1979 (12) TMI 149 - SC - Central Excise

Whether the imposition of vend fee on denatured spirit for grant of license for wholesale vend of denatured spirit is within the competence of State ? Held that - The provisions in the Act which provided for a levy on retail vend of foreign liquor was held to be valid. The power to legislate under List II Entry 8 relating to intoxicating Liquor comprises of liquor which contains alcohol whether it is potable or not. The power of the State Legislature to legislate in respect of the intoxicating liquor and its exclusive right regarding intoxicating liquor cannot be questioned. The purpose of introduction of Act 5 of 1976 was to make it clear that U.P. Excise (Amendment) Act, 1972 shall be deemed to and always to have been valid. In view of our findings that U.P. Excise (Amendment) Act, 1972 was valid, the effect of U.P. Act 5 of 1976 is to remove all doubts and to give retrospective effect. Unable to accept the contention of the learned counsel that specially denatured spirit for industrial purpose is different from the ordinary denatured spirit. The definition of alcohol under rule 12 includes both ordinary as well as specially denatured spirit. It is true that the stand taken by the Government in the earlier proceedings was different but that would not make any difference so long as the Government had a right to impose the levy. It has been found that after the addition of S. 24A by Act 30 of 1972, the Commissioner was entitled to accept payment for conferring the privilege which the State owned exclusively. The conditions relating to grant of a licence for issue of denatured spirit for industrial purpose are laid down in rule 4. Special conditions regarding licence in form F.L. 39, 40 and 41 are prescribed in rule 5. The appellants/petitioners having applied for and obtained licences in form F.L. 39 are bound to comply with the conditions. Act 5 of 1976 has been given retrospective effect as the levy imposed under Act 30 of 1972 was found to be illegal and unsustainable by the Allahabad High Court which was reversed by this Court by giving retrospective effect, the State has only restored the status quo enabling the collection of the levy validly made by Act 30 of 1972. On the facts of the case there could be no complaint because what is sought to be collected is levy which was legally made.

Issues Involved:
1. Legislative competence of the State to impose vend fee on denatured spirit.
2. Constitutional validity of U.P. Excise (Amendment) Act 5 of 1976.
3. Impact of the Industries (Development and Regulation) Act, 1951 on State's power.
4. Definition and scope of "intoxicating liquor" under the relevant legislative entries.
5. Nature of vend fee as tax, fee, or consideration for exclusive privilege.
6. Retrospective application of U.P. Excise (Amendment) (Re-enactment and Validation) Act, 1976.
7. Alleged violation of fundamental rights under Article 19(1)(g) of the Constitution.

Analysis of Judgment:

1. Legislative Competence of the State to Impose Vend Fee on Denatured Spirit:
The appellants contended that the State lacked legislative competence to impose a vend fee on denatured spirit as it did not fall within Entry 8 of List II of the Seventh Schedule. They argued that the State's right to grant privileges for the manufacture and sale of intoxicating liquor did not extend to denatured spirit used for industrial purposes. The Court, however, upheld the State's power to impose such a fee, citing precedents like Nashirwar v. State of Madhya Pradesh and Har Shankar v. The Deputy Excise and Taxation Commissioner, which affirmed the State's exclusive privilege to deal in intoxicating liquor, including denatured spirit.

2. Constitutional Validity of U.P. Excise (Amendment) Act 5 of 1976:
The appellants challenged the U.P. Excise (Amendment) Act 5 of 1976 as unconstitutional and beyond the legislative competence of the State. The Court found that the Act was valid, as it merely re-enacted and validated the provisions of the U.P. Excise (Amendment) Act 30 of 1972, which had been previously struck down by the Allahabad High Court. The Court emphasized that the State had the exclusive privilege to deal with intoxicating liquor and could impose a vend fee for parting with this exclusive right.

3. Impact of the Industries (Development and Regulation) Act, 1951:
The appellants argued that after the enactment of the Industries (Development and Regulation) Act, 1951, the Central Government had exclusive power over the fermentation industry, including denatured spirit and industrial alcohol. The Court rejected this contention, stating that the Ethyl Alcohol (Price Control) orders did not explicitly or implicitly take away the State's power to regulate the distribution of intoxicating liquor by collecting a levy for parting with its exclusive rights.

4. Definition and Scope of "Intoxicating Liquor":
The appellants contended that the term "intoxicating liquor" should be confined to potable liquor and should not include denatured spirit used for industrial purposes. The Court disagreed, stating that the term "intoxicating liquor" included all liquids containing alcohol, whether potable or not. The Court cited various precedents, including State of Bombay v. F.N. Balsara, which held that the term "liquor" covered all alcoholic liquids.

5. Nature of Vend Fee:
The appellants argued that the vend fee was either an excise duty or a fee, which the State was not entitled to collect. The State contended that the levy was neither a tax nor a fee but a consideration for parting with its exclusive privilege. The Court upheld the State's contention, stating that the levy was for the grant of exclusive privilege and not an excise duty or fee.

6. Retrospective Application of U.P. Excise (Amendment) (Re-enactment and Validation) Act, 1976:
The appellants argued that the retrospective application of the Act was invalid and confiscatory. The Court found that the retrospective effect was necessary to restore the status quo and validate the levy imposed under Act 30 of 1972, which had been declared illegal by the Allahabad High Court. The Court held that the retrospective application was reasonable and did not impose an unbearable burden on the appellants.

7. Alleged Violation of Fundamental Rights:
The appellants contended that the levy of Re. 1.10 per bulk gallon of denatured spirit violated their fundamental right to carry on trade and business under Article 19(1)(g) of the Constitution. The Court rejected this contention, stating that the State had the right to accept payment for the grant of its exclusive privilege and that the price fixed for ethyl alcohol was ex-distillery price, which did not preclude the addition of the vend fee.

Conclusion:
The Supreme Court dismissed the appeals and writ petitions, upholding the State's power to impose a vend fee on denatured spirit and the constitutional validity of the U.P. Excise (Amendment) Act 5 of 1976. The Court also allowed the State's appeal, validating the retrospective application of the Act and the levy of the vend fee.

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