STATE OF U.P., ETC. ETC. v. SYNTHETICS & CHEMICALS LTD. & ORS. ETC. ETC (2)

Citation: [1980] 2 S.C.R. 531

Court: Supreme Court of India

Bench: A.C. GUPTA, P.S. KAILASAM

Case summary

Excise (Amendment) Act 5 of 1976 has been challenged as unconstitutional and beyond the legislative competence of thel State. Ihe Deputy Excise and Taxation Commissionei·('), held that the State has exclusive privilege to deal in intoxicating liquor and, therefore, the Stato...

Judgment text

STATE OF U. P. , ETC. ETC. v. SYNTHE11CS & CHEMICALS LTD. & ORS. ETC. ETC. • December 19, 1979 [A. C. GUPTA AND P. S. KAILASAM, JJ. ] Excise laws-"Denatured spirit" if an intoxicating liquor-Licence fee levied r 011 sale d"latured spirit-If within the competence of the Stdte. The respondents who were licensees for the whole. sale vend of denatured spirit in their v. Tit petitions before the High Court con. tended that levy of fees ) on denatured ~pirit was not justified because (i) the Sta•tci was not proViding any service to the trade and (ii) since it is. the; Parliament which has the power C: to levy excise, duty or tax on denatured spirit, th~ State was incompetent to levy the fees. llej~cting the contentions, the fligh Court held that the State had exclusive privilege to deal with any intoxicating liquor which included dena-tured spirit, that it had the right to vend liquor either in retail or wholesale and that therefore its power to levy fees cannot be' questioned.

In appeal to this Court it was contended on behalf of the licensees that (I) }) levy o( vend fee on denatured spirit by thei State was without legislative com· petence (2) with the ena trength of the amended section 10(2) of the Reforms Act and amended Rules 20 • the Bihar Government demanded from the appellant rent contrary to (1) [1970] 2 S. C. R. 100. the terms of his lease. It was held that Entry 54 in Union List speaks of requirements of mines and minerals development and Entry 23 in List II is subject to entry 54. Once a declaration was made under entry 54 specifying the extent of vesting the competency was only with Parliament. The attempt of the learned counsel to trace the power to enact the second proviso to section 10 of the Act to Entry 18 of List II was rejected. The plea of the learned counsel was that the modification of the existing lease was a separate topic and not covered by section 15 of Act 67 of 1957.

The Court rejected the plea on the ground that the entire legislative field in relation to mines and minerals had been withdrawn from the State Legislature. The decision does not help the appellants for on the facts it is clear that the entire field relating to mines and minerals had been occupied and tak!! n away from the Legislature and as iuch it was beyond the competence of the State to legislate on mines and minerals. In the case before us the position is different because the power of the State Legislature to legislate in respect of the intoxicating liquor and its exclusive right regarding intoxicating liquor cannot be questioned. The third contention of Mr. Nari. man, is that the vend fee levied by the State is not and was never treated by the State as charge or rental as the consideration for granting exclusive privilege. On the other hand the levy is excise duty or a fee which the State is not entitled to collect.

The submission of the learned counsel was that even though it is found that the State is entitled to make laws regarding intoxicating liquor under List II, Entry 8, it has no power to impose any tax. The power to tax by the State is confined only to Entry 51, List II which empowers the State to levy duty on alcoholic liquors for human consumption and as denatured spirit is not alcoholic liquor for human consumption, a levy of excise duty is not permissible by the State. It was contended that the levy of a fee was also not permissible unless it had some relation to the expenses incurred for that purpose. According to the Solicitor-General, Mr. Kakkar, the levy was not a tax or a fee but a levy for parting with the exclusive right of the State in respect of intoxicating liquor. In view of the stand taken by the State, it is unnecessary for us to go into the question as to whether the levy is a tax or a fee. For dealing with the contention of Mr.

Nariman that the levy was never collected in lieu of the State parting with its rights, it is necessary II to refer to the relevant provisions of the Act. The United Provinces • Excise Act, 1910 (Act 4 of 1910) was passed in 1910. Subsequently, J it was adapted and modified by the Government of India (Adaptation U. P. STATE v. SYNTHETICS CHEMICALS (Kailasam, !. ) 547 ofl Indian Laws) Order, 1927 and Adaptation of Laws Order, 1950. A Chapter IV of the Act deals with manufacture, possession and sale while Chapter V deals with duties and fees. The Act refers to Excise Revenue, Duty, fee, tax, fine and payment as condition for the grant of licenc1~ for any exclusive privilege, S. 3(1) defines Excise Revenue as meaning revenue derived or derivable from any duty, fee, tax, fine B or confiscation imposed or ordered under the Provisions of the Act or of any law in force relating to alcohol or intoxicating drug. Excise r Duty, and Countervailing duty is defined under S. 3 and 3(a) as ...

_ meaning such excise duty or countervailing duty, as the case may be, "" as mentioned in entry 51 of List II of the Seventh Schedule of the f Constitution. Chapter II relates to establishment and control of the Excise Department. Chapter III prohibits import of intoxicants. Intoxicant means any liquor which in turn includes any liquids containing alcol)ol. S. 12 prohibits import unless permission is obtained and conditions imposed by the State Government are satisfied and any duty imposed under S. 28 is paid. S. 28 refers to duties and fee and provides that an excise duty or countervailing duty, as the case may be, directed by the State Government may be imposed on any exciseable article. Under this section, a dnty on import, export, transport, manufacture is levied in accordance with the provisions of S. 12(1), 13, 17 and 18. The stand taken by the State before us is that the levy which is being collected, is not in the nature of an excise duty or counter-veiling duty.

Though a duty under S. 28, Proviso II on denatured spirH was levied after Proviso II to S. 28 was omitted by the Government {Adaptation of Indian Law) Order, 1937, no excise duty on denatured spirit was levied. Apart from the duty that is leviable, the Excise Commissioner is empowered under S. 30 instead of or in addition to any duty to accept F payment of a sum in consideration of the grant of licence of any exclusive privilege under s. 24. Section 24 provides that subject to the provisions of S. 31, the Excise Commissioner may grant any person a licence for exclusive privilege of manufacturing or supplying or selling whok:sale or retail, any country liquor or intoxicating drug within any local area. Reading S. 30 and 24 together, it is clear that G the Excise Commissioner may accept payment in consideration for the grant of the licence for any exclnsive privilege. The exclusive privilege under S. 24 was confined only to country liquor within a local ~rea.

Before examining, the impact of amended S. 24A by U. P. Act 30 of 1972, it may be mentioned that Chapter VI empowers the collection of fees for licence or permits granted under the Act. A licence fee was n only collected under notification dated 22-5-1930 for licence for wholesale vend of denatured spirit. The Excise Department on 23-1-1937 A introduced rule 17(2) underS. 40(2)(d) imposingvendfeeofAnnas • 7 per bulk gallon for the issue from the distillery. This fee was not collected regarding denatured spirit issued to industries engaged in the manufacture of synthetic rubber. By notification dated 3rd November, 1972 the U. P. Government B amended the Excise Rules and substituted rule 17(2). The rule is purported tQ have been issued under S. 40(2) (d) in exercise of the . powers conferred on the Government under S. 40(1). By the noti- ~" 76] 2 S. G. R. 690. 14-21 SCl! /80