India, (2003) 9 SCALE 272; Municipal
Corporation ofthe City ofAhmedabad and Ors. v. Jan Mohammed Usmanbhai ··
and Anr., AIR (1986) SC 1205: [1986I 2 SCR 700 and B.P. Sharma v. Union
of India, (2003) 6 SCALE 498, referred to.

4.1. In order to determine whether total prohibition would be E
reasonable the Court has to balance the direct impact on the fundamental
right of the citizens thereby against the greater public or social inlerest
sought to be ensured. Implementation of Directive Principles contained ·
in Part IV is within the expression of restrictions in the interest .of Hie
general public. [1054-D, EI F
Municipal Corporation of the City of Ahmedabad and .Ors. v. Jan
Mohammed Usmanbhai and Anr., AIR (1986) SC 1205: [1986I'.2 SCR 700;
Synthetics and Chemicals Ltd v. State of UP.. [1990I 1SCC109; HarShankar
and Ors. etc. etc. v. Deputy Excise & Taxation Commissioner and Ors., (197$1
3 SCR 254 and Rustom Cavasjee Cooper and Ors. v. Union of India, AIR (}
(1970) SC 564, referred to.

4.2. In certain cases even in relation to the grant of contract in liquor,
Article 14 of the Constitution has been held to be applicable. Once it is
held that a person, in certain situation is entitled to invoke the equality
clause contained in Article 14 of the Constitution of India, there is H
952 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A absolutely no reason as to why Article 301 will not be applicable.
(1054-H; 1055-A(

Krishna Kumar Narula v. The State of Jammu and Kashmir and Ors.,
AIR (1967) SC 1368, relied on.

B TMA. Pai Foundation and Ors. v. State of Karna/aka and Ors., (2002)
8 sec 481, referred to.

4.3. The State has exclusive right to sell liquor and to sell the said
right. Both rights are, thus, different and distinct. (1056-A]

Cooverjee B. Bharucha v. Excise Commissioner, (1954] SCR 873; State
C of Bombay v. F.N. Balsara, AIR (1951) SC 318 and State of Orissa v.
Harinarayan Jaiswal, (1972] 2 SCC 36, referred to.

4.4. Article 14 is applicable in the matter of grant by the State and,
thus, there is no reason as to why grantee would not be entitled to invoke
the commerce clause contained in Article 301 of the Constitution of India.
D In Synthetics & Chemicals Ltd., the Seven-Judge Bench, made a distinction
between a country liquor and a foreign liquor. (1084-D, E]

State of Bombay v. F.N. Balsara, AIR (1951) SC 318; State of Orissa
v. Harinarayan Jaiswal, (1972 ( 2 SCC 36 and Synthetics and Chemicals Ltd.
v. State of UP., (1990] 1SCC109, referred to.
E
5.1. While the Australian Constitution failed to expressly define
restrictions, the American Constitution defined the clause in an extremely
ambiguous manner. The Indian Constitution provides for freedom of trade
and commerce, but puts the minimum required restriction in terms of
public interest. (1062-E]
F
5.2. Whereas in terms of Article 19(6) as also Article 302 of the
Constitution of India in relation to a trade which is noxious in nature a
complete prohibition would be permissible, the same would not mean that
while permitting the trade to go on the State's action whether legislative
or executive need not undergo the constitutional tests in terms of Articles
G 14, 19 or 301 of the Constitution of India. The argument that the
relationship between State and the licensee is contractual in nature but
the same would not mean that any legislative interference thereupon as a
result whereof the contract becomes more burdensome would not be a
subject-matter of challenge. There is no estoppel against statute. There
H cannot be any waiver of fundamental right. (1062-F, G]
STA TE v. DEV ANS MODERN BREWERIES 953
Constitutional Assembly Debates, 8th September, 1949, Vol. 9, p.1124; A
Powell, Thomas Reed, "Vagaries and Varieties in Constitutional
Interpretation", p. 181 and Shiva Rao, B. "The Framing of India's
Constitution" p. 699, referred to.

6. The object behind Article 301 is to ensure that the economic unity
of India may not be broken up by internal barriers. Further, unlike the B
Fundamental right provided to citizens only under Article 19 (1) (g),
Article 301 seeks to extend its benefits to all individuals. This is the basis
of operation of Article 301. The essence of Article 301 is a right of free
movement of trade without any barrier whether inter-State or intra-State.
It is also not in dispute that the taxes which have direct impact on the C
flow of trade and commerce constitute a violation of Article 301 unless
the legislation is brought within the scope of Article 302, 304 and 305.
(1063-F-H]

Atiabari Tea Co. v. State of Assam, AIR (1961) SC 232, relied on.

7.1. Imposition of tax is a constitutional function. No tax can be levied
D
except in terms of Article 265 of the Constitution of India. It is one thing
to say that tax levied is constitutionally valid but it is another thing to say
that tax although levied in exercise of its constituent power by a State
Legislature, it need not undergo the test of constitutional requirement at
all. The latter proposition, would be totally against the letter and spirit of E
the Constitution of India as also constitutionalism. [1064-B, C)

Saghir Ahmad and Anr v. State of U.P. and Ors., AIR (1954) SC 728,
referred to.

7.2. The terms "Excise Duty", "Counterveiling Duty", "import duty" F
are not terms of art. They are made part of the interpretation section
contained in the respective Excise Acts. (1066-G I

S.K. Pattanaik (Dead) through LRs. v. State of Orissa and Ors., [2000)
1 SCC 413 and Aristocrat Agencies, Hyderabad v. Excise Superintendent,
Hyderabad and Ors., (20011 1 SCC 496, referred to.
G
7.3. "Licence Fee" and "Fixed Fee" are also defined. Each term must
be held to have been used by the Legislature with a view to achieve a
definite purpose. One term should not be read as supplement to other. In
that view of the matter, import duty cannot be held to be a part of
exclusive privilege and, thus, part of a licence fee. If this distinction is borne H
954 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A in mind the statutory injunction contained in Article 301 of the
Constitution of India as also Section 33A of the Punjab Excise Act can be
given an economic, purposive and textual meaning. Import duty which is
levied under Section 17 of the Kerala Abkari Act and Section 34 of the
Punjab Excise Act can not be read to be a part of the licence fee which is
B collected at the time of grant of licence that is by way of parting of its
right of exclusive privilege. (1066-G-H; 1067-A, Bl

State of Orissa v. Harinarayan Jaiswal, (1972[ 2 SCC 36 and State of
U.P. v. Sheopat Rai, (1994) Supp. 1 SCC 8, referred to.
8.1. A constitutional provision should always receive a fair, liberal
C and progressive interpretation so that its true objects might be promoted.
By this it can fulfil the aspirations of the people at large. To achieve the
above goal, the Organic method of interpretation which is now universally
accepted, requires to see the present social conditions and interpret the
Constitution in a manner so as to resolve the present difficulties. The social
D conditions existing at the time when the Constitution was made may be
very different from the present conditions and l>!!nce an interpretation of
the Constitution from the angle of the Constitution makers would bring a
completely outdated and unrealistic view. So a Constitutional provision
will not be interpreted in the attitude of a lexicographer, with one eye on
the provision and the other on the lexicon. The meaning of the word or
E expression used in the Constitution often is coloured by the context in
which it occurs, the simpler and more common the word or expression,
the more meanings and shades of meanings it has. It is the duty of the
Court to determine in what particular meaning and particular shade of
meaning the word or expression was used by the Constitution makers and
in discharging the duty the Court will take into account the context in
F which it occurs, the object to serve which in war used, its collocation, the
general congruity with the concept or object it was intended to articulate
and a host of other consideration. (1067-H; 1068-A-DJ

8.2. The interpretative changes in the Constitution must not only be
considered from its plain language for the purport and object it seeks to
G achieve but also having regard to the international treaties and conventions
but also principles of interpretation governing the same. In order to
determine whether total prohibition would be reasonable the Court has
to balance the direct impact on the fundamental right of the citizens
thereby against the greater public or social interest sought to be ensured.
H Implementation of Directive Principles contained in Part IV is within the
STATE v. DEV ANS MODERN BREWERIES 955
expression of "restrictiims in the interest of the general public". A
(1068-D-F(

8.3. There exists a distinction between a fundamental right of a
citizen to carry on trade in obnoxious matters under Article 19(1Xg) of
the Constitution of India and freedom to carry on such trade throughout
the country without any hindrance or obstruction except in terms of B
reasonable regulations which may be made under Part XIII of the
Constitution of India. (1068-G)

Siegan, Bernard H., "Economic liberties and the Constitution", p.8,
referred to.

9. Although, the United States is guided by a capitalist philosophy
c
unlike the sodalist policy laid down in the Indian Constitution, the very
fact that changes in society have to be reflected in the interpretation of
the Constitution, while still preserving the core constitutional intent of the
Constitutional makers is a factor to be reckoned with. This has never been
more important than in the age of globalization when vast changes are D
taking place both at the social and political levels. (1071-F)
• Webster's 3rd New International Dictionary, I993; "The World Trade
Organisation-Law, Practice and Policy" by Mitsuo Matsushita, Thomas J
Schoenbaum & Petros C. Mavroidis Jackson, John J., "The Jurisprudence of
GAIT and WTO", referred to. E
10. Legal history is a good guide for the purpose of appreciating the
legal development across the world particularly in the field of international
law. The judiciary cannot cling to age-old notions of any underlying
philosophy behind interpretation. It has to move with the times. There
cannot be any doubt whatsoever that a law which was at one point of time p
was constitutional may be rendered unconstitutional because of passage
of time. (1071-G, H; 1072-A, H; 1073-A(
Kapila Hingorani v. State of Bihar, (2003) 6 SCC 1; John Vallamattom
and Anr. v. Union of India, JT (2003) 6 SC 37 and People's Union for Civil
Liberties and Anr. v. Union of India and Anr.: (2003) 4 SCC 399, referred G
to.
R v. Hughes, 12 BHRC 243 = (2002) UKPC 12, referred to
11. The court cannot interpret on equality, freedom or commerce
clauses of the Constitution in such a manner so as to take away the rights
and llbligations created under a statute on the ground of public morality H
956 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A or otherwise. When a statute permits a trade, morality takes a back seat
as 'legislature' as contra distinguished from 'judiciary' is supposed to be
the authority to consider the morality or otherwise of certain things
prevailing in the society. (1074-E)

Mwlidhar Agarwal and Anr v. State of UP. and Ors., (1975) 1 SCR
B 575, referred to.

12. In interpretation of the provisions of the Constitution especially
those provisions dealing with the regulation of economy of the nation must
receive such interpretation which fosters economic growth . The stagnatic
economy of any nation has a bane for the world economy. Keeping this in
C view the interpretation of the Constitution should receive such a treatment
which would be in tune with the original intention of the Constitution
makers. The ultimate duty to achieve and maintain integrity of the nation
vis-a-vis life lies on the Union. It is for this reason though law and order
is included in List II of the Seventh Schedule of the Constitution of India,
D national security, internal security and policy powers to regulate various
aspects of social, political and economic conduct of human beings vested
in the Union Parliament. Further by reason of Article 352, it is the
parliament which can take over the administration of any State. These ,
are intended to maintain integrity and push economy forward. A growing
economy results in more industries and more jobs. When people are
E employed the purchasing power will go up, the per capita income will go
up resulting in more payment for goods. This again requires more
industries. In the long run, subject to providing congenial atmospbere
results in foreign investment. The Court having regard to globalisation
should take notice of the futuristic thought in developed countries for
F interpretation of the Constitution in the ascertainment of meaning of the
relevant provisions thereof with reference to everything which is logically
relevant. [1076-A-E)

United States v. Lopez, 514 US 549 (1995); Gibbons v. Ogden, 22 US
(9Wheat) 1 (1824); NLRB v. Jones & Laughlin Steel Corp .. 301 US 1 (1937);
G Katzenbach v. McC/ung, 379 US 294 (1964) and Joseph Lochner v. People
of the State of New York, 198 US 937, referred to.

13. Doctrine of precedent is a well-accepted principle. However,
although a decision has neither been reversed nor overruled, it may cease
to be 'law' owing to changed conditions and changed law. [1080-C, El
H
STA TE v. DEV ANS MODERN BREWERIES 957
M.A. Murthy v. State of Karnataka and Ors., (2003( 7 SCC 517, A
referred to.

14.1. Kalyani Stores is a Constitution Bench judgment. A Constitution
Bench has unequivocally held that Article 301 of the Constitution of India
shall apply to trade of liquor. Once this Court comes to the conclusion
that doctrine of res extra commercium was not applicable, Ka/yani Stores B
must be applied in all fours. In any event, the decision or a Constitution
Bench cannot be brushed aside as having been passed 'sub silentio' or on
the basis of doctrine of 'per incurium' Judicial discipline envisages that a
coordinate bench follow the decision of earlier coordinate bench. If a
coordinate Bench does not agree with the principles of law enunciated by C
another Bench, the matter may be referred only to a larger Bench. But
no decision can be arrived at contrary to or inconsistent with the law laid
down by the coordinate Bench. (1081-C-E(

14.2. Kalyani Stores and K.K. Narula both have been rendered by
the Constitution Benches. The said decisions, therefore, cannot be thrown D
out for any purpose whatsoever; more so when both of them if applied
collectively lead to a contrary decision proposed by the majority.
(1081-F)
Kalyani Stores v. State ofOrissa and Ors., (196611SCR865; Pradip
Chandra Parija v. Pramod Chandra Patnaik, (2002( 1SCC1; State ofTripura E
v. Roop Chand Das and Ors., [2002( 7 SCC 273; State of Bihar v. Kalika
Kuer@Kalika Singh and Ors., JT 2003 4 SC 489 and Dr. Vijay Laxmi Sadho
v. Jagdish, JT 2001 1 SC 382, referred to.

Halsbury's Laws of England, (Fourth Edition) Vol. 26, referred to.

Gibbons v. Ogden, 22 US (9Wheat) 1 (1824), referred to. F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 30I7 of I997.

From the Judgment and Order dated I 7.1.97 of the Punjab and Haryana
High Court in C.W.P. No. 5358 of I996.
WITH G
C.A. Nos. 2696-2697 of 2003.

Dr. A.M. Singhvi, P.N. Misra, Ashok H. Desai, R.F. Nariman, R.
Venkataramani, T.L.V. Iyer, H.M. Singh, Anil Hooda, Kaushal Yadav, R.S.
Suri, Rajeev Kumar Sharma (NP), Pallav Shishodia, George Poonthatham,
R.Yoshod Vardhan, Nanjunda Reddy, Nagendra Naidu, S. Sukumaran, M.P. H
958 ~UPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A Vinod, Ms. Divya Nair, Vikram Mehta, Ms. Padmalakshmi Nigam, Mohan
Jain, Sanjiv Sen, Neeraj Sethi, Ms. Nandini Gore, Ramesh Babu M.R. and
E.M.S. Anam for the appearing parties.
The Judgments of the Court were delivered by
DR. AR. LAKSHMANAN, J. I have had the privilege of perusing the
B judgment proposed by my learned Brother Justice B.N. Agrawal. However,
with respect, I express my inability to agree with the same and I propose to
write a separate judgment in the following terms.
As facts and provisions of the relevant law have been set out in the
judgment of my learned Brother Justice B.N. Agrawal, I do not propcse to
C extract them again.
Civil Appeal No. 3017of1997 was filed by the State of Punjab against
the judgment of the Division Bench of the Punjab & Haryana High Court
dated 17.01.1997 in Writ Petition (Civil) No. 5358 of 1996. The said writ
petition was filed by Respondent No. I in this appeal, namely, Mis. Devans
D Modern Brewaries Ltd., Ludhiana praying for issuance of a writ in the nature
of Certiorari quashing the imposition of import fee on Beer vide Order 1-D
(iii) of the Punjab Excise Fiscal Orders, 1932, amended from' time to time,
latest being notification dated 27 .03.1996 which is impugned in the writ
petition and for other consequential prayers.
E Civil Appeal Nos. 2696 and 2697 of 2003 were filed by Penguin
Alcohols (P) Ltd. and Another etc. against the State of Kerala and Others
against the common judgment of the High Court of Kerala dated 06.04.200 I
in Writ Appeal Nos. 3 and 10 of 200 I dismissing the appeal filed by them.
The original petitions were filed by appellants herein against Exhibit
F Pl notification issued by the State of Kerala enhancing the rate of import fee
from Rs. 2/- per proof litre to Rs. 5 on Indian Made Foreign Liquor (hereinafter
referred to as "IMFL"). The import fee was initially levied under Government
Order, G.O.(MS) No. 57/92/TD dated 31.12.1992. The learned Single Judge
upheld the levy holding that it is a fee and regulatory in nature. The appellants
preferred writ appeals, which were dismissed by the Division Bench by the
G impugned common order in Writ Appeal Nos. 3 and IO of 2001.
In both the appeals, common questions arise for consideration and hence
they have been heard together and are being disposed of by this common
judgment.

H The points for consideration in both the appeals are:
STATE v. DEV ANS MODERN BREWERIES [LAKSHMANAN, J.] 959
(a) Whether the import fee levied is the price for parting with the A
privilege given to the respondent to import liquor into the State
and, therefore, the same is within the competence of the State
to impose import fee;

(b) Whether the imposition of import fee does not, in any way,
restrict trade, commerce and intercourse among the States. B
It is well settled by a catena of decisions that the trade in liquor is not
a fundamental right. It is a privilege of the State. The State parts with this
privilege for revenue consideration. In Punjab, the Excise Policy of the State
is formulated every year. It is also made known to the licensees much before
their licenses for the year comes to an end. It is also a matter of fact that the C
licensees have paid the fee on demand. The fee was first levied in the year
1992. The licensee, in the Punjab case, had been holding the licence all
through this period and never challenged or protested against levy of the fee.
The licensees having paid the fee without any protest all through is not
entitled to challenge the same, which does not suit them. The licensee cannot D
aprobate and reprobate. In Punjab, the grant of licences are governed by the
Punjab Excise A:ct, 1914 (for short "the Act") and various rules and orders
framed under it. In the Punjab case, the challenge of the appellant is limited
to the imposition of import fee in addition to the counterveiling duty on Beer.
It is not disputed by the appellant that the State is competent and is entitled
to impose excise duty or counterveiling duty besides there is no bar on the E
State to charge any other fee on account of consideration of the privilege
provided to the licensee to provide them the right to trade in liquor. A perusal
of the impugned notification shows that the State Government substituted the
existing provision with regard to import fee and increased the rate of this fee.
It is part of the privilege price i.e. consideration amount on account of which
the licence was granted to the licensee. Further, the licensee had an option F
to opt out of the business field if such levies were detrimental to their interest
or were to their disadvantage.

The respondent in Civil Appeal No. 3017 of 1997 carries on wholesale
trade in the State of Punjab. Under the rules, the licensee is required to obtain G
a licence in Form L-1, which is valid for one year. In addition to this under
the Punjab Excise Fiscal Orders, I 932, the respondent is liable to pay duty/
fee at the rates mentioned therein. As a result of this, the respondent has to
pay excise duty/import fee as the case may be. Over and above this, there is
an import fee which is levied by the State Government in exercise of its
H
960 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A powers under Section 58 of the Act. According to learned counsel for the
State of Punjab all these charges and levies are really a price for the privilege
of carrying on the trade under the L-1 license as far as the privilege of
importing alcohol into the State of Punjab. The impugned levy is under the
Punjab Excise act, 1914, which is a pre-Constitution Act. It is this Act which
B provides that no intoxicant shall be imported, exported or transported except
after the payment of duty to which it may be liable under the Act. The words
"duty to which it may be liable under this Acf' were substituted by the words
"duty of customs or excise to which it may be liable". This change was also
brought about by the Government of India on adaptation of Indian Laws
Order 1937. It was, therefore, argued by the State that the power is conferred
C under Section 58(2)(b) to regulate the import, export, transport and possession
of any intoxicant. Therefore, the different imposts have to be ,:onstrued in
this background. There is, therefore, an excise duty so-called which is provided
for under Rule 5 of the Punjab Excise Fiscal Orders, 1932, not only on
locally produced beer but also on imported beer. The Statutory Authority for
this imposition can be found from the provisions including Section 16 read
D with Section 32 of the Act. In addition to the excise duty under Rule 5, there
is also a provision for grant of licence for sale of intoxicants. To carry on the
trade in wholesale, a person has to obtain a L-1 licence for which an annual
pre-determined sum is payable. Similarly, in addition there are licences for
production and for manufacture each of which licence has its own pre-
E determined fee which has to be paid for obtaining such a licence. The
modalities of the levy of fees or the quantum of the fees has no bearing on
its legal pedigree which is that of consideration for the permission to carry
on an activity in the noxious articles. Thus, if a person wants to carry on a
wholesale trade in liquor in Punjab, he will have to (a) obtain a L-1 licence
for which he would pay the fees in accordance with the policy carried on for
F the period; (b) On the liquor purchased by him, he will have to pay duty on
all purchases irrespective of the source of the product. This duty is the duty
under Rule 5 of the Punjab Excise Fiscal Orders, 1932, in relation to beer
read with Rule I of the said Orders in case of IMFL.

G In case, the licensee seeks a permit to bring in imported alcohol, he
would have to pay as a condition of the permission to import under Section
I 6(b) read with Section 19 an import pass fee at such sum fixed by the
Government. The respondent in this case/writ petitioner has mixed up these
different imposts and has referred to the duty paid under Rule 5 which is an
amount equivalent to the excise duty and the fee under Rule I (d) of Punjab
H Excise Fiscal Orders, 1932. As already noticed, on imported goods there are
STATE v,DEV ANS MODERN BREWERIES [LAKSHMANAN, J.] 961
two independent imposts, namely, duty equal to the local excise duty under A
Rule 5 and an import fee under Rule l(d) of the Punjab Excise Fiscal Orders,
1932.

On 31.01.2002, this Court passed an order which read as under:

"In the course of the argument, it was noticed that the principal B
argument on behalf of the respondents before the High Court, which
was upheld by the High Court, was that the import fee, which is the
subject matter of these proceedings, had been imposed by the State
of Punjab without authority of law. The response on behalf of the
State of Punjab before the High Court was that the right of the
respondents to import beer into the State was privilege conferred by C
the State upon the respondents to which Article 30 I had no application
because the respondents had no right to trade in liquor de hors that
privilege and that the import fee was the price for the privilege. In the
course of the argument before us, we asked Mr. K.K. Venugopa~
learned counsel for the State, to tell us what the source of power for D
the imposition of the import fee was. Mr. Venugopal referred in reply
to Sections 18, 19, 34, 58 and 59 of the Punjab Excise Act, 1914. In
other words, the contention of the State before us is that the import
fee is a fee and the respondents are required to pay such fee to bring
beer into the State."
E
In compliance with the aforesaid order, a detailed additional affidavit was
filed on behalf of the State of Punjab by quoting the relevant provisions of
the Punjab Excise Act, 1914, namely, Section 3(9) - "Excise Revenue", Section
3(!0) - "Export", Section 3(12) - "Import", Section 16 - "Import, export and
transport of intoxicant'', Section 17 - "Power of State Government to prohibit F
import, export and transport of intoxicant", Section 18 - Passes necessary for
import, export and transport, Section 19 - Grant of passes for import, export
and transport, Section 31 - Duty on excisable articles, Section 32 - Manner
in which duty may be levied, Section 33 - Payment for grant of leases,
Section 34 - Fees for terms, conditions and form of, and duration of licences,
permits and passes, Section 35 - Grant of lincense for sale, Section 58 - G
Power of State Government to make Rules, Section 59 - Powers of Financial
Commissioner to make rules. Along with the additional affidavit, a copy of
the Notification No. 5998 called the Punjab Excise Fiscal Orders and prescribed
levy of rates of duty etc. was filed and marked as Annexure-A-1. It is seen
from the additional affidavit that this notification was republished by the
H
962 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A State of Punjab in the year 1965. The State vide notification dated 24.03.1986
introduced amendment to the Punjab Excise Fiscal Orders, 1986 and as per
Clause 5 of the notification, Order 1-D was added after Order 1-C levying an
import fee of Rs. 3.20 per proof litre on all imports of IMFL and rectified
spirit into the State of Punjab.

B Vide notification dated 31.03.1992, the Government of Punjab made
further amendment in the Fiscal Order and issued Punjab Excise Fiscal (I 0th
amendment) Orders, 1992 and substituted Order 1-D stating that "All imporlS
of liquor and spirit shall be subject to the levy of an import fee as prescribed."
By further amendment vide notification dated 27.03.1996, the Punjab Excise
C Fiscal Orders, 1932 was amended and the Order 1-D item (iii) was substituted.
In exercise of powers conferred under the Act, the State Government framed
rules which have been marked as Annexure P-2.

Thus, it is seen from the Punjab Liquor Import, Export Order, 1932, the
State Government is competent and empowered to regulate the import and
D export of liquor. Under the Punjab Liquor Licence Rules, 1956, there are 21
types of licences which are prescribed and are given. The respondent in this
appeal is holding L-1 licence i.e. Wholesale and retail vend of foreign liquor
to trade only. The said licence is given on fixed licence fee, which is subject
to variation as per excise policy of the Government based on year to year.
The State Government has incorporated as one of the terms and conditions
E on the L-1 holders to pay import fees also at the prescribed rate as per the
Punjab Excise Fiscal Order, 1996. The respondent has been accepting the
terms and conditions from 1992 onwards and acted on the same, the licence
was renewed on yearly basis.

F Similarly, under the provisions of the Punjab Liquor Permit & Pass
Rules, 1932, the State Government issued permit in form L-32, in the case
of import and the licensees are liable to pay permit fee at the prescribed rate.
As already stated, the respondent has mixed up two different imposts. The
respondent has referred to the duty paid under Rule 5 i.e. equivalent to
Excise duty and fees under Order (I) (D) of the Punjab Fiscal Orders, 1932.
G As stated above, on imported goods by. L-1 holder, there a~ two different
and independent imposts in the shape of Excise duty under Rule 5 and import
fee under Rule (I) (D) of Punjab Excise Fiscal Orders, 1932. In addition he
has to pay licence fee under the Punjab Liquor Licence Rules, 1956, which
is fixed on yearly basis. Thus, it is seen that as per provisions of Section 58
H (D) as well as Section 59 (D) the State Government, in my opinion, has
STATE v. DEV ANS MODERN BREWERIES [LAKSHMANAN, J.] 963
power to regulate the import and price of any description of bottle and the A
scale of the fee and the manner of the fee payable by any licensee.

. It is stated in the additional affidavit that the word "fee" is not used in
the strict sense to attract the doctrine of quid pro quo. This is the price or
consideration which the State Government charges for parting with this
privilege and granting the same to the vendors. Therefore, in my opinion, the B
amount charged is not a fee nor a tax but it is in the nature of price of a
privilege· which the purchaser has to pay in any trading and business in
noxious article/goods. The collection of sti'ch amount in the shape of import
fee does not fonn part of the general revenue of the State. As stated above,
it is one of the tenns and conditions of the Excise Policy applicable to all L- C
l holders including the respondents herein. In my view, respondents cannot
be pennitted to challenge the tenns and conditions of the policy if they want
to avail the benefit of the same.

This Court, in a number of judgments, has held that the State Government
has unfettered powers to regulate the Export/Import sale of intoxicants and D
in exercise of its regulatory powers, the import fee has been incorporated as
one of the terms of the Excise Policy on yearly basis. We will refer to the
relevant judgments in the later part of this judgment.

The learned counsel for the respondent submitted that there is no source
of power for imposition of import fee over and above the counterveiling duty E
and that the appellant-State was not able to show that under which Authority
or provision of the Punjab Excise Act, l 914, they can impose the import fee
over and above the counterveiling duty. It is further submitted that a combined
reading of Section 33A of the Punjab Excise Act, 1914, Articles 301and304
of the Constitution and Entry 5 l of List II of Seventh Schedule to the F
Constitution makes it clear that the State of Punjab has no authority to impose
the import fee over and above the counterveiling duty. This contention, in my
opinion, has no force for the reasons stated and the discussions made in
paragraphs supra.
I,
In my opinion, Articles 302 and 304A of the Constitution of India are G
not attracted to the present ~ase as the imposition of import fee does not, in
any way, restrict trade commerce and intercourse among the States. In my
opinion, the permissive privilege to deal in liquor is not a "right" at all. The
levy charged for parting with that privilege is neither a tax nor a fee. It is
simply a levy for the act of granting permission or for the exercise of power
to part with the privilege. In this context, we can usefully refer to Har H
964 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A Shan/car and Ors etc. etc. v. The Deputy Excise and Taxation Commissioner
and Ors etc., AIR (1975) SC 1121 and Panna Lal and Ors., v. State of
Rajasthan and Ors., [1975] 2 SCC 633. As noticed earlier, dealing in liquor
is neither a right nor is the levy a tax or a fee. Articles 301-304 will be
rendered inapplicable at the threshold to the activity in question. Further,
B there is not even a single judgment which upholds the applicability of Articles
301-304 to the liquor trade. On the contrary, numerous judgments expressly
hold these Articles to be inapplicable to trade, commerce and intercourse in
liquor. We can beneficially refer to the judgments in The State of Bombay v.
R.MD. Chamarbaugwala, [1957] SCR 874, Har Shan/car's case (supra), Ml
s. Sat Pal and Co. and Ors. v. Lt. Governor of Delhi and Ors., [1979] 4 SCC
C 232 and Khoday's case. The learned counsel for the respondent submitted
that Articles 301-304 are violated or transgressed. Jn view of discussions in
paragraphs above, it is clearly demonstrated as to how and why Articles 301-
304 are inapplicable to liquor trade in any form.

We shall now deal with the Ker.ala matter in Civil Appeal Nos. 2696
D and 2697 of 2003.
The learned counsel for the licensee/appellant in this case also contended
that Part XIII of the Constitution interdicts Parliament and State Legislatures
from enacting laws containing discriminatory measures/taxation in respect of
inter-state trade and commerce and that the said articles in Part XIII impose
E a constitutional limitation on the power of the Parliament and the Legislatures
of the States and that the said Part XIII of the Constitution enshrines a
principle of paramount importance that the economic unity of the country
cannot be interfered with by economic protectionism and creation of trade
barriers, fiscal or otherwise. He would further submit the restriction in Part
p XIII of the Constitution also apply to Taxation Laws and the provisions of
Part XII of the Constitution are subject to the limitations set out in Part XIII
and such regulatory measures also do not impede the freedom of trade,
commerce and intercourse and compensatory taxes for the use of trading
facilities are not hit by the freedom declared by Article 301. He would also
urge that Article 303(1) prohibits Parliament and the Legislature of a State
G from enacting any law giving preference to one State over another or from
making any discrimination between one State and another by virtue of any
entry relating to trade and commerce in any of the lists in the Seventh Schedule
and that the obstructions or impediments to the free flow of trade would be
violative of the freedom declared by A1ticle 301. In this context, he referred
H to the case in The Automobile Transport (Rajasthan) Ltd. v. The State of
STATE v. DEV ANS MODERN B~WERIES [LAKSHMANAN. J.] 965
Rajasthan and Ors., [1963] I SCR 491. It is further submitted that the A
limitation upon the Legislative power stipulated in Article 303(1) and Article
304A will apply to trade in liquor. It is further contended that the discriminatory
levy of import fee is violative of Articles 303(1) and 304A of the Constitution.
According to the learned counsel for the appellant/licensee, the power of the
State to levy a tax or a fee should be traceable to the entries in the Seventh B
Schedule to the Constitution. Entry 51 of List II provides for a levy of duty
of excise on alcoholic liquor for human consumption manufactured or produced
in the State and coimterveiling duties at the same or lower rates of similar
goods manufactured or produced elsewhere in India and, therefore, the State
Legislature has no power to levy any counterveiling duty on imported liquor
in excess of the excise duty on liquor manufactured within the State. The C
State of Kerala imposes a counterveiling duty on imported liquor which is
equivalent to the excise duty paid by the manufacturers within the State. The
State imposes an import fee in addition to the counterveiling duty and the
direct and immediate effect of the import fee is to favour local manufacturers
by making the imported liquor costlier. He would further contend that Article
303(1) prohibits the State Legislature from taking discriminatory measures D
and Article 304A also prohibits the State from imposing such discriminatory
levies. It is also submitted that the State Legislature has no competence to
levy an import fee in addition to counterveiling duty.

The argument advanced by learned counsel for the licensee was E
countered by learned senior counsel. appearing for the State of Kerala. The
learned counsel submitted that the import of liquor into the State of Kerala
is prohibited under Section 6 of the Abkari Act and, therefore, liquor can be
imported only after obtaining permission from the Government in the form
of permit issued under Section 24 of the Abkari Act. As a matter of fact, it
was submitted that the State has not issued any licence to anybody including F
the Kerala State Beverages Corporation to import liquor. The Kerala State
Beverages Corporation has licence only for wholesale and retail of liquor
which will not authorise them to import liquor and that the only licence
issued to import liquor into the State is the permit issued on payment of the
import fee and, therefore, it is seen that the levy of import fee is authorized G
by Sections 6 and 24 of the Abkari Act, 1977. It is not excise duty or
counterveiling duty referable to Entry 51 of L"ist II. It is a collect.ion falling
under Entry 8 of List II. It is the price paid to the State for parting with its
exclusive privilege of dealing in liquor which includes every fact of it including
its import. In my view, the State has the right to prohibit every form of
activity in relation to intoxicants including its import. Though it is alleged by H
966 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A the appellant that the State has discriminated against, the same has not been
substantiated or established by any material. The State, in this case, has
granted such permit to the Beverages Corporation on their paying the fee
fixed for the purpose as per notification enabling the Corporation to import
liquor from the petitioners/licensees and others. The import fee so paid is
passed on to the consumers. Even in the Punjab case, we have already noticed,
B that the right to import liquor is dependent on the issue of the import permit
on payment of the import fee as consideration for parting with the State's
exclusive privilege to import the liquor. It is purely a contractual dealing
between the State and the importer and, therefore, no question of violation
of Article 301 can arise. The importer had no anterior right to import liquor
C and hence cannot complain of any violation of Article 30 I at that stage as
right to trade in liquor is not a fundamental right. His right to import is
referable to the import permit which he acquired on payment of the import
fee. No further impediment has been created in the import of the liquor so
that Article 30 I is not attracted in relation to the payment of the import fee
which was prior to getting his privilege of importing. The appellant/licensee
D having entered into a contractual relationship with the State obtained the
privilege and enjoyed the benefit of it. It is not open to the petitioners to tum
round subsequently and repudiate the obligations subject to which they
obtained the privilege. Regulation in the interest of public health and order
takes the case out of Article 301 and regulation for purpose of Article 301
E is not confined to such regulations alone which will facilitate the trade.
An affidavit was also filed on behalf of the State of Kerala dated
16.04.2003 stating that the collection of import fee in the State of Kerala
while issuing permit to import IMFL is referable to Sections 6 and 24 of the
Abkari Act, 1977, and that it is the price payable by the grantee to the State
F for parting with the privilege of importing IMFL which is exclusively that of
the State. Along with the affidavit, Annexure R1 (photocopy of permit issued)
and Annexure R2 (year-wise statement showing the amount of import fee
collected by the State) was filed. It is not in dispute that the Kerala State
Beverages Corporation is the exclusive wholesale distributor of IMFL within
G the State of Kerala. Previously, the retail distribution of IMFL in the State
was done by 14 shops of the Kerala State Bevereages Corporation and 231
shops by private individuals to whom licences were granted by auction
conducted every year. However, the scheme has been changed and the retail
distribution of IMFL in the State is now being carried on by a few shops of
the Kcrala State Consumer Federation and the rest of the shops by the Kerala
H State Beverages Corporation. This is apart from the sales in bars, clubs, etc.
STATE v. DEVANS MODERN BREWERIES [LAKSHMANAN, J.] 967
under licences issued in relevant Fonns under the Foreign Liquor Rules. The A
Kerala State Beverages Corporation gets its supply of!MFL from di~tributors
within the State as also from manufacturers and distributors outside the State.
The Kerala State Beverages Corporation calls for tenders fixing a floor price
for the supply with a view to ensure quality as also to prevent unhealthy
competition and loss of revenue. Based on these tenders, the Kerala State B
Beverages Corporation enters into contracts with the manufacturers/distributors.
After entering into contracts with the manufacturers/distributors, to enable
the import of IMFL to the State, the Kerala State Beverages Corporation
applies to the authorized officer for grant of pennit for import of specified
quantity of IMFL after depositing in advance, the counterveiling duty and the
import fee payable on the quantity of IMFL sought to be imported. Details C
of the payments so' made are entered in Column No. 6 of the import pennit
issued. The name of the outside manufacturer/distributor from whom the
IMFL is being procured is also mentioned in the pennit for identification of
the product. The import fee paid by the Kerala State Beverages Corporation
is ultimately passed on to the consumers by adding to the final selling price
of the product. The State has to deploy its officers at all the check-posts to D
monitor import of IMFL. Every consignment, on crossing the border has to
be escorted till it reaches the warehouse of the Kerala State Beverages
Corporation to check diversion and misuse and the State is incurring heavy
expenses for regulating import of liquor into the State. Therefore, the import
fee was increased from Rs. 2/- per proof litre to Rs. 5 per proof litre in 1995. E
Even after the increase in the import fee, the import of liquor to the State was
steadily increasing till 1999-2000. The affidavit now filed along with the
Annexures gives us a clear picture of the levy of import fee while issuing
permit to import IMFL. Before the High Court, the learned counsel for the
appellants therein have raised only one contention that the imposition of
import fee is not in the nature of regulatory fee. It was contended on behalf F
of the State that the levy is pennissible and authorized under Sections 6, 7,
17 and 18 of th~ (\ct and that the import fee is the only fee realized from a
finn which supplies liquor to the Keral11 State Beverages Corporation to be
supplied to other licensees in the State and that the levy of import fee is also
well founded under the Act basically referable to the legislative Entries 8 and G
66 of List Ill of the Seventh Schedule to the Constitution. The learned Single
Judge and also the learned Judges of the Division Bench rejected the contention
of the licensee and upheld the levy on import.

At the time of hearing, many judgments were cited by both sides in
regard of their respective contentions. I feel it is not necessary to deal with H
968 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A or refer to all the judgments cited, as in my opinion, the real questions in this
case as contended by the licensees are that the State has no authority to
impose the import fee and that it is violative of Articles 301 and 304 of the
Constitution. The real question, in my opinion, is whether Articles 30 I and
304 at all apply. In the alternative, it was submitted by learned senior counsel
for the State of Punjab that compensatory or regulatory levies have always
B been held to be valid and permissible under Articles 30 I and 304. In this
context, he referred to the decisions in the cases of Atiabari Tea Co., ltd v.
The State of Assam and Ors., [1961] I SCR 809, The Automobile Transport
(Rajasthan) Ltd. case (supra), State ofBihar v. Chambers ofCommerce (1996)
103 STC I, Godfrey Ltd v. State o/Rajasthan (2001) 121STC54 and Jindal
C Strips Limited and Ors. v. State of Haryana (2002) 19 PHT 299. If that be
so, it is undeniable that regulations deemed necessary and apposite are liable
to be imposed on liquor trade more than any other activity since the former
is considered inherent are noxious, pernicious and res extra commercium.
Regulation is thus the hall-mark of the State action in respect of liquor and
that regulation can be and indeed normally is through the mode of imposition
D of levies which levy is also necessary to regulate by keeping out and excluding
persons entering the liquor trade. We have already extracted the provisions
of 1914 Act. The contention of the licensee is that once a L-1 wholesale
liquor licence is issued to him, the State's permissive privilege in respect of
liquor stands permanently parted with and thereafter no additional or further
E levy of any kind even in respect of activities other than wholesale selling
under L-1 licence can be raised.

This argument, in my opinion, is completely fallacious and ex-facie
unsustainable. This contention ignores the well-established legal statutory
and operational distinction demarcating and dealing separately with several
F distinct activities in relation to liquor, namely, manufacture, possession, sale,
transport, import, export consumption on premises of hotel/restaurant etc.
Each activity is separately defined and separately itemized and separately
dealt with in statute as also in the rules and involves a diverse range of
separate licences, passes, permits and applications each of differing contained
G format and ambit. The import fee levied in the instant case is fully authorized
by the 1914 Act and delegated legislation thereunder and is clearly intra
vires. I have already listed in paragraphs above all the provisions authorizing
the levy in question in the instant case which is mentioned in the additional
affidavit of the State of Punjab. The provisions summarized above confer
ample regulatory power upon the excise authority to regulate several activities
H related with liquor in any reasonable manner and in particular to regulate its
STATE v. DEVANS MODERN BREWERIES [LAKSHMANAN, J.) 969

import: The regulatory power includes power to levy a monthly fee in that A
regard such as the impugned import fee. Indeed levy for such fee to exclude
. and to keep out certain people from the liquor trade and to keep the number
of persons participating in this trade within reasonable, limits has been
recognized by this Court in Har Shankar 's case (supra) relying upon and
quoting American decisions.
B
The statutory provision in question must be interpreted and read broadly
and not narrowly. The approach must be to uphold the validity of the impugned·
delegated legislation by a process of fair and broad reading of the statutory
mandate. Even ifthe Act does not specifically provide for the levy in question
by name to provide statutory authority for its imposition by delegated C
legislation and the levy is actually imposed by the delegated legislation made
µnder that Statute, the same would be valid and not ultra vires. In the instant
case, the levy has been imposed by the Punjab Fiscal Orders as amended
from time to time under specific statutory authority to issue such orders
under Sections 58 and 59 of the Act, in particular, and other provisions of the
Act as itemized in paragraphs supra. Since the rule making power has not D
been shown to be bad, the Punjab Fiscal Orders, once made have the effect
of the Statute itself and become part of the Statute since they have been made
under valid rule making power. The statutory provisions of the Punjab Act
and the Rules itemized in paragraphs above amply delineate that regulatory
power and the impugned import fee is nothing but a facet and manifestation E
of that regulation by the State. Hence, in my view, the levy in question is
valid as a regulatory levy which has consistently been held on the touchstone
of Article 304.

The conduct of the respondent/licensee in attempting to wriggle out of
his contractual obligations is contrary to the clear and unequivocal principle F
laid down in Har Shankar 's case (supra). The issuance of liquor licence
constitutes a contract between the parties i.e. between Excise Authorities on
the one hand and the individual applicant contractor on the other. The
respondent having accepted the contracts/licences, having fully exploited the
advantage flowing from the contract to the exclusion of others and having
reaped rich commercial benefits from that activity, it is not open to the G
contractor to wriggle out from the contract by challenging, inter alia, any
particular condition of that contract/licence. The respondent herein seeks to
. do exactly that by challenging the condition requiring him to pay import fee.
Har .Shankar 's ·case (supra) clearly disentitle the liquor contractor from
wriggling out of contractual obligations solemnly undertaken. Likewise, in H
970 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A Panna Lat's case (supra), this Court in the specific context of liquor licence
had this to say.

"The licenses in the present case are contracts between the parties.
The licensees voluntarily accepted the contracts. They fully exploited
to their advantage the contracts to the exclusion of others. The High
B Court rightly said that it was not open to the appellants to resile from
the contracts on the ground that the terms of payment were onerous.
The reasons given by the High Court were that the licensees accepted
the license by excluding their competitors and it would not be open
to the licensees to challenge the terms either on the ground of
inconvenient consequence of terms or of harshness of terms."
c
As a matter of fact, the respondent is the only and the sole challenger of the
instant levy of import fee. It is stated that no other liquor contractor or beer
manufacturer or importer has challenged the import fee in Punjab at any
point of time at any forum. The import fee on IMFL on rectified spirit was
D levied from the Year 1986 and at no time the respondent challenged the levy
of import fee from 1986 onwards on IMFL and continued to import large
quantities of beer and paid large sums of fee as per the prescribed rates. The
writ petition was tiled only in April, 1996. The respondent accepted the
burden of this contract and obviously did so because he enjoyed the benefits
flowing from this contract. Having done so, in my view, he cannot and
E should not be allowed to wriggle out of his contractual and licence obligation.

In the case of Government of Maharashtra and Ors. v. Mis. Deokar's
Distillery (V.N. Khare, CJ/ and Dr. AR. Lakshmanan, J concurring) reported
in [2003] 5 SCC 669, this Court, in para 32, observed thus:

F "The order of the High Court is bad in law. The High Court, in our
view, has erred in not appreciating that the impugned demand notice
was also in the nature of demanding balance of the price of the
exclusive privilege which would become final only on issue of the
notification, order under Article 309, the bulk of which has already
been recovered in advance, which privilege exclusively vests with the
G
Government considering the effect of provisions especially Section
49 and Section 143 (2)(u) of the Prohibition Act. In our opinion, the
establishment charges demanded are in the nature of price for parting
with the privilege to permit manufacture and sale or liquor, and the
privilege exclusively vests with the Government."
H
STATE v. DEVANS MODERN BREWERIES [LAKSHMANAN, J.] 971
Again in para 40, this Court observed thus: A
"As pointed out by Y.V. Chandrachud, C.J., as he then was, what the
respondents agreed to pay was the price of an exclusive privilege
which the State parted with in their favour. They cannot, therefore,
avoid their liability by contending that the payment which they were
called upon to make is truly in the nature of excise duty and no such B
duty can be imposed on liquor not lifted or purchased by them. The
respondents, in our view, must fail in their contention both on account
of the objection to the maintainability of the appeal& and on merits
concerning the nature of the payment which they are liable to make."

In the above case, the power of the State Government under Section 58 C
A to recover cost of supervision was challenged. Per majority, this Court held
that the power of the State Government extends to recovering the differential
amount consequent to upward revision of pay-scales and allowances with
retrospective effect and that such differential amount can be demanded even
in exercise of residuary powers of the State Government and that the liquor D
licensees having given undertaking in the application in Form PLA prescribed
under the Rules to abide by the orders made under the Act and the rules
could not escape their contractual liability. This Court also further held that
the establishment charges demanded are in the nature of price for parting
with the privilege to permit manufacture and sale of liquor and the privilege
exclusively rests with the Government. E
The same effect is the judgment of this Court in the case of Assistant
Excise Commissioner and Ors. v. Issac Peter and Ors., [I994) 4 SCC 104.
In the context of a liquor contract, this Court held as under:

" ....... We are, therefore, of the opinion that in case of contracts freely F
entered into with the State, like the present ones, there is no room for
invoking the doctrine of fairness and reasonableness against one party
to the contract (State), for the purpose of altering or adding to the
terms and conditions of the contract, merely because it happens to be
the State. In such cases, the mutual rights and liabilities of the parties G
are governed by the terms of the contracts (which may be statutory
in some contracts are entered into pursuant to public auction, floating
of tenders or by -negotiation. There is no compulsion on anyone to
enter into these contracts. It is voluntary on both sides. There can be
no question of the State power being involved in such contracts. It
bears repetition to say that the State does not guarantee profit to the H
972 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A licensees in such contracts. There is no warranty against incurring
losses. It is a business for the licensees. Whether they make profit or
incur loss is no concern of the State. In law, it is entitled to its money
under the contract. It is not as if the licensees are going to pay more
to the State in case they make substantial profits. We reiterate that
what we have said hereinabove is in the context of contracts entered
B into between the State and its citizens pursuant to public auction,
floating of tenders or by negotiation. It is not necessary to say more
than this for the purpose of these otherwise than by public auction,
floating of tenders or negotiation, we need not express any opinion
herein."
c Kalyani Stores v. The State of Orissa and,Ors., [1966] 1 SCR 865 case
was heavily relied on by the respond~nt/licensee. ·The Constitution Bench has
not in that cases adverted to the issue of liquor trade being res extra
commercium and has simply considered whether Articles 301/304 are violateo
or not. The case, in my opinion, would have no relevance to the instant case.
D
The following judgments can be usefully referred for the proposition
that the rights are vested in the State which it may part with for a consideration.

In the case of Har Shankar and Ors. etc. etc. v. The Deputy Excise and
Taxation Commissioner and Ors. etc., AIR (1975) SC 1121 (paras 44, 46, 47,
E 50, 51, 53, 55, 57 and 58 dealt with the rights of the State in this regard).

In the case of Nashirwar and Ors. v. State of Madhya Pradesh and Ors,
[1975] I SCC 29, this Court held that by virtue of Entry 8 of List II, the
Government can hold a public auction to grant lease, the amount representing
the consideration for the grant of such right or privilege.
F
In the case of State of Orissa and Ors. v. Harinarayan Jaiswal and
Ors., [1972] 2 SCC 36, this Court held that the Government is the exclusive
owner of the privilege to sell the right to sell liquor, reliance on Article
19( I )(g) or Article 14 of the Constitution becomes irrelevant.

G In the case of State of Andhra Pradesh v. Prabhakara Reddy, AIR
(1987) SC 933 held that all rights in regard to manufacture and sale of
intoxicants vest in the State and it is open to the State to part with those rights
for a consideration and that the consideration for parting with the privilege
of the State is neither excise duty nor licence fee but it is the price of the
H privilege.
STATE v. DEV ANS MODERN BREWERIES [LAKSHMANAN, J.] 973
In the case of State of U.P. and Ors. v. Sheopat Rai and Ors., [1994] A
Supp (I) SCC 8 held that the tenn 'licence fee' in the context of the U.P.
Excise Law connotes the idea of it being the consideration in money received
by the Government from a private person by grant of a licence (contract) for
parting in such person's favour, its exclusive privilege or right of carrying on
certain activities in respect of country liquor or drugs under 'auction system' B
in public auctions.

In the case of State of Haryana and Ors. v. Lal Chand and Ors., AIR
(1984) SC 1326, this Court has held that the licence fee is a price for acquiring
such privilege and one who makes a bid for the grant of such privilege with
a full knowledge of the tenns and conditions attaching to the auction cannot C
be pennitted to wriggle out of the contractual obligations arising out of the
acceptance of his bid, by a petition under Article 226.

State of Punjablv.'Mls. Dial Chand Gian Chand & Co., AIR (1983) SC
743 is also a case arising under the Punjab Intoxicants Licence and Sale
Order, 1956. This Court held that the writ jurisdiction of the High Courts D
under Article 226 of the Constitution is not intended to facilitate avoidance
of obligations voluntarily incurred.

In the case of Khoday Distilleries Ltd and Ors. v. State of Karnataka
and Ors., [199?] 1 SCC 574. The Constitution Bench of this Court held that
a citizen has no fundamental right to trade or business in liquor as a beverage E
and that the activities which are res extra commercium cannot be carried on
by any citizen and the State can prohibit completely trade or business in
potable liquor since trade or business in liquor as a beverage is res extra
commercium and that the .State may also create monopoly in itself for trade
or business in such liquor. It is further held that the State can further place F
restrictions and limitations on such trade or business and such restrictiQ!:IS
and limitations can be placed by subordinate legislation as well. It is also
further held that the State is not precluded from regulating the trade and
business in potable liquor merely because it imposes tax or fee on purchase
or sale and income is derived from such liquor.
G
In the case of Solomon Antony and Ors. v. State of Kera/a and Ors.,
[2001] 3 SCC 694, the contractors are required to pay the consideration
payable to the State for sale of liquor for importing designated quantity of
rectified spirit in respect of which the consideration payable is equivalent to
excise duty. This Court justified the order passed by the High Court in holding
that the contractors are bound to pay the amount which is a measured excise H
974 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A duty payable on the designated quantum of rectified spirit in terms of Rule
8 of the Rules and which the contractors had undertaken in the agreements
executed by them to pay. This Court further held that the power of the
Government to enhance the rate of excise duty from Rs. 5 per bulk litre to
Rs. I0 per bulk of arrack could not be assailed.

B The Division Bench of the Kerala High Court to which I was a member
has also taken the same view in Kera/a Distilleries and Allied Products
Limitedv. Assistant Commissioner (Assessment)(/), Commercial Tax, Special
Circle, Palakkad and Ors., reported in (2000) Vol. 117 STC page 553 in the
following terms:
c "The manufacture and sale of liquor are the exclusive privilege of the
State and the State, by the process of licensing, is parting with the
said privilege and what is charged by the State is only the pr; .-ilege
price through the process of licensing and it is not excise duty."

"The concept of excise duty on production and manufacture as
D understood in the Central Excise Act cannot be equated in the case
of excise duty under the Abkari Act since the manufacture and the
sale of liquor are the exclusive privilege of the State and the State,
by the process of licensing, is parting with the said privilege and
what is charged by the State is only the privilege price through the
E process of licensing the price and it is not excise duty."

The above rulings are amongst the catena of cases on the point that the
rights are vested in the State which it may part with for consideration.

I have already dealt with the concept of contractual relationship between
F the State and the licensee whereunder the licensee having obtained a privilege
and enjoyed the benefit of it, it is not open to the licensees to turn round
subsequently and repudiate the obligations attaching with the obtained
privilege. The following are the cases on the point.

In the case of State of Haryana and Ors. v. Jage Ram and Ors., AIR
G (I 980) SC 2018, this Court held that the bids in respect of country liquor
vends at an annual auctions and the amounts which bidders agree to pay to
State Government under auction terms is neither fee nor excise duty on
undrawn liquor but price of privilege which State parted in their favour.

In the case of State of Haryana and Ors. v. Lal Chand and Ors., [ 1984]
H 3 sec 634, this Court held that after making bid for grant of exclusive
STA TE v. DEVANS MODERN BREWERIES [LAKSHMANAN, J.] 975
privilege of liquor vend with full knowledge of tenns and conditions of A
auction, the bidder cannot wriggle out of the contractual obligations arising
out of acceptance of his bid by filing writ petition.

In the case of State of Punjab v. Mis Dial Chand Gian Chand and
Company, [1983] 2 SCC 503, this Court held that a licensee who participates
in the auction voluntarily and with full knowledge is bound by the bargain B
and the writ petition filed under Article 226 by such licensee in an attempt
to dictate tenns of the licence without paying the licence fee must fail. The
highest bidder after acceptance of his bid cannot challenge the second auction
on ground of adverse effect on his business.
. ,
. . \Ye shall now C()nsid~r the cases on the fre~~om guaranteed by Article
c
301 which is not available to liquor because i_t is a n~xious substance injurious
to public health order. and m~rality. The follow~ng cases can be. usefully
referred:.
,, • · fr ··•, _· 1 ·

D
,, • • - ·_ , _ •

In the case of Mis Sat Pal and Co. a_nd Ors. v. Lt. Governor of Delhi
and Ors., [1979] '4 SCC 232, this Court.. held that the Ordinance ' . .,
does not
infringe any right under Article 19 (l)(g) or Article 301 there being no
fundamental right to trade in liquor and that the ordinance was both. a fiscal
measure. and one for safeguarding public health and public morals and hence
it could validly be made retrospective and that the test of reasonable restrictions
has to be judged in the light of the purpose for which the restriction is E
imposed, that is, as may be required in the public interest and restrictions that
may validly be imposed under Article 304(b) are those which seek to protect
public health, safety, morals and property within the territory and the present
levy under the amended provisions of the Act in its application to Delhi
could certainly be said to be one enacted both with the object of regulating F
the trade or business in intoxicants and with a view to realising the goal fixed
in Article 47 of the Constitution.

In the case of The State of Bombay v. R.M.D. Chamarbaugwala, [1957]
SCR 874, this Court held as under:

"Gambling activities were in their very nature and essence extra-
G
commercium although they might appear in the trappings of trade.
They were considered to be a sinful and pernicious vice by the ancient
seers and law-givers of India and have been deprecated by the laws
of England, Scotland, United States of America and Australia. The
Constitution-makers of India, out to create a welfare State, could H
976 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A never have intended to raise betting and gambling to the status of
trade, business, commerce or intercourse.

The petitioners, therefore, had no fundamental right under Art. 19( I)(g)
or freedom under Art. 30 I of the Constitution in respect of their prize
competitions that could be violated and the validity of the impugned
B act, in pith and substance an Act relating to gambling, did not fall to
be tested by Arts. 19(6) and 304 of the Constitution"

In the case of Mis Fatehchand Himmatlal and Ors. etc. v. State of
Maharashtra, [1977] 2 SCC 670, this Court held as follows:

c "A meaningful, yet minimal analysis of the Debt Act, read in the
light of the times and circumstances which compelled its enactment,
will bring out .the human setting of the statute. The bulk of the
beneficiaries are rural indigents and the rest urban workers. These are
weaker sections for whom constitutional concern is shown because
institutional credit instrumentalities have ignored them. Money lending
D may be ancillary to commercial activity and benignant in its effects,
but money-lending may also be ghastly when it facilitates no flow of
trade, no movement of commerce, no promotion of intercourse, no
servicing of business, but merely stagnates rural economy, strangulates
the borrowing community and turns malignant in its repercussions.
E The former may surely be trade, but the latter - the law may well say
- is not trade. This narrow, deleterious pattern of money-lending cannot
be classed as 'trade'. Hence Article 301 does not apply."

In the case of B.R. Enterprises etc. v. State of U.P. and Ors. etc.,
[1999] 9 SCC 700, this Court held that this case relates to lottery which is
F gambling in nature. This Court held that merely because a lottery transaction
is tun by State itself will not change its character as res extra commercium
and that merely because lottery tickets are goods, transaction of sale thereof
cannot constitute trade and while trade contains skill with no chance, gambling
contains the element of chance with no skill and, therefore, ban by any State
G on the sale of lotteries of other States within its territory does not violate
Articles 30 I and 303.

We have already noticed that the regulation in the interest of public
health and order takes the case. out of Article 301, and Regulation for the
purpose of Article 301 is not confined tQ regulations which will facilitate the
H trade.
- STA TE v. DEVANS MODERN BREWERIES [LAKSHMANAN, J.]

In the case of Mis. Bishamber Dayal Chandra Mohan etc. etc. v. State
977
A
of U.P. and Others etc. etc., AIR (1982) SC 33, this Court in paras 36 and
37 observed as under :

"The word 'free' in Art. 30 I does not mean freedom from laws or
from regulations. Art. 30 I guarantees freedom of trade, commerce
and intercourse throughout the country from any State barriers. It B
declares that subject to the other provisions of Part XIII, trade,
commerce and intercourse throughout the territory of India shall be
free. The whole object was to bring about the economic unity of the
country under a federal structure, so that the people may feel that
they are members of one nation is to guarantee to every citizen the C
freedom of movement and residence throughout the country. That is
achieved by Art. 19(l)(d) and (e). No less important is the freedom
of movement or passage of commodities from one part of the country
to another. The progress of the country as a whole also requires free
flow of commerce and intercourse as between different parts, without
any barrier. This freedom of trade, commerce and intercourse D
throughout the country without any 'State barriers' is not confined to
inter-State trade as well. In other words, subject to the provisions of
Part XIII, no restrictions can be imposed upon the flow of trade,
commerce and intercourse, not only between one State and another,
but between any two points within the territory of India whether any E
State border has to be cross or not.

It is now well settled that the regulatory measures or measures
imposing compensatory taxes do not come within the purview of the
restrictions contemplated by Art. 30 I. The regulatory measures should,
however, be such as do not impede the freedom of trade, commerce F
and intercourse. It cannot be said that the instructions conveyed by
the State Government by the impugned teleprinter message imposing
the requirement for the making of an endorsement by the Deputy
Marketing Officer or the Senior Marketing Officer or the physical
verification of stocks of wheat during the course of transit, are a
'restriction' on the freedom of trade, commerce and intercourse within G
the country, i.e., across the State or from one part of the State to
another. These are nothing but regulatory measures to ensure that the
excess stock of wheat held by a wholesale dealer, commission agent
or a retailer is not transported to a place outside the State or from one
district to anoth~r. Even if these requirements are construed to be a
H
978 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A 'restriction' on the inter-State or intra-State trade the limitation so
imposed on the enjoyment of the right cannot be considered to be
arbitrary or of an excessive nature. Nor can it be said that such
restrictions do not satisfy the test of reasonableness."

The case of State of Tamil Nadu v. Mis. Hind Stone etc. etc., reported
B in AIR (1981) SC 711 relates to non-renewal of mining lease for black
granite. It was submitted by the counsel in this case, that the impugned rule
offends Articles 301 and 303 of the Constitution. This Court rejected the
same as without force. This Court held as under:

" .......The Mines & Minerals (Regulation and Development) Act is,
c without doubt a regulatory measure. Parliament having enacted it for
the express purpose of "the regulation of mines and the development
of minerals". The Act and the rules properly made thereunder are,
therefore, outside the purview of Artie.le 30 I. Even otherwise, Article
302 which enables Parliament, by law, to impose such restrictions on
D the freedom of trade, commerce or intercourse between one State and
another or within any part of the territory of India as may be required
in the public interest also furnishes an answer to the claim based on
the alleged contravention of Article 30 !... ......."

The case of State of Tamil Nadu and Ors. v. Mis. Sanjeetha Trading
E Co. and Ors., [1993] I sec 236 relates to prohibition of export of timber
outside the State to prevent illicit felling. This Court held that where goods
are declared to be essential commodities/articles and export thereof prohibited
with a view to effect equitable distribution at a fair price the prohibition in
the circumstances would not be an unreasonable restriction. This Court further
held as follows:
F
"The power to impose restrictions conferred on the Parliament under
Art. 302 is not qualified by the word 'reasonable' while in Art. 304
( 1Xb) which confers such power on the State legislature the expression
'reasonable' precedes 'restrictions' and a further check is provided
by the proviso thereto. Therefore, before Art. 304 comes into play, it
G has to be held that the prohibition introduced by the amendment on
movement and transport of any particular item amounts to a restriction.
Any prohibition on movement of any article from one State to another
has to be examined with reference to the facts and circumstances of
that particular case - whether it amounts to regulation only, taking
H into consideration the local conditions prevailing, the necessity for
STA TE v. DEVANS MODERN BREWERIES [LAKSHMANAN, J.] 979
such prohibition and what public interest is sought to be served by A
ii\iposition thereof."

In the case of State of Bihar and Ors. v. Harihar Prasad Debuka etc.,
AIR (1989) SC 1119, this Court observed thus:

"In the instant case what is being insisted is a pennit disclosing B
particulars of the goods to be transported. Art. 304(b) clearly pennits
the State legislature to impose such a reasonable restriction on the
freedom of trade, commerce and intercourse with or within that State
as may be required in the public interest. The word 'with' involves
an element having its sit us in another State. It cannot be therefore
said that the insistence on the disclosure in respect of goods entering C
Bihar from another State if otherwise legitimate would not be protected
by Art. 304(b)."

The High Court of Punjab proceeded to decide the case on a total
wrong assumption that the import fee levied is in the nature of duty which D
cannot be imposed under the Excise Act, 1984 when, in fact, the import fee
levied is the price for parting with the privilege given to the licensee to
import beer into the State and, therefore, the same is within the competence
of the State to impose import fee. I am of the view that the licensee besides
the payment of duty etc. is to comply with such conditions as the State
Government may impose while fonnulating the excise policy for the concerned E
year. The State, in my view, is competent and entitled to impose excise duty
or counterveiling duty. Besides there is no bar on the State to charge any
other fees on account of consideration for the privilege provided to the licensee
to trade in liquor which privilege he did not otherwise have. Th.,refore, the
licensee is liable to comply with the other conditions imposed by the State
Government from time to time. As held in many cases referred to supra the F
levy in dispute under challenge is an import levy. It is neither duty nor
counterveiling duty. It is part of the consideration money i.e. the price of the
privilege given to the licensees for dealing in liquor. The decision of this
Court in the case of Kalyani Stores (supra) is not applicable to the facts of
the present case and that the Punjab Excise Act, 1914 is an existing law G
under Clause I 0 of Article 366 of the Constitution of India and its continued
application is saved by~rticle 372 of the Constitution of India. It is also
saved by Article 305 of the Constitution from attack under Articles 301 and
303 of the Constitution. It is well within the legislative competence of the
State.
H
980 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A In the result, Civil Appeal No. 3017 of 1997 filed by the State of
Punjab is allowed and the judgment of the High Court which is impugned in
this Civil Appeal stands set aside. Likewise, the appeals filed by the appellants
in Civil Appeal Nos. 2696 and 2697 are dismissed and the common judgment
of the High Court in Writ Appeal Nos. 3 and 10 of2001 is affirmed. However,
there shall be no order as to costs.
B
B.N. AGRA WAL, J. The question involved in this batch of appeals,
arising out of an order of reference made by a three Judge Bench of this
Court, is as to whether Article 30 I of the Constitution of India (hereinafter
referred to as "the Constitution") will have any application in relatioll to
C potable liquor the business whereof is said to be res extra commercium; in
view of the decisions of this Court in Cooverjee B. Bharucha v. The Excise
Commissioner and The Chief Commissioner, Ajmer, and Ors., [1954] SCR
873, The State of Bombay v. R.M.D. Chambarbaugwala, [1957] SCR 874;
Har Shan/car and Ors. v. The Deputy Excise and Taxation Commissioner and
Ors., [1975] 1 SCC 737 and Khoday Distilleries Ltd. and Ors., v. State of
D Karna/aka and Ors., [1995] 1 sec 574.

These appeals arise out of judgements and orders passed by Punjab and
Haryana High Court and Kerala High Court. The State of Punjab imposed tax
on import of potable liquor manufactured in other States. The State of Kerala
also imposed a similar levy. The Punjab and Haryana High Court by its
E judgment dated 17.01.1997 passed in Writ Petition (Civil) No. 5358 of 1996
quashed the notification dated 27.03.1996 imposing levy of import duty by
the State of Punjab in exercise of its powers conferred upon it under Sections
31, 32 and 58 of the Punjab Excise Act, 1914 (hereinafter referred to as "the
Punjab Act') on two grounds viz.; (i) the State has no power to levy such tax
F under the Punjab Act and (ii) in view of the Constitution Bench decision of
this Court in Kalyani Stores v. The State of Orissa and Ors., [1966] I SCR
865, the imposition of duty is ultra vires Article 30 I of the Constitution.

So far as challenge to imposition of import duty on potable liquor by
the State of Kerala under Abkari Act, 1077 (hereinafter referred to as "the
G Abkari Act") is concerned, the Kerala High Court has dismissed the writ
application on grounds, inter alia, that such duty, being regulatory in nature,
is not ultra vires the Abkari Act. The High Court did not enter into the
question of applicability of Article 301 of the Constitution vis-a-vis effect of
imposition of such import duty on pctable liquor.
H Mr. P.N. Misra, learned Senior Counsel appearing on behalf of the
STATE v. DEV ANS MODERN BREWERIES [B.N. AGRA WAL, J.] 981

appellant - State of Punjab in the Punjab matter having regard to several A
provisions of the Punjab Act submitted that the High Court committed a
manifest error in holding that the State has no power to impose such a tax.
As regards applicability of Article 301 of the Constitution, the learned counsel
contended that as the State has the exclusive privilege to deal in potable
liquor in any manner it likes, it has the concomitant requisite power to impose B
such tax by way of restriction on import. The learned counsel further contended
that as no trader can claim any fundamental right in carrying on trade or
business in potable liquor, question of applicability of Article 301 of the
Constitution would not arise. It may not be out of place to mention that at
the stage of reply Dr. A.M. Singhvi, learned Senior Counsel filed written
submissions on behalf of the State of Punjab more or les~ reiterating the C
contentions raised by Mr. P.N. Misra.

Mr. T.L.V. Iyer, the learned senior counsel appearing on behalf of State
of Kerala submitted that it is within the province of the State to impose
restrictions on import of potable liquor by imposing import duty. According
to learned counsel such a duty has not been imposed by the State in exercise D
of its statutory power conferred upon it in terms of Entry 51, List II of the
Seventh Schedule to the Constitution but regulatory powers as envisaged in
Entry 8 thereof. In other words, Mr. Iyer contended that the import duty has
been levied not as a measure of tax but as a part of regulation on the trade.
The learned counsel further contended, although such a stand has not been E
taken by the State before the High Court, but having regard to the well-
settled principle of law as laid down by this Court and referred to hereinafter,
the State can impose such duty as a price for parting with its exclusive
privilege.

In support of the contentions the learned senior counsel appearing for F
the State of Punjab and that of Kerala relied upon the decisions of this Court
in the cases of Har Shankar (supra), Nashirwar and Ors. v. State of Madhya
Pradesh and Ors., [1975] 1 SCC 29, State of Orissa and Ors. v. Harinarayan
Jaiswal and Ors., [ 1972] 2 sec 36, State Bank of Haryana and Ors. V. Jage
Ram and Ors., [1980] 3 SCC 599, State of Andhra Pradesh v. Y Prabhakara
Reddy [1987] 2 SCC 136, State of U.P. and Ors. v. Sheopat Rai and Ors., G
[1994] Suppl. 1 SCC 8, State of Haryana and Ors. v. Lal Chand and Ors.,
[1984] 3 SCC 634, State of Punjab v. Mis. Dial Chand Gian Chand and
- Company [1983] 2 SCC 503, Solomon Antony and Ors. v. State of Kera/a
• and Ors., [2001] 3 SCC 694, Khoday Distilleries ltd. and Ors., (supra) and
Government of Maharashtra and Ors. v. Mis. Deokar 's Distillery, JT (2003) H
982 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A 3 SC 86.
Mr. Mohan Jain, learned counsel appearing on behalf of the respondents-
licensees of the State of Punjab and Mr. R.Venkataramani, learned Senior
Counsel, appearing on behalf of the intervenor, on the oth1~r hand, contended
that power to impose tax by the State of Punjab is circumscribed by Sub-
B section 3 of Section 33A of the Punjab Act. It was submitted that power to
impose counterveiling duty being statutorily restricted, the State can.not be
permitted to achieve the same object indirectly by taking recourse to 'exclusive
privilege' theory.

Mr. Ashok H. Desai and Mr. R.F. Nariman, learned senior counsel
C appearing on behalf of the licensees - appellants in the Kerala matter raised
the following contentions:

(I) Levy of import duty having been expressly conferred by the
statute, the State cannot justify such a levy on the spacious
ground of having exclusive privilege of dealing in potable liquor.
D
(2) The State of Kerala having specifically raised a plea that such
a levy was justified by way of a fee and/or as a regulatory
measure cannot now tum round and contend that the levy was
imposed by way of a price for parting with the exclusive privilege
of the State. As the State of Kerala has not granted any licence
E to the appellants, the question of parting of any privilege' in
their favour does not arise. Pointing out to the admitted fact that
Kerala State Beverages Corporation has been granted the
monopoly to deal in liquor and the appellants and other traders
having been selling liquor to the Corporation, the question of
F rendition of any service by the State of Kerala to the licensees
so as to justify imposition of a fee or regulatory tax therefor
does not arise.
(3) Any fee regulating trade.by grant of a licence would amount to
'tax' within the meaning of clause (28) of Article 366 of the
G Constitution. Reliance in this connection has been placed on
D.C. Gouse & Co. etc. v. State of Kera/a and Anr. etc., [1980]
I SCR 804 and Corporation of Ca/cul/a and Anr. v. Liberty

H
Cinema, [1965] 2 SCR 477.

(4) The applicability of the doctrine of "res extra commercium"
and/ or the concept of privilege theory on the part of the State
-
STATE v. DEV ANS MODERN BREWERIES (B.N. AGRAWAL, J.) 983
would be attracted only in a 'no right' situation. Once a right to A
trade has been conferred by the State, it cannot take umbrage
under the privilege doctrine. Even the State, at the time of grant
of licence by way of exclusive privilege, is bound by its own
action, which in a given case, may attract the wrath of Article
14 of the Constitution. Reliance in this behalf has been placed
on State of MP. and Ors. v. Nandlal Jaiswal and Ors.. [I 986]
B
4 sec 566.

(5) The Constitution Bench of this Court in Krishna Kumar Narula
v. The State ofJammu and Kashmir and Ors., [1967] 3 SCR 50
having clearly laid down that trade in liquor would come within
the purview of Article 19(1 )(g) of the Constitution, the State c
can only impose a reasonable restriction in terms of Clause (6)
of Article 19 thereof. In Khoday Distilleries Ltd. (supra), this
Court having clearly held that when a licence is granted, persons
similarly situated cannot be discriminated against which would
clearly lead to the conclusion that not only a fundamental right D
in terms of Article 14 of the Constitution but also other
constitutional rights including those contained in Part XIII of
the Constitution are available in relation to trade in liquor.
(6) In Kalyani Stores (supra), H. Anraj v. Government of Tamil
Nadu, [1986] I SCC 414 and State ofMadhya Pradesh v. Bhailal E
Bhai and Ors., [ 1964] 6 SCR 261 this Court having clearly held
that Article 30 I of the Constitution would be applicable also in
relation to obnoxious trade, there is no reason as to why the said
decisions shall be departed from.

(7) Keeping in view the decisions of this Court in Atiabari Tea
F
Company Limited v. The State of Assam and Ors., [1961] I
SCR 809 and The Automobile Transport (Rajasthan) Ltd. v. The
State of Rajasthan and Ors., [1963] I SCR 491 the purpose of
Article 301 of Constitution being to maintain economic unity of
the entire country, the State cannot by imposition ofa tax infringe
upon the provisions contained in Part XIII of the Constitution G
which is a self-contained part.

(8) The phraseology, used in Article 301 of the Constitution, namely,
... trade, commerce and intercourse being of wide amplitude, the
right to carry on trade and business as envisaged in Article
J9(1)(g) or Article 298 of the Constitution cannot restrict the H
984 SUPREME COURT .REPORTS (2003] SUPP. 5 S.C.R.

A scope and ambit thereof.

In view of the rival contentions, as noticed hereinbefore, the following
questions arise for consideration:

(i) Whether the impugned notifications issued by the State of Punjab
B and that of Kerala are illegal being fraud on the Constitution.
(ii) Whether the import duty can be said to have been validly imposed
having regard to the doctrine of 'exclusive privilege' of the
State to deal in obnoxious matters?
(iii) Whether dealing in liquor which is said to be 'res extra
C commercium' would nonetheless attract Part XIII of the
Constitution?

Re: Question (i)

The imp11gned notifications issued by the State of Punjab and that of
D Kerala read as under:
"Government of Punjab
Department of Excise and Taxation
NOTIFICATION

E The 27th March, 1996

No. G.S.R. 28/P.A.I./14/Ss. 31, 32 and 58/Amd. (I 18)/96
In exercise of powers conferred by sections 31, 32 and 33 of the
Punjab Excise Act, 1914 (Punjab Act I of 1914) and all other powers
F enabling him in this behalf, the Governor of Punjab is pleased to
make the following order, without previous publication, further to
amend the Punjab Excise Fiscal Orders, 1932, namely:-

ORDERS

I. (I) These orders may be called the Punjab Excise Fiscal (Second
G
Amendment) Orders, 1996.

(2) They shall come into force on and with effect from the first day
of April, 1996. ...
2. In the Punjab Excise Fiscal Orders, 1932 (hereinafter referred to
H as the said Orders).in order I, in the table, under column "Rate of
STATE v. DEV ANS MODERN BREWERIES [B.N. AGRAWAL. J.) 985

duty per proof litre" - A
(a) in item (I), against sub item (c) for the figures "4.00" the figures
"3.00" shall be substituted; and

(b) in item (3) against sub-item (b) for the figures "3.50" the figures
"3.00" shall be substituted.
B
3. Jn the said Orders in order 1-B -

(a) for the words "rupees three" the words "rupees two" shall be
substituted; and

(b) for clause (iii) to the proviso, the following clause shall be C
substituted namely:-

"(iii) the Indian Made Beer shall be at the rate of thirty-eight paise
per bulk litre."

4. In the said orders in order 1-D, for item (iii), the following item
shall be substituted namely:- D
"(iii) rupees four and sixty paise per bulk litre."

II. "S.R.0. No. 330/96. Jn exercise of the powers conferred by
sections 6, 7, 17 and 18 of the Abkari Act, I of I 077 and in
modification of notification issued under G.O. (p) No. 24/94/ E
TD dated 3rd March, 1994 and published as S.R.O. No. 256/94
in the Kerala Gazette Extraordinary No. 180 dated 3rd March,
1994, as subsequently amended, the Government of Kerala
hereby direct that the import and export fees, the excise duty
and luxury tax under the said sections shall be levied on the
following kinds of liquors manufactured in the State and exported F
outside the State under bond in force or manufactured elsewhere
in India and imported into the State by land, air, or sea under
bond, at the rates mentioned against each kind of liquor.

The excise duty, import fee or luxury tax on liquor
manufactured elsewhere in India and imported into the State by G
land, air or sea otherwise than under bond shall be equal to the
duty to which such liquor manufactured in the State are liable
under the Act such as import fee, excise duty or luxury tax
namely:-
H
986 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A Kind of Liquor Rate of Rate of Rate of Rate of
excise duty luxury import fee export fee
tax

I. Indian Made
B Foreign Liquor
including beer except
those consumed by
Defence Service.
( 1) When exported by
c distilleries/ Foreign
Liquor (compounding,
Rs. 5 (Rupees
five only) per
Blending and
proof litre in ..:·
(Bottling) Units/
the case of
Breweries to other
Indian Made
State and not
Foreign Liquor
D reimported into this
and Rs. 2
State, in cases where
(Rupees two
the following terms
only) per bulk
and conditions are
1itre in the case
satisfied namely:-
of beer
(i) The export is under
bond to cover the duty
at the rate of an
amount equal to 200
per cent of the value
of Indian Made
Foreign Liquor and
gallonage fee at the
rate of Rs. 3 per bulk
litre in the case of
beer.

(ii) No objection
certificate for import
certificate from the
excise authorities of
the importing State is
STATE v. DEV ANS MODERN BREWERIES [B.N. AGRA WAL, J.] 987
produced by the A
Distilleries/ Foreign
L i q u o r
(Compounding,
Blending and
Bottling) Units/
breweries. B

(iii) Excise duty,
luxury tax and export
fee paid to Kerala
Government before
export.
c
(iv) The verification
certificate from the
Excise Authorities of
the importing State is D
produced before the
Excise officers in
charge of the
Distilleries/ Foreign
L i q u o r
(Compounding, E
Blending and
Bottling) Units/
Breweries within 42
days of dispatch or
within such further F
time as the Excise
Commissioner may
allow for sufficient
cause.

( v) The duty at the G
rate of an amount
equal to 200 per cent
of the value of Indian
Made Foreign Liquor
and gallonage fee at
the rate of Rs. 3 per
H
988 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A bulk litre in the case
of Beer is paid on all
quantities
unaccounted for; and

(yi) Export is through
B air, rail road or ship. '

(2) in the case of:- (a)
Indian Made Foreign
liquor other than beer Rs. 5 per
imported (bond or
c under bond)
proof litre

(b) Beer imported
(bond or under bond)
Rs. 7 ""r
D (c) wine imported bulk litre
(duty paid or under
Bond) Rs. 2 per
bulk litre
(3) In other cases: (a)
Indian Made Foreign
E Liquor (excluding An equa
beer and wine) amount tc
JOO per cen
(b) Beer of its value

F (c) Wine Rs. 3 per
bulk litre
IV. Medicated wine Rs. 3 per
and similar bulk litre
preparations but not Rs. 12
including preparations (Rupees
G on which duty is twelve
leviable under the only) per
Medicinal and toilet proof litre
preparations (Excise •
Duties) Act, 1955
H
STATE v. DEV ANS MODERN BREWERIES [B.N. AGRA WAL, J.] 989
Published in K.G. Ex. No. 379 dt. 29.3.1997 as S.R.O. No. 210/97 A
Explanation:-Where any liquor is chargeable with duty at a rate
depending on the value of the liquor, such value shall be the value
at which the Kerala State Beverages (Manufacturing and Marketing)
Corporation Ltd., purchases such liquor from the suppliers and in
case any such liquor is not purchased by the Kerala State Beverages B
(Manufacturing and Marketing) Corporation, such value shall be the
value fixed by the Commissioner.

This notification shall come into force on Ist day of April, 1996."

Before embarking upon the questions raised in these appeals, the C
relevant provisions of the Punjab Act may be noticed which run thus:-

S.3.(9) "Excise revenue" means revenue derived or derivable from
any payment, duty fee, tax, confiscation, or fine imposed or ordered
under the provisions of this Act, or of any other law for the time
being in force relating to liquor or intoxicating drugs, but does not D
include a fine imposed by a court of law.

S.3(12). "Import" (except in the phrase "import into India") means to
bring into Punjab and Haryana otherwise than across a custom frontier
as defined by the Central Government.
E
S. I6. Import, export and transport of intoxicants:- No such intoxicant
shall be imported, exported or transported except -
(a) after payment of any duty to which it may be liable under this
Act or execution of a bond for such payment, and
(b) in compliance with such condition as the State Government may F
impose.
S. I 7. Power of State Government to prohibit import, export and
transport of intoxicants:- The State Government may by notification:-

(a) prohibit the import or export of any intoxicant into or from G
Punjab, Haryana or any part thereof; or
(b) prohibit the transport of any intoxicant.
S.18. Pass necessary for import, export and transport:- Except as
otherwise provided by any rule made under this Act, no intoxicants
exceeding such quantity as the State Government may prescribe by H
990 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A notification shall be imported or transported except under a pass issued
under the provision of the next following section;

Provided that in the case of duty paid foreign liquor such passes shall
be dispensed with unless the State Government shall by notification
otherwise direct;
B
Provided further, that no such conditions as may be determined by
the Financial Commissioner, a pass granted under the excise law in
force in another State may be deemed to be a pas-s granted under this
Act.

C S.19. Grant ofpasses for import, export and transport:-Passes for the
import, export and transport of intoxicants may be granted by the
Collector.

Provided that passes for the import and export of such intoxicant as
the Financial Commissioner may from time to time determine shall
D be granted only by the Financial Commissioner.

S.31. Duty on excisable articles:- An excise duty or a counterveiling
duty as the case may be at such rate or rates as the State Government
shall direct, may be imposed either generally or for any specified
local area, on any excisable article.
E (a) imported, exported or transported in accordance with the
provisions of section 16; or
(b) manufactured or cultivated under any licence granted under
section 23; or
F (c) manufactured in any distillery established or any distillery or
brewery licensed under section 21.
Provided as follows;-

(i) duty shall not to be so imposed on any article which has been
imported into India and was liable on importation to duty under
G the Indian Tariff Act, 1894, or the Sea Customs Act, 1878.
Explanation:- Duty may be imposed under this section at different
rates according to the places to which any excisable article is to be
removed for consumption, or according to the varying strength and
quality of such article.
H
STATE v. DEVANS MODERN BREWERIES [B.N. AGRA WAL, J.] 991
S.32. Manner in which duty may be levied:- Subject to such rules A
regulating the time, place and manner as the Financial Commissioner
may prescribed such duty shall be levied rateably, on the quantity of
exciseable article imported, exported, transported, collected or
manufactured in or issued from a distillery brewery or warehouse;

Provided that duty may be levied:- B
(a) on intoxicating drugs by an acreage rated levied on the cultivation
of the hemp plant or by a rate charged on the quantity collected.

(b) On spirit or beer manufactured in any distillery established or
any distillery or brewery licensed, under this Act in accordance C
with such scale of equivalents calculated on the quantity of
materials used or by the degree of attenuation of the wash or
wort, as the case may be as the State Government may prescribe.

(c) On tari, by a tax on each tree from which the tari is drawn;

Provided further that, where payment is made upon issue of an D
exciseable article for sale from a warehouse established or licensed
under section 22(a) it shall be made -

(a) If the State Government by notification so directs, at the rate of
duty which was in force at the date of import of that article; or
(b) In the absence of such direction by the State Government, at the E
rate of duty which is in force on that article on the date when
it is issued from the warehouse.

S.33. Payment for grant of leases: - Instead of or in addition to any
duty leviable under this chapter the State Government may accept
payment of a sum in consideration of the lease of any right under F
section 27.

S.33-A. Saving for duties being levied at commencement of the
Constitution:- (I) Until provision to the contrary is made by Parliament,
the State Government may continue to levy any duty which it was G
lawfully levying immediately before the commencement of the
Constitution under this Chapter as then in force.

(2) The duties to which this section applies are:-

(a) any duty on intoxicants which are not exciseable articles within
the meaning of this Act; and H
992 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A (b) any duty on exciseable article produced outside India and
imported into Punjab/Haryana whether across a customs frontier
as defined by the Central Government or not.

(3) Nothing in this section shall authorize the levy by the State
Government of any duty which as between goods manufactured or
B produced in the State and similar goods not so manufactured or
produced discriminates in favour of the former or which in the case
of goods manufactured or produced outside the State discriminates
between goods manufactured or produced in one locality and similar
goods manufactured or produced in another locality.

c S.34. Fees/or terms, conditions and form of. and duration of licences,
permit and passes:-(1) Every licence, permit or pass granted under
this Act shall be granted:-
(a) on payment of such fees, if any.
(b) Subject to such restrictions and on such conditions,
D
(c) In such form and containing such particulars,
(d) For such period,

as the Financial Commissioner may direct.

E (2) Any authority granting a licence under this Act may· require the
licensee to give such security for the observance of the tern1s of his
licence, or to make such deposit in view of security, as such authority
may think fit.

S.58. Power of State Government to make Rules: (!).....
F
(2) in particular and without prejudice to the generality of the foregoing
provision, the State Government may make rules:-

(d) regulating the import, export, transport or possession of any
intoxicant or Excise bottle and the transfer, price or use of any type
G or description of such bottle.
(e) regulating the period and localities for which and the persons or
classes of persons to whom licenses, permits and passes for the
vend by wholesale or by retail of any intoxicants may be granted
and regulating the number of such .licences which may be granted
H in any local area;
STATE v. DEV ANS MODERN BREWERIES [B.N. AGRA WAL, J.) 993
(f) prescribing the procedure to be followed and the matters to be A
ascertained before arty licence is granted for the retail vend for
consumption on the premises.

S.59. Powers ofFinancial Commissioner to make rules:- The Financial
Commissioner may by notification make rules:-

(d) prescribing the scale of fees or the manner of fixing the fees,
B
payable in respect of any licence, permit or pass or in respect of the
storing of any intoxicant;

Apart from provisions of the Punjab Act, it would also be necessary to
notice Sections 17 and 18 of the Abkari Act occurring in Chapter V dealing C
in "Duties, Taxes and Rentals" applicable in the State of Kerala which read
thus:

"17. Duty on liquor or intoxicating drugs:- A duty of excise or luxury
tax or both shall, if the Government so direct, be levied on all liquor
and intoxicating drugs: D
(a) permitted to be imported under Section 6; or
(b) permitted to be exported under Section 7; or
(c) permitted under Section 11 to be transported; or
(d) manufactured under any licence granted under Section 12; or E
(e) manufactured at any distillery, brewery, winery or other
manufactory established under Section 14; or
(f) issued from a distillery, brewery, winery or other manufactory
or warehouse licensed or established under Section 12 or Section F
14; or
(g) sold in any part of the State;
Provided that no duty or gallonage fee or vend fee or other taxes shall
be levied under this Act on rectified spirit including absolute alcohol
which is not intended to be used for the manufacture of potable G
liquor meant for human consumption.

Explanation:- For the purpose of this section and Section 18, the
expression "duty of excise", with reference to liquor or intoxicating
drugs, include counterveiling duty on such goods manufactured or
H
994 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A produced elsewhere in India and brought into the State.

18. How duty may be imposed:- (I) Such duty of excise may be levied:

(a) in the case of spirits or beer, either on the quantity produced in
or passed out of a distillery, brewery or warehouse licensed or
B established under Section I2 or Section I4 as the case may be
or in accordance with such scale of equivalents, calculated on
the quantity of materials used or by the degree of attenuation of
the wash or wort or on the value of the liquor as the case may
be, as the Government may prescribe;

c (b) in the case of intoxicating drugs on the quantity produced or
manufactured or issued from a warehouse licensed or established
under Section 14;
,.
(c) xxx
(d) xxx
D (e) in the case of toddy, or spirits manufactured from toddy, in the
form of a tax on each tree from which toddy is drawn, to be
paid in such instalments and for such period as the Government
may direct; or
(f) by import, export or transport duties assessed in such manner as
E the Government may direct; or
xxx

(2) The luxury tax on liquor or intoxicating drugs shall be levied:-

(i) in the case of any liquor in the form of a fee for licence for the
F
sale of the liquor and in the form of a gallonage foe or vending
fee, or in any one of such forms; and;
(ii) in the case of an intoxicating drug, in the form of a fee for
licence for the sale of the intoxicating drug.
G (3) The duty of excise under sub-section (I) and the luxury tax under
sub-section (2) shall be levied at such rates as may be fixed by the
Government, from time to time, by notification in the Gazette, not
exceeding the rates specified below:-

H
STATE v. DEV ANS MODERN BREWERIES [B.N. AGRA WAL. J.) 995
(I) Duty of excise Maximum rates A
(i) Duty of excise on liquors Rs. 200 per proof litre or an amount
(Indian made) equal to 200 per cent of the value of
the liquor.
(ii) Duty of excise on intoxicating Rs. I per gram or
drugs Rs. 933. IO perseer. B
(iii) Duty of excise in the form of Rs. 50 per tree per half-year
tax on trees tapped for toddy or part thereof
(2) Luxury tax:
(a) When levied in the form of a
fee for licence for sale of
foreign liquor - c
(i) For licence for sale of foreign Rs. 15000 for a year or part thereof
liquor in wholesale
(ii) For licence for sale of foreign Rs. I2000 for a year or part
liquor in hotels or restaurants thereof
(iii) For licence for sale of Rs. 1000 for a year or part D
medicated wines thereof
(iv) For licence for sale of foreign Rs. 1500 for a year or part
liquor in non-proprietary clubs thereof
to members
(v) Xxx
(b) When levied in the form of Rs. 10 per bulk litre or E
gallonage fee Rs. 45.46 per bulk gallon
(c) When levied in the form of a
fee for licence for the sale of
foreign liquor (Foreign made)
(i) In wholesale Rs. 25,00,000 (Rupees Twenty Five F
Iakhs) for a year or part thereof
(ii) In retail Rs. 10,00,000 (Rupees Ten lakhs)
for a year or part thereof
(iii) In hotels or restaurants Rs. 25,00,000 (Rupees Twenty Five
lakhs) for a year or part thereof
(iv) In non-proprietary clubs Rs. 10,00,000 (Rupees Ten lakhs) G
to its members for a year or part thereof
(v) In Seamen's and Marine Rs. 10,00,000 (Rupees Ten lakhs)
Officer's clubs to its members for a year or part thereof
(d) When levied in the form of
gallonage fee
H
•

996 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A (i) Foreign Liquor (Foreign made) Rs. 200 (Rupees Two hundred) per
other than beer and wine bulk litre
(ii) For foreign made beer and wine Rs. 25 (Rupees Twenty Five) per
bulk litre
Provided that where there is a difference of duty of excise or luxury
B tax as between two licence periods, such difference may be collected
in respect of all stocks of Indian made foreign liquor or intoxicating
drugs held by licensees at the close of the former period.

Note: The expression 'Foreign Liquor (Foreign made) means any
liquor produced, manufactured, or blended and compounded abroad
C and imported into India by land, air or sea.

Explanation:- Where any liquor is chargeable with duty at a rate
depending on the value of the liquor, such value shall be the value
•
at which the Kerala State Beverages (Manufacturing and Marketing)
Corporation Limited purchases such liquor from the suppliers and in
D case any such liquor is not purchased by Kerala State Beverages
(Manufacturing and Marketing) Corporation limited such value shall
be the value fixed by the Commissioner."

Provision to grant licence is contained in Chapter VI of the Abkari
Act, Section 24 whereof is as under:
E
"24. Forms and conditions of licenses, etc:-Every license or permit
granted under this Act shall be granted:-
(a) on payment of such fees, if any;
(b) for such period;
F
(c) subject to such restrictions and on such conditions; and
(d) shall be in such form and contain particulars - as the Government
may direct either generally, or in any particular instance in this
behalf."

G The State of Kerala raised a contention that the imposition of levy is
referable to Entry 66 of List II of the Seventh Schedule to the Constitution.
An additional affidavit was filed before the Kerala High Court wherein it was
averred that such a levy has been imposed also by way of a regulatory fee.
No plea whatsoever has been raised that such a levy is towards a price or a
H part of price for parting with exclusive privilege. The High Court accepted
STATEv. DEVANSMODERN BREWERIES [B.N. AGRAWAL,J.) 997

plea of the State that the levy is by way of regulatory fee in relation whereto A
doctrine of 'quid pro quo' has no application.

Before the High Court of Punjab and Haryana although a plea was
raised that the impost was by way of a price for parting with the exclusive
privilege but in its impugned judgment the High Court rejected the same
having regard to the provisions contained in Section 33A of the Punjab Act. B
The Excise Acts referred to hereinbefore seek to regulate trade and
business in liquor. They have their origin before coming into force of the
Government of India Act, 1935 or the Constitution and, thus, being pre-
. constitutional laws, validity thereof and/or any statutory impost levied C
thereunder would be subject to Articles 372 and 305 of the Constitution vis-
a-vis Article 13 thereof. The statutory rights and obligations created by reason
of the aforementioned Acts, after coming into force of the Constitution, would,
therefore, be subject to the extent saved by the Constitution itself and, thus,
the provisions thereof, the rules made thereunder and actions taken must
conform to the limitations imposed thereby. The said Acts, therefore, must be D
construed keeping in view Entries 8 and 51 of List II of the Seventh Schedule
to the Constitution. Before dealing with the matter further, it may be noticed
that in the instant case I am not concerned with validity or the interpretation
of a pre-constitutional law but a post-constitutional one. The impugned levy,
therefore, must be justified having reg<.rd to the relevant entries made in List
II of the Seventh Schedule to the Constitution. Section 6 of the Abkari Act E
permits import of liquor on payment of duties, taxes, fees and such other
sums as are due to the Government and Section 7 thereof provides for export.
Section 17 provides for levy of a duty of excise or luxury tax or both on
liquor permitted to be imported under Section 6 thereof. Section I8 deals
with the manner in which such duty should be imposed. Sections 31 and 32 p
of the Punjab Act are in pari materia with Section 17 and Section 18
respectively of the Abkari Act.

A question arises as to what is "excise duty". An excise duty can be
imposed on manufacturer of goods only in terms of statute. made by the
Parliament. An exception thereto has been made in the case ofliquor in terms G
whereof the State Legislature has been empowered to levy excise duty by
reason of Entries ·g and 51 of List II of the Seventh Schedule to the Constitution
which read thus:

"Entry 8: Intoxicating liquors, that is to say, the production,
manufacture, possession, transport, purchase and sale of intoxicating H
998 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A liquors.

Entry 51. Duties of excise on the following goods manufactured or
produced in the State and counterveiling duties at the same or lower
rates on similar goods manufactured or produced elsewhere in India:-

B (a) alcoholic liquors for human consumption;

(b) opium, Indian hemp and other narcotic drugs and narcotics; but
not including medicinal and toilet preparations containing alcohol or
any substance included in sub-paragraph (b) of this entry."

C Legislative competence of the State to levy any fee is, therefore, limited
to levy of counterveiling duty. In other words, any levy on import can not
exceed the excise duty levied on the manufacturers of the State. The State,
therefore, cannot levy any duty in addition to the counterveiling duty. The
notification refers to excise duty and counterveiling duty, which in tenns of
Section 3(6-B) of the Punjab Act mean any such excise duty or counterveiling
D duty as the case may be, as is mentioned in Entry 51 of List II of the Seventh
Schedule to the Constitution. The State, therefore, cannot levy any import fee
over and above the excise duty/counterveiling duty, having regard to the said
definition. Sections 17 and 18 of the Abkari Act, which are in pari materia
with Sections 31 and 32 of the Punjab Act, are referable to Entry 51 alone.
As Entry 51 puts an embargo on the State to make a legislation, there cannot
E be any gainsaying that any levy in terms of Sections 17 and 18 of the Abkari
Act would be subject thereto.

Can the levy be said to be valid if thereby regulatory licencee fees have
been imposed? The answer to the said question must be rendered in the
F negative.

Clause (28) of Article 366 reads as under:

"taxation" includes the imposition of any tax or impost, whether
general or local or special, and "tax" shall be construed accordingly;

G A regulatory impost would, thus, come within the purview of the tax.
A fee in terms of the constitutional schemes may be either a regulatory
licence fees or a fee in lieu of rendition of service. When no service is
rendered a fee can be justified only by way of licence fees. Such impost,
however, would be a tax and, thus, would clearly be referable to Entry 51 of
...
H List II to the Constitution and not Entry 66 thereof. See Liberty Cinema
STATE v. DEVANS MODERN BREWERIES (B.N. AGRA WAL, J.] 999
(supra), D.C. Gouse & Co. (supra) and Hindustan Times and Ors. v. State of A
U.P. and Anr., JT (2002) 9 SC 317.

Indisputably, the State while imposing import duty has exercised its
power under the statute. The impugned 'notifications in no uncertain terms
and unequivocally refer to the source of power therefor. The functions of the
State to impose a fee or tax in terms of the provisions of the statute is a B
legislative function. Such legislative function must be attributed to the source
of the State's power in terms of Entry 51 of List II to the Constitution and
not otherwise. If the legislations in question are found to be unreasonable in
nature or fraud on the Constitution, would it still be permissible for the State
to tum round and contend that such imposts are not being levied in exercise C
of its taxation power but attributable to its regulatory power? In other words,
can the State tum round and contend that what it sought to do was not in .
terms of legislative function but merely by way of executive action? Answer
to the said question again must be rendered in the negative. It is a well-settled
principle of law that a thing which cannot be done directly cannot be done
indirectly. See Priyanka Overseas Pvt. ltd. and Anr. v. Union of India and D
Ors., [1991] Supp 1 SCC 102. In relation to an administrative act, it is well-
settled that a statutory authority is not permitted to support its decision on a
ground d'hors the ground stated in the order. See Commissioner of Police,
Bombay v. Gordhandas Bhanji, AIR (1952) SC 16 and Mohinder Singh Gill
and Anr, v. The Chief Election Commissioner, New Delhi and Ors., AIR E
(1978) SC 851. On the same analogy, a legislation which is found to be fraud
on the Constitution, cannot, inter alia, be upheld on any other ground. Entry
8 of List II of the Seventh Schedule to the Constitution does not permit the
State to levy a fee on import of liquor. It deals only with production,
manufacture, possession, transport, purchase and sale of intoxicating liquors
and nothing else. Entry 8 of List II, thus, does not speak of import or export. F
Its purpose is to regulate and not impose any statutory impost. The State in
exercise of its delegated powers cannot do what would constitutionally be
impermissible.

A subsidiary question which arises for consideration is as to whether
the State of Punjab, having regard to Section 33A of the Punjab Act, could G
levy such duty. In Sub-Section (I) of Section 33A provision has been made
permitting the State to continue to levy any duty which it had lawfully been
levying immediately before the commencement of the Constitution. The said
provision is in tune with Article 305 of the Constitution, therefore, the same
calls for a strict construction. Sub-section (3) of Section 33A is couched in H
1000 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A negative language by reason whereof power of the State to levy any duty has
been taken away in the event thereby any discrimination is made in favour
of goods manufactured or produced in the State and similar goods
manufactured or produced in another locality. Clearly such a provision is in
consonance with Article 304 of the Constitution. If by reason of a statute an
embargo has been placed on the State's power to levy any fee, it is beyond
B any cavil of doubt that such a levy cannot be held to be justified by reason
of an executive action or otherwise.

It is trite that even a term of the contract cannot be in violation of an
express provision contained in a statute. By reason of provisions of the Abkari
C Act or the Punjab Act, no power has been conferred upon the State to impose
any import fee over and above the excise duty/counterveiling duty. It is not
disputed that such counterveiling duty has been levied and the licensees pay
the same. The power to levy fee and the power to grant licences, permits and
passes occur in different chapters of the Acts. The powers under different
chapters are required to be exercised for different purposes. One is legislative
D in character and the other refers to executive action. Furthermore, under the
Punjab Act fees for grant of licences, permits and passes are required to be
paid on the terms as the Financial Commissioner may direct. Having regard
to the fact that the Financial Commissioner is the statutory authority in relation
thereto, the State cannot be said to have any jurisdiction thereover, particularly,
E in the matter of levy of import fee which clearly is referable to Chapter V of
the Punjab Act and has nothing to do with grant of licence occurring in
Chapter VI.

The matter may be considered from another angle. Having regard to
Article 265 of the.Constitution a tax must be imposed by a statute. Even such
p impost is impermissible by any bye-law or rule. See Bimal Chandra Banerjee
v. State of Madhya Pradesh etc., (1970] 2 SCC 467; A Venkata Subba Rao
v. State of Andhra Pradesh, (1965] 2 SCR 577 and Attorney General v. Wilts
United Dairies (1922) 91 Law Journal, KB 897.

In Synthetics and Chemicals ltd. & Ors. v. State of UP and Ors. (1990]
G SCC I09 at page 158, a Seven-Judge Bench of this Court has equated
excise duty with the price for privileges. In the matter of interpretation of
Constitution, the said decision has been referred to with approval in Welfare
Assocn. A.R.P., Maharashtra and Anr. v. Ranjit P. Gohil and Ors., JT [2003]
2 SC 335. In the said seven Judge Bench decision, this Court observed thus:

H
STATE v. DEVANS MODERN BREWERIES [B.N. AGRA WAL, J.) I 00]

"On an analysis of the various Abkari Acts and Excise Acts, it appears A
that various provinces/States reserve to themselves in their respective
States the right to transfer exclusive or other privileges only in respect
of manufacture and sale of alcohol and not in respect of possession
and use. Not all but some of the States have provided such reservation
in their favour. The price charged as a consideration for the grant of B
exclusive and other privileges was generally regarded as an excise
duty. In other words, excise duty and price for privileges were regarded
as one and the same thing. So-called privilege was reserved by the
State mostly in respect of country liquor and not foreign liquor which
included denatured spirit."

In view of the foregoing discussions, I am of the opinion that the C
impugned levy cannot be sustained.

Re: Questions (ii) and (iii)

What is Res-Extra-Commercium:
D
In Black's law Dictionary, Fifth Edition, 'Res' has been defined as
follows:

"By "res'', according to the modem civilians, is meant everything
that may form an object of rights, in opposition to "persona," which E
is regarded as a subject of rights. "Res'', therefore, in its general
meaning, comprises actions of all kinds; while in its restricted sense
it comprehends every object of right, except actions."

In Trayner's Latin Maxims, Fourth Edition, 'Extra Commercium' is
stated as "Beyond Commerce. This is said of things which cannot be bought F
or sold, such as public roads, rivers, titles of honour, etc."

In Words and Phrases, Volume 15 A, it has been stated:

"Property once dedicated to public use is "extra commercia'', and
inalienable by seizure and sale under execution against a municipal G
corporation, unless it is made affirmatively and clearly to appear that
its use had been abandoned or lost by nonuser."

-:~ In Bouvier's law Dictionary, Volume I, Third Edition, at page 531, it
is stated:

"It has been frequently said by the Supreme Court that commerce H
1002 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A includes intercourse, though usually the term is qualified as
"commercial intercourse"; Gibbons v. Ogden, 9 Wheat. (U.S.) l, 6
L.Ed 23; U.S. v. E.C. Knight Co., 156 U.S. 1, 15 Sup. Ct. 249, 39 L.
Ed. 325; Welton v. Missouri, 91 U.S. 275, 280, 23 L.Ed. 347;
Pensacola Telegraph Co. v. Western Telegraph Co., 96 U.S. I, 9, 24
L.Ed. 708; Mobile County v. Kimball, 102 U.S. 691, 702, 26 L.Ed.
B 238 (where the phrase is "intercourse and traffic"); Addyston Pipe &
Steel Co. v. U.S., 175 U.S. 211, 241, 20 Sup. Ct. 96, 44 L.Ed. 136;
Lindsay & P. Co. v. Mullen 176 U.S. 126, 20 Sup. Ct. 325, 44
L.Ed.400; Interstate Commerce Commission v. Brimson, 154 U.S.
447, 470, 14 Sup Ct. 1125, 38 L.Ed. 1047; Lottery Case, 188 U.S.
c 321, 346, 23 Sup. Ct. 321, 47 L.Ed. 492. The first expression of this
was by Marshall, C.J., in Gibbons v. Ogden, 9 Wheat (U.S.) l, 6
L.Ed. 23; quoted by Fuller~ C.J., in U.S. v. Knight Co., 156 U.S. I,
15 Sup. Ct. 249, 39 L.Ed. 325; and characterized by White, J., as a
"luminous definition" in Northern Securities Co. v. U.S., 193 U.S.
197, 24 Sup. Ct. 436, 48 L.Ed. 679, to the effect that commerce is
D something more than traffic; "It is intercourse; it describes the
commercial intercourse between nations and parts of nations in all its
branches, and is regulated by prescribing rules for carrying on that
intercourse." This has been practically, if not literally, quoted in all
the cases cited. There is nothing in the decisions to define or limit so
E broad a term as intercourse, except the word commercial, usually
attached to it. As it is hardly likely that the courts intended to say that
commerce is intercourse in the sense in which it is defined
"communication between persons or places"; Cent. Diet.: it is probable
that the word was not intended to be used to express more than such
intercourse as is connected with traffic and transportation with foreign
F countries or between the States."

Dealing in liquor or for that matter in lottery, tobacco is not prohibited
under the Constitution. On the other hand, in the constitutional schemes itself
Parliament or the State Legislature has been conferred power to regulate the
said trade like any other trade. In fact India has entered into trade agreements
G to deal in liquor with other sovereign countries. India has entered into
International treaties in the matter of foreign investment in liquor. Trade in
liquor finds place in World Trade Organization (WTO) and General Agreement
on Trade and Tariff (GATT). In terms of the WTO and GA TT guidelines
have been laid down as regards import and export of potable liquor. India,
H as a signatory to WTO and GA TT, is expected to follow the said guidelines.
STATE v. DEVANS MODERN BREWERIES [B.N. AGRA WAL, J.) I003
It is expected to remove all trade barriers subject to the other provisions A
contained therein. It is also supposed to levy taxes/ counterveiling duties in
tenns of such international treaties. No constitutional provision or statute
prohibits trade in liquor. Article 4 7 of the Constitution empowers the State
to impose prohibition. Once a prohibition is imposed by any State in exercise
of said -powers, indisputably no person will have any right to deal in potable B
liquor.

Applicability of Res-extra commercium is a judge made law. Constitution
does not provide for it. Even if Entries 8, 51 and 54 of List II, on the other
hand, lead to the conclusion that the State has the legislative power to make
regulatory enactment in the spheres provided for them, the State indisputably C
may exercise its right to prohibit dealings in liquor either wholly or partially
but if it allows trade and business in liquor by parting with its exclusive
privilege; a presumption will arise unless contrary intention is shown in the
statute or licence granted therefor that it has not retained unto itself a right
to deal with a part of the trade itself or through its agency. As has been
noticed in the Kerala matter the State has given the monopoly to trade in D
liquor in favour of the Kerala State Beverages Corporation. Nowhere it is
stated either by way of counter-affidavit or under the statute that the State has
reserved unto itself any right in the matter relating to carrying on trade or
business in potable liquor. As soon as a licence is granted upon receipt of a
fee fixed by it, the State would be presumed to part with its entire privilege. E
To say that while exercising its regulatory power for the purpose of controlling
the trade and business in potable liquor, it has reserved unto itself a part of
its exclusive privilege would not be correct unless the same is explicitly
pleaded and proved.

Regulatory measures in the matter of trade and business in potable p
liquor have been taken by reason of a statute. All regulations on the trade,
thus, must be governed by the statutes operating in the field and not by way
of executive action. The provisions of the statute or the contracts made
thereunder must scrupulously be followed by all concerned as they are bound
by the same. When a legislation referable to Entries 8, 51 and 66 etc. had
occupied the field, the State, in absence of any provision contained in the G
statute, cannot turn round and contend that it will exercise its power of
exclusive privilege even though it had granted licence in terms of the statute.
Having regard to the constitutional scheme the power of the State to undertake
trade and business is referable to Article 298 of the Constitution. The duties,
functions and responsibilities of a Government in a democracy are different H
1004 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A from monarchism. Rights and privileges of a monarch cannot be equated
with an elected Government in a democratic set-up. If the power of the
Government in other words to deal in trade or commerce, be it liquor or any
other commodity, can only be traced to Article 298 of the Constitution, it
goes without saying that the same would be subject to all constitutional
B limitations applicable in relation thereto. The State while exercising its
constitutional power under Article 298 of the Constitution cannot itself be an
extra constitutional authority so as to violate the constitutional provisions. It
like any other trader must confine itself within the four comers of the statutes
governing the field which are enacted in terms of one entry or the other made
in any of the three lists to the Seventh Schedule of the Constitution.
c A State, therefore, may be entitled to either completely prohibit a trade
or business in liquor and create monopoly either in itself or in any other
agency and furthermore it can for the purpose of selling the licence adopt :iny
mode with a view to maximize its revenue but while doing so it must, having
regard to a large number of decisions of this Court, not act arbitrarily. 1 he
D State while carrying on business by way of parting with its privilege or
distribution of largess must conform to the equality clause enshrined in Article
14 of the Constitution. It has been so held in Nand/al Jaiswa/ (supra) at pages
604-605 in the following terms:

"But, before we do so, we may at this stage conveniently refer to a
E contention of a preliminary nature advanced on behalf of the State
Government and respondents 5 to 11 against the applicability of Article
14 in a case dealing with the grant of liquor licences. The contention
was that trade or business in liquor is so inherently pernicious that no
one can claim any fundamental right in respect of it and Article 14
F cannot therefore be invoked by the petitioners. Now, it is true, and it
is well settled by several decisions of this Court including the decision
in Har Shanker v. Deputy Excise & Taxation Commissioner, [1975]
3 SCR 254: [1975] I SCC 737: AIR (1975) SC 1121 that there is
no fundamental right in a citizen to carry on trade or business in
liquor. The State under its regulatory power has the power to prohibit
G absolutely every form of activity in relation to intoxicants - its
manufacture, storage, export, import, sale and possession. No one can
claim as against the State the right to carry on trade or business in
liquor and the State cannot be compelled to part with its exclusive
right or privilege of manufacturing and selling liquor. But when the
State decides to grant such right or privilege to others the State cannot
H
STA TE v. DEV ANS MODERN BREWERIES [B.N. AGRA WAL,J.) I 005

. escape the rigour of Article 14. It cannot act arbitrarily or at its sweet
will. It must comply with the equality clause while granting the
A

exclusive right or privilege of manufacturing or selling liquor. It is,
therefore, not possible to uphold the contention of the State
Government and respondents 5 to 11 that Article 14 can have no
application in a case where the licence to manufacture or sell liquor B
is being granted by the State Government. The State cannot ride
roughshod over the requirement of that article."

Privilege, thus, can be claimed by a State in a 'no right' situation,
namely, when citizen is not permitted to carry on trade. But once the State
takes a decision to part with its privilege, it cannot make any discrimination C
whatsoever. Dealing in liquor by the persons in whose favour licences have
been granted in terms of the statutory enactments derive a right therefor
which cannot be said to be "Res-Extra Commercium"

Now comes the question as to how far and to what extent, if any, the
fundamental and other rights of a citizen could be available in the matter of D
trade in potable liquor. Article 19(1 )(g) guarantees that all citizens shall have
the right to practice any profession or to carry on any occupation, trade or
business. However, in terms of Article 19(6) this right can be restricted by
a statute imposing reasonable restrictions. A combined reading of clauses (I)
and (6) of Article 19 makes it clear that a citizen has a fundamental right to
carry on any trade or business and the State can make a law imposing E
reasonable restrictions on the said right in the interest of the general public.
It is, therefore, obvious that unless dealing in liquor is excluded from 'trade
or business', a citizen has a fundamental right to deal in that commodity.

This right was recognized in the The State of Bombay and Anr. v. F.N. F
Balsara, [1951] SCR 682 where fazl Ali, J., observed at page 717 that "we
hold that to the extent to which the prohibition Act prevents the possession,
use and consumption of non-beverages and medicinal and toilet preparations
containing alcohol for legitimate purposes the provisions are void as offending
against Art. 19( I)(t) of the Constitution even if they may be within the
legislative competence of the provincial legislature." G
But in Cooverjee B. Bharucha (supra) a Constitution Bench of this
Court held that there is no inherent right in a citizen to sell intoxicating
liquors. This decision was rendered relying on P. Crowley, Chief of Police of
the City and County of San Fancisco, California v. Henry Christenses [1890]
H
1006 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A 34 Law. Ed.620(A).
However, this exclusive privilege theory was rejected by a Constitution
Bench of this Court in Saghir Ahmad and Anr. v. State of U.P. and Ors., AIR
(I 954) SC 728 stating that this doctrine has no place under Indian Constitution.
It was observed that establishment of a monopoly does not create a reasonable
B restriction. The observations made in Cooverjee B. Bharucha (supra) stating
that the general observations occurring in the judgment have to be taken with
reference to the facts of that case were duly explained. It was reiterated that
the State has a right to prohibit trade which is illegal or immoral or injurious
to the health and welfare of the public by taking recourse to regulating
C legislation contemplated by Article 19(6).

The fundamental right to trade in intoxicant liquor was recognized in
State of Kera/a and Ors. v. P.J. Joseph, AIR (1958) SC 296. There the
Government ofTravancore and Cochin imposed 20% commission fer sanction
of extra quota of Foreign Liquor to wholesale licencees. The said impost was
-
D challenged before the High Court of Judicature for Travancore Cochin, which
was struck down by said High Court. On Appeal by State this Court while
upholding the judgment of High Court observed "an impost not authorised
by law cannot possibly be regarded as a reasonable restriction and must,
therefore, always infringe the right of the respondent to carry on his business
which is guaranteed to him by Article 19(1)(g) of the Constitution." It was
E held that an impost in terms of an executive order having no authority of law
would be illegal imposition.

This principle has been affirmed by a Constitution Bench of this Court
in Krishna Kumar Narula v. State of Jammu and Kashmir and Ors., (1967)
F 3 SCR 50. After discussing all previous decisions, Subba Rao, C.J., held that
"a scrutiny of these decisions does not support the contention that the court
held that dealing in liquor was not business or trade. They were only
considering the provisions of the various Acts which conferred a restricted
right to do business. None of them held that a right to do business in liquor
was not a fundamental right". It was observed that "If the activity of a dealer,
G say, in ghee is business; then how does it cease to be business if it is in
liquor. Liquor can be manufactured, brought or sold like any other commodity.
It is consumed throughout the World though some countries restrict or prohibit
the same on economic or moral grounds". It was further held that "dealing ,,__
in liquor is business and a citizen has a right to do business in that commodity;
H but the State can make a law imposing reasonable restrictions on the said
STATE v. DEVANS MODERN BREWERIES [B.N. AGRA WAL, J.] 1007

right, in public interests." A
In R.M.D. Chamarbaugwa/a (supra) S.R. Das, C.J. observed that the
American Congress have no power to control gambling and like spurious
transactions under its power over 'inter-State commerce' if they were not
held to be 'commerce'.
B
Even 'in Har Shan/car (supra) Chandrachud, J. (as the learned Chief
Justice then \fas) held that the right to trade in liquor is not absolute and it
is to be treated as a separate class. But therein also it has not been held that
despite fulfilling the regulatory measures, the trade would be illegal. The ·
point that arose for consideration therein was the State's power to prohibit C
trade. In that case, this Court had no occasion to consider the question involved
in the present one.

A large number of decisions, as noticed hereinbefore, have been cited
at the Bar for the proposition that by reason of grant of licence, the licensee
is merely granted a permissive privilege subject to the degree of regulatory D
control as may be deemed necessary and appropriate having regard to the
fact that nobody has any constitutional right to trade in liquor in view of its
inherently pernicious and noxious nature. I may deal with some of the decisions
cited at the bar a little later but the principles which emerge from the various
decisions of this Court and particularly by Constitution Benches of this Court
are: E
(i) Trade in liquor is against public morality and thus res extra
commercium. No citizen has any Fundamental Right to carry on
business in liquor. See R.M.D. Chambarbaugwala (supra). As
there does not exist any right to carry on trade, Article 301 shall
not apply. F
(ii) Right to trade in liquor is a Fundamental Right within the
meaning of Article 19( 1Xg) of the Constitution subject; of course,
to the reasonable restrictions in terms of Clause (6) of Article
19. See Krishna Kumar Narula (supra)
G
(iii) Right of the State to deal exclusively in liquor is its own privilege.
It does not matter as to whether such right is restricted while
parting with privilege by reason of a statuk in tenns of Article
19(6) of the Constitution.

(iv) (a) The equality clause even in the matter of carrying on trade H
1008 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A is not available. Th~ right of the State to part with its privilege
being a superior right, the inferior right of a citizen to carry on
trade, shall give way to State's superior right.
(b )The State while carrying on any trade or business itself cannot
make any discrimination and its acts must be fair and reasonable.
B See Nandlal Jaiswal (supra)
(v) The State's right is absolute when a complete prohibition is
imposed and at that stage the State can part with its exclusive
privilege in any manner it likes and it is also entitled to take any
measures for having the best price. See Har Shan/car (supra).
c In Khoday Distilleries Ltd. (supra) at pages 608-609, a Constitution
Bench referred to some of the decisions as referred to hereinbefore and
summed up its findings [para 60(a)(b)(e)(f)(g)): .

"(a) The rights protected by art. 19( 1) are not absolute but qualified.
The qualifications are stated in els. (2) to (6) of art. 19. The
D
fundamental rights guaranteed in art. 19( I )(a) to (g) are, therefore, to
be read along with the said qualifications. Even the rights guaranteed
under the Constitutions of the other civilized countries are not absolute
but are read subject to the implied limitations on them. Those implied
limitations are made explicit by els. (2) to (6) of art. 19 of our
E Constitution.

(b) The right to practise any profession or to carry on any occupation,
trade or business does not extend to practising a profession or carrying
on an occupation, trade or business which is inherently vicious and
pernicious, and is condemned by all civilised societies. It does not
F entitle citizens to carry on trade or business in activities which are
immoral and criminal and in articles or goods which are obnoxiouf
and injurious to health, safety and welfare of the general public, i.e.,
res extra commercium, (outside commerce). There cannot be business
in crime.

G (e) For the same reason, the State can create a monopoly either in
itself or in the agency created by it for the manufacture, possession,
sale and distribution of the liquor as a beverage and also sell the
licences to the citizens for the said purpose by charging fees. This
can be done under art. 19(6) or even otherwise.
H
STATE~· DEV ANS MODERN BREWERIES [B.N. AGRA WAL, J.) I009
(f) For the same reason, again, the State can impose limitations and A
. restrictions on the trade or business in potable liquor as a beverage
which restrictions are in nature different from those imposed on the
trade or business in legitimate activities and goods and articles which
are res commercium. The restrictions and limitations on the trade or
business in potable liquor can again be both under art. 19(6) or
otherwise. The restrictions and limitations can extend to the State B
carrying on the trade or business itself to the exclusion of and
elimination of others and/or to preserving to itself the right to sell
licences to do trade or business in the same, to others.

(g) When the State permits trade or business in the potable liquor
c
- ,. with or without limitation, the citizen has the right to carry on trade
or business subject to the limitations, if any, and the State cannot
make discrimination between the citizens who are qualified to carry
on the trade or business."

The decisions of this Court including those rendered by the Constitution
D
Benches struck different notes. They at times stand poles apart. Inconsistencies
and contradictions in the said decisions are galore. Some latter Constitution
Bench decisions although took note of the earlier Constitution Bench decisions,
but only sought to distinguish the same and not referred the matter to a larger
Bench for consideration of correctness of one view or the other. I may,
therefore, proceed on the premise that some of the principles in Khoday E
(supra) are correct, although one may have strong reservations even in this
behalf. In Khoday (supra) expressly or by necessary implication fundamental
right to deal in any goods is accepted. Only exception which was made are
those commodities, business of which is inherently noxious and pernicious
and is condemned by the civilized society. It has sought to lay down the law
F
that there cannot be a business in crime.

Dealing in a commodity which is governed by a statute cannot be said
to be inherently noxious and pernicious. A society cannot condemn a business
nor there exists a presumption in this behalf if such business is permitted to
be carried out under statutory enactments made by the legislature competent G
therefor. The legiSlature being the final arbiter as to the morality or otherwise
of the civilized society has also to state as to business in which article(s)
would be criminal in nature. The society will have no say in the matter. The
... society might have a say in the matter which could have been considered in
a Court of law only under common law right and not when the rights and
obligations flow out of statutes operating in the field. Health, safety and H
1010 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A welfare of the general public may again be a matter for the legislature to
define and prohibit or regulate by legislative enactments. Regulatory statutes
are enacted in conformity with clause (6) of Article 19 of the Constitution to
deal with those trades also which are inherently noxious and pernicious in
nature and furthermore thereby sufficient measures are to be taken in relation
B to health, safety and welfare of the general public. The courts while interpreting
a statute would not take recourse to such interpretation whereby a person can
be said to have committed a crime although the same is not a crime in terms
of the statutory enactment. Whether dealing in a commodity by a person
constitutes a crime or not can only be subject matter of a statutory enactment.

C The Excise Acts enacted by the States mandate the licensees to carry
on their activities in terms of the conditions of licence and the provisions
contained therein. So long as the business activities of the licensees are
within the four-comers of the conditions of the licence and the provisions of
the Licensing Act, they, without any obstruction whatsoever, are entitled to
carry on their trade, business or commerce. They would be liable to be
D proceeded against for commission of an offence only in the event they violate
the statutory provisions wherefor the statute itself provides for imposition of
penalty.

Thus, when a person has been granted a licence strictly in conformity
with the Excise Act to carry on his business activities in terms of the statute
E operating in the field, the same can neither be termed as pernicious, obnoxious
and injurious to health, safety and welfare of the general public. No public
interest can be inferred by any court of law by going beyond the statutory
provisions. Even monopoly of the State either in itself or in any agency
created by it for manufacture, possession, sale and distribution of liquor can
p be created only by a statute which must conform to the provisions of clause
(6) of Article 19 of the Constitution, i.e., by making a valid law, by way of
a regulatory legislative enactment.

From the analysis of decisions rendered by this Court in Cooverjee B.
Bharucha, R.M.D. Chambarbaugwa/a, Har Shankar or Khoday Distilleries,
G it will appear that a person cannot claim any right to deal in any obnoxious
substance on the ground of public morality. The State, therefore, is entitled
to completely prohibit any trade or commerce in potable liquor. Such
prohibition, however, has not been imposed. Once a licence is granted to
carry on any trade or business can it be said that a person is committing a
H crime in carrying on business in liquor although he strictly complies with the
STATEv. DEVANS MODERN BREWERIES (B.N.AGRAWAL,J.] 1011

tenns and conditions of licence and the provisions of the statute operating in A
the field? If the answer to the said question is to be rendered in affinnative
it will create havoc and lead to anarchy and judicial vagaries. When it is not
a crime to carry on such business having regard to the fact that a person has
been pennitted to do so by the State in compliance with the provisions of the
existing laws, indisputably he acquires a right to carry on business. Even in
respect to trade in food articles or other essential commodities either complete B
prohibition or restrictions are imposed in the matter of carrying on any trade
or business, except in tenns ofa licence granted in that behalf by the authorities
specified in that behalf. The distinction between a trade or business being
carried out legally or illegally having regard to the restrictions imposed by
a statute would have, therefore, to be judged by the fact as to whether such C
business is being carried out in compliance of the provisions of the statute(s}
operating in the field or not. In other words, so long it is not made
impennissible to carry on such business by reason of a statute, no crime can
be said to have been committed in relation thereto. The doctrine of res extra
comniercium, thus, would not be attracted, whence a person carries on business
under a licence granted in tenns of the provisions of the regulatory statutes. D

No case and in particular the decisions relied upon by the learned
counsel appearing on behalf of the State of Punjab and that of Kerala had
evolved a principle that despite paying a large amount of licence fees and
despite fulfilment of tenns and conditions of licence and other statutory E
provisions, the trade or business carried out by the licensee shall be at an
eternal peril, which may at any point of time be determinated or a new tax
imposed or they be proceeded against at the whims or caprice of the executive
wing of the State. In our constitutional scheme such a situation is unthinkable.
The country is governed by rule of law and despite existence of a valid
legislation operating in the field, executive whims or caprice cannot be F
permitted to have any role to play. Validity of a tax imposed by the State
Legislature, thus, must be detennined on the constitutional anvil of the
legislative competence and not on any other basis. The decisions of this
Court which had no occasion to consider these aspects of the matter can be
of no assistance and would not constitute binding precedents. See Bhavnagar G
University v. Palitana Sugar Mill (P) ltd and Ors., [2003] 2 SCC 111.

The right of the State to carry on trade or business under Article 298
of the Constitution would be subject to the same constitutional limitations in
the matter of carrying on trade or business in liquor as in other cases. The
dis.tinction being only that the State has a monopoly to do so. Once the State H
\=

1012 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A does not exercise the said right and considers it expedient to allow the citizens
to carry on the business or trade, it cannot be said that the licensees do not .....
derive any right whatsoever. Even when the State exercises such right by
creating a monopoly in itself, it would be subject to the same constitutional
limitations as envisaged, inter alia, under Articles 14 and 301 of the
Constitution. Articles 14 and 301 of the Constittition protect from the maladies
B of discrimination. Such discrimination 11.1ay be in between persons and persons,
persons and State and State and State. - ..__
Can a State which exercises its right to create monopoly, prevent another
State to export or import its product? If in between two States such
c discriminations are not possible, a discrimination inter se between licensees
of two States would also not be permissible. Such discrimination would also
not be permissible between a State and a person carrying on similar trade or ~

commerce in one State vis-a-vis a person or State carrying on business in
another State.

D Once the regulations restricting the right to carry on business in potable
liquor is attributed to reasonable restrictions and public interest. clause,
contained in clause (6) of Article 19 of the Constitution, the fundamental
right to carry on trade under Article 19 is conceded. Once such a right is
conceded, it cannot be said that although a person has a Fundamental Right
to carry on trade or business for the purpose of Article 19( I)(g), subject to
E imposition of reasonable restrictions by a law made in terms of clause (6) of
Article 19, he does not have such a right in terms of Article 301 of the
Constitution or for that matter Article 14 thereof. Articles 303 and 304 of the
Constitution also provide for imposition of restrictions and thus even a freedom
guaranteed to a person under Article 301 is not an absolute one, but subject
F to the constitutional limitations provided therefor. Article 301 confers freedom
but not a licence. The protection from discrimination as envisaged in Khoday
Distilleries (supra) (para 60(g)] would not only operate against the State
which is the licensor but having regard to the constitutional goals to be •
achieved by the commerce clause contained in Article 30 I, must be extended •
to another State which seeks to impose restrictions on import.
G
Let me raise a hypothetical question. If some States intend to exercise
their right/privilege/monopoly in the trade in potable liquor - can such
imposition of tax be still justified? Answer thereto must be rendered in the
negative. Now the question is with regard to the applicability of Article 30 I ..
of the Constitution in the matter of trade, commerce and intercourse in potable
H
STA TE v. DEYANS MODERN BREWERIES [B.N. AGRAWAL, J.] I013

liquor. The preamble to the Constitution speaks of unity and integrity of A
India in terms whereof India is required to be treated country as a whole.
This theory of unity and integrity of India may have to be found out while
considering the economic integrity of the country vis-a-vis the economic
barriers which may be put by the States. For the purpose of considering the
question as regards the interpretation of Article 301, one has to notice the
sources thereof. It is now beyond any cavil of doubt that except a part of Part B
XIII of the Constitution the major part of the concept thereof was borrowed
from Sections 92 and 99 of the Australian Constitution as also Section 297
of the Government of India Act, 1935.

Clause 17 of the draft as introduced before the Drafting Committee by C
Sir. B.N. Rau in October, 1947 is in the following terms:

"Subject to the provisions of any Federal Law, trade, commerce and
intercourse among the units shall, if between the citizens of the
Federation, be free: D
Provided that nothing in this section shall prevent any unit from
imposing on goods imported from other units any tax to which similar
goods manufactured or produced in that unit are subject, so, however,
as not to discriminate between goods so imported and goods so
manufactured or produced: E
Provided further that no preference shall be given by any regulation
of trade, commerce or revenue to one unit over another:

Provided also that nothing in this section shall preclude the Federal
Parliament from imposing by Act restrictions on the freedom of trade,
commerce and intercourse among the units in the interests of public F
order, morality or health or in cases of emergency."

The marginal note appended to Sir B.N. Rau's clause 17 to the effect
"Freedom of trade, cbmmerce and intercourse among the units" is clearly I
suggestive of the fact that Section 92 of the Australian Constitution provided G
for a comparable provision vis-a-vis other Constitutions. It is also beneficial
to notice that Sections 92 and 99 of the Australian Constitution confer different
rights and the same are independent of each other. Trade, commerce and
intercourse as noticed .herein before are of wide amplitude. The term
"commerce" is wider than trade.
H
1014 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A In United States v. Patterson, [55 Fed.Rep. 605 at 639], it is held:

"The word "commerce" is undoubtedly, in its usual sense, a larger
word than "trade", in its usual sense. Sometimes "commerce" is used
to embrace less than "trade", and sometimes "trade" is used to embrace
as much as "commerce".
B
An inhibition by Article 30 I has been provided to the effect that the
Legislature shall not interfere in the commerce between the State and State
as also to the effect that the Legislature of a State shall not give any preference
to one State over the other. Article 30 I of the Constitution in no uncertain
tenns provides for a freedom in the matter of trade, commerce and intercourse.
C Such trade, commerce and intercourse are inter-State as also intra-State. By
reason of Part XIII of the Constitution, the Constitution makers sought to
evolve a high policy. On a comparison made between Section 297 of the
Government of India Act, 1935 with Part XIII of the Constitution, it will be
found that the latter is wider than the fonner. The said part of the Constitution
D is a self-contained part. Several improvements made in Part XIII of the
Constitution as compared to Section 297 are worth taking note of. By reason
of the said provisions, the entire country has been considered to be one
economic unit. It now embraces within its fold both 'commerce and trade'
and not 'trade' alone. 'Commerce' was provided for in Entry 27 of List II
only under the 1935 Act. Part Xlll, however, refers to the relevant entries
E contained in all the Lists of Seventh Schedule to the Constitution. The
limitation of power as regards legislative competence of the State and the
Parliament having regard to clause 2 of Article 303 and sub-clauses (a) and
(b) of Clause (I) of Article 304 is clear pointer of the new dimension given
to Article 30 I of the Constitution. Even if a comparison is made between the
F tenninologies used in Article 30 I on the one hand and Articles 19 and 298
on the other, it would be evident that whereas in the fonner 'trade, commerce
and' intercourse' have been used but in the latter only the words 'trade or
business' have been used. Such trade, commerce and intercourse is in relation
to entire territory of India whether inter-State or intra-state unlike Section
297 of the Government of India Act. Article 30 I makes a declaration that
G 'trade, commerce and intercourse throughout the territory of India shall be
f"ee', which in turn must mean that it shall be free from control of Executive
and Legislature. I may, however, hasten to add that by reason thereof although
a liberty has been granted but such liberty cannot be equated with a licence
inasmuch it would be subject to restrictions. Articles 302 and 303 categorically
H state that there shall be no discrimination between one State and the other but
STATEv. DEVANSMODERN BREWERIES (B.N. AGRAWAL,J.) 1015

. restrictions inhere in such liberty as would appear from clause 2 of Article A
303 of Constitution, if a situation stipulated therein arises for consideration.
Jn other words, discrimination is at the heart of this Chapter. By reason of
the said provision, the State is prohibited from imposing a tax without making
any discrimination whatsoever so as to impede free flow of inter-State or
intra-State trade. The State, however, is entitled to impose reasonable
restrictions as also levy tax in public interest. But the same indisputably B
would be subject to the conditions laid down in Articles 303 and 304 of the
Constitution.

The precise question which arises for consideration is as to whether a
trade in liquor would come within the purview of trade, commerce and C
intercourse, within the meaning of Article 30 I of the Constitution. In the
earlier part of this judgment I have considered the difference between a trade
to which a citizen has an absolute right and a trade where no such absolute
right exists being dangerous or obnoxious; but once such trade is permitted
in terms of a regulatory statute, the same cannot be said to be per se illegal.
Earlier I have considered the difference between a trade which is not prohibited D
under any law and a trade carrying whereof although is of dangerous or
obnoxious subjects but is permitted in law and subject to the regulatory
statute. Fo~ purpose of invoking Part XIII of the Constitution, one may
safely proceed on the assumption that a citizen of India may not have a
Fundamental Right in terms of Article 19(1 )(g) of the Constitution to carry E
on a trade or business but there could be little difficulty in upholding the
right to carry on such trade on the ground that the same has been permitted
by the State, although a citizen but for such permission would not have a
right to deal in the commodity in question. It may be noticed that in Article
303 of the Constitution the terminology otJ-Sed is "relating to". These words
are of wide amplitude. These expressions relate to all entries relating to trade F
or commerce and not one entry in one of the Lists. It, thus, refers to all such
entries which are referable to trade and commerce occurring in any of the
three lists.

Tobacco is one of the goods which would otherwise come within the
purview of the doctrine of "Res extra commercium", if the meaning thereof G
as judicially defined is.held to be good. Dealing in tobacco is regulated by
the Tobacco Act, a Parliamentary Act. It is universally acknowledged that
cigarettes cause cancer but having regard to the Tobacco Act and other statutes
it cannot be contended that the State can prohibit business in cigarette without
any legislation, i.e., only through executive instructions. In terms of Article H
1016 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A 303 of the Constitution, Tobacco Act which is made in terms of Entry 52 of
List I of the Seventh Schedule to the Constitution would prohibit the State:;
from making any discriminatory legislation. It is, therefore, difficult to
understand as to how a prohibition can be imposed in respect of liquor in
relation whereto also a legislative power has been conferred upon the State
B specifically in terms of Entries 8 and 51 in List II of the Seventh Schedule
to the Constitution.

At this juncture, it is useful to refer to the decision of this Court in
Atiabari Tea Company Limited (supra) wherein this Court in no uncertain
terms laid emphasis upon the economic unity of the country. In that case
C before the Constitution Bench an argument was advanced to the effect that
Article 301 is circumscribed by Article 303 but the same was not accepted.

Gajendragadkar, J. (as he then was) held at pages 843-844 as follows:

"In drafting the relevant Articles of Part XIII the makers of the
Constitution were fully conscious that economic unity was absolutely
D
essential for the stability and progress of the federal policy which had
been adopted by the constitution for the governance of the country.
Political freedom which had been won, and political unity which had
been accomplished by the Constitution, had to be sustained and
strengthened by the bond of economic unity. It was realised that in
E course of time different political parties believing in different economic
theories or ideologies may come in power in the several constituent
units of the Union, and that may conceivably give rise to local and
regional pulls and pressures in economic matters. Local or regional
fears or apprehensions raised by local or regional problems may
persuade the State Legislatures to adopt remedial measures intended
F solely for the protection of regional interests without due regard to
their effect on the economy of the nation as a whole. The object of
Part XIII was to avoid such a possibility. Free movement and exchange
of goods throughout the territory of India is essential for the economy
of the nation and for sustaining and improving living standards of the
G country. The provision contained in Art. 30 I guaranteeing the freedom
of trade, commerce and intercourse is not a declaration of a mere
platitude, or the expression of a pious hope of a declaratory character;
it is not also a mere statement of a directive principle of state policy;
it embodies and enshrines a principle of paramount importance that
the economic unity of the country will provide the main sustaining
H
STATE v. DEVANS MODERN BREWERIES [B.N. AGRA WAL, J.) I 017
.. force for the stability and progress of the political and cultural unity A
of the country."

In Automobile Transport (Rajasthan) Ltd. (supra), the validity of the
tax impugned therein was upheld only on the ground that it was compensatory
in nature. There had been a cleavage of opinion amongst the Hon 'ble Judges
in the said matter; three Hon'ble Judg~s holding that such impost was ultra B
vires and three Hon 'ble Judges holding the same to be intra vires. Subba Rao,
J. upheld the constitutionality of the impost by agreeing with other three
Hon 'ble Judges on the ground that the impost was compensatory in nature.
The Bench not only accepted the constitutional principles laid down by this
Court in Atiabari (supra) but made a clear distinction between the regulatory C
measures which can be adopted by a State and imposition of a tax. It, further,
struck a note of caution that a geographical barrier cannot be set up by a State
for the purpose of earning revenue or for the benefit of the people thereof.
It was held that Article 30 I covers a wide area.

Subba Rao, J. elaborated as to what is the nature of a compensatory tax. D
The learned Judge, further, emphasized the concept of freedom in the following
terms at pages 564-565 of the Report:-

"(!) Article 30 I declares a right of free movement of trade without
any obstructions by way of barriers, inter-State, or intra-State or other
impediments operating as such barriers. (2) The said freedom is not E
impeded, but, on the other hand, promoted, by regulations creating
conditions for the free movement of trade, such as, police regulations,
provision for services, maintenance of roads, provision for aerodromes,
Wharfs etc., with or without compensation. (3) Parliament may by
law impose restrictions on such freedom in the public interest; and F
the said law can be made by virtue of any entry with respect where
of Parliament has power to make a law. (4) The State also, in exercise
of its legislative power, may impose similar restrictions, subject to
the two conditions laid down in Article 304(b) and subject to the
proviso mentioned therein. (5) Neither Parliament nor the State
Legislature can make a law giving preference to one State over another G
or making discrimination between one State and another, by virtue of
any entry in the Lists, infringing the said freedom. (6) This ban is
lifted in the case of Parliament for the purpose of dealing with
situations arising out of scarcity of goods in any part of the territory
of India and also in the case of a State under Article 304(b), subject
to the conditions mentioned therein. And (7) The State can impose a H
1018 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A non-discriminatory tax on goods imported from other States or the
Union territory to which similar goods manufactured or produced in
that State are subject.

'Commerce and intercourse' include trade in all its manifestations.
Obstructions or impediments to the free flow of trade would be violative of
B the freedom declared by Article 301. Subba Rao, J., in the said case held at
page 548 as under:

"The next question is, where is it free ? The second, expression
"throughout the territory of India" demarcates the extensive field of
operation of the said freedom. The said intercourse shall be free
c throughout the territory of India. The use of the words 'territory of
f
India" instead of 'among the several States" found in the American
Constitution or "among the States" found in the Australian
Constitution, removes all inter-State or intra-State barriers and brings
out the idea that for the purpose of the freedom declared, the whole
D country is one unit. Trade cannot be free throughout the territory of
India, if there are barriers in any part of India, be it inter-State or
intra-State. So long as there is impediment to that freedom, its nature
or extent is irrelevant. The difference will be in degree and not in
quality. The freedom declared under Article 30 I may be defined as
a right to free movement of persons or things, tangible or intangible,
E commercial or non-commercial,. unobstructed by barriers inter-State
or intra-State or any other impediment operating as such barriers. To
State it differently all obstructions or impediments whatever shape
they may take, to the free flow or movement of trade, or non-
commercial intercourse, offend Article 30 I of the Constitution except
F in so far as they are saved by the succeeding provisions."

It is beyond any cavil of doubt that Part XIII of the Constitution contains
a principle of importance as regards economic sovereignty and integrity of
India by doing away the trade barriers as also an attempt by the State to
provide economic protection to the States. Once, it is held that the limitation
G upon the legislative power stipulated in Article 303(1), 304(a) would apply
to trade in liquor, there cannot be any doubt in view of several Constitution
Bench decisions of this Court that Article 30 I will also apply thereto. See
Ka/yani Stores (supra), H. Anraj (supra) and Bhailal Bhai (supra)].

In A.B. Abdul Kadir and Ors. v. State of Kera/a, AIR [1976] SC 182,
H this Court, when the validity of a luxury tax (in the nature of excise duty) on
STATE v. DEY ANS MODERN BREWERIES [B.N. AGRA WAL, J.) I019
tobacco was challenged as violative of Article 304(b), proceeded on the basis A
that the business was protected by Article 30 I but rejected the plea, on the
merits, holding that the restrictions imposed were reasonable and in the public
interest.

In Anraj's case (supra) this Court considerec! Entry 34 of List II in
terms whereof the State Legislature has been conferred power to enact Statutes B
on gambling. In Mis. Maruthi Agencies, Bangalore rep. by its Proprietor v.
The State of Tami! Nadu and Ors.. [1997] (1) MLJ 589, it was held that in
the event lotteries are organized by a State, sale of tickets thereof cannot be
prohibited in other States on the ground that it is gambling and prohibited by
List II. If trade in liquor like gambling or betting were not to be regulated by C
statutes it is difficult to comprehend as to why entries in respect thereof have
been made in the Seventh Schedule to the Constitution.

The American decisions relied upon before this Court may not be held
to have any application having regard to the fact that trade in liquor in the
United States of America was completely prohibited at one point of time but D
the same was modified by reason of Constitution Twenty-first Amendment.
Let me now take the case of 21st Amendment in US Constitution. In the
Constitution of the United States, an express provision guaranteeing freedom
from inter-State trade and commerce does not exist. There only the Congress
is empowered to regulate commerce. In the States freedom on trade and
commerce clause only provides for a limitation upon the power of the State E
Legislature but not Congress and 'the freedom is confined to the inter-State
aspect.

In Southern Pacific Co. v. State of Arizona (1945) 325 US 761, it is
stated:
F
"For a hundred years it has been accepted constitutional doctrine that
the commerce clause, without the aid of congressional legislation,
thus affords some protection from state legislation inimical to the
national commerce, and that in such cases, where Congress has not
acted, this Court, and not the State legislature, is under the commerce G
clause the final arbiter of the competing demands of state and national
interests".

It is further stated:

"The Commerce Clause is a grant of authority to Congress, and not H
1020 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A a restriction on the authority of that body."

In the United States, the inter-State restraint trade as such is prohibited
but a State is not denuded of its power imposing general taJCes under its
wing power. The state has also the power to regulate such aspects of
commerce which do not require a new form of national control. See Bob-Lo
B Excursion Company v. People of the State of Michigan, (1948) 333 US 28).
Furthermore, in United States a complete prohibition was imposed. The said
prohibition was sought to be relaxed by 21st Amendment which is in the
following terms:

"Section I. The eighteenth article of amendment to the Constitution
c of the United States is hereby repealed.

Section 2. The transportation or importation into any State, Territory,
or possession of the United States for delivery or use therein of
intoxicating liquors, in violation of the laws thereof, is hereby
prohibited.
D
Section 3. This article shall be inoperative unless it shall have been
ratified as an amendment to the Constitution by conventions in the
several States, as provided in the Constitution, within seven years
from the date of the submission hereof to the States by the Congress."

E In the United States of America, the State has the requisite power to
impose general taxes. Despite the same, an exemption granted in favour of
local manufacturers vis-a-vis the exporters was frowned upon by the American
Courts.

In Bacchus Imports, Ltd. v. Herbert H. Dias (82 L.Ed. 2d 200), the
F challenge was to the following effect:

"la. Appellants challenge the constitutionality of the Hawaii liquor
taJC, which is a 20% excise tax imposed on sales of liquor at wholesale.
Specifically at issue are exemptions from the tax for certain locally
produced alcoholic beverages. The Supreme Court of Hawaii upheld
G the tax against challenges based upon the Equal Protection Clause,
the Import-Export Clause, and the Commerce Clause. In re Bacchus
Imports, Ltd., 65 Haw 566, 656 P2d 724 ( 1982). We noted probable
jurisdiction, 462 US 1130, 77 L.Ed 2d 1365, 103 S Ct 3109 (1983),
and now reverse."
H
STATE v. DEV ANS MODERN BREWERIES [B.N. AGRAWAL, J.) 102 \
White, J. speaking for the majority stated the law thus: A
"3. A cardinal rule of Commerce Clause jurisprudence is that "no
State, consistent with the Commerce Clause, may 'impose a tax which
discriminates against interstate commerce ... by providing a direct
commercial advantage to local business." Boston Stock Exchange v
State Tax Comm'n, 429 US 318, 329, 50 L Ed 2d 514, 97 S Ct 599 B
(1977) (quoting Northwestern States Portland Cement Co. v.
Minnesota, 358 US 450, 458, 3 L Ed 2d 421, 79 S ct 357, 67 ALR2d
1292 (1959)). Despite the fact that the tax exemption here at issue
seems clearly to discriminate on its face against interstate commerce
by bestowing a commercial advantage on okolehao and pineapple C
wine, the State argues - and the Hawaii Supreme Court held - that
• there is no improper discrimination."

The Court noticed:

"(4a, 5) Much of the State's argument centers on its contention that
okolehao and pineapple wine do not compete with the other products D
sold by the wholesalers. The State relies in part on statistics showing
that for the years in question sales of okolehao and pineapple wine
constituted well under one percent of the total liquor sales in Hawaii.
It also relies on the statement by the Hawaii Supreme Court that "we
believe we can safely assume these products pose no competitive E
threat to other liquors produced elsewhere and consumed in Hawaii,"
In re Bacchus Imports, Ltd., 65 Haw, at 582, n 21, 656 P2d, at 735,
n 21, as well as the court's comment that it had "good reason to
believe neither okolehao nor pineapple wine is produced elsewhere."
Id., at 582, n 20, 656 P 2d, at 735, n 20. However, neither the small
volume of sales of exempted liquor nor the fact that the exempted F
liquors do not constitute a present "competitive threat" to other liquors
is dispositive of the question whether competition exists between the
locally produced beverages and foreign beverages; instead, they go
only to the extent of such competition. It is well settled that "we need
not know how unequal the Tax is before concluding that it G
unconstitutionally discriminates." Marry/and v. Louisiana, 451 US
725, 760, 68 L Ed 2d 576, 101 S Ct 2114 (1981).

The State's position that there is no competition is belied by its
purported justification of the exemption in the first place. The
legislature originally exempted the locally produced beverages in order H
1022 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A to foster the local industries by encouraging increased consumption
of their product. Surely one way that the tax exemption might produce
that result is that drinkers of other alcoholic beverages might give up
or consume less of their customary drinks in favor of the exempted
products because of the price differential that the exemption will
permit. Similarly, nondrinkers, such as the maturing young, might be
B attracted by the low prices of okolehao and pineapple wine. On the
stipulated facts in this case, we are unwilling to conclude that no
competition exists between the exempted and the nonexempted
liquors."

As regards the State's right on economic protectionism it was said:
c ~·
"A finding that state legislation constitutes "economic protectionism"
may be made on the basis of either discriminatory purpose, see Hunt
v. Washington Apple Advertising Comm'n, 432 US 333, 352-353, 53
L Ed 2d 383, 97 S Ct 2434 (1977), or discriminatory effect, see
D Philadelphia v New Jersey, supra. See also Minnesota v. r.lover Leaf
Creamery Co., supra, at 471, n 15, 66 L Ed 2d 659, IOI S Ct 715.
Examination of the State's purpose in this case is sufficient to
demonstrate the State's lack of entitlement to a more flexible approach
permitting inquiry into the balance between local benefits and the
burden on interstate commerce. See Pike v Bruce Church, Inc., 397
. E US 137, 142, 25 L Ed 2d 174, 90 S Ct 844 (1970). The Hawaii
Supreme Court described the legislature's motivation in enacting the
exemptions as follows:
"The legislature's reason for exempting 'ti root okolehao' from
the 'alcohol tax' was to 'encourage and promote the establishment
F of a new industry,' S.L.H. 1960, c 26; Sen Stand Comm Rep
No. 87, in 1960 Senate Journal, at 224, and the exemption of
'fruit wine manufactured in the State from products grown in
the State' was intended 'to help' in stimulating 'the local fruit
wine industry'. S.L.H. 1976, c 39; Sen Stand Comm Rep No.
408-76, in 1976 Senate Journal, at I056." In re Bacchus Imports,
G
Ltd. supra at 573-574, 656 P2d, at 730.
Thus, we need not guess at the legislature's motivation, for it is
undisputed that the purpose of the exemption was to aid Hawaiian
industry. Likewise, the effect of the exemption is clearly
discriminatory, in that it applies only to locally produced beverages,
H
STATE v. DEVANS MODERN BREWERIES [B.N. AGRAWAL, J.] I023

even though it does not apply to all such products. Consequently, as A
long as there is some competition between the locally produced exempt
products and non-exempt products from outside the State, there is a
discriminatory effect."

The Learned Judge proceeded to observe:
B
"No one disputes that a State may enact laws pursuant to its police
powers that have the purpose and effect of encouraging domestic
industry. However, the Commerce Clause stands as a limitation on
the means by which a State can constitutionally seek to achieve that
goal. One of the fundamental purposes of the Clause "was to insure
...against discriminating State legislation." Welton v. Missouri, 91 US C
275, 280, 23 L Ed 347 (1876). In Welton, the Court struck down a
Missouri statute that "discriminated in favor of goods, wares, and
merchandise which are the growth, product, or manufacture of the
State, and against those which are the growth, product or manufacture
of other states or countries..." Id., at 277, 23 L Ed 347. Similarly, in D
Walling v Michigan, 116 US 446, 455, 29 L Ed 691, 6 S Ct 454
(1886), the Court struck down a law imposing a tax on the sale of
alcoholic beverages produced outside the State, declaring:

"A discriminating tax imposed by a State operating to the
disadvantage of the products of other States when introduced E
into the first mentioned State, is, in effect, a regulation in restraint
of commerce among the States, and as such is a usurpation of
the power conferred by the Constitution upon the Congress of
the United States."

See also l.M Darnell & Son Co. v Memphis, 208 US I 13, 52 L Ed p
413, 28 S Ct 247 (1908)."

It was held:

"We also find unpersuasive the State's contention that there was no
discriminatory intent on the part of the legislature because "the G
exemptions in question were not enacted to discriminate against foreign
products, but rather, to promote a local industry." Brief for Appellee
Dias 40. If we were to accept that justification, we would have little
occasion ever to find a statut~ unconstitutionally discriminatory.
Virtually every discriminatory statute allocates benefits or burdens
unequally; each can be viewed as conferring a benefit on one party H
1024 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A and a detriment on the other, in either an absolute or relative sense.
The determination of constitutionality does not depend upon whether
one focuses upon the benefited or the-burdened party. A discrimination
claim, by its nature, requires a comparison of the two classifications,
and it could always be said that there was no intent to impose a
burden on one party, but rathe.r the intent was to confer a benefit on
B the other. Consequently, it is irrelevant to the Commerce Clause inquiry
that the motivation of the legislature was the desire to aid the makers
of the locally produced beverage rather than to harm out-of-state
producers."

C The learned Judge explained the application of 21st Amendment by
posing the question:

"Whether the interests implicated by a state regulation are so closely
related to the powers reserved by the Twenty-first Amendment that
the regulation may prevail, notwithstanding that its requirements
D directly conflict with express federal policies."

and answered the same :

"Approaching the case in this light, we are convinced that Hawaii's
discriminatory tax cannot stand. Doubts about the scope of the
Amendment's authorization notwithstanding, one thing is certain: The
E central purpose of the provision was not to empower States to favour
local liquor industries by erecting barriers to competition. It is also
beyond doubt that the Commerce Clause itself furthers strong federal
interests in preventing economic Balkanization. South-Central Timber,
Development, Inc. v. Wunniclce, 467 US 82, 81 L Ed 2d 71, 104 S Ct
F 2237 (1984); Hughes v. Oklahoma, 441 US 322, 60 L Ed 2d 250, 99
S Ct 1727 (1979); Baldwin v G.A.F. Seelig, Inc., 294 US 511, 79 L
E:l 1032, 55 S Ct 497, IOI ALR 55 (1935). State laws that constitute
mere economic protectionism are therefore not entitled to the same
deference as laws enacted to combat the perceived evils of an
unrestricted traffic in liquor. Here, the State does not seek to justify
G

..
its tax on the ground that it was designed to promote temperance or
to carry out any other purpose of the Twenty-first Amendment, but
instead acknowledges that the purpose was "to promote a local
industry." Brief for Appellee Dias 40. Consequently, because the tax
violates a central tenet of the Commerce Clause but is not supported
H
STA TE v. DEVANS MODERN BREWERIES [B.N. AGRAWAL,J.) 1025

by any clear concern of the Twenty-first Amendment, we reject the A
State's belated claim based on the Amendment."

The minority opinion, however, proceeded on the basis that by reason
of Twenty-first Amendment, the State has the power to create a monopoly.
Such constitutional permissibility is absent from our constitutional scheme.
B
It may be noticed that the same principles as in Atiabari (supra) or
Automobile (supra) have been applied by the Privy Council and the Australian
Courts while interpreting Section 92 of the Australian Constitution to hold
that even for any purpose for which the State has acted the legislation would
not be relevant criteria for declaring it ultra vires if it is found that the same
interferes with the right of trade. (See James v. Commonwealth of Australia C
(1936) A.C.578, North Eastern Dairy Co. Ltd. v. Dairy Industry Authority of
New South Wales (1974-1975) 134 C.L.R. 559 at 581 and The Commonwealth
and Ors. v. Bank of New South Wales and Ors. (1949) 79 C.L.R. 497).

Mason, J. in Pilkington v. Frank Hammond Pty. Ltd., (1974) 131 C.L.R. D
124 interpreted Section 92 of the Australian Constitution in the following
terms:

"The section does not in terms speak of the private right of the
individual to engage in trade, commerce, and intercourse among the
States; it refers to trade, commerce and intercourse among the States E
as an entire and total concept and provides that it is to be 'absolutely
free' in the sense in which this expression has been discussed in the
decided cases. In saying so much the section protects the right of the
individual to engage in inter-State trade, commerce and intercourse
but it needs to be recognized that this protection is incidental to, and
in a sense consequential upon, the protection which is given to the F
entire concept of inter-State trade, commerce and intercourse, including
the various acts and transactions by which it is constituted."

Reference in this connection may also be made to North Eastern Dairy
Co. Ltd. v. Dairy Industry Authority of New South Wales, (1974-1975) 134
C.L.R. 559, at 615). G

In India, the constitutional guarantee under Article 30 I of the
Constitution is more extensive than either in United States or Australia. The
decisions of United States Supreme Court and Australian Supreme Court as
also. the Privy Council, as referred to hereinbefore, clearly demonstrate that H
1026 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A in these countries, although States have more constitutional freedom but despite
the same Commerce Clause received ample protection at the hands of the
Judiciary.

Subba Rao, J. in Automobile case (supra) observed:

B "The freedom declared under Article 30 I may be defined as a right
to free movement of persons or things, tangible or intangible,
comiilercial or non-commercial, unobstructed by barriers, inter-State
or intra-State or any other impediment operating as such barriers. To
state it differently, all obstructions or impediments, whatever shape
they may take, to the free flow or movement of trade, or non-
c commercial intercourse, offend Article 30 I of the Constitution except
in so far as they are saved by the succeeding provisions." The public
character theory although is an important, but has a limitation on the
individual right which is guaranteed; having regard to the fact that
legislative restriction 11.Itimately permits the individual State to go
D ahead, only subject to the reasonable restriction.

The rule against enacting protectionist measures has also been noticed
by the High Court of Australia in Cole v. Whitfield and Anr., (1987-1988)
165 CLR 360, settling a long debate.

E In Shree Mahavir Oil Mills and Another v. State of J&K and Ors.,
[I 996] ti SCC 39 at pages 53-54, this Court while rejecting an argument of
justification of exemption from sales tax of small scale industrial units within
the State of J&K on the ground that the commodity produced within the State
and that produced in other States and sold in J&K, constitute different classes,
has held as under:-
•
F
"The States are certainly free to exercise the power to levy taxes on
goods imported from other States/Union Territories but this freedom,
or power, shall not be so exercised as to bring about a discrimination
between the imported goods and the similar goods manufactured or
produced in that State. The clause deals only with discrimination by
G means of taxation; it prohibits it. The prohibition cannot be extended
beyond the power of taxation. It means in the immediate context that
States are free to encourage and promote the establishment and growth
of industries within their States by all such means as they think proper
but they cannot, in that process, subject the goods imported from
H other States to a discriminatory rate of taxation, i.e., a higher rate of
STA TE v. DEVANS MODERN BREWERIES [B.N. AGRA WAL, J.) I027
sales tax vis~a-vis similar goods manufactured/produced within that A
State and sold within that State. Prohibition is against discriminatory
taxation by the States. It matters not how this discrimination is brought
about. ............ We find it difficult to appreciate how can the concept
of classification be read into clause (a) of Article 304 to undo the
precise object and purpose underlying the clause. Shri Verma
repeatedly stressed that the object underlying the impugned measure B
is a laudable one and that it seeks to serve and promote the interest
of the State of Jammu and Kashmir which is economically and
industrially an undeveloped State, besides being a disturbed State.
We may agree on this score but then the measures necessary in that
behalf have to be taken by the appropriate authority and in the C
appropriate manner. Part XIII of .the Constitution itself contains
adequate provisions to remedy such a situation and there is no reason
why the necessary measures cannot be taken to protect the edible oil
industry in the State in accordance with the provisions of the said
Part."
D
It is thus evident that any manner of extension of protection to trade or
business within the frontiers of State, at the cost of free inter-State trade or
commerce will not stand the test of Article 30 I. The scheme of compensatory
taxes, operate in an entirely different sphere. They cannot be confused with
measures which are both in form and substance protectionist impositions.
E
In Brown v. Maryland (1827) 12 Wheat 419, the US Supreme Court in
the context of the competence of the States to enact and impose a duty on
imports or exports has held that the power to regulate inter state commerce
in non-discriminatory fashion and "to break down or to eliminate barriers to
trade amongst the States" is an essential federal power. It has, therefore, been F
said that in the absence of such a power "local interest exerting powerful
influences in State Legislatures would, in the long run, prefer home industries
over those that are out of state, establish tariff barriers, or employ other
means tending to Balkanize the nation into hostile trade areas." [See also
William 0. Doughlas J: From Marshall to Mukherjea: Tagore Law Lectures
1956 P. 169]. G
In James v. Commonwealth of Australia, (1936) AC 578, referring to
McArthur's case 28 CLR 530 it was held:

"It is now convenient to examine the actual language of the
Constitution so far as relevant, in order to ascertain its true H
1028 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A construction. The first question is what is meant by "absolutely free"
in s. 92. It may be that the word "absolutely" adds nothing. The trade
is either free or it is not free. "Absolutely" may perhaps be regarded
as merely inserted to add emphasis. The expression "absolutely free"
is generally described as popular or rhetorical. On the other hand,
'absolutely' may have been added with the object of excluding the
B risk of partial or veiled infringements. In any case, the use of the
language involves the fallacy that a word completely general and
undefined is most effective. A good draftsman would realize that the
mere generality of the word must compel limitation in its interpretation.
"Free" in itself is vague and indeterminate. It must take its colour
c from the context. Compare, for instance, its use in free speech, free
love, free dinner and free trade. Free speech does not mean free
speech; it means speech hedged in by all the laws against defamation,
blasphemy, sedition and so forth; it means freedom governed by law,
as was pointed out in McArthur 's case. Free love, on the contrary,
means licence or libertinage, though, even so, there are limitations
D based on public decency and so forth. Free dinner generally means
free of expense, and sometimes a meal open to any one who comes,
subject, however, to his condition or behaviour not being objectionable.
Free trade means, in ordinary parlance, freedom from tariffs.

"Free" in s. 92 cannot be limited to freedom in the last mentioned
E sense. There may at first sight appear to be some plausibility in that
idea, because of the starting-point in time specified in the section,
because of the sections which surround s. 92, and because the proviso
to s. 92 relates to customs duties. But it is clear that much more is
included in the term; customs duties and other like matters constitute
F a merely pecuniary burden; there may be different and perhaps more
drastic ways of interfering with freedom, as by restriction or partial
or complete prohibition of passing into or out of the State.

Nor does "free" necessarily connote absence of discrimination between
inter-State and intra-State trade. No doubt conditions restrictive of
G freedom of trade among the States will frequently involve a
discrimination; but that is not essential or decisive. An Act may
contravene s.92 though it operates in restriction both of intra-State
and of inter-State trade."

However, in India Part XIII of the Constitution relates both to inter-
H State trade and commerce as also intra-State trade.
STATEv. DEVANS MODERN BREWERIES [B.N.AGRAWAL,J.] 1029

. In Fox v. Robbins [8 CLR 115], It was held: A
"Sec. 92 of the Constitution does not reframe State Acts by making
new affirmative legislation not contemplated by the State Parliament.

It prevents adverse discrimination from being lawful; so far as the
Act can be effectively worked in conformity with the constitutional B
requirement it still stands; so far as it cannot it simply ceases to
operate."

Once it is held that the principle of res-extra commercium is not
applicable, the decisions in Kalyani Stores (supra), H. Anraj (supra) and
Bhailal Bhai (supra) having been rendered by a Constitution Bench would C
constitute binding precedents. Once it is held that the Legislature has no
power to levy any excise duty on imported liquor in excess of the
counterveiling duty within the State, having regard to the constitutional
limitation imposed in terms of Entry 51, List II of Seventh Schedule to the
Constitution, such discriminatory levy must be held to be violative of Article
303( I) and 304(a) of the Constitution. As import fee is an impost, thus, levy D
thereof in addition to counterveiling duty would clearly attract the wrath of
Article 304(a) of the Constitution. It has not been and could not have been
contended that the tax is compensatory in nature as was the case in Automobile
(supra). I am, therefore, of the opinion that the impugned impost cannot be
~~w. E
Before parting, however, I may notice the submission made by Mr. Iyer
on behalf of the State ofKerala that the licensees, having obtained a privilege
and enjoyed the benefit out of it, cannot, turn round subsequently and repudiate
the obligations subject to which they obtained the privilege. The submission
of Mr. Iyer is wholly mis-conceived for more than one reason. The F
manufacturers of liquor outside the State of Kerala did not obtain any privilege
from the State. The decisions relied upon by the learned counsel, namely,
Har Shankar (supra), Jage Ram (supra), Lal Chand (supra), Mis. Dial Chand
Gian Chand and Company (supra), thus, cannot be said to have any application
in the instant case. The decisions in these cases were rendered in the fact G
situation obtaining therein. The licensees therein questioned the power of the
State to hold auction by the State and/or they refused to comply with the
terms and conditions of licence. In fact in Harshankar (supra) the Court on
the factual matrix obtaining therein clearly came to the conclusion that the
writ petition was not maintainable as thereby the licensees sought avoidance
from compliance of contractual terms and licensing conditions and, thus, H
1030 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A they were not entitled to any relief. The writ petitioners before the High
Court had not questioned any of the terms and conditions of the licence. In
Kera/a case they are not even licensees at all. They are manufacturers of
potable liquor, licences wherefor had been granted by other States. The State
of Kerala has not parted any privilege in their favour. Even otherwise when
the legislative competence of a State is in question, the same goes to the root
B of the jurisdiction. Once it is found that the State Legislature has exceeded
its jurisdiction in imposing the impugned levy, the same being a fraud on the
Constitution cannot be sustained on the procedural doctrine of estoppel or
waiver.

C For the reasons aforementioned, Civil Appeal No. 3017 of 1997 is
dismissed and impugned judgment rendered by the Punjab and Haryana High
Court quashing the Notification impugned before it is upheld. On 23.7.1998
when prayer for grant of interim relief was being considered, a prayer was
made by Shri Harish N. Salve, learned Senior Counsel, appearing on behalf
of the State of Punjab, to the effect that operation of impugned judgment
D rendered by the High Court may be stayed as the State was ready to undertake
before this Court to refund the amount that would be realized by way of
import duty together with interest thereon @ 15% per annum to the respondents
in the event of dismissal of State's appeal by this Court and the said prayer
having been acceded to, this Court stayed the operation of the judgment
, E rendered by the High Court upon the aforesaid undertaking. In view of this,
the State of Punjab is hereby directed to refund the amount that has been
realized by it by way of import duty to the respondents together with interest
thereon @ 15% per annum from the date of its realization till payment, which
must be made within a period of three months.

p Civil Appeal Nos. 2696-2697 are allowed and the Notification impugned
before the Kerala High Court is quashed.

There shall be no order a~ to costs.

S.B. SINHA, J.
G
THE REFERENCE:

A three-Judge Bench of this Court has made a reference to the
Constitution Bench for deciding as to whether, having regard to the decisions <
of the Constitution Benches of this Court in State of Bombay v. R.M.D.
H Chamarbaugwala (1957] SCR 874, Har Shankar and Ors. etc. etc. v. Deputy
STATEv. DEV ANS MODERN BREWERIES [SINHA, J.] 1031

Excise and Taxation Commissioner and Ors. [(1975) 3 SCR 254] and A
Khoday Distilleries Ltd. and Ors. v. State of Karnataka and Ors., [1995] I
SCC 574], the principles laid down in Kalyani Stores v. State of Orissa and
Ors., [ 1966] I SCR 865, wherein Article 30 I of the Constitution oflndia has
been held to be applicable to trade in liquor, is correct.

PROPOSITIONS OF LAW: B

The following questions inter alia are required to be answered for
deductions of the propositions of law involved in the matter:

I. Whether the constitutional validity of a statute can be determined

. on the basis of the interpretation given to the maxim 'res extra c
~ commercium'?

2. Whether the freedom to carry on trade or business as envisaged
under Article 30 I of the Constitution of India can be held to be
inapplicable to the trade of liquor which is permitted by the State
itself? D
3. If Article 14 of the Constitution of India is applicable in the
matter of grant of contract by the State, in exercise of its power
under Article 298 of the Constitution, can it be said that another
constitutional provision, namely, Article 301 would not be
appiicable?
E
4. Whether in interpreting u constitutional provision, the Court should
take into consideration international treaties and covenants
covering the subject-matter and having regard to the social milieu?

5. Whether Kalyani Stores (supra), having been rendered by a F
Constitution Bench, is it permissible for another coordinate bench
to ignore the said decision relying on or on the basis of subsequent
decisions which either had not discussed the said decision nor
overruled the same?

The Punjab and Haryana High Court applied Kalyani Stores (supra) for G
striking down the provisions contained in Sections 16 and 31 of the Punjab
Act, 1932. The Kerala High Court, however, dismissed the writ petition
upholding the validity of Section 17 of the Kerala Abkari Act, 1902 on the
' • sole ground that by reason of the notification impugned in the writ petition
a regulatory fee was imposed. The Kerala High Court, therefore, had no H
occasion to deal with the questions involved herein.
1032 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A LEGISLATIVE COMPETENCE:
'
The Acts are pre-constitutional ones but the impugned amendments
thereto and/or notifications issued thereunder are post-constitutional. Such
legislative power of the State admittedly must be traceable to any of the three
Entries, viz., 8, 51and66 of List II of the Seventh Schedule of the Constitution
B of India, which read as under :

"8. Intoxicating liquors, that is to say, the production, manufacture,
possession, transport, purchase and sale of intoxicating liquors.

51. Duties of excise on the following goods manufactured or produced
c in the State and countervailing duties at the same or lower rates on
similar goods manufactured or produced elsewhere in India :-

(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and narcotics; but
D not including medicinal and toilet preparations containing alcohol
or any substance included in sub-paragraph (b) of this entry.;
66. Fees in respect of any of the matters in this List, but not including
fees taken in any court."

E Laws relating to imposition of duty of excise is within the legislative
competence of the Parliament in terms of Entry 84, List I of the Seventh
Schedule of the Constitution oflndia. One of the exceptions to the said field
is imposition of duty on alcoholic liquor for human consumption, which is
exclusively within the legislative competence of the State. The States of
Punjab and Kerala exercised its constitutional power in enacting the said Act,
F the sources whereof are referable to Entry 8 or 51 of List II of the Seventh
Schedule of the Constitution of India. The vilidity of the impugned provisions
of the said Acts, therefore, revolves round the question as to whether the
same fulfil constitutional requirements.

G Entry 8 of List II does not envisage any control over import. Entry 51
of List II empowers the State to levy countervailing duty at the same or lower
rates of excise duty levied on similar goods produced in that State.

Entry 8 of List II of the Seventh Schedule of the Constitution of India
uses the expression 'that is to say' which is descriptive, enumerative and
H exhaustive and circumscribes to a great extent the scope of the said entry
STATEv. DEY ANS MODERN BREWERIES [SINHA, J.] 1033
(See Commissioner of Sales Tax, MP. v. Popular Trading Company, Ujjain, A
(2000] 5 sec 511 - para 3].

In Indian Aluminium Company Ltd. etc. v. Assistant Commissioner of
Commercial Taxes (Appeals) and Anr. etc., (2001] 2 SCC 201 the expression
'that is to say' both in original Entry 11 and in the new Entry 67 has been
held to have clearly indicated that the items mentioned therein were exhaustive. B
It is, therefore, evident that import of liquor in terms of the licences
granted under the provisions of a statute cannot be the subject-matter of
regulation within the purview of Entry 8 of List II of the Seventh Schedule
of the Constitution of India. C
Furthermore, on a plain reading of Entry 51 no duty can be imposed
on import of liquor over and above the countervailing duty. Ex-facie, therefore,
the imposition of import duty on liquor is unconstitutional.

For determining the legislative competence reference to Directive D
Principles contained in Part IV of the Constitution oflndia may be proper (as
was done in Welfare Association ARP Maharashtra and Ors. v. Ranjit P.
Gohil and Ors., reported in (2003) 2 SCALE 288 but not when the
constitutionality of a taxing statute is in question.

RIGHT OF STATE TO CARRY ON BUSINESS: E

The right of a State to carry on business of liquor as being a part of its
exclusive privilege must be traced to Article 298 of the Constitution oflndia.
See Kapila Hingorani v. State of Bihar, (2003] 6 SCC I.

While granting largess or licence in such trade, the State must exercise
F
its functions under Article 298 within the parameters of the constitutional
scheme, which would include imposition of such regulation and would not be
violative of Article 30 I of the Constitution of India.

RES EXTRA COMMERCIUM: G
In R.M.D. Chamarbaugwa/a (supra), Har Shankar (supra) and Khoday
Distilleries Ltd. (supra), this Court relying on or on the basis of a maxim 'res
extra commercium' observed that trade in liquor is not a fundamental right
within the meaning of Article 19(1 )(g) of the Constitution of India.
H
The Constitution Bench of this Court in those decisions had neither
1034 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A referred to nor discussed the dictionary or legal meaning of 'res extra
commercium' which means those things which had been dedicated to the
public, such as public roads, rivers, title of owners etc. The question, therefore,
is whether the said maxim can be applied in relation to a trade the field
whereof is covered by legislative enactments? Answer to the said question,
B as would appear from the discussions made hereinafter must be rendered in
the negative.

As a sovereign prior to coming into force of the Constitution of India,
the State may have exclusive privilege to do business in liquor but all post-
constitutional statutes and actions taken thereunder must relate to a source of
C power under the Constitution of India. Even if there is no express provision
in the Constitution, principles of constitutionalism exist providing that, for
the said purpose, the relevant statutes should also be looked into. A statute
is enacted by the State Legislature or the Parliament having regard to one or
the other entry made in the three lists contained in the Seventh Schedule of
D the Constitution. The Punjab Excise Act and the Kerala Abkari Act although
pre-constitutional Acts, the subsequent amendments which are impugned in
these matters must, thus, be referable either to Entry 8 or Entry 51 of List II
of the Seventh Schedule of the Constitution of India. When a statute governs
the trade in a particular commodity, the provisions contained therein would
only regulate the same. The Constitution of India or the State Legislatures do
E not state that trade in liquor ipso facto is totally prohibited. States of Punjab
and Kerala have not adopted any policy of prohibition whether in whole or
in part.

For imposing total prohibition the State must formulate a policy decision
F having regard to Article 47 of the Constitution oflndia, necessitating issuance
of a declaration either through legislative process or through executive
instructions.

For judging the validity of taxing statutes, Part IV of the Constitution
or Article 47 will have no role to play. Recourse to Part IV or Part IVA of
G the Constitution can only be taken as regard interpretation of a legislative
enactment for giving effect to objects and purport thereof and not for any
other purpose. A statute imposing a levy must not only satisfy the tests of
Article 245 of the Constitution but also other provisions of the Constitution.

Trade in liquor is regulated by statutes and, thus, if it is carried out
H within the parameters of the regulatory provisions and subject to observance
STATE v. DEVANS MODERN BREWERIES [SINHA, J.] 1035
of the tenns and conditions of the licence, it would be legal. All rights and A
obligations flowing from the grant of such licence being mutual would be
binding on the parties.

If the Constitution or the relevant statutes do not prohibit carrying out
a trade/business, the courts cannot do so by taking recourse to interpretive
process or on the supposed grounds of public morality. B
Whereas lottery was looked down upon in Chambarbaugwala (supra)
and B.R. Enterprises etc. v. State of VP and Ors etc., [ 1999] 9 SCC 700 with
reference to scriptures which are thousands years old, the Court did not make
a similar attempt in case of Indian Made Foreign Liquor or Imported Liquor C
nor considered that sacramental wine has received statutory protection under
the laws validly enacted. [As for example see Bombay Sacramental Wine
Manufacturing Rules, 1950 framed under the Bombay Prohibition Act, 1949.
Sacramental wine refers both to Christian and Hindu tenets.]

In India Handicrafts Emporium and Ors. v. Union of India and Ors., D
[2003] 7 SCC 589, a three-Judge Bench of this Court had noticed how
education was held to be outside the purview of 'occupation' within the
meaning of Article 19(1)(g) of the Constitution of India in Unni Krishnan,
JP and Ors. v. State ofAndhra Pradesh, [1993] I SCC 645 but stood overruled
by an eleven-Judge Bench of this Court in TMA. Pai Foundation and Ors.
v. State of Karnataka and Ors., [2002] 8 SCC 481 following Sodan Singh E
and Ors. v. New Delhi Municipal Committee and Ors., [1989] 4 SCC 155.
The said view has been reiterated by a Constitution Bench in Islamic Academy
of Education and Anr. v. State of Karnataka and Ors., JT (2003) 7 SC I.

In Indian Handicrafts Emporium (supra), this Court pointed out that
judicial vagaries should not be pennitted to have its play in such matters F
stating:

"The High Court has referred to the decision in P. Crowley v.
Henry Christensen (1890) 34 Law. Ed. 620 so as to hold that a citizen
has no inherent right to deal in intoxicating liquors. Thereiri the U.S. G
Supreme Court was dealing with a federal law imposing restrictions
on a person dealing in retail trade in liquor without obtaining a due
licence therefor. The law was upheld negativing the contention that
the restriction was unreasonable. It was not held therein that trade of
liquor is impennissible in all situations.
H
\036 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A Restriction in trade, therefore, would depend upon the nature of
the article and the law governing the field. By reason of judicial
vagaries, fundamental right under Article 19(1 )(g) of the Constitution
cannot be further restricted. See Krishna Kumar Narula v. The State
of Jammu and Kashmir and Ors., AIR (1967) SC 1368.

B With respect, I am of the opinion that constitutionality of a statute
could not detennined solely relying on or on the basis of the said maxim
without any reference to the limitations contained in the Constitution.

CASE LAWS - Analysis of

C (A) Case Laws Where 'Res Extra Commercium' was applied:

In Chamarbaugwa/a (supra), this Court applied the doctrine of res
extra commercium having regard to the obnoxious nature of trade but in
subsequent decisions the said principle had been extended mechanically to
trade of liquor without tracing the history as to whether Indian Made Foreii;n
D Liquor (IMFL) or the other expensive liquors imported from foreign country
would fall in that category. No discussions have been made as to in which
areas and in relation to which stratas of the society consumption of liquor
was looked down upon. The fact that at different ages, at least in respect of
liquor in higher echelons of the society drinks became a part of 'culture' was
E not taken into consideration.
For the purpose of determination of the issue, the Courts were required
to take into consideration, the history, the social perceptions vis-a-vis the
state policy and other relevant factors before arriving at a decision that it is
necessarily a 'social evil'. Law is not to be laid down having regard to the
F perceptions of a Judge but on premises having a solid foundation therefor,
both on facts as well as in law.

The question is required to be considered in today's scenario (which
would be discussed a little later), but is suffice it to point out at this stage that
what was frowned upon a few decades back, has received the acceptance of
G society today.
In R.M.D. Chambarbaugwala (supra), with· highest respect, a wrong
approach was adopted holding that the Constitution-makers of India, out to
create a welfare State, could never have intended to raise betting and gambling
H to the status of trade, commerce or intercourse without taking into consideration
STATE v. DEVANS MODERN BREWERIES [SINHA, J.] I037
the fact that there exists legislative entries therefor and thus the field is A
covered by Article 245 of the Constitution.

In Mis Fatehchand Himmatlal and Ors. v. State of Maharashtra, [1977]
2 SCC 670, this Court upheld the validity of the Maharashtra Debt Relief
Act, I 976 holding that every systematic, profit-oriented activity, however,
sinister, suppressive or socially diabolic, cannot, ipso facto, exalt itself into B
a trade. The validity of the Act was upheld on the touchstone of Article
304(b) of the Constitution of India. The binding decision of Kalyani Stores
(supra), unfortunately was not noticed.

In Mis Bishamber Dayal Chandra Mohan etc. v. State of U.P. and Ors
etc., AIR (1982) SC 33 an order contained in a teleprinter message imposing C
the requirement for making of an endorsement by the Deputy Marketing
Officer or the Senior Marketing Officer or the physical verification of stocks
of wheat during the course of transit was held to be a restriction on the
freedom of trade, commerce and intercourse within the country, i.e., across
the State or from one part of the State to another. The same was held to be D
regulatory measures as compensatory tax was imposed thereby. Such
compensatory tax, as is well-settled, is permissible. See The State of Himachal
Pradesh and Ors. v. Yash Pal Garg (Dead) By LRs. and Ors., (2003) 3
Supreme 759 and .Jindal Strips Ltd. and Anr. v. State of Haryana & Ors.,
(2003) 8 SCALE 206.
E
It is, however, relevant to note that it was categorically stated therein
"The regulatory measures should, however, be such as do not impede the
freedom of trade, commerce and intercourse."

The said decision does go to show that validity of these regulatory
measures are required to be considered on the constitutional anvil on its own F
force.

In State of Tamil Nadu v. Mis Hind Stone etc., AIR (1981) SC 711
validity of rule SC of the Tamil Nadu Minor Mineral Concession Rules, 1959
came to be questioned. The said rule was made by the State in exercise of G
its power conferred upon it under Section 15 of the Mines and Minerals
(Regulation and Development) Act, 1957. By reason of said rule lease of
quarrying in respect of black granite was proposed to be granted only in
' favour of any corporation wholly owned by the State. Such a power also
exists in the Central Government under Section 17A of the 1957 Act. As the
said rule had nothing to do with inter-State trade or commerce, it was held H
1038 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.
:
A that the same was outside the purview of Article 301 and in any event would
come within the purview of Article 305.

We are not at all concerned with the said question, as therein the Court
was dealing with question of State monopoly created under a statute.

B We may notice that such monopoly has also been held to be permissible
in terms of the provision of Motor Vehicles Act, 1988.

In State of Tamil Nadu and Ors. v. Mis Sanjeetha Trading Co. and
Ors., [1993] 1 SCC 236, a complete prohibition was issued on export of
certain items from the concerned States. The question which arose for
C consideration of the Court was whether such a complete prohibition on export
was permissible. It was held:

"The framers of the Constitution neither wanted to ensure the freedom
of trade and commerce on the pattern of the freedom guaranteed by
Section 92 of the Australian Constitution nor they thought it prcyer
D that the different States should have unfettered and unrestricted power
while imposing prohibitions on inter-State trade. In the larger interest
of the nation, there must be free flow of trade, commerce and
intercourse both inter-State and intra-State but at the same time the
regional problems cannot be ignored altogether. Whenever there is
E a clash between the national interest and the interest of the State
because of which any crisis is created, the Union has power of
intervention. According to us, the expression "free trade" cannot be
interpreted in an unqualified manner. Any prohibition on movement
of any article from one State to another has to be examined with
reference to the facts and circumstances of that particular case-whether
F it amounts to regulation only, taking into consideration the local
conditions prevailing, the necessity for such prohibition and what
public interest is sought to be served by imposition thereof..."

Such prohibition is permissible both under Clause (6) of Article I9 and
G Article 302 of the Constitution. This decision is again an authority for the
proposition that even in relation to essential commodities or goods over
which prohibition is required to be imposed in larger public interest, the
question must be tested on the anvil of Articles 19(l)(g) and 301 of the
Constitution of India and not on applying an age old maxim.

H Har Shankar (supra) was rendered in a situation where the licensee
- •
STATE v. DEVANS MODERN BREWERIES [SINHA, J.) 1039
wanted to avoid the rigours of the licence. Therein the appellants applied for
and accepted licence to vend foreign liquor. Licence granted to them was
A

subject to the provisions of the Punjab Excise Act and the Rules framed
thereunder. Although, the parties entered into a concluded contract, the
appellant therein filed a writ petition asking for a direction quashing the
auction held on March 23, 1968 and secondly, they asked that the respondents B
· be restrained from enforcing the obligations arising under the terms and
conditions of the auction.

In the aforementioned backdrop, the Court distinguished K.K. Narula
(supra) stating:

"It was unnecessary in Krishna Kumar Narula's case (supra) to C
• examine the question from this broader point of view, as the only
contention bearing on the constitutional validity of the provision
impugned therein was not permitted to be raised as it was not argued
in the High Court. The discussion of the question whether a citizen
has a fundamental right to do trade or business in liquor proceeded D
in that case, avowedly, from a desire to clear the confusion arising
from the "different views" expressed by the two Judges of High
Court. This may explain why the Court restricted its final conclusion
to holding that dealing in liquor is business and the citizen has a right
.' to do business in that commodity. The court did not say, though such
an implication may arise from its conclusion, that the citizen has a E
fundamental right to do trade or business in liquor. If we may repeat,
Subba Rao, C.J. said :

We, therefore, hold that dealing in liquor is business and a citizen has
a right to do business in that commodity; but the State can make a
law imposing reasonable restrictions on the said right, in public F
. ... interests .

It is significant that the judgment in Krishna Kumar Narula 's case
does not negate the right of the.State to prohibit absolutely all forms
of activities in relation to intoxicants. The wider right to prohibit G
absolutely would include the narrower right to permit dealings in
intoxicants on such terms of general application as the State deems
expedient. "

It is relevant to note that in Har Shankar (supra) itself, it was stated:

"Since rights in regard to intoxicants belong to the State, it is open H
1040 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A to the Government to part with those rights for a consideration. By
~
Article 298 of the Constitution, the executive power of the State
extends to the carrying on of any trade or business and to the making
of contracts for any purpose."

In State of Bihar and Ors. v. Harihar Prasad Debuka etc., AIR ( 1989)
B SC 1119 the question was answered again on the anvil of Article 304(b) of
the Constitution of India.

Government of Maharashtra and Ors. v. Deokar 's Distillery, (2003] 5
sec 669 has no application in the present case. The question which arose for
consideration therein was as to whether the exercise of power under Section
c 58-A of the Bombay Prohibition Act, 1949 so as to recover the arrears of
salaries of the officers deputed for excise supervision was permissible. It was
not a case where an executive action was under challenge on the touchstone
of Articles 19(1Xg) and 301 of the Constitution of India. Such a legislation
was found to be within the purview of Entry 8, List II of the Seventh Schedule
D of the Constitution of India stating:

"Under Entry 8 List II in the Seventh Schedule to the Constitution of
India and thereby under Sections 49 and 143(2XV) of the Prohibition
Act, the State has the exclusive right/ privilege in respect of potable
liquor and the State, in our opinion, can charge any reasonable
< •
E expenses or even consideration for permitting such activity by grant
of licence and that the respondents ought to comply with all reasonable
orders, as undertaken by them while obtaining the licence."

In B.R. Enterprises (supra), lottery was not held to be a trade as there
no skill was involved in the game. It was held that therein there is only an
F element of chance in contrast to trade and commerce where there is an
exchange of goods, production or properties or exchange of any article either
by barter or money. The said principle would not apply herein.
....
Even in B.R. Enterprises (supra) lotteries were held to be 'goods' for
the purpose of Article 298 being included in the expression 'trade and
G business'. Despite holding that Articles 301 and 304 of the Constitution of
India were not applicable, it having realised that Section 5 of the Lotteries
Act was without any guidelines read down the provisifl!lS' thj':reof evidently
to bring it within the purview of Articles 14 and 246 ilf the Constitution of .,
India.
H
STATE v. DEVANS MODERN BREWERIES [SINHA, J.) 1041

.. The reasoning in the aforesaid judgment in the case of B.R. Enterprises A
v. State of UP (supra) - (2 Hon 'ble Judges) is contrary to and in conflict with
the earlier decisions in the cases of (i) H. Anraj and Ors. v. State of
Maharashtra [1984] 2 SCC 292 (ii) H. Anraj v. State of Tamil Nadu, [1986]
I SCC 414, (iii) State of Haryana v. Mis. Suman Enterprises and Ors.,
[19941 4 sec 211.
B
The Court noticed that in Krishna Kumar Naruia, a Constitution Bench
has held that a right to trade in liquor was business but committed a manifest
error in jumping to the conclusion that it was reversed in Khoday Distilleries
(supra), which was neither in fact done nor could be done as both of the
judgments were rendered by coordinate benches. K.K. Narula (supra) was C
only sought to be explained in Khoday Distilleries (supra).

In Mis. Sat Pal and Co. and Ors. v. Lt. Governor of Delhi and Ors.,
[ 1979] 4 SCC 232 the question which arose for consideration was as to
whether the Parliament's power to legislate in respect of Union Territory was
plenary and unfettered by entries in the Lists of the Seventh Schedule of the D
Constitution oflndia having regard to Entry 97, List I of the Seventh Schedule
of the Constitution. It was held :
·• "Accordingly, if excise or countervailing duty could be levied on
'
country liquor manufactured or imported into Delhi, albeit other
conditions for the levy of such duty being fulfilled, Parliament would E
not lack competence to levy the same only because levy of such duty
on alcoholic liquors for human consumption is within the competence
of a State. But it must be confessed that as country liquor is not
manufactured in Delhi, the Parliament could not under Entry 51 of
the State List levy either excise or countervailing duty on it. Merely F
because Parliament could not levy countervailing duty on country
... liquor imported into Delhi because country liquor is not manufactured
in Delhi, it does not exhaust the power of Parliament to levy some
other duty on the import of liquor if it is otherwise constitutionally
permissible. "
G
(Emphasis supplied)

Thus, in that case also the Parliamentary competence as regard a
legislation was considered.

The impugned duty therein, therefore, even in that case was tested on H
1042 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A the anvil of the constitutional provisions.
Khoday Distilleries (supra) is to be read as a whole. It does not say that
no right can be claimed by a trader even after grant of licence. Exclusive
privilege theory in Khoday Distilleries (supra) if read in its entirety would
lead to the conclusion that the same had been considered only in a no right
B situation.

In Khoday Distilleries (supra) inter alia validity of rules framed by
various States was in question. Sawant, J. analyzing several decisions stated:

"The proposition of law laid down there has to be read in conformity
C with the proposition laid down in that respect by the other decisions
of this Court not only to bring comity in the judicial decisions but
also to bring the law in conformity with the provisions of the
Constitution. The fundamental rights conferred by our Constitution
are not absolute. Article 19 has to be read as a whole. The fundamental
rights enumerated under Article 19(1) are subject to the restrictions
D
mentioned in clauses (2) to (6) of the said article. Hence, the correct
way to describe the fundamental rights under Article 19(1) is to call
them qualifiedfundame.'ltal rights. To explain this position in law, we
may take the same illustration as is given in K.K. Narula case. The
citizen has undoubtedly a fundamental right to carry on business in
E ghee. But he has no fundamental right to do business in adulterated
ghee. To expound the theme further, a citizen has no right to trafficking
in women or in slaves or in counterfeit coins or to carry on business ii
of exhibiting and publishing pornographic or obscene films and
literature. The illustrations can be multiplied. This is so because there
are certain activities which are inherently vicious and pernicious and
F are condemned by all civilised communities. So also, there are goods,
articles and services which are obnoxious and injurious to the health,
morals, safety and welfare of the general public. To contend that
merely because some activities and trafficking in some goods can be
organised as a trade or business, right to carry on trade or business
G in the same should be considered a fundamental right is to beg the
question. The correct interpretation to be placed on the expression
"the right to practise any profession, or to carry on any occupation,
trade or business" is to interpret it to mean the right to practise any
profession or to carry on any occupation, trade or business which can
be legitimately pursued in a civilised society being not abhorrent to
H r
STATE v. DEV ANS MODERN BREWERIES [SINHA, J.) 1043
the generally accepted standards of its morality. Human perversity A
knows no limits and it is not possible to enumerate all professions,
occupations, trades and businesses which may be obnoxious to
decency, morals, health, safety and welfare of the society. This is
apart from the fact that under our Constitution the implied restrictions
on the right to practise any profession or to carry on any occupation, B
trade or business are made explicit in clauses (2) to (6) of Article 19
of the Constitution and the State is permitted to make law for imposing
the said restrictions. In the present case, it will be clause ( 6) of Article
19 which places restrictions on the fundamental right to do business
under Article 19(1) (g). These restrictions and limitations on
fundamental right are implicit and inherent even in the fundamental C
rights spelt out in the American Constitution, although they are not
explicitly stated as in our Constitution by clauses (2) to (6) of Article
19."

It was further observed:
D
"Whether one states as in K. K. Narula case that the citizen has a
fundamental right to do business but subject to the State's powers to
impose valid restrictions under clause (6) of Article 19 or one takes
the view that a citizen has no fundamental right to do business but he
has only a qualified fundamental right to do business, the practical
consequence is the same so long as the former view does not deny E
the State the power to completely prohibit, trade or business in articles·
and products like liquor as a beverage, or such trafficking as in women
and slaves. This Court in K. K. Narula case has not taken such view."

Khoday Distilleries (supra), thus, does not suggest that there is no
fundamental right to trade in liquor at all. The Court explaining the doctrine F
t of 'res-extra commercium' observed:

(a) There cannot be a business in ciime;

(b) What is res-extra commercium would be trade or business in
liquor when it is completely prohibited; G
(c) The State can create a monopoly to do the business itself or
through an agency in terms of Article 19(6) or otherwise;
(d) Restrictions and limitations on the trade or business in potable
liquor can be both under Article 19(6) or otherwise;
H
1044 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A (e) When the State permits trade or business in the potable liquor
with or without limitation, the citizen has the right to carry on
trade or business subject to the limitations, if any, and the State
cannot make a discrimination between the citizens who are
qualified to carry on the trade or business.

B The various rights granted in favour of a citizen under the provisions
of the Constitution must be considered to be an amalgam of rights. Such
rights are required to be given effect to and when a law is enacted or an
executive instruction is issued prohibiting or regulating such rights, the
conditions precedent therefor under the relevant Constitutional provisions
C individually and separately are required to be fulfilled. See R. C. Cooper v.
Union of India, AIR (1970) SC 564.

(B) Case laws where the said Doctrine was not applied :

In H. Anraj v. State of Tamil Nadu, [1986] 1 SCC 414 (2 Hon'ble
D Judges) firstly this Court held (i) lotteries were "goods" in part and could be
amenable to levy of Sales Tax; and (ii) quashed and struck down the
notification of the State of Tamil Nadu exempting the lotteries organized by
the State of Tamil Nadu from levy of sales tax as violative of Articles 14, 301
and 304 since by such discrimination it affected the free flow of trade and
commerce. It was held that the lotteries would be covered under Articles 30 I
E to 304 of the Constitution of India.

Secondly, this Court in the case of H. Anaraj v. State of Maharashtra,
reported in [1984] 2 sec 292 held that the subject "lotteries organized by the
Government of India or the Government of State" is carved out the subject
"betting and gambling" in Entry 34 List II to the 7th Schedule to the
F Constitution of India and placed in Entry 40 List 1 to the 7th Schedule of the
Constitution of .India and as such Parliament alone can make law in respect ,
of lotteries covered by Entry 40. Thus if the legislative power relating to the
lotteries organized by the Government of India or the government of State
are especially carved out of the State List to the Union List, theri the power
G is consciously taken away from the States and Parliament alone will have the
legislative power on the subject.

The Constitution Bench of this Court divided lotteries into five categories
laying down the law that the State has no power to ban the sale of lottery
tickets.
H
STATE v. DEVANS MODERN BREWERIES [SINHA, J.] I045
One of us (Dr. AR. Lakshmanan, J.) in Mis. Maruthi Agencies, A
Bangalore v. The State of Tamil Nadu and Ors., (1997) I MLJ 589 tested the
validity of a statute holding that in the event lotteries are organized by the
State, sale of tickets thereof cannot be prohibited in other States on the
ground that the same is gambling having regard to the relevant entries in List
II of the Seventh Schedule of the Constitution of India.
B
Tobacco which is as harmful as liquor had also not been brought within
the purview of doctrine of res extra commercium. It had been given the
protection of the Parliamentary Act known as Tobacco Act and thus was
taken outside the purview of the State legislative competence. Apart from
Kalyani Stores (supra) and H. Anraj (supra), even in State ofMadhya Pradesh C
v. Bhailal Bhai and Ors., [1964] 6 SCR 261, this Court has clearly held that
Article 30 I shall be applicable in relation to tobacco holding :

" ... There can be no doubt, therefore that even though it is the sale in
Madhya Bharat of the imported goods that creates the liability to tax
and not the import by itself, the trade and commerce as between D
Madhya Bharat and other parts of India is directly impeded by this
tax ..."
(C) Some decisions where this court enforced the rights of a grantee:

In ·state of Bihar and Ors. v. Industrial Corporation Pvt. Lt'µ. and Ors.,
reported in (2003) 9 SCALE 169, it was held: E
" ... Revenue being a subject-matter of legislation in terms of Entry 8
of List II of the Seventh Schedule of the Constitution of India, the
recovery thereof must be made in terms of the provisions of a
legislative Act enacted pursuant thereto and not by reason of any F
executive fiat."

In Industrial Corporation Pvt. Ltd (supra), it was further held :

"In the present case, what we find is that before creating a demand
of penal duty or penalty, there was no adjudication by any authority G
as regard to the breach committed by the respondents. We also find
that no opportunity of any kind was offered to the respondents before
the demand as regard the penal duty was pressed against the
respondents. The matter was not even examined as to what was the
reason for shortfall in the production of rectified spirit. The Molasses
Act does not provide for imposition of such penalty in the everit of H
1046 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A shortfall of spirit. It must, therefore, necessary be held that the
imposition of the impugned penalty being against the principles of
natural justice is illegal and void.

The statutory authorities must act within the four-corners of a
statute. They could take recourse to the proceedings for levy of penalty
B and the recovery thereof from the respondents only in the event there
existed any agreement or statutory provision therefor. Such a power
did not exist in the Commissioner of Excise or the superintendents of
Excise who had issued the impugned demand notices."

In that case, therefore, it was laid down that the executive authorities
C of the State in exercise of their purported regulatory power cannot hold the
people who are legally carrying on their business in liquor in 1ansom. They,
on the ground of contractual power or otherwise, cannot be permitted to
travel beyond the four-corners of a statute by levying any penalty or any
other amount which is not contemplated thereunder.
D The aforementioned decision is also an authority for the proposition
that rule of law must prevail. The country is governed by the rule of law and
not by whims and caprice of the executive authorities. The court cannot be
a party to such whims and caprices.

In State of U.P. and Ors. v. Varn Organic Chemicals Ltd. and Ors., JT
E
(2003) 8 SC I : [2003] 8 SCC 270, this Court while examining the validity
of fees levied on denatured spirit noticed that the principles laid down in
Bihar Distillery were doubted in Deccan Sugar & Abkari Co. Ltd. v.
Commissioner of Excise, A.P., [1998] 3 SCC 272, and referred to a larger
Bench but in its decision dated 13.2.2003 in C.A. No. 4355 of 1985 - Deccan
F Sugar & Abkari Co. Ltd. v. Commissioner ofExcise, A.P., although it followed
Synthetics and Chemicals (supra) and State of UP v. Modi Distillery, [1995]
5 SCC 753 the decision in Bihar Distillery was not expressly overruled. The
•
Bench, thus following Synthetics and Chemicals, [1990] I SCC 109 held that
the levy of such fee was not justified in terms of Entry 66, List II of the
G Seventh Schedule of the Constitution of India by striking down the same. It
was observed :

"The question is (to borrow the language in Synthetics) whether in
the garb of regulations a legislation which is in pith and substance,
as we look upon the instant legislation, a fee or levy which has no
H connection with the cost or expenses administering the regulation,
STATE v. DEV ANS MODERN BREWERIES [SINHA, J.] I 04 7
can be imposed purely as a regulatory measure. Judged by the pith A
and substance of the impugned legislation, we are definitely of the
opinion that these levies cannot be treated as part of regulatory
measures ..."

Yet again in State of UP and Ors. v. Jagjeet Singh and Ors., JT (2003)
8 SC 40 a three-Judge Bench of this Court while interpreting Rule 34 ofU.P. B
Excise Licenses (Tender-cum-Auction) Rules, 1991 vis-a-vis Para 179 of the
Excise Manual enforced the right of the liquor vendors as regard remission
of fee in tenns thereof. The said decision is, therefore, an authority for the
proposition that the rights contained in the statutory rules can be enforced in
a given situation. Thus, it cannot said that the licensees have no enforceable C
right at all.

The statute lays down that the Acts regulating the trade would be lawful,
if done in the manner and to the extent provided by the provisions thereof
or any rules, regulations or orders made thereunder.
D
As the matter has been discussed by B.N. Agrawal, J. in some details,
it is not necessary to notice other judgments herein.

APPLICATION OF THE CONSTITUTIONAL PROVISIONS:

Part Ill of the Constitution of India, in general, and Articles 14 and 19, E
in particular, not only intend to confer very valuable rights to the citizens but
also provides for protection from the legislative and executive vagaries. The
legislature as also the executive in terms of the provisions of the Constitution
of India must not only act within the constitutional parameters but also act
reasonably and in public interest. I may, however, hasten to add that the
rights under Articles 14 and 19 are not absolute. Article 19 provides for F
reasonable restrictions.

What is the meaning of 'reasonable restriction' is the question. Article
19(1)(g) of the Constitution guarantees to all citizens to practice any profession,
or to carry on any occupation, trade or business. Clause (6) of Article 19
empowers the State to make laws imposing reasonable restrictions on the G
exercise of the right in the interest. of general public. Freedom under Article
19(1)(g), however, can be completely curtailed in certain circumstances but
it would depend upon the nature of the mischief which is sought to be
remedied. For the aforementioned purpose dealing in liquor, trading in
dangerous goods as explosives, trafficking in women, tourism, essential H
1048 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A commodities and realisation of tax have been placed in the same category.
See Har Shankar v. Dy. Excise Commer. of Taxation (supra), Cooverjee B.
Bharucha v. Excise Commissioner, [1954] SCR 873, State of UP v. Synthetics,
and Chemical Ltd., [1980] 2 SCC 441, State ofOrissa v. HarinarayanJaiswal
[1972] 2 SCC 36, Synthetic and Chemicals Ltd v. State of UP, [1990] l SCC
109 In the matter of Phool Din, AIR 1952 All 491, Narender Kumar v.
B Union of India, [1960] 2 SCR 375 MB. Cotton Association v. Union of
India, AIR (1954) SC 634 and Hanif Quareshi Mohd v. State of Bihar,
[1959] SCR 629.

In Union of India and Anr. v. International Trading Co. & Anr. (2003)
C 4 Supreme 114 this Court held:

"Reasonableness of restriction is to be determined in an objective
manner and from the standpoint of interests of the general public and
not from the standpoint of the interests of persons upon whom the
restrictions have been imposed or upon abstract consideration."
D Those, however, who fall in exceptional categories in relation to carrying
on a business, total prohibition would not be regarded as unreasonable
restriction. It is also trite that in such a situation, the greater the restriction,
the more would be the need of strict scrutiny by the courts. See Narendra
Kumar and Ors. v. The Union of India and Ors., [1960] 2 SCR 375.
E
As regard application of strict scrutiny test see also Saurabh Choudhary
v. Union of India (2003) 9 SCALE 272.

In Municipal Corporation of the City of Ahmedabad and Ors. v. Jan
Mohammed Usmanbhai and Anr., AIR (1986) SC 1205 : [1986] 2 SCR 700,
F this court held:
"15. Before proceeding to deal with the points urged on behalf of the
appellants it will be appropriate to refer to the well-established
principles in the construction of the constitutional provisions. When
the validity of a law placing restriction on the exercise of a fundamental
G right in Article 19( I )(g) is challenged, the onus of proving to the
satisfaction of the court that the restriction is reasonable lies upon the
State. If the law requires that an act which is inherently dangerous,
noxious or injurious to the public interest, health or safety or is likely
to !)rove a nuisance to the community shall be done under a permit
H or a licence of an executive authority, it is not per se unreasonable
STATE v. DEVANS MODERN BREWERIES [SINHA. J.] I 049
and no person may claim a licence or a permit to do that act as of A
right..."

It was observed:

"Where, however, power is entrusted to an administrative agency to
grant or withhold a permit or licence in its uncontrolled discretion the B
law ex facie infringes the fundamental right under Article 19(1 )(g).
Imposition of restriction on the exercise of a fundamental right may
be in the form of control or prohibition.

"20. The tests of reasonableness have to be viewed in the context of
the issues which faced the legislature. In the construction of such C
laws and in judging their validity, couns must approach the problem
from the point of view of furthering the social interest which it is the
purpose of the legislation to promote. They are not in these matters
functioning in vacuo but as part of society which is trying, by the
enacted law, to solve its problems and furthering the moral and material
progress of the community as a whole ..." D
The matter has also received the attention of a two-Judge Bench of
this Court in B.P. Sharma v. Union of India (2003) 6 SCALE 498 wherein
this Court upon noticing a catena of decisions observed :

" ... On consideration of a catena of decisions on the point, this Court, E
in a case reported in 1998 (8) SCC p.227, MR.F. ltd. v. Inspector,
Kerala Government and Ors., has laid certain tests on the basis of
which reasonableness of the restriction imposed on exercise of right
guaranteed under Article 19(l)(g) can be tested. Speaking for the
Court, Saghir Ahmad, J. (as he then was), laid such considerations as F
follows :

"(!) While considering the reasonableness of the restrictions,
the court has to keep in mind the Directive Principles of
State Policy.

(2) Restrictions must not be arbitrary or of an excessive G
nature so as to go beyond the requirement of the interest of
the general public.

(3) In order to judge the reasonableness of the restrictions,
no abstract or general pattern or a fixed principle can be laid
down so as to be of universal application and the same will H
1050 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A vary from case to case as also with regard to changing
conditions, values of human life, social philosophy of the <
Constitution, prevailing conditions and the surrounding
circumstances.

(4) A just balance has to be struck between the restrictions
B imposed and the social control envisaged by clause (6) of
Article 19.

(5) Prevailing social values as also social needs which are
intended to be satisfied by restrictions have to be borne in
mind. See State of U.P. v. Kaushaliya, AIR (1964) SC 416
c [1964] 4 SCR 1002.

(6) There must be a direct and proximate nexus or a
reasonable connection between the restrictions imposed and
the object sought to be achieved. If there is a direct nexus
between the restrictions and the object of the Act, then a
D strong presumption in favour of the constitutionality of the
Act will naturally arise. See Kavalappara Akottarathil
Kochuni v. State of Madras and Kera/a, O.K. Ghosh v. E.X
Joseph, AIR (1960) SC 1080 [1960] 3 SCR 887, AIR (1963)
SC 812 [1963] Supp (1) SCR 789."
E The question has also been considered in Indian Handicrafts Emporium
(supra) wherein this Court held :

"In Narender Kumar and Ors. v. Union of India and Ors., [1960] 2
SCR 375, this Court while interpreting the word 'restrictions' held as
follows:
F
"It is reasonable to think that the makers of the Constitution considered
the word "restriction" to be sufficiently wide to save laws
"inconsistent" with Art. 19(1), or "taking away the rights" conferred
by the Article, provided this inconsistency or taking away was
reasonable in the interests of the different matters mentioned in the
G clause. There can be no doubt therefore that they intended the word
"restriction" to include cases of "prohibition" also. The contention
that a law prohibiting the exercise of a funda01ental right is in no case
saved, cannot therefore be accepted." ,.
(See also State ofMaharashtra v. Mumbai Upnagar Gramodyog Sang,
H
STATE v. DEV ANS MODERN BREWERIES (SINHA, J.] 1051
[1969] 2 SCR 392). A
In Saurabh Chaudhri (supra), V.N. Khare, CJ! speaking for the majority
stated:

"Constitutional interpretation is a difficult task. Its concept varies
from statute to statute, fact to fact, situation to situation and subject B
matter to subject matter..."

It was observed:

"...The courts shall all along strive hard for maintaining a balance.
• While interpreting the Constitution, we must notice the following C
view of Justice Holmes expressed in Missouri v. Holland, [252 US
416 (433)] :

"When we are dealing with words that also are a constituent act,
like the Constitution of the United States, we mu~t realise that they
have called into life a being the development of which could not have D
been foreseen completely by the most gifted of its begetters. It was
enough for them to realise or to hope that they had created an organism,
it has taken a century and has cost their successors much sweat and
blood to prove that they created a nation. T)ie case before us must be
considered in the light of our whole experience and not merely in that
of what was said a hundred years ago." E
If by reason of judicial interpretation it is held that those trades which
are obnoxious in nature would not fall within the purview of Article 19, what
was the necessity of extending the meaning of 'reasonable restrictions' to
prohibition; and in some cases even with the aid of the provisions contained
in the Directive Principles of State Policy in Part IV of the Constitution of F
India?

If matters in relation to such trades which are said to be obnoxious in
nature, no provisions of the Constitution of India were to be made applicable,
where was the need of enacting statutes prohibiting them either in whole or G
in part? The Parliament or the State Legislature, it is trite, do not ·make
legislation in vacuo. The legislations are not enacted in futility. The legislation
·• are not only to be implemented, their constitutionality must also be judged
on the touchstone of Part III and other provisions of the Constitution of India.
No short-cut can be adopted to do away therewith.
H
1052 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A Concededly restrictions of trade in liquor within the meaning of Article
19( I )(g) of the Constitution of India can be extended to prohibition. Such
prohibition may not be permissible in other cases, as noticed hereinbefore.
The decisions of this Court clearly show that such a prohibition can be
imposed by laying down a law only in the event that the trade in relation
B thereto is noxious ones and not otherwise. The distinction made by this Court
in a large number of judgments is to be applied in proper perspective, insofar
as the words trade in liquor will carry two different meanings - one in respect
of trade which are noxious or pernicious and the others which are not. If it
is held that Article 19 of the Constitution of India and for that matter any
other provision of the Constitution of India including Article 30 I will not
C have any application in relation to pernicious or obnoxious trade, the State
will not be entitled to issue any prohibitory order in relation thereto. The very
fact that this Court in no uncertain terms held that the trade in liquor .~an be
prohibited being noxious or pernicious, it implicitly goes to show that
prohibition of such a trading activity must be referable to legislations made
in terms of clause (6) of Article 19 of the Constitution of India which is itself
D an indication of the fact that there exists a right to carry on the trade in terms
of Article 19( I)(g) of the Constitution of India. While making such a legislation
the Parliament or the State Legislatures, as the case may be, impose prohibition
either in whole or in part or may only provide for regulatory measures.

E There are decisions of this Court which have held that Article 19(1)(g)
will not apply so long as the trade in liquor is prohibited. The Constitution
Bench of this Court in Khoday Distilleries (supra) clearly held that a citizen
will have no fundamental right to carry on such trade which is illegal and
would lead to commission of penal offences. The logical corollary of the said
decision would be that a citizen will have a right including a fundamental
F right to carry on the said trade or business when the same would not lead to
a penal or criminal offence or has not declared the same to be otherwise
illegal.

REGULATORY POWER OF THE STATE:

G In Synthetics and Chemicals Ltd. (supra), this Court held:

"76. Balsara case (1951] SCR 682: AIR (1951) SC 318: 52 Cri LJ
1361) dealt with the question of reasonable restriction on medicinal
and toilet preparations. In fact, it can safely be said that it impliedly
and sub-silentio clearly held that medicinal and toilet preparations
H would not fall within the exclusive privilege of the States. If they did
STA TE v. DEV ANS MODERN BREWERIES [SINHA, J.] I053
there was no question of striking down of Section 12(c) and (d) and A
Section 13(b) of the Bombay Prohibition Act, 1949 as unreasonable
under Article 19(l)(f) of the Constitution because total prohibition of
the same would be permissible. In K.K. Naru/a case (K.K. Naru/a v.
State ofJ & K, [1967] 3 SCR 50: AIR (1967) SC 1368) it was held
that there was right to do business even in potable liquor. It is not B
necessary to say whether it is good law or not. But this must be held
that the reasoning therein would apply with greater force to industrial
alcohol."

(Emphasis Supplied)

Thus, even therein although an occasion had arisen, a Seven-Judge C
Bench did not expressly over-rule K.K. Narula but applied the principles laid
down therein in case of industrial alcohol.

In Ramana Dayaram Shelly v. The International Airport Authority of
India and Ors., AIR (1979) SC 1628 [1979] 3 SCR 1014, this Court held: D

" ... We fail to see how the plea of contravention of Article l 9(1)(g)
or Article 14 can arise in these cases. The Government's power to
sell the exclusive privilege set out in Section 22 was not denied. It
was also not disputed that these privileges could be sold by public
auction. Public auctions are held to get the best possible price. Once E
these aspects are recognised, there appears to be no basis for
contending that the owner of the privileges in question who had
offered to sell them cannot decline to accept the highest bid if he
thinks that the price offered is inadequate.

It will be seen from these observations that the validity of clause (6) p
-
of the Order dated January 6, 1971 was upheld by this Court on the
ground that having regard to the object of holding the auction, namely,
to raise revenue, the Government was entitled to reject even the highest
bid, if it thought that the price offered was inadequate. The Government
was bound to accept the tender of the person who offered the highest
amount and if the Government rejected all the bids made at the auction, G
it did not involve any violation of Article 14 or 19( 1)(g). This is a
self-evident proposition and we do not see how it can be of any
assistance to the respondents."

In Har Shankar and Ors. v. Dy. Excise and Taxation Commissioner H
1054 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A (supra), this Court held:
" ...The state, under its regulatory powers, has the right to prohibit
absolutely every form of activity in relation to intoxicants - its
manufacture, storage, export, import, sale and p.ossession. In all their
manifestations, these rights are vested in the State and indeed without
B such vesting there can be no effective regulation of various forms of
activities in relation to intoxicants. In American Jurisprudence'',
Volume 30 it is stated that while engaging in liquor traffic is not
inherently lawful, nevertheless it is a privilege and not a right, subject
to governmental control (page 538). This power of control is an
incident of the society's right to self-protection and it rests upon the
c right of the state to care for the health, morals and welfare of the
people. Liquor traffic is a source of pauperism and crime (pp. 539,
540, 541 )."

In order to determine whether total prohibition would be reasonable the
D Court has to balance the direct impact on the fundamental right of the citizens
thereby against the greater public or social interest sought to be ensured.
Implementation of Directive Principles contained in Part IV is within the
expression of restrictions in the interest of the general public. (See also
Municipal Corporation ofthe City ofAhmedabad and Ors. v. Jan Mohammeq
Usmanbhai and Anr., AIR (1986) SC 1205 : (1986] 2 SCR 700).
E
In Rustom Cavasjee Cooper and Ors. v. Union of India, AIR (1970) SC
564, the law is stated in the following terms:

" .. .If this be the true view and we think it is, in determining the
impact of State action upon constitutional guarantees which are
F fundamental, it follows that the extent of protection against impairment
of a fundamental right is determined not by the object of the Legislature
nor by the form of the action, but by its direct operation upon the
individuals rights.

We are of the view that the theory that the object and form of the
G State action determine the extent of protection which the aggrieved
party may claim is not consistent with the constitutional scheme.
Each freedom has different dimensions ..."

In certain cases even in relation to the grant of contract in liquor,
Article 14 of the Constitution has been held to be applicable. Once it is held
H that a person, in certain situation is entitled to invoke the equality clause
STATE v. DEVANS MODERN BREWERIES [SINHA, J.] I055
contained in Article 14 of the Constitution of India, there is absolutely no A
reason as to why Article 30 I will not be applicable.

A I I-Judge Bench of this Court in T.M.A. Pai Foundation (supra),
observed:

"The question of whether there is a fundamental right or not cannot B
be dependent upon whether it can be made the subject-matter of
controls."

It is relevant to note that two of the Hon 'ble Judges were parties to
Kalyani Stores (supra) as also to Krishna Kumar Narula (supra) which again
being a Constitution Bench judgment wherein it has been held that a person C
has a fundamental right under Article 19( I )(g) to carry on trade or business
in liquor. K.K. Narula (supra) has not been overruled. The same holds the
field. In that view of the matter, we cannot ignore K.K. Narula (supra).

Furthermore, there exists a distinction between a fundamental right of
a citizen to carry on business in noxious or pernicious trade under Article D
19(1 )(g) of the Constitution of India and freedom to carry on such trade
through out the country without any hindrance or obstruction except in terms
of reasonable regulations which may be made under Article 304(b) of the
Constitution of India.

ARTICLE 14 - SOME FACETS OF COUNTRY AND FOREIGN LIQUOR,
E
DIFFERENCE BETWEEN:

The equality clause contained in Article 14 of the c.onstitution of India
recognizes that reasonable classification is permissible. Article i4 has been
held to be applicable at all stages for grant of a contract. F
It is interesting to note that Rule 39 of the Maharashtra Country Liquor
Rules, I973 and Rule 17 of the Maharashta Foreign Liquor (Sale on Cash,
Register of Sales etc.) Rules, 1969 prohibits the vendors from selling foreign
liquor or the country liquor :
G
Rule 17 of the Maharashtra Foreign Liquor (Sale on Cash, Register of
Sales etc.) Rules, 1969 prescribes that no vendor is to sell foreign liquor to
the following class of persons :

* A Police Officer in uniform;
* A Prohibition and Excise Officer on duty; H
1056 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A * A Railway servant on duty;

* An insane person; or
• A person who is intoxicated.

Rule 39 of the Maharashtra Country Rules, 1973 provides that a retail
B licence shall not sell country liquor to the following categories of persons,
namely:

* A lunatic insane person;
• Person who is in an intoxicated State;

c * Person known or suspected to be participating in any rioting or
disturbance of peace; and

* The Armed Forces of the Union, Member of the Police Force, the
Prohibition and the Excise Department, State Transport and
Railway Department or driver of a motor vehicle, when on duty
D or in uniform, or both.

The comparison of these two lists reveals that the categories of persons
are different for country liquor and foreign liquor. The vendor is not allowed
to sell country liquor to certain categories of persons, who are not specified
thereunder and whereas Rule 17 of 1969 Rules categories a different list of
E persons. A vendor can sell foreign liquor to the driver of a vehicle but is
prohibited from doing so in respect of country liquor. Foreign liquor can be
sold to a railway servant on duty but not country liquor.

In Cooverjee Bharucha v. Excise Commissioner and Chief
Commissioner, Ajmer, AIR ( 1954) SC 220 and Harinarayan Jaiswal (supra),
F this Court held that the State has exclusive right to sell liquor and to sell the
said right. Both rights are, thus, different and distinct. (

REGULATION OF THE TRADE IN RELATION TO FOREIGN LIQUOR:

In State of Bombay v. F.N. Ba/sara, AIR (1951) SC 318, this Court
G heta:
(i) A provision of law, which provided for permitting certain persons
to drink and prohibited certain others from drinking, would not violate
Article 14, provided such classification was reasonable.

H
STATE v. DEV ANS MODERN BREWERIES [SINHA, J.] I057
(ii) Pennitting the use or consumption of foreign liquor among A
members of the Military and Naval Officers does not offend Article
14, as the members of such Force could be regarded as a class by
themselves, and such classification was reasonable.

(iii) Restrictions, which are imposed for securing the objects, which
are enjoined by the Directive Principles of State Policy in the B
Constitution, may be regarded as reasonable restrictions within the
meaning of clauses (2) and (6) of Article 19 of the Constitution of
India.

(iv) When restrictions imposed by a law on the exercise of
Fundamental Rights are reasonable in respect of certain items and C
unreasonable in respect of certain other items, the law as a whole will
not be void when the offending provisions are severable; the provisions
of the law imposing unreasonable restrictions alone would be void,
and those provisions which impose reasonable restrictions will be
valid.
D
(v) Prohibition of possession, consumption, buying or selling of wines
by a law is a reasonable restriction upon the right to "acquire, hold
and dispose of property" conferred by Article 19(l)(f) having regard
to the Directive Principles in Article 47.

In Fatehchand (supra), also a distinction was made between money- E
lending amongst commercial community as integral to trade which was held
to be trade and a narrow noxious category of money-lending where there is
no flow of trade, no movement of commerce, no promotion of intercourse, no
servicing of business, but merely stagnates rural economy, strangulates the
borrowing cornmunity and turns malignant in its repercussions. F
[Italics is mine for emphasis]

A similar distinction was noticed in Synthetics and Chemicals Ltd v.
State of UP., [1990] I SCC 109 in the following terms :

" .. .In other words, excise duty and price for privileges were regarded G
as one and the same thing. So-called privilege was reserved by the
State mostly in respect of country liquor and not foreign liquor which
included denatured spirit."

H
1058 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A The seven-Judge Bench, therefore, made a distinction between a country
liquor and a foreign liquor.

ARTICLE 301:

(A) The Constitutional Assembly Debates:
B
It is trite that in interpreting constitutional provisions, reference to
constitutional debates is permissible. [See T.M.A. Pai Foundation (supra)].

This Article was introduced in its final form by B.R. Ambedkar on 8th
September 1949. [See Constitutional Assembly Debates, 8th September, 1949,
C Vol. 9, p.1124). Ambedkar's esteemed view was not to make interstate
commerce and trade absolutely free. He contemplated a certain amount of
legislative restrictions that could be imposed in 'public interest'. While this
view was widely supported by T.T. Krishnamachari and Alladi Kuppuswami,
it was contested by Pandit Thakur Das Bhargava who advocated several
amendments to promote absolute free trade; as well as Dr, P.S. Deshmukh
D who felt that a policy should be kept very broad, for the Parliament to fill in
the details at the relevant time, for the relevant place.

Realizing the need for some level of State regulation of trade and
commerce, in the interest of the public, Dr. B.R. Ambedkar stated:
E " .. .it is not the intention to make trade and commerce absolutely free,
that is to say, deprive both the Parliament as well as the States of any
power to depart from the fundamental provision that trade and
commerce... has been made subject to certain limitations which may
be imposed by the Parliament or ... the Legislatures of various states
F subject to the fact that the limitation contained in the power of
Parliament to invade the freedom of trade and commerce is confined
f
to cases arising from scarcity of goods in any part of the territory of
India and in the case of states, it must be justified on the grounds of
public interest...the action of the states in invading the freedom of
trade and commerce in the public interest is also made subject to the
G condition that any Bill affecting the freedom of trade and commerce
shall have previous sanction of the President; otherwise the State
would not be in a position to undertake such a legislation ..."

[See Constitutional Assembly Debates,
8th September, 1949, Vol.9,pp.1124-25]
H
STATE v. DEV ANS MODERN BREWERIES [SINHA, J.) I059
This point of view was supported by T.T. Krishnama.::hari who in reply A
to the strong stand taken by Pandit Bhargava stated that the entire Chapter
provides the maximum possible amount of liberty for trade and commerce.
It provides the maximum amount of concession that can be given to maintain
consistency with the fature economic improvement of the country. Bijt he
strongly emphasized that, "the world has well-nigh come to the position B
when trade and commerce cannot run without control and some kind of
direction by the government." He reafized that the restrictions cannot be
whittled down, if there is to be economic progress, when he stated,

"A certain amount of freedom of trade and commerce has to be
permitted. No doubt restrictions by the State have to be prevented so C
that particular idiosyncrasies of some people in power or narrow
provincial policies of certain states should not be allowed to come
into play and effect the general economy of the country. That I think
is amply covered ... certain amount of powers in regard to restriction
on trade is necessary and has been provided for."
[See Constitutional Assembly Debates, D
8th September, 1949, Vol.9,p.1139]
He also believed that the State should be given the right and the Centre
should only interfere ifthe economic and fiscal policy of the Centre is unduly
interfered with.
E
While justifying why a certain Ieve 1 of restrictions were required, T. T.
Krishnamachari drew largely from the Australian experience wherein it was
believed that absolute freedom of trade and commerce was running contrary
to the purpose of the State and in turn the citizens.

However, in sharp contrast to these views, Pandit Thakur Das Bhargava F
wanted interstate trade and commerce to be almost absolutely free. The only
restrictions to this absolute freedom would be in emergencies. Any other
restrictions would be considered as derogatory to the very concept of freedom.
He further wanted the restrictions to be qualified with the term 'reasonable'
so as to enable the judiciary to adjudicate upon the reasonableness of the G
restrictions in public interest. [See Shiva Rao, B., Supra, p.704]

Taking a slightly tangential position, Dr. P.S. Deshmukh stated that,
"Trade and commerce are not things which are decided once and for all; they
are things that arise and grow from day to day ... there may be circumstances
when the whole thing may have to be revised." He thus advanced the view H
1060 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A that amendments be made to give Parliament a completely blank cheque and
let them determine the policy, bearing in mind the differential levels of
advancement in various states.

However, all the amendments proposed to be inflicted on BR
Ambedkar's Draft provisions were negatived and the Chapter was passed in
B its exact form. Thus, the position, as it lies, is to grant the maximum possible
freedom of interstate trade and commerce. This is however, subject to a
certain level of legislative restrictions in order to ensure that the greater
economic interests of the country are not hampered, to make provision for
public interest, and to make way in times of emergencies. However, it was
C the very obvious intent of the Constitutional framers to place only this
minimum level of restrictions on the freedom of trade and business. Any
restriction, not falling within these categories will be bad in law and will run
contrary to the intention behind its presence in the Constitution.

External aids such as the Constitution Assembly Debates are an able
D guide for discerning the meaning behind a particular provision and in exactly
what light their interpretation should take place. The debates in the Constitution
Assembly would show how Article 301, on the one hand, is more near the
Australian Constitution provisions contained in Sections 92 and 99 and
different in material particulars from the American Constitution.

E Sections 92 and 99 of the Australian Constitution along with Section
297 of the Government of India Act, I935 served as a source for Article 30 I.
These provisions in the Australian Constitution serve to guarantee an omnibus
right of interstate trade and commerce. Being so absolute, they acted as
barriers to many measures of economic reform undertaken by the government.
F The Commerce Clause in the American Constitution is in sharp contrast.
Referred to as the 'dormant' clause it simply states that, "the Congress shall
(
have power... to regulate commerce ...among the several states." [See U.S.
Constitution, Article I, p.8 Cl.3].

G The interpretation of this ambiguous clause has been equally varied.
The courts have held that the 'very silence' in these words delimits an implied
negative against unduly burdensome or discriminatory state or local
interferences with free trade across state lines. [See Tribe, Lawrence H.
"Constitutional Choices", p.34]. This was primarily the view taken in Leisy
v. Hardin, [See 135 US 100 at pp I 09-110] by Justice Fuller who was in the
H majority while striking down an Iowa statute prohibiting sale of intoxicating
STATE v. DEVANS MODERN BREWERIES [SINHA, J.] 1061
liquor. He said that, "the Congress' silence with respect to an area of interstate A
commerce- that i~, its non-enactment of any law either regulating that area
or allowing states to do so-indicates its will that such commerce shall be free
and untrammelled."

However, the minority did not agree. They read into the silence and
inaction precisely the opposite-that Congressional intent that the law shall B
remain as it had been. [See 135 US at p.160-Gray, J. joined by Justices
Harlan and. Brewer].

Thus, as stated by Thomas Powell Reed in an essay in 1938, "The
congress has the power to keep silent. The Congress can regulate interstate C
commerce simply by just not doing anything about it."

State laws in conflict with valid Congressional enactments are inoperative
so long as the national legislation remains unchanged. "If the Constitution ...
makes the commerce power of the Congress an exclusive one over subjects
for which a single uniform rule is preferable, it must be the Constitution that D
prohibits the states from exercising any kind of commerce power over that
type of commerce as it prohibits the states form taxing the first sale of an
import before bulk is broken." (See Powell, Thomas Reed, "Vagaries and
Varieties in Constitutional Interpretation", p. 156)

The power of the Congress is concurrent with that of the states; the E
power of the states is concurrent with that of the Congress. The exercise of
state power, however, is subject to several restrictions. It must not impose
regulation in conflict with regulations of Congress. It must not, even in the
absence of conflict, impose regulations if the Congress is deemed to have
occupied the field. The states may not tax interstate and foreign commerce
(See Powell, Thomas Reed, "Vagaries and Varieties in Constitutional F
Interpretation'', p. 180). There is no Cooley law goveining state taxation.
Marshall, J. in Brown v. Maryland, a case involving state tax on selling
imported goods wholesale, wherein the tax discriminated against selling goods
of foreign origin, but Marshall did not base condemnations on that ground.
He held that the Constitutional ban on state taxation of imports keeps the G
state from subjecting them to a general non-discriminatory tax, so long as
they remain imports. (See Powell, Thomas Reed, "Vagaries and Varieties in
Constitutional Interpretation", p. I 81)

As regard whether state laws regulating commerce could be valid, there
was a series of tests evolved. The first was the dichotomy evolved by Marshall, H
1062 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A J. between 'commerce' and 'police' powers. This evolved primarily because
states had waged destructive wars on each other. A common diagnosis was
that state governments had been too responsive to local economic interests;
with the result that interstate economic competition was more through political
processes than through the marketplace.

B So while one set of views asked for complete state freedom to regulate
(successors of Marshall), others asked for the Central power instead. Soon
evolved a new dichotomy of 'local' and 'national'. This came about in Cooley
v. Board of Wardens of the Port of Philadelphia, [See 53\js (12 How) 299
(1851)) which claimed that even though the Pennsylvania statute concerned
C manifestly and predictably affected interstate commerce, the subject being
regulated was 'local' and not 'national'.

Later the debate moved from here to the test of 'direct' and 'indirect'
- State regulations affecting interstate commerce were struck down by the
Court if the regulatory impact upon interstate commerce was deemed so
D substantial to be a 'direct' burden.
Thus, from an overview of all the above views in the American and
Australian Constitutions one can conclude that the Indian provisions for free
trade and commerce are more explicit. While the Australian Constitution
failed to expressly define restrictions, the American Constitution defined the
E clause in an extremely ambiguous manner. The Indian Constitution provides
for freedom of trade and commerce, but puts the minimum required restriction
in tenns of public interest.

The upshot of the discussions made hereinbefore would be that whereas
in tenns of Article 19(6) as also Article 302 of the Constitution of India in
F relation to a trade which is noxious in nature a complete prohibition would
be pennissible, the same would not mean that while pennitting the trade to
go on the State's action whether legislative or executive need not undergo the
constitutional tests in tenns of Articles 14, 19 or 30 I of the Constitution of
India. The argument that the relationship between State and the licensee is
G contractual in nature but the same would not mean that any legislative
interference thereupon as a result whereof the contract becomes more
burdensome would not be a subject-matter of challenge. There is no estoppel
against statute. There cannot be any waiver of fundamental right.

(B) Freedom of Trade and Commerce: A very brief Trace of History
H
STATE v. DEV ANS MODERN BREWERIES [SINHA, J.] I 063

Freedom of trade was the established practice in India during the reign A
of the British. There were no existing interprovincial duties or trade barriers.
However, with the advent of provincial autonomy, it was considered necessary
to have a statutory basis. Accordingly, Section 297 of the Government of
India Act, 1935 prohibited Provincial governments from imposing barriers
on trade within the country. They also could not levy tax, cess, toll or other
due which discriminated between goods manufactured in one locality and B
similar goods manufactured elsewhere. [See Shiva Rao, B. "The Framing of
India's Constitution", p.699).

This trend of thought prevailed even at the stage of the framing of the
Constitution. In the historical backdrop of the formation of an All-India C
Union, it was felt that such a Union would be meaningless and devoid of
purpose if trade and commerce throughout India were not free.

Thus, from a single glance at the documents and debates that went into
the framing of the Constitution, one can discern that this strand of thought
was still extremely prevalent during the drafting of the Constitution. However, D
it was met with a worthy and able opponent- one that warned of the danger
behind the taking such and absolute view.

(C) Constitutional Intent Behind Article 301:

Article 30 I of the Constitution of India provides that trade, commerce E
and intercourse throughout India shall be free and subject only to the provisions
of Part XIJI of the Constitution. This Article seeks to limit the legislative
powers of the State in matters relating to interstate commerce, trade and
intercourse.

The object behind Article 301 is to ensure that the economic unity of F
India may not be broken up by internal barriers. See Atiabari Tea Co. v. State
of Assam, AIR ( 1961) SC 232 Further, unlike the Fundamental right provided
to citizens only under Article 19 ( 1) (g), Article 301 seeks to extend its
benefits to all individuals.

This is the basis of operation of Article 301. The essence of Article 301 G
is a right of free movement of trade without any barrier whether inter-State
or intra-State. It is also not in dispute that the taxes which have direct impact
on the flow of trade and commerce constitute a violation of Article 30 I
unless the legislation is brought within the scope of Article 302, 304 and 305.
(See Jindal Strips Ltd and Ors. v. Stale of Haryana and Ors., JT (2003) 8 H
1064 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A SC 62).
LEVY OF TAXES :

Imposition of tax is a constitutional function. No tax can be levied
except in terms of Article 265 of the Constitution of India. It is one thing to
B say that tax levied is constitutionally valid but it is another thing to say that
tax although levied in exercise of its constituent power by a State Legislature,
it need not undergo the test of constitutional requi;ement at all. The latter
proposition, with utmost respect, would be totally against the letter and spirit
of the Constitution of India as also constitutionalism.

c In Saghir Ahmad and Anr v. State of U.P. and Ors., AIR (1954) SC
728, B.K. Mukherjea, J. speaking for the Constitution Bench noticed that
after the Constitution Amendment Act, 1951 in terms of Article 19(6) a
three-fold provision by way of exception to or limitation upon clause (l)(g)
of the Article 19 was made stating:
D "In the first place it empowers the State to impose reasonable
restrictions upon the freedom of trade, business, occupation or
profession in the interests of the general public. In the second place
it empowers the State to prescribe the professional and technical
qualifications necessary for practising any profession or carrying on
E any occupation, trade or business. Thirdly, - and this is the result of
the Constitution (First) Amendment Act of 1951 - it enables the State
to carry on any trade or business either by itself or through a
corporation owned or controlled by the State to the exclusion of
private citizens wholly or in part."

F It was observed:

"As has been held by this Court in the case <if Cooverjee v. The
Excise Commissioner, etc. [1954] S.C.R. 873 whether the restrictions
are reasonable or not would depend to a large extent on the nature of
the trade and the conditions prevalent in it."
G
It was categorically held:

"With regard to the second point also we do not think that the learned
Judges have approached the question from the proper stand point.
There is undoubtedly a presumption in favour of the constitutionality
H of a legislation. But when the enactment on the face of it is found to
STATE v. DEV ANS MODERN BREWERIES [SINHA, J.] I065
violate a fundamental right guaranteed under article 19(1 )(g) of the A
Constitution, it must be held to be invalid unless those who support
the legislation can bring it within the purview of the exception laid
down in clause (6) of the article. If the respondents do not place any
materials before the Court to establish that the legislation comes within
the permissible limits of clause (6), it is surely not for the appellants B
to prove negatively that the legislation was not reasonable and was
not conducive to the welfare of the community."

The Court clearly held that impost not authorized by law cannot be a
reasonable regulation.

The submission of Mr. P.N. Mishra and Mr. Iyer could have been C
appreciated had the State in terms of Article 4 7 of the Constitution of India
imposed a total prohibition or even a partial prohibition. The State of Punjab
and Kerala have not only imposed no prohibition, they, not only, with a view
to encourage industrial development had been encouraging establishment of
all types of industries including those producing Indian-Made Foreign Liquors. D
India is also importing liquor manufactured in other countries.

It will appear from the order dated 31.1.2002 passed by his Court that
on a query made by this Court, Mr. K.K. Venugopal for the State of Punjab
categorically stated that the source of power for imposition of the import fee
was Sections 18, 19, 34, 58 and 59 of the Punjab Excise Act, 1944. Even E
before this Court, at that stage, the validity of the said fee was not referred
to the right of exclusive privilege irrespective of the provisions of the Punjab
Excise Act.

It is also undisputed that the State of Kerala at no stage took such a
stand at all. Despite the said fact, stand had now been taken that the import F
duty levied on beer is a part of the exclusive privilege.

0 Revenue is necessary to be raised for development of the State but the
same must be done in terms of the Constitution.

For raising revenue, the State itself cannot take a stand which would be G
immoral to some of us, besides being unconstitutional.

A taxing statute is either constitutional or unconstitutional.

If a statute fails to pass the constitutional test - can it be permitted to
succeed on moral or ethical values of some of us? H
1066 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A Is there no distinction between an alcohol for industrial or alcohol for
human consumption?

Can the State be permitted to make any legislation even on industrial
alcohol?

B These are certain questions which are required to be posed and answered.

In S.K Pattanaik (Dead) through LRs. v. State of Orissa and Ors.,
[2000] I SCC 413 in which nne of us (Hon. CJI) was a member, this Court
held:

c "Excise duty" and "Countervailing duty" are well-known concepts
and are attracted in different situations: "Excise duty" is essentially
a duty on manufacture of goods, and the taxable event is the
manufacture of the excisable goods. "Countervailing duty", on the
other hand, is imposed when excisable articles are imported into the
State, in order to counterbalance the excise duty, which is leviable on
D similar goods if manufactured within the State. So far as countervailing
duty is concerned, the incidence of the impost is on the import of the
excisable articles, i.e., at the time of entry into the State."

In Aristocrat Agencies, Hyderabad v. Excise Superintendent, Hyderabad
E and Ors., [2001] I SCC 496 in which Lahoti, J. was a member, this Court
held:

"In our opinion, the demand of differential amount of countervailing
.duty from the appellant, under the circumstances, was perfectly
justified since demand was made on the basis of the duty as in force
on the date of import of the consignment into the State. The duty was
F
to be assessed and collected as in force at the time of obtaining the
permit." {

The terms "Excise Duty", "Countervailing Duty", "import duty" are
not terms of art. They are made part of the interpretation section contained
G in the respective Excise Acts.

Similarly, "Licence Fee" and "Fixed Fee" are also defined. Each term
must be held to have been used by the Legislature with a view to achieve a
definite purpose. One term should not be read as supplement to other. In that
view of the matter, import duty cannot be held to be a part of exclusive
H privilege and, thus, part of a licence fee. If this distinction is borne in mind
STATE v. DEVANS MODERN BREWERIES [SINHA, J.] I067
the statutory injunction contained in Article 301 of the Constitution oflndia A
as also Section 33A of the Punjab Excise Act cannot be given an economic,
purposive and textual meaning. Import duty which is levied under Section 17
of the Kerala Abkari Act and Section 34 of the Punjab Excise Act can be
read to be a part of the licence fee which is collected at the time of grant of
licence that is by way of parting of its right of exclusive privilege. See B
Harinarczyan Jaiswal (supra) and State of U.P. v. Sheopat Rai, (1994] Supp
1 sec 8.

PRINCIPLES GOVERNING INTERPRETATION OF CONSTITUTION:

Constitution being the most important legal document, presents the
most trying construction problems. (See Siegan, Bernard H., "Economic C
Liberties and the Constitution", p.8) "Interpretation of any document, from
ordinary real estate contracts to the Constitution, is influenced by the
circumstances, mores, conventions, and prevailing notions of contemporary
society; and clearly, the meanings given to words may change over the years.
That which was reasonable, proper and logical in one century may be D
unacceptable in another. Many concerns of the yesteryear that prompted
certain interpretations have now faded and been replaced with new attitudes.
Ideas and feelings about labour, property, producers' and consumers' interests,
the environment and human rights do not remain static. Inventions and
discoveries have occurred that were beyond the contemplation of those who
lived centuries ago. The certainties of one period may appear as mistakes in E
another. Nonetheless, the nation retains its commitment to a supreme legal
document establishing the terms of the relationship between the governor and
the governed. (See Siegan, Bernard H., "Economic Liberties and the
Constitution'', p9)
F
Many believe that the Constitution is a flexible and evolving document,
always adaptable to changes in society's conditions and circumstances. Others
insist that judges be strictly bound by its words and by the historical record
of what the framers of both the original text and the amendments intended.

A constitutional provision should always receive a fair, liberal and G
progressive interpretation so that its true objects might be promoted. By this
it can fulfil the aspirations of the people at large.
. . To achieve the above goal, the Organic method of interpretation which
is now universally accepted, requires us to see the present social conditions
and interpret the Constitution in a manner so as to resolve the present H
1068 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A difficulties. The social conditions existing at the time when the Constitution
was made may be very different from the present conditions and hence if we
interpret the Constitution from the angle of the Constitution makers we may
arrive at a completely outdated and unrealistic view. As Justice Marshall
observed in McCulloch v. Maryland, (1819) 4 Wheat 316 "this provision is
B made in a Constitution, intended to endure for ages to come, and consequently
to be adopted to the various crises of human affairs". So "a Constitutional
provision will not be interpreted in the attitude of a lexicographer, with one
eye on the provision and the other on the lexicon. The meaning of the word
or expression used in the Constitution often is coloured by the context in
which it occurs, the simpler and more common the word or expression, the
C more meanings and shades of meanings it has. It is the duty of the Court to
determine in what particular meaning and particular shade of meaning the
word or expression was used by the Constitution makers and in discharging
the duty the Court will take into account the context in which it occurs, the
object to serve which in war used, its collocation, the general congruity with
the concept or object it was intended to articulate and a host of other
D consideration.

The interpretative changes in the Constitution must not only be
considered from its plain language for the purport and object it seeks to
achieve but also having regard to the international treaties and conventions
E but also principles of interpretation governing the same.
The necessity of interpretative changes having regard to the changing
scenario has recently been noticed by this Court in its several decisions.

In order to determine whether total prohibition would be reasonable the
F Court has to balance the direct impact on the fundamental right of the citizens
thereby against the greater public or social interest sought to be ensured.
Implementation of Directive Principles contained in Part IV is within the {

expression of "restrictions in the interest of the general public".

In other words, there exists a distinction between a fundamental right
G of a citizen to carry on trade in obnoxious matters under Article 19( I)(g) of
the Constitution of India and freedom to carry on such trade throughout the
country without any hindrance or obstruction except in terms of reasonable
regulations which may be made under Part XIII of the Constitution of India.

H
STATE v. DEV ANS MODERN BREWERIES [SINHA, J.] 1069
INTERNATIONAL TREATIES AND COVENANTS: A
With a view to interpret the constitutional provision, global changes
and outlook in trade and commerce would be relevant factors.

The impugned notifications not only touch inter-state trade, it affect
international trade also. "Import of liquor'' envisages liquor imported both B
from outside the State as also outside India. International treaties and
covenants, therefore, would play a significant role.

The national policy of globalisation of trade leading to WTO has been
noticed by a Constitution Ben.ch of this Court in Islamic Academy ofEducation
(supra) stating : C
" ... The right of a minority is a human right so also the right of
development. Thus, subject to reasonable restrictions, any unaided
institution imparting professional courses may although exercise
greater autonomy in the matter of management and determination of
the fee structure, it will have a limited right so far as the right to D
admit students is concerned. T.MA. Pai Foundation says that merit
shall be the criteria. Right of development finds place in WTO and
GA TT. It takes into consideration globalisation and opening up of
economy. Excellence in professional education must be viewed from
the economic interest in the country. In order to compete with the E
other developed countries, GDP of India should be around 15% instead
of present rate of 5%. This can be achieved only by producing students
of excellence, which can be achieved only by encouraging institutions
of excellence imparting professional education to those who are
meritorious. Giving encouragement to the students, having better merit
will, thus, have a direct nexus with the economic and consequently F
the national interests of the country. The right of development from
the human right point of view must be construed liberally."

It was further observed :

"Having regard to globalisation and opening up of the market, G
the State expects various medical colleges and educational institutions
and universities to move in. Under WTO and GATT human
development has taken its firm root. A decent life to the persons
living in the society in general is perceived."
H
1070 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A GLOBALISATION:
Globalisation has brought a radical change in the economic and social
landscape of the country. Its impact on Constitution and constitutionalism is
significant. As and when occasion arises the interface between the globalisation
and constitutionalism whether from economic perspective or human rights
B perspective is required to be seriously gone into. Often the economic changes
in the country relating to regulation of markets brought about competition
law leading to substantial erosion of administrative law by private law are
matters which eventually would fall for our decisions. The Court will have
to take a realistic view in interpretation of Constitution having regard to the
C changing economic scenario.

Can we shut our eyes to the fact that except the State of Gujarat, no
other State has imposed a complete prohibition. In fact, the States are
encouraging liberalization to such an extent that in the near future alcohol
beverages may be allowed to be sold in the small grocery shops. The executive
D authorities are contemplating to grant permission to open liquor at the Airports.
The society has accepted pub culture in the metros. A view in the matter,
therefore, is required to be taken having regard to the chan~ing scenario on
the basis of ground reality and not on the basis of the centuries' old maxims.

Subsidies and Countervailing Duties:
E
The WTO and GATT, inter alia, provides for subsidies and
countervailing duties.

What is a countervailing duty?

F It is defined as, "a duty imposed [on imports] to offset the advantage
to foreign producers, derived from a subsidy that their government offers for
the production or export of any article taxed." [See Webster's 3rd New
International Dictionary, 1993)

It has also been defined by Article VI of GA TT as, "a special bounty
G levied for the purpose of offsetting any bounty or subsidy bestowed directly
or indirectly, upon the manufacture, production or export ofany merchandise."
(See WTO in the New Millenium, 5ed., p.123].

What is the rationale behind the imposition of a countervailing duty?

H The economic rationale is very doubtful, as the effect of a countervailing
STATE v. DEVANS MODERN BREWERIES [SINHA, J.) 1071

,. duty is to make the product more expensive in the importing country. However, A
there has been some level of an explanation provided. Every time a tariff
barrier is negotiated and agreed on, WTO members have reasonable
expectations that they can profit from the conditions of competition established
in the market of the member, binding its tariff and gain market share.
Moreover, members have 'paid' for the binding by promising to open up
their market, that is, by binding their own tariffs. WTO members may not B
frustrate their promises by subsidising their domestic industry producing the
product for which a tariff binding has been previously offered. If this were
allowed WTO members might lose the incentive to make concessions in the
future. [See "The World Trade Organisation-Law, Practice and Policy" by
Mitsuo Matsushita, Thomas J. Schoenbaum & Petros C. Mavroidis p.279). C

We need not go into the question in details as regard the provisions of
subsidies as found placed in GA TT. But it may be relevant to note the impact
of subsidies on international trade. (See Jackson, John J., in "The Jurisprudence
of GATT and WTO"pp 434-5.)
D
CHANGING SCENARIO:

Socialism might have been a catchword from our history. It may be
present in the Preamble of our Constitution. However, due to the liberalization
policy adopted by the Central Government from the early nineties, this view
that the Indian society is essentially wedded to socialism is definitely withering E
away.

Although, the United States is guided by a capitalist philosophy unlike
the socialist policy laid down in the Indian Constitution, the very fact that
clianges in society have to be reflected in the interpretation of the Constitution,
while still preserving the core constitutional intent of the Constitutional makers F
is a factor to be reckoned with. This has never been more important than in
the age of globalization when vast changes are taki!1g place both at the social
and political levels.

Constitution: How should be interpreted in Present Day Scenario: G
Legal history is a good guide for the purpose of appreciating the legal
development across the world particularly in the field of international law.

The judiciary cannot cling to age-old notions of any underlying
philosophy behind interpretation. It has to move with the times. As Willes CJ H
1072 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A once said, "When the nature of things changes, the rules of law must change
too". (See Davies v. Powell, (1737) Willes 46 at 51) This is a truism in that
the legislature and, within limits, the courts should change rules to keep the
law abreast of change. (See Dias Jurisprudence, 5th Edition, page 147)

In Francis Bennion Interpretation of Statutes, Fourth edition at page
B 771, it is stated:
"Changes in social conditions - Where relevant social conditions have
changed since the date of enactment, what was then classed as a
social mischief may not be so regarded today. It is very difficult for
the court to apply an enactment so as to 'remedy' what is no longer
c regarded as a mischief. The consequence is an interpretation that
minimizes the coercive effect of the enactment and gives great weight
to criteria such as the principle against doubtful penalisation."

While interpreting such a situation, one must take into consideration
D the flexibility in law as has been highlighted by this Court in M V. Al Quamar
v. Tsav/iris Salvage (International) Ltd. and Ors., (2000] 8 SCC 278 wherein
it was opined:

'43. The two decisions noted above in our view deal with the situation
amply after having considered more or less the entire gamut of judicial
precedents. Barker, J's judgment in the New Zealand case ((1980) I
E
NZLR 104 (NZSC)) very lucidly sets out that the court has to approach
the modem problem with some amount of flexibility as is now being
faced in the modem business trend. Flexibility is the virtue of tht'.law
courts as Roscoe Pound puts it. The pedantic approach of the law
courts are no longer existing by reason of the global change of outlook
F in trade and commerce. The observations of Barker, J. and the findings
thereon in the New Zealand case ((1980) I NZLR 104 (NZSC)) with (

the longish narrations as above, depicts our jnclination to concur with
the same, but since_. issue is slightly different in the matter under
consideration, we, -however, leave the issue open, though the two
decisions as above cannot be doubted in any way whatsoever and we
G
feel it expedient to record that there exists sufficient reasons and
justification in the submission of Mr. Desai as regards the invocation
of jurisdiction under Section 44-A of the Code upon reliance on the
two decisions of the New Zealand and Australian Courts."

H There cannot be any doubt whatsoever that a law which was at one
STATE v. DEVANS MODERN BREWERIES [SINHA, J.] 1073
point of time was constitutional may be rendered unconstitutional because of A
passage of time. See Kapila Hingorani (supra) and John Va//amattom and
Anr. v. Union of India JT (2003) 6 SC 37.

In R v. Hughes 12 BHRC 243 ~ (2002) UKPC 12, the Privy Council
observed :
B
"Under the constitution the people of St. Lucia enjoy certain
fundamental rights and freedoms. The supremacy of those
constitutional rights and freedoms is secured by s.120 of the
constitution :
"This Constitution is the supreme law of Saint Lucia and, C
subject to the provisions of s.41 of this Constitution, if any other
law is inconsistent with this Constitution, this Constitution shall
prevail and the other law shall, to the extent of the inconsistency,
be void."
The constitution controls not only the statute law but any law in force D
in St. Lucia, including 'any unwritten rule of law' (s.124). Therefore,
unless para IO applies, any law, whether written or unwritten, which
is inconsistent with the constitution is to that extent void.

It was further observed :
E
"Since para I 0 introduces these exceptions to the rights and
protection which people would otherwise have under the constitution,
it must be construed like any other derogation from constitutional
guarantees. In State v. Petrus, (1985] LRC (Const) 699 at 720 in the
Court of Appeal of Botswana, Aguda JA referred to Corey v Knight
( 1957) 150 Cal App 2d 671 and observed that - F
"it is another well known principle of construction that exceptions
contained in Constitutions are ordinarily to be given strict and narrow,
rather than broad, constructions."

In case of doubt, para I0 should therefore be given a strict and G
narrow, rather than a broad, construction."

In Project Gabcikovo-Nagymaros (Op. Ind. Weeramantry) the
International Court in its judgment dated 25.9.1997 at page 114, albeit in the
context of ecology observed:
H
1074 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A "As this Court observed in the Namibia case, "an international
instrument has to be interpreted and applied within the framework of
the entire legal system prevailing at the time of the interpretation"
(Legal Consequences for States of the Continued Presence of South
Africa in Namibia (South West Africa) notwithstanding Security
Council Resolution 276 (1970), Advisory Opinion, I.CJ. Reports 1971,
B p. 31, para 53), and these principles are "not limited to the rules of
international law applicable at the time the treaty was concluded."

In People's Union for Civil Liberties and Anr. v. Union of India and
Anr., [2003] 4 SCC 399] at page 403 it held :

C ".. .It is established that fundamental rights themselves have no fixed
content, most of them are empty vessels into which each generation
must pour its content in the light of its experience. The attempt of the
court should be to expand the reach and ambit of the fundamental
rights by process of judicial interpretation. The Constitution is required
D to be kept young, energetic and alive".

Public Policy:

The matter is covered by statutory provisions. The court cannot interpret
on equality, freedom or commerce clauses of the Constitution in such a
E manner so as to take away the rights and obligations created under a statute
on the ground of public morality or otherwise. When a statute permits a
trade, morality takes a back seat as 'legislature' as contra distinguished from
'judiciary' is supposed to be the authority to consider the morality or otherwise
of certain things prevailing in the society.

F This Court in Murlidhar Agarwal and Anr. v. Stale of U.P. and Ors.,
[1975] I SCR 575 while dealing with the concept of 'public policy' observed
thus:-

" ... Public policy does not remain static in any given community. It
may vary from generation to generation and even in the same
G generation. Public policy would be almost useless if it were to remain
in fixed moulds for all time .

... The difficulty of discovering what public policy is at any given
moment certainly does not absolve the judges from the duty of doing
so. In conducting an enquiry, as already stated, Judges are not hide-
H bound by precedent. The Judges must look beyond the narrow field
STA TE v. DEV ANS MODERN BREWERIES [SINHA,J.] I075
of past precedents, though this still leaves open the question, in which A
direction they must cast their gaze. The judges are to base their decision
on the opinions of men of the world, as distinguished from opinions
based on legal learning. In other words, the judges will have to look
beyond the jurisprudence and that in so doing, they must consult not
their own personal standards or predilections but those of the dominant B
opinion at the given moment, or what has been termed customary
morality. The judges must consider the social consequences of the
rule propounded, especially in the light of the factual evidence
available as to its probable results ... The point is rather this power
must be lodged somewhere and under our Constitution and laws, It
has been lodged in the Judges and if they have to fulfil their function C
as Judges, it could hardly be lodged elsewhere.

NEED TO HAVE AN ECONOMIC INTERPRETATION:

The wave of privatization, multinationals influx into society, etc has
lead to a very wide debate on the merits of such a scheme and the judiciary D
has a very wide role to play in discerning what the current position of the
economic trend of the country is, bearing in mind the Constitutional goals of
our Founding Fathers. Economic factors were by no means absent during the
framing of the Constitution. On the contrary, in several instances economic
elements were of considerable importance.
E
However, the very nature of the playing field has changed with the
changes taking place in an evolving society. This is true of every society.
Thus, can we still say that the same economic interests that the Constitutional
Framers sought to. achieve exist in the same form even today, bearing in
mind the changes that have taken place due to the onslaught of globalization F
in the last 2 decades? All these factors have to borne in mind while an
interpretation of the Constitution has to take place.

Opposition will rise to every conceivable change in socio-political-
economic scenarios. Some persons are by nature, conservative in their
subconscious evaluation of change. They refuse to acknowledge man's power G
to make his own history and they explicitly reject the notion that observed
institutions of 'interaction are in themselves, products of intended human
action. (See Buchanan, James A., "Sources of Opposition to Constitutional
Reform", in McKenzie, Richard B., "Constitutional Economics", at p.22)
Thus any change proposed to be made by the lawmakers or the judiciary will
meet with a certain level of opposition, but that does not mean that age-old H
1076 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A notions are clung to. The impact of changes in society also has to be reflected f
in the lawmaking process.

In interpretation of the provisions of the Constitution especially those
provisions dealing with the regulation of economy of the nation must receive
such interpretation which fosters economic growth. Th(: stagnatic economy
B of any nation has a bane for the world economy. Keeping this in view the
interpretation of the Constitution should receive such a treatment which would
be in tune with the original intention of the Constitution makers.

The ultimate duty to achieve and maintain integrity of the nation vis-
a-vis life lies on the Union. It is for this reason though law and order is
C included in the List II of the Seventh Schedule of the Constitution of India,
national security, internal security and policy powers to regulate various
aspects of social, political and economic conduct of human beings vested in
the Union Parliament. Further by reason of Article 352, it is the parliament
which can take over the administration of any state. These are intended to
D maintain integrity and push economy forward. A growing economy results in
more industries and more jobs. When people are employed the purchasing
power will go up the per capita income will go up resulting in more payment
for goods. This again requires more industries. In the long run, subject to
providing congenial atmosphere results in foreign investment.

E The Court having regard to globalisation should take notice of the
futuristic thought in developed countries for interpretation of the Constitution
in the ascertainment of meaning of the relevant provisions thereof with
reference to everything which is logically relevant.

In "An Economic Interpretation of the Constitution of the United States"
F by Charles A. Beard in Chapter VI the Constitution of the United States has
been read as an economic document. Referring to Hamilton, it is stated that
free trade over a wide range would be reciprocal and would give great diversity
to commerce enterprise and will render stagnation less liable for offering
more distant markets when local demands fall off.
G
Lawrence. H. Tribe in his constitutional treatise 'American Constitutional
Law', 3rd Edition emphasized upon the debate, at page 822, as regards court's
new focus on economic activity citing Lopez [514 US at page 566]
acknowledging that the determination whether an interstate activity is
commercial or noncommercial may in some cases result in legal uncertainty.
H The learned author states:
STA TE v. DEV ANS MODERN BREWERIES [SINHA.J.J 1077
"As long as the Court adheres to the principle that a limitless commerce A
power is inconsistent with the text and structure of the Constitution
and believes that its role is to strike down legislation that exceeds the
commerce power (rather than relying on Congress to exercise self-
restraint), it will need to apply some sort of administrable test to
distinguish among classes of activities. It could seek to limit
congressional power through a highly sensitive test for measuring the B
existence of "substantial effects on commerce," but the
·interconnectedness of our society and the fact that every act has
"economic" consequences combine to suggest that, with respect to
almost any activity, one could make a strong argument that its
repetition all over the country probably will substantially affect C
commerce. If any activity can meet the substantial effects test, then
the only other possibility may be the one the court pursued: limiting
the category of activities that can be aggregated in the first place - for
example, by focusing on "commercial" activities as Lopez appears to
have done. If that proved unworkable in practice, then the Court may
find itself unable, after all, to effectuate any substantive limits on D
Congreess' commerce power - unless the Court takes the truly dramatic
step of rejecting entirely the substantial effects test and the aggregation
principle that is its companion, as Justice Thomas urged in his solo
concurrence, advocating the overruling of such foundational landmarks
as Wickard v. Filburn, NLRB v. Jones & Laughlin Steel Corp., and E
Katzenbach v. McC/ung."

The history of commerce power of the United States vis-a-vis the
decisions of the Supreme Court is stated in 'The Oxford Companion to the
Supreme Court of the United States' edited by Kermit L. Hall, 1992 edition
wherein under the heading 'Commerce Power Today' it is stated: F
"Commerce Power Today: During the fifty years following the post-
New Deal era Congress expanded national regulation into myriad
aspects of the national life, using the Commerce Clause as the
constitutional base, all with the Supreme Court's approval. One of
the most significant areas of national intervention was that of racial G
discrimination. In I964 Congress enacted a Civil Rights Act banning
racial discrimination in hotels, motels, restaurants, theaters, and motion
picture houses throughout the country, now based on the Commerce
Clause rather than the Fourteenth Amendment. In Heart of Atlanta
Motel, Inc. v. United States (1964) and Katzenbach v. McC/ung(i964), H
1078 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A the Supreme Court found that racial discrimination had a deleterious (
effect on interstate commerce and was a proper object for congressional
attention.

In National League of Cities v. Usery, (1976), the Court struck
down legislation based on the Commerce Clause for the first time in
B forty years when it held that the minimum wage-maximum hour
requirements of the amended Fair Labor Standards Act of 1938 could
not be extended to state and local governmenJ employees. Such
requirements, said the Court, involved a congressional intrusion into
an "attribute of state sovereignty" (p. 845). Less than a decade later
the Court overruled the Usery case in Garcia v. San Antonio
c Metropolitan transit Authority, ( 1985). Marshall, Taney and Waite
(1937). R.S. Myers, "The Burger Court and the Commerce Clause:
An Evaluation of the Role of State Sovereignty," Notre Dame Law
Review 60 (1985); 1056-1093 ."

D In United States v. Lopez, [514 US 549 (1995)] the United States
r Supreme Court struck down a statute as beyond the Congress' Commerce

power on the ground that the activity regulating was neither a part of nor at
a substantial fact upon interstate commerce. The decision recognizes a debate
as regard Congress' commerce power. Commenting upon Lopez, the learned
Author States:.
E
"It is by no means certain, of course, that future applications of
Lopez will turn entirely, or even predominantly, on deciding whether
a regulated activity is sufficiently "commercial'' to qualify for the
"substantial effects" test and the aggregation principle. The Lopez
Court did not expressly hold that only economic or commercial
F activities could be regulated by Congress whenever they meet these
impact tests. Lopez relied ultimately on the more general meta-
principle that upholding the Gun-Free School Zones Act as a regulation
•
of activity substantially affecting commerce "would require us to
conclude that the Constitution's enumeration of powers does not
G presuppose something not enumerated ... This we are unwilling to
do."

The American decisions are replete with conflicting views taken from
time to time from Gibbons v. Ogden, 22 US 9 Wheat I (1824) to NLRB v.
Jones & laugh/in Steel Corp. 301 US I (1937) and Katzenbach v. McClung
H 379 US 294 (1964) as to whether the Congress should be the sole authority
STATE v. DEV ANS MODERN BREWERIES (SINHA. J.] I 079
to control the commerce clause or not. [See 'A Book of Legal Lists' by A
Bernard Schwartz, 'A History of the Supreme Court' by Bernard Schwartz
and 'American Constitutional Law' by Lawrence H. Tribe].

In Joseph lochner.v. People of the State of New York, [198 US 937]
a question arose as to whether a legislation in limiting of employment in
bakeries to sixty hours a week and ten hours a day is constitutional. The law B
was struck down stating:

"It is also urged, pursuing the same line of argument, that it is to the
interest of the state that its population should be strong and robust,
and therefore any legislation which may be said to tend to make
people healthy must be valid as health laws, enacted under the police C
power. If this be a valid argument and a justification for this kind of
legislation, it follows that the protection of the Federal Constitution
from undue interference with liberty of person and freedom of contract
is visionary, wherever the law is sought to be justified as a valid
exercise of the police power. Scarcely any law but might find shelter D
under such assumptions, and conduct, properly so called, as well as
contract, would come under the restrictive sway of the legislature."

It was observed:

"It was further urged on the argument that restricting the hours of E
labor in the case of bakers was valid because it tended to cleanliness
on the part of the workers, as a man was more apt to be cleanly when
not overworked, and if cleanly then his "output" was also more likely
to be so. What has already been said applies with equal force to this
contention. We do not admit the reasoning to be sufficient to justify
the claimed right of such interference. The state in that case would F
assume the position of a supervisor, or paterfamilias, over every act
of the individual, and its right of governmental interference with his
hours of labor, his hours of exercise, the character thereof, and the
extent to which it shall be carried would be recognized and upheld.
In our judgment it is not possible in fact to discover the connection G
between the number of hours a baker may work in the bakery and the
healthful quality of the bread made by the workman."

It was held that the legislations although claimed to have been made
under the police power or really purported to be for the purpose of protecting
the public health and welfare, in reality are passed through other motives. H
1080 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A Justice Holmes in his dissenting view, however, resented the economic
theory governing the majority judgment.

In India even such a debate is necessary having regard to the provisions
contained in Part XIII of the Constitution of India in terms whereof the State
in relation to certain matters may have a regulatory or taxing power but the
B same would be subject to the commerce clause.

PRECEDENT:

Doctrine of precedent is a well-accepted principle. A ruling is generally
considered to be binding on lower courts and courts having a smaller Bench
c structure.

"A precedent influences future decisions. Every decision is pronounced
on a specific set of past facts and from the decision on those facts a
rule has to be extracted and projected into the future. No one can
foresee the precise situation that will arise, so the rule has to be
D capable of applying to a range of broadly similar situations against a
background of changing conditions. It has therefore to be in general
terms and 'malleable' ... No word has one proper meaning, nor can
anyone seek to fix the meaning of words for others, so the
interpretation of the rule remains flexible and open-ended. (See Dias
E Jurisprudence, 5th Edition, page 136)"

However, although a decision has neither been reversed nor overruled,
it may cease to be 'law' owing to changed conditions and changed law. This
is reflected by the principle 'cessanle ratione cessat ipsa lex'.

" ... It is not easy to detect when such situations occur, for as long as
F
the traditional theory prevails that judges never make law, but only
declare it, two situations need to be carefully distinguished. One is (

where a case is rejected as being no longer law on the ground that it
is now thought never to have represented the law; the other is where
a case, which is acknowledged to have been the law at the time, has
G ceased to have that character owing to altered circumstances. (See
Dias Jurisprudence, 5th Edition, page 146-147)"

It is the latter situation which is often of relevance. With changes that ,,
are bound to occur in an evolving society, the judiciary must also keep
abreast of these changes in order that the law is considered to be good law.
H This is extremely pertinent especially in the current era of globalization when
STATEv. DEV ANS MODERN BREWERIES [SINHA, J.] I081
the entire philosophy of society, on the economic front, is undergoing vast A
changes.

In M.A. Murthy v. State of Karnataka and Ors., [2003] 7 SCC 517, this
Court held:

" ... The doctrine of binding precedent helps in promoting certainty B
and consistency in judicial decisions and .enables an organic
development of the law besides providing assurance to the individual
as to the consequences of transactions forming part of the daily affairs."

HAD KALYANI STORES (SUPRA) BEEN RENDERED PER INCUR/UM:
c
Ka/yani Stores (supra) is a Constitution Bench judgment. A Constitution
Bench has unequivocally held that Article 30 I of the Constitution of India
shall apply to trade of liquor. Once this Court comes to the conclusion that
doctrine of res extra commercium was not applicable, Kalyani Stores must be
applied in all fours. In any event, the decision of a Constitution Bench cannot
be brushed aside as having been passed 'sub si/entio' or on the basis of D
doctrine of 'per incurium'

Judicial discipline envisages that a coordinate bench follow the decision
of earlier coordinate bench. If a coordinate bench does not agree with the
principles of law enunciated by another bench, the matter may be referred E
only to a larger bench. See Pradip Chandra Parija v. Pramod Chandra
Patnaik, [2002] I SCC I at paras 6 and 7; followed in State of Tripura v.
Roop Chand Das and Ors., [2002] 7 SCC 273 at para 2 But no decision can
be arrived at contrary to or inconsistent with the law laid down by the
coordinate bench. Kalyani Stores (supra) and K.K. Narula (supra) both have
been rendered by the Constitution Benches. The said decisions, therefore, F
cannot be thrown out for any purpose whatsoever; more so when both of
them if applied collectively lead to a contrary decision proposed by the
majority.

In Halsbury's Laws of England (Fourth Edition) Vol. 26, at pages 297-
298, Para 578, it is stated: G
"A decision is given per incuriam when the court has acted in
ignorance of a previous decision of its own or of a court of coordinate
jurisdiction which covered the case before it, in which case it must
decide which case to follow Young v. Bristol Aeroplane Co. Ltd.
(1944) I KB 718 at 729 (I944) 2 ALI ER 293 at 300. In Hudderfield H
1082 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A Police Authority v. Waton, (1947) KB 842 [1947] 2 All ER 193. or
when it has acted in ignorance of a House of Lords decision, in which
case it must follow that decision; or when the decision is given in
ignorance of the terms of a statute or rule having statutory force
Young v. Bristol Aeroplane Co. Ltd (1944) I KB 718 at 729 (1944)
2 All ER 293 at 300. See also Lancaster Motor Col. London ltd. v.
B Bremith Ltd., (1941) I KB 675 For a Divisional Court decision
disregarded by that court as being per incuriam, (See Nicholas v.
Penny, (1950) 2KB 466, [1950] 2 All ER 89). A decision should not
be treated as given per incuriam, however, simply because of a
deficiency of parties, Morve/le ltd v. Wakeling, (1955) 2 QB 379
C [1955] I ALL ER 708 C. or because the court had not the benefit of
the best argument, Bryers v. Candadian Pacific Streampships ltd
( 1957) I QB 134, [ 1956] 3 All ER 560 CA Per Singleton LJ, affd
Sub nom. Candadian Pacific Streampship Ltd v. Bryers, (1958) AC
485, ( 1957) 3 All ER 572. and, as a general rule, the only cases in
which decision should be held to be given per incuriam are those
D given in ignorance of some inconsistent statute or binding authority
A. and J. Mukclow ltd v. /RC, (1954) Ch. 615. [1954] 2 All ER; 508
CA, Morelle ltd v. Wakeling, (1955) 2 QB 379, [1955] I All ER 708
CA, See also Bonsor v. Mu.~icians Union, (1954) Ch. 479 (1954) I
ALL ER 822 CA, where the per incuriam contention was rejected
E and on appeal to the house of Lords although the House overruled the
case which bound the Court of Appeal, the House agreed that court
had been bound by it see (1956) AC 104. [1955] 3 All ER 518 HL.
Even ifa decision of the Court of Appeal has misinterpreted a previous
decision of the House of Lords, the Court of Appeal must follow its
previous decision and leave the House of Lords to rectify the mistake.
F Williams v. I Glasbrook Bros Ltd, [1947] 2 All ER 884 CA"

In Dr. Vijay laxmi Sadho v. Jagdish, JT (2001) I SC 382 it has been
observed as follows:

"As the learned Single Judge was not in agreement with the view
G expressed in Devi/a/ Case AIR ( 1960) SC 936: [ 1960] 3 SCR 378 it
would have been proper, to maintain judicial discipline, to refer the
matter to a larger Bench rather than to take a different view. We note
it with regret and distress that the said course was not followed. It is
well-settled that if a Bench of coordinate jurisdiction whether on the
basis of "different arguments" or otherwise, on a question of law, it
H
STATE v. DEVANS MODERN BREWERIES [SINHA,J.) 1083

is appropriate that the matter be referred to a larger Bench for A
resolution of the issue rather than to leave two conflicting judgments
to operate, creating confusion. It is not proper to sacrifice certainty
oflaw. Judicial decorum, no less than legal propriety forms the basis
of judicial procedure and it must be respected at all costs".

In Stale of Bihar v. Ka/ilea Kuer @ Ka/ilea Singh and Ors., JT (2003) B
4 SC 489, a Bench of this Court upon taking a large number of decisions into
consideration observed :

"Looking at the matter, in view of what has been held to mean by per
incuriam, we find that such element of rendering a decision in C
ignorance of any provision of the statute or the judicial authority of
binding nature, is not the reason indicated by the Full Bench in the
impugned judgment, while saying that decision in the case of Ramkrit
Singh (supra) was rendered per incuriam."

It was further opined:
D
" ... The earlier judgment may seem to be not correct yet it will have
the binding effect on the letter bench of coordinate jurisdiction. Easy
course of saying that earlier decision was rendered per incuriam is
not permissible and the matter will have to be resolved only in two
ways - either to follow the earlier decision or refer the matter to a E
larger Bench to examine the issue, in case it is felt that earlier decision
is not correct on merits."

It is also trite that the binding precedents which are authoritative in
nature and are meant to be applied should not be ignored on application of
the doctrine of sub silentio or per incurium without assigning specific reasons F
therefor. I, for one, do not as to how Kalyani Stores (supra) and K.K. Narula
(supra) read together can be said to have been passed sub silenlio or rendered
per incurium.

CONCLUSION:
G
The propositions of law which emerge from the discussions made
hereinbefore are :

, I (I) The maxim 'res extra commercium' has no role to play in
determining the constitutional validity of a statute.
H
1084 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A The State, in its discretion having regard to the provisions
contained in Article 47 of the Constitution of India may part with
., '
its right of exclusive privilege but once it does so, the grant being
subject to the terms and conditions of a statute, the common law
principle based on the maxim 'res extra commercium' shall have
no application in relation thereto.
B
(2) When the constitutionality of a taxing statute is questioned, the
same has to be judged on the touchstone of the constitutional
provisions including Article 30 I thereof. The freedom guaranteed
under Article 30 I of the Constitution of India may not be
considered in isolation having regard to the expression contained
c therein that such freedom is subject to Part XIII of the Constitution
of India.

(3) The right to carry on trade in liquor is a fundamental right within
the meaning of Article 19( I )(g) of the Constitution of India 'Ind
the State may, however, legislate prohibiting such trade either in
D whole or in part in terms of clause (6) of thereof.

(4) Article 14 is applicable in the matter of grant by the State and,
thus, there is no reason as to why grantee would not be entitled
to invoke the commerce clause contained in Article 30 I of the
Constitution of India.
E
(5) In interpreting the constitutional provisions, the court should take
into consideration the implication of its decision having regard to
the international treaties dealing with countervailing duty, etc.

(6) The decision of Kalyani Stores (supra) being an authoritative
pronouncement, the same is binding irrespective of the fact as to
F
whether therein the decisions of this Court in Chamarbaugwa/a
(supra), Har Shan/car (supra) and Khoday Distilleries (supra) have
been referred to or not, keeping in view the fact that even i11 K. K.
Naru/a (supra), another Constitution Bench has held that trade in
liquor is a fundamental right.
G
Before parting, I may observe that it had been my endeavour not to
repeat the reasonings of B.N. Agrawal, J. with whom I respectfully agree
and, with utmost respect, I dissent from the views of the majority.
,
'
H
STATE v. DEV ANS MODERN BREWERIES [SINHA, J.] 1085
ORDER A
In view of the majority opinion rendered by Hon' ble Dr. Justice AR.
Lakshmanan, on behalf of himself, Hon'ble the Chief Justice and Hon'ble
Mr. Justice R.C. Lahoti, Civil Appeal No. 3017 of 1997 is allowed and Civil
Appeal Nos. 2696-2697 of2003 are dismissed. There shall be no order as to
costs. B
G.N. C.A. No. 3017 of 1977 allowi:d
C.A. No. 2696-2697 of 2003 dismissed .

•

, .