Gujarat High Court
Gujarat vs State on 5 May, 2010
Author: K.A. Puj
Bench: K.A.Puj
Gujarat High Court Case Information System
Print
SCA/1343/2000 83/ 85 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL
CIVIL APPLICATION No. 1343 of 2000
With
SPECIAL
CIVIL APPLICATION No. 1837 of 2000
To
SPECIAL
CIVIL APPLICATION No. 1838 of 2000
With
SPECIAL
CIVIL APPLICATION No. 1863 of 2000
For
Approval and Signature:
HONOURABLE
MR.JUSTICE K.A.PUJ
=========================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To
be referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
=====================================================
GUJARAT
SPIRIT DEALERS ASSOCIATION & 2 - Petitioner(s)
Versus
STATE
OF GUJARAT & 3 - Respondent(s)
=====================================================
Appearance
:
SCA
NO. 1343 Of 2000
MR ASHISH H SHAH
FOR MR HARIN P. RAVAL
for Petitioner(s) : 1 - 3.
MR P.K
JANI LEARNED GOVERNMENT PLEADER for Respondent(s)
: 1 4.
SCA
NO. 1837 Of 2000
MS.
DHARMISHTA N. RAVAL for petitioners
MR
P.K JANI LEARNED GOVERNMENT PLEADER for Respondents
SCA
NO.1838 Of 2000 WITH 1863 Of 2000
MR.
B.H. CHATRAPATI for Petitioners
MR
P.K JANI LEARNED GOVERNMENT PLEADER WITH MR. RASHESH RINDANI LEARNED
AGP for Respondents
=========================================
CORAM
:
HONOURABLE
MR.JUSTICE K.A.PUJ
Date
: 14/06/2010
CAV
JUDGMENT
Since common issues are involved in all these four petitions and since they are heard together, the same are being disposed of by this common judgment and order.
SCA No.1343/2000 is filed by the Gujarat Spirit Dealers Association and others, praying for quashing and setting aside the following Rules.
(i)The Bombay spirituous preparation (Transport and Export under Bond) (Gujarat amendment) Rules, 1999
(ii)The Bombay rectified spirit (Transport in Bond) (Gujarat amendment) Rules, 1999
(iii)Gujarat industrial alcohol (import, storage and sale for export overseas in bond) (Gujarat Amendment) Rules, 1999
(iv)Bombay denatured spirit (Gujarat amendment) Rules, 1999
(v)Bombay prohibition (manufacture of spirit) (Gujarat amendment) Rules, 1999
(vi) Bombay sacramental wine (Gujarat amendment) Rules, 1999
(vii)Bombay methyl alcohol (Gujarat amendment) Rules, 1999 and
(viii) Bombay Medicinal and Toilet preparations (use of liquor) (Gujarat amendment) Rules, 1999 SCA No. 1837/2000 is filed by Gujarat Alcohol based Industries Development Association praying for quashing and setting aside the following Rules.
(i)Bombay denatured spirit (Gujarat amendment) Rules, 1999 vide notification dated 24.12.1999
(ii)Gujarat industrial alcohol (import, storage, sale for export, overseas, in bond) (Gujarat amendment) Rules, 1999 vide notification dated 4.11.1999
(iii)Bombay rectified spirit (Gujarat amendment) Rules, 1999 vide notification dated 24.12.1999
(iv)Gujarat denatured spirituous preparation (Gujarat amendment) Rules, 1999 vide notification dated 27.11.1999.
SCA No. 1838/2000 is filed by Ashok Organic Industries Limited, praying for quashing and setting and aside the following Rules.
(i)Bombay denatured spirit (Gujarat amendment) Rules, 1999 and
(ii)Bombay Molasses (Gujarat amendment) Rules, 1999 SCA No. 1863/2000 is filed by Kanoria Chemicals and Industries Limited, praying for quashing and setting aside Bombay denatured spirit (Gujarat amendment) Rules, 1999 This court has issued Rule on 8.3.2000 in SCA No.1343/2000. In remaining three matters Rules were issued on 22nd March, 2000. This court has passed detail order on 30th March, 2000, in all the four petitions and observed that there cannot be any stay of any law and therefore, the amendments in the Rules, as such cannot be stayed. The court has further ordered that if any of the petitioners or members of the petitioners' association as per Annexure-B in SCA No. 1343/2000 and as per Annexure-A in SCA No.1837/2000, apply for renewal of the licence, the same may be considered by the concerned authorities for renewal of the licence for a period of 2 months only at that stage on depositing the proportionate fees for a period of 2 months from 1st April, 2000 in terms of the amended Rules and such application for renewal of the licence shall not be rejected on the ground that the entire fees for the whole year has not been paid. The said interim relief was extended from time to time on payment of renewal fees as per the amended Rules.
It is the case of the petitioners that so far as Bombay Prohibition Act, 1949 is concerned, the same regulates the manufacture, selling and storage of various kinds of liquor and spirit. Section 107 of the said Act provides that the State Government may, by Rules, prescribe the fees payable in respect of any privilege, licence, permit, pass or authorization granted or issued under the said Act. Sub-Section 1 of Section 143 of the said Act provides that the State Government may make Rules for the purpose of carrying out the provisions of the said Act or any other law for the time being relating to Excise Rules. Sub-Section 2 of Section 143 provides that for any particular and without prejudice to the generality of the foregoing provisions, the State Government may make Rules in any of the matters provided in Sub-Clauses (a) to (w) of Sub-Section 2 of Section 143. Sub-Clause (u) of Sub-Section 2 of Section 143 of the Act provides the power of the State Government to make Rules prescribing the fees payable in respect of any privilege, licence, permit, pass or authorization granted or issued under the Act. Sub-Section 3 of Section 143 of the said Act provides that the power to make Rules under the said Section shall be subject to the conditions of previous publication. Proviso to Sub-Section 3 of Section 143 provides that any such Rules may be made without the previous publication, if the State Government considers that they should be brought into force at once. Sub-Section 4 of Section 143 provides that all Rules made under the said Act shall be laid for not less than 30 days before each of the state legislature as soon as may be after they are made and shall be subject to such modification as the state legislature may make during the session in which they are so laid or the session immediately following.
In exercise of the powers conferred upon the State Government under Section 143, Sub-Section 2, Clause (u), the following Rules were initially made.
(i)Bombay spirituous preparation (transport and export under bond) Rules, 1953
(ii)Bombay rectified spirit (transport in bond) Rules, 1951
(iii)Gujarat industrial alcohol (import, storage and sale for export overseas, in bond) Rules, 1966
(iv)Bombay denatured spirit Rules, 1959
(v)Bombay prohibition (manufacture of spirit) (Gujarat amendment) Rules, 1963
(vi)Bombay sacramental wine manufacturing Rules, 1990
(vii)Bombay methyl alcohol Rules, 1981
(viii)Bombay Medicinal and Toilet (uses of liquor) Rules, 1955.
The above referred Rules provide for the application by a person for holding a pass, permit, licence, privilege or authorization and different classes of fees which are payable with respect to different classes of licence, pass, privilege and/or authorization, etc. For the first time, in the above referred Rules, amendments were made in the year 1986 by virtue of and pursuant to the notifications issued by the Social and Welfare Department, whereby there was revision in fees for various passes, authorizations, permits, licences, etc. The above amendments made in the Rules were in force in the State of Gujarat till 1999, when for the first time draft notifications were issued inviting claims and suggestions from members of the public to the proposed amendments. The president of petitioners' association had taken objections to the said proposed increase in fees. It was pointed out that the petitioners' association and one M/s Ratilal Kalidas Vankawala wanted to advance reasons and suggestions in respect of their objections. But the draft notification dated 24.8.1999, which was published came to their notice only on receipt of the information by the Prohibition and Excise Department on or around 21.9.1999 and therefore, a request was made to personally hear M/s Ratilal Kalidas Vankawala. The said letter was addressed to the Home Department, Prohibition and Excise Branch, Sachivalaya, Gandihinagar. Despite the aforesaid demand having been made, not only the suggestions and objections they received are not considered but in the final notification issued containing the amended Rules it is stated that no suggestions and objections were received and straightaway the amended Rules are brought into force and no opportunity of hearing, though demanded, was afforded in respect of the suggestions and objections by the firm of the President of the petitioners' association.
It is also the case of the petitioner association that so far as the State of Gujarat is concerned, there are about 7 licencees and registered distilleries manufacturing various kinds of denatured spirit, the production whereof is about 2 crore liters per year. Out of 7 distilleries 5 are in working condition and 2 distilleries are closed. The total usage of various kinds of denatured spirit is 1 to 1.25 crores liters per year. Furthermore, so far as the home users are concerned, they get various kinds of denatured spirit at higher prices then those who export denatured spirit from other States and who procure it at lower prices. It is also the case of the petitioners that only with a view to add to the misery of the industry engaged in the sale and distribution of the various kinds of denatured spirit and alcohol, the government, by way of amendment of various Rules increased licence fees and other fees in an arbitrary and unjustified manner which would lead to closer of the industries. If the said Rules were brought into implementation, 50% of the licencees overseas would not get renewed since the renewal fees are more than reasonable. At present around 20,000 employees are engaged in the spirit industry in the State of Gujarat who are likely to be rendered unemployed on account of closer of the industries. Because of high licence fees the obvious reasons are that there are number of cheaper alternatives to denatured spirit, ethyl and methyl alcohol as well as various kinds of industrial alcohols and if, the licence fees are increased in such a fashion, the end result would be to make end product absolutely expensive as compared to other competitors in the market.
So far as SCA No. 1837/2000 is concerned the petitioner no.1 is an association of alcohol based industries in Gujarat and is registered under the Bombay Public Trust Act. The members of the petitioner no.1 association have industrial units which utilized denatured alcohol as raw material for their finish products. Denaturing of spirit becomes unfit for human consumption. These denatured alcohol is purchased by the petitioner from the manufacturers of denatured alcohol. The final products of the members of the petitioner association vary from unit to unit, but one thing in common is that the end product is unfit for human consumption, either as alcohol or otherwise.
Ms. Dharmishta Raval, learned advocate appearing for the petitioners has submitted that while the implementation of the prohibition policy by the State of Gujarat is unique, the industries using industrial alcohol should also be encouraged as it helps the State of Gujarat for industrial development. Industries generate employment and help raising the standard of living of the people and the public health. By amending the Rules, the State Government has enhanced the fees payable by the petitioners to the State Government in some cases even by more than 100%. She has further submitted that the members of the petitioner association are admittedly using denatured alcohol as raw material for their finish products. Admittedly, this denatured alcohol is industrial alcohol which is unfit for human consumption in its present form. She has further submitted that the fees levied by the State Government are absolutely illegal for the various reasons. The Apex Court has examined the scope of the powers of the State over industrial alcohol in the case of Synthetic and Chemicals Limited and other V/s State of U.P and others 1990 (1) SCC 109, wherein the main question that arose before the Apex Court for consideration was the constitutional validity of levies imposed by the respondent states on industrial alcohol (one which is used by the industries for manufacturing the product where alcohol is the raw material). It is alleged that in addition to excise duty levied by the Central Government, excise duty and various levies in various names like Vend fee, transport fee and others numbering about 8 levies are imposed by the State governments. The main contention of the petitioners was that the state legislatures have no authority in view of Entry 84 of List I read with Entry 51 of List II to impose such levy, this being alcohol which does not fall within the ambit of alcoholic liquors for human consumption. It is only the Centre which has the authority under Entry 84 of List I to tax. It was further contended by the petitioners that Entry 8 in List II which talks of intoxicating liquors only authorized the state legislatures to enact laws to regulate but does not empower them to impose any levy and the various levies which have been imposed by the State legislatures on industrial alcohol and even methylated spirit could not be brought within the ambit of regulatory duties for the purposes of regulation only and therefore, could not be justified under Entry 8 of List II. It was further contended on behalf of the petitioners that by merely widening the definition of intoxicating liquors in respective excise laws enacted by the states, the ambit of authority of taxation could not be enlarged by the state legislatures when in List II, Entry 51 the words used are alcoholic liquors for human consumption .
14.1 On behalf of the respondent state, it was inter alia contended that in exercise of its regulatory power, the State can impose fee of the nature of licence fee on the spirit and traffic in intoxicating liquor or alcohol. The collection of money by means of imposition of fee is not the primary motivation but only the result of the regulatory system which the state is under the obligation to adopt and effectuate. The Industries (Development and Regulations) Act, 1951 does not in any way affect the inherent police power of the State or its legislative competence under Entry8 of List II. It only ensures the national policy of control of industries regarding location, balanced productive capacity, equitable pricing and distribution of products and taking over the management. Intoxicating liquor means any liquor containing alcohol capable of producing intoxication. When the statute expressly enumerate certain liquors as intoxicating liquors they are subject to such statutes whether or not they are actually intoxicating. There has, in fact, been misuse of denatured spirit causing death and injury on account of its human consumption. The police power of the State gets attracted because of the alcoholic content of the liquor. The licensing power in respect of intoxicating liquors flows from the police power of the state to regulate such trade. It is used to exclude diversion of intoxicating liquors from legal or authorized use.
14.2 The Court took the view that it is incorrect to contend that industrial alcohol is also alcoholic liquor for human consumption. The court further took the view that right to tax or levy imposts cannot be founded merely on exercise of police power of a state. Such power is not recognized by the Constitution of India. All levies must be intra vires the constitutional provisions. The court, however, observed that irrespective of whether the states have police power or not, the states do have the power to regulate the use of alcohol and that power must include power to make provisions to prevent and/or check industrial alcohol being used as intoxicating or drinkable alcohol. It is an expression of the sovereign power of the state subject to limitation. The question then is whether in the garb of regulations a legislation which is in pith and substance, fee or levy which has no connection with the cost or expenses administering the regulation, can be imposed purely as a regulatory measure. Judged by the pith and substance of the impugned legislation, it can be definitely stated that these powers cannot be treated as part of regulatory measures. The Court, on facts found that no attempt has been made by the State to establish the quid pro quo between the levy on industrial alcohol and the expenses incurred in denaturing the ethyl alcohol, cost of denaturents, process and regulation etc. The need to protect the community from the evil effects of drinking does not by itself empower the State to levy duty or impost of fee not warranted by the Constitution nor sanctioned by the specific provisions of the Constitution and the laws.
14.3 The Court further observed that all duties of excise save and except the items specifically excepted in Entry 84 of List I are generally within the taxing power of the Central legislature. The state legislature has power, though limited it is, in imposing duties of excise. That power is circumscribed under Entry 51 List II. In such a situation the well established principle of harmonious interpretation of legislative entries has to be applied. The Court further observed that the police power of the state involved to justify the control and regulation exercised by the States with regard to potable liquor cannot be extended to cover industrial alcohol manufactured by industries which are to be developed in the public interest and which are being encouraged by the State. In a situation of this nature it is essential to strike a balance and in striking a balance, it is difficult to find any justification in any theory of any exclusive right of a State to deal with industrial alcohol. The Court ultimately held that having regard to the principles of interpretation of the Constitutional provisions, in the light of the language used and having considered the impost and the composition of industrial alcohol, and the legislative practice of this country, the impost in question cannot be justified as State impost. The different provisions are not merely regulatory. They are much more than that. They seek to levy imposition in their pith and substance not as incidental or as merely disincentives but as attempts to raise revenue for States' purposes. There is no taxing provision permitting these in the lists in the field of industrial alcohol for the State to legislate. The Court, however, clarified that this will not affect any imposts so far as potable alcohol as commonly understood, is concerned. It will also not affect any imposition of levy on industrial alcohol fee where there are circumstances to establish that there was quid pro quo for the fee sought to be imposed. This will not affect any regulating measure, as such.
Ms. Raval has further submitted that the Apex Court in the case of State of U.P. V/s Vam Organic Chemicals Limited, reported in AIR 2003, Supreme Court 4506 has held that the decision in the case of Synthetic and Chemicals Limited and other V/s State of U.P., holds the field and the Industries (Development and Regulation) Act, covers the field on industrial alcohol. Levy by the State Government of fees on specially denatured industrial alcohol is beyond its power. State cannot claim that it can regulate industrial alcohol under Entry 33 of list III, because the union under Section 18 G has evinced clear intention to occupy the whole field. Once industrial alcohol is denatured, the State losses its power to take or impose regulatory fees. Fee is required to be justified with cost of regulation. The said judgment has also referred to various other judgments of the Apex Court on this issue.
Ms. Raval has further submitted that industrial alcohol is not and does not include potable alcohol. The State Government's powers over industrial alcohol is limited to overseeing for misuse and/or prevention of conversion of industrial alcohol to potable alcohol. If the Bombay Prohibition Act enables the State Government to exercise powers over industrial alcohol, it has to be exercised within the parameters specified by the Apex Court. Hence, even though the definition of liquor in Section 2 (24) of the Act includes industrial alcohol and the Act gives power under Section 21 and Section 107, these powers will have to be exercised according to the law laid down by the Apex Court. She has further submitted that the State Government cannot levy any privilege fees or regulatory fees. Admittedly, the State is recovering from the petitioners the actual expenditure incurred by it towards salary of the officers, even their residential houses, their T.A- D.A etc. Ms. Raval has, therefore, submitted that reliefs prayed for in all these petitions be granted and petitions be allowed accordingly.
An affidavit-in-reply is filed on behalf of the respondents on 20th April, 2000. Mr. P.K. Jani, learned government pleader appearing for the respondents has submitted on the basis of the affidavit in reply that in Gujarat State, there are number of persons who are directly or indirectly involved in selling and/or using denatured spirit which is the item in dispute in SCA No. 1343/2000. The denatured spirit means rectified spirit, denatured in accordance with regulations made by the director in that behalf under the Act. Liquor is defined under Bombay Prohibition Act, 1949 which includes (a) spirit, denatured spirit, wine, bear, toddy and all liquids consisting of or containing alcohol and (b) any other intoxicating substance which the State Government may by notification in the Official Gazette, declare to be liquor for the purpose of this Act. Sub-Section 22 of Section 2 of Bombay Prohibition Act 1949 defines the intoxicant means any liquor, intoxicating drug, opium or any other substance, which the State Government may, by notification in the Official Gazette declare to be an intoxicant. As far as power of the State Government, to charge fees payable in respect of licence etc. is concerned, the same are provided under Section 107 of the Bombay Prohibition Act. The State has also power to make rules for the purpose of carrying out the provisions of Bombay Prohibition Act under Section 143. Section 143 (2) (u) prescribes the fees payable in respect of any privilege, licence, permit, pass or authorization granted or issued under this Act. As far as Constitutional provision with regard to powers of the State government are concerned, the List II of 7th schedule specifically provides the power of State to levy fees upon the intoxicant, liquor etc. Entry No.8 of List II read with Entry No.66 of List II specifically empowers the State to charge the fees with regard to permit, licence etc. In view of the powers granted under the provisions of the Constitution of India as well as powers under Section 107 and 143(2)(u) of the Bombay Prohibition Act, the State government can charge fees as it deem fit in the situation prevailing at the time of framing rules and/or amending the rules. Hence, the petitioners' challenge that the State Government has no authority or power to charge fees on permit, licence etc. is without any basis and therefore, the same cannot be entertained.
Mr. Jani further submitted that a draft notification with regard to enhancement of fees, was published in the Official Gazette on 24.8.1999. By the said notification, objections and suggestions were invited by the authority. Except one Mr. Ratilal Kalidas Vankawala, resident of Surat, no one has sent his representation. The said objection of Mr. Vankawala does not mention anything about his membership of any association. None of the petitioners had made any grievance with regard to the draft notification by which fees were sought to be enhanced by the State Government. The objection of Mr. Vankawala was duly considered by the State Government before issuing the final notification on 24.12.1999. He has further submitted that the decision was taken for enhancement of licence fees in different categories by the State Government after taking into consideration several aspects emerged in the society. Reasons for enhancing licence fees were, amongst others, the enhancement of salary and allowances of the staffs and increase of stationary charges etc. The important part of this enhancement was the turn over and profit of the manufacturer or seller or users of the denatured spirit. The turn over of the big manufacturer runs in lakhs of rupees against which the licence fees is less than 1% of the total expenditure and turn over of licence holder.
An affidavit in rejoinder is filed on behalf of the petitioners on 24th April, 2000. It is inter-alia contended in the said affidavit in rejoinder that over and above various licence fees charged for the purpose of issuance of various licences to the manufacturers/distillers, whole-sell dealers, traders and users various kinds of additional fees and charges are levied by the Prohibition and Excise Department. Every manufacturers and distillers manufacturing denatured and rectified spirit, both are required to pay supervision charges which are to be paid individually either by the manufacturers or by the distillers. Such supervision charges are required to be paid at the time of opening of the lock which is put up on the container containing such denatured and rectified spirit which is paid for the purpose of bottling into smaller lots. Such supervision charges get increased from time to time according to the pay scale and TA/DA admissible to the members of the supervision team. In addition to the supervision charges, every manufacturer having a distillery for manufacturing of rectified and/or denatured spirit is required to pay full salary of the staff deputed by the Prohibition and Excise Department which consists of one Inspector, one P.S.I. and about 5 to 6 Constables who are permanently stationed at the manufacturer's/distiller's place. Over and above this, the manufacturers/distillers are required to provide residential facilities and pay for their lodging and boarding. It is, therefore, contended that any such administrative expenses incurred by the Prohibition and Excise Department cannot be taken into consideration for the purpose of hike/increase in fees of licence etc., since such administrative charges are already separately borne by the distillers and/or manufacturers.
It is further contended that in every case of transportation of denatured and/or rectified spirit exceeding 500 liters being part of single transaction, the escort charges of Rs.300/- per day per single transaction are required to be paid by the concerned manufacturers/distillers/whole sellers/whosoever wish to transport rectified or denatured spirit. Ms. Raval, therefore, submitted that there was no justification in increase of fees on permits, licences etc. An affidavit-in-sur-rejoinder is filed on behalf of the respondents on 18th June, 2009. It is, inter alia, contended that the increase in the amount of fees by virtue of the amendments in the Rules has been effected after a span of almost 10 years since last increase was effected in 1986-87. If there had been periodical increase in various types of fees during the aforesaid intervening period, the State Government's recovery of fees would have definitely been increased. However, by not doing so, the State Government was deprived of the same, despite the fact that it had to render various services. Another feature of the said increase lies in the fact that while doing so, small and medium scale consumers have been kept in mind to see that they are not adversely affected. The variation in increase is from Rs.50/- to Rs.300/-. Such increase has not affected the common man's day to day life, as alleged, or that because of such increase, the members of the petitioner association are not likely to be thrown out of their business, as alleged. There is no substance in the contention that their competitors in other States, who are allegedly not exposed to such an excessive and arbitrarily charged licence fees, would steal a march over the petitioners. It is further contended that the petitioners have not suffered any injury because of the increase in fees, since whatever fees they pay, are recovered from their consumers. Major increase is effected in certain cases under the aforesaid Rules while keeping in mind annual production, sale, turnover, etc. of the licencees. Because of increase in their number and increase in their size, the work load of the department in providing services has also been increased, which has, in turn, been reflected in consequential rise in establishment and other expenses. Prior to 1999, there were only 5 distilleries in the State engaged in the activities of denatured spirit, which number has now been dramatically increased to 14, increasing the workload on the part of the Department and hence, licence fees have also been consequently increased and the reasonability in the quantum of fees in those cases is required to be judged in that context and not in abstract fashion.
It is further contended that the amendments made in the Rules which are under challenge are not limited to providing services to the subjects governed thereby but are also regulatory in nature. In view of this, quid pro quo for the services rendered to the persons on whom the fees have been imposed, is not required to be proved. It is not necessary to establish that those who pay the fee, must receive direct or special benefit by advantage of the services rendered for which the fees being paid.
An attempt was also made to demonstrate that there has been a consistent rise in the expenditure towards pay and allowances of the personnel/staff employed by the Prohibition and Excise Department of the State. The department has also been incurring substantial expenditure towards pay and allowances of Vigilance staff and propaganda staff. The department has also been incurring expenses towards carrying out propaganda for promoting prohibition activities in the State and various mass media measures, wherein substantial expenditure has been incurred. In the year 1998-99, the department incurred a capital expenditure to the tune of Rs.3.74 crore towards purchase of vehicles, office furniture as well as towards rentals for the offices having been taken on rent, with a view to taking care that various provision of the Rules under challenge are complied with by providing efficient and better services to the payers of the fees under the said Rules. It was in the year 2000 that a decision was taken to have the construction of new Excise Bhavan of Prohibition and Excise Department in Gandhinagar, the cost of construction whereof was estimated at around Rs.3 crore. The Department has plans for its modernization by way of computerization, providing training, creating website with a view to providing better services to various subjects covered under the jurisdiction of various Rules.
It is further contended that the comparison sought to be drawn by the petitioners between the State of Gujarat and the State of Maharashtra by alleging inter alia that no such increase in fees is found in the State of Maharashtra, is wholly uncalled for. Such a comparison is totally illogical and impractical, in as much as, there is no prohibition policy in the State of Maharashtra, which is being implemented in full force in the State of Gujarat and therefore, for regulating the said policy, the State Government is to incur huge administrative expenses. As against this, the State Excise income of the State of Maharashtra is in the order Rs.2500 crore per annum as against much smaller sum of Rs.50 crore per annum of the State of Gujarat. On the other hand, the huge expenses are being incurred in the State of Gujarat which is practically minimal in the State of Maharashtra. It is therefore, contended that a comparison between two states is wholly irrelevant and illogical and it deserves no consideration at all.
It is further contended that the increase in various fees is not excessive, unreasonable or arbitrary. Fees provided are regulatory in nature to control and supervise the execution and enforcement of various provision of the above Rules and that, when there is a regulatory fee, the service to be rendered is not a condition precedent and the only limitation is the fact that regulatory fee being so charged, should not be excessive.
An affidavit-in-sur-sur-rejoinder is filed by the petitioners on 25.11.2009, reiterating the contentions raised earlier and denying the averments made, on behalf of the respondents in the affidavit-in-sur-rejoinder. It is further contended that in view of the certain legal position and the judgments of the Apex Court, it is not permissible for the respondents to recover the fees which it has sought to do so by not only framing the impugned Rules, but also amending Rules. Enhancement of the fees is an attempt to raise revenue for the State purpose and the fees levied have no co-relation with the services rendered or the expenditure incurred, but is a tax in the garb of fees.
An affidavit is filed by the Deputy Secretary, Home Department, State of Gujarat on 4th May, 2010, wherein it is stated that though the petitions were admitted in the year 2000, there was no stay to the implementation of the Rules and the State Government had implemented the amended Rules and the petitioners and all the similarly situated persons are paying the fees required to be paid in accordance with the amended Rules. It is further stated that the judgments of the Apex Court in the case of Synthetics Chemicals Limited V/s State of U.P and others reported in 1990 (1) SCC 109 and in the case of State of U.P. V/s Vam Organic Chemicals Limited and others reported in AIR 2003 SC 4650 , do not have any application to the facts of the case. Hence, all these petitions are to be considered in accordance with law.
It is further contended that the Rules as amended by the State Government within the framework of the Bombay Prohibition Act, 1949 are not ultravires to the provisions of the Bombay Prohibition Act, 1949 or any provisions of the Contract Act or any provisions of the constitution of India nor they are in conflict with any judgments of the Apex court.
After discussing about the rival contentions of the parties as per their pleadings and oral arguments, the Court now proceeds to consider the relevant statutory provisions and decided case-law on the subject.
Ms.Raval refers to the preamble of the Bombay Prohibition Act, 1949. The preamble says that Bombay Prohibition Act is an Act to amend and consolidate the law relating to the promotion and enforcement and carrying into the effect the policy of prohibition and also the Abkari Law in the State of Bombay.
Ms.Raval refers to and relies upon the decision of the Apex Court in the case of State of U.P. v. Vam Organic Chemicals Ltd., reported in AIR 2003 SC 4650 wherein it is held that the State Government is competent to levy fee for the purpose of ensuring that industrial alcohol is not surreptitiously converted into potable alcohol so that the State is deprived of revenue on the sale of such potable alcohol and the public is protected from consuming such illicit liquor. But this power stops with the denaturation of the industrial alcohol. Assuming that denatured spirit may by whatever process be renatured, and then converted into potable liquor this would not give the State the power to regulate it.
The Apex Court has further held that the service need not necessarily be one which is voluntarily taken by the person responsible for paying the fee. There may be an element of compulsion or coerciveness present. The word 'service' in the context of a fee could, therefore, include a levy for a compulsory measure undertaken vis-a-vis the payer in the interest of the public. This 'coercive' measure has been subsequently judicially clarified to mean a 'regulatory measure.' But in the case of both kinds of services whether compulsorily imposed or voluntarily accepted, there would have to be a correlation between the levy imposed and the 'counter payment or quid pro quo.' However, co-relationship between the levy and the services rendered is one of general character and not of mathematical exactitude. All that is necessary is that there should be a reasonable 'relationship' between levy of the fee and the service rendered. Contrariwise when there is no such correlation, the levy, despite its nomenclature is in fact a tax.
Ms.Raval further refers to and relies upon the decision of this Court in the case of Ashok Organics Industries Limited and another Vs. State of Gujarat and others, reported in (2001) 42 (1) GLR 38, wherein the Division Bench was concerned with the issuance of a notification increasing Vend fee raised from 20 paise per litre to 50 paise per litre. The Division Bench, following the judgment of the Apex Court in the case of Synthetics and Chemicals Limited Vs. State of U.P. and others, (1990) 1 SCC 109, has held that the State legislation has no power to impose any vend fee. However, considering the provisions of Section 58A of the Bombay Prohibition Act, 1949, the Court has observed that it is clear that the manufacturer, importer, exporter, transporter, warehouse keeper, seller, purchaser, user, all are covered. However, if there is any supervision to check the services rendered by the aforesaid persons, then the cost of supervision of such Prohibition and Excise or Police staff, as it may deem proper to appoint, can be recovered by the State Government. The Court, after reading the affidavit filed on behalf of the respondent, has observed that amount was not collected for the purpose indicated in Section 58A of the Bombay Prohibition Act and the respondents have produced no material on record to show that additional services are rendered by the State. On the contrary, amount collected is utilised for the benefit of other Departments not connected with the activities required to be controlled under Section 58A of the Act. In this view of the matter, the Court found no substance in the contention raised on behalf of the respondent State and the petitions were accordingly allowed.
Ms.Raval further refers to and relies upon the decision of the Apex Court In the case of Mohan Meakin Limited Vs. State of Himachal Pradesh and others, reported in (2009) 3 SCC 157 wherein the Apex Court has held that a permit / transport fee was directed to be levied for the first time in terms of the excise policy for the year 1996-1997 dated 12-3-1996. A permit fee on denatured spirit, foreign spirit and country liquor respectively became leviable. Such permit fee was payable at the time of grant of permission for transportation of liquor. It was payable by a person who made an application for grant of permission for import and/or transport of foreign liquor or country liquor or both. The Court has further held that a demand was made by the Excise and Taxation Officer towards permit fee on the abovesaid spirit imported by the appellant during the year 1996-1997. Another demand was made up to 6-2-1999 for making similar import. A representation was made by the appellant in respect of the said demands contending that the State of Himachal Pradesh had no jurisdiction to levy such fee and that no services having been rendered to the appellant, a quantum jump of the licence fee in the name of such permit fee was not justified. The said representation of the appellant was rejected. A writ petition filed by the appellant in the High Court was rejected. The appellant had thus filed the appeal before the Apex Court and allowing the appeal the Apex Court has held that the appellant being a licensee must abide by the terms and conditions of the licence. It is also bound to follow the rules framed in this behalf. A subordinate legislation which, however, is beyond the legislative competence of the State would be ultra vires. There cannot be any doubt that the State possesses the right to have complete control over all aspects of intoxicants viz. Manufacture, collection, sale and consumption, etc. It also has the exclusive right to manufacture and sell liquor and to transfer the said right with a view to raise revenue. Right to fix the amount of consideration for grant of said privilege for manufacturing or vending liquor is also beyond any doubt or dispute. The State has to make distinction between a malt spirit of overproof strength and potable liquor. Schedule VII List II Entries 8, 51 and 66 confer jurisdiction upon the State only to exercise its legislative control in respect of matters which are covered thereby. Industrial alcohol or spirit having regard to Schedule VII List I Entry 52 cannot be the subject-matter of any regulation or control by a State, it being not alcoholic liquor for human consumption.
Mr.Jani on the other hand, refers to Article 47 of the Constitution of India which deals with the duty of the State to raise the level of nutrition and the standard of living and to improve public health. It states that the State shall regard the raising of the level of nutrition and the standard of living of its people and the improvement of public health as among its primary duties and, in particular, the State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health. He further refers to Schedule VII, List II, Entry No.8 which deals with intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors.
Mr.Jani refers to and relies on the decision of the Apex Court in the case of The State of Bombay and another Vs. F. N. Balsara, reported in AIR 1951 SC 318 wherein the Constitutional validity of the Bombay Prohibition Act, 1949 was challenged and except the provisions contained in clause
(c) of Section 12, so far as it affects the possession of liquid medicinal and toilet preparations containing alcohol. Clause (d) of Section 12, so far as it affects the selling or buying of such medicinal and toilets preparations containing alcohol. Clause (b) of Section 13, so far as it affects the consumption or use of such medicinal and toilet preparations containing alcohol. Clause (a) of Section 23, so far as it prohibits the commendation of any intoxicant or hemp. Clause (a) of Sub-section (1) of Section 24, so far as it prohibits commendation of any intoxicant or hemp. Sub-Section (1) of Section 136 in entirety. Clause (b), (c), (e) and (f) of Sub-Section (2) of Section 136, in their entirety, all other provisions of the Act are held to be valid. The Court has further held that the simply because some provisions are invalid it does not affect the validity of the Act as it remains. The Court has reversed the decision of the Bombay High Court and declared 'valid' the following sections, Rule and Notifications, namely: Ss. 2(24), 24(1)(b), 39, 52, 53, 139(c), Rule 67 of the Bombay Foreign Liquor Rules framed under S.143, and notifications Nos.10484/45(c) and 2842/49(a) dated 30-3-1950.
Mr.Jani refers to some of the provisions of the Act. Section 105 of the Bombay Prohibition Act deals with an excise duties. Sub-Section (1) states that an excise duty or countervailing duty, as the case may be, at Excise duties such rate or rates as the State Government shall direct may be imposed either generally or for any specified local area on (a) any alcoholic liquor for human consumption; (b) any intoxicating drug [or hemp]; (c) opium; (d) any other excisable article, when imported, exported, transported, possessed, manufactured or sold in or from the State, as the case may be. Section 107of the Act deals with the fees. It says that the State Government may, by rules, prescribe the fees payable in respect of any privilege, licence, permit, pass or authorisation granted or issued under this Act. Section 143 of the Act deals with the power of State Government to make rules. It states that the State Government may make rules for the purpose of carrying out the provisions of this Act or any other law for the time being in force relating to excise revenues. Section 12 of the Act states that no person shall manufacture liquor; construct or work any distillery or brewery; import, export, transport or possess liquor, or sell or buy liquor. Section 21 of the Act states that no person shall alter or attempt to alter any denatured spirit by dilution, with water or by any method whatsoever, with the intention that such spirit may be used for human consumption, whether as a beverage or internally as a medicine in any other way whatsoever; or have in his possession any denatured spirit in respect of which he knows or has reason to believe that such alteration or attempt has been made. Section 21(A) of the Act states that no person shall alter or attempt to alter any denatured spirituous preparation by dilution with water or by any method whatsoever, with the intention that such preparation may be used for human consumption as an intoxicating liquor; or have in his possession any denatured spirituous preparation in respect of which he knows or has reason to believe that such alteration or attempt has been made.
Mr.Jani refers to and relies upon the judgment of the Apex Court in the case of Tika Ramji v. State of U.P. reported in AIR 1956 SC 676, wherein it is held that a comparison of the terms of U. P. Sugar Factories Control Act (1 of 1938) with those of the U. P. Sugarcane (Regulation of Supply and Purchase) Act, goes to show that the impugned Act merely confined itself to the regulation of the supply and purchase of sugarcane required for use in sugar factories and did not concern itself at all with the controlling or licensing the sugar factories, with the production or manufacture of sugar or with the trade and commerce in, and the production, supply and distribution of sugar. If that was so, there was no question whatever of its trenching upon the jurisdiction of the Centre in regard to sugar industry which was a controlled industry within Entry 52 of List 1 and the U. P. Legislature had jurisdiction to enact the law with regard to sugarcane and had legislative competence to enact the U. P. Sugarcane (Regulation of Supply and Purchase) Act. The Court has further held that repugnancy falls to be considered when the law made by Parliament and the law made by the State Legislature occupy the same field because, if both these pieces of legislation deal with separate and distinct matters though of a cognate and allied character, repugnancy does not arise.
Mr.Jani further refers to and relies upon the judgment of Apex Court in the case of Har Shankar v. Deputy Excise and Taxation Commissioner, reported in AIR 1975 SC 1121, wherein the Apex Court has held that there is no fundamental right to do trade or business in intoxicants. The State, under its regulatory powers, has the right to prohibit absolutely every form of activity in relation to intoxicants - its manufacture, storage, export, import, sale and possession. In all their manifestations, these rights are vested in the State and indeed without such vesting there can be no effective regulation of various forms of activities in relation to intoxicants. The wider right to prohibit absolutely would include the narrower right to permit dealings in intoxicants on such terms of general application as the state deems expedient. Since rights in regard to intoxicants belong to the State, it is open to the Government to part with those rights for a consideration.
Mr.Jani further submits that even in the case of Synthetics and Chemicals Ltd. Vs. State of U.P., reported in 1990 (1) SCC 109, the Apex Court has observed that these questions about the privilege and the doctrine of police powers in fact would be material to be considered when the question about the various levies imposed by the State in respect of alcoholic beverages is considered and so far as the present cases are concerned which pertain to only alcoholic liquors which are not for human consumption i.e. which are meant for industrial use. The only question will be as to whether the State could justify the respective levies under any of the entries in List II. The main theme of the argument on behalf of the State has been that they have imposed levies because the alcohol which is not for human consumption is a commodity which could be easily converted into alcoholic liquors for human consumption and therefore the levies have been imposed assuming that it is for human consumption or in other words the contention has been that these levies have been imposed in order to prevent the conversion of alcoholic liquors which are not for human consumption to those which are for human consumption. The Court has, therefore, expressed an opinion that the State in exercise of powers under Entry 2 of List II and by appropriate law regulate and that regulation could be to prevent the conversion of alcoholic liquors for industrial use to one for human consumption and for purpose of regulation, the regulatory fees only could be justified. In fact, the regulation should be the main purpose, the fee or earning out of it has to be incidental and that is why the learned Counsel appearing for the State attempted to use this terminology by saying that the purpose is regulation, the earnings are incidental but frankly conceded that in fact the earnings are substantial. In fact in some of the excise laws in the State they have even used terminology relying on the doctrine of privilege and parting with privilege but in our opinion it is not necessary for us to go into those questions in greater detail as we are not here concerned with he trade in alcoholic liquors meant for human consumption and therefore in view of clear demarcation of authority under various items in the three Lists, Entry 8, List II could not be invoked to justify the levies which have been imposed by the State in respect of alcoholic liquors which are not meant for human consumption.
Mr.Jani further refers to and relies upon the judgment of the Apex Court in the case of Razakbhai Issakbhai Mansuri Vs. State of Gujarat, reported in 1993 (1) GLH 1169, wherein the constitutional validity of the amendments made to the Bombay Prohibition Act, 1949 by the Gujarat Legislature prohibiting possession of rotten gur in excess of the prescribed limit without a permit and regulating manufacture, etc. of rotten gur was challenged. The question which arose, although the Directive Principles of State Policy as contained in Part IV of the Constitution are not enforceable by Courts, nonetheless it is the duty of the State to give effect to those principles by making appropriate laws. It has been described as matter of constitutional obligation of the State to do so in the public interest. A large body of legislation under Art. 19(1)(g) when challenged, has been upheld by Courts, as being in furtherance of such policy, as valid on the ground of the Directive Principle. So far the intoxicating drinks are concerned their evil effects are well established specially for the Indian Society. This was why the framers of the Constitution considered it fit to include it, in express terms, in Art.47 while indicating the duty of the State to raise the standard of living and to improve the public health. It is, therefore, within the authority of the State to prohibit consumption of intoxicating liquor and the State of Gujarat was fully justified when it adopted the policy of prohibition. In order that this policy may succeed, it is not sufficient to merely ban manufacture and consumption of alcoholic drinks. To render it really effective further measures became essential in order to defeat the illegal activities of the anti-social elements engaged in illicit manufacture and illegal distribution of the liquor in the market. It, therefore, became obligatory for the State to take all such steps as found necessary for implementing the prohibition policy, by not only placing restrictions on the manufacture, sale and consumption of liquors and also by adopting such other regulatory measures, essential to achieve the objective. The Court has further observed that the problem which faced the State was that unscrupulous persons while pretending to be engaged in business of rotten gur or for that matter, gur were aiding and abetting bootlegging on large scale. For checking effectively this illegal activity it was considered necessary to require a person in possession of rotten gur in excess of the prescribed quantity to obtain a permit. This would help the administration in keeping a vigilant eye on the violaters of the law.
Mr.Jani further refers to and relies upon the judgment of the Apex Court in the case of Ugar Sugar Works Ltd., M/s. v. Delhi Administration, reported in AIR 2001 SC 1447, wherein the Apex Court has held that Article 47 of the Constitution, requires the State to endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and all drugs which are injurious to health. The State can treat a monopoly either in itself or in an agency created by it for the manufacture, possession, sale and distribution of liquor as a beverage. The Court has held that creation of a monopoly in the State to deal in intoxicating liquors and the power to impose restrictions, limitations and even prohibition thereon can be imposed both under clause (6) of Article 19 or even otherwise. There is no fundamental right to do trade or business in intoxicants. The State, under its regulatory powers, has the right to prohibit absolutely every form of activity in relation to intoxicants - its manufacture, storage, export, import, sale and possession. In all their manifestations, these rights are vested in the State and indeed without such vesting there can be no effective regulation of various forms of activities in relation to intoxicants. In "American Jurisprudence", Volume 30 it is stated that while engaging in liquor traffic is not inherently unlawful, nevertheless it is a privilege and not a right subject to governmental control. This power of control is an incident of the society's right to self protection and it rests upon the right of the State to care for the health, morals and welfare of the people. Liquor traffic is a source of pauperism and crime.
Mr.Jani further refers to and relies upon the judgment of the Apex Court in the case of State of Madhya Pradesh and others Vs. M/s. K.C.T. Drinks Limited, reported in AIR 2003 SC 1255, wherein the Apex Court has held that the respondent company having a D-2 licence for manufacture of Indian Made Foreign Liquor from rectified spirit by blending, reducing and compounding Indian Made Foreign Liquor concentrate, challenged the levy of full costs of supervision and establishments of excise staff posted at its factory premises by filing writ petition in the High Court of Madhya Pradesh at Jabalpur. By judgment and order dated 4-5-1993, the High Court quashed the levy of expenses incurred on supervision and establishment cost on the ground that Rule 22 of M. P. Breweries Rules, 1970 was struck down as ultra vires by the Apex Court in case of M/s. Lilasons Breweries (Pvt.) Ltd. v. State of Madhya Pradesh (1992) 3 SCC 293. In that case, the Apex Court had arrived at the conclusion that Rule 22 to the extent it permits raising a demand, which in sum and substance is additional excise duty; without its being actually due, is ultra vires the Act and beyond the rule making power of the State. The said judgment and order passed by the high Court was challenged before the Apex Court and the Apex Court has held that the condition empowering the State Government to recover the actual cost of supervisory staff posted at the premises of respondent cannot be said to be in any way illegal or ultra vires as it constitutes the price or consideration which the Government charges to the licensee for parting with its privilege and granting licence. The Apex Court accordingly quashed and set aside judgment and order of the High Court.
Mr. Jani further refers to and relies upon the judgment of the Apex Court in the case of Sona Chandi Oal Committee v. State of Maharashtra, reported in AIR 2005 SC 635, wherein it is held that inspection fee charged is regulatory in nature to control and supervise the functioning of the money lending business to protect the debtors, the vast majority of which are poor peasants, tenants, agricultural labourers and salaried workers who are unable to repay their loans. The object of the Act is to control the money lending business and protect the debtors from the malpractices in the business by detecting illegal money lending. This exercise is a must to carry out the object of the Act for which lot of infrastructure is required. The duty of the staff and the officers of the Department is to visit the places of money lending business, inspect the accounts and other matters relating to the business, to find out illegal money lending, carry out raids in suspicious cases and do regular inspection as provided in the Act. The Act serves a larger public interest. Since the Act is a social legislation with the intention to protect the debtors from the malpractices in the business the State is performing its duties even though the revenue under the Act is not even sufficient to meet the expenditure on the staff performing duties under the Act. In view of this situation it cannot be held that the fees are either arbitrary or excessive. Also, fees are ordinarily uniform but absence of uniformity by itself was not a criterion on which alone it could be said that the levy was in the nature of tax.
Mr. Jani refers to and relies upon the decision of the Apex Court in the case of State of Bihar and others Vs. Shree Baidyanath Ayurved Bhawan (P) Ltd and others, reported in (2005) 2 SCC 762, wherein the Apex Court has held that it is well settled that the manufacture of industrial alcohol is covered by the Central laws, however, its diversion can be regulated by State laws enacted with reference to Entries 6 and 8 of List II. Similarly, duty on manufacture of medicinal preparations containing alcohol would fall under the said 1955 Act, however, use and possession thereof will fall under the State law, like the said 1915 Act. Similarly, manufacture for sale of a substance containing alcohol as a drug would stand covered by the Drugs Act, 1940, however, its use and possession as an alcoholic beverage would fall under the State law. Licensing and regulation of an activity like use / misuse of medicine is an enormous activity involving heavy expenditure. Hence, it is open to the State Government to delegate some of its powers to the Board of Revenue to prescribe forms of licence, licence fees, regulation of retail sales, etc. In the circumstances, the State as well as the Board was competent to issue the impugned notifications / communications under Sections 5, 19(4), 38, 39 and 90 of the Bihar Act (as amended) to license and regulate the use of such preparation as alcoholic beverages. The High Court erred in holding that the impugned notifications / communications had encroached upon the field occupied by the 1940 Act and the 1955 Act and the Rules framed thereunder.
The Court has further held that the State was competent to enact a law in respect of use and possession of Ayurvedic preparations containing alcohol as alcoholic beverages. As a part of regulation and control of such activity, the State was entitled to call upon the manufacturers to obtain a licence on payment of fees. The State has to incur expenses incidental to regulation and control of such activities. Hence, the fee leviable and payable by the manufacturers under the impugned notification is in the nature of regulatory fee for which quid pro quo is not necessary. It is not compensatory. Moreover, the rate of fee was reasonable.
Mr.Jani further refers to and relies upon the judgment of the Apex Court in the case of State of Maharashtra v. Nagpur Distillers, Nagpur, reported in AIR 2006 SC 1987, wherein the Apex Court has held that the right to trade in liquor is only a privilege farmed out by the State. Art.47 of the Constitution of India clearly casts a duty on the State at least to reduce the consumption of liquor in the State gradually leading to prohibition itself. It appears to be right to point out that the time has come for the States and the Union Govt. to seriously think of taking steps to achieve the goal set by Art.47 of the Constitution of India. It is a notorious fact, of which, judicial notice can be taken is that more and more of the younger generation in this country is getting addicted to liquor. It has not only become a fashion to consume it but it has also become an obsession with very many. Surely, we do not need an indolent nation. Why the State in the face of Art.47 of the Constitution of India should encourage, that too practically unrestrictedly, the trade in liquor is something that it is difficult to appreciate. The only excuse for the State for not following the mandate of Art.47 of the Constitution is that huge revenue is generated by this trade and such revenue is being used for meeting the financial needs of the State.
Mr.Jani further refers to and relies upon the judgment of the Apex Court in the case of Jantia Hill Truck Owners Association Vs. Shailang Area Coal Dealer & Truck Owner Association & Others, reported in AIR 2009 SC 3041, wherein the Apex Court in para-22 of its judgment has observed that the core question which arises for consideration in these appeals is as to whether the State Government is empowered to issue any executive order in respect of the matters required to be prescribed by Rules. The Court has further observed that Article 162 of the Constitution of India in unequivocal terms provides that the executive power of a State shall extend to the matters with respect to which the Legislature of the State has power to make laws. Such executive powers having regard to the Rule of Executive business are framed in terms of Article 166. Clause (3) of Article 166 empowers the Governor to make rules for the more convenient transaction of the business of the Government of the State, and for the allocation among Minister of the said business in so far as it is not business with respect to which the governor is by or under the Constitution required to act in his discretion. The Court has further observed in para-30 of its judgment that where the State or the State controlled agencies render services for the purpose of effectuation of the provisions of a Central Act, is entitled to charge a reasonable amount in respect thereof.
Certain judgments are cited at the Bar for the purpose of pointing out difference between tax and fee.
47.1 In the case of Calcutta Municipal Corporation. Vs. M/s. Shrey Mercantile Pvt. Ltd., reported in AIR 2005 SC 1879, the Apex Court explained the difference between the tax and fee on the basis of the source of power. It is held that A charge or fee, if levied for the purpose of raising revenue under the taxing power is a 'tax.' Similarly, imposition of fees for the primary purpose of 'regulation and control' may be classified as fees as it is in the exercise of 'police power,' but if revenue is the primary purpose and regulation is merely incidental, then the imposition is a 'tax.' A tax is an enforced contribution expected pursuant to a legislative authority for purpose of raising revenue to be used for public or Governmental purposes and not as payment for a special privilege or a service rendered by a public officer, in which case it is a 'fee.' Generally speaking 'taxes' are burdens of a pecuniary nature imposed for defraying the cost of Governmental functions, whereas charges are 'fees' where they are imposed upon a person to defray the cost of particular services rendered to his account. Therefore, the main difference between 'a fee' and 'a tax' is on account of the source of power.
47.2 In the case of Vijayalashmi Rice Mill and others Vs. Commercial Tax Officers and others, reported in (2006) 6 SCC 763, the Apex Court has held that the appellants were engaged in the business of rice milling. They had been paying tax on purchases of paddy and sales of rice. They filed writ petitions before the Andra Pradesh High Court against levy of cess at a certain rate on purchase of goods in addition to purchase tax and sales tax but were unsuccessful. Therefore, they filed the appeals before the Apex Court and while dismissing these appeals, the Apex Court has held that ordinarily a cess is also a tax, but it is a special kind of tax. Generally tax raises revenue which can be used generally for any purpose by the State. However, cess is a tax which generates revenue which is utilised for a specific purpose. The Court has further held that in such matters nomenclature is not very important and what has to be seen is the nature of the levy. Hence, what is called a cess may be in reality a fee depending on its nature. The Court has further held that it is well settled that the basic difference between a tax and a fee is that a tax is a compulsory exaction of money by the State or a public authority for public purposes, and is not a payment for some specific services rendered. On the other hand, a fee is generally defined to be a charge for a special service rendered by some governmental agency. The Court has further held that the earlier view of the Supreme Court was that to sustain the validity of a fee some specific service must be rendered to the particular individual from whom the fee was sought to be realised. However, subsequent decisions show that there has been a sea change in the concept of fee and now it is no longer regarded necessary that some specific service must be rendered to the particular individual or individuals from whom the fee is realised, and what has to be seen is whether there is a broad and general correlationship between the totality of the fee on the one hand, and the totality of the expenses of the services on the other. A broad correlation between the two is sufficient to sustain the levy.
47.3 In the case of Jindal Stainless Limited and another Vs. State of Haryana and others, reported in (2006) 7 SCC 241, while summing up, the Apex Court has held that the basis of every levy is the controlling factor. In the case of a tax , the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of a fee , the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of burden to the concept of measurable / quantifiable benefit and then it becomes a compensatory tax and its payment is then not for revenue but as reimbursement / recompense to the service / facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement / recompense.
47.4 In the case of Chandulal Jethalal Jayaswal Vs. State of Gujarat, reported in (1963) 4 GLR 1033, the Division Bench of this Court inter alia has held that the distinction between a tax and a fee is that though, both are compulsory exactions, a tax is imposed for public purpose and is not, and need not be, supported by any consideration of service rendered in return and as such there is no element of quid pro quo between the person who pays the tax and the public authority which imposes it. The second characteristic is that whereas a tax recovered by public authority invariably goes into the consolidated fund which is ultimately used for all public purposes, a cess levied by way of fee is not intended to be, and does not become, a part of the consolidated fund. Cases may however arise where under the excuse of levying a fee the Legislature power, courts would have to scrutinise the scheme of levy more carefully and determine whether in fact there is a co-relation between the service and the levy, or whether the levy is either not co-related with service or is levied to such an excessive extent as to be a pretence of a fee and not a fee in reality. In other words, whether or not a particular cess levied by a statute amounts to a fee or tax would always be a question of fact to be determined from the circumstances of such cases.
Ms. Raval, however, in rejoinder submitted that the following judgments relied on by the learned government pleader in support of his contention that the State government can regulate industrial alcohol, are not applicable to the facts of the present group of petitions.
(i) The decision in the case of State of Gujarat V/s F.N. Balsara (supra) was concerning with potable alcohol and the Apex Court in the case of Synthetic as well as Vam Organics considered the same and has taken a contrary view in the case of industrial alcohol.
(ii) The decision in the case of Har Shankar V/s Deputy Excise & Taxation Commissioner (supra) is also a case of potable liquor. Both these cases have been considered by the 7 Judges Bench of the Apex Court in the case of Synthetics Limited and hence it is not a good law as far as industrial alcohol is concerned.
(iii) In the case of State of M.P V/s K.C.T. Drinks (supra), the petitioners' challenge was to the cost of supervision and fees for granting a privilege for manufacturing potable liquor. In the facts of the present case, the petitioners have not challenged the demand of costs for payment of salary etc. of the staff of the respondent for supervising the activities of the respondent. In fact, the petitioners are making payment of the actual expenditure incurred by the State for paying the salary etc. Hence, the said decision is not applicable to the facts of the petitioners' case.
(iv) In Ugar Sugar V/s Delhi Administration (supra), the Apex Court was concerned with the sale of potable liquor and the decision of the Apex Court in Synthetics was not considered.
(v) In State of Maharashtra V/s Nagpur Distilleries (supra), the Apex Court was concerned with an interim order granted by the Bombay High Court. The Apex Court has set aside the interim order and remanded the matter back to the Bombay High Court. The Apex Court in the said decision, did not lay down any proposition of law.
Ms. Raval has further submitted that in the case of Chandulal Jethalal (supra), this Court was concerned with industrial alcohol and struck down the levy in relation to spirituous preparation. This Court has placed reliance on the judgment of Balsara which because of the Apex Court judgment in the case of Synthetics is not a good law, as far as industrial alcohol is concerned. In the case of M/s Gujchem Distillers India Ltd. V/s State of Gujarat, AIR 1992, SC 1256, the Apex Court upheld the right of the department to recover the cost of staff for supervision. The Apex Court further observed that the question is whether in the garb of regulations a legislation which is in pith and substance, a fee of levy which has no connection with the cost and expenses administering the regulation, can be imposed purely as regulatory measure. Judged by the pith and substance of the impugned legislation, the Apex Court was of the opinion that these levies cannot be treated as part of industry measures.
Ms. Raval has further submitted that the department has been recovering the cost of the regulation from the petitioners. The department has also been recovering the salary and other expenditure incurred by the respondent for supervising the establishments of the petitioners. It is nowhere denied that the cost of regulation has not been recovered by the department from the petitioners. The department has also nowhere submitted that extra staff is being deployed by it to oversee the possibility of renaturisation of potable alcohol or to carry out the supervision of the activities of the petitioners. The respondent is not rendering any service to the petitioners. No benefit is accrued to the petitioners as a result of enhanced fees which the respondent has already levied. The respondent has not been able to demonstrate a single benefit or service rendered to the petitioners. She has further submitted that the fees levied by the respondent have no co-relationship with the expenditure incurred or to be incurred by the respondent. The respondent has nowhere mentioned the resources or demonstrated that the resources available to the respondent are inadequate in comparison to the expenditure to be incurred by the respondent. In Jindal Stainless Ltd & Another V/s State of Haryana & Others, the Apex Court accepted the principle of equivalence i.e. recovering the cost of regulation. In the facts of the present case, the respondent seeks to not only recover the cost of regulating the petitioners but also to generate extra income for itself. She has further submitted that the fees levied cannot be by way of privilege fee by the respondent as a result of the provisions of the Industries (Development and Regulation) Act, whereby the Industrial Alcohol is within the purview of the Central Government and hence, State Government cannot pass on a privilege which it does not have. Hence, the privilege fees cannot be levied by the respondent on the petitioners.
Ms. Raval has further submitted that the fees have been calculated on the basis of ability of the petitioners to pay and hence, it becomes a tax and loses its characteristic as a fee. She has further submitted that the fees cannot be utilized for a purpose other than the regulation under which it has been calculated. In the facts of the present case, the respondent is recovering the fees in order to achieve not the objective of regulating the rules under which the same is levied but, for achieving the objectives of implementing the prohibition policy. The respondent is not justified in recovering the total costs of the whole department from the petitioners. In Vam Organics case the Apex Court set aside the fees levied which are not the cost of administering the regulation. In Sona Chandi Oa1 Committee V/s State of Maharashtra (supra), the Apex Court has observed that there has to be a reasonable relationship between the levy of fee and the service is rendered. In M/s Vijayalashmi Rice Mill & Ors. V/s Commercial Tax Officer (supra), the Apex court held that the difference between the tax and fees is compulsory extraction of money for a public purpose and is not for special services rendered. While a fee is a charge for special service. In the present case, no services are being rendered and hence, the fees are a tax in the garb of fees. In State of Himachal Pradesh and Ors V/s M/s Shivalik Agro Poly Product & Ors, AIR 2004 SC 4393, the Apex Court was of the view that broad and general co-relation with the expenditure incurred and the service rendered has to be examined in presence of general co-relation between the two. In the facts of the present case, the department has nowhere stated or given broad and general co-relation between the expenditure incurred and services rendered. As per the department, the enhancement of fees is for the purpose of raising revenue for implementing the policy of prohibition and not as cost for regulating the regulation. The bodies of the State will have to satisfy the court that there is a broad co-relation between the expenditure and income. As per the settled legal position, she submitted that the enhanced fees are unconstitutional, illegal, excessive and a colourable exercise of power and hence, the impugned rules deserve to be set aside.
Having heard the learned counsels appearing for the petitioners and learned Government Pleader appearing for the respondents and having considered their rival submissions in light of the statutory provisions contained in the Bombay Prohibition Act, 1949 and the Rules framed thereunder as well as having considered the constitutional provisions and decided case law on the subject, the Court is of the view that the State Government has authority and power under Section-143(1) of the Act to make rules for the purpose of carrying out the provisions of the Bombay Prohibition Act or any other law for the time being in force relating to excise revenue. The State Government can make rules regulating the delegation of any powers by the Director, or by Collector or by any other Prohibition Officer. The State Government can also make rules for regulating import, export, transport (collection), sale, purchase, (bottling), consumption, use or possession of any intoxicant, (denatured spirituous preparation) or hemp, mhowra or molasses. The State Government has also power to frame the rules prescribing the fees payable in respect of any privilege, license, permit, pass or authorization granted or issued under the Bombay Prohibition Act. Under Section-105 of the Act the State Government has also power to impose an excise duty or countervailing duty, either generally or for any specified local area on any alcoholic liquor for human consumption or any intoxicating drug or hemp or opium or any other excisable article, when imported, exported, transported, possessed, manufactured or sold in or from the State as the case may be. Under Section-107 of the Act the State Government may, by rules, prescribe the fees payable in respect of any privilege, licence, permit, pass or authorisation granted or issued under this Act.
Considering the above provisions, it cannot be disputed that in exercise of its regulatory power the State Government can impose fee of the nature of license fee on any alcoholic liquor for human consumption or any intoxicating drug or hemp or opium etc. The only question that arises for court's consideration is whether such powers are exercised within the legislative competence of the State Government under Entry-8 of List-II or Entry-51 of List-II of 7th Schedule to the Constitution of India and in light of law laid down by the Apex Court in the case of Synthetics & Chemical Ltd., and Ors. (Supra) as well as State of U.P. Vs. Vam Organic Chemical Ltd., and Ors (Supra).
The insistence on behalf of the petitioners is that in view of these two decisions the issue remains no longer res-integra and since all petitioners are dealing only in industrial alcohol the enhancement of fees levied by the State Government by amending the rules in question is absolutely unconstitutional and contrary to these two judgments of the Apex Court.
The expression intoxicating liquor in Entry-8 in List-II of the Constitution, must be held to include both ethyl alcohol and denatured alcohol for the latter is not basically different from the former, inasmuch as denatured alcohol is nothing else but ethyl alcohol to which is added a very small percentage of other ingredients to make it impalatable but which ingredients are removeable by chemical process or made innocuous when diluted with other substance so as to make it a substitute for intoxicating liquor. The expression intoxicating liquor in Entry-8 has a wide connotation and must, prima facie, include all articles made from ethyl alcohol which are capable of intoxication. It is, therefore, clear that the State Legislature while dealing with denatured alcohol and denatured spirituous preparations which admittedly contain alcohol and which may be used as substitute for intoxicating drinks to the detriment of health would be within its legislative competence and such legislation cannot be held to be invalid or void on the ground of its being beyond the scope of Entry-8 in List-II of the Seventh Schedule of the Constitution. Alcoholic liquids must include all preparations made from alcohol whether denatured or not.
At one stage, during the pendency of these petitions an impression was given to the Court that the State Government may reconsider about the amendment to the rules which are challenged in the present petitions. However, in view of the specific affidavit filed by the Dy. Secretary, Home Department on 4.5.2010 it is made clear that the above referred two judgments of the Apex Court do not have application to the facts of the case and this group of petitions be decided in accordance with law. It is also made clear that the rules are amended in the year 1999 and they are already implemented, though at the initial stage limited indulgence was shown by the Court to make payment of enhanced fees for a few months. However, since then, the fees are levied by the State Government as per the amended rules and they have been paid by the petitioners and all other persons covered under the said rules.
It is true that in the case of Synthetics Chemicals Ltd., and Vam Organic Chemicals Ltd., the Apex Court has made very shuttle distinction between industrial alcohol as well as any other alcoholic liquor for human consumption and also made distinction between the tax and fees and has clearly drawn a line between exercise of legislative powers by the Central as well as State legislatures, and at more than one place, it is clarified that the State legislature cannot levy any tax on industrial alcohol, save and except to regulate and to ensure that industrial alcohol is not surreptitiously converted into potable alcohol so that the State is not deprived of the revenue on the sale of such potable alcohol and public is protected from consuming such illicit liquor. Even in Synthetic's case Apex Court held that the State in exercise of powers under Entry-8 of List-II and by appropriate law regulate and that regulations could be to prevent the conversion of alcoholic liquors for industrial use to one for human consumption and for purpose of regulation, the regulatory fees only could be justified.
In fact, the regulation should be the main purpose, the fee or earning out of it has to be incidental.
In Razakbhai Mansuri's case while upholding the justification of prohibition policy adopted by the State of Gujarat in view of Article-47 of the Constitution, the Apex Court made it clear that in order that the prohibition policy may succeed, it is not sufficient to merely ban manufacture and consumption of alcoholic drinks, but in order to make it really effective further regulating measures are essential so as to defeat the illegal activities of the anti-social elements engaged in illicit manufacture and illegal distribution of the liquor in the market.
In Sona Chandi Oal Committee's case, inspection fees charged are held to be regulatory in nature and its validity is upheld on the ground that the State is performing its duties even though the revenue under the Act is not even sufficient to meet the expenditure on the State performing duties under the Act.
Considering the above parameters in mind and further considering the entire case law till this date on the subject, the Court is of the view that what is done by the respondent State is merely an enhancement of the fees, looking to the changed circumstances. The original levy of the fees was not challenged either by the petitioner or by any one else. Prior to 1996 there was no increase in fees since 1986-87. The enhancement in the fees was made after considering the enhancement of salary and allowances of the staff as well as increase of stationary charges. The amendments in the rules made are regulatory in nature. It is also necessary to take note of the fact that for the purpose of implementation of the prohibition policy in the State, huge administrative expenses are to be incurred. The State is giving due importance to the constitutional spirit as contained in Article-47 of the Constitution of India. By adopting this prohibition policy the State has to forgo its excise income running into crores of rupees and hence any comparison between the State having prohibition policy and the State where there is no prohibition is absolutely illogical and impracticable. The fees which are charged by amending the rules are regulatory in nature to control and supervise execution and enforcement of various provisions of the rules. A dispute was raised by the petitioners that there is no quid-pro-quo while enhancing the fees and there is no reasonable relationship between levy of fees and service rendered by the State. However, considering the various efforts made by the State for the purpose of regulating and implementing the prohibition policy including the modernization, computerization and providing training, creating website etc., maintaining vigilance staff, propaganda staff, incurring capital expenditure for purchase of vehicles, office furnitures, constructing excise Bhavan at Gandhinagar, it cannot be said that the increase in fees is not justified. The turn over and profit of the manufacturers and sellers is one of the factors and not the sole factor as contended on behalf of the petitioners. It is necessary to have the proper check and balance so that unscrupulous manufacturer or trader may not misuse the license or permit issued for specific purpose and convert an industrial alcohol into potable alcohol, as the process for such conversion is so thin that unless there is close scrutiny and constant watch on their activities it is difficult to plug such illegal or unauthorized activities. Considering sensitive nature of intoxicants and the avowed object behind enhancement of fees, the Court does not find any substance in the challenge to the amendment in the rules and especially when it is already implemented for the last more than one decade.
In the above view of the matter, the Court is not inclined to interfere in any of these petitions and Court therefore holds that looking to the facts and circumstances of the present case, the support sought to be derived by the petitioners from the above referred two judgments of the Apex Court is wholly uncalled for and unwarranted. All these petitions are, therefore, dismissed. Rule is discharged in each of these petitions without any order as to costs.
(K.A. PUJ, J.) On pronouncement of judgment, Ms. Dharmishtha Raval, learned Advocate for the petitioner requests for stay of the judgment. During the pendency of the petition, there was no stay and no useful purpose would be served to stay the judgment. Hence, request is rejected.
(K.A. PUJ, J.) Pankaj Top