2008 (12) TMI 730 - SC - Companies Law

Whether increase in levy made by the State of Himachal Pradesh inter alia on import/ transport of rectified spirit and/ or potable alcohol is constitutionality valid? Whether the State has the jurisdiction to impose any restriction on the movement of industrial alcohol and/ or Malt Spirit of over proof strength?

Issues Involved:
1. Constitutional validity of the levy imposed by the State of Himachal Pradesh on the import/transport of rectified spirit and/or potable alcohol.
2. Legislative competence of the State to impose such a levy.
3. Distinction between industrial alcohol and potable alcohol.
4. Quid pro quo in the levy of fees.
5. Jurisdiction of the State to regulate industrial alcohol.

Detailed Analysis:

1. Constitutional Validity of the Levy:
The appellant, a public limited company, challenged the constitutional validity of the levy imposed by the State of Himachal Pradesh on the import/transport of rectified spirit and/or potable alcohol. The levy was introduced for the first time in the excise policy for the year 1996-97, demanding permit fees for the transportation of various spirits. The appellant contended that the State had no jurisdiction to levy such fees and that no services were rendered to justify the quantum jump in the licence fee.

2. Legislative Competence of the State:
The Court examined the legislative competence under Part XI of the Constitution, specifically Articles 245 and 246, and the Seventh Schedule. The State's power to legislate on intoxicating liquors is conferred by Entries 8, 51, and 66 of List II. However, industrial alcohol falls under Entry 52 of List I, giving exclusive legislative competence to the Parliament. The Court referred to the decision in Synthetics and Chemicals Ltd. v. State of U.P., which established that industrial alcohol is not for human consumption and thus falls outside the State's legislative competence.

3. Distinction Between Industrial Alcohol and Potable Alcohol:
The appellant argued that Malt Spirit of over proof strength, being rectified spirit, is not potable and is used as raw material for blending to manufacture IMFL. The State did not make a distinction between the import/export of spirit and potable alcohol, treating both under the same regulatory framework. The Court emphasized the need for the State to distinguish between industrial alcohol and potable liquor, as the former is not subject to State regulation under Entry 8 and 51 of List II.

4. Quid Pro Quo in the Levy of Fees:
The Court highlighted that the element of quid pro quo is inherent in the levy of fees. The State must justify the demand by showing the services rendered in return. The appellant contended that no services were provided to justify the permit fee. The Court noted that the State failed to produce any material evidence to justify the quantum of the fee imposed, as required by the principle of quid pro quo.

5. Jurisdiction of the State to Regulate Industrial Alcohol:
The Court reiterated that the State's jurisdiction to regulate industrial alcohol is limited to preventing its use as potable alcohol and ensuring that it is not consumed by humans. The regulation of industrial alcohol falls under the exclusive domain of the Union as per Entry 52 of List I. The Court referred to previous judgments, including Vam Organic Chemicals Ltd., which established that the State's power is limited to regulation for preventing misuse and does not extend to imposing fees without rendering corresponding services.

Conclusion:
The Supreme Court set aside the impugned judgment of the High Court, holding that the State of Himachal Pradesh lacked the jurisdiction to impose the levy on rectified spirit. The matter was remitted to the High Court for fresh consideration, allowing the parties to file additional affidavits and evidence. The appeals were allowed, and the respondents were directed to bear the costs of the appellant, assessed at Rs. 50,000.

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