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2017 (6) TMI 1333 - HC - Indian LawsLevy of the import fee - import of Denatured Spirit from outside the State - It is the case on behalf of the petitioners that once the spirit is Denatured after it being subjected to a process, the Denatured Spirit is Ethanol and therefore, the same is rendered unfit for human consumption and the same cannot be renatured again so as to divert the same again for potable use and the same is thereafter used only for industrial purpose, the State has no legislative competence to levy fee / import fee on Denatured Spirit / industrial alcohol manufactured and used for industrial purpose because the said subject does not fall under any of the Entries of List II of Schedule 7 of the Constitution of India. HELD THAT - Considering the pith and substance of the levy of fees on import of Denatured Spirit / Ethanol on import of the same from other States and considering the fact that there is a Prohibition Act in the State of Gujarat and therefore, considering Article 47 of the Constitution of India and Entry 33 of List II of Schedule 7 of the Constitution of India read with Entry Nos. 6, 8, 24, 51 and 68 of List II and Entry 33 of List III of Schedule 7 of the Constitution of India and the purpose and object for which the import fee is levied, it cannot be said that such a levy is beyond the legislative competence of the State as contended on behalf of the petitioners. While the impugned levy of fees on import of Denatured Spirit / Ethanol though is held to be within the legislative competence of the State, does it pass the test of quid pro quo or not? - HELD THAT - The State Government has not undertaken any supervisory activity which will constitute quid pro quo for the imposition of the import fees. As observed by the Hon ble Supreme Court in catena of decisions more particularly decisions referred to hereinabove, there is a distinction between a fee and a tax . A tax is levied as part of a common exaction, whereas a fee is payment towards services rendered. The purpose for which the fee is being collected (so stated in the affidavits in reply) viz. to protect the interest of the Distelleries in the State of Gujarat, has no nexus with the import fees to be collected on import of Ethanol from outside Gujarat. Thus, there is no element of quid pro quo. A fee is generally defined to be a charge for special services rendered to individuals by some governmental agency. The amount of fee levied is supposed to be based on the expenses incurred by the government in rendering the service. In the present case there is a total absence of any co relation between the expenses incurred by the government and the amount raised by collection of import fee on import of Ethanol from outside Gujarat. Thus, quid pro quo cannot have any possible application in the present case. The impugned levy of import fee on import of Denatured Ethanol from outside Gujarat and the purpose and object for which the fee is sought to be levied, we are of the opinion that the impugned levy fails the test of quid pro quo. Under the circumstances, the impugned levy of import fee on import of Denatured Ethanol from outside Gujarat as per Rule 52 of the Gujarat Bombay Denatured Spirit Rules, 1959 is invalid in law and is illegal - Petition allowed.
Issues Involved:
1. Legislative competence of the State to levy import fees on Denatured Ethanol. 2. Validity of Rule 52 of the Gujarat Bombay Denatured Spirit Rules, 1959. 3. Quid pro quo in the imposition of import fees on Denatured Ethanol. 4. Purpose and object of the import fees and its relation to the services rendered by the State. Issue-Wise Detailed Analysis: 1. Legislative Competence of the State to Levy Import Fees on Denatured Ethanol: The petitioners contended that the State lacks legislative competence to impose import fees on Denatured Ethanol, arguing that once ethanol is denatured, it becomes unfit for human consumption and cannot be renatured. They relied on various Supreme Court judgments, including Synthetics and Chemicals Limited vs. State of U.P., which held that the State can only impose taxes on potable alcohol. The petitioners argued that Denatured Ethanol falls under industrial alcohol, which is under the Union's purview as per the Industries (Development and Regulation) Act, 1951. The State, however, argued that the import fee was imposed to safeguard the business interests of local distilleries and to support the prohibition policy under Article 47 of the Constitution. The State also cited its legislative competence under Entries 6, 8, 24, 51, and 66 of List II and Entry 33 of List III of Schedule 7 of the Constitution. The court held that considering the prohibition law in Gujarat and the objectives under Article 47, the State has legislative competence to impose such fees. The court referred to the Supreme Court's observation in Synthetics and Chemicals Limited, which allowed the State to regulate to ensure non-potable alcohol is not diverted for potable use. 2. Validity of Rule 52 of the Gujarat Bombay Denatured Spirit Rules, 1959: The petitioners challenged Rule 52, which imposed an import fee of ?3 per liter on Denatured Ethanol, arguing it was arbitrary and beyond the State's legislative competence. They contended that the rule was inconsistent with the Union's control over industrial alcohol. The State justified the rule, stating it was necessary to protect local distilleries and align with the prohibition policy. The court found that the rule was within the State's legislative competence, given the prohibition context and the directive principles under Article 47. 3. Quid Pro Quo in the Imposition of Import Fees on Denatured Ethanol: The petitioners argued that there was no quid pro quo for the import fees, as the State did not provide any specific services related to the import of Denatured Ethanol. They cited several Supreme Court judgments, including Vam Organics Chemicals Ltd. vs. State of U.P., which emphasized the need for a direct correlation between the fee charged and the services rendered. The State claimed the fees were regulatory and compensatory, intended to cover administrative expenses and protect local industries. However, the court found no evidence of specific services rendered by the State that justified the fees. The court noted that the expenses listed by the State, such as pay and allowances, traveling expenses, and office expenses, did not directly relate to the import of Denatured Ethanol. 4. Purpose and Object of the Import Fees and Its Relation to the Services Rendered by the State: The State argued that the import fees were imposed to protect local distilleries and support the prohibition policy. The court examined the expenses cited by the State and found no direct correlation with the services rendered to the petitioners. The court emphasized that a fee must be a charge for special services rendered, and there must be a clear quid pro quo. The court concluded that the import fees failed the test of quid pro quo, as there was no evidence of specific services rendered by the State related to the import of Denatured Ethanol. The court held that the fees were essentially a tax in the guise of a fee, which was invalid under the law. Judgment: The court quashed and set aside the impugned levy of import fees under Rule 52 of the Gujarat Bombay Denatured Spirit Rules, 1959, and the consequential demand notices. The court held that the import fees were invalid and illegal, as they did not satisfy the test of quid pro quo. The court stayed the implementation of the judgment until 17.07.2017 to allow the State to approach the Supreme Court.
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