2004 (2) TMI 744 - HC - Indian Laws

Summary

Issues Involved:
1. Constitutionality of the Export-Pass Fee.
2. Legislative competence of the State Legislature on denatured and specially denatured spirit.
3. Validity of the Uttar Pradesh Excise, Import, Export, Transport and Possession of Denatured Spirit (14th Amendment) Rules, 1989.
4. Entitlement to interest on the refunded amount.

Summary:

Constitutionality of the Export-Pass Fee:
The petitioner challenged the notification dated 23.11.1989, which levied an Export-Pass Fee on the purchase, transportation, and export of industrial alcohol (denatured and specially denatured spirit). The petitioner argued that this levy was unconstitutional, citing the decision of the 7-Judge Constitution Bench of the Supreme Court in Synthetics and Chemicals Ltd. v. State of U.P. AIR 1990 SC 1927 and State of U.P. v. Vam Organic Chemicals Ltd. JT 2003 (8) SC 1.

Legislative Competence of the State Legislature:
The court held that "denatured spirit is outside the seisin of the State Legislature and only Parliament can legislate upon it." The court referenced State of U.P. v. Vam Organic Chemicals Ltd. which stated that denatured spirit falls exclusively under the Union's control. The court emphasized that while the State can regulate to ensure rectified spirit is not diverted for human consumption, it cannot legislate on denatured spirit.

Validity of the Uttar Pradesh Excise, Import, Export, Transport and Possession of Denatured Spirit (14th Amendment) Rules, 1989:
The petitioner also sought to declare Rule 10 framed u/s 40(2)(d) of the Uttar Pradesh Excise Act, 1910, and the related amendment rules as illegal and unconstitutional. The court found that the fee levied under these rules did not correlate with the cost of regulation, thus constituting a tax in the guise of a fee, which is impermissible.

Entitlement to Interest on the Refunded Amount:
The court ordered that any amount of export pass fee deposited by the petitioner with the State Government be returned within two months along with interest at 10% per annum. The court elaborated that "interest is the normal accretion on capital" and is not a penalty. It further explained that interest compensates for the loss of potential earnings due to the delayed payment.

Conclusion:
The petition was allowed, and the impugned notification dated 23.11.1989 imposing the export pass fee was quashed. The court restrained the respondent from realizing the fee and mandated a refund with interest, emphasizing the principle that interest should be awarded to compensate for the delay in payment.