Manufacture of Liquor — Licences, Permits (Sections 7–14)

The manufacture of liquor is the point at which the Andhra Pradesh Excise Act, 1968 is at its most controlling. Because intoxicants are res extra commercium and the State holds the exclusive privilege of dealing in them, every act of manufacture, possession and sale is forbidden save under a licence, permit or lease granted by the Excise administration. This note works through the operative scheme — Sections 13 to 18 of Chapter IV, read with the licence-and-permit machinery of Chapter VI (Sections 28-33) and the duty provisions — and grounds it in the constitutional case law that defines what the State may grant, withhold or charge for. For the wider architecture see the AP Excise Act hub and the Introduction.

The Scheme: Manufacture Only Under Authority

Chapter IV of the Act, headed Manufacture, Possession and Sale, opens with Section 13, the foundational prohibition. No person shall manufacture or collect an intoxicant, cultivate hemp, tap an excise tree or draw toddy, construct or work a distillery or brewery, bottle liquor for sale, or keep any still, utensil or apparatus for manufacturing an intoxicant (other than toddy) except under the authority and subject to the terms and conditions of a licence granted by an officer not below the rank of District Prohibition and Excise Officer. The provision is thus a blanket bar lifted only by a licence; the licence is permissive, not declaratory of any pre-existing right. A proviso added in 2000 confines the distillery-licensing requirement to distilleries that manufacture spirit for potable purposes, while the regulatory and supervisory provisions apply to all distilleries. Sub-section (2) extends the licence to cover the licensee's servants and agents acting on his behalf, and sub-section (3) lets the Government, by notification, dispense with a licence for the manufacture of liquor for the manufacturer's bona fide home consumption in a specified area.

The structure mirrors the import, export and transport controls in Chapter III (Sections 9-12), discussed in Transport, Import and Export of Liquor: a general prohibition pierced only by a permit. The unifying premise is that excisable articles move and multiply only along channels the State has expressly opened.

Why Manufacture Can Be Prohibited: Res Extra Commercium

The constitutional foundation for so sweeping a control is the doctrine that there is no fundamental right under Article 19(1)(g) to manufacture or trade in potable liquor. The Supreme Court in Cooverjee B. Bharucha v. Excise Commissioner, Ajmer, AIR 1954 SC 220, upheld a licensing-and-auction regime as a reasonable restriction under Article 19(6), reasoning that the State may regulate or even monopolise a trade injurious to public health. In Krishan Kumar Narula v. State of Jammu and Kashmir, AIR 1967 SC 1368, a Constitution Bench held that dealing in liquor is business in which a citizen has a right to engage, but that the right is subject to restrictions so wide they may amount to total prohibition.

That tension was resolved decisively in Khoday Distilleries Ltd. v. State of Karnataka, (1995) 1 SCC 574, where the Court laid down a series of propositions: there is no fundamental right to trade or do business in intoxicants; the State has the exclusive right or privilege of manufacturing, possessing, selling and distributing liquor; it may create a monopoly in itself or in an agency; and it may prohibit such activity completely or part with the privilege for a price. Manufacture, therefore, is a privilege the State confers — not a right the citizen asserts. Section 13's blanket bar is the statutory expression of this constitutional position.

Distilleries and Warehouses: Section 16

Section 16 governs the physical infrastructure of manufacture. The Commissioner, with the previous sanction of the Government, may establish or continue a distillery in which spirit may be manufactured on such conditions as the Government imposes; may discontinue such a distillery; may licence the construction and working of a distillery or brewery; and may establish, continue or licence a warehouse where intoxicants may be deposited and kept. A warehouse so established serves as general accommodation for duty-paid-pending intoxicants until removal for local consumption or export, and sub-section (3) forbids removal of any intoxicant from a distillery, brewery or warehouse without Government sanction unless the duty has been paid.

The detailed conditions are worked out in subordinate legislation — chiefly the Andhra Pradesh Distillery Rules, 1970 and the Andhra Pradesh Indian Liquor and Foreign Liquor Rules, 1970, framed under the rule-making power in Section 72 read with Sections 9, 11-15 and 28. Manufacture is thus a two-tier construct: the Act sets the prohibition and the licensing power; the Rules supply the operational detail of plant, supervision and accounting. The officers who administer this machinery are introduced in Establishments and Officers.

The Exclusive Privilege: Section 17

Section 17 is the pivot of the manufacturing scheme. Subject to Section 28 and the rules, the Government may, on such conditions as it deems fit, grant for a fixed period to any person — jointly or severally, at any specified place within a specified area — a lease or licence or both for the exclusive privilege of: tapping or drawing toddy and selling it; manufacturing; supplying or selling by wholesale; manufacturing together with wholesale supply and sale; or selling by shop, bar, in-house or for bona fide use. The Government may prescribe different methods of selection for different privileges; a shop lease or licence may be granted for a period not exceeding two years at a time. Critically, sub-section (4) provides that no grantee may exercise the privilege unless the Commissioner or an authorised officer issues a licence — so the lease confers entitlement, but the licence operationalises it.

The constitutional vires of granting such privileges by auction and charging for them was settled in Har Shankar v. Deputy Excise and Taxation Commissioner, (1975) 1 SCC 737, where the Court held that the State, owning the exclusive privilege, may part with it by public auction and recover the bid amount as the price of the privilege — a charge that is neither a tax nor a fee and need not be correlated to any service. A successful bidder who later defaults cannot escape liability by attacking the very power under which he bid. Sub-section (6) allows the Commissioner, after enquiry, to permit a manufacturing licensee to sub-let the privilege and to licence the sub-lessee on payment of the prescribed fee.

Conditions and Establishment Charges: The Anabeshahi Principle

Because Section 17 lets the Government grant the exclusive privilege "on such conditions as it deems fit," the conditions attached to a manufacturing privilege can be onerous. In Government of Andhra Pradesh v. Anabeshahi Wine and Distilleries Pvt. Ltd., the Supreme Court considered a distillery licensee under the AP Distillery Rules, 1970 who was required to bear the salaries and allowances of the excise establishment posted to supervise its plant — so-called establishment charges. The Court held that since manufacture of liquor is the exclusive privilege of the State, it is open to the Government to grant that privilege only on terms, including the condition that the grantee meet the cost of the supervisory establishment, in addition to duty and licence fees. A grantee who wishes to enjoy the privilege must accept its price and conditions; he cannot take the benefit and resist the burden.

This principle dovetails with Section 28(2), which expressly permits licence conditions requiring the licensee to provide accommodation to excise officers and to pay the costs, charges and expenses — including officers' salaries and allowances — that the Government incurs in supervising compliance. Manufacture under the Act is therefore a supervised, self-financing privilege: the manufacturer not only pays for the right but funds the State's oversight of it.

Form, Conditions and Security: Chapter VI

Every permit or licence under the Act is issued under the common code of Chapter VI (Sections 28-33). Section 28 provides that licences and permits are granted on payment of prescribed fees, for prescribed periods, subject to prescribed restrictions and conditions, and in prescribed form. Amendments in 2017 expanded the levies collectible from manufacturers and others — distillery, brewery, winery and micro-brewery excise taxes among them — and a clarificatory explanation deems such charges, however named, to be excise or countervailing duty under Section 21. Section 29 empowers the granting authority to require security for observance of the licence terms and a counterpart agreement conforming to its tenor.

Section 30 saves a licence from invalidity for any technical defect, irregularity or omission, and makes the Commissioner's view on what is technical final. Sections 31 to 33 supply the exit machinery: power to cancel or suspend a licence or permit (irrespective of its remaining period), power to withdraw a licence, and provision for surrender. A manufacturing privilege is thus held on a tight leash — granted on conditions, secured by bond, and revocable for breach. The same chapter governs sale licences treated in Sale of Liquor — Licences and Conditions.

Possession, Measurement and Duties of Licensees

Manufacture necessarily entails possession of large quantities, and Section 14 addresses this. The Government may, by notification, specify the maximum quantity of any intoxicant a person may possess, with different maxima for different kinds; no person may possess in excess save under a licence for manufacture, cultivation, sale, buying or supply, or under a permit, granted by an officer not below the rank of District Prohibition and Excise Officer. A manufacturing licensee's lawful stock is therefore covered by the very licence that authorises production. The general possession limits for ordinary citizens are dealt with in Possession of Liquor — Limits.

Section 18 imposes affirmative duties on every person who manufactures or sells intoxicants under a licence: to keep on the licensed premises such measures, weights and instruments as the Commissioner specifies and to maintain them in good condition; and, on the requisition of an empowered Prohibition and Excise Officer, to measure, weigh or test any intoxicant in his possession as that officer requires. These obligations make the manufacturer an active participant in the State's accounting of excisable articles, ensuring that production and duty assessment can be verified at source.

Excise Duty and the Price of the Privilege

Manufacture is the taxable event for excise duty. Under Section 21, the Government may by notification levy excise duty on any excisable article manufactured or produced in the State, and countervailing duty on articles manufactured elsewhere in India and imported. Section 22 prescribes the modes of levy, and Section 23 deals with payment for the exclusive privilege — the consideration the State extracts for parting with its monopoly. As Har Shankar clarified, the amount payable for the exclusive privilege is the price of a privilege and is conceptually distinct from excise duty proper, though the Act's later amendments have tended to assimilate the various charges to duty for recovery purposes.

Recovery is reinforced by Section 67, which allows a lessee of the exclusive privilege under Section 17 to recover dues, and by Sections 65-66 on recovery of Government dues and the Government's lien on a defaulter's property. The financial architecture thus ensures that the privilege, once granted, generates a secured stream of duty and privilege-price — the economic rationale behind the State's tight grip on manufacture.

Manufacture Survives Prohibition: The McDowell Distinction

An important refinement is that prohibition of consumption does not automatically prohibit manufacture. When Andhra Pradesh introduced prohibition through the Andhra Pradesh Prohibition Act, 1995, manufacturers contended that while sale and consumption were banned, manufacture for export remained lawful. In State of Andhra Pradesh v. McDowell & Co., (1996) 3 SCC 709 (AIR 1996 SC 1627), the Supreme Court upheld the validity of the prohibition legislation against challenges of legislative competence and arbitrariness, while the litigation confirmed that the prohibition on possession was directed at consumption, sale and buying within the State and did not by itself extinguish the manufacturing licence for liquor destined outside the State.

The lesson for the Excise Act is structural: manufacture (Sections 13, 16-17), possession (Section 14), and sale (Section 15) are distinct privileges, each separately licensed and separately controllable. The State may open one channel while closing another — permitting manufacture for export, for instance, while prohibiting local sale. This separability is what allows the excise regime to operate flexibly alongside the constitutional permission to prohibit liquor under the Directive Principle in Article 47.

The Government's Own Position and Exemptions

The Act recognises that the State may itself be the manufacturer. Section 68-A exempts the Government from taking out a licence or permit for the production, manufacture, import, export, transport, possession or sale of any intoxicant — a logical corollary of the State being the holder of the exclusive privilege; one cannot license oneself. Section 68 gives the Government power to exempt any person or class, or any intoxicant, from any provision of the Act, and Section 68-B (a later insertion) empowers notified exemptions and relaxations. These provisions let the State calibrate the manufacturing regime to policy — running its own distilleries or beverage corporations, or relaxing controls for industrial or medicinal spirit.

Read together, Sections 13-18, the Chapter VI licensing code, the duty provisions and the exemption clauses present a coherent picture: manufacture of liquor is prohibited to the citizen, reserved to the State, and parted with only by lease or licence on stringent, supervised, fee-bearing conditions. The constitutional case law from Cooverjee through Har Shankar to Khoday supplies the justification; the AP-specific ruling in Anabeshahi shows how far the conditions may go. For the meaning of the substances regulated, see Definitions — Liquor, Intoxicant, Beer, Spirit.