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TMI Blog2017 (7) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - SPECIAL CIVIL APPLICATION NO. 16304 of 2013, SPECIAL CIVIL APPLICATION NO. 16305 of 2013, SPECIAL CIVIL APPLICATION NO. 13046 of 2012, SPECIAL CIVIL APPLICATION NO. 13642 of 2016, AND SPECIAL CIVIL APPLICATION NO. 13222 of 2016 - - - Dated:- 9-6-2017 - MR. M.R. SHAH, AND MR. B.N. KARIA, JJ. For The Petitioner : Mr Manish R Bhatt, Senior Advocate with MS Poonam Mathur, Advocate for Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent No.2 Superintendent, Prohibition Excise Department, Vadodara to import Denatured Ethanol from other States including State of Maharashtra vide communication dated 04.12.2002. [5.1] It is the case on behalf of the petitioner that the Government of India, Ministry of Petroleum and Natural Gas mandated sale of 5% Ethanol doped improved gasoline. That one of the main factors for use of Ethanol in petrol is to improve the air quality by reducing air pollution due to lesser harmful emission such as carbon monoxide. That the petrol blended with Ethanol is regarded as Green Fuel as it is more environmental friendly. It is the case on behalf of the petitioner that Ethanol also results in reduction in the use of crude oil, a nonrenewable resource, thereby, saving valuable foreign exchange for the country. Based on the above, the petitioner issued public tenders for procurement of certain quantity of Ethanol for various locations in Gujarat State for a period of three years. It is the case on behalf of the petitioner that the quantities offered by the Gujarat based vendors in the tenders did not meet the fuel requirements for Gujarat and therefore, to meet with the shortfal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replied to the aforesaid notice vide communication dated 03.02.2012 requesting waiver of import duty on Denatured Ethanol, releasing fresh passes for import and renewing the license. However, the respondent No.2 issued similar notice again calling upon the petitioner to deposit fee of ₹ 24 lakh, on import of Denatured Ethanol from the State of Maharashtra with retrospective effect from 25.10.2004. That thereafter various other demand notices have been issued which are also the subject matter of the present petition. [5.4] Feeling aggrieved and dissatisfied with the Notification dated 25.10.2004 amending Rule 52 of the Rules, 1959 and insofar as it purports to impose import fee at the rate of ₹ 3 per liter on import of Denatured Ethanol and challenging the impugned demand notices, the petitioner Bharat Petroleum Corporation Limited has preferred Special Civil Application Nos.16304/2013 and 16305/2013. [5.5] Similar challenges have been made by respective petitioners in Special Civil Application Nos.13046/2012, 16304/2013, 13222/2016 and 13642/2016. [6.0] Shri Manish R. Bhatt, learned Senior Advocate has appeared on behalf of the petitioner in Special Civil Appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of denatured itself makes it clear that once the process of denaturation is done, it is unfit for human consumption. [7.2] It is further submitted by Shri Bhatt, learned Senior Advocate appearing on behalf of the petitioner that the State Government has no legislative competence to levy fee / import fee on the denatured spirit 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. It is submitted that process of denaturation makes the same unfit for human consumption. It is submitted that the State Government can only impose tax or levy fee on potable alcohol i.e. alcohol used for human consumption. [7.3] It is further submitted by Shri Bhatt, learned Senior Advocate appearing on behalf of the petitioner that the denatured ethanol does not fall under Entry 6, 8, 24, 51 and 68 of List II and Entry 33 of List III of Schedule 7 of the Constitution of India. It is vehemently submitted by Shri Bhatt, learned Senior Advocate appearing on behalf of the petitioner that Entry 6 of List II pertains to public health and sanitation; hospitals and dispensaries. Entry 8 of List ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denatured ethanol does not fall under any of the Entries referred to above and relied upon by the State Government, the State Government has no competence to levy import fee at ₹ 3 per liter on import of denatured ethanol by the petitioner from outside State. [7.8] Shri Bhatt, learned Senior Advocate appearing on behalf of the petitioner has heavily relied upon the following decisions of the Hon ble Supreme Court in support of his submission that State has no legislative competence to levy the import fee on import of denatured ethanol. 1. (1990) 1 SCC 109 (Paras 2, 3, 54, 55, 57, 61, 63, 64, 74, 75, 77, 80, 8289, 101, 103, 107110) Synthetics and Chemicals Limited and Ors. vs. State of U.P. and Ors. 2. AIR 1997 SC 1208 (Para 24) Bihar Distillery Anr. vs. Union of India and Ors. 3. AIR 2003 SC 4650 (Paras 2, 7, 18, 21, 22, 26, 34, 36, 37, 39, 4144) Vam Organic Chemicals Ltd. and Ors. vs. State of U.P. Ors. 4. (2009) 3 SCC 157 (Paras 30, 32) Mohan Meakin Ltd. vs. State of Himachal Pradesh Anr. 5. AIR 2011 SC 2709 (Para 13) Kesar Enterprise Ltd. vs. State of U.P. and Ors. 6. 2012 (1) ILR 658 (Paras 12, 22 to 25, 27) Industrial Organics Ltd. vs. State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Breweries vs. State of J K and Ors. 5. (2015) 13 SCC 765 (Paras 4, 6, 7, 8) K.C.P. Limited vs. State of Andhra Pradesh Ors. 6. (2015) 13 SCC 748 (Paras 6, 11) State of Tamil Nadu Anr. vs. TVL South Indian Sugar Mills Association and Ors. 7. 2011 SCC Bombay 616 (Paras 2, 9 to 13, 17, 31, 46, 50) Sahakar Maharshi Shankarrao vs. State of Maharashtra [7.11] It is further submitted by Shri Bhatt, learned Senior Advocate appearing on behalf of the petitioner that once it is held that the State has no power to levy any fee on the import of ethanol in the guise of administrative charges, the said demand cannot be enforced. It is submitted that procedure on import of ethanol is regulated under Rule 51 onwards of the Rules, 1959. It is submitted that therefore, no administrative expenses are being incurred by the State so as to maintain the demand of import fee at ₹ 3 per liter of ethanol in the guise of reimbursement of the administrative expenses. [7.12] It is further submitted by Shri Bhatt, learned Senior Advocate appearing on behalf of the petitioner that even assuming without admitting that the import fee is in the nature of administrative charges towards sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to regulate the rectified spirit, which can be diverted for potable purpose. It is submitted that however, that power of the State to regulate and control comes to an end, the moment the spirit is denatured. It is submitted that denatured spirit is not fit for human consumption as the chemicals described under the Rules, 1959 are added so as to make it unfit for human consumption. It is submitted that once the rectified spirit is denatured, the same cannot be renatured again so as to divert the same for potable purpose. [8.2] It is submitted that in the year 1956, the Industries (Development and Regulation) Act, 1951 (hereinafter referred to as Act, 1951 ) came to be amended, whereby, Item No.26 to 1st Schedule was added and the Union of India was given control of alcohol and and other products of fermentation industries which completely came under the control of Union of India. That the import of denatured spirit by the petitioner in the State of Gujarat is covered by Item No.26 of the 1st Schedule of the Act, 1951 and therefore, the State has no power to make any regulatory measures and charge import fee on the same. In support of his above submissions he has also relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alcohol is not surreptitiously converted into potable alcohol so that the State is deprived of revenue on the sale of such potable alcohol and public is protected from consuming illicit liquor. It is submitted that however the said power stops with the denaturation of the industrial alcohol. It is submitted that as held by the Hon ble Supreme Court in the case of Vam Organics I, denatured spirit is outside the seisin in the State legislature. It is submitted that assuming that denatured spirit may by whatever process be denatured and then converted into potable liquor, this would not give State the power to regulate it. [8.5] It is further submitted by Shri Sanjanwala, learned Counsel appearing on behalf of the petitioner that even the State has taken conflicting stand in different affidavits in reply filed. It is submitted that in the earlier affidavits, the respondent No.2 referred to and relied upon section 105 of the Prohibition Act, whereas in the second affidavit in reply he has referred to and relied upon section 107 of the Prohibition Act. [8.6] It is further submitted by Shri Sanjanwala, learned Senior Advocate appearing on behalf of the petitioner that as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive expenses but it is levied for the protection of the industries working in the State of Gujarat. It is submitted that however the respondent has taken different stand while filing two affidavits in reply in the present case and it is precise stand of the respondent in the present case that for the purpose of meeting with administrative expenses, the import duty at ₹ 3 per liter is levied on the import of denatured absolute alcohol from outside the State. Relying upon the Denatured Spirit Rules, 1956 and the Gujarat Spirit Denaturing Rules, 1964, it is submitted that denatured spirit is permanently unfit for human consumption and it cannot be renatured and converted in an alcohol fit for human consumption. [8.9] It is further submitted by Shri Sanjanwala, learned Senior Advocate appearing on behalf of the petitioner that the State Government has tried to justify levy of import fees by showing apprehension regarding diversion of denatured spirit for human consumption and lattha tragedy. It is further submitted that lattha tragedy in the State of Gujarat are attributed to illegal use of Methanol or Mythyl alcohol with country liquor. It is submitted that forensic scien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. MANU/PH/2369/2011 (P H High Court) 2. M/s. Ajanta Bottlers and Blenders Ltd. MANU/JH/0869/2013 (Jharkhand High Court) 3. M/s. Bindal Agro Chemicals Ltd. MANU/UP/2199/2004 (Uttar Pradesh High Court) 4. State of Tamilnadu vs. TVL South Sugar Mills Association MANU/SC/0853/2015 5. K.C.P. Ltd. vs. Government of A.P. MANU/SC/0855/2015 Making above submissions and relying upon above decisions, it is requested to allow the present petition. [9.0] Present petitions are vehemently opposed by Shri Kamal Trivedi, learned Advocate General appearing on behalf of the State. [9.1] Number of affidavits in reply are filed on behalf of the State. It is vehemently submitted by Shri Trivedi, learned Advocate General appearing on behalf of the State that in the facts and circumstances of the case the levy of the import fee at ₹ 3 per liter on denatured spirit / ethanol is absolutely just and proper and within the legislative competence of the State. It is submitted that the impugned Notification dated 25.10.2004 to levy / impose the import fee on import of ethanol is absolutely in consonance with the powers conferred under Section 143 of the Prohibition Act read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter bitterness decreases and therefore, it may be misused as a potable in prohibition State like Gujarat. It is submitted that because of such eventuality and use of such methanol / Denatured Spirit and/or methanol is mixed in the Denatured Spirit, tragedy like Lattha Tragedy takes place and may occur. It is submitted that therefore looking to the prohibition policy of the State and considering Article 47 of the Constitution of India, the impugned levy of the fees on import of Denatured Spirit is not required to be set aside. In the affidavit in reply dated 02.12.2012 in para 19, the stand taken by the State in support of their stand that the State Government has authority to levy any fees or tax on the import of ethanol, it is submitted that the State Government has not impose the levy of tax on ethanol for the purpose of administrative expenses, but it has been levied for the production of Distillery Industries working in the State of Gujarat considering the fact that oil companies may purchase ethanol from the Distilleries working in the State and to protect other deterrent financial conditions. [9.5] It is further submitted by Shri Trivedi, learned Advocate General appeari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause (u) of subsection (2) of section 143 of the Prohibition Act categorically provides for prescription of fee. It is further submitted that under section 143 of the Prohibition Act the State Government is empowered to frame Rules. It is submitted that Rules, 1959 have been amended by way of Bombay Denatured Spirit (Gujarat Amendment) Rules, 2004, which incorporated the words and an import fee at the rate of ₹ 3 per liter in the case of import of Denatured Ethanol after the words on a payment of fee of ₹ 50 in Rule 52 of the Rules, 1959. [9.9] Shri Trivedi, learned Advocate General appearing on behalf of the State relying upon the decision of the Hon ble Supreme Court in the case of Synthetics and Chemicals Limited (Supra) has submitted that in the said decision the Hon ble Supreme Court has observed and held that the State can always rely upon Entry Nos.6, 8, 24, 51 and 66 of List II of Entry No.33 of List III for the purpose of recalling the said industrial alcohol for preventing its use as alcoholic liquor and for charging fees. It is submitted that therefore the impugned levy of fees on import of Ethanol / Denatured Spirit is permissible and authorized by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel appearing on behalf of the respective parties in respect of their submissions and more particularly in support of their submission that once the spirit is Denatured and it is converted into Ethanol, the same is not thereafter possible to be renatured and will not become potable. In support of their above submissions, learned Counsel appearing on behalf of the respective petitioners have heavily relied upon the decision of the Hon ble Supreme Court in the case of Synthetics and Chemicals Limited (Supra) as well as the decision in the case of Vam Organics Chemicals (Supra). However, it is required to be noted that in the State of Gujarat, there is a prohibition law and considering the directive principles of the State Policy enumerated under Article 47 of the Constitution of India, it appears that the State has imposed the impugned fees on import of Denatured Spirit / Ethanol. Number of submissions have been made on behalf of the petitioners in support of their submissions that once the rectified spirit is denatured, it becomes unsafe for the use of human being by adding chemicals and therefore, the State has no authority and/or legislative competence to impose / levy import f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctly different production or manufacture and therefore, the fee was held to be metamorphose into a tax. Even in the case of Vam Organics Chemicals Ltd. (Supra) (Vam Organics Chemicals Ltd. II), it is observed that the State Government is competent to levy fee for the purpose of ensuring that industrial alcohol is not surreptitiously converted into potable alcohol so that the State is deprived of revenue on the sale of such potable alcohol and the public is protected from consuming such illicit liquor. At this stage the observations made by the Hon ble Supreme Court in the case of Bihar Distellery Anr. (Supra) in para 24 are required to be referred to which reads as under: 24. We are of the respectful and considered opinion that the decision in Synthetics did not deal with the aspects which are arising for consideration herein and that it was mainly concerned with industrial alcohol, i.e., denatured rectified spirit. While holding that rectified spirit is industrial alcohol, it recognised at the same time that it can be utilised for obtaining country liquor [by diluting it] or for manufacturing l.M.F.Ls. When the decision says that rectified spirit with 95% alcohol content v/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it be said even in such a situation that the State should fold its hands and wait and watch till the potable stage is reached. Yet another and additional circumstance is this: it is not brought to our notice that any notified orders have been issued under Section 18G of the I.D.R. Act regulating the sale, disposal or use of rectified spirit for the purpose of obtaining or manufacturing potable liquors which means that by virtue of Entry 33 of ListIll, the States do have the power to legislate on this field field not occupied by any law made by the Union, it is these and many other situations which have to be taken into consideration and provided for in the interests of law, public health, public revenue and also in the interests of proper delineation of the spheres of the Union and the States. The line of demarcation can and should be drawn at the stage of clearance/renewal of the rectified spirit. Where the removal/clearance is for industrial purposes [other than the manufacture of potable liquor], the levy of duties of excise and all other control shall be of the Union but where the removal/clearance is for obtaining or manufacturing potable liquors, the levy of duties of excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry. (3) So far as industries engaged in the manufacture of rectified spirit, both for the purpose of (a) supplying it to industries [other than industries engaged in obtaining or manufacturing potable liquors/intoxicating liquors] and (b) for obtaining or manufacturing or supplying it to Governments/ persons for obtaining or manufacturing potable liquors are concerned, the following is the position : the power to permit the establishment and regulation of the functioning of the distillery is concerned, it shall be the exclusive domain of the Union. But so far as the levy of excise duties is concerned, the duties on rectified spirit removed/ cleared for supply to industries [other than industries engaged in obtaining or manufacturing potable liquors], shall be levied by the Union while the duties of excise on rectified spirit cleared/removed for the purposes of obtaining or manufacturing potable liquors shall be levied by the concerned State Government. The disposal, i.e., clearance and removal of rectified spirit in the case of such an industry shall be under the joint control of the Union and the concerned State to ensure evasion of excise duties on rectified spirit removed/cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. [11.0] However, the next question which is posed for consideration of this Court is 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 ? While considering the aforesaid question few decisions of the Hon ble Supreme Court are required to be referred to and considered as under. [11.1] In the case of K.C.P. Limited (Supra), in para 6 the Hon ble Supreme Court has observed as under: 6. In deciding the vires of Rule 15, the discussion must consider the distinguishing features between a fee and a tax. An analysis of the Judgments of this Court will reveal that, inter alia, a tax is levied as part of a common exaction, whereas a fee is payment towards services rendered. Thus a fee ostensibly collected to prevent nefarious activities such as smuggling and countryside brewing, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees, a fee is generally defined to be a charge for a special service 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, though in many cases the costs are arbitrarily assessed. (AIR p.295, paras 4344) ... but in this case there is total absence of any corelation between the expenses incurred by the Government and the amount raised by contribution under the provision of section 76 and in these circumstances the theory of a return or counterpayment or quid pro quo cannot have any possible application to this case: In our opinion, therefore, the High Court was right in holding that the contribution levied under section 76 is a tax and not a fee and consequently it was beyond the power of the State Legislature to enact this provision (AIR p. 296, para 49) (emphasis supplied) [11.3] In the case of Vam Organics Chemicals Ltd. II (Supra), after considering the decision of the Hon ble Supreme Court in the case of Synthetics and Chemicals Limited (Supra), in paras 42 to 44, the Hon ble Supreme Court has observed and held as under: 42. Considering the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be treated as part of regulatory measures. The State has not produced any material to show that it was incurring any additional cost for any further regulation of denatured spirit. Any trace of a lingering doubt as to the propriety of the levy under Rule 3(a) must be taken to have been noted off effectively with the order passed by three Judges of this Court in the Writ Petition filed by Synthetics challenging the same levy as we have noted earlier. That order has resulted in granting Synthetics Chemicals Ltd. relief from payment under Rule 3(a). The only distinction between the present respondents' cases and Synthetics was that the respondents chose to challenge the levy before the High Court. That could be no rational basis for denying the respondents who are otherwise identically situated, the same relief. (See : Anil Kumar Neotia v. Union of India [1998] 2 SCC 587). In the absence of any such correlation the fee under Rule 3 is not a fee at all levied for the purpose of additional regulation or for any service rendered but is really a tax in the garb of a fee. [11.4] In the case of Indian Mica and Micanite Industries (Supra), in para 17, the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng some service to the licensees. The State ought to be in possession of the material from which the correlationship between the levy and the services rendered can be established at least in a general way. But the State has not chosen to place those materials before the Court. Therefore the levy under the impugned Rule cannot be justified. [11.5] In the case of TVL South Indian Sugar Mills Association and Ors. (Supra), in para 11, the Hon ble Supreme Court has observed and held as under: 11. It seems to us, facially, that if administrative or service charges are sought to be recovered from the Respondent Distilleries to cover nefarious activities carried out by third parties such as smuggling and countryside brewing etc. which have no causal connection with the production of industrial alcohol, or for collection of excise duties from other industries carrying out distinctly different production or manufacture, the fee would metamorphose into a tax. We must hasten to explicate that the illegal or illicit diversion of industrial or ethyl alcohol is possible at the stage where it is rectified spirit or industrial alcohol, contrary to the argument of the Respondents. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Year 1. 2012-13 2013-14 2014-15 2015-16 1 Pay Allowances 1,155.76 1,236.55 1,319.96 1,321.07 2 Travelling expenses 11.94 52.57 26.12 24.32 3 Office expense 90.62 70.14 92.10 646.67 4 Awareness of Prohibition propaganda work 349.41 298.46 195.63 457.84 Total 1,607.75 1,657.72 1,633.81 2,449.90 Note:Constructionof Building of Nashabandhi Bhavan Total cost ₹ 541.68 lakh Nothing further has been stated on the aspect of the purpose and object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... privilege, it may charge fees based on quid pro quo . In the said decision in para 88 also the Hon ble Supreme Court has observed while holding the imposition of fees on industrial alcohol in the said case as invalid, it is made clear by the Hon ble Supreme Court that the same will not affect any impost so far as potable alcohol as commonly understood is concerned and it will also not affect any imposition of levy on industrial alcohol fee where there are circumstances to establish that there was quid pro quo for the fee sought to be imposed and this will not affect any regulating measure as such. [12.5] Considering the law laid down by the Hon ble Supreme Court in the aforesaid decisions and applying the same to the facts of the case on hand more particularly with respect to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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