1997 (1) TMI 512 - SC - Central Excise

Whether the State of Uttar Pradesh has no power to legislate in respect of industrial alcohol or to levy taxes in respect thereof and further that the levy being not based on quid pro quo was otherwise bad? Held that - The High Court has taken the view that in the case of regulatory fees, like the licence fees, existence of quid pro quo is not necessary although the fee imposed must not be, in the circumstances of the case, excessive. The High Court further held that keeping in view the quantum and nature of the work involved in supervising the process of denaturation and the consequent expenses incurred by the State, the fee of 7 paise per litre was reasonable and proper. We see no reason to differ with this view of the High Court. In view of the foregoing, the appeals are dismissed.

Issues Involved
1. Legislative Competence of the State of Uttar Pradesh to legislate on industrial alcohol.
2. Validity of the levy of denaturation fee.
3. Quid pro quo between the services rendered by the State and the rate of fee charged.

Issue-wise Detailed Analysis

1. Legislative Competence of the State of Uttar Pradesh to Legislate on Industrial Alcohol

The appellants challenged the Notification No.25/Licence/Part-3 dated 18.5.1990 issued by the Excise Commissioner, Uttar Pradesh, arguing that the State of Uttar Pradesh has no power to legislate in respect of industrial alcohol. They contended that industrial alcohol falls within the exclusive domain of the Parliament by virtue of the declaration made in Section 2 of the Industries Development & Regulations Act, 1956 (IDR Act) and the addition of Item 26 in the Schedule to the Act. The High Court, however, referred to Entries 6, 8, 24, 51, and 66 of List II of the Seventh Schedule to the Constitution and concluded that the Notification is covered by Entries 6 and 8. Entry 6 pertains to "Public health and sanitation; hospitals and dispensaries," and Entry 8 pertains to "Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase, and sale of intoxicating liquors."

The High Court further examined the scope of Section 18G of the IDR Act, which empowers the Central Government to regulate the supply, distribution, and trade of any article related to any scheduled industry. The High Court concluded that the impugned Notification was issued to ensure that rectified spirit sought to be used for industrial purposes is not diverted for obtaining country liquor or other forms of potable liquor, and thus, it was justified under Entry 6 of List-II (Public health) and Entry 8 of List-II (Possession and sale of intoxicating liquors). The High Court emphasized that the regulation was part of the general regulation of the trade in alcohol in the interest of public health.

2. Validity of the Levy of Denaturation Fee

The appellants contended that the levy of a denaturation fee at the rate of 7 paise per litre was not based on quid pro quo and was therefore invalid. The High Court, however, distinguished between regulatory fees and compensatory fees. It opined that a licence fee imposed for regulatory purposes may not necessarily carry with it any service rendered but must be reasonable. The High Court referred to the counter-affidavit of the State, which indicated that a significant number of officers and employees are engaged in managing laboratories and supervising the distillation process, justifying the fee of 7 paise per litre.

The High Court also referred to the Supreme Court's decision in Synthetic Chemicals v. State of U.P., which held that the State has the power to lay down regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol. The court concluded that denaturation of spirit meant for industrial use is within the legislative competence of the State and that the fee charged for this regulatory measure was valid.

3. Quid Pro Quo Between the Services Rendered by the State and the Rate of Fee Charged

The appellants argued that there was no quid pro quo between the expenses incurred by the State and the fees charged. The High Court, however, pointed out that the fee charged for regulatory purposes does not necessarily have to be linked to services rendered. The court emphasized that the fee must be reasonable and that a broad correlation between the expenditure incurred by the State and the fees charged is sufficient. The High Court found that the fee of 7 paise per litre was reasonable, given the extensive supervision and testing required to ensure proper denaturation of spirit.

The Supreme Court upheld the High Court's view, stating that the fee of 7 paise per litre was part of the regulatory measure for denaturation of spirit and supervision of the process. The court reiterated that the State has the power to legislate on matters related to public health and intoxicating liquors and that the fee charged was justified.

Conclusion

The Supreme Court dismissed the appeals, upholding the High Court's judgment that the State of Uttar Pradesh has the legislative competence to regulate industrial alcohol and impose a denaturation fee. The court found that the fee was reasonable and justified as part of the regulatory measures to prevent the misuse of industrial alcohol for human consumption.

← Previous Next →