Distillers India Ltd. Vs. State of Gujarat & Anr  INSC 49 (17 February 1992)
S. (J) Mohan, S. (J) Sawant, P.B.
1992 AIR 1256 1992 SCR (1) 675 1992 SCC (2) 399 JT 1992 (2) 20 1992 SCALE
Prohibition Act, 1949-Section 58(A)- Constitutional validity of-supervision
of India, 1950-Article 136-Appeal-matter not
contended before High court whether permitted to contend in appeal.
appellant, a company registered under the Indian Companies Act, 1956, was using
industrial alcohol as one of the raw materials for manufacturing resins,
chemicals, sodium carboxy methyl, cellulose and certain other chemicals. In
May, 1970, the company installed its own distillery for the purpose of
manufacturing industrial alcohol from mollasses.
respondent No.2 on 3.7.1969 issued a licence to the company for manufacturing
spirit. In accordance with the conditions No. 2 and No. 3, the respondent No. 2
appointed a 9 member supervisory staff consisting of one Inspector, one
Sub-Inspector, one Nayak, one Jamadar and five constables, to supervise the
manufacture of the spirit in the company's distillery plant. The
appellant-company was required to provide residential accommodation to the supervisory
staff within its factory premises and to deposit supervisory charges from time
to time. The company complied the requirements.
1973 the appellant-company filed a Civil Application in the High Court
challenging the constitutional validity of the Section 58(A) of the Bombay
Prohibition Act, 1949.
High Court dismissed the petition, hence this appeal by certificate granted by
the High Court under Articles 132(1)133(1)(a) of the Constitution.
appellant-company contended that this Court in Synthetics and Chemicals Ltd.
case,  Supp.1 SCR 623 held that in respect of 676 industrial alcohol, the
States had no power to impose the impost;that in view of the judgment of this
Court, the theory of privilege as adumbrated by the High Court could not be
sustained, and that there was no quid pro quo.
respondent-State submitted that the Synthetics and Chemicals Ltd. case dealt
merely with the vend fees, and not about supervisory charges.
the appeal, this Court
The States have the power to regulate the use of alcohol and that power must
include power to make provisions to prevent and/or check industrial alcohol
being used as intoxicating or drinkable alcohol. This is an added reasoning to
uphold the validity of Section 58(A). [684D, F-G] Synthetics & Chemicals Ltd.v.State
of U.P. and Ors.,  Supp.1 SCR 623-Followed.
58(A) of the Bombay Prohibition Act creates a statutory duty of supervision and
incidentally provides for recovering from a manufacturer or a businessman
having been permitted under a licence to carry on lawfully a business or
industrial activity which would otherwise have been unlawful. [684G-685A]
maintenance of the staff contemplated under Section 58(A) of the Act is
primarily for the purpose of ensuring that while dealing with industrial
alcohol, no attempt shall be made to divert non-potable alcohol.
by regulatory measures, the State sees to it that industrial alcohol is not
diverted for the use as potable alcohol. Such a regulatory measure is perfectly
such a power was sustained though not on police power but as a regulatory
measure. [679C-D] Southern Pharmaceuticals & Chemicals v. State of Kerala, AIR 1981 S.C. 1863; Sh. Bileshwar Khand
Udyog Khedut Sahakari Mandali Ltd. v. The State of Gujarat & Anr., C.A. No. 503 of 1974-Followed.
appellants are precluded from contending that the services did not make the
impost, since the High Court has noted that it was not contended before it that
there was not sufficient quid pro quo between the 677 quantum of impost and the
services rendered to the manufacturer or businessman. [679E-F]
APPELLATE JURISDICTION: Civil Appeal No. 350 of 1974.
by Certificate from the Judgment and Order dated 29/30-8-1973 of the Gujarat
High Court in Special Civil Application No. 163 of 1973.
Rajiv Shakdhar, R.Sasi Prabhu (for M/s S.A. Shroff & Co.) for the
Bimal Roy Jad. Anip Sachthey and Ms. Rashmi Dhariwal for the Respondents.
Judgment of the Court was delivered by MOHAN, J. This is an appeal by
certificate granted by the High Court of Gujarat at Ahmedabad under articles
132(1) and 133 (1)(a) of the Constitution of India. It is directed against the
judgment dated 29/30th
August, 1973 in
special Civil Application No. 163 of 1973.
facts leading to this appeal are briefly as under:- The Appellant is a company
registered under Indian Companies Act. It is engaged in the business of
manufacturing resins, chemicals, sodium carboxy methyl, cellulose and certain
other chemicals. Industrial alcohol is one of the raw materials used by the
till the year 1969, the appellant was purchasing industrial alcohol from the
market, it installed its own distillery from may 1970 at Bilimora, within the
State of gujarat. This was for the purpose of
manufacturing industrial alcohol from molasses.
On July 3rd, 1969 the second respondent, the Director
of Prohibition and excise, Gujarat State, Ahmedabad issued a licence to the
appellant for manufacturing spirit. In accordance with the conditions No. 2 and
3 of the licence, the 2nd respondent appointed a staff of 9 persons. The said
staff consisted of one Inspector, one Sub-Inspector, one Nayak, one jamadar and
five constables to supervise the manufacture of spirit in the 678 appellant's
distillery plant. The appellant was also required to provide residential
accommodation to the supervisory staff within the factory premises. On July 3rd, 1969 the 2nd respondent asked the
appellant to deposit the supervisory charges. From time to time, these
supervisory charges were also deposited in accordance with the directions of
requires to be stated at this stage that the levy of supervisory charges, is
traceable to section 58(A) of Bombay Prohibition Act of 1949. The Section says:
: The State government may be general or special order direct that the
manufacture, import, export, transport, storage, sale, purchase, use collection
or cultivation of any intoxicant, denatured spirituous preparation, hemp, mhowra
flowers, or molasses shall be under the supervision of such Prohibition and
Excise or Police Staff as it may deem proper to appoint, and that the cost of
such staff shall be paid to the State Government by person manufacturing, importing,exporting,transporting,
storing,selling, purchasing, using, collecting or cultivating the intoxicant,
denatured spirituous preparation hemp, mhowra flowers or molasses:
that the State Government may exempt any class of persons or institution from
paying the whole or any part of the cost of such staff." Section 143 of
the said Act confers power for making rules. Rules have been framed called
Bombay Prohibition (Manufacture of Spirit) (Gujarat)Rules, 1963. These rules inter alia regulate the working of
distilleries, manufacturing spirit. Rule 2 provides for the licence.
Nos.2 and 3 of the licence require payment of the supervisory staff and for
provision of quarters for the residential accommodation of the staff
appellant filled Civil Application No. 163 of 1973 in the High court of Gujarat challenging the constitutional
validity of Section 58(A) of the Act. By the impugned judgment,, the said
petition was dismissed.
the present civil appeal.
The arguments of the appellant briefly stated will boil down to this. It has
been categorically laid down in Synthetics & Chemicals Ltd. v. State of
U.P. & Ors.,  Supp. 1 SCR 623 that in respect of industrial alcohol,
the states have no power to impose the impost as is sought to be done in the
instant case. The theory of privilege as adumbrated by the High court can no
longer be sustained in view of the judgement.
otherwise, there is no quid pro quo.
countering the submissions, it is argued on behalf of the State that Synthetics
and Chemicals Ltd. etc. (supra) dealt merely with the vend fees. That is not
the case here.
maintenance of the Staff contemplated under Section 58(A) of the Act is
primarily for the purpose of ensuring that while dealing with industrial
alcohol, no attempt shall be made to divert nonpotable alcohol. Therefore, by
regulatory measures, the States sees to it that industrial alcohol is not
diverted for the use as potable alcohol.
regulatory measure is perfectly valid as seen from Southern Pharmaceuticals
& Chemicals v. State of Kerala, AIR
1981 SC 1863. This decision was noted with approval in Synthetics &
Chemicals Ltd. Etc. (Supra). However, such a power was sustained though not on
police power but as a regulatory measure.
regards the services rendered, the appellants are precluded from contending
that the services did not make the impost, since the High Court has noted that
it was not contended before it that there was not sufficient quid pro quo
between the quantum of impost and the services rendered to the manufacturer or
relieved of the necessity of deciding the correctness of these submissions by a
detailed judgment, since identical points were raised in Civil Appeal No. 503
of 1974 (Sh. Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. v. The State of
Gujarat & Anr.) to which one of us
(Mohan, J.) was a party. The said Civil Appeal has been dismissed considering
these aspects and upholding the validity of Section 58(A). The said judgment
will squarely cover this case as well. We fully concur with the reasons
contained therein. In Synthetics & Chemicals Ltd. etc.
concerning the power to make regulations in order that non-potable alcohol may
not be diverted for use as potable alcohol, the following observations are
found at page 681:
"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:
may pass any legislation in the nature of prohibition of potable liquor
referable to entry 6 of list II and regulating powers.
may lay down regulations to ensure that non-potable alcohol is not diverted and
misused as a substitute for potable alcohol.
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.
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." In this
connection, we may also usefully refer to southern Pharmaceuticals &
Chemicals (supra). This case related to the constitutional validity of Sections
12-A, 12- B,14(e) & (f), 68-A of Kerala Abkari Act (1 of 1077) and Rules 13
and 16 of the Kerala Rectified Spirit Rules, 1972.
the contentions raised was that the provision contained under Section 14 (e) of
the Act for the collection of supervisory charges was clearly invalid inasmuch
They are in conflict of Rule 45 of Central Excise Rules and, (b) They could not
be sustained as fee as there was no quid pro quo.
said judgment at page 1875, para.27 Southern Pharmaceuticals & Chemicals
(supra) reads as under:
A fee may be charged for the privilege or benefit conferred, 681 or service
rendered or to meet the expenses connected there-with. A fee my be, levied to
meet the cost of supervision and may be, something more.
in consideration for the privilege, licence or service".
in para 29, it was stated thus:
is a broad co-relationship between the fee collected and the cost of the
establishment under Section 14(e) of the Act it is provided that the
commissioner, with the previous approval of the Government may prescribe the
size and nature of the establishment necessary for supervision of a manufactory
and the cost of the establishment and other incidental charges in connection
with such supervision be realised from the licensee. There can be no doubt that
the supervisory staff is deployed in a bonded manufactory by the Government for
its own protection to prevent the leakage of revenue, but there is no denying
the fact that a licensee undoubtedly receives a service in return.
cost of the establishment levied under Section 14(e) of the Act is to be
collected from the licensee in the manner provided by Rule 16(4) of the Kerala
Rectified Spirit Rules, 1972,relevant part of which reads:
All the transactions in the spirit store shall be conducted only in the presence
of an Excise Officer not below the rank of an Excise Inspector.
officer shall be assisted by at least two Excise Guards. The cost of
establishment of such officer and the guards shall be payable by the licensee
in advance in the first week of every month as per counter-signed challan to be
obtained from such officer. The rate at which the cost of establishment is to
be paid by the licensee shall be fixed by the Commissioner from time to time
and intimated to the licensee in writing....." There is admittedly no
provision made in the Central Rules for the recovery of supervisory charges,
perhaps because as the Court observed in the Hyderabad Chemicals and
Pharmaceutical's case (AIR 1964 SC 1870) (supra) it was felt that the duty on
medicinal and toilet preparations containing alcohol 682 would be sufficient to
defray the cost of such supervision. But the absence of such a provision in the
Central Rules, as we have already indicated, does not deprive the State from
making a provision in that behalf. It is true that the supervisory charges are
in the nature of a compulsory exaction from a licensee and the collections are
not credited to a separate fund, but are taken to the consolidated fund of the
State and are not separately appropriated towards the expenditure incurred in redering
the service. However, as observed in Government of Madras v. Zenith Lamp & Electricals
Ltd.,  2 SCR 973; (AIR 1973 SC 724) followed in State of Rajasthan v. Sajjanlal
Panjawat, 2 SCR 741; (AIR 1975 SC 706) that by itself is not decisive, by
reason of ART. 266 of the Constitution. It is equally true that normally a fee
is uniform and no account is taken of the paying capacity of the recipient of
the service, but absence of uniformity will not make it a tax if co-relationship
is established [see Commissioner H.R.E., Madras v. Lakshmindra Thirtha Swamiar
of Shirur Mutt and Government of Madras v.Zenith Lamp and Electricals Ltd., AIR
1954 SC 282 and AIR 1973 SC 724 (supra)]. The cost of supervision would
necessarily vary with the nature and extent of the business carried on by a
licensee. Therefore, the supervisory charges can be sustained even if they are
regarded as a fee for services rendered by the State or its
instrumentalities." In dealing with Synthetics Chemical case (supra) the
following observations were made:
Advocates-General for the States of Gujarat and Kerala have also made their
submissions, and referred to several decision and the concept of police power,
and contented that imposition of a fee would be the most effective method of
regulating intoxicating liquor other than alcohol. According to the
Advocate-General of Kerala, that would be justified as the reasonable measure
in regard to intoxicating liquor. According to him, it has been accepted by
courts all along that the 'police power' of the State enables regulations to be
made regarding manufacture, transport, possession 683 and sale of intoxicating
liquor. Such police power could be exercised as to impose reasonable
restriction as to effectuate the power. He referred to the observations of this
Court in Cooverjee B.Bharucha v. The Excise Commissioner and the Chief
Commissioner, Ajmer & Ors.,  SCR 873 which quoted the passage from
Crowley v. Christensen,(1890) 24 Lawyers' Edn. 620. Reference was also made to Hari
Shanker's case (supra). Where this Court quoted Vol. 38 of the American
Jurisprudence where it was stated that the higher the fee is imposed for a licence,
better is the regulation. Reliance was also placed on P. N. Kaushal's case
(supra). It was contended that it has been accepted by this Court that the
police power is excercisable for regulation of an activity of a legislature
within the permissible field or impost as regulatory measure. It may be valid
though it may neither be fee nor a tax in the limited sense of the term. See
the observations of this court in Southern Pharmaceuticals & Chemicals.
& Ors., etc. v. State of Kerala & Ors.,etc. 1 SCR 519 at 537 .
Regarding regulatory measures in connection with medicinal preparations
containing alcohol it was observed by this Court that the impugned provisions
had to be enacted to ensure that the Rectified spirit is not misused under the
pretext of being used for toilet and medicinal preparations containing alcohol.
Such a regulation is a necessary concomitant of the police power of the State
to regulate such trade or business which is inherently dangerous to public
health. The American doctrine of police power is not perhaps applicable as such
in India, but power of sovereignty to regulate as part of the power of the
competent legislature to effectuate its aim are there.
true that that in the State of West Bengal v. Subodh Gopal Bose & Ors.,
V SCR 587 at 601-604 and Kameshwar Prasad & Ors., v. The State of
Bihar & Anr.,  3 Suppl.SCR 369 the concept of police power was
accepted as such, but this doctrine was not accepted in India as an independent
power but was recognised as part of the power of the State to legislate with
respect to the matters enumerated in the State and Concurrent Lists, subject to
constitutional limitations. It 684 was that the American jurisprudence of
police power as distinguished from specific legislative power is not recognised
in our Constitution and is, therefore, contrary to the scheme of the
Constitution. In interpreting the provisions of our Constitution, we should go
by the plain words used by the Constitution makers and the importing of
expression like 'police power', which is a term of variable and indefinite
connotation can only make the task of interpretation more difficult. It was
contended that in enacting a law with respect to intoxicating liquor as part of
the legislative power measures of social control and regulation of private
rights are permissible and as such may even amount to prohibition.
of the opinion that we need not detain ourselves on the question whether the
States have the police power or not. We must accept the position that the
States have the power to regulate the use of alcohol and that power must
include power to make provisions to prevent and or check industrial alcohol
being used as intoxicating or drinkable alcohol. The question is whether in the
grab of regulations a legislation which is in pith and substance, as we look
upon the instant legislation, fee or levy which has no connection with the cost
or expenses administering the regulation, can be imposed purely as regulatory
measure. Judges by the pith and substance of the impugned legislation, we are
definitely of the opinion that these levies cannot be treated as part of
regulatory measures. in this view of the matter we do not detain ourselves with
examining the numerous American decisions to which our attention was drawn by
learned counsel very elaborately and thoroughly." This is an added
reasoning to uphold the validity of Section 58(A).
to the second argument about the absence of quid pro quo, we need only extract
the following from the judgment of the High Court:
58(A) of the Bombay Prohibition Act creates a statutory duty of supervision and
incidentally provides for recovering from a manufacturer or a businessman the
cost of supervision which is primarily necessitated by the manufacturer 685 or
businessman having been permitted under a licence to carry on lawfully a
business or industrial activity which would otherwise have been unlawful. We
need not go into the details of this aspect because it has not been contended
before us that if the levy under Section 58A is held to be a fee, there is no
sufficient quid pro quo between the quantum of the impost and the services
rendered to the manufacturer or businessman." In the result, the appeal
fails and is dismissed with cost.