Patna High Court
Mcdowell & Co.Ltd.Thr.Its G.M vs State & Ors on 14 July, 2010
Author: Navin Sinha
Bench: Navin Sinha, Dinesh Kumar Singh
CIVIL WRIT JURISDICTION CASE No.3025 OF 1992
(In the matter of an application under Articles 226 and 227
of the Constitution of India.)
********
Shivashankar Chemical Industries (Bihar) Ltd. Jagdishpur, P.S.
Rajoun, District- Benka, a company incorporated under the Indian
Companies Act, through its Director, Shiv Kumar Kishorpuriya son
of Sagarmull Kishorpuriya, Resident of D.N. Singh Road, P.S.
Kotwali, District- Bhagalpur
---------------Petitioner
Vs.
1. The State of Bihar through the Secretary to the Government of
Bihar, Department of Excise & Prohibition, Vikas Bhawan,
Patna.
2. The Member, Board of Revenue, Bihar, Patna
3. The Commissioner of Excise, Bihar, Patna.
4. The Deputy Secretary, Board of Revenue, Bihar Patna.
5. The Collector, Banka.
6. The Superintendent of Excise, Bhagalpur-in-Charge, Banka
7. The Superintendent of Excise, Shivashankar Chemical
Industries (Bihar) Ltd. Jagdishpur, P.S. Rajoun, District-
Banka.
--------------Respondents
With
C.W.J.C. No. 2868 of 1992
New Swadeshi Distillery (Proprietor Oudh Sugar Mills Ltd.) through
its Executive President Sri Madhusudan Sharma, at P.O-
Narkatiaganj, District- West Champaran.
-----------------Petitioner
Vs
1. The State of Bihar.
2. The Member, Board of Revenue, Bihar Patna.
3. The Commissioner of Excise, Government of Bihar, New
Secretariat, Patna.
4. The Collector, West Champaran, Bettiah
5. The Superintendent of Excise, Bettiah
6. The Superintendent of Excise, Narkatiganj.
----------Respondents
With
CWJC 3026 of 1992
2
Mc. Dowell & Comp. Ltd., Hathidah, P.S. Hathidah, District- Patna
through its General Manager, Lalit Mohan Sharma son of Ram
Kishore Sharma, residing at Mc Dowell & Co. Ltd. Campus at
Hathidah, P.S. Hathidah, District- Patna.
--------------Petitioner
Vs.
1. The State of Bihar through the Secretary to the Government of
Bihar, Department of Excise & Prohibition, Vikas Bhawan,
Patna.
2. The Member, Board of Revenue, Bihar, Patna.
3. The Commissioner of Excise, Bihar, Patna.
4. The Deputy Secretary, Board of Revenue, Bihar Patna.
5. The Collector, Patna
6. The Assistant Commissioner of Excise, Patna.
7. The Superintendent of Excise, Hathidah Distillery, P.S.
Hathidah, District- Patna
--------------Respondents
With
CWJC 3690 of 1992
Arun Chemical Industries Ltd., Sultanganj, P.S. Sultanganj District
Bhagalpur through its Director Ramakant Sharma Son of Late
Pandit Ram Dayal Joshi, Residing at Shree Baikyanath Ayurved
Bhawan Road, P.S.- Chiraiya Tand, District- Patna.
------------Petitioner
Vs.
1. The State of Bihar through the Secretary to Government of
Bihar, Department of Excise & Prohibtion, Vikas Bhawan,
Patna..
2. The Member, Board of Revenue, Bihar, Patna.
3. The Commissioner of Excise, Bihar, Patna.
4. The Deputy Secretary, Board of Revenue Bihar, Patna.
5. The Collector, Bhagalpur
6. The Superintendent of Excise, Bhagalpur.
7. The Superintendent of Excise, Sultanganj Distillery, Sultanganj,
District- Bhagalpur.
-------------Respondents
With
CWJC 6360 of 1993
United Distillers Ltd. Mirganj, P.S. Mirganj, District- Gopalganj
through its General Manager Ravindra Kumar Mohan (Ret) son of
Major T. N. Mohan (Rtd) residing at the campus of United Distillers
Ltd. Mirganj P.S. Mirganj District- Gopalganj
-------------Petitioner
Vs.
3
1. The State of Bihar through the Secretary to Government of
Bihar, Department of Excise & Prohibition, Vikas Bhawan,
Patna.
2. The Member, Board of Revenue, Bihar, Patna
3. The Commissioner of Excise, Bihar, Patna
4. The Deputy Secretary, Board of Revenue, Bihar
5. The Collector, Gopalganj
6. The Superintendent of Excise, Gopalganj
7. The Superintendent of Excise, United Distillers Ltd. Mirganj, P.S.
Mirganj, District- Gopalganj
-------------------Respondents
**********
For the Petitioners :- Mr. Y. V. Giri, Senior Advocate,
Mr. G.P Bimal,
Mr.Satyabir Bharti,
Mr. Vikas Ratan Bharti, Advocates.
For the State :- Mr. Ray Shivaji Nath, Senior Adv.
Mr. Satish Kr.Advocate
*******
PRESENT
THE HON'BLE MR. JUSTICE NAVIN SINHA
THE HON'BLE MR. JUSTICE DINESH KUMAR SINGH
********
Navin Sinha, J. 1. The common challenge in this batch of writ
applications is to the notification issued by the respondent
State, dated 24.3.1992 amending Rule-3 of the notification
dated 20.4.1919 in exercise of powers under Section-19 of
the Bihar Excise Act, 1915,( hereinafter called the Bihar
Excise Act) levying License fee for establishment of
Distillery based on installed production capacity and
annual renewal thereof on payment of fresh license fee at
the same rate on each renewal, in so far as rectified spirit
and Denatured spirit unfit for human consumption are
4
concerned.
2. During the pendency of the writ application by
fresh notification dated 17.10.2005 the license fee was
enhanced to Rs.7, 50,000/- annually from Rs.3, 25,000/-.
This has been challenged by amendment in I.A. No.4462 of
2010. Upon hearing counsel for the parties this Court
considers it proper to allow the amendment satisfied that it
is based on a continuity of challenge to the levy of License
fee not raising any fresh issues.
3. Learned Senior Counsel Shri Y.V. Giri appearing
for the petitioner in CWJC 2868/92 made the lead
submissions. The facts shall therefore be primarily noticed
from the same except to the extent necessary. It was
submitted that the petitioner's Distillery (hereinafter called
"the Distillery") held license under the Industries
(Regulation & Development) Act, 1951 ("hereinafter called
the I D R Act"), for manufacture of rectified and denatured
spirit only. These were unfit for human consumption. They
were ingredients as raw material for varied uses such as
industrial or for manufacture of country liquor and Indian
made foreign liquor by a process of dilution for the latter
two purposes. Being unfit for human consumption in their
original form, they did not constitute excisable articles
under the Bihar Excise Act and were not within the
legislative competence of the State under the Constitution
5
of India. Under Entry 7, 52 and 84 of List-1, Schedule-7 to
the Constitution of India, the Industry was amenable to
legislative control by the Union of India alone under the I D
R Act and the Licensing of Industrial Undertaking Rules,
1952 framed there under. The State legislature was
competent to legislate only in respect of matters under
Entry 8 and 51 of List 2 in the 7th Schedule to the
Constitution of India which related to intoxicating liquor fit
for human consumption. The Distillery under Section-13 of
the Bihar Excise Act held a license under Form 28A for
manufacture of such spirit only, issued in 1955 renewed
annually since then without levy of fee, until the issuance
of the present notifications. The product manufactured
under the license, being unfit for human consumption,
what may be the possible user by a process of conversion to
potable liquor or that the State required the petitioner to
supply a portion of the spirit to warehouses, who in turn,
supplied it to manufacturers of country liquor shall not
render the petitioner liable to legislative control and
competence of the State Government. Relying upon a
notification dated 5.3.1990 of the Union of India issued in
pursuance of the judgment of the Supreme Court in (1990)
1 S.C.C. 109, M/s. Synthetic and Chemicals Vs. State of
U.P. & Ors., it was submitted that a clear distinction had
been made between a Distillery manufacturing spirit unfit
6
for human consumption and that manufacturing potable
liquor.
4. Reliance was placed on the judgement of this
Court in 1983 P.L.J.R. 105 (D.B.)(The New Swadeshi Sugar
Mills Ltd. & anr Vs. State of Bihar & ors) stated to have
been affirmed in (2003) 11 S.C.C. 478 (State of Bihar & ors
Vs. New Swadeshi Sugar Mills Ltd), 1997 (1) P.L.J.R. 77
(M/S. Industrial Corporation Pvt. Ltd. Vs State of Bihar
&ors) affirmed in (2003) 11 S.C.C. 465 (State of Bihar &
Ors. Vs. Industrial Corporation (Pvt. Ltd.). Reliance was
further placed on and (2004) 1 S.C.C. 225 (State of U.P. &
Ors. vs. Vam Organic Chemicals). The judgement of the
Supreme Court in (1997) 2 S.C.C. 727 (Bihar Distillery vs.
The Union of India) was urged not to have any application.
5. It was next contended that under Rule-9 and
36A of the Bihar Excise Rules framed under the Bihar
Excise Act, the Excise department had already posted its
officers in the Distillery to ensure that rectified and
denatured spirit was not misutilized by diversion for
conversion into potable liquor causing revenue loss. All
costs, including salary, pension, uniform etc. were to be
borne by the Distillery inclusive of such fee for the purpose
as may be levied for the same. The present levy was in the
garb of a tax without authority of law. If the petitioner
breached any condition of the license in Form-28A it was
7
liable to prosecution apart from the possible cancellation of
its license for manufacture of denatured and rectified spirit
by the Union of India. Relying upon the judgments it was
submitted that apart from the complete absence of
legislative competence on part of the State, in absence of
any element of quid pro quo the respondent State could not
even impose any license fee in purported exercise of its
regulatory power.
6. Shri Satyabir Bharati appearing for the
petitioners in other three cases made similar submissions.
He additionally relied on (2009) 3 S.C.C. 157 (Mohan
Meakin Ltd. Vs. State of Himachal Pradesh & Ors )
contending that the petitioners were not liable for any
License fee at the behest of the State government in respect
of rectified and denatured spirit manufactured at their
Distillery. They held licenses under Form 25 for
manufacture of denatured spirit. They also possessed
license in Form 28 for manufacture of country liquor. The
manufacture of rectified spirit has no co-relation to the
manufacture of country liquor as far as the legislative
competence of the State with regard to spirit was
concerned. Learned counsel very fairly submitted that the
Distillery in C.W.J.C. 6360 of 1993 and 3690 of 1992 have
since closed down permanently. The Distillery in C.W.J.C.
No. 3025 of 1992 is presently closed but expects to be
8
revived sooner or later.
7. Learned Senior Counsel Shri Ray Shivaji Nath,
Additional Advocate General No.4, appearing on behalf of
the State submitted that Form No.28A issued under the
Bihar Excise Act came to be amended on 15.12.1997. It
now envisages a "License to manufacture spirit in a
Distillery for use in the manufacture of potable liquor".
Since the rectified and denatured spirit manufactured by
the petitioners in their Distillery was being supplied and
used for manufacture of potable liquor, they are liable to
pay License fee in terms of Section-38 of the Bihar Excise
Act and the Rules framed by the Board of Revenue under
Section-90 of the Bihar Excise Act. It was submitted that
the usage of the rectified and denatured spirit for
manufacture of potable liquor fit for human consumption
was the determinative factor to vest legislative competence
in the State in exercise of its regulatory powers. Strong
reliance was placed on the judgement of the Supreme Court
in the case of Bihar Distillery (Supra) to urge that the
petitioners clearly fell in Categories-(2) and (3) of the
categorization done in paragraph-23 of the judgement and
the period prior to the amendment of Form-28A i.e. 1992-
1997 also fell within the reasoning of the judgement. The
case of Bihar Distillery (Supra) was decided on 29.1.1997
and in terms thereof Form-28A was amended by
9
publication on 15.12.1997. Reliance was further placed on
AIR (2005) 2 S.C.C. 762 (State of Bihar vs. Shri Baidyanath
Ayurved Bhawan (P) Ltd. & Ors.) to submit that the
authority of the State to impose a regulatory fee without
quid pro quo to control and regulate manufacture of
intoxicants was held to be justified. The judgements cited
by the petitioners related to industrial Alcohol and not to
rectified or denatured spirit. It was lastly submitted relying
upon (1997) 2 S.C.C. 453 (State of Bihar vs. Bihar Distillery
Ltd.) that there shall be a presumption in favour of the
constitutionality of the imposition of licence fee by the State
and unless absolutely necessary in law, the Court may not
interfere with the imposition of licence fee as no one had a
fundamental right to deal in liquor, rectified and denatured
spirit being the raw materials for the same.
8. The issue for determination by this Court is the
legislative competence of the respondent State to levy
licence fee under Form-28A of the Bihar Excise Act with
regard to rectified and denatured spirit produced by a
Distillery wholly unfit for human consumption not
constituting an Excisable item under the Bihar Excise Act.
If the spirit was capable of conversion to liquor fit for
human consumption by a process, will its conversion into
potable liquor at a subsequent stage vest jurisdiction in the
State to legislate on the theory of the 'likely or actual nature
10
of the usage of such spirit' at an earlier stage.
9. The Constitution of India envisages a division of
legislative powers between the Parliament and the State
Legislature under Article 246 of the Constitution to frame
laws on matters as provided for in List-1, 2 and 3 of the 7th
Schedule to the Constitution of India. Entry-3 is not
relevant for the present.
10. The entries in List-1 relevant for the present
controversy are- 7, 52 and 84 which provide as under:-
"7. Industries declared by Parliament
by law to be necessary for the purpose of
defence or for the prosecution of war.
52. Industries, the control of which by
the Union is declared by Parliament by law to
be expedient in the public interest.
84. Duties of excise on tobacco and
other goods manufactured or produced in
India except-
(a) alcoholic liquors for human
consumption;
(b) opium, Indian hemp and other
narcotic drugs and narcotics, but not
including medicinal and toilet preparations
containing alcohol or any substance included
in sub-paragraph (b) of this entry."
11. The entries relevant in List-2 are- 8, 51 and 66
which provide as under:-
8. "Intoxicating liquors, that is to say,
the production, manufacture, possession,
transport, purchase and sale of intoxicating
liquors".
51. Duties of excise on the following
goods manufactured or produced in the State
and countervailing duties at the same or lower
rates on similar goods manufactured or
produced elsewhere in India:-
(a) alcoholic liquors for human
consumption;
11
(b) opium, Indian hemp and other
narcotic drugs and narcotics, but not including
medicinal and toilet preparations containing
alcohol or any substance included in sub-
paragraph (b) of this entry."
66 .Fees in respect of any of the
matters in this List, but not including fees
taken in any Court."
12. Rectified spirit did not constitute an Excisable
item under the Bihar Excise Act, not being liquor fit for
human consumption came up for consideration by this
Court in The New Swadeshi Sugar Mills. Ltd. & anr Vs.
State of Bihar &ors, 1983 P.L.J.R. 105 (D.B.) This Court
rejected the argument of the State that because rectified
spirit by subsequent dilution becomes potable and fit for
human consumption liable for duty it was ample
justification for levy of duty at a prior stage before the
subsequent stage was reached. No Bond or duty could be
levied under Form 28 A .The Court at paragraph 8 and 9 of
the judgement held as under :-
"8. The contention of the learned
counsel for the State, apart from what is stated
in the notice (Annexure 2), was that the
petitioner-company is liable to pay duty on the
spirit because rectified spirit by subsequent
dilution becomes potable and thus fit for
human consumption and, therefore, duty could
be recovered from the petitioner-company,
which is thus liable to compensate the loss
caused to the Government due to non-delivery
by application of R. 33 of the Rules made by the
Board of Revenue under the notification dated
the 29th April, 1919 (hereinafter referred to as
'the Rules').
9. It is, therefore, essential to examine
whether rectified spirit can be subjected to levy
12
of duty under the Act. Excisable article has been
defined in S. 2(6) of the Act and Cl. (a) thereof is
relevant for the present purpose, which is as
follows :-
"excisable article means-
(a) any alcoholic liquor for human
consumption.
xx xx xx xx xx xx xx xx xx xx
Liquor is defined in S. 2(14) of the Act
which "includes all liquids consisting of or
containing alcohol, such as spirit of wine, spirit,
wine fermented tari pachwai and beer, and also
unfermented tari, and also any other substance
which the State Government may, by
Notification, declare to be liquor for the purposes
of this Act" Intoxicant has been defined in S.
2(12a) of the Act, which means "any liquor or
intoxicating drug" Section 2(19) defines 'spirit' as
'any liquor containing alcohol obtained by
distillation, whether it is denatured or not" Thus,
the total effect of the definition of 'intoxicant,'
'liquor' and 'spirit,' read with the definition of
excisable article, means that only a spirit meant
for human consumption can be subjected to
excise duty"
13. This judgment came to be upheld by the Supreme
Court upon challenge by the State of Bihar in (2003) 11
SCC 478 (State of Bihar & Ors. Vs. New Swadeshi Sugar
Mills Ltd. & Anr.)holding as as follows :
"1. We find that the conclusion of the
High Court that no duty can be levied by the
appellant state on rectified spirit having regard
to the provisions of the Constitution, has been
upheld by this Court in the case of Synthetic
and Chemical ltd. Vs. State of U.P. It has been
held there that the provisions in various State
Acts which purport to levy a tax or charge upon
industrial alcohol also called rectified spirit and
alcohol used for industrial purposes, are
unconstitutional.
"2. Having regard to the fact that
the provision in the State Act imposing the levy
is unconstitutional, it is unnecessary to go into
the appellant's argument based on a rule made
in exercise of the rule making power in the State
13
Act. The rule concerned relates to duty to be
paid on rectified spirit which is transported, a
prescribed quantity being allowed to be
deducted by way of leakage or evaporation.
........... Duty itself not being leviable that claim
must also be held to be invalid".
14. The question of the competence of the State
Legislature to impose fee in respect of Industrial Alcohol
came up for consideration by a Constitution Bench before
the Supreme Court in Synthetics & Chemicals Ltd. (Supra).
On consideration of the legislative powers of the Parliament
and the State Governments, the promulgation of the
Industries (Development and Regulation) Act, 1951 by the
Parliament, the Court interpreting the aforesaid entries in
the 7th Schedule of the Constitution held that the State
Legislature had no power to enact a law levying duty on
spirit not meant for human consumption and that it was
the Parliament alone which was competent to legislate on
Industrial Alcohal holding at paragraph-86 of the
judgement as follows:-
"86. The position with regard to the
control of alcohol industry has undergone
material and significant change after the
amendment of 1956 to the IDR Act. After the
amendment, the state is left with only the
following powers to legislate in respect of
alcohol:
a) it may pass any legislation in the
nature of prohibition of potable liquor referable
to entry 6 of list II and regulating powers.
b) it may lay down regulations to
ensure that non-potable alcohol is not diverted
and misused as a substitute for potable
alcohol.
c) the state may charge excise duty on
14
potable alcohol and sales tax under entry 52 of
list II. However, sales tax cannot be charged on
industrial alcohol in the present case, because
under the Ethyl Alcohol (Price Control) Orders,
sales tax cannot be charged by the state on
industrial alcohol.
d) However, in case state is rendering
any service, as distinct from its claim of so-
called grant of privilege, it may charge fees
based on quid pro quo.
15. This decision was followed in (1995) 5 S.C.C. 753
(STATE OF U.P. vs. MODI DISTILLERY). Considering the
legality of a demand of excise duty inter alia on high
strength spirit of 80% to 85% from distillery to warehouse
and the duty levied on pipeline wastage it was held at
paragraph-9 as follows:-
"9.It is convenient now to note the
judgment of a bench of seven learned Judges of
this Court in Synthetics and Chemicals Ltd. v.
State of U. P., (1990) 1 SCC 109 : (AIR 1990 SC
1927). This Court stated that it had no doubt
that the framers of the Constitution, when they
used the expression 'alcoholic liquors for
human consumption', meant, and the
expression still means, that liquor which, as it
is, is consumable in the sense that it is capable
of being taken by human beings as such as a
beverage or drink. Alcoholic or intoxicating
liquors had to be understood as they were, not
what they were capable of or able to become.
Entry 51 of List II was the counterpart of Entry
84 of List I. It authorised the State to impose
duties of excise on alcoholic liquors for human
consumption manufactured or produced in the
State. It was clear that all duties of excise save
and except the items specifically excepted in
Entry 84 of List I were generally within the
taxing power of the Central Legislature. The
State Legislature had limited power to impose
excise duties. That power was circumscribed
under Entry 51 of List II. It had to be borne in
mind that, by common standards, ethyl alcohol
(which had 95 per cent strength) was an
15
industrial alcohol and was not fit for human
consumption. The ISI specifications had divided
ethyl alcohol (as known in the trade) into
several kinds of alcohol. Beverages and
industrial alcohols were clearly and differently
treated. Rectified spirit for industrial purposes
was defined as spirit purified by distillation
having a strength not less than 95 per cent by
volume of ethyl alcohol. Dictionaries and
technical books showed that rectified spirit (95
per cent) was an industrial alcohol and not
potable as such. It appeared, therefore, that
industrial alcohol, which was ethyl alcohol (95
per cent), by itself was not only non-potable but
was highly toxic. The range of potable alcohol
varied from country spirit to whisky and the
ethyl alcohol content thereof varied between 19
to about 43 per cent, according to the ISI
specification. In other words, ethyl alcohol (95
per cent) was not an alcoholic liquor for human
consumption but could be used as a raw
material or input, after processing and
substantial dilution, in the production of
whisky, gin, country liquor etc. In the light of
experience and development, it was necessary
to state that "intoxicating liquor" meant only
that liquor which was consumable by human
beings as it was."
16. This Court in 1997(1) P.L.J.R. 77 (D.B.) (M/s.
Industrial Corporation Pvt. Ltd. Vs. State of Bihar) was
considering a challenge on the competence of the State to
levy penalty in respect of a license granted under Form-28A
for the manufacture of spirit in the Distillery for use in the
manufacture of chemical and for Industrial, Scientific and
other purposes. Relying on Synthetic and Chemicals Ltd.
(Supra) and Modi Distillery(Supra) it was held that license
for manufacture of non-potable Alcohol vested in the
Central Government alone and therefore Form-28A had no
16
meaning and should be scrapped as it is not within the
jurisdiction of the State Government to grant any such
license for the manufacture of spirit in any Distillery for
commercial use.
17. The judgment of this Court in M/s. Industrial
Corporation (Supra) came up for consideration by the
Supreme Court on appeal by the State Government in (
2003) 11 S.C.C. 465 (State of Bihar & ors vs. VS. Industrial
Corporation (P) Ltd. & ors). Referring to Synthetics and
Chemicals Ltd. (Supra) as also Modi Distillery (supra) it was
held that the State Government was not competent to levy
any penalty on the manufacture of rectified spirit, the
power of the State Government being confined to potable
liquor only under List-2 of the 7th Schedule of the
Constitution and spirit being unfit for human consumption
in its raw form was the exclusive domain of the Parliament.
It was noticed at paragraph 19 as under -:
"19. So far as the second submission
of Mr. Ray is concerned, it would not detain us
very long as the matter stands almost covered
by a catena of decisions of this Court. In
Synthetics and Chemicals Ltd. and others v.
State of U.P. and others reported in (1990) 1
SCC 109, this Court, while interpreting Entry
84 of List I, Entries 8 and 51 of List II and
Entry 33 of List III of Schedule VII, held that
the State Legislature has no power to enact
law levying duty on the spirit, which is not
meant for human consumption. It was also
held that the State has the power to impose
duty only on the spirit, which is for human
consumption under Entry 51 of List II of
Schedule VII".
17
18. A different view at variance with the above however
came to be taken by the Supreme Court in a writ petition
under Article 32 of the Constitution of India in (1997)2
SCC 727 (Bihar Distillery and Anr. Vs. Union of India &
Ors.) by a Bench of two Judges. The petitioner questioned
the legislative competence of the State Government to deal
with rectified spirit unfit for human consumption in view of
the promulgation of the IDR Act contending that industrial
alcohol was the exclusive prerogative of the Parliament to
legislate. Summing up the consideration the Court at
Paragraph 23 in the relevant extract held as follows:-
"23. .............We proceed to elaborate :
(1) So far as industries engaged in
manufacturing rectified spirit meant
exclusively for supply to industries [industries
other than those engaged in obtaining or
manufacture of potable liquors], whether after
denaturing it or without denaturing it, are
concerned, they shall be under the total and
exclusive control of the Union and be governed
by the I.D.R. Act and the rules and regulations
made thereunder. In other words, where the
entire rectified spirit is supplied for such
industrial purposes, or to the extent it is so
supplied, as the case may be, the levy of excise
duties and all other control including
establishment of distillery shall be that of the
Union. The power of the States in the case of
such an industry is only to see and ensure
that rectified spirit, whether in the course of
its manufacture or after its manufacture, it
(is?) not diverted or misused for potable
purposes. They can make necessary
regulations requiring the industry to submit
periodical statements of raw material and the
finished product [rectified spirit] and are
entitled to verify their correctness. For this
purpose, the States will also be entitled to post
18
their staff in the distilleries and levy
reasonable regulatory fees to defray the cost of
such staff, as held by this Court in Shri
Bileshwar Khand Udyog Khedut Sahakari
Mandali Ltd. v. State of Gujarat, (1992) 1 SCR
391 : (1992 AIR SCW 554) and Gujchem
Distillers India Ltd. v. State of Gujarat, (1992)
1 SCR 675 : (1992 AIR SCW 1206).
(2) So far as industries engaged in the
manufacture of rectified spirit exclusively for
the purpose of obtaining or manufacturing
potable liquors - or supplying the same to the
State Government or its nominees for the said
purpose - are concerned, they shall be under
the total and exclusive control of the States in
all respects and at all stages including the
establishment of the distillery. In other words,
where the entire rectified spirit produced is
supplied for potable purposes - or to the
extent it is so supplied, as the case may by -
the levy of excise duties and all other control
shall be that of the States. According to the
State Governments, most of the Distilleries fall
under this category.
(3) So far as industries engaged in the
manufacture of rectified spirit, both for the
purpose of (a) supplying it to industries [other
than industries engaged in obtaining or
manufacturing potable liquors/intoxicating
liquors] and (b) for obtaining or manufacturing
or supplying it to Governments/persons for
obtaining or manufacturing potable liquors are
concerned, the following is the position : the
power to permit the establishment and
regulation of the functioning of the distillery is
concerned, it shall be the exclusive domain of
the Union. But so far as the levy of excise
duties is concerned, the duties on rectified
spirit removed/cleared for supply to industries
[other than industries engaged in obtaining or
manufacturing potable liquors], shall be levied
by the Union while the duties of excise on
rectified spirit cleared/removed for the
purposes of obtaining or manufacturing
potable liquors shall be levied by the
concerned State Government. The disposal,
i.e., clearance and removal of rectified spirit in
the case of such an industry shall be under
the joint control of the Union and the
concerned State to ensure evasion of excise
19
duties on rectified spirit removed/cleared from
the distillery. It is obvious that in respect of
these industries too, the power of the States to
take necessary steps to ensure against the
misuse or diversion of rectified spirit meant for
industrial purposes [supply to industries other
than those engaged in obtaining or
manufacturing potable liquors] to potable
purposes, both during and after the
manufacture of rectified spirit, continues
unaffected. Any rectified spirit supplied,
diverted or utilized for potable purposes, i.e.,
for obtaining or manufacturing potable liquors
shall be supplied to and/or utilized, as the
case may be, in accordance with the
concerned State Excise enactment and the
rules and regulations made thereunder. If the
State is so advised, it is equally competent to
prohibit the use, diversion or supply of
rectified spirit for potable purposes."
19. This judgment however came to be doubted in
1998 (3) SCC 272 (Decan Sugar and Abkari Company
limited Vs. Commissioner of Excise, A.P. ) in view of the
Constitution Bench judgement in Synthetics & Chemicals
Ltd (supra) and the matter referred to a larger Bench. The
question for consideration was whether the appellant
Distillery manufacturing rectified spirit could be asked to
pay excise duty on manufacture of rectified spirit to the
State Excise Authority. At Paragraph 4 thereof it was
observed, "Even that apart the aforesaid observations made
in Bihar Distillery case by the Division Bench of this Court
prima facie run counter to the scheme of legislative
competence as examined by the Constitution Bench of this
Court as well as in the three Judge Bench decision of this
20
Court in "Modi Distillery". A larger Bench of three Judges
in 2004 (1) SCC 243 (Deccan Sugar and Abkari Company
limited Vs. Commissioner of Excise, A.P. ) then held at
Paragraph 2 as follows:-
"2. It is settled by the decision of
this Court in Synthetic and Chemical ltd. Vs.
State of U.P. that the State legislature has no
jurisdiction to levy any excise duty on rectified
spirit. The State can levy excise duty only on
potable liquor fit for human consumption and
as rectified spirit does not fall under that
category the State legislature cannot impose
any excise duty. The decision in Synthetic and
Chemical ltd. Vs. State of U.P. Has been
followed in State of U.P. vs. Modi Distillery
wherein certain wastage of ethyl alcohol was
sought to be taxed. This Court following the
decision in Synthetic and Chemical ltd. Came
to the conclusion that this cannot be done."
20. The appeal came to be allowed.
21. The Supreme Court in 2004(1) SCC 225 (State of
U.P. & Ors. Vs. Vam Organic Chemicals Ltd. & Ors.),
considering the earlier judgments of the Apex Court held
that the State cannot legislate in respect of industrial
alcohol despite the fact that such industrial alcohol has the
potential to be used to manufacture alcoholic liquor. It was
also noticed that the State Government could only charge
regulatory fee for the purpose of payment of salary for the
staff and to see that no non potable alcohol was converted
into potable alcohol. The burden of showing a broad co-
relation between the fee charged and administrative
expenses for imposing a regulatory fee was on the State
21
Government. It was held at Paragraph 43 and 44 that at
best the State government was competent to levy fee for the
purpose of ensuring that the industrial alcohol is not
surreptitiously converted into potable alcohol so that the
State is not deprived of revenue on sale and public
protected from illicit liquor.
22. The question again came up for consideration
in 2009 (3) SCC 157 (Mohan Meakin Ltd. Vs. State of H.P.
& Ors.). The petitioner contended that transportation of
industrial alcohol and rectified spirit being not within the
legislative competence of the State it cannot levy any
permit fee on transportation of the same. The element of
quid pro quo being inherent in the levy of fee, no material
was produced by the State to justify such demand.
Noticing the constitutional scheme in the 7th Schedule and
the earlier judgments of the Court referred above it set
aside the judgment of the High Count upholding such fee
and remanded the matter for consideration afresh.
23. Form 28 A of the Bihar Excise Act originally
read as "LICENCE TO MANUFACTURE SPIRIT IN A
DISTILLERY FOR USE IN THE MANUFACTURE OF
CHEMICAL AND FOR INDUSTRIAL SCIENTIFIC AND
OTHER PURPOSE". The heading of the license itself
clarifies that it does not deal with potable liquor. No further
discussion is needed in view of the Constitution Bench
22
judgement of Synthetic & Chemicals Ltd (supra) of the
complete absence of any legislative competence of the State
to levy any fee. The change in the nomenclature of this
form after the judgment of Bihar Distillery (supra) to read
as "LICENCE TO MANUFACTURE SPIRIT IN A DISTILLERY
FOR USE IN THE MANUFACTURE OF POTABLE LIQUOR",
was purely cosmetic in nature not altering the factual and
legal position on legislative competence of the State. In any
event of the matter, Bihar Distillery (supra) having been
impliedly overruled in Decan Sugar and Abkari Company
limited (Supra) as also noticed in Vam Organic Chemical
Ltd. & Ors. (supra), the entire justification of the State
collapses as being contrary to law.
24. The question of quid pro quo not being relevant
for the imposition of the license fee in context of regulatory
powers as contended on behalf of the State, is best
answered by Rule 9 and 36A of the Excise Rules framed
under Section 90 of the Bihar Excise Act which read as
under:-
"9. The Commissioner shall
appoint such officers and establishment as he
thinks fit to the charge of a distillery.
(In the case of a distillery licensed
solely for the purpose of the manufacture of
denatured spirit or any other commercial spirit
the distiller shall bear the whole cost including
leave and pension contributions and cost of
uniform of such excise staff and establishment
as may be considered necessary by the Excise
Commissioner for proper supervision.)
"36A. The Excise Commissioner
23
shall decide as to whether a wholesome or a
part time excise staff is necessary for the
proper supervision of such operations in any
such operations in any such premises. The
licensee shall pay to the Provincial
Government such fees as may be determined
from time to time by the Excise Commissioner
as the actual cost of the excise staff, employed
for the purpose of this rule. The fees shall be
payable by the licensee at the end of each
calendar month in case of a part time excise
staff and by the 7th of each calendar month in
advance in case of a whole-time excise staff.
These fees, shall be in addition to any other
fees payable under the Bihar and Orissa
Excise Act."
25. Apparently the State has already taken necessary
steps by financial imposition upon the Distillery to ensure
that no spirit is illegally diverted for manufacture of potable
liquor causing revenue loss to the State. The question of
imposing any regulatory fee thereafter without even a
semblance of service rendered or additional costs incurred
by the state, the fee sought to be levied in Form 28 A upon
manufacturers of spirit in the garb of a regulatory fee is
nothing but a tax without authority of law.
26. The contention of the State that the judgments
aforesaid were limited in their applicability to industrial
alcohol only as distinct from rectified and denatured spirit
is wholly misconceived. Industrial alcohol is distilled ethyl
alcohol normally of high proof, produced and sold for other
than beverage purposes. It is distributed in the form of pure
ethyl alcohol, completely denatured alcohol, specially
24
denatured alcohol and proprietary solvent blends. Rectified
spirit is highly concentrated ethanol which has been
purified by means of repeated distillation. Denatured spirit
is ethanol that has additives which make it poisonous,
unpalatable and undrinkable. In Synthetic and Chemical
Ltd. (Supra) at Paragraph 74 it has been observed that by
common standards ethyl alcohol is an industrial alcohol
which is also known as rectified spirit. I.S.I. specifications
divide ethyl alcohol into several kinds of alcohol. In Vam
Organic Chemicals (supra) at Paragraph- 43 it has been
noticed that even Bihar Distillery (supra) at Paragraph 23
held that industrial alcohol was denatured rectified spirit.
27. The reliance by the State upon the case of Shree
Baidyanath Aurvedic Bhawan (P) Ltd. to justify State
legislative competence and levy of fee without quid pro quo
upon spirit which was to be supplied for use in
manufacture of potable liquor is misconceived. The
question therein was with regard to the legislative
competence of the State Legislature redefining "intoxicant"
in Section 2(12-a) of the Bihar Excise Act by including
medicinal and toilet preparation containing alcohol as
defined under the Medicinal and Toilet Preparation (Excise
Duties) Act 1955, in view of Entry 84 in List 1 of the 7th
Schedule of the constitution as also the Drugs and
Cosmetics Act 1940 to urge lack of authority on part of the
25
State to license and regulate manufacture of medicinal
preparations containing alcohol. License fee had been levied
in regulation for vend of medicinal preparation in whole
sale and retail sale containing alcohol prepared by
distillation. The Supreme Court observed that the Bihar
Excise Act sought to license and regulate use including
consumption of medicinal preparation containing alcohol
equating it with alcoholic beverage. That fundamentally
distinguishes it from the present case dealing with spirit
unfit for human consumption. The situation prevailing in
the present case under Rule 9 and 36A of the Bihar Excise
Rules was neither applicable nor considered. In that
context and the need to regulate misuse of medicines
containing alcohol it was held that the State was competent
to legislate with regard to medicinal preparation containing
alcohol as an alcoholic beverage and therefore a regulatory
fee without quid pro quo was permissible.
28. At the time of admitting the writ petitions this
Court had declined stay of the impugned demands
observing that any deposit made shall be subject to the
result to the case and in case of success shall be refundable
with 9% interest. In view of the discussion, more
particularly the Bihar Distillery (supra) case, and that the
writ petitions have remained pending before this Court
since 1992 for no fault of the respondent State, we do not
26
consider it appropriate to impose onerous interest upon the
State which in any event shall be paid from public funds.
We therefore consider it appropriate to modify the interim
order by directing that the deposit made shall be refunded
with 4 % interest within six months of the presentation of a
copy of this order before the respondents. If the payment is
not made within time prescribed herein it shall carry
interest at the rate of 9% from the date of expiry of six
months.
29. The impugned notifications dated 24.3.1999 and
17.10.2005imposing license fee upon the petitioner under Form 28 A are therefore quashed.
30. The writ applications are allowed. No order as to costs.
(Navin Sinha, J.) (Dinesh Kumar Singh, J.) (Dinesh Kumar Singh, J.) Patna High Court Dated 14 July, 2010 P. Kumar/NAFR