'Private & Public Companies Must Be Treated Equally In Excise Licence Fee Exemptions': Calcutta High Court
The Calcutta High Court has held that the State cannot discriminate between private limited companies and public limited companies while granting exemption from excise licence fees for changes in management occurring in the usual course of business, observing that such unequal treatment violates Article 14 of the Constitution. The Court ruled that even though dealing in liquor is a State privilege, the distribution of that privilege and any exemptions attached to it must satisfy standards of fairness and non-arbitrariness.
A Division Bench of Justice Sabyasachi Bhattacharyya and Justice Supratim Bhattacharya was hearing an appeal filed by the State of West Bengal against a Single Judge's decision which had interfered with fee demands raised against New Kenilworth Hotel Pvt. Ltd., a Kolkata-based hotel operating several licensed bars.
The Excise Department had demanded substantial sums alleging “change in management/status” of the company under the West Bengal Excise (Change in Management) Rules, 2009, which require payment of one-and-a-half times the initial grant fee upon change in management. While the Rules granted exemption to public limited companies where such change occurred in the “usual course of business,” private limited companies were exempt only in cases of death of directors. Challenging this distinction and the consequential demands, the company approached the Court.
Before the Division Bench, the State argued that there is no fundamental right to trade in liquor and that the Government enjoys wide latitude in framing economic and regulatory policy. It contended that private limited companies, being closely held, form a distinct class from public limited companies and could legitimately be subjected to a different fee structure. Judicial interference in fiscal or policy matters, it was submitted, ought to be minimal.
The Court, however, rejected the State's justification and held that even in matters concerning liquor licences, constitutional guarantees of equality continue to apply. It observed that exemption from payment of licence fees amounts to distribution of State largesse and therefore cannot be granted or withheld arbitrarily.
Analysing the scheme of the 2009 Rules, the Bench noted that Rule 4 treated private and public companies identically for the purpose of regulating change in management. The discrimination surfaced only in Rule 5's exemption clause, which denied private companies the same benefit that public companies enjoyed for routine or inevitable changes in management. The Court found no intelligible differentia or rational nexus between this classification and the object of levying licence fees.
Emphasising that changes occurring in the “usual course of business” are involuntary and not equivalent to a transfer of licence, the Bench observed that such events stand on the same footing for both private and public companies. The Court remarked that once the Rules themselves recognise that such changes are beyond the control of the licensee, there is no justification to burden one class of companies with additional fees while exempting another similarly placed class. The distinction, it held, amounted to intra-class discrimination and was manifestly arbitrary.
While upholding the Single Judge's view that the provision was unconstitutional, the Bench clarified that striking down the clause entirely would deprive private companies even of the existing exemption in cases of death of directors. To avoid such consequences and preserve the rule, the Court adopted the device of “reading up” the provision. It modified Clause (d) of the proviso to Rule 5(1) to include “change in management in the usual course of business of a private limited company,” thereby placing private companies on par with public limited companies.
Accordingly, the Court dismissed the State's appeal, upheld the quashing of the impugned fee demands and affirmed the grant of consequential relief to the company. The judgment underscores that even in regulated sectors like liquor trade, the State cannot create artificial distinctions between similarly situated entities and must adhere to the equality mandate under Article 14.
Case: State of West Bengal and Others Vs. New Kenilworth Hotel Private Limited and Others
Case No: FMA No.226 of 2024