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2017 (7) TMI 10 - HC - Customslevy of import fee on import of Denatured Ethanol - Rule 52 of the Gujarat Bombay Denatured Spirit Rules, 1959 - 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 - Impugned levy of import fee under Rule 52 of the Gujarat Bombay Denatured Spirit Rules, 1959 is held to be invalid under the law and is hereby quashed and set aside - Decided in favor of the assessee.
Issues Involved:
1. Legislative competence of the State to levy import fee on denatured ethanol. 2. Validity of Rule 52 of the Gujarat Bombay Denatured Spirit Rules, 1959. 3. Whether the import fee passes the test of quid pro quo. Detailed Analysis: 1. Legislative Competence of the State to Levy Import Fee on Denatured Ethanol: The petitioners argued that the State lacks legislative competence to levy an import fee on denatured ethanol, as it is not fit for human consumption and falls under industrial alcohol. They contended that the State can only impose taxes or fees on potable alcohol. The State, however, justified the levy under various entries of List II and List III of Schedule 7 of the Constitution of India, asserting that the fee aims to prevent diversion of non-potable alcohol for human consumption, in line with the prohibition policy under Article 47 of the Constitution. 2. Validity of Rule 52 of the Gujarat Bombay Denatured Spirit Rules, 1959: The petitioners challenged the validity of Rule 52, which imposes an import fee of ?3 per liter on denatured ethanol. They argued that the rule is arbitrary and beyond the State’s authority. The State defended the rule, stating that it was necessary to protect local distilleries and prevent illicit use of denatured ethanol. The court acknowledged the State’s intention to regulate the use of denatured ethanol to prevent its misuse as potable alcohol, considering the prohibition laws in Gujarat. 3. Whether the Import Fee Passes the Test of Quid Pro Quo: The petitioners argued that the import fee does not meet the quid pro quo requirement, as there is no direct correlation between the fee collected and the services rendered by the State. The State contended that the fee was regulatory and compensatory, covering expenses for supervision and enforcement of prohibition laws. The court examined whether the fee was justified by the services rendered, such as supervision to ensure denatured ethanol is not converted into potable alcohol. It found that the State had not demonstrated a direct correlation between the fee collected and the expenses incurred, thus failing the quid pro quo test. Conclusion: The court concluded that while the State has legislative competence to levy fees to regulate the use of denatured ethanol, the specific import fee imposed under Rule 52 does not meet the quid pro quo requirement. Consequently, the levy was deemed invalid and quashed, along with the related demand notices and the notification dated 25.10.2004. Further Order: The implementation of the judgment was stayed until 17.07.2017 to allow the State to approach the Supreme Court.
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