Gujchem Distillers India Ltd. v. State of Gujarat and Anr.

MOHAN, J. This is an appeal by certificate granted by the High D ....,__ Court of Gujarat at Ahmcdahad under Articles 132(1) and 133(1)(a) of the Constitution of India. It is directed against the judgment dated 29/30th August, 1973 in Special Civil Application No. 163 of 1973. The facts leading to this appeal are briefly as under :- The Appellant is a company registered under Indian Companies Act. It is engaged in the business of manufacturing resins, chemicals, sodium carboxy methyl, cellulose and certain other chemicals. Industrial alcohol is ~ one of the raw materials used hy the appellant company . • , F Though, till the year 1969, the appellant was purchasing industrial.· alcohol from the market, it installed its own distillery from May 1970 at Bilimora, within the State of Gujarat. This was for the purpose of manufac­ turing industrial alcohol from molasses. On July 3rd, 1969 the second respondent, the Director of Prohibition G and Excise, Gujarat State, Ahmedabad issued a licence to the appellant for manufacturing spirit. In accordance with the conditions No. 2 and 3 of the licence, the 2nd respondent appointed a staff of 9 persons. The said staff consisted of one Inspector, one Sub-Inspector, one Nayak, one J amadar and five constables to supervise the manufacture of spirit in the H 678 '>I ;plffME COURT REPORTS [ 1992] I S.C.R. A appellant's distillery plan!. The appellant was also required to provide residential accommodation lo the supervisory staff within the factory premises. On July 3rd, 1969 the 2nd respondent asked the appellant to .. deposit the supervisory charges. From time lo time, these supcr,1sory ~ charges were also deposited in accordance with the directions of 2nd B rcspotldenl. It requires lo be staled al this stage that the le'y of supervisory charges, is traceahle lo Section 58(A) of Bombay Prohibition Act of 1949. The Section says:. ~ "Sec. 58(A) : The Stale Government may by general nr special ,order direct that the manufacture, import, export, 1ransp<1rl. storagci sale, ,purchase, use, l'ollection or cuhi\'alion nf any intoxicant, denatured spirituous preparation, hc1np1 inho\vra flo\vcrs, or molasses shall he under th..: supcr\'ision of such Prohibition and Excise or Pulice Staff as it may deem proper lo appoint and that the cusl of such staff shall he paid to the · State Go\.'..:.rnn1cnt hy person manufacturing. importing! c.xport­ .ing, transporting, storing, selling~ purLhasing. usi'1g, collecting or cultivating' the intoxicant. d~nalun.:d spirituous prcpari:ilinn. hemp, inho\VTa Oo\VCTS or mollascs: Pro,ided that the Stale Government may exempt any class of persons or instiltilions from paying the whole or any part of the cost of such staff." Section 143 of the said Ad confers power for making rules. Rules have hceh framed called Bombay Prohibition (Manufacture of Spirit) (Gujarat) Rules, 1963. These rules inrer u/ia regulate the working of distill­ eries. manufacturing spirit Ruic 2 provides for the licence. Condition Nos. 2 and 3 of the licence require payment of the supervisory staff and for ptovisioh of quarters for the residential acco1nmo<lation of the slaff fcspcC- tivcly. The appellant filled Civil. Application No. 163 of 1973 in the High Court of Gujarat challenging the constitutional validity of Section 58(A) of the Ac!. By the impugned jutlgment, the said petition was dismissed. 11' H Hence, the present civll appeal. •·· GUJCHEM DISTILLERS v. STATE [MOHAN. J.] 679 .. The arguments of the appellant briefly slated will boil down to this. A It has been categorically laid down in Synthetics & Chemicals Ltd. v. State of UP. & Ors., [1989] Supp. 1 SCR 623 that in respect of industrial alcohol, the States have no power to impose the impost as is sought to be done in the instant case. The theory of privilege as adumbrated by the High Court can no longer be sustained in view of the judgement. B Even otherwise, there is no quid pro quo. In countering the submissions, it is argued on behalf of the State that Synthetics and Chemicals Ltd. etc. (supra) dealt merely with the vend fees. That is not the case here. The maintenance of the staff contemplated under Section 58(A) of the Act is primarily for the purpose of ensuring that while dealing with industrial alcohol, no attempt shall be made to divert non­ potable alcohol. Therefore, by regulatory measures, the State sees to it that industrial alcohol is not diverted for the use as potable alcohol. Such a regulatory measure is perfectly valid as seen from Southern Phannaceuti- D cats & Chemicals v. State of Kera/a, AIR 1981 SC 1863. This decision was noted with approval in Synthetics & Chemicals Ltd. Etc. (Supra). However, such a power was sustained though not on police power but as a regulatory measure. As regards the services rendered, the appellants are precluded from contending that the services did not make the impost, since the High Court has noted that it was not contended before it that there was not sufficient quid pro quo between the quantum of impost and the services rendered to the manufacturer or businessman. We are relieved of the necessity of deciding the correctness of these submissions by a detailed judgment, since indentical points were raised in Civil Appeal No. 503 of 1974 (Sh. Bilesliwar Kliand Udyog Kliedut Sahakari Manda/i Ltd. v. 17ie State of Gujarat & Anr.) to which one of us (Mohan, J.) was a party. The said Civil Appeal has been dismissed considering these aspects and upholding the validity of Section 58(A). The 0 said judg- G ment will squarely cover this case as well. We fully concur with the reasons contained therein. In Synthetics & Chemicals Ltd. etc. (supra) concerning the power to make regulations in order that non-potable alcohol may not be diverted for use as potable alcohol. the foll.g observations are found at page 681: H ><·.· '» ... : .. ti G 680 . ':"5 . . .. .. - .. SUPR~ME C0URTREPO~TS . .· [199iJ 1 S.C.R. . "The position with regard t~ th~ c.\nttol.of alcohol industry has undergone material .and sigqiti~t· chilz!ge after. the amend·· .... ment of 1956to the ID!l Ai:t. After tlie att1erii.lineiit, the State ·.• . . . is left With. only th~ folloWing po"'e~i; to iegisiaie in respect of alcohol:'· . · · . . . ,\ .· . (a) i~·~a; pasii ~~Jegislatlon in the nature of prohibition pf pbtabl~ 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 artd·misused as a substitute for potable alcohoL · (c) the State may cl&ge·excise duty on 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) Oiders, sales · tax . ca11Dot be charged by the State on industrial alcohol. · ( d) however, in case State is rendering any service, as distinct from its claim of soc called grant of privilege, it may charge· fees . based on quid pro quo." In this connection, we may also usefully ·refer to Souti!em Phar- macelllica/s & Chemicals (supra). This case related to the constitutional validity of Sections 12·A, 12-B, 14(e) & (f), 68·A of Kerala Abkari Act (1 of 1077) and Rules 13 and 16 of the Kerala Rectified Spirit Rules, 1972. One of the contentions raised was that the provision contained under Section 14 ( e) of the Act for the collection of supervisory charges was clearly invalid inasmuch as : '(~)T~ey iJe lil conflict of Rule 45 of Central Excise Rules and, (b).Theycould not be Sustained as fee as there was no quid pro quo . In the said judgment at page 1875, para0 27 Southern Pharmaceuticals & C/1emicals (supra) rea1t5 under : .. · «A fee may be .charged for the privilege or benefit conferred, >-- ~- -{ .,:_ -,-.· --+ GUJCHEM DISTILLERS"· STATE (MOHAN, J.) 681 or service rendered, or to m.ect the expenses connected there- .A with. A foe may be, levied to meet the oost or supervision and may be, something more. It is in consideration for the privilege, licence or service". Again in. para 29, it wa5 stated thus: · "There is a broad co-relationship between the fee collected and the cost or the establishment under Section 14( e) of the Act it · is provided that the Commissioner, with the previous approval or the Government may prescribe the size and nature or the establishment' necessary for supervision or a manufaciory and C the cost or the establishment and other incidental charges in connection with such supervision be realised from the licensee. There can be no doubt that the supervisory staff is deployed in a bonded manufactory by the Government for its own protec- tion to prevent the leakage or revenue, but there is no. denying D the fact that a licensee undoubtedly receives a service in return. The cost of the establishment levied under Section 14(e) of the Act is to be collected from the licensee in the manner provided by Rule 16(4) of the Kerala Rectified Spirit Rules, 1972, relevant part of which reads : "(4) All the transactions in the spirit store shall be conducted only in the presence of an Excise Officer not below the rank of an Excise Inspector. Such officer shall be assisted hy at least two Excise Guards. The cost or establishment of such officer and the guards shall be payable by the licensee in advance in F · the first week of every month as per counter-signed challan to be obtained from such officer. The rate at which the cost of · establishment is to be paid by the licensee shall be fixed by the Commissioner from time to time and intimated to the licensee in writi~g .... ~ ........ " There is admittedly no provision made in the Central Rules for the recovery of supervisory charges, perhaps because as the Coan observed in the Hyderabad Chemicals and Plraffna­ ceitiica/'s case (AIR 1964 SC 1870) (supra) it was felt that the duty on medicinal and toilet preparations containing alcohol . H would be sufficient to defray the cost of such supervision. But the absence of such a provision in the Central Rules, as we have already indicated, does not deprive the State from making a provision in that behalf. It is true that the supervisory charges are in the nature of a compulsory exaction from a licensee and the collections arc not credited to a separate fund, but are taken to the consolidated fund of the State and are not separately appropriated towards the expenditure incurred in rendering the service. However, as observed in Govemmellf of Madras v. Zenith Lamp & Electricals Ltd., [ 1973) 2 SCR 973; (AIR 1973 SC 724) followed in State of Rajasthan v. Sajjanlal Panjawat, [1974) 2 SCR 741; (AIR 1975 SC 706) that by itself is not decisive, by reason of Art. 266 of the Constitution. It is equally true that norn1ally a fee is uniform and no account is taken of the paying capacity of the recipient of the service, but absence of uniformity will not make it a tax if co-relationship is estab­ lished [sec Commissioner H.R.E., Madras·v. Lakshmindra 77zir­ tha Swamiar of Shinll' Mutt and Govemment of Madras v. Zenith Lamp and £/ecrrica/s Ltd., AIR 1954 SC 282 and AIR 1973 SC 724 (supra)). The cost of supervision would necessarily vary with the. nature and extent of the· business carried on by a licensee. Therefore, the supervisory charges can be sustained even if they arc regarded as a fee for services rendered by the State or its instrumentalities." In dealing with Synllzelics Chemical case (supra) the following ohser­ vations were .made : "Learned Advocates-General for the States of Gujarat and Kcrala have also made their submissions, and referred to several decisions and the concept of police po\ver, and con­ tended that imposition of a fee would be the most effective method of regulating intoxicating liquor other than alcohol. According to the Advocate-General of Kenia, that would be justified as the reasonable measure in regard to intoxicating liquor. According to him, it has been accepted hy courts all along that the 'police power' of the State enables regulations to be made regarding manufacture, transport, possession and -.,.. GUJCHEM DISTILLERS, .. STATE [MOHAN. J.] 683 sale of intoxicating liquor. Such police power could be excr, A cised as to impose reasonable restrictions as to effectuate the power. He referred to the observations of this Court iri Coover- jee B. Bhantdia v. The Excise Commissioner and the Chief Commissioner, Ajmcr & Ors., 119541SCR873 which quoted the passage from Crowley v. Christensen, (1890) 24 Lawyers' Edn. B 620. Reference was also made to Hori Slta11ker's case (supra). Where this Court quoted Vol. 38 of the American Jurisprudence where it was stated that the higher the fee is imposed for a licence. better is the regulation.· Reliance was also placed on P.N. Kaushal's case (supra). It was contended that it has been accepted by this Court that the police power C is exercisable for regulation of an activity of a legislature within the permissible field or impost as regulatory measure. It may be valid though it may neither be fee nor a tax in the limited sense of the term. See the observations of this Court in Southem Phannaceuticals & Chenziclas. Tn"chur & Ors., etc. v. State of D Kera/a & Ors. etc., [19821 I SCR 519 at 537. Regarding regulatory measures in connection with medicinal prepara'tions containing alcohol it was observed by this Court that tl.e im­ pugned provisions had to be enacted to ensure that the Rec­ tified Spirit is not misused under the pretext of being used for E. toilet and medicinal preparations containing alcohol. Such a regulation is a necessary concomitant of the police po\vcr of the State to regulate such trade or business which is inherently · dangerous to public health. The American doctrine of police power is not perhaps applicable as such in India, hut powers of the sovereignty to regulate as part of the power of the competent legislature to effectuate its aim are there. It is true that that in the State of West Bengal v. Subod/1 Copa! Bose & Ors., 11954] V SCR 587 at 601-604 and Kameshwar Prasad & Ors. v. The State of Bihar & Anr., 11962] 3 Suppl. SCR G 369 the concept of police power was accepted as such, but this doctrine was not accepted in India as an independent po\vcr but was recognised as part of the power of the State to legislate \vith respect to the matters enumerated in the State and Con­ current Lists, subject to constitutional limitations. It \Vas stated H 684 SUPREME COURT REPORTS (1992) 1 s.C.R, ,.a.. that the American jurisprudence of police power as .distiii­ guished from specific legislative power is not rr.mgnised in our Constitution and is, therefore, contrary to the .scheme of t•e . Constitution. In interpreting the provisions of our Constitution, we should go by the plain words used by . the Comtitution­ makers and the importing of expression like 'polic:c power', · which is a term of variable and indefinite connotation Call only make the ~k of inicrpretation more. diff'aCult. It was contended ·that in enacting a law with respeci. lo intoxicating liquor as part · of the legislative power measures of social control and regula­ tion of private rights are permissible and as such may even . amount to prohibition. We are of the opinion that we need not detain ~Ives on the question whether the States have police power or not. We must accept the position that the Stales haw the power to regulate the use of alcohol and that power must include power to make · provisions to preVent and/or check industrial alcohol being used as intoxicating or drinkable alcohol. The question is. whether in the garb of regulations a legislation which is in piih and sub­ stance, as we look upon the instant legislation, fee or levy which has no connection with the cost or expenses administeriilg the regulation, can. be imposed purely as regulatory measure. Judges by the pith and substance of the impugned legislation, we are definitely of the opinion that these levies .cannot .be treated as part of regulatory measures. In this view of the matter we do not detain ourselves with examining · ihe numerous Ameriean decisions to which our attention was drawn by learned counsel very elaborately and thoroughly." This is an added reasoning to uphold the validity of Section 58(A). ·.- Turning to the second argument about. the absence of quid pro quo, G we need· only extract the following from the judgment of the High Court: "Section S!l(A) of the Bombay Prohibition Act. creates a statutory ·duty of supervision . and. incidentally provides · for . 7"" ... recovering from a manufacturer or. a businessman the cost of . · supervision .which is primarily necessitated by the manufacturer . ··~ .. - GUJCHEM DISTILLERS v. STATE [MOHAN, J.) 685 or businessman having been permitted under a lice11ce to carry A . on lawfully a business or industrial activity which would other- wise have been unlawful. We need not go into the details of this aspect bai:ause it has not been contended before us that if the levy Under Section 58A · is ~eld to be a fee, there is no sufficient quid pro quo between the_ quantum of the impost and · B the services rendered to the manufacrurer or businessman." . In the result, the appeal fails and is dismissed witli costs. V.P.R .. . Appeal dismissed .. . . · .. · - .. : .. , ,. ··. ':.; .. ·•·· .. '. .... . .. ·: ·'·; .; ·· .... · · .... ·