Calcutta High Court Grants Private Companies Same Excise Fee Exemption As Public Companies For Management Changes

Holding that the State cannot create artificial distinctions between similarly placed licensees in the matter of excise fee exemptions, the Calcutta High Court has ruled that private limited companies are entitled to the same treatment as public limited companies when changes in management occur in the ordinary course of business.

The Court made it clear that even though liquor trade is a regulated privilege of the State, the manner in which that privilege — or exemptions attached to it — is distributed must conform to constitutional guarantees of equality.

The Division Bench of Justice Sabyasachi Bhattacharyya and Justice Supratim Bhattacharya was dealing with an appeal by the State of West Bengal against a Single Judge order that had interfered with substantial fee demands raised against New Kenilworth Hotel Pvt. Ltd., a Kolkata hotel running licensed bars.

The excise authorities had treated internal changes in the company's management as attracting fresh licence fees under the West Bengal Excise (Change in Management) Rules, 2009, and demanded payment at one-and-a-half times the initial grant fee. The company contended that such changes were routine business adjustments and not transfers warranting fresh levies.

Under the Rules, public limited companies were exempted from paying fresh fees if the change in management occurred in the “usual course of business.” However, private limited companies were denied this benefit and were exempt only in cases of death of directors. Calling this distinction discriminatory, the hotel challenged both the demand and the constitutional validity of the relevant clause.

Before the High Court, the State defended the classification by arguing that trade in liquor is merely a State-conferred privilege and not a fundamental right, and therefore broader regulatory control and differential treatment were permissible. It further argued that private limited companies, being closely held, stand on a different footing from public limited companies and could justifiably be subjected to a stricter fee regime.

The Bench, however, was not persuaded. It observed that although the State enjoys wide powers in regulating liquor business, such powers cannot translate into arbitrary discrimination. The Court underscored that exemption from licence fees is also a form of State largesse and must be distributed on rational and non-discriminatory principles. Merely labelling liquor trade as a privilege does not place State action beyond the scrutiny of Article 14.

Examining the scheme of the 2009 Rules, the Court noted that for most regulatory purposes — including approval, regularisation and scrutiny of management changes — both private and public companies were treated identically. The unequal treatment appeared only when it came to fee exemptions. The Bench found no intelligible basis to conclude that routine or inevitable business changes in a private company were materially different from those in a public company. If such changes were recognised as unavoidable and non-transfer in nature for one class, the same logic had to apply to the other.

"Applying such principle, in the present case, it is evident that the discrimination sought to be meted out against private limited companies, as opposed to public limited companies, in respect of granting exemption in payment of initial licence fee for change in management in the usual course of business, does not have a rational nexus with the object sought to be achieved, by imposing licence fees"

The Court reasoned that management alterations occurring in the “usual course of business” do not amount to a transfer of the licence or a change of identity of the licensee. Imposing a fresh financial burden only on private companies for the same event, it held, amounted to “intra-class discrimination” and failed the twin tests of reasonable classification under Article 14.

While agreeing that the impugned clause could not stand in its existing form, the Bench declined to strike it down entirely. It observed that doing so would remove even the limited protection already available to private companies. Instead, to preserve the rule and cure the defect, the Court “read up” the provision by extending to private limited companies the same exemption available to public limited companies for changes made in the usual course of business.

With this interpretation, the state's appeal was dismissed, the excise demands were set aside and the company was granted relief. The ruling reinforces that even in heavily regulated sectors like liquor licensing, the State must act fairly and cannot impose unequal financial burdens on similarly situated entities without a clear and rational justification.