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PETITIONER: SOUTHERN PHARMACEUTICALS & CHEMICALS TRICHUR & ORS. ETC.

       Vs.

RESPONDENT: STATE OF KERALA & ORS. ETC.

DATE OF JUDGMENT01/09/1981

BENCH: SEN, A.P. (J) BENCH: SEN, A.P. (J) REDDY, O. CHINNAPPA (J) ISLAM, BAHARUL (J)

CITATION:  1981 AIR 1863            1982 SCR  (1) 519  1981 SCC  (4) 391        1981 SCALE  (3)1376  CITATOR INFO :  R          1983 SC 617  (8)  F          1983 SC1019  (52)  F          1983 SC1246  (30)  D          1986 SC 726  (6,9)  RF         1989 SC 317  (34)  F          1989 SC2091  (11)  RF         1990 SC1927  (60)  RF         1992 SC1256  (9,11,13,14)  RF         1992 SC1383  (14)

ACT:      Kerala Abkari Act 1077 (1 of 107), SS. 12A, 12B, 14(e), (f )  and 68A and Kerala Rectified Spirit Rules. 1972, Rules 13 and  16-Validity of-State Government whether competent to enact law relating to medicinal and toilet preparations.      Constitution of India 1950, Schedule VII, List 1, Entry 84, List  ll Entries  8 and  54-Scope  of-State  legislature whether  competent   to  enact   a  law   with  respect   to ’intoxication  liquors’   or  for  levying  excise  duty  on alcoholic requirements for human consumption.      Doctrine of  ’occupied field’-Application of-lncidental encroachment on  forbidden field-Whether  affects competence of legislature to enact law-Necessity for examination of the scheme of  both enactments-Charging section of statute index to the real character of tax      Tax and  Fee-Distinction between-Quid  pro quo  stricto sensu-Whether sine qua non of ’fee’.      Words and  Phrases-’Shall have  due regard  to’-Meaning of.

HEADNOTE:      The appellants, who were manufacturers of medicinal and toilet  preparations   containing  alcohol   challenged  the constitutional validity  in their  writ petitions under Art. 226 of  the Constitution  of the provisions of ss. 12A, 12B, 14(e) and  (f ),  56A and  s. 68A  of the Kerala Abkari Act, 1967 (Act  No. X  of 1967) and Rules 13 and 16 of the Kerala Rectified Spirit  Rules, 1973  and rr.  5, 6  and 7  of  the Kerala Spiritious  Preparations Rules,  1969 on  the  ground that the  State Legislature  had no  power to  enact  a  law relating to  medicinal and  toilet preparations as the topic

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of the  legislation  was  within  the  exclusive  domain  of Parliament under Entry 84, List I of the Seventh Schedule of the Constitution  and also  on the  ground  that  they  were violative of  Art. 19(1)  (g) read  with  Art.  301  of  the Constitution. The  High Court  dismissed the  writ  petition holding that  there was  no conflict  between  the  impugned provisions and  the Central  law, i.e.,  the  Medicinal  and Toilet  Preparations   (Excise  Duties)  Act,  1955  or  the Medicinal and  Toilet Preparations  (Excise  Duties)  Rules, 1956  framed   thereunder  as   they  dealt  with  different subjects. The  High Court  further held  that  the  impugned provisions do  not offend against Art. 19(1) (g) or Art. 301 of the Constitution.      In the  appeal and  the special  leave petition to this Court it  was contended  on behalf of the appellants (t) The State Legislature had no legislative competence 520 to enact  the impugned  provisions  because  the  field  was occupied by  the provisions  of  The  Medicinal  and  Toilet Preparations (Excise Duties) Act, 1955 (The Central Act) and the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 (the  Central Rules),  and alternatively,  the impugned provisions are violative of the fundamental right guaranteed in Art.  19(1) (g)  of  the  Constitution.  (2)  "Drugs  and Pharmaceuticals" having been declared by Parliament under s. 2 of the Industries Development and Regulation) Act, 1951 to be a scheduled industry, being item 22 of the First Schedule thereof, the power of the State Legislature to make a law in respect of  medicinal  and  toilet  preparations  containing alcohol was  taken away. (3) The provisions made in s. 14(e) of the  Act for  the collection  of supervisory  charges was clearly invalid  in as much as (a) they are in conflict with r. 45  of the  Central Rules,  and (b)  they  could  not  be sustained as a fee as there was no quid pro quo. (4) Rule 13 of the  Kerala Rectified  Spirit Rules,  1972, providing for the levy  of excise duty as excess wastage of alcohol in the manufacture of  medicinal and  toilet preparations cannot be supported in terms of the charging provision contained in s. 17 of  the Act.  (S) The  power to  restrict the quantity of ayurvedic asavas  and arishtas  in which  alcohol  is  self- generated in the process of manufacture having regard to the total  requirement   of  such   medicinal  preparations  for consumption  or   use  in   the  State  is  an  unreasonable restriction on  The fundamental  right to  carry on trade or business  guaranteed  under  An.  19(1)  (g)  and  was  also violative of Art. 301 as there was demand for such medicinal preparations not  only  in  The  Slate  but  throughout  the country.      Dismissing The Appeal and Special Leave Petition, ^      HELD: (l)  The Central  and State  Acts operate  in two separate and  distinct fields  and are  not in conflict with each other. While the main purpose of the impugned Act is to consolidate  the  law  relating  to  manufacture,  sale  and possession of intoxicating liquors and intoxicating drugs, a subject which  falls under Entry 8 of List II of the Seventh Schedule, the  main object  of the Central Act is lo provide for the levy and collection of duties of excise on medicinal and toilet  preparations containing  alcohol  falling  under Entry 84 List I. [536 G-F]      2(i).  The   enactment  of  the  Medicinal  and  Toilet Preparations (Excise  Duties) Act,  1955 by Parliament under Entry  84,   List  I   of  the   Seventh  Schedule   of  the Constitution, or  the framing  of the  Medicinal and  Toilet Preparations (Excise  Duties) Rules,  1956  by  the  Central

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Government in  exercise of  their rule  making  power  under section 19  of the Act, for the purpose of levying duties of excise  on  medicinal  and  toilet  preparations  containing alcohol etc.,  do not  pre vent  the State  Legislature from making a  law under Entry 8, List II of the Seventh Schedule to the  Constitution with  respect to ’intoxicating liquors’ or a law under Entry 51 List II for levying excise duties on alcoholic requirements for human consumption. [528 C-D]      (ii) It  is the  charging section  which gives the true index to  the real  character of  a tax.  The nature  of the machinery by  which the  tax is  to be  assessed is  not  of assistance, except  in so  far as  it may throw light on the general character  of the  tax. The charging section in s. 3 of the  Central Act  clearly shows  that it does not seek to levy  a   duty  of   excise  on  alcohol  liquor  for  human consumption falling  within Entry  51 List II of the Seventh Schedule, but to levy a duty of 521 excise  on  medicinal  and  toilet  preparations  containing alcohol etc. The topic of legislation under Entry 84, List I of the  Seventh Schedule  is ’duties  of excise on medicinal and toilet  preparations containing alcohol etc. The Central Act must  in pith  and substance, be attributed to Entry 84, List. 1. [532 C-E] (iii) The  Central and the State Legislations operate on two different and  distinct fields.  The Central  Rules, to some extent,  trench   upon  the  field  reserved  to  the  State Legislature, but  that is  merely  incidental  to  the  main purpose, that  is, to levy duties of excise on medicinal and toilet preparation  containing alcohol. Some of the impugned provisions may  be almost  similar to some of the provisions of the Central Rules, but that does not imply that the State Legislature had  no competence  to enact the provisions. The State Legislation is confined to ’intoxicating liquor’, that is, to  ensure proper utilisation of rectified spirit in the manufacture  of   medicinal  and  toilet  preparations  and, therefore,  within   the  powers   granted  to   the   State Legislature under  Entry 8,  List II.  It further  seeks  to regulate the manufacture of bona fide medicinal preparations and prevent misuse of rectified spirit in the manufacture of spurious  medicinal   and  toilet   preparations  containing alcohol  capable   of  being   used  as  ordinary  alcoholic beverages.                                                [532 F-533 A]      (iv) The  enumeration of ’intoxicating liqour’ in Entry 8,  List  II,  confers  exclusive  power  to  the  State  to legislate in  respect of  medicinal and  toilet preparations containing alcohol. [533 B]      (v) In  matters of  seeming conflict or encroachment of jurisdictions, what is more important is the true nature and character of  the legislation.  A necessary corollary of the doctrine of pith and substance is that once it is found that in pith  and substance  the impugned  Act  is  a  law  on  a permitted field,  any incidental encroachment on a forbidden field does  not affect  the competence of the legislature to enact the law. [534 B-C]      Prafulla Kumar  Mukherjee and  Ors. v. Bank of Commerce Ltd. Khulna  A.I.R. 1947  PC 60 at 65 and State of Bombay v. F. N. Balsara [1951] SCR 682 at 694-5 referred to.      (vi) There  can be  no doubt  that the  impugned Act is relatable to  Entry 8, List II of the Seventh Schedule. [536 A]      (vii) When  the frame-work  of the  two  enactments  is examined, it  would be  apparent that  the Central  and  the State Legislature  operate in  two  different  and  distinct

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fields. In the matter of making rules or detailed provisions to achieve  the object  and purpose  of a legislation, there may be  some provisions seemingly overlapping or encroaching upon the  forbidden field,  but that  does not  warrant  the striking down  of the  impugned Act as ultra vires the State Legislature.                                                [536 G-537 A]      Hyderabad Chemical  and Pharmaceutical  Works  Ltd.  v. State of  Andhra  Pradesh  and  Ors.  [1964]  7  S.C.R.  376 distinguished.      (viii) No  citizen has any fundamental right guaranteed under Art.  19(1) (g)  of the Constitution to carry on trade in any  noxious and  dangerous goods like intoxicating drugs or intoxicating  liquors, The power to legislate with regard to intoxicating liqour carries with it the power to regulate the manufacture, sale and possession of medicinal and toilet preparations containing alcohol, not for the 522 purpose of  interfering with  the right  of citizens  in the matter of  consumption or  use for  bonafide  medicinal  and toilet preparations, but for preventing intoxicating liquors from being passed on under the guise of medicinal and toilet ’preparations. It was  within the  competence of  the  State Legislature to  prevent the noxious use of such preparations i.e. their  use as  a substitute  for  alcoholic  beverages. [537B-D]      In the instant case the provisions have been enacted to ensure that  rectified  spirit  is  not  misused  under  the pretext of  being used for medicinal and toilet preparations containing  alcohol.   Such  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. [537 E]      (ix) All  that the provisions of ss. 12A and 12B ordain is that the Commissioner "shall have due regard to the total requirement of  such medicinal  preparations for consumption or use  in the State". The Commissioner has, therefore, only to take into account the total requirements within the State as an element which should enter the assessment and no more. As a  necessary corollary,  it follows  that in  fixing  the quantity of  medicinal  and  toilet  preparations  to  which alcohol is  added or in which it is self-generated, normally the Commissioner shall have regard to larger requirements of the manufacture,  if the  manufactured product  has a market outside the  State. The  restrictions imposed by section 12B as  to   the  alcoholic  content  of  medicinal  and  toilet preparations and  the requirement  that they  shall  not  be manufactured except  and in  accordance with  the terms  and conditions of  a licence  granted by  him, are  nothing  but reasonable restrictions  within the  meaning of  Art. 19(6). The impugned provisions, therefore, cannot be struck down as offending Art. 19(1) (g) of the Constitution. [538 E-539 B]      3. The  State Act,  in pith  and substance,  is  not  a legislation under  Entry 24,  List 11  and,  therefore,  the question does not arise. [539 E-539 B]       4(i)  (a) The  provision contained  in s. 14(e) of the Act is  clearly relatable to the State’s power to make a law under Entry   read  with Entry 51(a), List II of the Seventh Schedule. S.  14(e) of  the Act  is valid  in so  far as  it provides that  the Commissioner  may prescribe  the size and nature of  the establishment  for such  supervision and  the cost  of  establishment  and  other  incidental  charges  in connection with  such supervision  to be  realised from  the licensee. There  is no  warrant for  the submission that the framing of such an incidental provision like r. 45(1) of the

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Central Rules  takes  away  the  State’s  power  to  recover supervisory charges from the licensee. [540 B-C]      (b) ’Fees’ are the amounts paid for a privilege and are not an obligation. Fees are distinguished from taxes in that the chief purpose of a tax is to raise funds for the support of the  Government or  for a public purpose, while a fee may be charged  for  the  privilege  or  benefit  conferred,  or service  rendered   or  to   meet  the   expenses  connected therewith. Thus,  fees are  nothing  but  payment  for  some special privilege  granted or  service rendered.  Taxes  and taxation are,  therefore, distinguishable from various other contributions, charges,  or  burdens  paid  or  imposed  for particular purposes and under particular powers or functions of the  Government. It  is now  increasingly  realised  that merely because  the collections for the services rendered or grant  of   a  privilege   or  licence,  are  taken  to  the Consolidated Fund  of  the  State  and  are  not  separately appropriated  towards  the  expenditure  for  rendering  the service is  not by  itself decisive. It is also increasingly realised that  the element  of quid pro quo stricto sensu is not 523 always a  sine qua  non of  a fee.  It is needless to stress that the element of quid A pro quo is not necessarily absent in every tax, [541 G-542 D]      Mahant Shri  Jagannath Ramanuj  Das  v.  The  State  of Orissa [1954]  SCR 1046,  Ratilal Panachand  Gandhi  v.  The State of Bombay [1954] SCR 1055, Constitutional Law of India by H.M.  Seervai, 2nd  Edn. Vol.  2, p.  1252, para  22.39 & Kewal Krishan Puri & Anr. v. State of Punjab & Ors. [1979] 2 SCR 1217 at 1230 referred to.      (ii) In  the case  of a  manufacturer of  medicinal and toilet  preparations   containing  alcohol   in   a   bonded manufactory, the  imposition of  the cost  of  establishment under s.  14(e) of the Act calculated in accordance with the nature and extent of that establishment could not be said to be an imposition of a duty of excise, but is a price for his franchise to carry on the business. [543 D-E]      (iii) No  one has  a fundamental right to the supply of rectified spirit which is an intoxicating liquor. It is upto the  State  to  control  and  regulate  its  supply  from  a distillery or  a spirit  warehouse in the State under and in accordance with  the terms  and conditions  of a  licence or permit its  import from  outside by grant of a privilege and charge a  fee for  the same.  A fee  may be  charged for the privilege or  benefit conferred,  or service rendered, or to meet the  expenses connected  therewith. A fee may be levied to meet  the cost  of supervision and may be something more. It  is  in  consideration  for  the  privilege,  licence  or service. The  State is  undoubtedly entitled  to levy excise duty on  the rectified spirit issued from a distillery under s. 17(f)  of the Act read with r. 13 of the Kerala Rectified Spirit Rules,  1972 but  it refrained  from making  any such levy by  reason of  rule 21  of the  Central Rules  and has, therefore, by  proviso tc)  rule 8 allowed a manufacturer of medicinal and  toilet preparations  to draw rectified spirit from a  distillery without  payment of  duty. It  is thus  a privilege conferred  on the licensee. To claim the privilege he must  comply with the conditions prescribed If one of the conditions is  the payment  of cost  of establishment  under section 14(e) of the Act read with rule 16(4) of the Central Rules,  the   manufacturer   of   such   preparations   must necessarily bear  the burden s the licensee gets services in return in lieu of such payment. [543 G-544 C]      5. Rule 13(2) is nothing but a corollary of rule 13(1).

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On a  combined reading of section 17(f) and rule 8 read with the proviso  thereof,  no  duty  is  chargeable  on  alcohol actually used  in the  manufacture of  medicinal and  toilet preparations. The  Government realised  that some margin for wastage should  be  allowed  and,  therefore,  inserted  the proviso to  rule 13(2),  which provides  that the Government may, in  consultation with  the  Drugs  Controller  and  the Chemical Examiner,  by notification  in the  Gazette, permit allowance for  wastage  occurring  during  the  manufacture. Beyond the  permissible limit,  the State  has the  right to levy a  duty on  excess wastage  of alcohol, i.e. on alcohol not accounted for.                                                 [548 D-F]      6. The restriction imposed by section 12A of the Act as to the quantity of medicinal preparations to be manufactured relate not  only to  preparations to  which alcohol is added but also to medicinal preparations in which alcohol is self- generated. There  can be  no doubt that ayurvedic asavas and aristhas which  are capable  of being  misused as  alcoholic beverage and  come within  the purview  of the definition of ’liquor’ contained  in section 3(10) of the Act being liquid containing alcohol. The contention that Note to rule 3(1) is an  unreasonable   restriction  on   the  freedom  of  trade guaranteed under.  Article 19(1) (g) of the Constitution has no substance. [549 B-D] 524

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal No. 533 of 1979.       From the judgment and order dated 2nd January, 1979 of the High  Court of  Kerala in  original Petition No. 4935 of 1974-D.                             and      Special Leave Petition No. 81 OF 1971.       From  the judgment and order dated the 27th July, 1971 of the Kerala High Court in O.P. No. 4706 of 1969.      T.S.  Krishnamoorthy   Iyer,   C.J.   Balakrishnan,   K Prabhakaran,  P.  Parameswaran  and  A.S.  Nambiar  for  the appellant in C.A. No. 533/79.      P. Govindan  Nair, Mrs. Baby Krishnan, K.R. Nambiar and K.M.K Nair for the respondent in C.A. No. 533/79.      S.B. Sahariya  and V.B.  Sahariya for the petitioner in S.L.P. No. 81/72.      The Judgment of the Court was delivered by      SEN, J.  This appeal.  by special  leave,  is  directed against a  judgment of  the Kerala  High Court  by which the High Court dismissed the writ petition of the appellants who are  manufacturers  of  medicinal  and  toilet  preparations containing alcohol and upholding the constitutional validity of ss.  12A, 12B,  14(e) and  (f) and 68A of the Abkari Act, 1077 (1  of 1077) (hereinafter called ’the Act’), introduced by the Abkari (Amendment) Act, 1967 (10 of 1967), and rr. 13 and 16  of the Kerala Rectified Spirit Rules, 1972. The main question in  the appeal  is as to the legislative competence of the State to enact a law relating to medicinal and toilet preparations containing  alcohol under  Entry 8,  List II of the Seventh Schedule to the Constitution.       The  appellants, by  virtue of  a licence  in Form  25 granted under  the Drugs  and  Cosmetics  Act,  1940  and  a licence in  Form Ll  granted under  the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (hereinafter referred to as  ’the Central  Act’) are  entitled to  manufacture the

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drugs specified  therein. They  filed a writ petition in the High Court complaining that they were entitled to the supply of alcohol  free  of  duty  for  the  manufacture  of  their medicinal and toilet 525 preparations  under  r.  21  of  the  Medicinal  and  Toilet Preparations A  (Excise  Duties)  Rules,  1956  (hereinafter referred to  as ’the Central Rules’), and r. 8 of the Kerala Rectified Spirit Rules, 1972, and challenged the validity of the impugned  provisions mainly on the ground that the State Legislature has  no power  to  enact  the  law  relating  to medicinal  and   toilet  preparations   as  the   topic   of legislation is  within the  exclusive domain  of  Parliament under Entry  84, List  I of  the  Seventh  Schedule  to  the Constitution. The High Court held that there was no conflict between the  impugned provisions and the Central law as they dealt with different subjects.      The impugned  provisions, as  introduced by  the Abkari Amendment) Act, 1967, in so far as they are relevant, are as follows:      Section 12A reads:                12A.  No   preparation  to  which  liquor  or           intoxicating drug  is added  during the process of           its  manufacture  or  in  which  alcohol  is  self           generated   during    such   process    shall   be           manufactured in  excess of  the quantity specified           by the Commissioner:                Provided that in specifying the quantity of a           medicinal preparation, the Commissioner shall have           due  regard  to  the  total  requirement  of  that           preparation for consumption or use in the State.           Section 12B provides:                12B. (1)  No person  shall utilise  liquor or           intoxicating  drug   in  the  manufacture  of  any           preparation, in  excess of  the quantity specified           by  the  Commissioner  and  except  under  and  in           accordance with  the terms  and  conditions  of  a           licence  granted   by  the  Commissioner  in  that           behalf: G                Provided that  where such  preparation  is  a           medicinal  preparation,   Commissioner  shall,  in           specifying the  quantity of liquor or intoxicating           drug have  due regard  to the total requirement of           such medicinal  preparation for consumption or use           in the State. 526 Section 14 provides:           14.  The  Commissioner   may,  with  the  previous      approval of the Government      .. ... ... ... ...           (d) prescribe  the mode of supervision that may be      necessary in  a ......  manufactory where  preparations      containing   liquor    or   intoxicating    drugs   are      manufactured,  to   ensure  the  proper  collection  of      duties, taxes  and other dues payable under this Act or      the proper utilisation of liquor or intoxicating drugs;           (e)  prescribe   the  size   and  nature   of  the      establishment necessary  for such  supervision and  the      cost of  the establishment and other incidental charges      in connection with such supervision to be realised from      the licensees: and           (f) prescribe the allowance for wastage of alcohol      that may occur in-                (i)       ...  ... ...                (ii) the  process   of  manufacture   of  any

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                   preparation containing alcohol; and                (iii)   ... .... ... Section 68A  provides that  the Government  shall appoint an Expert Committee  consisting of  the Drugs  Controller,  the Chemical Examiner  to the  Government,  two  representatives each one of them shall be a non-official, of the Allopathic, Indigenous and Homoeopathic systems of medicine appointed by the Government,  and an officer of the Excise Department not below the  rank of  Deputy Commissioner;  and the  Committee shall advise  the Commissioner (a) as to whether a medicinal preparation is  a bona  fide medical preparation or not; and (b) as  to the  total requirements of medicinal preparations containing liquor  or intoxicating drugs or in which alcohol is self-generated  during the  process of their manufacture, for the whole of the State during one year.      Before this  Court the  constitutional validity  of the impugned provisions  was mainly challenged on these grounds, namely:  (I)   The  State  Legislature  had  no  legislative competence to enact the impugned 527 provisions because  the field was occupied by the provisions of the  A Medicinal  and Toilet Preparations (Excise Duties) Act, 1955  (the Central  Act) and  the Medicinal  and Toilet Preparations (Excise  Duties  )  Rules,  1956  (the  Central Rules),  and  alternatively,  the  impugned  provisions  are violative of  the fundamental right guaranteed in Art. 19(1) (g) of  the Constitution.  (2) The  Parliament having made a declaration in  s. 2  of  the  Industries  (Development  and Regulation) Act, 1951, declaring "Drugs and Pharmaceuticals" to be  a scheduled  industry, being  item 22  of  the  First Schedule thereof, the power of the State Legislature to make a law  in  respect  of  medicinal  and  toilet  preparations containing alcohol is taken away. (3) The provisions made in s. 14(e)  of the  Act  for  the  collection  of  supervisory charges was  clearly invalid  in as  much as (a) they are in conflict with r. 45 of the Central Rules, and (b) they could not be  sustained as a fee as there was no quid pro quo. (4) Rule  13   of  the  Kerala  Rectified  Spirit  Rules,  1972, providing for  the levy  of excise duty as excess wastage of alcohol  in   the  manufacture   of  medicinal   and  toilet preparations cannot  be supported  in terms  of the charging provision contained  in s.  17 of  the Act. We cannot accept any of these contentions      With regard  to the first ground, it was submitted that the conferral  of power  on the Commissioner under s. 12A of the Act  to restrict  the quantity  of medicinal  and toilet preparations to  which liquor  or intoxicating drug is added during the  process of  its manufacture with the requirement that the  Commissioner shall,  in specifying  such quantity, have due  regard to the total requirements of consumption or use in the State, the prohibition contained in s. 12B of the Act that no person shall utilise liquor or intoxicating drug in the  manufacture of  any preparation,  in excess  of  the quantity so  specified by the Commissioner and the condition that no  person  shall  manufacture  any  such  preparations except under and in accordance with the terms and conditions of a  licence granted  by him,  is clearly  contrary to  the general scheme  of the Central law and in particular, rr. 18 and 21  of the  Central Rules.  In this respect, it was said that under  r. 18  of the  Central Rules,  rectified  spirit ordinarily had  to be  supplied to  a  manufacturer  from  a distillery or  a spirit  warehouse of the State in which the manufactory  is   situate,  and  the  manufacturer  was  not precluded  from  obtaining  his  requirements  of  rectified spirit  from   sources  outside  the  State.  Under  r.  21,

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rectified spirit  had to  be issued without previous payment of  duty   for  the  manufacture  of  medicinal  and  toilet preparations containing  alcohol subject  to  the  condition that 528 manufacturer enters  into a  bond in Form Bl with sufficient security as  laid down in r. 96, towards due payment of duty and observance  of the rules. It is submitted that the State Legislature has  no power  to make  any  such  law  imposing restrictions  on  a  person  carrying  on  the  business  of manufacture and  sale of  medicinal and  toilet preparations containing alcohol  in as  much as  the matter relates to an occupied field. There is no merit in these contentions.      The enactment  of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 by Parliament under Entry 84, List I of  the Seventh  Schedule  of  the  Constitution,  or  the framing of  the Medicinal  and Toilet  Preparations  (Excise Duties) Rules, 1956 by the Central Government in exercise of their rule-making  power under  s. 19  of the  Act, for  the purpose of  levying duties of excise on medicinal and toilet preparations containing  alcohol etc.,  do not  prevent  the State Legislature  from making  a law under Entry 8, List II of the  Seventh Schedule to the Constitution with respect to ’intoxicating liquors’, or a law under Entry 51, List II for levying  excise   duties  on   alcoholic  liquor  for  human consumption. In order to appreciate the contention regarding the applicability of the doctrine of ’occupied field’, it is necessary to examine the scheme of both the enactments.      The scheme of the Act, as reflected in the preamble, is that it is an Act "to consolidate and amend the law relating to the  import, export,  transport,  manufacture,  sale  and possession of intoxicating liquor and all intoxicating drugs in the  State of Kerala". It is not necessary to set out all the provisions  of the Act in question, but reference may be made to  the definitions  of expressions ’spirit’, ’liquor’, ’country liquor’,  ’foreign liquor and ’intoxicating liquor’ defined  in  ss.  3(9),  (10),  (12),  (13)  and  (14).  The expression ’liquor’ as defined in s. 3(10) reads:           3(10).  ’Liquor’   includes   spirits   of   wine,      methylated spirits, spirits, wine, toddy, beer, and all      liquid consisting of or containing alcohol. Section 12(1) provides:           12(1). No  liquor or  intoxicating drug  shall  be      manufactured.. except  under the  authority and subject      to the  terms and  conditions of licence granted by the      Commissioner in that behalf, or under the provisions of      section 21, 529 Section 15 provides:           15(1). No  liquor or  intoxicating drug  shall  be      sold with out a licence from the Commissioner, provided      that a  person having the right to the toddy drawn from      any tree  may sell  the same  without a  licence  to  a      person licensed to manufacture or sell toddy under this      Act. B Section 17 provides:           17. A  duty of excise or luxury tax or both shall,      if the  Government so  direct, be  levied on all liquor      and intoxicating drugs:-                    ....  ... ... ...                (f)  issued  from   a  distillery,   brewery,                     winery or other manufactory or warehouse                     licensed or established under section 21                     or section 14; or The Act  is clearly relatable to the State’s power to make a

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law on  the topics  of legislation  covered by Entries 8 and 51, List  II of  the Seventh  Schedule to  the  Constitution which read as under:           8. Intoxicating  liquors,  that  is  to  say,  the      production,   manufacture,    possession,    transport,      purchase and sale of intoxicating liquors.           51.  Duties  of  excise  on  the  following  goods      manufactured   or    produced   in    the   State   and      countervailing duties  at the  same or  lower rates  on      similar goods  manufactured or  produced  elsewhere  in      India:-              (a)    alcoholic liquors for human consumption;              (b)    opium, Indian  hemp and  other  narcotic                     drugs and narcotics;      but not  including medicinal  and  toilet  preparations      containing alcohol  or any  substance included  in sub-      paragraph (b) of this entry.      The legislative  history of  the Central  Act  is  well known. Under  Entry 40,  List II  of the Seventh Schedule to the Government of 530 India  Act,   1935,  medicinal   and   toilet   preparations containing alcohol etc., were subjected to Provincial excise duties. Under  the Constitution,  the entry  relating to the excise duty on medicinal and toilet preparations containing alcohol was  transferred to  the Union List. In the light of experience  gained,   there  was   necessity  to  achieve  a synthesis from a vast body of existing rules and regulations in force  in the  States having regard to the sole object of the measure,  namely, to  bring about  uniform treatment  in excise  matters.  This  was  a  highly  complicated  subject because, firstly,  the excise  duty was  to be collected and retained by  the State Governments, and, secondly, a certain amount of  flexibility in statutory operations was necessary if spurious  medicines were  not to  defeat  the  policy  of prohibition which  is one  of the  Directive  Principles  of State Policy  under Art. 47 of the Constitution. Some of the provisions of the Central Act are so designed as to lay down only  broad   principles.  Matters   of  detail,   such   as classification of the preparations as capable or not capable of being  used as  ordinary alcoholic  beverages, regulation for the  purpose of  the Act,  of  production,  storage  and movement, were left to be regulated by rules.        Parliament  accordingly  enacted  the  Medicinal  and Toilet Preparations  (Excise Duties)  Act, 1955,  to provide for the levy and collection of duties of excise on medicinal and toilet  preparations  containing  alcohol.  The  Act  is relatable to Entry 84, List I of the Seventh Schedule to the Constitution, which reads:           84. Duties  of excise  on tobacco  and other goods      manufactured or produced in India except-      (a)  alcoholic liquors for human consumption;      (b)  opium, Indian  hemp and  other narcotic  drugs and           narcotics,      but  including   medicinal  and   toilet   preparations      containing alcohol  or any  substance included  in sub-      paragraph (b) of this entry.      The scheme  of the  Central Act  is to  provide for the levy and  collection of  duties of  excise on  medicinal and toilet preparations  containing  alcohol  etc.  The  Act  is entitled as  "An Act  to provide for the levy and collection of duties  of excise  on medicinal  and toilet  preparations containing alcohol,  opium. Indian  hemp or  other  narcotic drug or narcotic". Section 2 is the definition Section and 531

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the expression  ’dutiable goods’ as defined in s. 2(c) takes in  medicinal  and  toilet  preparations  specified  in  the Schedule. The  expression ’medicinal preparation’ is defined in s. 2(g) as:           2(g). ’medicinal  preparation’ includes  all drugs      which  are   a  remedy  or  prescription  prepared  for      internal or external use of human beings or animals and      all substances  intended to  be  used  for  or  in  the      treatment, mitigation or prevention of disease in human      beings or animals; It is  not necessary  to refer  to the definition of toilet’ preparation in s. 2(k) as it is not relevant for the present purpose. Section  3 is  the charging  section  which  levies duties of  excise on  all ’dutiable  goods’ manufactured  in India and  also lays down the mode of collection of the said duties. Section 3 (1) reads:           3(1). There  shall be  levied duties of excise, at      the rates  specified in  the Schedule,  on all dutiable      goods manufactured in India. Section  6   prohibits  any  person  from  engaging  in  the production or manufacture of any dutiable goods etc., except under the  authority and  in accordance  with the  terms and conditions of  the licence  granted under  the Central  Act. Section 19 (1) empowers the Central Government to make rules to carry out the purposes of the Act, and sub-s. (2) thereof specifies the various matters in respect of which such rules may be made. Section 21 provides for the repeal and savings. The Schedule  to the Act contains a description of ’dutiable goods’ and the rates of duty payable thereon.      In exercise of the powers conferred by s. 19 (1) of the Central Act, the central Government framed the Central Rules which practically  deal with  all the  facets of manufacture and production  of medicinal  and  toilet  preparations,  as required in  cls. (i)  to (xxi)  of sub-s. (2) thereof, with the ultimate  object of providing a machinery for collection of duty  on the said preparations. Chapter IV of the Central Rules deals  with  ’Manufacture’.  Rule  18  in  Chapter  IV provides that  rectified spirit shall ordinarily be supplied to a  manufacturer from a distillery.. Of the State in which the manufactory  is situated.  It further  provides that the manufacturer   is   not   precluded   from   obtaining   his requirements of  rectified spirit  from sources  outside the State. Rule  21 provides  that rectified  spirit H  shall be issued without previous payment of duty to a manufacturer of medicinal and  toilet preparations  containing alcohol. Rule 33 532 provides for  taking of  samples of the manufactured product for analysis  for determining  the strength  of alcohol  and medicaments. Rule  38 provides  for wastage  in manufacture. Rule 45(1) enjoins that the officer-in-charge shall exercise such supervision  as is  required  to  ensure  that  alcohol issued for  a certain  preparation is added to the materials which go  to make  that preparation  and that  no portion of such alcohol  is diverted to other purposes. These rules are intended and  meant to  carry out  the main  object  of  the Central Act,  i.e. to  levy and  collect duties of excise on medicinal and toilet preparations containing alcohol etc.      It is  the charging  section which gives the true index to the  a real  character  of  a  tax.  The  nature  of  the machinery by  which the  tax is  to be  assessed is  not  of assistance, except  in so  far as  it may throw light on the general character  of the  tax. The charging section in s. 3 of the  Central Act  clearly shows  that it does not seek to levy  a  duty  of  excise  on  alcoholic  liquor  for  human

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consumption falling  within Entry 51, List II of the Seventh Schedule, but  to levy  a duty  of excise  on medicinal  and toilet preparations  containing alcohol  etc. The  topic  of legislation under  Entry 84,  List I of the Seventh Schedule is not  ’duties of  excise on  alcoholic liquors  for  human consumption’ but  ’duties of  excise on medicinal and toilet preparations containing  alcohol etc’.  There can  be little doubt that  the Central  Act must, in pith and substance, be attributed to Entry 84, List I.      In determining  whether an  enactment is  a legislation ’with respect to’ a given power, what is relevant is not the consequences of  the enactment  on  the  subject  matter  or whether  it  affects  it,  but  whether,  in  its  pith  and substance, it  is a law upon the subject matter in question. The Central  and  the  State  Legislations  operate  on  two different and  distinct fields.  The Central  Rules, to some extent,  trench   upon  the  field  reserved  to  the  State Legislature, but  that is  merely  incidental  to  the  main purpose, that  is, to levy duties of excise on medicinal and toilet preparations  containing alcohol.  Similarly, some of the impugned provisions may be almost similar to some of the provisions of  the Central  Rules, but  that that  does  not imply that  the State Legislature had no competence to enact the provisions.      It is  sufficient to say upon the first ground that the impugned legislation  is confined  to ’intoxicating liquor’, that is, to ensure proper utilisation of rectified spirit in the manufacture  of medicinal  and toilet  preparations and, therefore, within the powers granted 533 to the  State Legislature under Entry 8, List II. It further seeks to  regulate the  manufacture of  bona fide  medicinal preparations and  prevent misuse  of rectified spirit in the manufacture of  spurious medicinal  and toilet  preparations containing  alcohol   capable  of  being  used  as  ordinary alcoholic beverages.  It was  suggested that  the provisions are identical  with the  provisions contained in the Central Rules and,  in particular, to rule 45(1) and, therefore, the legislation is in the occupied field. The answer is that the enumeration of  ’intoxicating liquor’  in Entry  8, List II, confers exclusive power to the State to legislate in respect of medicinal and toilet preparations containing alcohol.      In  Prafulla  Kumar  Mukherjee  and  Ors.  v.  Bank  of Commerce Ltd.,  Khulna(1) the  Privy Council in dealing with the question  or distribution  of powers laid down the tests that in  order to  see whether  an Act  is in  respect of  a particular subject,  one must  look to  "its true nature and character";  "its  pith  and  substance".  Lord  Porter,  in delivering the judgment of the Judicial Committee, observed:           "As  Sir   Maurice  Gwyer,   C.J.  said   in   the      Subramanyam Chettiar  Case: ’ It must inevitably happen      from time  to time  that legislation, though purporting      to deal  with a  subject in one list, touches also on a      subject in  another list,  and the different provisions      of the  enactment may  be so  closely inter twined that      blind observance  to a  strictly verbal  interpretation      would result  in  a  large  number  of  statutes  being      declared invalid  because the legislature enacting them      may appear  to have  legislated in  a forbidden sphere.      Hence the  rule which  has been evolved by the Judicial      Committee, whereby  the impugned statute is examined to      ascertain its ’pith and substance’, or ’its true nature      and character’,  for the purpose of determining whether      it is  legislation with respect to matters in this list      or in that" .

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The doctrine  of ’pith  and substance’  evolved by the Privy Council has been followed by this Court throughout. Thus, in State of  Bombay v.  F. N. Balsara(2) Fazl Ali, J., followed the decision of the Judicial Committee, reiterated: 534           "If the  Act, when  so viewed, substantially falls      within  the   powers  expressly   conferred  upon   the      Legislature which enacted it, then it cannot be held to      be invalid,  merely because  it incidentally encroaches      on  matters   which  have   been  assigned  to  another      Legislature." In such  matters of  seeming  conflict  or  encroachment  of jurisdictions, what is more important is the true nature and character of  the legislation.  A necessary corollary of the doctrine of pith and substance is that once it is found that in pith  and substance  the impugned  Act  is  a  law  on  a permitted field,  any incidental encroachment on a forbidden field does  not affect  the competence of the legislature to enact the law.      The main thrust of the argument is the decision of this Court in Hyderabad Chemical and Pharmaceutical Works Ltd. v. State of  n Andhra  Pradesh and Ors(1) which, we are afraid, is clearly  distinguishable. There  the Court  was concerned with the  question whether r. 36 of the Medical Preparations and Spirituous Rules, 1345 Fasli, framed under the Hyderabad Abkari Act,  136 Fasli  which provided that "the expenses of the establishment  for the  supervision of the work shall be borne by the pharmaceutical laboratory (licensee) as per the decision  of   the  Commissioner   of  Excise",   was  still enforceable having regard to s. 21 of the Central Act and r. 143 of  the Central Rules. It was held that the effect of s. 21 of  the Central  Act was that so far as the Hyderabad Act applied  to  the  use  of  alcohol  in  the  manufacture  of medicinal and toilet preparations, the Act must be deemed to have been  repealed and, therefore, r. 36 could not survive. In that  case, the  Court was  concerned with  the  levy  of supervisory charge  at the stage of manufacture of medicinal and  toilet   preparations,  and   not  with   the  levy  of supervisory  charges   at  the   stage  of  the  supply  and utilisation  of  rectified  spirit  in  the  manufacture  of medicinal and  toilet preparations.  This is  clear from  an observation at p. 380 of the Report to the effect:           The supervisory  staff which  has to  be paid  for      under r.  36 therefore  is meant for the supervision of      the manufacture of medicinal preparations and it is for      that purpose  only that  expenses have  to borne by the      laboratory con- 535      cerned. The  purpose of  the rule  therefore is clearly      covered by  the Act and the Rules framed thereunder and      it cannot  survive the  Act and the rules in view of s.      21 of  the Act  and r  143 of  the 1956-Rules,  and the      proviso to s 21 cannot be availed of by the State. While repelling  the contention  that r.  36 could  still be good law  as it  was meant  to carry  out  the  general  law relating  to  alcohol  and  intoxicating  drugs,  the  Court pointed out  that the  Central Rules  make no  provision for recovery of  supervisory charges,  the intention  being that the  duty  under  the  Act  would  cover  all  expenses  for enforcing it and observed (1)           We are  of opinion  that there is no force hl this      contention either.  In the  first  place,  as  we  have      already indicated,  the main  object of the supervisory      staff  mentioned   in  r.   36  is   to  supervise  the      manufacture  of   medicinal   preparations.   In   that

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    connection the  supervisory staff  will  certainly  see      that the  alcohol supplied  is used for the purpose for      which it  is supplied  and it  is not used in any other      manner. Rule  36 is only concerned with seeing that the      manufacture of  medicinal preparations is made properly      and is  done under the supervision of the establishment      attached  to   each  laboratory;   and   it   is   only      incidentally that  in that connection the establishment      is also  to see  that the  alcohol supplied is not used      otherwise than for the purpose of manufacture. Further, the  Central Act,  which the Court was considering, was a  fiscal measure.  The whole object and purpose of that Act is  to levy  a duty  of excise  on medicinal  and toilet preparations containing  alcohol.  The  Central  Rules  have mainly been  framed to  achieve this  object. Rule  45(1) on which reliance was placed, reads:           45(1). The  officer-in-charge shall  exercise such      supervision as  is  required  to  ensure  that  alcohol      issued for  a  certain  preparation  is  added  to  the      materials which go to make that preparation and that no      portion of such alcohol is diverted to other purposes. The provision  is merely  incidental to  the  main  purpose, i.e., collection  of excise  duty on  medicinal  and  toilet preparations containing alcohol. 536      There  can  be  no  doubt  that  the  impugned  Act  is relatable to  Entry 8,  List II  of the Seventh Schedule. In Balsara’s  case(1)   the  Court  held  that  the  expression ’liquor’ in Entry 31, List II of the Seventh Schedule to the Government of  India Act,  1935, took  within its  sweep all liquids containing  alcohol. In  dealing with  the question, Fazal Ali, J. Observed:           The framers  of the Government of India Act, 1935,      could not  have been  entirely ignorant of the accepted      sense in  which the  word ’liquor’ has been used in the      various excise  Acts of this country and, accordingly I      consider the appropriate conclusion to be that the word      ’liquor’ covers  not only those alcoholic liquids which      are generally  used for  beverage purposes  and produce      intoxication, but  also all liquids containing alcohol.      It may  be that  the latter  meaning is not the meaning      which is  attributed to  the word  ’liquor’  in  common      parlance especially  when that  word is prefixed by the      qualifying  word  ’intoxicating’,  but  in  my  opinion      having regard  to the numerous statutory definitions of      that word,  such a meaning could not have been intended      to be excluded from the scope of the term ’intoxicating      liquor’ as used in entry 31 of List II. It is  not disputed  by the appellants that the impugned Act does not  levy a  duty of  excise on  medicinal  and  toilet preparations containing  alcohol,  but  they  contend  that, whatever be  the intention,  the State  Legislature had,  in fact, encroached  upon an occupied field. The contention is, in our opinion, wholly misconceived. The main purpose of the impugned  Act   is  to   consolidate  the  law  relating  to manufacture, sale  and possession of intoxicating liquor and intoxicating drugs  which squarely falls under Entry 8, List II of  the Seventh  Schedule, while  the main  object of the Central Act  is to  provide for  the levy  and collection of duties  of  excise  on  medicinal  and  toilet  preparations containing alcohol  falling under  Entry 84,  List I  of the Seventh Schedule.  When the frame-work of the two enactments is examined,  it would  be apparent that the Central and the State Legislations  operate in  two different  and  distinct fields. In the matter of making rules or detailed provisions

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to achieve  the object  and purpose  of a legislation, there may be  some provisions seemingly overlapping or encroaching upon the forbidden field, but 537 that does  not warrant the striking down the impugned Act as ultra virus the State Legislature.      The alternative contention that the impugned provisions are violative  of Art.  19(1)(g)  of  the  Constitution,  is wholly devoid  of any  merit. No citizen has any fundamental right guaranteed  under Art. 19(1)(g) of the Constitution to carry on  trade in  any noxious  and  dangerous  goods  like intoxicating drugs  or intoxicating  liquors. The  power  to legislate with regard to intoxicating liquor carries with it the power  to regulate  the manufacture, sale aud possession of medicinal and toilet preparations containing alcohol, not for the purpose of interfering with the right of citizens in the matter of consumption or use for bona fide medicinal and toilet preparations, but for preventing intoxicating liquors from being passed on under the guise of medicinal and toilet preparations. It  was within  the competence  of  the  State Legislature to prevent the noxious use of such preparations, i.e. their use as a substitute for alcoholic beverages.      The  general   test  for   determining  what  medicinal preparations containing alcohol are capable of being misused and, therefore,  must be  considered intoxicating within the meaning of the term ’intoxicating liquor’, is the capability of the  article in  question tor  use  as  a  beverage.  The impugned  provisions   have  been  enacted  to  ensure  that rectified spirit  is not  misused under the pretext of being used  for   medicinal  and  toilet  preparations  containing alcohol. Such  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.      Section 12A  of the Act provides that no preparation to which liquor  or  intoxicating  drug  is  added  during  the process of  its manufacture  or in  which alcohol  is  self- generated during  such  process  shall  be  manufactured  in excess  of  the  quantity  specified  by  the  Commissioner: Provided that  in specifying  the quantity  of  a  medicinal preparation, the  Commissioner shall  have due regard to the total requirement of that preparation for consumption or use in the  State. Section  12 provides  that  no  person  shall utilise liquor  or intoxicating  drug in  the manufacture of any preparation,  in excess of the quantity specified by the Commissioner and  except under  and in  accordance with  the terms  and   conditions  of   a  licence   granted  by   the Commissioner  in  that  behalf:  Provided  that  where  such preparation is  a medicinal  preparation,  the  Commissioner shall, in 538 specifying the quantity of liquor or intoxicating drug, have due regard  to  the  total  requirement  of  such  medicinal preparation for consumption or use in the State. Now, s. 68A provides for  the Government  to appoint an Expert Committee to  advise  the  Commissioner  as  to  whether  a  medicinal preparation is  a bona fide medicinal preparation or not and as to  the total  requirement of  the medicinal preparations containing alcohol  or intoxicating drug or in which alcohol is self-generated  during the  process of  their manufacture for the whole of the State during one year. The challenge to the validity  of ss.  12A and  of the Act is mainly based on the words "shall have due regard to the total requirement of such medicinal  preparations for  consumption or  use in the State "occurring  in the  provisions thereof. The submission is that  the quantity of medicinal preparations manufactured

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by the  appellants would  be restricted looking to the total requirements of  such preparations for consumption or use in the State.  The medicines  are in  demand not  only  in  the State, but throughout the country and to limit consideration by the  Commissioner in  granting  a  licence  only  to  the requirements of  preparations for  consumption or use in the State,  would   be  an   unreasonable  restriction   on  the fundamental right  guaranteed under  Art. 19(1)  (g) of  the Constitution. We  do not  think that the impugned provisions contained in  ss. 12A and 12B have that effect. All that the provisions ordain  is  that  the  Commissioner  shall  ’have regard to  the total  requirements for  use and  consumption within the State’. The expression ’shall have regard to’ had been  subject   to  judicial   interpretation  in  Ryots  of Garabandho and other villages v. Zamindar of Parlakimidi and Anr.(1) It  only means ’take into consideration’. Understood in the  light of  this judicial exposition, the Commissioner only has  to take into account the total requirements within the State  as an  element which  should enter the assessment and no  more. As  a necessary  corollary, it follows that in fixing the  quantity of medicinal and toilet preparations to which alcohol  is added  or in  which it  is self-generated, normally  the  Commissioner  shall  have  regard  to  larger requirements  of   the  manufacturer,  if  the  manufactured product has  a market  outside the State. As a corollary, it must result in the consequence that in the case of medicinal and toilet  preparations which  are capable of being misused as alcoholic beverages, or which are not bona fide medicinal preparations in  the opinion  of the  Expert Committee,  the Commissioner may  totally prohibit  the manufacture  of such pre- 539 parations. The  restrictions imposed  by s.  12B as  to  the alcoholic content  of medicinal  and toilet preparations and the requirement  that they  shall not be manufactured except and in accordance with the terms and conditions of a licence granted by  him, are  nothing  but  reasonable  restrictions within the  meaning of  Art. 19(6). The impugned provisions, therefore, cannot  be struck  down as offending Art. (1) (g) of the Constitution.      As regards  the  second  ground,  the  contention  that Parliament having  made the requisite declaration in s. 2 of the  Industries   (Development  and  Regulation)  Act,  1951 declaring "drugs  and pharmaceuticals"  to  be  a  scheduled industry, being  item 22  of Schedule  I thereof,  the State Legislature was  denuded of  its  competence  to  enact  the impugned provisions  under  Entry  8,  List  II,  cannot  be accepted. In Ishwari Khetan Sugar Mills (P) Ltd. v. State of Uttar Pradesh(1), this Court held that the legislative power of the  States under Entry 24, List II is eroded only to the extent of  control assumed  by the  Union  by  reason  of  a declaration made  by Parliament  in respect  of a  ’declared industry’ as  spelt out  by a  legislative  enactment  under Entry 52,  List I, and the field occupied by such enactments is the  measure of  erosion. But subject to such erosion, on the remainder the State Legislature will still have power to legislate in  respect of a declared industry without, in any way, trenching  upon the  occupied field.  Now, the impugned Act, in pith and substance, is not a legislation under Entry 24, List  II and,  therefore, the  question really  does not arise.      The third  ground that  the levy of supervisory charges under s.14(e) of the Act and r.16(4) of the Kerala Rectified Spirit Rules,  1972 being  in conflict  with r. 45(1) of the Central Rules,  is constitutionally impermissible, cannot be

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accepted. The  submission rests on a misconception as to the scope and  effect of  the decision  of  this  Court  in  the Hyderabad Chemicals and Pharmaceutical’s case (supra). As we have already explained, the Court in that case was concerned with the  levy  of  supervisory  charges  at  the  stage  of manufacture of  medicinal and  toilet preparations  and  not with the  levy of supervisory charges at the stage of supply and utilisation  of rectified  spirit in  the manufacture of medicinal and  toilet preparations. There can be supervision at both the stages. Merely because the Central Rules made no provision for  realisation of  supervisory  charges  at  the stage of  manufacture of  medicinal and toilet preparations, does not imply 540 that the  State has  no  power  to  prescribe  the  mode  of supervision in  a manufactory  where preparations containing intoxicating liquor  or intoxicating drugs are manufactured, or to  ensure proper  collection of  duties, taxes and other dues payable  under the Act, or to the proper utilisation of liquor or  intoxicating drug.  The provision contained in s. 14(e) of  the Act  is clearly relatable to the State’s power to make  a law under entry 8, read with Entry 51(a), List II of the  Seventh Schedule.  It necessarily  follows  that  s. 14(e) of  the Act is valid in so far as it provides that the Commissioner may  prescribe  the  size  and  nature  of  the establishment  for   such  supervision   and  the   cost  of establishment and  other incidental  charges  in  connection with such  supervision to  be realised  from  the  licensee. There is  no f’  warrant for the submission that the framing of such an incidental provision like r. 45(1) of the Central Rules takes  away the  State’s power  to recover supervisory charges from the licensee.      There still  remains the  question whether  the levy of supervisory  charges   must  be   regarded  as  a  fee  and, therefore, cannot be sustained, there being no quid pro quo. In support  of the  contention, reliance  is placed  on  the decision in  Indian Mica Micanite Industries v. The State of Bihar and Ors.(1)      The distinction  between a  ’tax’ and  a ’fee’ is well- settled. The  question came  up for  consideration  for  the first time  in this Court in the Commissioner, H.R.E. Madras v. Lakshmindra  Thirtha Swamiar  of Shirur Mutt.(2) Therein, the  Court   speaking  through  Mukherjee,  J.  quoted  with approval the  definition of  ’tax’ given  by Latham, C.J. in Matthews v.  Chickoory Marketing Board(3). In that case, the learned Chief Justice observed:           A tax  is a compulsory exaction of money by public      authority for public purposes enforceable by law and is      not payment for services rendered. Dealing with  the distinction  between ’tax’  and ’fee’  the learned Judge observed :(4)           It  is  said  that  the  essence  of  taxation  is      compulsion,  that  is  to  say,  it  is  imposed  under      statutory power without 541      the tax-payer’s  consent and the payment is enforced by      law. A  The second  characteristic of tax is that it is      an imposition made for public purpose without reference      to any  special benefit to be conferred on the payer of      the tax.  This is  expressed by saying that the levy of      tax is  for the purposes of general revenue, which when      collected forms  part of  the public  revenues  of  the      State. As  the object  of a  tax is  not to  confer any      special benefit  upon any  particular individual, there      is, as  it is  said, no element of quid pro quo between

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    the tax payer and the public authority. Another feature      of taxation  is that  as it  is a  part of  the  common      burden, the  quantum of  imposition upon  the tax payer      depends gene rally upon his capacity to pay.           Coming now  to fees,  ’a fee’ is generally defined      to be  a charge  for  a  special  service  rendered  to      individuals by  some Governmental agency. The amount of      fee levied  is supposed  to be  based on  the  expenses      incurred by  the Government  in rendering  the service,      though  in   many  cases   the  costs  are  arbitrarily      assessed. Ordinarily,  the  fees  are  uniform  and  no      account is  taken of the varying abilities of different      recipients to  pay. These  are undoubtedly  some of the      general characteristics,  but as  there may  be various      kinds of  fees, it  is  not  possible  to  formulate  a      definition that would be applicable to all cases.      ...                ...                         ...           If, as  we hold,  a fee  is regarded  as a sort of      return or  consideration for  services rendered,  it is      absolutely necessary  that the  levy of  fees should on      the face of the legislative provision, be co-related to      the expenses  incurred by  Government in  rendering the      services. The same  view was  reiterated by  this Court  in Mahant Sri Jagannath Ramanuj  Das v.  The State  of  Orissa(1)  and  in Ratilal Pannchand Gandhi v. The State of Bombay. (2)      ’Fees’ are  the amounts  paid for  a privilege, and are not an  obligation, but  the payment  is voluntary. Fees are distinguished 542 from taxes  in that  the chief  purpose of a tax is to raise funds for  the support  of the  Government or  for a  public purpose, while  a fee  may be  charged for  the privilege or benefit conferred,  or  service  rendered  or  to  meet  the expenses connected  therewith. Thus,  fees are  nothing  but payment  for  some  special  privilege  granted  or  service rendered. Taxes and taxation are, therefore, distinguishable from various  other contributions,  charges, or burdens paid or imposed  for particular  purposes  and  under  particular powers  or   functions  of   the  Government.   It  is   now increasingly realised  that merely  because the  collections for the  services  rendered  or  grant  of  a  privilege  or licence, are taken to the consolidated fund of the State and are not  separately appropriated towards the expenditure for rendering the  service is  not by  itself decisive.  That is because the  Constitution did  not contemplate  it to  be an essential element of a fee that it should be credited to J a separate fund  and not  to the consolidated fund. It is also increasingly realised  that the  element  of  quid  pro  quo stricto senso  is not  always a sine qua non of a fee. It is needless to  stress that  the element of quid pro quo is not necessarily  absent   in  every   tax.  We   may,  Din  this connection, refer with profit to the observations of Seervai in his Costitutional Law, to the effect: (1)           It is  submitted that  as recognised by Mukherjee,      J. him  self, the  fact that  the collections  are  not      merged in  the consolidated  fund, is  not  conclusive,      though that  fact may  enable a  court to say that very      important  feature  of  a  fee  was  present.  But  the      attention of  the Supreme Court does not appear to have      been  called  to  Art.  266  which  requires  that  all      revenues of  the Union  of India and the States must go      into their  respective consolidated funds and all other      public  moneys  must  go  into  the  respective  public      accounts of  the Union  and the States. It is submitted

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    that if  the services  rendered are  not by  a separate      body  like   the  Charity   Com  missioner,  but  by  a      government  department,  the  character  of  imposition      would not  change because  under Art.  266  the  moneys      collected for  the services  must be  credited  to  the      consolidated fund. It may be mentioned that the element      of quid pro quo is not necessarily absent in every tax.                                             (emphasis added) Our attention  has been  drawn to  the observations in Kewal Krishan Puri & Anr v. State of Punjab and Ors. (2) 543           The element  of quid pro quo must be established A      between the payer of the fee and the authority charging      it. It  may not  be exact  equivalent of  the fee  by a      mathematical  precision,   yet,  by   and   large,   or      predominantly, the  authority collecting  the fee  must      show that  the service which they are rendering in lieu      of fee  is for some special benefit of the payer of the      fee. To our  mind, these  observations are not intended and meant as laying  down a  rule of  universal application. The Court was considering  the rate  of a market fee, and the question was whether  there was any justification for the increase in rate from Rs. 2/- per every hundred rupees to Rs. 31-. There was no  material placed  to justify  the increase in rate of the fee  and, therefore,  it partook the nature of a tax. It seems that  the Court  proceeded on  the assumption that the element of quid pro quo must always be present in a fee. The traditional  concept   of  quid  pro  quo  is  undergoing  a transformation.      It seems obvious that. in the case of a manufacturer of medicinal and  toilet preparations  containing alcohol  in a bonded  manufactory,   the  imposition   of  the   cost   of establishment under  s.  14(e)  of  the  Act  calculated  in accordance with  the nature and extent of that establishment could not  be said  to be an imposition of a duty of excise, but is  a price  for his franchise to carry on the business. If an  exaction is  to be  classed as  a duty  of excise, it must, of  course, be  a tax;  its  essential  distinguishing feature is  that it  is a  tax imposed "upon" or "in respect of’  or   "in  relation  to"  goods:  Matthews  v.  Chickory Marketing Board  (l).  The  exaction  is  in  truth,  as  it purports to  be, simply  a fee  payable as  a condition of a right to carry on a business.      No one  has  a  fundamental  right  to  the  supply  of rectified spirit  which is  an intoxicating liquor. It is up to the  State to  control and  regulate its  supply  from  a distillery or  a spirit  warehouse in the State under and in accordance with  terms and conditions of a licence or permit its import from outside by grant of a privilege and charge a fee for  the same. A fee may be charged for the privilege or benefit conferred,  or service  rendered,  or  to  meet  the expenses connected  therewith. A  fee may be levided to meet the cost  of supervision and maybe, something more. It is in consideration for  the privilege,  licence or  service.  The State is undoubtedly entitled to levy H 544 excise duty on the rectified spirit issued from a distillery under s.  17(f) of  the Act  read with  r. 13  of the Kerala Rectified Spirit  Rules, 1972,  but it refrained from making any such  levy by  reason of  r. 21 of the Central Rules and has, therefore,  by proviso  to r. 8, allowed a manufacturer of medicinal  and  toilet  preparations  to  draw  rectified spirit from a distillery without payment of duty. It is thus a  privilege   conferred  on  the  licensee.  To  claim  the

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privilege he  must comply with the conditions prescribed. If one of the condition is the payment of cost of establishment under s.  14(e) of the Act read with r. 16(4) of the Central Rules,  the   manufacturer   of   such   preparations   must necessarily bear the burden as the licensee gets services in return in lieu of such payment.      The decision  in the  Indian Mica  Micanite  Industries case  (supra)  on  which  reliance  is  placed  furnishes  a complete answer  to the  appellant’s contention.  The  Court there was concerned with the validity of supervisory charges of the excise establishment from a consumer and not from the manufacturer under the Bihar and Orissa Excise Act, 1915. It was clearly  indicated  that  the  burden  of  the  cost  of supervisory charges must fall on the manufacturer and not on the consumer  because there  was no  co-relationship between the levy  of fee  and the services rendered. Further, though there was  a double  duty on the manufacturer as well as the consumer, the  Court did  not strike  down the  levy on  the consumer because  it was  observed that  the question of co- relationship between  the  services  rendered  and  the  fee levied is  essentially a  question of  fact. In dealing with the question whether the impugned levy could be justified as a fee  on the  basis of the law as enunciated by this Court, it was observed : (1)           According to  the finding  of the  High Court  the      only  services   rendered  by  the  Government  to  the      appellant and  to other  similar licensees  is that the      Excise Department  have to  maintain an elaborate staff      not only  for the  purposes of ensuring that denaturing      is done  properly by  the manufacturer but also for the      purpose of  seeing that  the subsequent  possession of.      denatured spirit  in the  hands either  of a  wholesale      dealer or  retail  seller  or  any  other  licensee  or      permit-holder is not misused by coverting the denatured      spirit into  alcohol  fit  for  human  consumption  and      thereby 545      evade  payment   of  heavy   duty.  So   far   as   the      manufacturing A  process is concerned, the appellant or      other similar  licensees have  nothing to  do with  it.      They are  only the purchasers of manufactured denatured      spirit.  Hence   the   cost   of   super   vising   the      manufacturing process or any assistance rendered to the      manufacturers cannot  be recovered  from the  consumers      like the  appellant.  Further,  under  Rule  9  of  the      Board’s rules  the actual  cost of  supervision of  the      manufacturing  process  by  the  Excise  Department  is      required to  be borne by the manufacturer, There cannot      be a double levy in that regard.      (emphasis added) The Court  then went into the question whether there was any corelationship between  the services  rendered and  the  fee levied  and   whether  the   levy  in   question   was   not disproportionate to  the value  of the  services rendered by the State, and observed: D           In the  opinion of  the High  Court the subsequent      transfer of denatured spirit and possession of the same      in the  hands of  various persons  such  as  whole-sale      dealer,  retail  dealer  or  other  manufacturers  also      requires close and effective supervision because of the      risk of  the  denatured  spirit  being  converted  into      palatable liquor  and thus evading heavy duty. Assuming      this conclusion  to be  correct, by doing so, the State      is rendering  no service  to the consumer. It is merely      protecting its  own rights.  Further in  this case, the

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    State which  was in a position to place material before      the Court to show what services had been rendered by it      to the appellant and other similar licensees, the costs      or at  any rate  the probable costs that can be said to      have been incurred for rendering those services and the      amount realised  as fees  has failed  to do  so. On the      side of  the appellant, it is alleged that the State is      collecting  huge   amounts  as  fees  and  that  it  is      rendering little  or no  service  in  return.  The  co-      relationship between  the services rendered and the fee      levied is  essentially a question of fact. Prima facie,      the levy  appears to be excessive even if the State can      be said  to be rendering some service to the licensees.      The State  ought to  be in  possession of  the material      from which the co-relationship between the levy and the      services 546      rendered can  be established at least in a general way.      But the  State has  not chosen to place those materials      before the Court. Therefore the levy under the impugned      Rule can not be justified. Nevertheless, the  Court remitted  the matter  to  the  High Court with  a direction  that opportunity  be given  to  the State to  place material  to show  that  the  value  of  the services rendered  has reasonable  co-relationship with  the fee charged.  We fail  to see how the decision in the Indian Mica Micanite  case (supra)  can  be  of  any  help  to  the appellants. The  portions extracted  above clearly show that the levy of service charges on the manufacturer are valid.      There  is  a  broad  co-relationship  between  the  fee collected and  the cost of the establishment. Under s. 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 licence.  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 s.  14(e) of  the Act  is to  be collected from  the licensee  in the  manner provided  by r. 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 countersigned chalan      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  recover of  supervisor charges,  perhaps because as the Court 547 Observed in  the Hyderabad  Chemicals  and  Pharmaceutical’s case A  (supra) it  was felt  that the duty on medicinal and toilet preparations  containing alcohol  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

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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  rendering the  service. However, as observed in Government of Madras v. Zenith Lamp and Electricals Ltd. (1) followed in  State of  Rajasthan v.  Sajjanlal Panjawat  and Ors. (2),  that by itself is not decisive, by reason of Art. 266 of  the Constitution. lt 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  chemicals   Ltd.  supra).  The  cost  of supervisory charges  can  be  sustained  even  if  they  are regarded as  a fee for services rendered by the State or its instrumentalities.      The last  ground on  which the  appellants  took  their stand is  even less  tenable. It  is urged that r. 13 of the Kerala Rectified  Spirit Rules, 1972, providing for the levy of  excise   duty  on  excess  wastage  of  alcohol  in  the manufacture of  medicinal and  toilet preparations cannot be supported in terms of the charging provision contained in s. 17 of the Act. Rule 13 reads as follows:           13(1)  If   the  rectified   spirit  imported   or      purchased  P   under  these   rules  is  used  for  the      manufacture of  medicinal and toilet preparations which      duty of  excise is  leviable under  the  Medicinal  and      Toilet Preparations  (Excise Duties) Act, 1955 (Central      Act 16  of 1955),  no duty shall be collected under the      Abkari Act 1 of 1077 on so much quantity of alcohol, as      is present in the finished product.           (2) The assessment of duty under the Medicinal and      Toilet Preparations  Excise Duties)  Act, 1955 (Central      Act 548      16 of  1955) being  applicable only  to the quantity of      spirit existing  in the  finished product,  all  spirit      wasted  during   the  course   of  manufacture  of  any      medicinal or  toilet preparation shall be assessable to      duty under the Abkari Act, 1 of 1077.           Provided that  the Government may, in consultation      with the Drugs Controller and the Chemical Examiner, by      notification in  the Gazette.  permit such allowance as      they think  fit for such wastages occurring  during the      manufacture. No exception  is taken  to r.  13(1) which  provides that no duty shall be collected under the Act on so much quantity of alcohol  "as  is  present  in  the  finished  product".  The objection is  to the  validity of  r. 13(2)  in so far as it enables the  levy of  duty on  excess wastage of alcohol. We find it difficult to appreciate the contention that r. 13(2) cannot be supported in terms of the charging provision in s. 17(f). Rule 13(2) is nothing but a corollary of r. 13(1). On a combined  reading of  s. 17(f)  and r.  8  read  with  the proviso thereof,  no duty  is chargeable on alcohol actually used  in   the   manufacture   of   medicinal   and   toilet preparations. The Government fully realised that some margin for wastage  should be  allowed and,  therefore inserted the proviso to r. 13(1). It provides that the Government may, in consultation with  the Drugs  Controller  and  the  Chemical Examiner,  by  notification  in  the  Gazette,  permit  such

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allowance as  they think  fit for  such  wastages  occurring during the  manufacture. Beyond  the permissible  limit, the State has  the right  to levy  a duty  on excess  wastage of alcohol, i.e. On alcohol not accounted for.      In  the   connected   Special   Leave   Petition,   the petitioner,  P.  Krishna  Wariyar,  Managing  Trustee,  Arya Vaidyasala, Kottakkal,  who is  engaged in  the business  of manufacture for  sale of  ayurvedic medicinal  preparations, challenges the  validity of  ss. 12A, 56A and 68A of the Act and rr.  5, 6  and 7  of the  Kerala Spirituous Preparations Rules.  1969.   Apart  from   the  question  of  legislative competence, two  other grounds were raised: (1) the power to restrict  the  quantity  of  medicinal  preparations  to  be manufactured, by  the Commissioner  under s.  12  cannot  be exercised in  relation to  ayurvedic preparations as alcohol is self-generated in the process of manufac- 549 ture; and  (2) the  impugned provisions  offend against Art. 301 of  the Constitution.  As  regards  the  Rules,  it  was generally   said    that   they    constitute   unreasonable restrictions on  the fundamental right guaranteed under Art. 19(1) (g) of the Constitution. None of these contentions can prevail.      It is to be observed that restriction imposed by s. 12A of the  Act as  to the quantity of medicinal preparations to be manufactured  relates not  only to  such preparations  to which alcohol  is added,  but also to medicinal preparations in which  alcohol is  self-generated. There  can be no doubt that ayurvedic  asavas and  aristhas which  are  capable  of being misused  as alcoholic  beverages can  come within  the purview of  the definition of ’liquor’ contained in s. 3(10) of the  Act being  of the  Spirituous Preparations (Control) Rules, 1969  liquids containing  alcohol The contention that Note to  r. 3(1)  is  an  unreasonable  restriction  on  the freedom of  trade guaranteed  under Art.  19(1) (g)  of  the Constitution has  no  substance.  It  provides  that  unless otherwise declared  by  the  Expert  Committee,  asavas  and aristas and other preparations containing alcohal are deemed to be  spurious  if  their  self-generated  alcohol  content exceeds 12%  by volume.  It is  a matter of common knowledge that such  preparations are always likely to be misused as a substitute  for  alcoholic  beverages  and,  therefore,  the restriction imposed  by s.  12A is  a reasonable restriction within the meaning of s 19(6) of the Constitution,      So far  as the  contention based  on Art.  301  of  the constitution is  concerned, it is urged that there is demand for the  petitioner’s medicinal preparations not only in the State, but  throughout the country and to limit the quantity to be  manufactured, taking into account the requirements of the State  alone, is  but an  abridgment on  the freedom  of inter-State trade  and commerce.  In our opinion, s. 12A has no such  effect. As  already stated,  the expression  ’shall have regard  to’ as interpreted by the Judicial Committee in the Ryots  of Garobandho’s  case (supra),  means ’shall take into consideration’.  All that the provision enjoins is that the Commissioner shall have regard to the total requirements for consumption  and use  in the  State,  while  fixing  the quantity of  the medicinal  preparations to be manufactured. Furthermore, the  challenge with regard to Art. 301 does not arise as,  admittedly, the  Bill was reserved for the assent of the President, and 550 is, therefore, protected by Art. 304(b) of the Constitution. It is  not disputed  that the  provisions are  regulatory in nature  and  they  impose  reasonable  restrictions  on  the

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freedom of trade.      For these  reasons, both  the Appeal  and  the  Special Leave Petition must fail and are dismissed with costs. N.V.K.                   Appeal and Petition dismissed 551