Pvt. Ltd. Entitled to Same Exemption As Public Ltd. Companies: Calcutta HC Strikes Down Liquor Excise Fee Rule

The Calcutta High Court has upheld a Single Bench decision declaring Clause (d) of the proviso to Rule 5(1) of the West Bengal Excise (Change in Management) Rules, 2009 which is the Liquor Excise Fee Rule as unconstitutional and held that private limited companies entitled to same exemption as public limited companies. The Bench of Justice Sabyasachi Bhattacharyya and Justice Supratim Bhattacharya observed that although there is no fundamental right to trade in liquor, State action in granting licences and exemptions must conform to constitutional mandates of non-arbitrariness and equality under Article 14. The respondent, New Kenilworth Hotel Private Limited, operates a four-star hotel in Kolkata and holds excise licences for running bar facilities. The dispute arose after the State authorities demanded substantial sums towards “change in management” fees under the 2009 Rules. Originally incorporated as a private limited company, the hotel became a deemed public limited company due to statutory amendments under the Companies Act, 1956, and later reverted to private limited status. The Excise Department raised demands totalling ₹64.50 lakh, alleging that changes in the company’s status and induction of new directors attracted fresh licence fees equivalent to 1.5 times the initial grant fee under Rule 5. The company challenged the demand and the constitutional validity of Clause (d) of the proviso to Rule 5(1), which denied exemption from payment of initial grant fees for change in management in the “usual course of business” to private limited companies, while granting such exemption to public limited companies under Clause (e). A Single Judge allowed the writ petition and declared Clause (d) ultra vires. The State carried the matter in appeal. The Advocate General argued that liquor trade is a State-controlled privilege under the Bengal Excise Act, 1909 and that no fundamental right exists to carry on liquor business. Relying on judgments such as State of Punjab v. Devans Modern Breweries Ltd. and State of A.P. v. McDowell & Co., it was contended that the State enjoys wide latitude in framing economic policy, including imposing regulatory fees. The State further submitted that private limited companies and public limited companies form distinct classes under company law, and differential treatment between them is legally permissible. The amendment introduced in 2020 defining “change in management” was also argued to be clarificatory and retrospective in nature. The hotel company countered that both private and public limited companies fall within the same genus of “limited companies” for the purposes of excise regulation. While Rule 4 of the 2009 Rules treated both categories identically in matters of approval, regularisation, and regulatory compliance, Rule 5 created an arbitrary distinction at the stage of exemption from licence fees. Under Clause (e), public limited companies were exempted from paying fresh initial grant fees in cases of death or change in management in the usual course of business. However, Clause (d) restricted such exemption for private limited companies only to cases of death of directors, excluding routine changes in management. It was argued that such discrimination lacked any intelligible differentia having a rational nexus with the object of the Rules, which is regulation—not penalisation—of management changes. The Court relied on the principle laid down in Ramana Dayaram Shetty v. International Airport Authority of India, reiterating that even in matters of State largesse—including licences—the government cannot act arbitrarily. If exemptions are granted to one group, denial to another similarly situated group must be justified by rational classification. Applying the twin test from Budhan Choudhry v. State of Bihar, the Court examined whether: The classification between public and private limited companies was founded on an intelligible differentia; and The differentia had a rational nexus with the object sought to be achieved. The Bench concluded that while company law distinguishes between private and public companies for corporate governance purposes, such distinction had no rational nexus with the objective of the 2009 Excise Rules, particularly regarding exemption for involuntary changes in management occurring in the usual course of business. The Court noted that Rule 4 of the 2009 Rules uniformly regulates change in management for both categories. Therefore, denying exemption only to private limited companies under Rule 5 amounted to intra-class discrimination. The Court also clarified that exemption from licence fees constitutes a form of State largesse, as it impacts public revenue. Whether the grant is positive (distribution of resources) or negative (waiver of revenue), it must satisfy constitutional scrutiny. Since changes in management in the “usual course of business” are inherently involuntary and beyond the control of the company, the Court found no rational basis for treating private limited companies differently from public limited companies in this context. The court declared Clause (d) of the proviso to Rule 5(1) of the 2009 Rules ultra vires Article 14 of the Constitution; set aside the Excise Commissioner’s order dated February 16, 2018; and quashed the consequential demand dated February 27, 2018. Case Details Case Title: State of West Bengal and Others Vs. New Kenilworth Hotel Private Limited and Others Citation: JURISHOUR-138-HC-2026(Ori) Case No.: FMA No.226 of 2024 Date: 26.02.2026 Counsel For Petitioner: Kishore Datta, Ld. AG Counsel For Respondent: Sabyasachi Choudhury, Sr. Adv. Click Here To Read Order Read More: Customs Appeal is Not Maintainable Due to Low Tax Effect, Prior Appeals Before Supreme Court: Punjab and Haryana High Court

Pvt. Ltd. Entitled to Same Exemption As Public Ltd. Companies: Calcutta HC Strikes Down Liquor Excise Fee Rule

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