Placement Agency To Be Given Proper SCN On Alleged Failure To Perform Duties Coupled With Monetary Loss To JSBCL: Jharkhand High Court

The Jharkhand High Court has held that Rule 15 of the Jharkhand Excise (Operation of Retail Product Shops through Jharkhand State Beverages Corporation Limited) Rules, 2022, and the corresponding clauses of the contract have to be restricted only to those situations where the placement agency has been found, albeit after hearing the agency, to have failed to provide manpower to Jharkhand State Beverages Corporation Ltd. (JSBCL), which has resulted in pecuniary loss to the corporation.

The bench of Justice Rongon Mukhopadhyay and Justice Deepak Roshan has observed that only when the placement agency fails to perform its duties and obligations falling within its scope of work, coupled with monetary loss to the JSBCL, can the said placement agency be held liable to that extent after following the due process of law.

The bench relied on the decision of the Supreme Court in the case of Gorkha Security Services v. Government (NCT of Delhi) (2014), which highlighted the necessity of compliance with the principles of natural justice with reference to the person against whom an action of blacklisting is sought to be taken.

In all the writ petitions, a common prayer has been made for declaring Rule 15 of the Jharkhand Excise (Operation of Retail Product Shops through Jharkhand State Beverages Corporation Limited) Rules, 2022, as being ultra vires the provisions of the Bihar (now Jharkhand) Excise Act, 1915, and also ultra vires the provisions of Articles 14, 19(1)(g), and 265 of the Constitution of India.

However, from the facts pleaded in the respective writ petitions, it would transpire that writ petitioners, M/s. A2Z Infraservices Limited, M/s. Sumeet Facilities Limited, M/s. Primeone Workforce Private Limited, and M/s. Eagle Hunter Solutions Limited, pursuant to the tender dated April 10, 2023, issued by Respondent, Jharkhand State Beverages Corporation Ltd. (JSBCL), have entered into agreements with Respondent-JSBCL. During the subsistence of the agreements, penalties have been imposed upon petitioner-companies in terms of Rule 15 of the Rules of 2022, which are under challenge in the writ petitions.

The State of Jharkhand, after its creation with effect from November 15, 2000, adopted the Bihar Excise Act, 1915, which contained provisions relating to the import, export, transport, manufacture, possession, and sale of certain kinds of liquor and intoxicating drugs.

Section 20 provided, inter alia, for the grant of a license for the sale of liquor, and the said Section provided that no intoxicant can be sold except under the authority and subject to the terms and conditions of a license granted on that behalf by the Collector.

Section 22 provided for the grant of exclusive privileges for the manufacture and sale of liquor and provided, inter alia, that the state government may grant to any person, on such conditions, the exclusive privilege of selling wholesale and retail liquor.

Section 42 contained provisions for cancellation or suspension of a license, including the imposition of a penalty, and provided, inter alia, that the authority that granted any license, permit, or pass under the Act may cancel, suspend, or impose a penalty. Section 42(b) authorized the licensing authority to impose penalties upon the holder of the license if any duty or fee by the holder thereof was not duly paid.

The State of Jharkhand, in exercise of its rule-making power under Section 89 read with Section 22 of the Act, formulated the „Jharkhand Excise (Operation of Retail Product Shops through Jharkhand State Beverages Corporation Limited) Rules, 2022. The Rules were notified via Notification dated March 31, 2022, and Rule 6 of the said Rules provided, inter alia, for the grant of exclusive privilege to JSBCL for operating retail outlet shops of liquor in the entire 24 districts of the State of Jharkhand. It may be noted here that JSBCL is a company registered under the Companies Act and is 100% Govt. of Jharkhand Undertaking. Under the Rules, exclusive privilege was granted to JSBCL for operating retail excise shops across the entire state of Jharkhand, and it was provided, inter alia, that a license in respect of each district would be granted for retail excise shops by the licensing authority, i.e., the Collector of a District.

Rule 24 of the Rules enabled Respondent-JSBCL to appoint a placement agency, transport agency, cash collection agency, and security agency for the purpose of operating the licensed retail excise shops.

Rule 15 of the Rules, which is impugned herein, stipulated, inter alia, that the Managing Director of JSBCL along with the Commissioner of Excise, on the basis of the figures of the last three years, would determine the sale target so that excise revenue is not affected, and it further provided, inter alia, that if Minimum Guarantee Revenue (MGR) is not achieved by any shop, the reason for not achieving the MGR would be determined and the responsibility of the concerned placement agency would be fixed.

Rule 15 further provides that an amount of revenue loss may be realized from the bank guarantee given by the placement agency, and the aforesaid exercise would be carried out by taking administrative action in accordance with the law by JSBCL.

The petitioner contended that from a bare perusal of Rule 15, it would be evident that although the said rule provides that if there is a loss of excise revenue, the reasons for such a loss would be ascertained and the responsibility would be fixed upon the placement agency, and thereafter, steps would be taken for recovery of the revenue loss from the placement agency, the said rule does not authorize Respondent-JSBCL to recover the alleged difference in minimum guarantee revenue as against the estimated minimum guarantee revenue from the placement agency. At best, the said rule can be termed a rule providing for the imposition of liquidated damages and/or penalties upon the placement agency in the event there is non-achievement of minimum guaranteed revenue by a concerned shop where the personnel deployed by the placement agency are working. However, the rule does not shift the burden of payment of the excise duty upon the placement agency to the extent of the difference in minimum guarantee revenue. Thus, the demand raised, wherein a penalty of Rs. 1,21,78,40,140 has been imposed upon the petitioner by Respondent-JSBCL, being the alleged difference in minimum guarantee revenue, is not in accordance with Rule 15 of the Rules of 2022.

The petitioner argued that it is trite law that before determining the amount to be recovered from the petitioner, there has to be a prior adjudication after which the amount could be determined, and, in the present case, without any prior adjudication and without giving any opportunity of hearing to the petitioner, straightaway the amount has been determined and demanded from the petitioner, which is not sustainable in the eyes of the law.

The court held that the retail sale of liquor by a person not holding the license or permitting the placement agency to carry out operations that would be of such nature makes it equivalent or akin to carrying out retail sales and thereby defeats the provisions of the Excise Act. The agreement dated May 2, 2022, between the petitioners and the JSBCL with such intention may render the consideration and/or object of the agreement unlawful and, therefore, void ab initio and unenforceable in law.

Any compulsory exaction of money by the government, such as a tax or a cess, has to be strictly in accordance with the law, and for these reasons, a taxing statute has to be strictly construed.

Counsel For Petitioner: Indrajit Sinha

Counsel For Respondent: Piyush Chitresh

Case Title: Urmila International Services Private Limited Versus Jharkhand State Beverages Corporation Limited

LL Citation: 2024 LiveLaw (Jha) 57

Case No.: W.P. (C) No. 2072 of 2023

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