M/S Samruddi and Company Vs the State of Karnataka

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NC: 2025:KHC:750 WP No. 13582 of 2022

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 9^TH DAY OF JANUARY, 2025

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BEFORE

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THE HON'BLE MR JUSTICE ANANT RAMANATH HEGDE WRIT PETITION NO. 13582 OF 2022 (EXCISE)

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BETWEEN:

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M/S SAMRUDDI AND COMPANY, P.A.REDDY BUILDING, BANGALORE- CHITRADURGA ROAD, CHITRADURGA, A PARTNERSHIP CONCERN REPRESENTED BY ITS MANAGING PARTNER SRI.T.PARTHASARATHI REDDY, S/O T. GOVINDA ROAD, AGED ABOUT 46 YEARS, R/AT LAKSHMINARAYANA NILAYA, 3^RD PHASE, HOUSING BOARD COLONY, SURYAPUTRA NAGAR, BEHIND I.U.B.T. LAYOUT, BANGALORE ROAD, CHITRADURGA - 577501.

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…PETITIONER

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(BY SRI MAHESH KIRAN SHETTY S, ADVOCATE)

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AND:

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Digitally signed by PRAMILA G V Location: HIGH COURT OF KARNATAKA

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THE STATE OF KARNATAKA, DEPARTMENT OF EXCISE, VIDHANA SOUDHA, AMBEDKAR VEEDHI, BENGALURU 560001. REPRESENTED BY ITS PRL. SECRETARY.

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THE EXCISE COMMISSIONER IN KARNATAKA BENGALURU, 2^ND FLOOR, BMTC SATELLITE BUILDING, SHANTHINAGAR, BENGALURU-560027.

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THE DEPUTY COMMISSIONER EXCISE, CHITRADURGA DISTRICT, CHITRADURGA - 577501.

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NC: 2025:KHC:750 WP No. 13582 of 2022

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THE DEPUTY COMMISSIONER, CHITRADURGA DISTRICT, CHITRADURGA - 577501.

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…RESPONDENTS

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(BY SRI MANJUNATH B, AGA FOR R1 TO R4)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF CONSTITUTION OF INDIA PRAYING TO QUASH THE INTIMATION DTD 30.06.2022 BEARING NO.EXE/IML/CHI/VA/CL-9/53/2021-22 BY VIRTUE OF WHICH, THE R2 HEREIN DIRECTED THE PETITIONER TO PAY A SUM OF RS.11,50,000/- VIDE ANNEXURE-A AND ETC.

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THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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CORAM: HON'BLE MR JUSTICE ANANT RAMANATH HEGDE

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ORAL ORDER

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W.P.No.13582/2022 is filed seeking Writ of Certiorari to quash the demand dated 30.06.2022, for a sum of Rs.11,50,000/-, marked at Annexure-A, issued by respondent No.2 towards fees for transfer of licence. The relief is also sought to issue writ of mandamus to the respondents to renew the licence in favour of the petitionerFirm.

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NC: 2025:KHC:750 WP No. 13582 of 2022

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The petitioner is a Partnership Firm. The petitioner has secured CL-9 licence from the Competent Authority, admittedly, the petitioner - Partnership Firm commenced on 09.05.2006 having three partners namely Sri.Manjunatha Danappa Hosamani, Sri.R.Prathap and Sri.T.Parthasarathi Reddy. All the partners had equal shares in the partnership firm as can be noticed from Clause-11 of the partnership deed. Thereafter, the Firm was reconstituted on 21.09.2016, Sri.T.Parthasarathi Reddy, the earlier partner who had 33% share acquired 95% share, and Sri.R.Prathap who was also one of the partners earlier, who had 33.33% retained 5% share. One more partner Sri.Manjunatha Danappa Hosamani, retired from Partnership Firm. This Partnership Firm again was reconstituted on 19.11.2021.

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Sri.T.Parthasarathi Reddy who had 95% share in reconstituted Firm retained 84% share and new partner Smt.T.Meena acquired 16% share. One of the former partners retired.

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NC: 2025:KHC:750 WP No. 13582 of 2022

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The petitioner firm sought for renewal of the licence. The Respondent-Authorities refused to renew the licence on the premise that the petitioner-Firm has to pay additional transfer fees on the premise that the constitution of the Firm has changed for the purpose of Rule 17-B of the Karnataka Excise (General Conditions of Licences) Rules, 1967 (for short 'Rules, 1967'). The said Rule 17-B- reads as under:

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" [17-B. Transfer of licence in other cases :- (1) Notwithstanding anything contained in Rule 2, licences issued.-

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(i) for Sale of Indian Liquor (other than arrack) or Foreign Liquor or both, in Form No. CL-1 (Wholesale licence) or CL-2 (retail shop licences) [CL-6A (Star Hotel Licence)] or CL-7 (Hotel and Boarding House Licences) or CL-9 (Refreshment room (Bar) Licence under the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968; or

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(ii) for sale of Beer under the Karnataka Excise (Lease of Right of Retail Vend of Beer) Rules, 1976;

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The Deputy Commissioner may on an application by the licencee and [subject to payment of transfer fee equivalent to twice the annual licence fee] specified in Rule 8 of the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968 or Rule 5 of the Karnataka Excise (Lease of Right of Retail Vend of Beer, Rules, 1976, as the case may be, and

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5 - NC: 2025:KHC:750 WP No. 13582 of 2022

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with the prior approval of the Excise Commissioner, transfer such licence in favour of any person named by such licence, if such person is eligible for grant of a licence under the Karnataka Excise Act, 1965 or the rules made thereunder.

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(2) Nothing in this rule shall apply to transfer of licence under Rule 17-A.]"

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Learned counsel for the petitioner would contend that the co-ordinate Bench of this Court in the case of Shankar Wines, Wilson Garden, Bangalore vs. the Commissioner of Excise in Karnataka and another¹ had an occasion to interpret Rule 17-B in the context of the change in the composition of the Partnership Firm.

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Relying on the said judgment, the learned counsel for the petitioner would further contend that as long as there is no divestment of more than 50% share by the original partnership, it cannot be construed as a transfer, for the purpose of Rule 17-B. Only in the event of divestment of more than 50% share in the partnership firm, then only the additional licence fee is required to be paid under Rule 17-B of the Rules, 1967.

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1 2017 SCC OnLine Kar 6942

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NC: 2025:KHC:750 WP No. 13582 of 2022

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Learned counsel appearing for the respondents

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would submit that before making change in the composition of the partnership Firm, the licencee has to apply for approval under Rule 17B of the Rules, 1967 and same is not done as such, the reconstitution is not valid.

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This Court has considered the contentions raised

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at the bar and perused the records.

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It is noticed that the original partner who had 33.33% share acquired 95% share after the first reconstitution. Later, he acquired 84% share in the next reconstitution of the Partnership Firm. This being the position, if the law laid down in the case of Shankar Wines supra is applied, respondent-Authority is not entitled to claim additional licence fee as one of the partners of the original Partnership Firm has acquired more than 50% stake. Reason is the increase in the stake is among the partners who were in place when the licence was granted. And none

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NC: 2025:KHC:750 WP No. 13582 of 2022

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has divested more than 50% of the stake to the incoming partner/outsider who came in as a new partner.

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In view of the law laid down in the case of Shankar Wines supra, the change of composition of the Firm which does not divest more than 50% of its share to the incoming new partner does not amount to constitution of a new entity attracting additional fees under Rule 17-B. In that view of the matter, there is no transfer of licence so as to attract additional licence fee under Rule 17-B.

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The learned Government Advocate contends that before seeking change in the composition, the petitionerFirm ought to have sought the permission of the authority under Rule 17-B of the Rules, 1967. On reading of Rule 17-B of the Rules, 1967, it does not indicate so. The requirement to obtain prior approval of Excise Commissioner is on the Deputy Commissioner. There is no need to obtain the prior approval of Excise Commissioner before transferring the licence. In case, the licencee applies for a transfer of licence, then the Deputy Commissioner is required to obtain the

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NC: 2025:KHC:750 WP No. 13582 of 2022

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permission of the Excise Commissioner. The applicant is under no obligation to obtain the permission of the Excise Commissioner.

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This being the position, the respondent-Authority was not justified in issuing Annexure-A demand notice demanding Rs.11,50,000/- from the petitioner. Hence, the Writ Petition succeeds and the petition is allowed .

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The respondent-Authority shall take note of the change of composition of the partnership firm in terms of the reconstituted partnership deed dated 19.11.2021 and shall renew the licence in accordance with law in favour of the petitioner's firm without insisting for additional licence fee.

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It is submitted that the petitioner has paid

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additional licence fee due to inadvertence. In case, the said payment is made, the respondent-Authority is under obligation to refund the same within 2 months from the date of receipt of the copy of this order. Failing which, the

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NC: 2025:KHC:750 WP No. 13582 of 2022

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respondents shall pay interest @ 8% per annum from the date of receipt of certified copy of this order till the payment.

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Sd/(ANANT RAMANATH HEGDE) JUDGE

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GVP, CHS List No.: 1 Sl No.: 0

M/S Samruddi and Company v. the State of Karnataka

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M/S Samruddi and Company v. the State of Karnataka

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