Patna High Court
Mc Dowell & Co. Limited vs The State Of Bihar & Ors on 23 June, 2010
Author: Shiva Kirti Singh
Bench: Shiva Kirti Singh, Jayanandan Singh
CIVIL WRIT JURISDICTION CASE NO.3829 OF 2000
NEW SWADESHI DISTILLERY (PROPRIETOR OUDH SUGAR MILLS
LIMITED), AT & P.O. NARKATIAGANJ, P.S. SHIKARPUR, DIST-WEST
CHAMPARAN, THROUGH ITS COMMERCIAL, SUSHIL KUMAR
PODDAR......................................................................(PETITIONER)
Versus
1. THE STATE OF BIHAR THROUGH THE CHIEF SECRETARY, GOVT.
OF BIHAR, PATNA.
2. THE EXCISE COMMISSIONER-CUM-SECRETARY-CUM-
CONTROLLER OF MOLASSES, GOVERNMENT OF BIHAR, PATNA.
3. THE SUPERINTENDENT OF EXCISE, NARKATIGANJ DISTILLARY,
DISTT- WEST CHAMPARAN.....................................(Respondents)
with
CWJC No.5000 OF 2000
1. M/S SCI INDIA LIMITED, HAVINGJ ITS REGISTERED OFFICE AT
D.N. SINGH ROAD, BHAGALPUR-812 002 THRU ITS DISTILLERY
MANAGER, SRI REJENDRA MAHTO
2. RAJENDRA MAHTO, SON OF LATE RAMESHWAR MAHTO, R/O
MOHALLA-D.N. SINGH ROAD, P.S.KOTWALI, DISTT-
BHAGALPUR................................................ .(PETITIONERS)
Versus
1. THE STATE OF BIHAR THRU THE EXCISE COMMISSINER-CUM-
CONTROLLER OF EXCISE, DEPARTMENT OF EXCISE,
GOVERNMENT OF BIHAR, PATNA.
2. THE SUPERINTENDENT OF EXCISE, MOTIHARI, DIST-EAST
CHAMPARAN.
3. THE SUPERINTENDENT OF EXCISE, MANJHAULIA, DIST-WEST
CHAMPARAN.
4. THE SUPERINTENDENT OF EXCISE, HASANPUR, DIST-
SAMASTIPUR.
5. THE SUPERINTENDENT OF EXCISE, SUGAULI, DIST-EAST
CHAMPARAN..........................................................(Respondents)
with
CWJC No.3638 oF 2000
M/S RIGA SUGAR COMPANY LIMITED (DISTILLERY DIVISION), AT & P.O
RIGA, DIST-SITAMARHI, THRU ITS VICE PRESIDENT, SHRI
O.P.SINGH....................................................................(PETITIONER)
Versus
1. THE STATE OF BIHAR THRU THE CHIEF SECRETARY, GOVT. OF
BIHAR, PATNA.
2
2. THE EXCISE COMMISSIONER-CUM-SECRETARY-CUM
CONTROLLER OF MOLASSES, GOVERNMENT OF BIHAR, PATNA.
3. THE SUPERINTENDENT OF EXCISE, RIGA DISTILLERY, RIGA, DIST-
SITAMARHI ...........................................................(Respondents)
with
CWJC No.3794 OF 2000
S.K.G.CONSOLIDATED LIMITED, HAVING ITS HEAD OFFICE AT ABHAY
BHAWAN, FRASER ROAD, PATNA-800 001, THRU ITS CONSTITUTED
ATTORNEY, DEBDAS CHATTERJEE.................................(PETITIONER)
Versus
1. THE STATE OF BIHAR THRU THE CHIEF SECRETARY, GOVT. OF
BIHAR, PATNA.
2. THE EXCISE COMMISSIONER-CUM-SECRETARY-CUM
CONTROLLER OF MOLASSES, GOVERNMENT OF BIHAR, PATNA.
3. THE SUPERINTENDENT OF EXCISE, LAURIYA, DIST-WEST
CHAMPARAN........................................................(Respondents)
with
CWJC No.1048 OF 2003
M/S NEW SWADESHI DISTILLERY, (PROPRIETOR OUDH SUGAR MILLS
LIMITED), AT & P.O. NARKATIAGANJ, P.S. SHIKARPUR, DIST-WEST
CHAMPARAN, THROUGH ITS EXECUTIVE PRESIDENT, MADHUSUDAN
SHARMA.....................................................................(PETITIONER)
Versus
1. THE STATE OF BIHAR THROUGH THE CHIEF SECRETARY, GOVT.
OF BIHAR, PATNA.
2. THE EXCISE COMMISSIONER-CUM-SECRETARY-CUM-
CONTROLLER OF MOLASSES, DEPARTMENT OF EXCISE AND
PROHIBITION, GOVERNMENT OF BIHAR, PATNA.
3. THE SUPERINTENDENT OF EXCISE, NARKATIGANJ DISTILLARY,
DISTT- WEST CHAMPARAN......................................(Respondents)
with
CWJC No.3588 OF 2003
M/S RIGA SUGAR COMPANY LIMITED (DISTILLERY DIVISION), AT & P.O
RIGA, DIST-SITAMARHI, THRU ITS VICE PRESIDENT, SHRI
O.P.SINGH....................................................................(PETITIONER)
Versus
1. THE STATE OF BIHAR THRU THE CHIEF SECRETARY, GOVT. OF
BIHAR, PATNA.
2. THE EXCISE COMMISSIONER-CUM-SECRETARY-CUM
CONTROLLER OF MOLASSES, DEPARTMENT OF EXCISE AND
PRIHIBITION, GOVERNMENT OF BIHAR, PATNA.
3
3. THE COLLECTOR & DISTRICT MAGISTRATE, SITAMARHI, DIST-
SITAMARHI.
4. THE SUPERINTENDENT OF EXCISE, RIGA DISTILLERY, RIGA, DIST-
SITAMARHI .........................................................(Respondents
with
CWJC No.588 OF 2003
MC DOWELL & CO. LIMITED, HATHIDAH DISTRICT PATNA HAVING ITS
REGISTERED OFFICE AT MC DOWELL HOUSE 32ND LINE BEACH,
MADRAS, 600001 AND DISTILLERY SITUATED AT HATHIDAH IN THE
DISTRICT OF PATNA THRU ITS GENERAL MANAGER, SHRI N.
MURLIDHARAN NAIR SON OF SHRI P. NARAYANAN NAIR AT PRESENT
RESIDING IN THE CAMPUS OF MCDOWELL & CO. LIMITED, HATHIDAH,
P.S.HATHIDAH, DIST-PATNA...........................................(PETITIONER)
Versus
1. THE STATE OF BIHAR THRU THE SECRETARY TO THE
GOVERNMENT OF BIHAR CUM CONTROLLER OF MALASSES,
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 COMMISSIONER OF EXCISE (DISTILLERY &
WAREHOUSE), BIHAR, PATNA
5. THE SUPERINTENDENT OF EXCISE, MCDOWELL & CO. LTD,
HATHIDAH.......................................................... (Respondents)
-----------
(CWJC.Nos. 3829 of 2000, 3638 of 2000, 1048 of 2003 and 3588 of 2003)
For the Petitioners :Mr. Y.V. Giri, Senior Advocate
Mr. Rajiv Giri, Advocate
Mr. Vikash Ratan Bharti, Advocate
For the Respondents : Mr. P.K. Shahi, Advocate General
Mr. Rajnandan Prasad, Advocate
(CWJC. No. 588 of 2003)
For the Petitioner :Mr. Ram Balak Mahto, Senior Advocate
Mr. G.P. Bimal, Advocate
Mr. Satyabir Bharti, Advocate
For the Respondents : Mr. P.K. Shahi, Advocate General
Mr. Rajnandan Prasad, Advocate
-------------
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P R E S E N T
THE HON'BLE MR. JUSTICE SHIVA KIRTI SINGH
THE HON'BLE MR. JUSTICE JAYANANDAN SINGH
Shiva Kirti Singh, J. These seven writ petitions have been treated as
analogous matters and heard together because they raise common issues
by challenging the vires of Bihar Molasses (Control) (Amendment and
Validation) Act, 1999 (Hereinafter referred to as the Validating Act)
published in the official gazette on 10.01.2000. Petitioners have also
sought for quashing of various demand notices issued pursuant to the
aforesaid Validating Act by which they have been directed to pay
administrative charges for the molasses consumed by them in their captive
distilleries (in case of those petitioners who have sugar mills along with
captive distilleries) or for the molasses lifted by them from various sugar
mills during the period 1995-2000. In some of the writ petitions
interlocutory applications have been filed for refund of administrative
charges already paid pursuant to the Validating Act.
2. The issues falling for determination in these cases are
mainly issues of law. The relevant facts lie within a narrow compass and
are not in dispute. For the sake of convenience the facts and documents
shall be referred from the records of CWJC No. 3829 of 2000. Only in
case of necessity facts from other records may be referred to with due
reference to the specific case. In general, it is evident that petitioners are
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distilleries holding relevant licenses under Bihar Excise Act and are
engaged in the manufacture of spirit and Indian Made Foreign Liquor
from molasses and other bases. Some of the petitioners also have their
own sugar mills wherein they produce molasses which they consume in
their captive distilleries. The dispute relates to levy of administrative
charges under the provisions of Bihar Molasses Control Act, 1947
(hereinafter referred to as the „Act‟).
3. The object of the aforesaid Act is to provide for control
of distribution, supply, storage and price of molasses produced in the
State of Bihar. The occupiers of the factory and the stockists engaged in
production and storage respectively of molasses are required to submit
returns as per provisions of Section 3 of the Act. Section 4 of the Act
requires permission of the controller for moving molasses produced in a
sugar factory. Section 5 also imposes restraint on the supply of molasses
in absence of permission of the controller. Section 8 contains power for
price fixation of molasses to be sold by the factory or stockist. Section 8A
of the Act empowers the State Government to levy administrative charge
at rates notified by the State Govt. This charge is to meet the cost of
establishment for supervision and control over release of molasses and is
to be recovered from the purchaser.
4. At this stage, it would be useful to keep the historical
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perspective of the Act in mind. In exercise of rule making power under
Section 13(1) of the Act, the State of Bihar made certain rules in 1965
making provision for imposition of charges and fees through Rules 4-A,
9-A and 11-A. These Rules and the levy of administrative charges
imposed under them were successfully challenged by the affected parties
as is evident from judgment of this Court in the case of Bhola Nath
Gupta and Ors. Vrs. State of Bihar, 1975 BBCJ 397. The Rules and the
levy were struck down because there was no legal sanction for such levy
in the Act as it stood at that time. By Bihar Molasses (Control)
(Amendment) Act, 1977 subsection (f) in Section-2 and Section 8-A were
inserted in the Act empowering the State Government to impose
administrative charges on molasses. In terms of Section 8-A notifications
were issued laying down the rates for levy of administrative charges. Such
charges till issuance of a notification dated 20th December, 1995, were
payable on the released molasses intended for supply to the distilleries of
outside the State. When by an amendment notification dated December,
20th 1995 administrative charge was sought to be imposed on the released
molasses intended for supply to the distilleries within the State, this
notification and subsequent notification enhancing the rate of
administrative charges were again successfully challenged by the
distilleries and sugar mills in State of Bihar. Some of the petitioners in
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that case such as M/S Riga Sugar Company Ltd are again petitioners
before us. By judgment of this Court in the Case of M/s. S.K.G.
Consolidated Limited and Another Vrs. The State of Bihar reported in
1997 BBCJ 387, this Court held the imposition of administrative
charges illegal in view of the nature of power provided under Section 8-A
and definition of released molasses under Section 2 (f) of the Act.
5. At the relevant time and before the Amendment Act
Section-2 (f) and Section 8-A read thus:-
Section-2 " In this Act, unless there is anything repugnant
in the subject:
(f) „released molasses‟ means such molasses which is
either considered surplus to the requirements of the distilleries of the
State of Bihar or which is unfit for the use of such distilleries.
Section 8-A:- "Imposition of administrative charges on
molasses- notwithstanding anything to the contrary contained in
Section-8, the State Government may in such manner and at such rates
as may from time to time prescribe, impose on any sale of released
molasses charges for meeting the cost of establishment for supervision
and control over such releases and such charges shall be recoverable
from the purchaser thereof.
Provided that the State Government may exempt or reduce
the rate of charges in respect of sale of released molasses to distilleries
outside the State of Bihar."
6. Noticing the aforesaid provisions, in the case of M/S
S.K.G Consolidated Limited (supra) this Court held that for the
imposition of any administrative charges two conditions were required to
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be satisfied, (i) there must be an incident of sale and (ii) the article
forming the subject of sale must be „released molasses‟. It was also held
that molasses sold to distilleries within the State of Bihar had to be
excluded from the definition of „released molasses‟. It was also held that
in case of captive consumption of molasses, there would hardly be any
question of sale. The Court further held that the petitioners of that case
will be entitled to refund of the amount/adjustment because the State
could not be permitted to appropriate the administrative charges realized
without any legislative sanction when the petitioners could not have
passed on to the consumer such administrative charges.
7. It was in order to meet the situation arising out of the
aforesaid judgment that the impugned Amending and Validating Act was
enacted after more than 3 years of the judgment. A copy of the Validating
Act as published in the Bihar Gazette has been annexed as Annexure-7.
The Preamble of the Act makes a reference to the Notification dated 22nd
December, 1995 which prescribed rates of administrative charge on
supply of „released molasses‟ to the distilleries within the State of Bihar
and also to the judgment of this Court in the case of M/S S.K.G
Consolidated Ltd (supra). It further states that it has become necessary to
impose and validate administrative charges on sale or supply of molasses
to the distilleries within the State of Bihar in accordance with policy
9
approved by the Cabinet. By Section-2 of the Amending Act Clause (f) of
Section-2 of the Act has been substituted so as to read thus:-
" „released molasses‟ means such molasses which is
allotted to any distillery of the State of Bihar or to the distilleries outside
the State of Bihar or to any person."
8. By Section-3 of the Amending Act, Section-8A of the
Act was substituted with the following Section:-" 8A. Imposition of
administrative charges on molasses.- Notwithstanding anything
contrary contained in Section 8, the State Government may, in such
manner and at such rates as from time to time may be prescribed,
impose on any sale or supply of released molasses, charge for meeting
the cost of establishment or supervision and control over such releases
and such charge shall be recoverable from the person to whom such
sale or supply is made:
Provided that the State Government may exempt or reduce
charges in respect of released molasses to the distilleries outside the
State of Bihar.
9. Section-4 of the Validating Act has been enacted
explicitly for validation of collection of administrative charges. It
provides as follows:-
"4. Validation of Collection of administrative charges.-
Notwithstanding any judgment, decree or order of any Court to the
contrary, every notification issued or purported to have been issued
under Rule 4A of the Bihar Molasses (Control) Rules, 1955, before the
commencement of this Act shall be deemed to have been issued under
Section 8A read with the provisions of clause (f) of Section 2 as
amended by this Act and shall be so interpreted and be deemed to be
always to have been valid as if the provisions of Section 2 and 3 of this
Act, were in force at all material time ,and accordingly anything done or
any action taken (including any order made, proceeding taken,
jurisdiction exercised, assessment made, or administrative charges
levied, collected or paid or purported to have been done or taken in
pursuance of any such notification shall be deemed to be, and always to
have been validly and lawfully done or taken."
10
10. The effect of Section-4 of the Validating Act is to
validate the notification issued under Rule 4A of the Bihar Molasses
(Control) Rules, 1955 (hereinafter referred to as the „Rules‟) and also to
validate the administrative charges levied, collected or paid in pursuance
of the said Notification dated 22nd December, 1995 which has been
validated retrospectively from the date of its issuance.
11. Leading the arguments on behalf of the petitioners in
CWJC Nos. 3829/2000, 3638/2000, 3588/2003, 1048/2003, Mr.
Yaduvansh Giri, Senior Advocate advanced submissions to the following
effect:-
(i) The Validiting Act transgresses the limits laid down for a
Validating Act as laid down in various judgments of the Supreme Court
and this Court.
(ii) If the levy of administrative charge is justified as a fee,
it deserves to be invalidated for want of quid pro quo.
(iii) If the levy of administrative charge is accepted to be a
tax, then, whether the State Legislature has the legislative competence to
impose such a tax in respect of captive consumption of molasses which
transaction lacks the ingredients of sale.
(iv) Even if legislative competence is found to exist, the
11
impugned provisions authorizing State Government to impose
administrative charges at rates to be specified by it deserves to be struck
down because of vice of excessive and unguided delegation. On this
ground it has been submitted that the provision cannot be upheld even in
relation to such manufacturers of alcohol who purchase molasses and are
not captive consumers. The petitioners are entitled to refund of
administrative charges realized from them under the provisions of the Act
or the Validating Act.
(v) Lastly, it has been submitted in alternative that even if
vires of Validating Acts is upheld it should be held that it empowers the
authorities only to retain the collected administrative charges but not to
demand and collect what may be calculated to be dues of earlier period.
12. Learned counsels appearing in other two CWJC Nos.
588/2003 and 5000/2000, Mr. Ram Balak Mahto, Senior Advocate and
Mr. Satyabir Bharti, Advocate adopted and reiterated the aforesaid
submissions. They underlined the submissions that in the light of recent
judgments of the Supreme Court in the case of COMMISSIONER OF
CENTRAL EXCISE, LUCKNOW, U.P VS. CHHATA SUGAR CO.
LTD. (2004) 3 SCC 466, in the context of provisions in the
corresponding Act of Uttar Pradesh similar to those under Section 8A of
the Act, the Apex Court has found and held similar administrative charge
12
to be tax and not a fee. It has further been submitted that tax cannot be
imposed under a general entry. Power to tax must be derived from a
specific entry in any of the three lists in Schedule-VII to the Constitution
of India providing for power to levy tax. According to the petitioners
there is no specific entry providing for tax in the nature of administrative
charges as mentioned in the Act and hence such tax is without legislative
competence.
13. On the other hand, learned Advocate General appearing
for the State in these writ petitions has made no attempt to defend the
administrative charges as a fee and has accepted that in view of Supreme
Court judgment in respect of similar provisions in Uttar Pradesh, the
administrative charges may now be treated to be a tax. However, he
submitted that unlike the provisions in the U.P. Act, Section 8A of the Act
contains sufficient guidelines for the State Government to prescribe rates
of administrative charge and therefore there is no substance in the
submission that the provisions suffer from excessive and unguided
delegation. He further took a stand that entry-33 in list-III of VIIth
Schedule contains source of power and hence the levy of tax is not
without legislative competence. Lastly, it has been submitted that demand
notices have been issued in accordance with provisions of the Act as
amended by the Amendment and Validation Act of 1999 and hence there
13
is no question of refund of administrative charges realized from the
petitioners. According to learned Advocate General, in view of the
Validating Act, the Notification of 22nd December, 1995 has become valid
from the date of its issuance and hence notices have rightly been issued
for collecting administrative charges under the aforesaid Notification
which has remained uncollected so far.
14. The submissions advanced by the parties as noticed
above have been elaborated and supported by several judgments which
require consideration. Hence, the aforesaid submissions may now be
considered in some details. So far as the submissions advanced by Mr.
Giri are concerned, instead of discussing hypothetical issues of law
unnecessarily, it is deemed proper to first consider the issue as to whether
levy of administrative charge under the Act as it stands after the
Validating Act is in the nature of a fee or a tax. On this issue, learned
counsel has placed reliance upon the following judgments:-
1. (2004) 3 SCC 466 ( COMMISSIONER OF
CENTRAL EXCISE, LUCKNOW, U.P VS. CHHATA SUGAR CO.
LTD.)
2. (2004) 5 SCC 632 (T.N. KALYANA MANDAPAM
ASSN. VS. UNION OF INDIA & ORS.
3. (2007) 5 SCC 447 (SOUTHERN PETROCHEMICAL
INDUSTRIES CO. LTD VS. ELECTRICITY INSPECTOR & ETIO
AND ORS.
15. In view of the stand of the learned Advocate General
noted earlier that levy of administrative charges may be treated to be a
14
tax, the aforesaid issue does not require detailed consideration. But a brief
review of the aforesaid judgments appears to be necessary for coming to a
definite conclusion. In the case of Commissioner of Central Excise,
Lucknow (Supra) the respondent-company was a manufacturer of
molasses and had collected administrative charges under Section 8(5) of
the relevant U.P. Act on behalf of the State Government from the
buyers/allotees, on sale of molasses. The question falling for
determination was whether the said administrative charges were in the
nature of a tax and therefore to be excluded from the value of molasses in
terms of provisions under the Central Excise Act, 1944 or were in the
nature of a fee and therefore includible. After examining various relevant
aspects, the Supreme Court held in clear terms that the administrative
charges imposed on production of molasses for sale and passed on to the
buyer distillery is a tax and not a fee.
16. In the case of T.N. Kalyana Mandapam Assn. vs.
Union of India & ors. (supra) the main issue was whether the Parliament
had the legislative competence to impose service tax on services provided
by Mandap-Keepers. While deciding in favour of validity of the tax it was
held that service tax did not amount to a tax on land or a tax on sale and
purchase of goods. Clearly, the issue was different.
17. In the case of Southern Petrochemical Industries Co.
15
Ltd (supra), one of the issues was whether electricity being „Goods‟ under
Sales Tax Laws and other tax laws, power to fix tariff on electricity will
include a power to impose tax. In that context, in paragraph-150, the
Court observed that supply does not mean sale. A fortiori, it does not also
mean consumption. The Court held that Tamil Nadu State Legislature was
competent to enact and act providing for tax on consumption or sale of
electricity.
18. On a comparison of Section-8 of the U.P. Act which has
been extracted in paragraph-7 of the Supreme Court judgment in the case
of Commissioner of Central Excise, Lucknow with the provision in
Section-8A of the Bihar Act, it is noticed that while in the U.P. Act the
purpose of levying administrative charges is not made explicit as in the
Bihar Act. The levy of administrative charges is at the first stage, like in
the Bihar Act, imposed upon producer of molasses, described as the
occupier of the sugar factory and the rate may be fixed by the State
Government not exceeding Rs.5/- per quintal. The occupier is entitled to
recover the administrative charges from the purchaser/allottee of
molasses, in addition to the price of molasses. In the Bihar Act also, the
provisions are in substance to the same effect and the price of molasses is
determined under Section 8 of the Act whereas in U.P. Act it is
determined under Section-10. The nature of the administrative charges for
16
the purpose of deciding the issue whether it is a fee or tax remains the
same both in the U.P. Act and in Bihar Act. Hence, the principle laid
down by the Apex Court in the case of Commissioner Central Excise,
Lucknow is found applicable to the provisions in the Bihar Act also and
accordingly it is held that the administrative charges levied under the Act
is in the nature of a tax and not a fee.
19. The next issue requiring attention and determination is
whether the State legislature has the legislative competence to impose
such a tax in respect of such captive consumers of molasses who do not
buy the molasses because they own the sugar mill producing the molasses
as well as distilleries which consume the same for manufacturing alcohol.
As noticed earlier the stand of the State, as per submissions of the learned
Advocate General is that the legislative competence is available through
Entry-33 in List-III, i.e., concurrent list of the VIIth Schedule to the
Constitution. The said Entry No.33 covers subject- Trade and Commerce
in, and the production, supply and distribution of -
(a) the products of any industry whether the control of
such industry by the Union is declared by Parliament by law to be
expedient in the public interest, and imported goods of the same kind
as such products;
(b) the food stuffs, including edible oil seeds and oils;
(c) capital fodder, including oil cakes and other
concentrates;
(d) raw cotton whether ginned or unginned, cotton seed;
(e) raw jute.
17
20. On the other hand, the stand of the petitioners is that tax
cannot be imposed under a general entry. Power to tax must be found in
some specific entry providing for tax such as Entry-54 in List-II (State
list) which provides for tax on the sale and purchase of goods other than
newspapers, subject to the provisions of Entry-92A of List-I. In support of
this proposition reliance has been on behalf of the petitioners upon a
constitution bench judgment of the Supreme Court in the case of
Synthetics and Chemicals Ltd Vs. State of U.P. (1990) 1 SCC 109. In
paragraph 71 of the judgment reference was made to several earlier
judgments of the Supreme Court for holding that "Legislative power
normally includes all incidental and subsidiary powers, but the power to
tax is neither incidental nor subsidiary to the power to legislate on a
matter or topic". It was further held that Entries in Lists I and II, dealing
with certain specific topics do not grant power to levy tax on transactions
relating to those topics. Power to tax must be derived from a specific
taxing entry". In that case it was further held that no tax or levy can be
justified on the theory of police power alone or on the doctrine of
privilege as these doctrines are not parts of Constitution of India. Reliance
has also been placed upon another constitution bench judgment of the
Supreme Court in the case of Godfrey Phillips India Ltd. & Anr Vs.
State of U.P. (2005) 2 SCC 515 to support the aforesaid view by
18
referring to observations in paragraphs-45 and 46 of that judgment. Those
paragraphs emphasize that the Indian Constitution has made the taxing
power of the Union and of the States mutually exclusive and there is no
over-lapping anywhere in the taxing power. It has also been held that
taxing entries must be construed with precision and clarity so as to avoid
any construction of a taxing entry which may lead to over-lapping.
21. There is no difficulty in accepting the submissions
advanced on behalf of the petitioners that in the light of aforesaid
constitution bench judgments of the Supreme Court, legislative
competence for imposing of a tax must be shown by the State of Bihar not
under a general entry such as Entry-33 in List-III but in a specific entry
providing for tax. The State has failed to show any specific entry
providing for tax by way of administrative charges over sale or supply of
molasses.
22. Although the explanation to Section-8A noticed by the
Amending Act creates a deeming fiction that transfer of released molasses
from a sugar factory to its own distillery for captive consumption shall be
deemed to be supply and this will also attract administrative charges, this
alone cannot and does not change the nature of the administrative charges
as imposed by Section-8A. Explicitly such administrative charges on
molasses are not imposed as sales tax as understood in the context of
19
Entry No.54 in the State List i.e., List-II. Under the Act administrative
charges are conceived as a mechanism to realize from buyer or consumer
of molasses, only the cost of establishment or supervision and control
over release of molasses. But in order to be accepted as a fee, the Act had
to ensure that the charges are realized from the person to whom services
by way of quid pro quo is being rendered by the State. Thus, it is found
that the Act contemplates and imposes administrative charges only as a
fee for which there is legislative competence under Entry-33 of List-III
but in view of the Supreme Court judgment in the case of Commissioner
Central Excise, Lucknow (supra), now the State of Bihar is being forced
to look for another source of legislative power to justify administrative
charges as a tax. As discussed earlier no specific entry could be shown to
vest legislative competence in the State of Bihar to impose administrative
charges by way of an indirect tax levied upon the manufacturer of
molasses who in turn are to realize the same from the purchaser or the
consumer.
23. The aforesaid vexed issue of law requires going to the
basic issue as to what is the definition of taxation and tax under Article-
366(28) of the Constitution. The said entry defines taxation in an
illustrative manner so as to include the imposition of any tax or impost,
whether general or local or special and tax has to be construed
20
accordingly. For easy reference Article-366(28) is extracted herein
below:-
"Taxation includes the imposition of any tax or impost,
whether general or local or special and „tax‟ shall be construed
accordingly".
24. A division bench of this Court in the case of
Bholanath Gupta Vs. State of Bihar (supra) considered this aspect and
noted that „impost‟ is a word of wide import which includes fee as well
and therefore the word „tax‟ will also include fee as well. The word „tax‟
will include all varieties of fee but if there is legislative competence for
imposing a fee, only because it partakes nature of a tax, can it be said that
its imposition will go beyond legislative competence of the legislature
which has competence to impose such impost as a fee. The answer is not
very simple but if the competent legislature declares a particular impost to
be a fee and if in fact it can qualify the well understood concept of fee
then there should not be any warrant to declare such a fee to be ultra vires
on the ground that it also qualifies as a tax. In this regard, the constitution
bench judgment in the case of Synthetics and Chemicals Ltd. is
relevant. In paragraphs-109 and 110 of the judgment it has been accepted
that a regulatory fee in matters relating to commodity which could be
easily converted into alcoholic liquors may be justified but it should not
be imposed to earn substantial revenue, rather the purpose must be of
regulation so as to prevent the illegal conversion of concerned commodity
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into alcoholic liquor. Such justification of a similar regulatory fee was
accepted after holding in earlier part of judgment that State of U.P. had
failed to show any entry in the State List which vested it with legislative
competence to impose such levies as a tax. In the present case the said
principle is clearly attracted because the administrative charges have been
provided by the legislature for the purpose of effective regulation so as to
prevent misuse of molasses which can be easily converted into alcohol.
25. The regulating fees must be only to meet the cost of
regulation and not with a view to create substantial earnings for the State
because as per the aforesaid constitution bench judgment if the revenue
earning is substantial it may not be justifiable as a fee.
26. We have no hesitation in following the aforesaid view
of the Supreme Court in the case of Synthetics and Chemicals Ltd and
to hold that although the administrative charges are in the nature of a tax
because presently this burden is being passed on to the buyer or the
consumer but that alone will not affect the legislative competence of the
State legislature to impose a regulatory fee. Hence the issue of legislative
competence is decided in favour of the State.
27. In spite of direct challenge by the petitioners that the
imposition of administrative charges cannot be justified without reference
to the actual cost of supervision and establishment for the control and
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supervision in respect of released molasses, the State has not been able to
justify the rate of fees imposed by it. It has suppressed all facts and
figures in this regard. Hence, the imposition of substantial fee in the garb
of administrative charges cannot be justified only by holding the fee in
question to be regulatory and within the legislative competence of the
State. On this ground the challenge to the levy and realization of
administrative charges from the petitioners requires to be struck down.
The Validating Act cannot protect the imposition of substantial impost in
the garb of regulating fees. The Validating Act by its nature can only
validate a transaction for which the legislature has the competence. As
held earlier, in the present case the legislature has legislative competence
not to levy substantial amount of revenue by way of tax in respect of
transaction in question but only to impose reasonable fee to meet the cost
of regulation. Hence, by a Validating Act the State of Bihar cannot confer
upon itself a power to impose unlimited revenue in the garb of fee when
there is no specific entry providing for levy of such tax by the State
legislature. Hence, regardless of the Validating Act, the levy and
realization of the administrative charges are struck down as illegal. But
this shall be only prospective inasmuch as the administrative charges
realized already as per the Validating Act shall not be refundable and
since the Notification dated 22nd December, 1995 has been made valid
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from the date of its issuance, the administrative charges leviable and
realizable under that Notification till the date of this judgment can only be
realized by the State of Bihar but for the period after the date of this
judgment the State of Bihar cannot levy the administrative charges under
the impugned provisions of the Act till a Notification is issued afresh
giving estimate of expenses likely to be incurred over regulation
mechanism which alone can be realized as administrative charges even on
approximate estimates. The rates for the administrative charges must be
notified afresh in the light of such reasonable estimate. Once such fresh
notification is issued by the State of Bihar, administrative charges may be
realized in accordance with law from the date of such fresh notification.
28. The writ petitions are allowed to the aforesaid extent
only.
29. In the facts of the case there shall be no order as to
costs. (Shiva Kirti Singh, J.)
J.N. Singh,J. I agree.
(J. N. Singh, J.)
Patna High Court
Dated, the 23rd June, 2010
Md. Perwez Alam/AFR