1992 (1) TMI 338 - SC - Central Excise

Validity of demand, under Section 58A of the Bombay Prohibition Act, for maintenance of excise staff for supervision of the manufacture of industrial alcohol was assailed on lack of legiislative competence of the State Held that - The Bench in Synthetic & Chemical s case 1989 (10) TMI 214 - SUPREME COURT OF INDIA made it clear that even though the power to levy tax or duty on industrial alcohol vested in the Central Government the State was still left with power to lay down regulations to ensure that non-potable alcohol,that is, industrial alcohol, was not diverted and misused as substitute for potable alcohol. This is enough to justify a provision like 58A. In paragraph 88 of the decision it was observed that in respect of industrial alcohol the States were not authorised to impose the impost as they have purported to do in that case but that did not effect any imposition of fee where there were circumstances to establish that there was quid pro quo for the fee nor it will affect any regulatory measure. This completely demolishes the argument on behalf of appellant. Appeal dismissed.

Summary

Issues:
Validity of demand under Section 58A of the Bombay Prohibition Act for maintenance of excise staff for supervision of industrial alcohol manufacture.

Analysis:
The case involved the challenge to the demand for the maintenance of excise staff under Section 58A of the Bombay Prohibition Act on the grounds of lack of legislative competence of the State. The High Court had upheld the levy as a fee under Entry 8 of List II of the VIIth Schedule. However, the appellant argued that the levy was ultra vires following the decision in Synthetics & Chemicals Ltd. v. State of U.P., where it was held that industrial alcohol was not subject to levy by the State under Entry 51 or Entry 8 of List II. The appellant contended that the High Court's decision was based on a privilege theory, which was not sustainable post the Synthetic & Chemicals case.

The Supreme Court analyzed the Constitutional provisions and the Synthetic & Chemicals case to determine the validity of the levy under Section 58A. The Court distinguished between potable and non-potable alcohol, affirming the State's power to regulate non-potable alcohol to prevent misuse. It clarified that the State's power to levy tax or duty on industrial alcohol was excluded, but its authority to regulate under Entry 33 of the concurrent list was upheld. The Court emphasized that the State could legislate on supervision under Entry 33, even though the power to levy tax on industrial alcohol rested with the Central Government.

The appellant also challenged the demand for supervision costs, arguing that it required the State to have the power to issue licenses for production. The Court referred to the Synthetic & Chemicals case, which outlined the State's regulatory powers post the amendment to the Industries (Development & Regulation) Act in 1956. It dismissed the challenge, emphasizing the State's authority to lay down regulations for preventing misuse of non-potable alcohol. The Court rejected the contention of absence of quid pro quo, noting that the appellant had not established a link between the cost of supervision and the profits derived from the business.

In conclusion, the Supreme Court dismissed the appeal, upholding the validity of the demand for maintenance of excise staff under Section 58A of the Bombay Prohibition Act. The Court affirmed the State's regulatory powers under Entry 33 of the concurrent list and rejected the challenges to the levy as a fee. The judgment clarified the distinction between the State's authority to regulate non-potable alcohol and its power to levy taxes, emphasizing the importance of quid pro quo in fee imposition.