Khand Udyog Khedutsahakari Mandali Ltd Vs. State of Gujarat & Anr  INSC
29 (28 January 1992)
R.M. (J) Sahai, R.M. (J) Mohan, S. (J)
1992 AIR 872 1992 SCR (1) 391 1992 SCC (2) 42 JT 1992 (1) 597 1992 SCALE (1)194
of India, 1950:
245 and 246/VII Schedule-List II Entries 26 and 27/List III Entry 33:
Competence of State-Section 58A of Bombay Prohibition Act-Enactment of-Whether within the legislative competence.
Bombay Prohibition Act:
58A-Whether within the legislative competence of State-Constitutional validity
of the Bombay Prohibition (Manufacture of Spirit) (Gujarat) Rules, 1963, framed
by the State Government in exercise of powers conferred under Section 58A of
the Bombay Prohibition Act, dealt with grant of licence for working of
distillery for the manufacture of spirit.
the conditions for grant of licence was that the cost of maintenance of staff,
viz. payment of salary and allowances, was to be paid to the Government by the
licensees. This was challenged by the appellant and the High Court upheld the
levy as being within the legislative competence of the State.
against the High Court's order, the appellant has preferred the present appeal.
appellants contended that since the judgement appealed against proceeded on
privilege theory, it cannot withstand the principle laid down in Synthetic
& Chemicals, case; and that levy as a fee under Entry 8 of list II of
Seventh Schedule or excise duty under Entry 51 is different than the cost of
supervision charged under Section 58A of the Bombay Prohibition Act.
the appeal, this Court, 392
1.1 Even though the power to levy tax or duty on industrial alcohol is vested
in the Central Government, the State was till left with power to lay down
regulations to ensure that non-potable alcohol, that is, industrial alcohol,
was not diverted and misused as substitute for potable alcohol. This is enough
to justify a provision like 58A of the Bombay Prohibition Act. [394 D]
Principle of occupied field precluded State from trenching on any power which
was already covered by Central legislation. But in absence of any provision in
Industries (Development & Regulation) Act touching upon regulation or
ensuring that industrial alcohol was not divered, the State was competent to
legislate on it under Entry 33 list III of VII Schedule. [394 F-G]
Trade and commerce and supply and distribution of goods are exclusive state
subject under entries 26 and 27 of List II of VII Schedule. But both are
subject to entry 33 of List III. What is covered in entry 33 is excluded from
List II. And the power to legislate in respect of what is covered by List III
is enjoyed both by Central and State legislatures subject to Article 246 of the
section 58A can be traced to regulatory power of the State exercisable under
entry 33 of List III the challenge to its validity is liable to fail. Thus,
Section 58A of the Bomaby Prohibition Act is valid and is not violative of any
constitutional provision. [395 B-C].
cannot be said that no cost for supervision could be demanded unless the power
to issue licence for production was found to exist in State. [395 d] Synthetics
& Chemicals Ltd. & Ors., v. State of U.P & Ors.  1 SCC 109,
APPELLATE JURISDICTION: Civil Appeal No. 503 of 1974.
the Judgement and order dated 29/30.8.1973 of the Gujarat High Court in Special
Civil Application No. 129 of 1973.
Vellapally and D.N. Mishra for the Appellants.
Anip Sachthey and Ms. Rashmi Dhariwal for the Respondents.
The Judgement of the Court was delivered by R.M. SAHAI, J. Validity of demand,
under Section 58A of the Bombay Prohibition Act, for maintenance of excise
staff for supervision of the manufacture of industrial alcohol was assailed on
lack of legiislative competence of the State.
58A is extracted below:
The State Government may by general or special order direct that the
manufacture, import, export, transport, storage, sale, purchase, use,
collection or cultivation of any intoxitant, denatured spirituous preparations,
hemp, Mowra 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 Govt. by person
manufacturing, importing, exporting, transporting, storing, selling,
purchasing, using, collecting or cultivating the intoxicant, denatured spirituous
preparation, hemp, Mowra flowers or molasses:
that the State Government may exempt any class of persons or institutions from
paying the whole or any part of the cost of such staff".
of Bombay Prohibition (Manufacture of Spirit) (Gujarat) Rules, 1963, framed by the State of Gujarat empowered the director to grant a licence
for working of the distillery for the manufacture of the spirit. Condition
Nos.2 and 3 of the licence issued provided for employment of excise staff for
supervision of the operations of manufacture and storage of spirit as well as
for payment of salary and allowances to staff so posted. Attack was not on
power to supervise or even the right to post staff for supervision but on
demand of cost of maintenance of such personnel. Levy was upheld, by the High
Court, as fee under entry 8 of List II of the VIIth Schedule read with entry 66
of the same list.
Synthetics & Chemicals Ltd. & Ors. v. State of U.P. & Ors., 
1 SCC 109 a Constitution Bench after exhaustively reviewing the constitutional
entries and various decisions held that industrial alcohol being unfit for
human consumption as no levy on it could be made by a State either under Entry
51 or Entry 8 of List II of VIIth Schedule. Nor such levy could be justified on
doctrine of privilege or police power. Therefore it was urged that the order of
High Court was liable to be set aside and the provision was liable to be struck
down as ultra vires.
understanding of the judgement is not warranted.
394 tion Bench while distinguishing between potable and non- potable alcohol
and holding that the State had no privilege in it upheld the power of State to
regulate and ensure that non-potable alcohol was not diverted and misued.
to learned counsel since the entire judgment of the High Court proceeded on
privilege theory it cannot withstand the principle laid down in Synthetic &
Chemical's case. Levy as a fee under Entry 8 of List II of VIIth Schedule or
excise duty under Entry 51 are different than cost of supervision charged under
Section 58A. The former has to stand the test of levy being in accordance with
law on power derived from one of the constitutional entries.
Synthetic & Chemical's case finally brought down the curtain in respect of
industrial alcohol by taking it out of the purview of either Entry 8 or 51 of
List II of VIIth Schedule of the competency of the State to frame any
legislation to levy any tax or duty is excluded. But by that a provision
enacted by the State for supervision which is squarely covered under Entry 33
of the concurrent list which deals with production, supply and distribution
which 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 non-potable 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
of occupied field precluded State from trenching on any power which was already
covered by central legislation. But in absence of any provision in Industries
(Development & Regulation) Act touching upon regulation or ensuring that
industrial alcohol was not diverted the state was competent to legislate on it
under Entry 3 List III of VIIth Schedule which is extracted below, "33.
Trade and Commerce in, and the production, supply and distribution of- (a) The
products of any industry where the control of such industry by Union is declared
by Parliament by Law to be 395 expedient in the public interest, and imported
goods of the same kind as such products.
and commerce and supply and distribution of goods are exclusive state subjects
under entry 26 and 27 of List II of VIIth Schedule. But both are subject to
entry 33 of List III. That is what is covered in entry 33 is excluded from list
II. And the power to legislate in respect of what is covered by list III is
enjoyed both by Central and State subject to Article 246 of the Constitution.
Since 58A can be traced to regulatory power of the State exercisable under
entry 33 the challenge to its validity is liable to fail. It could not
therefore be successfully claimed that it was violative of any constitutional
provision or the section was invalid in view of the ratio in Synthetic &
on the principal submission the learned counsel urged that no cost for
supervision could be demanded unless the power to issue licence for production
was found to exist in State. Reliance was placed on observations in Synthetic
& Chemical's case. Since it stands answered by the constitution Bench
itself it is unnecessary to dilate on it. Suffice it is to extract the
following observation, "The position with regard to the control of alcohol
industry has undergone material and significant change after the amendement of
1956 to the IDR Act.
the amendment, the State is left with only the following powers to legislate in
respect of alcohol:
may lay down regulations to ensure that non-potable alcohol is not diverted and
misued as a substitute for potable alcohol.
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".
attempt was made to challenge absence of any quid pro quo. But no serious
effort was made in High Court is clear from following observation.:
"If any quid pro quo is to be established between the quantum of the levy
and the services rendered it must be established between the actual cost of
supervision paid by a manufacturer or a businessman and the quantum of profits
made by him by lawfully carrying on his business into a prohibited commodity.
We have no doubt in our mind that the annual payment of a few thousand rupees
by way of cost of supervision under Section 58A brings to each of the three
petitioners profits which must be quite disproportionate in size. 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, this appeal fails and is
dismissed with costs.