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PETITIONER: GUJCHEM DISTILLERS INDIA LTD.

       Vs.

RESPONDENT: STATE OF GUJARAT AND ANR.

DATE OF JUDGMENT17/02/1992

BENCH: MOHAN, S. (J) BENCH: MOHAN, S. (J) SAWANT, P.B.

CITATION:  1992 AIR 1256            1992 SCR  (1) 675  1992 SCC  (2) 399        JT 1992 (2)    20  1992 SCALE  (1)447

ACT:      Bombay    Prohibition    Act,    1949-Section    58(A)- Constitutional validity of-supervision under-Legality of.      Constitution of India,  1950-Article  136-Appeal-matter not contended before High court whether permitted to contend in appeal.

HEADNOTE:      The  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.      The 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.      In 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.      The  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.      The  appellant-company  contended that  this  Court  in Synthetics  and Chemicals Ltd. case, [1989] 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.      The respondent-State submitted that the Synthetics  and

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Chemicals Ltd. case dealt merely with the vend fees, and not about supervisory charges.      Dismissing the appeal, this Court      HELD:  1.01. 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., [1989] Supp.1 SCR 623-Followed.      1.02.Section  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]      1.03.The  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. Therefore, 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  valid. However,  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.      2.  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                                                       677 quantum   of  impost  and  the  services  rendered  to   the manufacturer or businessman. [679E-F]

JUDGMENT:      CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 350  of 1974.      Appeal 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.      M.H.Baig,  Rajiv Shakdhar, R.Sasi Prabhu (for M/s  S.A. Shroff & Co.) for the Appellants.      P.S. Poti, Bimal Roy Jad. Anip Sachthey and Ms.  Rashmi Dhariwal for the Respondents.      The 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.      The 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 appellant company.      Though,   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

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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 2nd respondent.      It 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:           "Sec.58(A)  : 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:          Provided  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. Condition 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 respectively.      The 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. Hence, the present civil appeal.                                                         679      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.,  [1989] 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.      Even otherwise, there is no quid pro quo.      In  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. The  maintenance  of the Staff  contemplated  under  Section

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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. Such  a 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.      As  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 businessman.      We  are  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. (supra)  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:                                                         680           "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."      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.      One  of 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 as:      (a)  They are in conflict of Rule 45 of Central  Excise Rules and,

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    (b)  They could not be sustained as fee as there was no quid pro quo.      In  the  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.          It  is in consideration for the privilege,  licence          or service".          Again in para 29, it was stated thus:          "There  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.          The 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:          "(4) 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.          Such  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., [1973] 2 SCR 973; (AIR  1973  SC

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        724)  followed in State of Rajasthan  v.  Sajjanlal          Panjawat,[1974]  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:                "Learned 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.,  [1954]  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.          Trichur   &  Ors.,  etc.  v.  State  of  Kerala   &          Ors.,etc.[1982]  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

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        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.                It  is  true that that in the State  of  West          Bengal v. Subodh Gopal Bose & Ors., [1954]V SCR 587          at  601-604   and Kameshwar Prasad & Ors.,  v.  The          State  of Bihar & Anr., [1962] 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.                We  are  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).      Turning  to  the second argument about the  absence  of quid  pro quo, we need only extract the following  from  the judgment of the High Court:          "Section  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

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        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. V.P.R.                                     Appeal dismissed.                                                   686