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TMI Blog1997 (1) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the High Court of Allahabad dated 9.9.1991 whereby the writ petitions filed by the appellants herein challenging the Notification No.25/Licence/Part-3 dated 18.5.1990 issued by the Excise Commissioner, Uttar Pradesh, were dismissed. The impugned Notification dated 18.5.1990 was issued in exercise of powers conferred by Section 41 of the U.P. Excise Act, 1910 (hereinafter called the Act ) with the prior approval of the State Government. By the said Notification certain amendments were made in the Rules published with Notification No. 423-Five/284/B, dated 26th September 1910. Section 41 of the Act gives power to the Excise Commissioner to make Rules, inter alia, for regulating the manufacture, supply, storage or sale of any intoxicant; for regulating deposit and removal of any intoxicant and prescribing the scale of fees or manner of fixing the fees payable for licence, permit or pass, including for the grant of any exclusive or other privilege under Sections 24 and 24A of the said Act. The earlier Rule 2 was substituted by a new Rule 2 entitled "Denaturation of Spirit". The amended rule provides for a new license for denaturation of spirit in a prescribed form to be issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l use is required by a Notification issued under the Act to be denatured in order to prevent the spirit from being directed to human consumption. Rectified spirit is denatured by adding denaturants which make the spirit unpalatable and nauseating. As such rectified spirit can be converted to potable liquor but once denatured it can be used only as industrial alcohol. The process of denaturation described by the respondent is narrated by the High Court in the following words: "Denaturation of rectified spirit is a highly technical process. Every drum/lot/batch has to be tested by Chief Development Officer at the Excise Head Quarters Laboratory so as to ensure that the same is according to the prescribed specification before they are allowed to be used for denaturing the rectified spirit. After they are properly tested, the denaturants have to be separately stored under lock and key of the officer-in-charge of the distillery, and measured quantities are pumped into denaturation vats at the time of denaturation. The process of mixing goes on for several hours. The resultant mixture is denatured spirit or specially denatured spirit, as the case may be. After denaturing, it is again t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66. Fees in respect of any of the matters in this List, but not including fees taken in any court." Production, possession, storage, and distribution of country liquor, IMFLs, wines etc. are fully controlled by the State. (See Section 24-B, U.P. Excise Act). The U.P. Excise Act Rules made thereunder prescribe a system of licensing for producing rectified spirit, for ___________________________________________________________ * 7. Industries declared by Parliament by law to be necessary for the purpose of defence or for the prosecution of war. ** 52. Quoted in the following page. obtaining country liquor, etc., as well as for possession, storage and trade in these products. The licensing has the twin objective, the High Court points out, of raising revenue and regulating trade in the noxious goods. The High Court finds the Entries 6 8 of List-II as providing the filed for legislation and consequent licensing for denaturation of spirit and Entry 51 as providing the scope for levy of duties. Coming to List-III, the relevant Entry is 33: "33. Trade and commerce in, and the production, supply and distribution of, (a) the products of any industry where the control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsumption of any such article or class thereof; (c) For prohibiting the withholding from sale of any such article or class thereof ordinarily kept for sale; (d) For requiring any person manufacturing producing or holding in stock such articles or class thereof to sell the whole or the part of the articles so manufactured or produced during a specified period or to sell the whole or a part of the articles so held in stock to such person or class or persons and in such circumstances as may be specified in the order; (e) For regulating or prohibiting any class or commercial or financial transaction relating to such article or class thereof which in the opinion of the authority making the order are, or if unregulated are likely to be detrimental to public interest; (f) For requiring persons engaged in the distribution and trade and commerce in any such article or class thereof to mark the articles exposed of intended for sale with the sale price or to exhibit at some easily accessible place on the premises the price-lists of articles held for sale and also to similarly exhibit on the first day of every month, at such other time as may be prescribed, a statement of the total qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o between the services rendered by the State and the rate of fee charged. According to the petitioners/appellants, the fee charged was excessive and hence bad. The High Court pointed to the distinction between the regulatory fee and compensatory fee. It opined that the licence fee imposed for regulatory purposes may not carry with it any service rendered, but that such licence fee must be reasonable. Further, the High Court said, it would be appropriate to look to the expenditure which the State incurs for administering the regulation and if there is a broad co-relation between the expenditure which the State incurs and the fees charged, the fees could be sustained as reasonable. It also referred to the counter-affidavit of the State to conclude that a good number of officers and employees are engaged in managing the laboratories besides the staff which is posted at the distilleries and so the rate of 7 paise per litre was in order. In these appeals the appellants reiterate that this Court by its 7-Judge Bench decision in Synthetic Chemicals (supra) has expressly ruled against legislative competence of the State so far as ethyl alcohol/rectified spirit is concerned. Further, they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s enumerated the various areas relating to industrial alcohol in which the State could still legislate or make rules. The following part of the judgment can be read with profit. "The position with regard to the control of alcohol industry has undergone material and significant change after the amendment of 1956 to the IDR Act. After the amendment, the State is left with only the following powers to legislate in respect of alcohol: (a) it may pass any legislation in the nature of prohibition of potable liquor referable to entry 6 of list II and regulating powers. (b) it may lay down regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol. (c) the state may charge excise duty on potable alcohol and sales tax under entry 52 of list II. However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) orders, sales tax cannot be charged by the state on industrial alcohol. (d) however, in case State is rendering any service, as distinct from its claim of so-called grant of privilege, it may charge fees based on quid pro quo. See in this connection, the observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes regulation cannot be assailed. The Bench in Synthetic Chemical s case made it clear that even though the power to levy tax or duty on industrial alcohol vested in the Central Government the State was still left with power to lay down regulations to ensure that nonpotable alcohol, that is, industrial alcohol, was not diverted and misused as substitute for potable alcohol. This is enough to justify a provision like 58A. In paragraph 88 of the decision it was observed that in respect of industrial alcohol the States were not authorised to impose the impost as they have purported to do in that case but that did not effect any imposition of fee where there were circumstances to establish that there was quid pro quo for the fee nor it will affect any regulatory measure. This completely demolishes the argument on behalf of appellant." The judgment was followed in a later case raising the same questions and challenging the validity of Section 58-A of the Bombay Prohibition Act, namely, Gujchem Distillers India Ltd. v. State of Gujarat and Anr. 1992. (1) S.C.R. 675. On a proper appreciation of the legal situation, the fee of 7 paise per litre has to be seen as a part of the reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture of intoxicating liquors. Applying the well-known rule of interpretation applicable to such a situation (special excludes the general), we must hold that the industries engaged in production and manufacture of intoxicating liquors do not fall within Entry 24 but do fall within Entry 8. This was the position at the commencement of the Constitution and this is the position today as well. once this is so, the making of a declaration by the Parliament as contemplated by Entry 52 of List I does not have the effect of transferring or transplanting, as it may be called, the industries engaged in production and manufacture of intoxicating liquors from the State List to Union Lists. As a matter of fact, the Parliament cannot take over the control of industries engaged in the production and manufacture of intoxicating liquors by making a declaration under Entry 52 of List-I, since the said entry governs only Entry 24 in List II but not Entry 8 in List II." It was reiterated in the later part of the judgment as under: "It follows from the above discussion that the power to make a law with respect to manufacture and production and its prohibition (among other matters m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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