Holding

The Ordinance and the Rules are valid; the State may grant foreign‑liquor licences on consideration termed 'licence fee' or 'fixed fee' under Entry 8, and such levies are not taxes, duties or fees within Entries 51, 62 or 66.

Summary

The Uttar Pradesh Government, by the Excise (Amendment) Ordinance 1972, inserted Section 24‑A in the Uttar Pradesh Excise Act, 1910, enabling it to grant shop licences for the retail sale of foreign liquor on the basis of a 'licence fee' (auction highest bid) or a 'fixed fee' (determined by the Excise Commissioner). Three licence‑holders challenged the constitutional validity of the Ordinance and the accompanying Excise (Amendment) Rules, arguing that the levies were not permissible under the State’s legislative competence in List II of the Seventh Schedule. The Allahabad High Court held the Ordinance and Rules ultra vires, relying on entries 8, 51, 62 and 66. On appeal, this Court held that the power to grant such licences falls within Entry 8 (intoxicating liquors) and that the amounts termed 'licence fee' or 'fixed fee' are not 'fees', 'taxes', 'duties' or 'cesses' under entries 51, 62 or 66. Consequently, the Ordinance and Rules are constitutionally valid, the High Court’s decision is set aside, and the writ petition is dismissed.

Issues considered

The Uttar Pradesh Excise (Amendment) Ordinance 1972 and the Excise (Amendment) Rules, 1972, are they within the State’s legislative competence under List II Entry 8 of the Constitution?
Do the 'licence fee' and 'fixed fee' imposed for foreign‑liquor shop licences constitute a 'fee', 'tax', 'duty' or 'cess' within Entries 51, 62 or 66, rendering the enactments ultra vires?
Is the Excise Commissioner’s authority to levy such fees under the Rules valid?

Legislation cited

Constitution of Indias. Article 246, s. List II Entry 51, s. List II Entry 62, s. List II Entry 66, s. List II Entry 8
Uttar Pradesh Excise Act, 1910s. Section 24, s. Section 24‑A, s. Section 25, s. Section 30, s. Section 31, s. Section 39, s. Section 41(c)
Uttar Pradesh Excise (Amendment) Ordinance, 1972s. Section 24‑A
Uttar Pradesh Excise (Amendment) Rules, 1972s. Rule 2(1)

Subjects

Constitutional lawLegislative competenceList IIExciseLicence feeFixed feeForeign liquorState monopolyUltra viresUttar Pradesh

Judgment

A STATE OF UTTAR PRADESH AND ORS.
v.
SHEOPAT RAI AND ORS.

SEPTEMBER 7, 1993
B [B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.]

Constitution of India, 1950 : Article 246, Second Schedule, List II,
Entries 8, 51, 62, 66--Foreign Liquor-Sale of-State Government's exclusive
privilege-Sold to private person under a licence for consideration tenned as
C 'Licence fee' or on a graduated or unifonn scale in lieu of 'licence fee' and
tenned as 'fixed fee', by virtue of U.P. Excise (Amendment) Ordinance,
1972-Held, the Ordinance was promulgated with regard to a subject on which
State Legislature had competence to legislate under Entry 8, List [[-'Licence
fee' and 'fixed fee' are not 'fee', 'tax', 'duty' or 'cess' as envisaged by Entries
D 51, 62 and 66 of List II.
The U.P. Excise Act, 1910/The Uttar Pradesh Excise (Amendment)
Ordinance, 1972/Rules framed under U.P. Excise Act as amended by U.P.
Excise (Amendment) Rule, 1972-Sections 21, 24-A, 31, 40, 41(c),/s.3/rule
2(1), Fonns 'F.L.4' & 'F.L. 5'-Sale of foreign liquo!'--(Jrant of exclusive
E privilege-Held, s.24-A and U.P. Excise (Amendment) Rule 1972, enabling
State Government to give or sell its exclusive privilege or right to carry on
certain activities in foreign liquor for consideration tenned as 'licence fee' or
'fixed fee' in lieu thereof, are not ultra vires the Constitution.

Words and Phrases : 'Licence fee', 'fixed fee' occurring in .s. 24-A of
F
U.P. Excise Act, 191()-Meaning of

The Uttar Pradesh Excise (Amendment) Ordinance 1972 sought to ·
amend the U.P. Excise Act 1910 by omitting clause (3) of the proviso to s.2
and sub-section (3) of s.40 of the Act and inserting s.24-A therein. For
G giving due effect to the Ordinance, the Rules framed under the U.P. Excise
Act were also amended by the U.P. Excise (Amendment) Rules, 1972. The
Ordinance and the Excise (Amendment). Rules enabled the Excise Com·
missioner to grant on behalf of the State Government periodical licences /-
·ror retail vend of foreign liquor either on the basis of 'fixed fee system',
H i.e., granting periodic shop licences on 'fixed fee' determined in accordance
136
STATE v. SHEOPATRAI 137

with graduated or uniform scale, or on the basis of "auction system' i.e. A
granting periodic shop licences or 'licence fee' which was the highest
amount of bid in a public auction. Consequently, the State Government,
by Notification dated 5.7.1972, announced dates of public auction for grant
of periodic shop licences for retail vend of foreign liquor in various
districts of the State. B
The Respondents, who were carrying on retail v·end of foreign liquor
in shops in the State on the basis of licence form "F.L.ff' obtained according
to 'surcharge system' prevailing under the U.P. Excise Act and the U.P.
Excise Rules, i.e. system of payment of 'licence fee' for the total quantity
of foreign liquor to be sold in a year worked out at a fixed unit rate, C
challenged the constitutional validity of the U.P. Excise (Amendment)
Ordinance 1972 and the Excise (Amendment) Rule:s 1972 by filing a writ
petition in the High Court.

The High Court held that the Ordinance provliding for imposition of D
the levy was ultra vires the Constitution, as the sa1me was not justifiable
with reference to entries 8, 51, 62 and 66 in List II of Seventh Schedule to
the Constitution; and therefore the Excise (Amendment) Rules authorising
the Excise Commissioner to provide for the mode of levying and collecting
'licence fee' or 'fixed fee' in accordance with the Ordinance were ultra vires E
s. 41(c) of the Act. It allowed the writ petition ancl directed the State not
to give effect to the Ordinance, not to grant shOJJ> licence to any person
under the Ordinance and the Excise (Amendment) Rules, and to renew the
licences of the respondents for the remaining JJ>art of the Excise year
1972-73 under the old 'surcharge system'. The Sftate and others filed the
appeal on certificate. F

Allowing the appeal, this Court

HELD : 1. The Uttar Pradesh Excise (Arnf!ndment) Ordinance 1972
.I
enabling the State to grant shop licences for Bale of foreign liquors to, G
private parties on 'licence fee' or 'fixed fee' was promulgated with regard
to a subject on which the State Legislature ha~d competence to legislate
under entry 8 of list II of the Seventh Schedule 1to the Constitution.
[pp. 156-D-E]
Synthetics and Chemicals Ltd. and Others v. State of U.P. and Others, H
138 SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.

A [1990) 1 S.C.C. 109 and Har Shankar and Others etc. etc. v. 17ie Deputy
Excise and Taxation Commissioner and Others etc., AIR (1975) S.C. 1121,
followed.

17ie State of Bombay and Another v. F.N. Balsara, [1951) SCR 682;
Cooveljee B. Bharucha v. The Excise Commissioner and the Chief Commis-
B sione1; Ajmer, and Others, [1954] SCR 873; 77ie State of Assam v. A.N.
Kidwai, Commissioner of Hills Division and Appeals, Shillong, [1957) SCR
295; Nagendra Nath Bora & Another v. The Commissioner of Hills Division
&Appeals, Assam and Others, [1958) SCR 1240;Aman Chandra Chakrabor-
ty v. Collector of Excise, Government of Tripura & Ors., [1973) 1SCR533;
c The State of Bombay v. R.M.D. Chamarbaugwala, [1957) SCR 874; State of
Orissa & Ors. v. Harinarayan Jaiswal & Ors., [1972) 3 SCR 784 and Nashir-
war etc. v. State of Madhya Pradesh & Others, A.I.R. (1975) S.C. 360, referred
to.

D 2. The State Government's exclusive privilege or right to carry on
certain actiities in country liquor, foreign liquor or drugs when are given
or sold by it to a private person under a licence (contract) for the bid
amount receivable under the U.P. Excise Act, the Ordinance or the Excise
(Amendment) Rules, such amount constitutes the consideration for licence
E (Contract) and that consideration is termed as 'licence fee'. Similarly, the
fee to be determined by Excise Commissioner on a graduated or uniform
scale under r .2(1) in lieu of 'licence fee' could be termed as 'fixed fee' and
constitutes consideration for licence (contract). [146-H, 147-A-B]

Har Shankar and Others etc. etc. v. The Deputy Excise and Taxation
F Commissioner and Others etc., AIR (1975) S.C. 1121 and State of Andhra
Pradesh etc. etc. v. Y. Prabhakara Reddy etc. etc., A.I.R. (1987) S.C. 933,
followed.

3. The terms 'licence fee' or 'fixed fee' in the context of the U.P. Excise
G Act, the Ordinance and the Excise (Amendment) Rules fall outside the
entries 51, 62 and 66 in List II of seventh Schedule to the Constitution
which enables the making of legislation for imposition of fee tax, duty or
cess. They are not 'fee' at all and cannot partake of the character of either
'regulatory fee' or 'compensatory fee' so as to regard it as 'fee'. They cannot
H be regarded as tax since the characteristics of tax, namely, its levy being
STATE v. SHEOPATRAI 139

compulsive in nature, its burden being common, it being payable to ac- A
cording to the varying abilities of the persons to be charged are wholly
absent in both of them. As 'duty' or 'cess' stand on the same footing as
'tax' the 'licence fee' or the 'fixed fee' cannot be regarded as 'duty' or cess.
[153-B-E]

Har Shankar and Others etc. etc. v. The Deputy Excise and Taxation
B
Commissioner and Others etc., AIR (1975) S.C. 1121 and The Corporation
of Calcutta and Anr. v. Libaty Cinema, A.I.R. (1965) S.C. 1107, followed.

The Commissioner, Hindu Religi,ous Endowments, Madras v. Sri
Lakshmindra 1hirtha Swamiar of Sri Shirur Mutt, A.I.R. (1954) S.C. 282; The c
Hingi,r Rampur Coal Co. Ltd. and Others v. The State of Orissa and Others,
[1961] 2 S.C.R. 537; Mis. Guruswamy & Co. etc. v. State of Mysore & Ors.,
[1967] S.C.R. 548 and H.H. Sudhundra 1hirtha Swamiar v. Commissioner
for Hindu Religi,ous & Charitable Endowments, Mysore, (1963] Supp. 2
S.C.R.,302, relied on. D
Mathews v. Chicory Marketing Board, 60 C.L.R. 263 p. 276; Lower
Mainland Diary v. Crystal Diary Ltd., (1933) A.C. 168; Shannon v. Lower
Mainland Diary Products Board, (1938) AC 708 =A.I.R. (1939) P.C. 36;
Mathews v. Chickory Marketing Board, 60 CLR 263, 276, Commer.; H.R.E.
Madras v. Lakshmindra 1hirtha Swamiar, (1954] SCR 1005, 1041 = AIR E
(1954) SC 282 at p. 295 and Mis Guruswamy & Co. v. State of Mysore, (1967]
1 SCR 548 = AIR (1967) SC 1512 cited.

Findlay Shiras on "Science of Public Finance" Vol. Ip. 203 & 'Public
Finance' by Lutz, referred to. F
-.
4. The High Court erred in holding that s.24-A, inserted in the U.P.
Excise Act, 1910 by the Uttar Pradesh Excise (.Amendment) Ordinance
1972, and the U.P. Excise (Amendment) Rules, 1972 were ultra vires the
Constitution. (161-A]
G
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 692 of
1977.

From the Judgment and Order dated 29-8-1972 of the Allahabad
High Court in CiVil Misc. Writ No. 4163/72. H

'-
140 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.

A A.B. Rohtagi and R.B. Misra for the Appellant.

The Judgment of the Court was delivered by

VENKATACHALA, J.

B This appeal on a certificate of fitness to appeal to this Court granted
by the High Court of Judicature at Allahabad relates to its judgment dated
August 29, 1972 in Civil Miscellaneous Writ Petition No. 4163 of 1972.

Antecedent facts of this appeal, which need brief mention, are these:

C On 30th June, 1972, the Uttar Pradesh Excise (Amendment) Or-
dinance 1972, hereinafter referred to as "the Ordinance", was promulgated·
by the Governor of Uttar Pradesh in exercise of the powers conferred upon
him by clause (1) of Article 213 of the Constitution. The Ordinance, which
omitted clause (3) of the proviso to section 21 and sub-section (3) of
·D section 40 of the United Provinces Excise Act, 1910 hereinafter referred
to as "the U.P. Excise Act", inserted therein section 24-A which read:

"24-A(l) Subject to the provisions of Section 31, the Excise Com-
missioner may grant to any person a licence or licences for the
exclusive privilege of selling by retail at shops (for consumption
E both on and off the licensed premises or for consumption off the
licensed premises only) any foreign liquor in any locality.

(2) The grant of licence or licences under sub-section (1) in
relation to any locality shall be without prejudice to the grant of
F licences for the retail sale of foreign liquor in the same locality in
Hotels and Restaurants for consumption on their·premises.

(3) Where more licences than one are proposed to~be granted
under sub-Sec. (1) in relation to any locality over the same period,
advance intimation of the proposal shall be given to the prospective
G applicants for every such licence.

(4) The provisions of Sections 25 and 30 and the proviso to section
39 shall apply in relation to the grant of a licence for an exclusive
privilege under this section as they apply in respect of the grilnt
H of a licence for an exclusive privilege under Section 24."

_J
STATE v. SHEOPAT RAI [VENKATACHALA, J.] 141

Reasons for promulgation of the. Ordinance were given in its A
preamble, thus:

"And Whereas while the said Act makes express provision for
the grant of licences for the exclusive privilege of selling country
liquor by retail in any local area it does not contain express
provision in similar terms in respect of foreign liquor; B
And whereas it is expedient in the public interest to make
express provision enabling the adoption of the system of grant of .
licences prevailing in respect of country liquor with necessary
modifications for the grant of licences in respect of foreign liquor C
with a view to affording to all suitable applicants equality of
opportunity to obtain such licence and also with a view to raising
additional public revenues (through increased licence fees) out.of
the consumption of foreign liquor which is a luxury."

For giving due effect to the Ordinance, the U.P. Excise (Amend- D
ment) Rules, 1972, hereinafter referred to as "the Excise (Amendment)
Rules", which amended the U.P. Excise Rules, were brought into for~e with
effect from 1st August, 1972, as per Notification dated 5th July, 1972 issued
by the Excise Commissioner, U.P. under section 41(c) of the U.P. Excise
Act. Rule 2(1) thereof read: E
"The licence fees for the retail vend of the following commodities
under the auction system is fixed by public auction periodically,
but the Excise Commissioner reserves the right to grant any licence
on payment of a fixed fee or fee determined in accordance with a
graduated or uniform scale.
F

(a) Country spirit.

(b) Tari in areas other than those under the Tree Tax system
G
(c) Foreign liquor for consumption "on and off' the premises in
Form FL-4 and "off' premises in Form FL-5.

( d) (i) Hamp drugs : Note (1) the settlement of Tari shops
under the auction-cum-tree tax system is also made by
public auction. H
142 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.

A (ii) Ganja shops are at present settled under the Uniform
Surcharge fee system.

Provided that the licence for the retail vend of foreign liquor
for consumption off the premises only in Form F.L. 5 in the
prohibition area shall be determined in accordance with a uniform
B scale."

Shop Licence Form in "F.L. 4" for retail vend of foreign liquor, for
consumption both on and off the premises and 'Shop Licence Form' in
"F.L. 5" for the retail vend of foreign liquor for consumption off the
premises, the issue of which had been provided for under the U.P. Excise
c Rules, were also duly changed under the Excise (Amendment) Rules, for
bringing into effect the Ordinance as regards retail vend of foreign liquor
in accordance with the Excise (Amendment) Rules.

Thus, the Ordinance and Excise (Amendment) Rules, enabled the
D Excise Commissioner to grant on behalf of the State Government peri-
odical licence(s) for retail vend of foreign liquor either on the basis of
'fixed fee system' i.e. granting periodic shop licence(s) on 'fixed fee'
determined in accordance with graduated or uniform scale, or on the basis
of 'auction system', i.e. granting periodic shop licence(s) on 'licence fee'
which was the highest amount of bid in a public auction, as was done in
E granting periodic shop licence(s) for retail vend of country liquor under
the U.P. Excise Act and the U.P. Excise Rules. This situation led the U.P.
Governinent, by its Notification dated July 5, 1972, to announce dates of
public auction to be held commencing from July 18, 1972, for grant of
periodic shop licence(s) for retail vend of foreign liquor in as many as 50
F out of 54 districts of the State.

Respondents 1 to 3 herein, each of whom was, at the time of the
announcement of public auctions, carrying on retail vend of foreign liquor
in shops at Allahabad, Agra and Lucknow, respectively, on the basis of
G licence form "F.L. 5" obtained according to 'surcharge system' prevailing
under the U.P. Excise Act and the U.P. Excise Rules, i.e., system of
payment of 'licence fee' for the total quantity of foreign liquor to be sold
in a year worked out at a fixed unit rate, challenged the constitutional
validity of the Ordinance and the Excise (Amendment) Rules, by filing a
writ petition in the Allahabad High Court. Respondent-4 herein, is an
H association of foreignliquor licencees of the U.P. State, registered as a·
STATE v. SHEOPATRAI"[VENKATACHALA,J.] 143

society, which joined respondents 1 to 3 herein, i.e., petitioners 1 to 3 in A
the writ petition, to support the challenge made therein.

The High Court which examined the challenge in the writ petition
with reference to the contentions raised, both for and against such chal-
lenge, concluded:
B
(i) That the licence fee leviable by the State Government under
s,ection 3(i) and (iv) of the Ordinance (section 24A(l) and (2)
making applicable section 30 of the U.P. Excise Act, for grant of
periodic shop licence either to the bidder of highest amount of bid
in a public auction or to the person paying 'fixed fee' determined
by the Excise Commissioner, entitling such,bidder or other person
c
to have the exclusive privilege of selling foreign liquor in a locality
was ultra vires this Constitution for the reason that the Ordinance
providing for imposition of such levy was not justifiable with
reference to entries in List II of Seventh Schedule to the Constitu-
tion, i.e., Entries 8, 51, 62 and 66 thereof. D
(ii) That the Excise (Amendment) Rules issued under section 41( c)
of the Excise Act authorising the Excise Commissioner to provide
for the mode of levying and collecting 'licence fee' or 'fixed fee'
for grant of any licence, permit or pass or of the storing of any E
intoxicants were ultra vires section 41(c) of the U .P. Excise Act for
the reason that the Ordinance by which 'licence fee' or 'fixed fee'
was leviable for grant of shop licence for retail vend of foreign
liquor was itself ultra vires the Constitution.

The said conclusions reached by the High Court in its judgment F
dated August 29, 1972, made it allow the writ petition and issue directions
to the appellants herein (respondents in the writ petition) - (i) not to give
effect to the Ordinance providing for levy of 'licence fee' for vend of
foreign liquor under a shop licence by a licensee in any locality of the State;
(ii) not to grant shop licence to any person to vend foreign liquor, under
the Ordinance and the Excise (Amendment) Rules and (iii) to renew the G
licences of respondents 1 to 3 (writ petitioners 1 to 3) for the remaining
part of the Excise Year 1972-73 qnder the old 'surcharge system'. However,
the High Court, by its order dated November 6, 1975, granted to the
appellants herein, who were respondents in the writ petition, a certificate
of fitness to appeal to this Court against its judgment dated August 29, H
144 SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.

A 1972. Thus, this appeal was entertained on the basis of the said certificate.
But, this appeal, has now, to be considered as against respondents 1 and
3 only, since it is already dismissed on December 17, 1984 as against
respondents 2 and 4, for non- prosecution.

However, what needs our examination in this appeal is the sus-
B tainability of the said conclusions reached by the High Court in its judg-
ment under appeal, viz. (i) that the Ordinance providing for grant to a
person a periodic licence, for the exclusive privilege of selling foreign
liquor in a specified locality of the U.P. State on 'licence fee' or 'fixed fee'
was ultra vires the Constitution, for the reason of such levy of 'licence fee'
c or 'fixed fee' was not justifiable with reference to any of the entries in List
II of the Seventh Schedule to the Constitution and (ii) that the U .P. Excise
(Amendment) Rules providing for the mode of levying and collection of
such 'licence fee' or 'fixed fee; were ultra vires for the reason that the
Ordinance providing for such levy itself was ultra vires.

D Since the matters concerning the sustainability or otherwise of the
said conclusions of the High Court, could be examined with advantage in
the background of the answers .to be given by us on two preliminary
questions, we shall endeavour to find answers to them at the first instance.

E The two preliminary questions to which answers are to be given by
us, may be formulated thus :

(i) What do the terms 'licence fee' and 'fixed fee', the levy and
collection of which is permitted under the Ordinance and the U.P.
Excise (Amendment) Rules, exactly connote in the context of grant
F of licence to a person to have the exclusive privilege or right of
vending foreign liquor in specified vends of a locality in the State
of U.P.? and

(ii) Whether those terms 'licence fee' and 'fixed fee' are referable
to the subjects mentioned as 'fee', 'tax' or 'duty' or 'cess' in one or
G
the other entry in List II of the Seventh Schedule to the Constitu-
tion, on which State is authorised to legislate?

The terms 'licence fee' and 'fixed fee' are, admittedly, not defined
under the U.P. Excise Act or the Ordinance or the U.P. Excise Rules o~
H the Excise (Amendment) Rules. Section 24A(l) inserted in the U.P. Excise
STATE v. SHEOPAT RAJ [VENKATACHALA, J.] 145

Act by clauses (i) and (iv) of section 3 of the Ordinance empowered the A
Excise C~mmissioner, subject to the provisions of section 31, to grant to
any person a licence or licences for exclusive privilege of selling by retail
at shops in any locality of any foreign liquor (for consumption both on and
off the licensed premises only). Section 31 is a provision which provides
for payment of fee for grant of a licence. Section 24A(4), Inserted in the
U .P. Excise Act by the Ordinance makes the provisions of sections 25 and B
30 and the proviso to section 39 of the U .P. Excise Act, as to the grant of
..,
a licence for the exclusive privilege of carrying on certain activities in
relation to country liquor under section 24, apply to the grant of a licence
for the exclusive privileg~ of selling foreign liquor in shops in any locality ·
of the State. Since sections 24 and 30 of the U.P. Excise Act pertaining to C
grant of licence to any person for the exclusive privilege of carrying on
specified activities in respect of country liquor or intoxicating drug within
any local area are made to apply equally to foreign liquor, they are of
importance and require reference

Section 24 -
D
"GRANT OF EXCLUSIVE PRIVILEGE OF
MANUFACTURE, ETC.:

Subject to the provisions of Section 31 the Excise Commissioner
may grant to any person a licence for the exclusive privilege - E
(1) of manufacturing or of supplying by wholesale or of both, or

(2) of selling by wholesale or by retail, or

(3) of manufacturing or of supplying by wholesale, or of both, F
and of selling by retail.

any country liquor or intoxicating drug within any local area."

Section 30 -
G
"PAYMENT FOR EXCLUSIVE PRIVILEGE:

Instead of or in addition to any duty leviable under this chapter
the Excise Commissioner may accept payment of a sum in con-
sideration of the grant of licence for any exclusive privilege under
section 24." H
146 SUPREME COURT REPORTS [1993) SUPP. 2S.C.R.

A Sub-rule (1) of rule 2 in the Excise (Amendment) Rules, which
substituted the relevant rule in the U.P. Excise Rules, since refers to
commodities including 'foreign liquor' for the retail vend of which periodic
'shop-licence' could be granted to a person on the basis of 'auction system'
or 'fixed fee system', it requires reference, insofar as, is material:
B "(1) The licence fees for the retail vend of the following com-
modities under the auction system, is fixed by public auction
periodically, but the Excise Commissioner reserves the right to
grant. any licence on payment of a fixed fee or fee determined in
accordance with a graduated or uniform scale~
c (a) Country spirit.

(b) Tari in areas other than those under the Tree Tax System.

(c) Foreign liquor for consumption 'on and off the premises in
D Form FL-4 and 'Off premises in Form FL-5."

A combined reading of the said provisions of the Excise Act, the
Ordinance with its preamble, the Excise Rules and the Excise (Amend-
ment) Rules, reveals that the amount realisable as consideration under the
'auction system' that is, the highest bid amount receivable from the bidder
E in a public auction for grant of licence to such bidder, conferring upon
such bidder the exclusive privilege of carrying on, any of the activities
mentioned in section 23 of the U .P. Excise Act including the activity of
vending foreign liquor in specified vends (shops) of any locality, is 'licence
fee' and an amount to be determined on a graduated or uniform scale by
F the Excise Commissioner in lieu of 'licence fee' is 'fixed fee'. From this, it
follows, that the term 'licence fee' or the term 'fixed fee' in the context of
the U .P. Excise Act, the Ordinance with its preamble and the Excise
(Amendment) Rules, connotes the idea of payment of a sum by a person
to the grantor of a licence as consideration for conferring upon such person
by the grant of shop-licence, the exclusive privilege or right to carry on
G certain activities in respect of country liquor, or foreign liquor or intoxicat-
ing drug, within any local area of U.P. State, the carrying of which activities
would have been otherwise the exclusive privilege or right of the grantor
(Government). Th' situation, makes us take the view that the State
Government's exclus1re privilege or right to carry on certain activities in
H country liquor, foreign liquor or drugs when are given or sold by it to. a
STATE v. SHEOPATRAI [VENKATACHALA,J.] 147

private person under a licence (contract) for the bid amount receivable A
und9~ the U.P. Excise Act, the Ordinance or the Excise (Amendment)
Rules, such amount constitutes the consideration for licence (contract) and
that consideration is termed as 'licence fee'. Similarly, the fee to be
determined by Excise Commissioner on a graduated or uniform scale
under the sub-rule in lieu of 'licence fee', makes us take the view that it
could be termed as 'fixed fee', and constitutes consideration for licence B
(contract).

We find that the said view of ours that the term 'licence fee' in the
context of the U.P. Excise Law connected the idea of it being the con-
sideration in money receivable by the Government from a private person C
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' in public auctions, and the
term 'fixed fee' is a fee determined by the Excise Commissioner, in lieu of
'licence fee', well accords with the view taken by the Constitution Bench D
of this Court in Har Shankar and Others etc. etc. v. The Deputy Excise and
Taxation Commissioner and Others etc., AIR (1975) S.C. 1121. In that case,
the Constitution Bench, which was concerned with the meaning to be given
to the terms 'licence fee' and 'fixed fee' in the context of Bihar Excise Act
and its Rules, which provided for grant of a shop-licence to any person the
exclusive privilege for selling foreign liquor in specified vends of a locality, E
under 'auction system' or 'fixed fee system', held that the term 'licence fee'
meant 'the price or consideration which the Government charge~ for
parting with its privileges and granting them to the licensees while the term
'fixed fee' meant the 'fee' determined by the Excise Commissioner in lieu
of 'licence fee'. Therefore, what is said by the Constitution Bench of F
'licence fee' and 'fixed fee' as to grant of shop-licences under 'auction
system' and 'fixed fee system' respectively in the context of Bihar Excise
Law, apply with equal force, to 'licence fee' and 'fixed fee' for grant of
shop-licences by 'auction system' and 'fixed fee system' ~nder the U.P.
Excise Law, since the rele\'ant provisions of Bihar Excise Law on the
subject are analogous to the relevant provisions of the U.P. Excise Law on G
the same subject.

The term 'licence fee' or 'fixed fee' used in the context of the U.P.
Excise Act, the Ordinance read with the preamble and the Excise (Amend-
ment) Rules, if, as indicated by us, is the amount of consideration receiv- H
148 SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.

A able by the State Government for parting with its exclusive privilege or right
in dealing with liquor or drugs including the exclusive privilege of vending
foreign liquor in favour of a private party under a licence (contract), the
next question is - whether such amount of consideration receivable by the
Government could form the subject - 'fee' or 'tax' or 'duty' or 'cess',
referred to as such, in one or the other entry of List II of the Seventh
B Schedule to the Constitution, on which a State gets competence to legislate.
Our answer to this question, ought to be in the negative, for the reasons
which we shall presently state.

In The Commissioner, Hindu Religious Endowments, Madras v. Sri
C Lakshmindra Ihirtha Swamiar of Sri Shirur Mutt, AIR (1954) S.C. 282, this
Court considered the question as to what are the indi-cia or special
characteristics that distinguish a fee from a tax proper. B.K. Mukherjea, J.
(as he then was), who spoke for the seven-judge Bench of this Court in the
case, opined that 'tax' defined as "a compulsory exaction of money by
D public authority for public purposes enforceable by law and not payment
'for services rendered'" by Latham, C.J. of the High Court of Australia in
Mathews v. Chicory Marketing Board, 60 C.L.R. 263 p. 276, had brought out
the essential characteristics of a tax as distinguished from other forms of
imposition which, in a general sense, was included within it. Describing the
characteristic of compulsion involved in taxatio:g,-as the essence of taxation,
E the learned Judge, approved the statement - 'it (tax) is imposed under
statutory power without tax-payer's consent and the payment is enforced
by law' found in 'Lower Mainland Diary v. Crystal Diary Ltd., (1933) AC.
168. Then, to describe the second characteristic of tax - as an imposition
made for public purpose without reference to any special benefit to be
conferred on the payer of the tax, the learned Judge called attention to a
F
statement in Findlay Shiras on "Science of Public Finance" (Vol. Ip. 203),.
where the second characteristic of tax was found described, thus :

"that the levy of tax is for the purposes of general revenues which
when collected forms part of the public revenues of the State. As
G the object of a tax is not to confer any special benefit upon any
particular individual, there is, as it is said, no element of 'quid pro
quo' between the tax-payer and the public authority."

Further, describing the third characteristic of tax, as another feature of
H taxation, the learned Judge opined :

,.
STATE v! SHEOPATRAI [VENKATACHALA,J.] 149

"that as it (tax) is a part of the common burden the quantum of A
imposition upon the tax-payer depends generally upon his capacity
to pay."

Thereafter, the learned Judge, who adverted to 'fee', although expressed
the view that formulation of a definition of 'fee' would not be possible
having regard to several kinds of fee, which may be imposed, relied upon B
the passage at page 215 on 'Public Finance' by Lutz, to descibe the general
characteristics of 'fee' as : (i) a charge for a special service rendered to
individuals by some governmental agency; (ii) an amount levied supposedly
to cover the expenses incurred by the Government in rendering the
'service', though in many cases, costs arc arbitrarily assessed, and (iii) C
ordinarily, an uniform amount since it was not levied by taking over account
of the verying abilities of persons required to pay fee.

Later, the learned Judge, adverting to features which distinguish 'fee'
from 'tax', opined:
D
(i) that the element of compulsion or coerciveness being present
in 'tax' as well as 'fee', though the degree of such compulsion may
vary from one to another, the compulsive nature of the levy itself
cannot be a sole or material feature, to distinguish 'tax' from 'fee',

(ii) that a 'tax' levied being a common burden while a 'fee' is a E
payment demanded for a special benefit or privilege conferred on
the individual, that itself was the primary feature which distin-
guished 'tax' from 'fee'; and

(iii) that the special benefit accruing to the individual is the reason
for payment in the case of fee while, the particular advantage, if F
it exists at all in the case of tax is an incidental result of State's
action.

The 'fee', according to the learned Judge, if had to be regarded as a
sort ·of service or consideration for services rendered, on the face of the G
legislative provision, it (fee) must be co-related to the expenses incurred
by Government in rendering the services.

Ultimately, the learned Judge stated, that our Constitution recognises
for legislative purposes, a distinction between 'tax' and 'fee', in that, several
entries in the Lists to the Seventh Schedule refer to matters on which 'tax' H
150 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.

A or 'duty' or 'cess' can be levied by a legislative measure, while there is
reference to only one entry in each of the Lists relating to 'fee' that could
be levied with reference to governmental action when a legislative measure
is brought into existence in relation to any subject-matter of an entry in the
given List.

B What the 'tax' was; and what the 'fee' was; and what were the features
which distinguished 'tax' from 'fee'; if were questions considered and
answered by the learned Judge as above, those answers were applied by
him to hold that the levy imposed on religious institutions under the
impugned statute was not a 'fee'. However, the learned Judge, in taking
C . the view that the impugned levy even if was expressed in the statute to be
a fee levied in return for services, he having regard to its nature, observed

"that the public interest though seems to be the basis of all
impositions, imposition of a fee was permissible only if it conferred
D special benefit which the individual receives."

In H.H. Sudhundra Thirtha Swamiar v. Commissioner for Hindu
Religious & Charitable Endowments, Mysore, [1963) Supp. 2 S.C.R. 302, this
Court reiterated the view taken by it in its earlier decision in Sri Shirr Mutt
case (supra) as to the nature of services to be rendered in return for levy
E of 'fee' by a statute, thus:

"If with a view to provide a specific service, levy is imposed by law
and expenses for maintaining the service are met out of the
amounts collected, there being a reasonable relation between the
levy and the expenses incurred for rendering the service, the levy
F
would be in the nature of a fee and not in the nature of a tax."

Proceeding further, it was stated, thus:

"A fee being a levy in consideration of rendering service of a
particular type, co-relation between the expenditure by the
G
Government and the levy must undoubtedly exist... ......:··"

The Hingir-Rampur Coal Co. Ltd. and Others v. The State of Orissa
and Others, [1961) 2 S.C.R. 537, is a case where this Court was concerned
with the validity of imposition of levy by a statute on coalmines in certain
H area and creation of a fund with it. Upholding the levy under the impugned ·
STATE v. SHEOPAT RAI [VENKATACHALA, J.] 151

statute to be " 'fee', it was stated: A
"If the special service rendered is distinctly and primarily meant
for the benefit of a specified class or area the fact that in benefiting
the specified class or area the State as a whole may ultimately and
indirectly be benefited would not detract from the character of the
levy as a fee." B

In M/s. Gwuswamy & Co. Etc. v. State of Mysore & Ors., (1967] 1
S.C.R. 548, a Constitution Bench of this Court having regard to the nature
of excise duty leviable under the statute impugned therein, held that -

"Excise duty is primarily a duty on the production or manufacture
c
of goods produced or manufactured within the country."

In Har Shankars case (supra), a Constitution Bench of this Court, it has to
be mentioned, by referring to this Court's earlier decisions adverted to in
Sri ShiTUr Mutt case (supra), endorsed the correctness of the view expressed D
in them as to the characteristics of 'fee', 'tax', 'excise duty' by stating thus:

"The distinction which the Constitution makes for legislative pur-
poses between a 'tax' and a 'fee' and the characteristics of these
two as also of 'excise duty' are well known."
E
In the State of Andhra Pradesh etc. etc. v. Prabhakara Reddy etc. etc., A.l.R.
(1987) S.C. 933, Chinnappa Reddy, J, who spoke for this Court on the
question of vesting of rights as ree:ads sale and manufacture of intoxicants
in the State, observed:
F
"It is well settled that all rights in regard to manufacture and sale
of intoxicants vest in the State. It is open to the State to part with
those rights for a consideration. The consideration for parting with
the privilege of the State is neither excise duty nor licence fee but
it is the price of the privilege."
G
We shall now turn to the two concepts of 'fee', that is, 'fee for
licences' and 'fee for services rendered' recognised by sub- Article (2) of
Article 199 of the Constitution, to find as to which of them could be the
subject 'fee' in the entry in List-II of the Seventh Schedule to the Constitu-
tion respecting which State has the competence to legislate. H
152 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.

A Sub-article (2) in both Articles 110 and 199 is couched in the same
language thus:

"(2) A bill shall not be deemed to be a Money Bill by reason only
that it provides for the imposition of fines or other pecuniary
penalties, or for the demand or payment offees for licences or fees
B for setvices rendered, or by reason that it provides for the imposi-
tion, abolition, remission, alteration or regulation of any tax by any
local authority or body for local purposes."

(Emphasis supplied)
c In The Corporation of Calcutta and Anr. v. Liberty Cinema, A.I.R. (1965)
S.C. 1107, a Constitution Bench of this Court, in its majority judgment
although recognised the distinction that exists between the concept of 'fee
for licences' and the concept of 'fee for services rendered', in the context
of examining the meaning of 'licence fee' imposed on cinema houses under
D section 548 of the Calcutta Municipal Act, held that 'licence fee' does not
necessarily lead to the conclusion that the fee must be only for services
rendered by observing thus:

"This contention is not really open to the respondent for Section
548 does not use the work 'fee', it uses the words 'licence fee' and
E those words do not necessarily mean a fee in return for services.
In fact in our Constitution fee for licence and fee for services
rendered are contemplated as different kinds of levy. The former
is not intended to be a fee for services rendered. This is apparent
from a consideration of Article 110(2) and Article 199(2) where
F both the expressions are used indicating thereby that they are not
the same. In Shannon v. Lower Mainland Diary Products Board,
(1938) AC 708=A.l.R. (1939) P.C. 36 it was observed at pp.
721-722 (of A.C.): (at pp. 38-39 of ~.I.R.):

'if licences are granted, it appears to be no objection that fees
G should be charged in order either to defray the costs of
administering the local regulation or to increase the general
funds of the province or for both purposes ........... .It cannot,
as their Lordships think, be an objection to a licence, plus a
fee that it is directed both to the regulation of trade and to
H the provision of revenue.'
STATE v. SHEOPATRAI [VENKATACHALA,J.] 153

It would, therefore, appear that a provision for the imposition of A
a licence fee does not necessarily lead to the conclusion that the
fee must be only for services rendered."

But, the term 'lincence fee' and the term 'fixed fee' in the context of
the U.P. Excise Act, the Ordinance and the Excise (Amendment) Rules
B
being the consideration which the Government receives from a private
party to part in latter's favour its exclusive privilege or right to vend foreign
liquor in specified shops of any locality in U.P. State under a contract - by
way of shop-licence (Form F.L. 4) or (Form F.L. 5), it is held by us, to be
not 'fee' at all, falling in line with the view expressed in this regard by a
Constitution Bench of this Court in Har Shankar's case (supra) and other c
decisions adverted to. If that be so, the 'licence fee' or 'fixed fee' cannot
partake of the character of either 'regulatory fee' or 'compensatory fee' so
as to regard it as 'fee'. Thus, neither the 'licence fee' nor 'fixed fee'
realisable from a private party for granting the privilege or right to sell or
vend foreign liquor to such party can fall within the ambit of the subject D
'fee' in the entry to List II of the Seventh Schedule to the Constitution.
Then, the 'licence fee' or the 'fixed fee' under consideration, cannot be
regarded as 'tax' since the characteristics of tax, namely, its levy being
compulsive in nature, its burden being common, it being payable according
to the varying abilities of the person to be charged are wholly absent, in
both of them. As 'duty' or 'cess' stand on the same footing as 'tax', the E
'licence fee' or 'fixed fee' under consideration, cannot be regarded either
as 'duty' or 'cess'. Hence, the terms the 'licence fee' or the 'fixed fee' used
in the context of the U.P. Excise Law, under our consideration fall outside
the entries in List II of the Seventh Schedule to our Costitution which
enables the making of legislation for imposition of tax, duty or cess. The F
observations of Chandrachud, J. (as he then was), who rendered the
judgment on behalf of the Constitution Bench of this Court in Har
Shankar's case (supra) which fully support our view of what is 'licence fee'
and what is 'fixed fee' under the U.P. Excise Law, depict the correct legal
position, thus:
G
"The distinction which the Constitution makes for legislative pur-
poses between a 'tax' and a 'fee' and the characteristics of these
two as also of 'excise duty' are well known. "A tax is a compulsory
exaction of money by public authority for public purposes enfor-
ceable by law and is not a payment for services rendered". Per H
154 SUPREME COURT REPORTS (1993] SUPP. 2 S.C.R.

A Latham, C.J. in Mathews v. Chickory Marketing Board, 60 CLR 263,
276. A fee is a charge for special services rendered to individuals
by some governmental agency and such a charge has an element
in it of a quid pro quo. Commer., H.R.E. Madras v. Lakshmindra
Thirtha Swamiar, [1954] SCR 1005, 1041 =AIR (1954) SC 282 at
p. 295. Excise duty is primarily a duty on the production or
B manufacture of goods produced or manufactured within the .
country. M/s. Gumswamy & Co. v. State of Mysore, (1967] 1 SCR
548 =AIR (1967) SC 1512. The amounts charged to the licensees
in the instant case are, evidently, neither in the nature of a tax nor
of excise duty. But then, the 'Licence fee' which the State Govern-
c ment charged to the licensees through the medium of auctions or
the 'Fixed fee' which it charged to the vendors of foreign liquor
holding licences in Forms L-3, L-4 and L-5 need bear no quid pro
quo to the services rendered to the licensees. The word 'fee' is not
used in the Act or the Rules in the technical sense of the expres-
sion. By 'licence fee' or 'fixed fee' is meant the price or considera-
D
tion which the Government charges to the licensees for parting
with its privileges and granting them to the licensees. As the State
can carry on a trade or business, such a charge is the normal
incident of a trading or business transaction."

E Since our above answers to the preliminary questions as to what the
terms 'licence fee' and 'fixed fee', the levy and collection of which is
provided for under the U.P. Excise Law, the Ordinance and the U.P.
Excise (Amendment) Rules, exactly connote in the context of grant of
shop-licence to a person to have the exclusive privilege or right of vending
foreign liquor in specified vends of a locality in the State of U .P. and as to
F
whether such terms 'licence fee' and 'fixed fee' are referable to 'fee', 'tax',
or 'duty' or 'cess' falling in one or the other entry in List II of the Seventh
Schedule to the Constitution, furnish the back-ground in which the sus-
tainability or otherwise of the conclusions of the High Court to which we
have adverted to earlier could be examined, we shall proceed, accordingly.
G
The High Court's first conclusion is that the licence fee leviable by
the State Government under the provisions of the Ordinance for grant of
periodic shop-licence either to the highest bidder in a public auction or to
the person paying fixed fee determined by the Excise Commissioner enti-
H tling such bidder or other person to have the exclusive privilege of selling
STATE v. SHEOPAT RAI [VENKATACHALA, J.] 155

foreign liquor in a locality was ultra vires the Constitution for that the A
reason that the Ordinance providing for imposition of such levy was not
justifiable with reference to entries in List II of the Seventh Schedule to
the Constitution i.e. entries 8, 51, 62 and 66 thereof. The first conclusion,
therefore, relates to the constitutional invalidity of the Ordinance for want
of legislative competence on the part of the State.
B
Entries 8, 51, 62 and 66 in List II of the Seventh Schedule to the
Constitution were the entries relied upon on behalf of the State in support
of the State's legislative competence for promulgation of the Ordinance.
Those entires read:

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

Entry-51.
D
"Duties of excise on the following goods manufactured or
producted in the State and countervailing duties at the same or
lower rates on similar goods manufactured or produced elsewhere
in India:-
E
(a) alcoholic liquors for human consumption.

(b) opium, Indian hemp and other narcotic drugs and nar-
cotics, but not including medicinal and toilet preparations
containing alcohol or any substance included in sub-para-
graph (b) of this entry." ,., F
Entry-62.

"Taxes on luxuries, including taxes on entertainments, .amusements,
betting and gambling."
G
Entry-66.

"Fees in respect of any of the matters in this list, but not including
fees taken in any Court."

The High Court found that the 'licence fee' and 'fixed fee' leviable H
156 SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.

A and realisable from a private party by the State Government for the grant
by way of shop-licence, of the exclusive privilege, for sale of foreign liquor
in specified shops by such party because of the Ordinance and the Excise
(Amendment) Rules, made pursuant thereto constituted the consideration
for such licence (contract). But, according to it, one or other such con-
sideration for grant of shop-licence, not being 'duties of excise', 'taxes on
B luxuries' or 'fees' the subject-matteres of entries 51, 62 and 66 respectively,
for the levy and collection of which the State Legislature was competent
to make the law, the Ordinance relating to grant of shop-licences in any
locality to sell in specified shops thereof foreign liquors, on such considera-
tion of levying 'licence fee' or 'fixed fee', had to be regarded as that
c promulgated on a subject on which State had no legislative competence.
Since, it was not contended before us on behalf of the State that the High
Court wa:- unjustified in its view that the Ordinance would not be regarded
as that competently made by the State under entries 51, 62 and 66 of List
II, no need arises for us to examine the correctness of the said view of the
D High Court.

Then, what remains for our consideration is the question as to
whether the Ordinance promulgated enabling the State to grant shop-licen-
ces for sale of foreign liquors to private parties on 'licence-fee' or 'fixed
fee' could have been regarded by the High Court as a subject on which the
E State Legislature had competence to legislate under entry 8 of List II of
the Seventh Schedule to the Constitution, for admittedly neither the Union
nor a State Legislature is competent to make a law on a subject .not covered
in one or the other entry in the Legislative Lis.ts of the Seventh Schedule
to our Constitution. If our answer to this question has to be in the
F affirmative, the High Court's first conclusion, necessarily becomes unsus-
tainable. A satisfactory answer to this question since could be found from
the Constitution Bench decision of this Court in Har Shankar's case (supra)
and the seven-judge Bench decision of this Court in Synthetics and Chemi-
cals Ltd. and Others v. State of U.P. and Others, [1990) 1 S.C.C. 109, where
this Court has exhaustively dealt with the law relating to the very question
G under consideration by reviewing all its earlier decisions rendered thereon,
we find it unnecessary to make any detailed reference, to the other
decisions of this Court or other Courts.

Har Shankar's case (supra), a Constitution Bench decision of thi§
H Court, is referred to by us already to sustain our view that the 'licence fee'
STATE v. SHEOPAT RAI [VENKATACHALA, J.] 157

or the 'fixed fee' levied and realisable under the Ordinance and the Excise A
(Amendment) Rules as price or consideration received by the State
Government from a private party for parting in such party's favour the
exclusive right to vend foreign liquor, cannot be regarded as a tax or excise
duty or fee respecting which State had competence to legislate under
entries 51, 62 and 66 of List II of the Seventh Schedule to the Constitution.
B
We shall, now refer to that decision, to find the views expressed by the
Constitution Bench on State Legislature's competence to provide for levy
of 'licence fee' or 'fixed fee' by legislation for granting shop-licences
(contracts) conferring upon private parties the exclusive privilege of selling
foreign liquor in specified shops of any locality of a State and to find
further whether such 'licence fee' or 'fixed fee' is nothing but a large sum C
of consideration for grant of shop-licences not being fee, tax, duty or cess
covered by entries in List II of the Seventh Schedule to the Constitution.
The case before the Constitution Bench was, where private parties, who
had obtained licences under the Punjab Excise Act, 1914 and the Rules
made thereunder in having given highest bids in public auction for obtain- D
ing an exclusive right of selling country liquor, sought to avoid their liability
to pay the 'licence fee' and 'fixed fee', questioning the constitutional validity
of the provisions of that Act and those Rules, as also the competence of
the State Legislature to impose such levy, by filing writ petitions in the High
Court of Punjab & Haryana. Since they did not succeed in the High Court,
they sought a decision in the matter from this Court on a certificate of E
fitness to appeal granted to them by the High Court. It has to be noted
here that the relevant provisions of the Punjab Excise Act are in 'para
materia' with the relevant provisions of the U.P. Excise Act and the
Ordinance with which we are concerned. The Constitution Bench itself
refers to the matters that arose for its consideration in the appeal, thus : F

"The challenge now is generally based on the ground that there is
no quid pro quo between the fees imposed on the licensees and
the services rendered to them, that the fees are in the nature of a
tax which there is no authority to impose; that the levy is beyond
the legislative competence of the State Government; or that the G
terms and conditions of the licence constitute an unreasonable
restriction on the fundamental right of the citizen to carry on
business for the sale of liquor."

Thereafter, the Constitution Bench, by referring to its earlier H
158 SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.

A decisions of five Constitution Benches' in The State of Bombay and Another
v. F.N. Balsara, [1951] SCR 682; Cooverjee B. Bharncha v. The Excise
Commissioner and the Chief Commissione1; Ajme1; and Others, [1954} SCR
873; The State of Assam v. A.N. Kidwai, Commissioner of Hills Division and
Appeals, Shillong, [1957] SCR 295; Nagendra Nath Bora & Another v. The
Commissioner of Hills Division & Appeals, Assam, and Others, [1958} SCR
B 1240 and Amar Chandra Chakraborty v. Collector of Excise, Government of
Tripura & Ors., [1953] 1 SCR 533, as regards State's competence to make
laws on liquor business observed, thus:

"These unanimous decisions of five Constitution Benches uniformly
c emphasized after a careful consideration of the problem involved
that the State has the power to prohibit trades which are injurious
to the health and welfare of the public, that elimination and
exclusion from business is inherent in the nature of liquor business,
that no person has an absolute right to deal in liquor and that all
forms of dealings in liquor have, from their inherent nature, been
D treated as a class by themselves by all civilized communities."

Further, it summarised the true legal position which governed the
dealings in intoxicants, as stated and reflected by the aforesaid five Con-
stitution Benches' decisions as also by the decision in The State of Bombay
E v. R.M.D. Chamarbaugwala, [1957] SCR 874; State of Orissa & Ors. v.
Harinarayan Jaiswal & Ors., [1972] 3 SCR 784 and Nashirwar etc. v. State
of Madhya Pradesh & Others, A.l.R. (1975) S.C. 360 by observing thus:

"There is no fundamental right to do trade or business in in-
F toxicants. 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 possession."

However, later, referring to the judgment in /(Jishna Kumar Narnla etc. v.
The State of Jammu & Kashmir and Ors., [1967] 3 SCR 50 wherein it was
G held -

"........... that dealing in liquor is business and a citizen has a right
to do business in that commodity; but the State cait make a law
imposingreasonable restrictions on the said right, in public inter-
H ests."
STATE v. SHEOPAT RAJ [VENKATACHALA, J.] 159

it was stated : A
"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 absolutely would include the narrower right to permit
dealings in intoxicants on such terms of general application as the B
State deems expedient."

The Constitution Bench, which referred to the true legal position as
above, dismissed the appeal before it holding, inter alia, that the appellants
were liable to pay the amounts for which they had purchased the privilege c
of vending liquor by way of 'licence fee' or 'fixed fee'.

The other decision of seven-judges Bench of this Court is that in
Synthetics and Chemicals Ltd. (supra), where the question which arose for
consideration was whether the U.P. State Legislature had the competence
to legislate in respect of industrial alcohol? Sabyasachi Mukharji; J. (as he D
then was), who spoke for six judges constituting the seven-judge Bench of
this Court adverted to the earlier decisions of the Constitution Benches
and the decision of this Court in Har Shankar's case (supra) besides other
decisions of Constitution Benches' wherein it was observed:
E
"....... that the 'police power' of the State enables regulations to be
made regarding manufacture, transport, possession and sale of
intoxicating liquor."

However, the learned Judge did not agree with the said observation that
there was police power which could be exercised by a State in India in the F
matter of making law under our Constitution, although he described that
police power to be the American Doctrine. But, the learned Judge, then
attributed the power of the State to make such laws under our Constitution
to State's Sovereign power, thus:

"The American doctrine of police power is not perhaps applicable
G
as such in India, but powers of the sovereignty to regulate as part
of the power of the competent legislature to effectuate its aim are
there."

The said view was reiterated as well, thus:
160 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.

A "We recognise power of the State to regulate though perhaps not
as emanation of police power, but as an expression of the sovereign
power of the State."

Ultimately, dealing with the power of the Union to legislate on
industrial alcohol vis-a-vis the power of State legislature to legislate on
B alcohol for human consumption, the learned Judge observed:

"After the 1956 amendment to the IDR Act bringing alcohol
industries (under fermentation industries) as Item 26 of the First
Schedule to IDR Act the control of this industry has vested
exclusively in the Union. Thereafter, licences to manufacture both
c potable and non-potable alcohol is vested in the Central Govern-
ment. Distilleries are manufacturing alcohol under the central
licences under IDR Act. No privilege for manufacture even if one
existed, has been transferred to the distilleries by the State. The
State cannot itself manufacture industrial alcohol without the per-
D mission of the Central Government. The States cannot claim to
pass a right which they do not possess. Nor can the States claim
exclusive right to produce and manufacture industrial alcohol
which are manufactured under the grant of ·licence from the
Central Government. Industrial alcohol cannot upon coming into
E existence under such grant be amenable to States' claim of ex-
clusive possession of privilege. The State can neither rely on Entry
8 of List II nor Entry 33 of List III as a basis for such a claim.
The State cannot claim that under Entry 33 of List III, it can
regulate industrial alcohol as a product of the scheduled industry,
because the Union, under Section 18-G of the IDR Act, has
F evinced clear intention to occupy the whole field. Even otherwise
sections like Sections 24-A and 24-B of the U.P. Act do not constitute
any regulation in respect of the industrial alcohol as product of the
scheduled industry. On the contrary, these purport to deal with the
so-called transfer of plivilege regarding manufactwing and sale. This
G power, admittedly, has been exercised by the State purporting to act
under Entry 8 of List II and not under Entry 33 of List III. "

(underlining is ours)

It is significant to note here that section 24-A of the Act noticed
H above is that which was inserted in the U.P. Excise Act under the Or"
STATE v.S~OPATRAI[VENKATACHALA,J.) 161

diriance and which under a subsequent legislative enactment of the State A
has become a part of. the U .P. Excise Act. Thus, it becomes clear that
section 24-A inserted iri the U.P. Excise Act by the Ordinance, which was
held to be ultra vires the Constitution for want of legislative competence by
Allahabad High Court stands negatived by this Court's Constitution Bench
decision iri Har Shankar's case (supra) and the seven-judge Bench decision B
iri Synthetics and Chemicals Ltd. (supra).

Thus, we are not left iri doubt that the first conclusion of the High
Court adverted to above, is unsustainable.

Now, coming to the se~nd conclusion relatirig to the power exer-
cisable by the Excise Commissioner iri the matter of the mode of levy and C
collection of the 'licence fee' and 'fiXed fee' under the Excise (Amendment)
Rules, the High Court took. the view that having regard to its conclusion
about State legislature's legislative iricompetence on the subject of the
Ordiriance, it had to hold that the impugned Rule under the Excise
(Amendment) Rules was also ultra vires the Constitution. Since, we have D
found that High c'ourt's view of the .constitutional irivalidity of the Or-
diriance is contrary to the decisions of this Court, iri Har Shankar's case
(supra) and Synthetics and Chemicals Ltd. (supra), the second conclusion
of the High Court ~der consideration as to irivalidity of the Excisr
(Amendment) Rules, based on the constitutional irivalidity of the Or- E
diriance also becomes unsustainable.

In the result, we allow this aP,peal, set aside the judgment of the High
Court under appeal and dismiss the writ petition iri which that judgment
is rendered. However, in the facts and circumstances of the case, we direct
the parties to bear their respective costs of this appeal.

R.P. Appeal allowed.