State Cannot Discriminate Between Private And Public Limited Companies In Granting Excise Licence Fee Exemptions: Calcutta High Court
Isabella Mariam
The Calcutta High Court Division Bench of Justice Sabyasachi Bhattacharyya and Justice Supratim Bhattacharya held that the State of West Bengal cannot treat private limited companies less favourably than public limited companies when granting exemptions from excise licence fees for changes in management occurring in the ordinary course of business, as such differential treatment offends Article 14 of the Constitution. The Court modified the impugned provision by reading it up to extend the exemption equally to private limited companies, while directing refund of excess licence fees collected from the respondent hotel company.
The appeal arose from a judgment whereby Clause (d) of the proviso to Rule 5(1) of the West Bengal Excise (Change in Management) Rules, 2009 was declared ultra vires and consequential demands were set aside. The respondent company, which owns and operates a four-star hotel in Kolkata, had originally been a private limited company, later became a deemed public limited company by operation of law, and was subsequently reconverted into a private limited company.
The excise authorities raised demands alleging change in management and status of the company, including induction of new directors. Payments were made under protest. Subsequent demands were issued following appellate proceedings before the Excise Commissioner. The respondent challenged the vires of Clause (d), which granted exemption from initial licence fee for private limited companies only in cases of death of directors, unlike Clause (e), which extended exemption to public limited companies for change in management in the usual course of business.
The State relied on provisions of the Bengal Excise Act, 1909, including Sections 22, 23, 38, 42 and 86, and cited precedents to justify differential treatment. The respondent invoked Article 14 of the Constitution, alleging discriminatory intra-class distinction between public and private limited companies.
On the nature of exemption and State action, the Court observed that “Distribution of largesse may come in different forms.” It recorded that “Distribution of largesse may be undertaken by way of grant of benefits… both in positive and negative modes.” The Bench further observed that “To consider whether an act of the State amounts to a distribution of largesse, we are to take into account… whether the State’s resources and/or the public exchequer is adversely affected or dented in any manner.”
On classification, the Court stated that “Justiciability on the touchstone of violation of fundamental rights comes into play as soon as discrimination is meted out inter se entities belonging to the same class.” It further recorded that “Intra-class distinction can be tested in judicial review on the ground of reasonableness and intelligible differentia.”
Addressing the distinction between public and private limited companies, the Court observed that “There is neither any rationale nor reasonableness behind such an intra-class discrimination between similarly placed entities, that is, limited companies.” It held that “There is no intelligible differentia for such classification within the same category of entities, that is, limited companies.”
On the meaning of change in management in usual course of business, the Court noted that “The restriction inbuilt in the expression ‘usual course of business’ is a sufficient check and bound to such arbitrary alteration in management.” It further recorded that “Insofar as such limited change in management is concerned, there is neither any intelligible differentia nor any reasonableness in the discrimination between public and private limited companies.”
Regarding the 2020 amendment, the Court observed that “There is no element of clarification of anything which was already there in the 2009 Rules.” It held that “It was neither intended in the 2020 Notification nor contemplated by its scheme to clarify something which was already there in the 2009 Rules or to give retrospective effect.”
On the Single Judge’s approach, the Bench stated that “If a provision is read up or down to bring it within the domain of Constitutional validity, it would be a contradiction in terms if the said provision is struck down in the same breath.” It added that “The appropriate course of action… would have been to read up the provision and retain it in the Rules in such modified form.”
The Court directed that Clause (d) of the proviso to Rule 5(1) be read up and modified as follows: “(d) death of Director(s), or change in management in the usual course of business of a private limited company. The portion of the impugned judgment where Clause (d) is set aside as ultra vires to the Constitution of India is, however, set aside.”
“The other portions of the impugned judgment, as indicated above, including setting aside of the order dated February 16, 2018 along with the consequential revised demand dated February 27, 2018, are affirmed. FMA No. 226 of 2024 is disposed of” in the above terms and that “CAN 1 of 2024 is also disposed of accordingly. There will be no order as to costs.”
Advocates Representing the Parties
For the Petitioners: Mr. Kishore Datta, Learned Advocate General, Ms. Sumita Shaw, Ms. Ashmita Chakraborty, Mr. Soumen Chatterjee
For the Respondents: Mr. Sabyasachi Choudhury, Senior Advocate, Mr. Arvind Jhunjhunwala, Mr. Rajarshi Dutta, Mr. VVV Sastry, Mr. Debjyoti Saha
Case Title: State of West Bengal and Others Vs. New Kenilworth Hotel Private Limited and Others
Neutral Citation: 2026: CHC-AS:338-DB
Case Number: FMA No.226 of 2024
Bench: Justice Sabyasachi Bhattacharyya and Justice Supratim Bhattacharya
