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[This is a guest post by Sri Harsha Kandukuri.]


The Government of Andhra Pradesh has recently increased the prices of liquor, first by 25% (vide G.O No. 128 dated 04-05-2020), and later by 50% (vide G.O No. 128 dated 04-05-2020), making an overall increase of 75% on the issue price. The price rise was caused by the increase of Additional Retail Excise Tax (ARET). Here, I shall argue that the said increase is not only illegal, but also the very levy of Additional Retail Excise Tax (ARET) is unconstitutional.

The Government of Andhra Pradesh, in the year 2019, promulgated an ordinance namely ‘The Andhra Pradesh Excise (Amendment) Ordinance, 2019’ (AP ordinance No.5 of 2019). Through the said ordinance, a new sub-section (e) was inserted under section 22 in the Andhra Pradesh Excise Act of 1968. The ordinance was replaced by the AP Excise (Amendment) Act of 2020, without any changes. The Government was wrong in assuming that the said amendment (insertion of section 22(e)) empowered it to impose the Additional Retail Excise Tax (ARET). Section 22 of the Excise Tax provides only ‘the modes of levying the excise duty’ imposed under section 21 of the Act. Section 22 does not impose new taxes or duties. Hence, section 22(e) cannot be construed to be a taxing provision. This can be further buttressed by the language of the sub-section, which starts with “In the form of……” Hence, various forms of levy mentioned under section 22 (e) such as tax, fee, cess can be used to collect the existing excise duty under section 21 but cannot be used for imposing new tax i.e ARET.

For the sake of argument if we assume that section 22(e) of the Act is a taxing provision, empowering the State Government to impose ARET, then it should conform with the mandate of Article 265 of the Constitution of India. Section 22(e) does not provide the taxable event or the rate of tax or maximum rate of tax imposable. As per Article 265 of the Constitution of India, the power to tax is a sovereign power vested with the Legislature. The Supreme Court, in a catena of cases, has held that the Government cannot be given unbridled power in deciding the rates of the tax, and the law imposing the tax shall provide ‘legislative guidance’ for determining the rates of the tax, absent which it can be struck down as unconstitutional. In the case of Corporation of Culcutta v. Liberty Cinema the Court held that “No doubt when the power to fix rates of taxes is left to another body, the legislature must provide guidance for such fixation. The question then is, was such guidance provided in the Act? We first wish to observe that the validity of the guidance cannot be tested by a rigid uniform rule; that must depend on the object of the Act giving power to fix the rate. It is said that the delegation of power to fix the rates of taxes authorised for meeting the needs of the delegate to be valid, must provide the maximum rate that can be fixed, or lay down rules indicating that maximum”. In this case, as argued earlier, section 22(e) does not provide any guidance to the Government as to the taxable event, the tax rate or the maximum tax that can be imposed. This perhaps is the reason why the Government could increase the rate of tax first by 25% and immediately by another 50% the very next day, making a net increase of 75% in two days. To avoid these kinds of situations, our Constitution has provided with the safeguard in the form of Article 265. To conclude, the ARET is unconstitutional and all transactions that arise out of it, including the current price rise lacks legal validity.

The High Court of AP (single judge bench) had an opportunity to deal with a matter related to ARET. As soon as the ordinance was promulgated and the Government imposed the ARET, traders in liquor approached the High Court of Andhra Pradesh under Article 226 of the Constitution of India (WP. 19140 of 2019 and other connected petitions). Unfortunately, the petitioners did not challenge section 22(e), but only challenged the Government orders issued under the said section. The two issues framed in the petition were whether the imposition of ARET violates the fundamental right guaranteed under Article 19 (1) (g) [Right to practise any profession, or to carry on any occupation, trade or business] and whether the imposition of ARET only on bars and not on liquor shops is discriminatory and arbitrary under Article 14 (Right to Equality) of the Constitution of India. It is surprising that there was no contention about whether section 22(e) was indeed a taxing provision, especially when the text and rule of ejusdem generis shows that it is merely another mode of levying the excise duty.

In that case, the court made the following observation: “No doubt, clause (e) of Section 22 as amended is a taxing provision and the question [arises] whether such taxing provision can be declared as illegal on the alleged ground of discrimination or unreasonable classification?” – but without providing any reasons to that effect. Though Article 265 of the Constitution of India was not invoked anywhere in the judgement, the petitioners in fact argued that the “imposition of such tax by increasing 200% on the existing tax is nothing but arbitrary, exercise of power by the executive in the absence of statutory guidelines.”

What is interesting about Court’s reply to this argument is that it agreed that impugned section gives “unbridled power” to the Government but did not strike it as unconstitutional. It appears that the Court approved the high rate of ARET on the grounds of State’s duty to implement ‘prohibition’ according to Article 47 of the Constitution of India: “in the present facts of the case, the State reserved its right by incorporating clause (e) to Section 22 of the A.P.Excise Act, 1968 to impose additional retail tax etc. without specifying the upper limit of such tax or duty, but unbridled power is vested on the Government to impose such tax. Though it appears to be harsh, imposing additional retail excise tax at higher rate enhancing existing rate by 200% by issuing G.O.Ms.No.471 Revenue (Excise-II) Department dated 22.11.2019 only to reduce the consumption of alcohol or intoxicant in Bars in pursuit of implementation of prohibition against consumption of intoxicants under Article 47 of the Constitution of India.” The petitions were finally disposed in favour of the State, stating that there was neither violation of Article 19 (1) (g) nor Article 14 of the Constitution of India. I believe that this is a clear case of ignoring the law (Art.265) and principles of statutory interpretation (interpreting 22 (e)). Had the Court acted according to the law on the question of ‘unbridled power’ in December of 2019, there would not be a situation of arbitrary tax rise now.

This incident also alerts us to the dominance of the executive branch over the finances of the State, which ideally should be in control of the legislatures. If Government can increase the taxes by 75% overnight, without any legislative backing, it is not a good sign for the separation of powers and constitutionalism. We cannot forget the lessons from the ‘Glorious Revolution’ of 1688 and how the Bill of Rights, 1689 gave the sovereign power to tax to the Parliament, taking it away from the Crown (executive). The imposition of the ARET and the increase of taxes go against the idea of limited Government, and should be opposed with full force.