Andhra HC (Pre-Telangana)
K.C.P. Limited, Vuyyuru, Krishna ... vs Government Of A.P. And Ors. on 25 April, 2002
Equivalent citations: 2002(3)ALD830, 2003(1)ALT551
Author: Bilal Nazki
Bench: Bilal Nazki
JUDGMENT Bilal Nazki, J.
1. All these writ petitions raise common questions of fact and law and were heard together and as such they are being disposed of by this common judgment. For facts we would be referring to WP No. 10874 of 1996. Only one Counter has been filed by the respondents in WP Nos. 10874 of 1996, 10875 of 1996 and 10876 of 1996, that counter would be referred to while referring to the facts.
2. The petitioners are companies under the Indian companies Act. All of them have distilleries to manufacture various grades of Industrial alcohol from molasses. In WP No. 10874 of 1996 it has been averred that the petitioner company utilizes molasses which is a bi-product in the manufacture of sugar. The petitioners are challenging the validity of the Andhra Pradesh Rectified Spirit Rules, 1971 as amended from time to time on the ground that they are illegal, arbitrary and ultra vires to the Constitution of India in so far as they are made applicable to the industries manufacturing, processing, transporting and dealing with the Industrial alcohol. The petitioners have further questioned the action of respondents in insisting upon the petitioners to obtain no-objection certificate and payment of pass fee and excise duty on export of Rectified Spirit (Industrial grade) to other countries and other industrial units within India as illegal, arbitrary and ultra vires the powers of State legislature and violative of the rights enshrined under Articles 14, 19 (1)(g), 265 and 301 of the Constitution. According to the petitioners in WP No. 10874 of 1996 their company is engaged in manufacture and sale of alcohol having its unit located at Vuyyuru, Krishna District. The petitioners applied for and were granted licence by the Government of India, Ministry of Commerce and Industry for establishing an industry for the manufacture of Industrial alcohol. The petitioners manufacture Rectified spirit (95% Ethyle Alcohol) from molassess which is a bi-product of Sugar industry. The Rectified spirit being manufactured by the petitioners has many industrial uses and it is used in manufacture of Acetic acid, Acetic Anhydride and various other chemical products which in turn are consumed by various industries. This alcohol could also be used in the manufacture of potable liquor of IMFL which is commonly known as alcohol fit for human consumption. The petitioners claim that the Rectified spirit they manufacture and sale or export is not fit for human consumption as it is highly toxic substance having regard to the fact that it has 95% content of Ethyle alcohol. Prior to the imposition of total prohibition on the manufacture, sale and consumption of alcoholic drinks in Andhra Pradesh a major portion of the Rectified spirit manufactured by the petitioners was being supplied to the Government of Andhra Pradesh as raw material for their industries and industrial units manufacturing potable alcohol and IMFL but subsequent to the imposition of prohibition in the State of Andhra Pradesh there was no demand for Rectified Spirit in the State of Andhra Pradesh. Therefore, the petitioners made efforts to export the Rectified Spirit to other States within the country but they could not do so because the Rectified spirit available from some of the surplus States like Uttar Pradesh, Maharashtra was cheaper. They claimed that the price of Rectified spirit manufactured in Andhra Pradesh is much higher than the price in some other States and this is because of higher power tariff, higher licence fee and higher duty etc., in Andhra Pradesh. Since they could not sell it in Andhra Pradesh nor could they sell it in other States, they explored the possibility of exporting the Rectified spirit to foreign countries. It is further stated that, molasses is a bi-product of Sugar industry. Since the sugar is being manufactured the molasses obtained as bi-product if not used would become a health hazard and would threaten the environment. Therefore, it is otherwise necessary to use molasses as raw material for Rectified spirit. In this factual background the petitioners state that the Government of Andhra Pradesh has in exercise of its powers under Section 72 of the Andhra Pradesh Excise Act enacted the A.P. Rectified Spirit Rules, 1971 which provides a set of rules for the persons who deal in Rectified spirit. Under Rule 3 there is a prohibition to possess, use, transport, import or export Rectified spirit except in accordance with rules. Rule 4 lays down that Rectified spirit shall not be issued from a distillery or a warehouse without prepayment of extra duty. Rule 15(1) lays down that Rectified spirit shall not be exported without an export permit issued in accordance with rules. Sub-rule (2) of Rule 15 further lays down that any manufacturer or possessor of spirit desirous to export the spirit to any area outside the State shall have to apply in Form ARS-V to the Commissioner for export permit in that behalf. Such application shall only be entertained if the Rectified spirit is in surplus in the State of Andhra Pradesh. This export shall only be allowed on production of import permit or a no-objection certificate or an import licence issued by the competent authority of the place to which the Rectified spirit is to be exported. Under Sub-rule (3) of Rule 15, when such an application is made before the Commissioner the Commissioner is bound to make an enquiry and after making such enquiry he may grant necessary permission to export spirit on payment of fee as prescribed by the Government from time to time. According to the petitioners, these rules make it abundantly clear that possessing, transporting or exporting of Rectified spirit without obtaining a licence or permit is prohibited. They further contend that the primary aim and object of the Excise Act was to regulate the law relating to production, manufacture, possession, transport and sale of intoxicating liquor, drugs, etc. According to the petitioners, Section 2(9) of the Excise Act defines an excisable article which means (a) any alchololic liquor for human consumption (b) any intoxicating product (c) opium (d) other Narcotic product or psychotropic substance which the Government may by notification declare to be an excisable article.
3. In the light of the factual and legal position, the argument which is sought to be advanced at the Bar is that, industrial alcohol is out of the purview of the Excise Act. It is contended by the learned Counsel for the petitioners that the State has only power to legislate with regard to the alcohol or drugs which are fit for human consumption. The alcohol which has 95% content of Ethyle alcohol is decidedly not fit for consumption and it is only being used for the purpose of industry and therefore it is outside the purview of the Excise Act and also outside the State's jurisdiction.
4. Before going to the arguments which are advanced it will be necessary to refer to counter filed by the respondents. It is contended in the counter that, in terms of Section 72 of the A.P. Excise Act, 1968 the Government of Andhra Pradesh has framed A.P. Rectified Spirit Rules, 1971 which govern the purchase, sale, transport etc., of Rectified Spirit. It is further contended that the petitioners besides having a licence obtained from the Government of India, Ministry of Commerce and Industry have also obtained a licence in Form-D2 from the Andhra Pradesh Excise authorities under A.P. Excise Act, 1968. According to the A.P. Excise Act and rules made thereunder any person desirous of manufacturing Rectified spirit shall have to apply to the Government under Rule 9 for issuance of Letter of Intent which is then converted into licence in Form-D2 which is to be issued by the Commissioner of Prohibition and Excise on fulfilment of conditions prescribed. It is submitted that there are 21 Rectified Spirit producing distilleries which have taken D2 licence which are functioning for the last 20 years and after introduction of total prohibition all the Rectified spirit producing distilleries which have applied have got their D2 licence renewed in 1995-96 and in 1996-97, 17 out of 21 distilleries which applied for renewal of licence had been granted licences. It is submitted that Rectified spirit is a dynamic common base material which is manufactured primarily for potable purpose and then for Medicinal and Toilet preparations. The respondents further contended that as per the Indian standard specification No. 323 of 1959 of Indian Standard Specifications for Rectified Spirit the material confirming to Grade-I shall be suitable for use as an agent for pharmaceutical and Medicinal purposes and for the purpose of production of alcoholic beverages, Grade-II, is identified as the material for the other industrial purposes. In other words it is contended that, though both the Grade-I and Grade-II contain the same strength of Ethanol, Grade-I being more pure is fit for human consumption and Grade-II containing impurities is not fit for human consumption. In common parlance according to the respondents Grade-I Rectified spirit diluted with water becomes readily and instantly potable. Before prohibition a major portion of Rectified spirit that was being manufactured was diverted for production of arrack and Indian made liquor and other alcoholic liquors and only a minor portion was used for industrial purposes. The respondents have also gave some statistics from 1990-91 to 1995-96 which are repoduced.
Year Total quantity of Rs. consumed (in lakh bulk litres) Quantity of R.S consumedfor polabte purpose (in lakh bulk litres) Quantity of R.S. consumedfor industrial purpose (in lakh bulklitres) % (1) (2) (3) (4) (5) 1990-91 814.96 613.89 201.07 24.67% 1991-92 890.96 663,66 196.40 21.34% 1992-93 810.15 720.57 89.58 11.05% 1993-94 419.43 306,78 83.70 21.14% 1994-95 137.9G 31.42 81.31 3900% (prohibition) (Export for arrack) 1995-96 (May) (prohibition) 70.95 33.70 37.25 52.50% It is submitted that, since the requirement of Rectified spirit was more it needed to be regulated. It is denied that molasses which is raw material for manufacture of Rectified spirit had accumulated beyond the storage capacity and was posing health problems. It is contended that after the de-control of molasses it is being supplied to the end users. In the year 1995-96 out of 5.11 lakh M.Ts of molasses produced 3.65 lakh M.Ts was disposed of and during the year 1996-97 upto 15-5-1996 out of total quantity of 4.48 lakh M.Ts of molasses produced 2.88 lakh M.Ts had already been disposed of and 1.90 lakh M.Ts was being exported.
5. Now, in the light of these pleadings the basic question which has to be decided is whether the State Government has any power to deal with alcohol which is supposed to be used for industrial purposes. There would be an additional question that whether the State Government can regulate the business in rectified spirit as to ensure that the Rectified spirit manufactured and sold by distilleries in the State is used for industrial purposes because admittedly the rectified spirit of 95% purity can be used for both purposes. These questions have drawn the attention of the Apex Court on various occasions and we are told that even at present a matter is pending before the Supreme Court.
6. The leading judgment in this case is Synthetics and Chemicals Limited v. State of U.P., . This case was decided by a Constitutional Bench consisting seven Honourable Judges of the Supreme Court. There were many writ petitions, appeals and review petitions pending before the Court which constituted same questions of law and fact. After noing down the factual matrix the Court framed a question in para-2 of the judgment by Sabyasachi Mukharji, J., as His Lordship then was who spoke for six of the Judges.
"2. The main question that falls for consideration in these matters is whether the vend fee in respect of the industrial alcohol under different legislations and rules in different States is valid. The question is-is the vend fee and impost leviable or extractable by me States under different Acts. The question mainly involved in all these matters is a common question of law but we will have to deal with diverse factual situations as well as the particular provisions of the various Acts. The questions with which we are mainly concerned are the following:
(i) whether the power to levy excise duty in case of industrial alcohol was with the State Legislature or the Central Legislature?
(ii) what is the scope and ambit of Entry 8 of List II of the Seventh Schedule of the Constitution?
(iii) whether, the State Government has exclusive right or privilege of manufacturing, selling, distributing, etc. of alcohols including industrial alcohol. In this connection, the extent scope and ambit of such right or privilege has also to be examined."
Then the Supreme Court went on discussing the law laid down by the Apex Court on earlier occasion and finally discussed the judgment in Har Shankar v. Deputy Excise and Taxation Commissioner, . In Har Shankar's (supra) judgment the Supreme Court had considered the earlier judgments of five Constitutional Benches. The Seven Judges Bench quoted one of the paras of the judgment of Chandrachud, J., which reads as under:
"These unanimous decisions of five Constitutional Benches uniformly emphasised after a careful consideration of the problem involved that the State has the power to prohibit trades which are injurious to the health and welfare of the public, that elimination and exclusion from business is inherent in the nature of liquor business, that no person has an absolute right to deal in liquor and that all forms of dealings in liquor have, from their inherent nature, been treated as a class by themselves by all civilised communities."
Then the Supreme Court considered the question whether intoxicating liquor in Entry 8, List II is confined to potable liquor or includes all liquors. In para-41 of the judgment the Court held:
"41. The only question which has to be determined is whether intoxicating liquor in Entry 8 in List II is confined to potable liquor or includes all liquors. According to the Union of India, in view of the deference of language in Entry 8 and Entry 51 of List II, it is reasonably possible to take the view that intoxicating liquors include both liquors. It was submitted by the Union of India that there are no grounds for overruling Balsara case (AIR 1951 SC 318) decided in 1951 after 38 years particularly when it has been followed the applied in later decisions. In that case it upheld the power of the States to completely prohibit, manufacture, sell etc., potable liquor, it struck down the provisions of the Bombay Act insofar as it imposed restrictions on medicinal and toilet preparations as violative of Article 19(1)(f) of the Constitution. It is stated that this decision had proceeded on the basis that there could not be a complete prohibition in regard to medicinal preparations containing alcohol. Hence, it was submitted that so far as alcohol not fit for human consumption is concerned, it cannot be held that trade in such an article cannot be considered to be a noxious trade. It will be a noxious trade only where it is produced or manufactured for purposes of human consumption. It was submitted that in Indian Mica and Micanite Industries v. State of Bihar this Court was dealing with denatured spirit and had held that the Bihar Orissa Excise Act, insofar as it related to denatured spirit, was regulating trade and business in public interest; and that Entry 8 of List II comprehends all liquors containing alcohol. The State's privilege to completely prohibit or farm out liquor containing alcohol for human consumption does not comprehend, according to the Union of India, a similar right of a State with regard to other intoxicating liquids containing alcohol. According to the Union of India, to so prohibit or collect fee for farming out, would be unconstitutional under Article 19(1)(g) of the Constitution on the same principle on which the provisions of the Bombay Act were struck down in Sahara case. It was further stated on behalf of Union of India that Parliament has legislative competence with regard to power alcohol providing for levy of central excise duty. See the central Excises and Salt Act, 1944, Schedule I, Item 6 : Motor Spirit. Similarly, Parliament has legislated the central Excise Tariff Act, 1985 tariff Item No. 22.04. The said item reads:
"Ethyl alcohol, of any grade (including such alcohol when denatured or otherwise treated), which either by itself or in admixture with any other substance, is suitable for being used as fuel for sparkignition engines."
In para 44 the Supreme Court held :
"44. The State legislature will have power to levy fee in respect of all alcohol. See Entry 66 read with Entry 6 of List II. State Legislature has power to legislate on the topic 'intoxicating liquors' under Entry 8 of List II. It being a general entry, will not comprehend a power of taxation but will comprehend a power to levy fee read with Entry 66. According to the learned Attorney-General, with regard to industries, the control of which by the Union is declared by Parliament by law to be expedient in public interest, Parliament will have exclusive legislative competence. See Entry 52 of List I. This power includes as power to declare by Parliament that control by the Union of Industries relating to all types of alcohol is expedient in public interest. Once Parliament makes such a declaration, the State legislature will be denuded of its power under List II, Entry 24 on the aspect 'industry' with respect to all subject-matters. The power to collect the lump sum amount by way of auction by any right or otherwise conferring the right to sell alcohol is neither a power to levy tax nor a power to levy fee but it will fall within the legislative competence of the State Legislature under Entry 8. But this power will extend only, according to learned Attorney-General, to alcohol for human consumption. He said that there can be complete prohibition with regard to manufacture and sale of alcohol fit for human consumption because there is no fundamental right to carry on business in alcohol even for human consumption. And that this power to completely prohibit exists in the State as recognised by Article 47 of the Constitution. The State can, therefore, collect an amount called vend fee, shop rent etc., for conferring on a citizen the right to manufacture and sell alcoholic liquors if it is for human consumption. This power cannot extend to industrial alcohol or alcohol contained in the medicinal or toilet preparations. According to the learned Attorney-General, there is no power to levy such rent or fee with regard to industrial alcohol because (a) industrial alcohol and alcoholic liquor for medicinal and toilet preparations cannot be completely prohibited;
(b) as there is a right to carry on business in industrial alcohol any prohibition on manufacture of industrial alcohol would be Violative of Article 19(1)(g) of the Constitution. Accordingly, in absence of a power to completely prohibit there will be no power to collect sums for conferring rights to manufacture or sell except the levy of taxes and fees."
In para - 53 :
"53. It was further submitted by the State that the State has exclusive right to deal in liquor. This power according to the Counsel for the State, is reserved by and/or derived under Articles 19(6) and 19(6)(ii) of the Constitution. For parting with that right a charge is levied. It was emphasised that in a series of decisions some of which have been referred to hereinabefore, it has been ruled that the charge is neither a fee nor a tax and termed it as privilege. The levy is on the manufacture, possession of alcohol. The rate of levy differs on its use, according to the State of UP. The impost is also stipulated under the trading powers of the State under Article 298 and it was contended that the petitioners and/or appellants were bound by the terms of their licence. It was submitted that the Parliament has no power to legislate on industrial alcohol, since industrial alcohol was also alcoholic liquor for human consumption. Entry 84 in List I expressly excludes alcoholic liquor for human consumption; and due to express exclusion of alcoholic liquor for human consumption from List I, the residuary Entry 97 in List I will not operate as against its own legislative interest. These submissions have been made on the assumption that industrial liquor or ethyl alcohol is for human consumption. It is important to emphasise that the expression of a constitution must be understood in its common and normal sense. Industrial alcohol as it is, is incapable of being consumed by a normal human being. The expression 'consumption must also be understood in the sense of direct physical intake by human beings in this context. It is true that utilisation in some form or the other is consumption for the benefit of human beings if industrial alcohol is utilised for production of rubber, tyres used. The utilisation of those tryes in the vehicle of man cannot in the context in which the expression has been used in the Constitution, be understood to mean that the alcohol has been for human consumption."
In para -59 :
"59. It was submitted that the dichotomy attempted to be drawn in Entry 84 of List I of the Seventh Schedule to the Constitution, on the basis of the development of the concept of industrial alcohol and the inapplicability of the concept of potable liquor to the industry of alcohol is not valid. There is no question of fundamental right to trade in dangerous or hazardous alcohol. It was submitted that it is consistent with wider interpretation of alcoholic liquor based on pre-existing legislative history. It was further submitted that the test of potability of liquor is in no way rendered invalid in relation to industrial alcohol as it still permits of conversion to potability by addition of flavours and dilution. When two interpretations are possible, it was submitted that the choice must fall on that interpretation which validates existing State legislation's designed to raised revenues and rejection of the other interpretation which is destructive of the scheme of distribution of powers. According to him, the words 'alcoholic liquor in Lists I and II of the Seventh Schedule to the Constitution must be interpreted so as to mean and take within its sweep alcohol as first obtained in the process of or as a product of fermentation industry. At this stage, it is capable of being rendered potable. The fact that it may be rendered unfit for human consumption, does not render the substance any less liable for taxation."
In para -74 :
"74. Only in two cases the question of industrial alcohol had come up for consideration before this Court. One is the present decision which is under challenge and the-other is the decision in Indian Mica and Micanite Industries Limited case . In the latter case, inspite of the earlier judgments including Bharucha's case , denatured spirit required for the manufacture of micanite was not regarded as being within the exclusive privilege of the State. It appears that in that decision at p.321 of the report it was specifically held that the power of taxation with regard to alcoholic liquor not fit for human consumption, was within the legislative competence of central legislature. The impost by the State was held to be justifiable only if it was a fee thereby impliedly and clearly denying any consideration or price for any privilage. For the first time, in the Synthetics and Chemicals Limited case the concept of exclusive privilege was introduced into the area of industrial alcohol not fit for human consumption."
And finally in para 82 the Supreme Court said :
"82. Having regard to the principles of interpretation and 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, we are of the opinion that the impost in question cannot be justified as State imposts as these have been done. We have examined the different provisions. These are not merely regulatory. These are much more than that. These 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."
So, in the light of this judgment the Constitutional Bench of the Supreme Court categorically held that power of taxation with regard to alcohol not fit for human consumption is within the competence of the Central Legislature. The impost by the States was held to be justifiable only if it was a fee in case the State is rendering any service. So, two principles emerge out of this judgment, (1) that, imposition of tax on alcohol fit for human consumption was the exclusive privilege of the State Legislature and (2) that the power of taxation with regard to alcohol not fit for human consumption was within the exclusive legislative competence of Central legislature. It is on this ground that these writ petitions have been filed and it is stated that the levy of fee by the State Government in terms of various rules was unconstitutional.
7. This judgment of Supreme Court (supra) has become subject-matter of interpretation by the Supreme Court itself in State of U.P v. Synthetics and Chemicals Limited, . This is a small judgment but gives an insight to the earlier seven Judges Bench judgment also. We are reproducing para 1 and 2 of the judgment:
(1) Heard Counsel for the petitioners as well as the Counsel for the respondents. We see no reason to entertain this special leave petition. It is established by the decision of this Court in Synthetics and Chemicals Limited v. State of U.P. that so far as the industrial alcohol is concerned, the power of licensing vests in the Union of India alone. At the same time it is held that the power of the State Government to legislate with respect to potable liquor referable to Entry 8 of List II remains unaffected. It is also held that the State has the power to make regulations and to take appropriate action to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol. Another principle enunciated in the said decision is that the State can, not only charge excise duty on potable alcohol and sales tax on sales of such potable alcohol, but is also entitled, in cases it renders any service, as distinct from its claim of grant of privilage, to charge fees based on quid pro quo. The High Court in this case has merely reiterated the said principles. It has held "that the central Government has the exclusive power to grant a licence for the manufacture of industrial alcohol. It is not necessary for the petitioner to obtain a PD2 licence from the Excise Commissioner, U.P., Allahabad before starting its distillery for the manufacture of industrial alcohol. The provisions in the U.P. Excise Manual relating to taking of PD2 licence are not applicable to a case where a person wants to manufacture industrial alcohol. The other provisions of the Act and Rules of the U.P Excise Act and Manual are applicable in order to ensure that industrial alcohol is not covered into potable alcohol." The final order of the High Court is to the following effect:
"In view of the above, we allow the writ petition and direct the respondents not to interfere with the petitioner's manufacturing industrial alcohol in the distillery for which licence had been granted. This is, however, subject to the right of the State Government to ensure that industrial alcohol is not converted into potable alcohol."
(2) In our opinion the said observations must be understood as reiterating the principles enunciated by this Court in the decision aforecited. Mr. Salve, learned Counsel for the State of Uttar Pradesh submitted that before manufacturing industrial alcohol, the respondent-company has to manufacture rectified spirit and that rectified spirit can be converted into potable liquor by merely adding water. May be so. The observations made by the High Court and the law laid down by this Court recognise and safeguard the power of the State Government to guard against such abuse. We affirm it."
This shows that even the Supreme Court accepted the principle that, though State cannot charge excise duty on alcohol which is not fit for human consumption but it is entitled in case it renders any service to charge fee based on quid pro quo. Thereafter, another two judgments came, one in Vam Organic Chemicals Limited v. State of U.P., , and the other in Bihar Distillery v. Union of India, . In both the judgments the Supreme Court considered all the judgments on the subject including the Constitutional Bench judgment referred to above. In Bihar Distillery's case (supra) the Supreme Court went certain steps further because it found that the demarcation between Industrial alcohol and alcohol which was fit for human consumption was so thin that certain other aspects which had not been considered in the Synthetics and Chemicals Limited, case (supra) needed to be considered. Justice B.P. Jeevan Reedy who spoke for the Court has elaborately discussed this issue in para 23 of the judgment. We are reproducing para 23 as it is, because there cannot be better words to emphasize the point which needs to be emphasized.
"(23) We are of the respectful and considered opinion that the decision in Synthetics did not deal with the aspects which are arising for consideration herein and that it was mainly concerned with industrial alcohol, i.e., denatured rectified spirit. While holding that rectified spirit is industrial alcohol, it recognised at the same time that it can be utilised for obtaining country liquor (by diluting it) or for manufacturing IMELs. When the decision says that rectified spirit with 95% alcohol content v/v is "toxic", what it meant was that if taken as it is, it is harmful and injurious to health. By saying "toxic" it did not mean did not mean that it cannot be utilised for potable purposes either by diluting it or by binding it with other items. The undeniable fact is that rectified spirit is both industrial alcohol as well as a liquor which can be converted into country liquor just by adding water. It is also the basic substance from which IMFLs are made. (Denatured rectified spirit, of course, is wholly and exclusively industrial alcohol.) This basic factual premise, which is not and cannot be denied by anyone before us, raises certain aspects for consideration herein which were not raised or considered in Synthetics'. Take a case where two industries 'A' and 'B' come forward with proposals to manufacture rectified spirit; 'A' says that it proposes to manufacture rectified spirit and then denature it immediately and sell it as industry alcohol while 'B' says that it will manufacture rectified spirit and utilise it entirely for obtaining country liquor (arrack or by whatever other name, it may be called) or for manufacturing IMFLs from out of it or to supply it to other for the said purpose. According to Synthetics, 'A' is under the exclusive control of the Union and the only powers of the State are those as are enumerated in para 86 quoted above. But what about 'B'? The rectified spirit manufactured by it is avowedly meant only for potable purposes. Can it yet be called "industrial alcohol"? Can it still be said that the State concerned has no power or authority to control and regulate industry 'B' and that the union alone will control and regulate it until the potable liquors are manufactured? The Union is certainly not interested in or concerned with manufacture or process of manufacture of country liquor of IMFLs. Does this situation not leave a large enough room for abuse and misuse of rectified spirit it should be remembered that according to many States before us, bulk of the rectified spirit produced in their respective States is meant for and is utilised for obtaining or manufacturing potable liquors. Can it be said even in such a situation that the State should fold its hands and wait and watch till the potable stage is reached. Yet another and additional circumstances is this: it is not brought to our notice that any notified orders have been issued under Section 18-G of the IDR Act regulating the sale, disposal or use of rectified spirit for the purpose of obtaining or manufacturing potable liquors which means that by virtue of Entry 33 of List III, the States do have the power to legislature on this field - field not occupied by any law made by the Union. It is these and many other situations which have to and taken into consideration and provided for in the interests of law, public health, public revenue and also in the interests of proper delineation of the spheres of the Union and the States. The line of demarcation can be should be drawn at the stage of clearance/removal of the rectified spirit. Where the removal/clearance is for industrial purposes (other than the manufacture of potable liquor), the levy of duties of excise and all other control shall be of the Union but where the removal/clearance is for obtaining or manufacturing potable liquors, the levy of duties of excise and all other control shall be that of the States. This calls for a joint control and supervision of the process of manufacture of rectified spirit and its use and disposal. 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 ir, or without denaturing it, are concerned, they shall be under the total and exclusive control of the Union and be governed by the IDR 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 exercise duties and all other control including establishment of distillery shall be that of the Union. The power of the Sates 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, is not diverted or misued 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 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 Limited v. State of Gujarat and Gujchem Distillers India Limited v. State of Gujarat .
(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 in supplied for potable purposes - or to the extent it is so supplied, as the case may be - 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 State Government concerned. The disposal, i.e., clearance and removal of rectified spirit in the case of such an industrial shall be under the joint control of the Union and the State concerned to ensure evasion of excise 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 purpose, both during and after the manufacture of rectified spirit, continues unaffected. Any rectified spirit supplied, diverted or utilised for potable purposes, i.e., for obtaining or manufacturing potable liquors shall be supplied to and/or utilised, as the case may be, in accordance with the State excise enactment concerned 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.
(4) It is advisable - nay, necessary - that the Union Government makes necessary rules/ regulations under the IDR Act directing that no rectified spirit shall be supplied to industries except after denaturing it save those few industries (other than those industries which are engaged in obtaining or manufacturing potable liquors) where denatured spirit cannot be used for manufacturing purposes.
(6) So far as rectified spirit meant for being supplied to or utilised for potable purposes is concerned, it shall be under the exclusive control of the States from the moment it is cleared/removed for that purpose from the distillery apart from other powers referred to above.
(7) The power to permit the establishment of any industry engaged in the manufacture of potable liquors including IMFLs, beer, country liquor and other intoxicating drinks is exclusively vested in the States. The power to prohibit and/or regulate the manufacture, production, sale, transport or consumption of such intoxicating liquors is equally that the of States, as held in McDowell."
From reading this paragraph the Supreme Court was emphatic and clear that the line of demarcation had to be drawn at the stage of clearance/removal of rectified spirit and it said that, where the removal is for industrial purpose the levy of Excise duty and all other control shall be with the Union but where the removal is for manufacturing potable liquor the levy of excise duty or and all other control shall be with the States. Therefore, the Supreme Court was of the view that this calls for joint control over the process of manufacture of Rectified spirit and its use and disposal, but presently there is no joint control and this process of demarcation is being done by the Excise authorities of the State Government. Therefore, in our view the fee charged is well within the powers of the State Government as they are rendering service for the purpose of demarcation. It has been contended at the bar that by adding water to rectified spirit which is not fit for human consumption it can be made fit for human consumption. Therefore, the responsibility of the State Government is tremendous even in cases where they are dealing with liquor which is used for industrial purposes. Therefore, the Supreme Court upheld the power of the States in case of alcohol which is not fit for human consumption to see and ensure whether in the course of manufacture of after its manufacture the alcohol is not diverted or misused for potable purpose. Therefore, the State Government would be entitled to make necessary regulations requiring the industry to submit periodical statements of raw material and the finished product and are entitled to verify their correctness. The State Governments have also been held entitled to post their staff in the distilleries and levy reasonable regulatory fee to defray the cost of such staff. This view was followed in Deccan Sugar and Abkari Company Limited v. Commissioner of Excise, . The learned Counsel for the petitioners however submits that both the judgments are in conflict with the judgments of the Constitutional Bench of seven Judges. We are reproduced the portions from all the three judgments in detail and we do not find that there is any conflict in the two judgments with the Constitutional Bench judgment. In any case, no basis has been laid down by either of the parties on the basis of which this Court could come to the conclusion whether the fee levied was reasonable or not. The fee has been levied for regulating the business of liquor which is not unconstitutional per se in view of the judgments of the Supreme Court referred to herein above. The learned Counsel for the petitioners further submitted that rules under the of A.P. Excise Act could not be made with respect to alcohol which is not fit for human consumption. In this connection he refers to Section 2(9) of the A.P. Excise Act. He submits that excisable articles have been defined as any alcohol, liquor fit for human consumption, since the alcohol which is not fit for human consumption is not at all made excisable article under the Excise Act therefore there cannot be any rule by which alcohol which is not fit for human consumption could be made excisable under the Act. We are not impressed by this arguments because of the judgments referred to herein above and also on the ground that it is not by way of tax that the amounts are being levied from the petitioners it is only by way of fee for the services rendered and also for ensuring that alcohol which is manufactured for industrial use is not used for the purpose of making potable liquor. In para-10 of the counter affidavit the respondents have stated;
"10. The State has got responsibility to see that R.S. supplied for Industrial units is not misused or diverted for potable purposes and hence only nominal regulatory charges are being levied to meet the regulatory (Administrative) expenses i.e., the expenses in respect of the connected staff meant for regulation of Industrial alcohol. The Hon'ble Supreme Court in Bihar Distilleries case has upheld the collection of regulatory Fees and as such States have got power to exercise levy such fees."
8. For these reasons, we do not find merit in these writ petitions which are accordingly dismissed.