The Supreme Court has held that retail country liquor licensees in Uttar Pradesh who have fulfilled the Annual Minimum Guaranteed Quantity (MGQ) cannot be subjected to deficit licence fees, penalties or interest merely because they fell short of the Monthly Minimum Guaranteed Quantity during a particular month. The Court dismissed appeals filed by the State of Uttar Pradesh and upheld the Allahabad High Court’s decision quashing the impugned demand notices.
The Bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria was considering whether licensees under the Uttar Pradesh Excise (Settlement of Licences for Retail Sale of Country Liquor) Rules, 2002 could be penalised for failing to lift the prescribed monthly quota despite having lifted the entire annual MGQ during the relevant excise year.
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The dispute arose after the Excise Commissioner issued a circular directing strict compliance with monthly MGQ requirements. Based on the circular, demand notices were issued to licensees seeking deficit licence fees, penalties and interest for monthly shortfalls, and corresponding deductions were made from their security deposits. The licensees challenged the demands, contending that the Rules envisage compliance with the annual MGQ and permit adjustment of excess lifting through accumulated credit balances.
Affirming the High Court’s reasoning, the Supreme Court observed that the statutory scheme recognises a credit balance earned by lifting liquor in excess of the prescribed quantity in earlier months. It held that the authorities acted incorrectly by isolating a single month’s shortfall without accounting for the accumulated credit, particularly when the annual MGQ had admittedly been fulfilled.
The Court further noted that Rule 14 of the 2002 Rules required the District Excise Officer to issue contemporaneous notices enabling the licensee to replenish any deficit. Instead, the authorities raised demands after the close of the excise year, by which time the annual quota had already been achieved. Such delayed enforcement, the Court held, was inconsistent with the statutory framework.
Rejecting the State’s interpretation, the Bench held that neither the Rules nor the licence conditions permit the imposition of penalties solely because the monthly MGQ was not achieved when the annual MGQ stood fully complied with. The Court clarified that while licensees are required to comply with the MGQ regime, the State’s insistence on penalising monthly underperformance despite complete annual compliance was not supported by the Rules governing licence fees or the terms of the licence.
Finding no infirmity in the High Court’s judgment, the Supreme Court dismissed the appeals and upheld the quashing of the demand notices issued against the licensees.
