Substituted Rule 19 of M.P. Foreign Liquor Rules is applicable to proceedings that have commenced with issuance of demand notice in November, 2011: Supreme Court
Justices Pamidighantam Sri Narasimha & Aravind Kumar [19-04-2024]

Read Order: PERNOD RICARD INDIA (P) LTD v. THE STATE OF MADHYA PRADESH & ORS [SC- CIVIL APPEAL Nos. 5062-5099 of 2024]

LE Correspondent

New Delhi, April 22, 2024: In a case where the demand notice was issued to a sub-licensee eight months after the amendment of the Madhya Pradesh Foreign Liquor Rules, 1996 the Supreme Court has directed that the penalty to be imposed on the appellant would be on the basis of Rule 19 as substituted on March 29, 2011.

The appellant, in this case, is a sub-licensee under the M.P. Excise Act, 1915, for manufacture, import and sale of Foreign Liquor, regulated under the Madhya Pradesh Foreign Liquor Rules, 1996. Sub-licensees importing Foreign Liquor are granted transit permits in which the origin, quality, quantity and point of delivery of the imported liquor are recorded. 16 prescribes the permissible limits of loss of liquor in transit due to leakage, evaporation, wastage etc. The purpose and object of this Rule is to prevent illegal diversion of liquor for unlawful sale and also to prevent evasion of excise duty. At the point of destination, the consignment is verified for quality and quantity, and a certificate under Rule 13 is granted. 

Rule 19 providing for a penalty that could be imposed during the relevant license period of 2009-2010 was about four times the maximum duty payable on foreign liquor. It was clear from the facts that no action was initiated during the license year of 2009-2010. On 29.03.2011, Rule 19 was substituted by an amendment. Substituted Rule 19 reduces penalty from four times the maximum duty payable to an amount not exceeding the duty payable on foreign liquor.

Eight months after the amendment, a demand notice was issued directing payment of penalty for exceeding the permissible limits during the license year 2009- 2010. The notice demanded a penalty of four times the duty as per the old Rule 19. The appellant replied that penalty could only be under the substituted Rule 19 as the old rule stood repealed and the demand was raised after the substituted Rule came into force.

The Deputy Commissioner rejected the objections and confirmed the demand for payment of penalty at four times the duty payable. The Deputy Commissioner’s order was upheld by the Excise Commissioner and thereafter by the Revenue Board Gwalior .

The appellant’s writ petition before the High Court was disposed of with 40 other petitions raising a similar issue. The Single Judge was of the view that the new Rule was introduced by way of a substitution and the old Rule stood repealed from the statute book and only the substituted Rule applied to all pending and future proceedings. The orders of the statutory authorities were set aside and the matter was remanded to them for determining the penalty as per the substituted Rule.

The Division Bench of the High Court reversed  the decision of the Single Judge on the simple ground that as the license was granted for one year, the Rule that existed during that license year must apply.

At the outset, the Top Court observed that a repealed provision will cease to operate from the date of repeal and the substituted provision will commence to operate from the date of its substitution. This principle is subject to specific statutory prescription. Statute can enable the repealed provision to continue to apply to transactions that have commenced before the repeal. Similarly, a substituted provision which operates prospectively, if it affects vested rights, subject to statutory prescriptions, can also operate retrospectively.

It was further observed that the legislative authorization enabling the executive to make rules prospectively or retrospectively is crucial. Without a statutory empowerment, subordinate legislation will always commence to operate only from the date of its issuance and at the same time, cease to exist from the date of its deletion or withdrawal. 

On the issue of rule-making power under the M.P. Excise Act, 1915, the Division Bench of Justice Pamidighantam Sri Narasimha & Justice Aravind Kumar opined that Section 63 only enables the government to issue subordinate legislation with effect from such a date as may be specified. Moreover, Rule 19 which has been substituted on 29.03.2011 has not been notified to operate from any other date by the Government.

“Subordinate legislation, by its very nature, rests upon the executives understanding of the primary legislation. When a Court is of the opinion that such an understanding is not in consonance with the statute, it sets it aside for being ultra-vires to the primary statute”, the Bench added.

It was observed that if the amendment by way of a substitution in 2011 is intended to reduce the quantum of penalty for better administration and regulation of foreign liquor, there is no justification to ignore the subject and context of the amendment and permit the State to recover the penalty as per the unamended Rule. The subject of administration of liquor requires close monitoring and the amendment must be seen in this context of bringing about good governance and effective management. 

“Seen in the principle of Section 10 of MP General Clauses Act, 1957, relating continuation of a repealed provision to rights and liabilities that accrued during the subsistence of the Rule does not subserve the purpose and object of the amendment”, it held.

The Bench also made it clear that the Rule operates retroactively and thus saves it from arbitrarily classifying the offenders into two categories with no purpose to subserve.Rejecting the reasoning of the single Judge as well as the Division Bench, the Bench underscored the importance of a simple and plain understanding of laws and its processes, keeping in mind the purpose and object for which they seek to govern and regulate us.

Allowing the appeals, the Bench held that the penalty to be imposed on the appellants will be on the basis of Rule 19 as substituted on 29.03.2011.