28 January 1992
Supreme Court
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SH. BILESHWAR KHAND UDYOG KHEDUTSAHAKARI MANDALI LTD Vs STATE OF GUJARAT AND ANR.

Bench: SAHAI,R.M. (J)
Case number: Appeal Civil 503 of 1974


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PETITIONER: SH. BILESHWAR KHAND UDYOG KHEDUTSAHAKARI MANDALI LTD

       Vs.

RESPONDENT: STATE OF GUJARAT AND ANR.

DATE OF JUDGMENT28/01/1992

BENCH: SAHAI, R.M. (J) BENCH: SAHAI, R.M. (J) MOHAN, S. (J)

CITATION:  1992 AIR  872            1992 SCR  (1) 391  1992 SCC  (2)  42        JT 1992 (1)   597  1992 SCALE  (1)194

ACT:                 Constitution of India, 1950:      Article 245 and 246/VII Schedule-List II Entries 26 and 27/List III Entry 33:      Legislative  Competence of State-Section 58A of  Bombay Prohibition Act-Enactment of-Whether within the  legislative competence.      Bombay Prohibition Act:      Section  58A-Whether within the legislative  competence of State-Constitutional validity of

HEADNOTE:      Rule  2  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. One of 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.      Aggrieved against the High Court’s order, the appellant has preferred the present appeal.      The  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.      Dismissing the appeal, this Court,                                                        392      HELD: 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]

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    1.2  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]      1.3  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  Constitution. Since  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].      1.4   It  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. [1990] 1 SCC 109, followed.

JUDGMENT:      CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 503  of 1974.      From the Judgement and order dated 29/30.8.1973 of  the Gujarat  High Court in Special Civil Application No. 129  of 1973.      Joseph Vellapally and D.N. Mishra for the Appellants.      R.N.  Sachthey, Anip Sachthey and Ms.  Rashmi  Dhariwal for the Respondents.                                                        393      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.      Section 58A is extracted below:          "58A:  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:          "Provided 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".      Rule  2 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

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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. In Synthetics & Chemicals Ltd. & Ors.  v. State of U.P. & Ors., [1990] 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.      Such  understanding of the judgement is not  warranted. The Constitu-                                                        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.      According 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. Since  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 appellant.      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 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-

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        (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.          (b)..............................          (c)..............................          (d)..............................          (e)..............................      Trade 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  & Chemicals’ case.      Failing 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.          After  the amendment, the State is left  with  only          the  following  powers to legislate in  respect  of          alcohol:          (a)....................................          (b)  It  may  lay down regulations to  ensure  that          non-potable alcohol is not diverted and misued as a          substitute for potable alcohol.          (c)....................................          (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".      Feeble  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.:                                                        396          "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

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        businessman."      In the result, this appeal fails and is dismissed  with costs. G.N.                                    Appeal dismissed.                                                        397