2006 (5) TMI 526 - SC - Indian Laws

Summary

Issues Involved:
1. Legality of the fee imposed under the Bombay Rectified Spirit (Transport in Bond) Rules, 1951.
2. Applicability of the decision in Vam Organic Chemicals Limited v. State of Maharashtra to the current case.
3. Grant of interim stay on the recovery of the fee.
4. Balance of convenience and protection of State interests.

Detailed Analysis:

1. Legality of the Fee Imposed:
The respondents, engaged in the manufacture and sale of Indian Made Foreign Liquor (IMFL), challenged the fee imposed under Rule 5(2) of the Bombay Rectified Spirit (Transport in Bond) Rules, 1951. The State argued that the respondents, who did not manufacture rectified spirit but purchased it from others, were required to pay the fee for transporting rectified spirit and extra neutral alcohol to their premises for IMFL production. The respondents contended that the State lacked the competence to impose such a levy on rectified spirit.

2. Applicability of the Decision in Vam Organic Chemicals Limited:
The respondents based their challenge on the Bombay High Court's decision in Vam Organic Chemicals Limited v. State of Maharashtra, asserting that the fee demand was liable to be quashed for the same reasons. The State, however, distinguished the current case from Vam Organic Chemicals Limited, noting that the latter involved a licensee who manufactured and used rectified spirit for its own consumption, unlike the respondents who purchased it from others.

3. Grant of Interim Stay on the Recovery of the Fee:
The High Court granted an interim stay on the recovery of the fee based on the decision in Vam Organic Chemicals Limited and the interim order by the Supreme Court in the appeal from that decision. The State opposed this, arguing that an unconditional stay would result in a significant financial burden on the State if the writ petition was dismissed. The Supreme Court noted the necessity to balance the interests of both the State and the licensee, emphasizing that the government cannot operate on securities and that interim orders in revenue cases should be issued with caution.

4. Balance of Convenience and Protection of State Interests:
The Supreme Court acknowledged the merit in the State's argument that the decision in Vam Organic Chemicals Limited might not apply to cases where the licensee does not manufacture rectified spirit. The Court stressed the importance of considering the balance of convenience, noting that the right to trade in liquor is a privilege granted by the State, and the revenue generated from this trade is essential for the State's financial needs. The Court proposed a solution to protect both parties' interests by ordering the respondents to pay 50% of the license fee and provide an undertaking to pay the remaining 50% if the writ petition is dismissed.

Conclusion:
The Supreme Court set aside the High Court's order and directed the respondents to deposit 50% of the license fee and file an undertaking to pay the remaining 50% if their writ petition is dismissed. This arrangement aimed to balance the equities, protecting the State's revenue interests while not imposing an undue burden on the licensee. The Court also mandated that any amount paid could be adjusted or refunded with interest if the respondents succeeded in their challenge.