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PETITIONER: VAM ORGANIC CHEMICALS LIMITED & ANOTHERINDIA GLYCOLS LIMITED

       Vs.

RESPONDENT: THE STATE OF UTTAR PRADESH & OTHERS

DATE OF JUDGMENT:       21/01/1997

BENCH: A.M.AHMADI, S.C. SEN

ACT:

HEADNOTE:

JUDGMENT:                             WITH                 CIVIL APPEAL NO. 231 OF 1997        (Arising out of SLP (Civil) No. 16889 of 1991)                       J U D G M E N T      Ahmadi, CJI      Leave granted.      These two appeals are filed against the judgment of the High Court  of Allahabad  dated 9.9.1991  whereby  the  writ petitions filed  by the  appellants herein  challenging  the Notification No.25/Licence/Part-3  dated 18.5.1990 issued by the Excise  Commissioner, Uttar Pradesh, were dismissed. The impugned Notification dated 18.5.1990 was issued in exercise of powers  conferred by  Section 41  of the U.P. Excise Act, 1910 (hereinafter  called the  Act’) with the prior approval of the  State Government.  By the  said Notification certain amendments  were   made  in   the   Rules   published   with Notification No.  423-Five/284/B, dated 26th September 1910. Section 41 of the Act gives power to the Excise Commissioner to make  Rules, inter  alia, for regulating the manufacture, supply, storage  or sale  of any  intoxicant; for regulating deposit and  removal of  any intoxicant  and prescribing the scale of  fees or  manner of  fixing the  fees  payable  for licence, permit  or pass,  including for  the grant  of  any exclusive or  other privilege  under Sections  24 and 24A of the said  Act. The  earlier Rule  2 was substituted by a new Rule 2  entitled "Denaturation  of Spirit". The amended rule provides for  a new  license for denaturation of spirit in a prescribed form  to  be  issued  by  the  Collector  to  all distilleries situated  within his  district holding  licence PD-1 or  PD-2 and persons holding licences FL-16, FL-39, FL- 40 and  FL-41 to  denature the spirit. It further prescribed that the  distilleries mentioned  above and  holding licence for  denaturation  of  spirit  shall  be  liable  to  pay  a denaturation fee  at the  rate  of  7  paise  per  litre  in advance. The  appellants Vam  Organic Chemicals  Limited are manufacturing  vinyl   acetate  monomer,   a  basic  organic chemical for  which industrial  alcohol  is  the  main  feed stock. The  industrial alcohol  is  being  produced  in  the distillery of the appellants and according to the appellants the entire  industrial alcohol  produced is denatured as per

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the method  approved by  the State Excise Authorities and is being used  in their factory for manufacturing vinyl acetate monomer. The  other appellants,  viz., India Glycols Limited and another,  are manufacturing  Monoethylene Glycol and its products Diethylene glycol and heavy glycol. One part of the factory of  these appellants is being used for manufacturing ethyl alcohol produced by them for being captively consumed.      The appellants  hold licences  in the  form of FL-39 to enable them  to use  the industrial  alcohol as the main raw material for  their product.  They were  obliged to take out licence in  the form  of DS-1  as prescribed in the impugned Notification and  pay a  licence fee  at the rate of 7 paise per litre  with effect from 2nd June, 1990. The Notification is challenged  on two  grounds, namely,  that the  State  of Uttar Pradesh  has no  power  to  legislate  in  respect  of industrial alcohol  or to  levy taxes in respect thereof and further that  the levy  being not  based on quid pro quo was otherwise bad. The State of Uttar Pradesh contested the writ petitions. By the impugned judgment, the High Court rejected all the contentions of the appellants and dismissed the writ petitions. Hence these appeals by special leave.      Before  proceeding   further,  it  will  be  proper  to understand  the   difference  between   industrial  alcohol, denatured  spirit  and  potable  liquor.  Ethyl  alcohol  is rectified spirit of 95% v/v in strength. Rectified spirit is highly toxic  and  unfit  for  human  consumption.  However, rectified spirit  diluted  with  water  is  country  liquor. Rectified spirit,  as it  is, can be used for manufacture of various  other   products  like  chemicals,  etc.  Rectified spirit,  produced  for  industrial  use  is  required  by  a Notification issued  under the  Act to be denatured in order to  prevent   the  spirit   from  being  directed  to  human consumption.  Rectified   spirit  is   denatured  by  adding denaturants  which   make   the   spirit   unpalatable   and nauseating. As  such rectified  spirit can  be converted  to potable liquor  but once  denatured it  can be  used only as industrial alcohol. The process of denaturation described by the  respondent  is  narrated  by  the  High  Court  in  the following words:      "Denaturation of  rectified  spirit      is  a   highly  technical  process.      Every  drum/lot/batch   has  to  be      tested by Chief Development Officer      at   the   Excise   Head   Quarters      Laboratory so as to ensure that the      same is according to the prescribed      specification   before   they   are      allowed to  be used  for denaturing      the rectified  spirit.  After  they      are    properly     tested,     the      denaturants have  to be  separately      stored under  lock and  key of  the      officer-in-charge      of       the      distillery, and measured quantities      are pumped  into denaturation  vats      at the  time of  denaturation.  The      process  of   mixing  goes  on  for      several   hours.    The   resultant      mixture  is   denatured  spirit  or      specially denatured  spirit, as the      case may  be. After  denaturing, it      is again tested to find out whether      it has  been properly  denatured or      not.  The   Excise  Department   is      obliged  to,   and  does   maintain

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    laboratory for  this purpose at the      Head   Quarters   of   the   Excise      Commissioner.  There   is  a  Chief      Development  Officer,  assisted  by      four       Assistant        Alcohol      Technologists and a large number of      supporting   staff    apart    from      apparatus  and   other   equipment.      Denaturation takes  place under the      close  supervision  of  the  Excise      Officials in  accordance  with  the      provisions of  rule 785 of the U.P.      Excise Manual, volume I."      The first  contention raised  before the High Court was that rectified  spirit being  industrial alcohol  as held by the Supreme  Court in  Synthetic and Chemicals Ltd. v. State of U.P.  [(1990) 1  SCC 109]  and being  not fit  for  human consumption, the  State Legislature  has no  power to make a law with  respect to it or to charge licence fee or levy nay other impost.  It was  submitted  by  the  petitioners  that industrial alcohol  is within  the exclusive  domain of  the Parliament by  virtue of declaration made by it in Section 2 of  the  Industries  Development  &  Regulations  Act,  1956 (hereinafter referred  to as "the IDR Act") and the addition of Item  26 in  the Schedule  to the  Act. Further,  it  was submitted that  Entry 8  or 51  of List  II of  the  Seventh Schedule to  the Constitution  cannot support  the  impugned Notification.  Entry   33  of   List  III,  the  petitioners submitted, could not sustain it as the field was occupied by the provisions of Section 18G of the IDR Act. So far as List II is concerned, the impugned judgment refers to Entries  6, 8,  24,  51  and  66  to  conclude  that  the Notification is  covered by  Entries 6 & 8. The said entries are reproduced below:-      "6.  Public health  and sanitation;      hospitals and dispensaries.      8.   Intoxicating liquors,  that is           to   say,    the   production,           manufacture,       possession,           transport, purchase  and  sale           of intoxicating liquors.      24.  Industries  subject   to   the      provision of      *      **      Entries 7 and 52 of List I.      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.      66.  Fees in  respect of any of the      matters  in   this  List,  but  not      including fees taken in any court."      Production, possession,  storage, and  distribution  of country liquor,  IMFLs, wines  etc. are  fully controlled by

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the State.  (See Section  24-B, U.P.  Excise Act).  The U.P. Excise Act  & Rules  made thereunder  prescribe a  system of licensing for producing rectified spirit, for ___________________________________________________________ *    7. Industries  declared by  Parliament  by  law  to  be necessary for  the purpose of defence or for the prosecution of war. **   52. Quoted in the following page.      obtaining  country   liquor,  etc.,   as  well  as  for possession,    storage and  trade  in  these  products.  The licensing has the twin objective, the High Court points out, of raising  revenue and  regulating  trade  in  the  noxious goods. The  High Court finds the Entries 6 & 8 of List-II as providing the filed for legislation and consequent licensing for denaturation  of spirit  and Entry  51 as  providing the scope for levy of duties.      Coming to List-III, the relevant Entry is 33:      "33. Trade and commerce in, and the      production, supply and distribution      of,      (a)  the products  of any  industry      where the  control of such industry      by  the   Union  is   declared   by      Parliament by  law to  be expedient      in   the   public   interest,   and      imported goods  of the same kind as      such products;      (b)  foodstuffs,  including  edible      oilseeds and oils;      (c)  cattle    fodder,    including      oilcakes and other concentrates;      (d)  raw cotton,  whether ginned or      unginned, and cotton seed; and      (e)  raw jute."      A similar Entry is 52 is List-I:      "52. Industries,  the   control  of      which by  the Union  is declared by      Parliament by  law to  be expedient      in the public interest."      A declaration  is made by Section 2 of the IDR Act that "it is  expedient in  the public  interest  that  the  Union should take  under its  control the  industries specified in the First Schedule."      Item 26 of the 1st Scheduled reads:      "26. Fermentation Industries      1.   Alcohol      2.   Other products of fermentation      industries.      Recall Entry 24 of List-II :      "24.  Industries   subject  to  the      provisions of [Entries 7 and 52] of      List I."      The impugned  judgment now proceeds to examine how much of the  field is  occupied by  the IDR  Act so that the area available to the State Legislature can be ascertained.      Section 18G  empowers the Central Government to provide for regulating  the supply  and distribution  and trade  and commerce in  any article  or class  of articles relatable to any scheduled  industry insofar  as it  appears to  it to be necessary  or   expedient   for   securing   the   equitable distribution and availability at fair price. Sub-section (2) specifies the various provisions that can be made under sub- section (1) :      "18-G.  Power  to  control  supply,      distribution,   price,    etc.   of

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    certain articles. - (1) The Central      Government so  far as it appears to      it to be necessary or expedient for      securing the equitable distribution      and availability  at fair prices or      any article  or class  of  articles      relatable to any schedule industry,      may    notwithstanding     anything      contained in any other provision of      this  Act,   by   notified   order,      provide, for  regulating the supply      and distribution  thereof and trade      and commerce therein.      (2)  Without   prejudice   to   the      generality of  the powers conferred      by sub-section (1) a notified order      made thereunder may provide -      (a)  For controlling  the prices at      which any  such  article  or  class      thereof may be bought or sold;      (b)  For  regulating  by  licences,      permits,    or    otherwise,    the      distribution,  transport  disposal,      acquisition,  possession,   use  or      consumption of  any such article or      class thereof;      (c)  For      prohibiting       the      withholding from  sale of  any such      article or class thereof ordinarily      kept for sale;      (d)  For   requiring   any   person      manufacturing producing  or holding      in stock  such  articles  or  class      thereof to  sell the  whole or  the      part    of    the    articles    so      manufactured or  produced during  a      specified period  or  to  sell  the      whole or  a part of the articles so      held in  stock to  such  person  or      class  or   persons  and   in  such      circumstances as  may be  specified      in the order;      (e)  For regulating  or prohibiting      any   class    or   commercial   or      financial transaction  relating  to      such article or class thereof which      in the  opinion  of  the  authority      making  the   order  are,   or   if      unregulated  are   likely   to   be      detrimental to public interest;      (f)  For requiring  persons engaged      in the  distribution and  trade and      commerce in  any  such  article  or      class thereof  to mark the articles      exposed of  intended for  sale with      the sale  price or  to  exhibit  at      some easily accessible place on the      premises   the    price-lists    of      articles held  for sale and also to      similarly exhibit  on the first day      of every  month, at such other time      as may  be prescribed,  a statement      of the total quantities of any such      articles in stock;      (g)  for collecting any information

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    or  statistics   with  a   view  to      regulation or  prohibiting  any  of      the aforesaid matters; and      (h)  for    any    incidental    or      supplementary  matters,  including,      in particular,  the grant  or issue      of  licences,   permits  or   other      documents  and   charging  of  fees      therefore."      (Emphasis supplied)      Thus, the power under Section 18G can be exercised only so far as is permitted by sub-section (1) viz., for securing the equitable distribution and availability at fair price of any article  or class of articles relatable to any scheduled industry. To  this extent  the State Legislature cannot make any law. The High Court concludes that in other respects the field is still open to the State Legislature. The High Court goes on  to say  that the impugned Notification is issued to ensure  that   rectified  spirit   sought  to  be  used  for industrial purposes  is not  diverted for  obtaining country liquor or  other forms  of potable liquor and that it is not concerned with  equitable distribution  and availability  at fair price  of either  rectified  spirit  or  the  denatured spirit. The  Notification was, thus, justified under Entry 6 of List-II-Public  health; and  Entry  8  of  List  -  II  - Possession and sale of intoxicating liquors.      This Court  dealt  with  the  question  of  legislative competence of  the State to impose tax or levy on industrial alcohol in  the case of Synthetic Chemicals v. State of U.P. [(1990) 1 SCC 109] = 1989 Supp. (1) SCR 623 and ruled in the negative. The  High Court took the view that the distinction between ethyl alcohol/rectified spirit as such and denatured spirit was  not in  issue, nor  was it  considered  in  that judgment and  held that  this Court  cannot be  said to have ruled  that   every  rectified   spirit/ethyl   alcohol   is industrial alcohol.  The High  Court  reiterated  that  once denatured,  the   alcohol  becomes   exclusively  industrial alcohol since it cannot be used for obtaining country liquor or for  manufacturing IMFLs  and said  that it  is to ensure that ethyl  alcohol meant  for industrial use is not misused or diverted  for human  consumption that impugned regulation is provided for by the State and further that the regulation being part  of general regulation of the trade in alcohol in the interest  of public health is relatable to Entries 6 & 8 of List-II.      The second  part of the case relates to the question of quid pro  quo between the services rendered by the State and the   rate    of   fee    charged.    According    to    the petitioners/appellants, the  fee charged  was excessive  and hence bad. The High Court pointed to the distinction between the regulatory  fee and compensatory fee. It opined that the licence fee  imposed for  regulatory purposes  may not carry with it any service rendered, but that such licence fee must be reasonable.  Further, the  High Court  said, it  would be appropriate to  look to  the  expenditure  which  the  State incurs for  administering the  regulation and  if there is a broad co-relation  between the  expenditure which  the State incurs and  the fees charged, the fees could be sustained as reasonable. It also referred to the counter-affidavit of the State to  conclude  that  a  good  number  of  officers  and employees are  engaged in  managing the laboratories besides the staff  which is  posted at  the distilleries  and so the rate of 7 paise per litre was in order.      In these  appeals the  appellants reiterate  that  this Court by  its 7-Judge  Bench decision in Synthetic Chemicals

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(supra) has  expressly ruled  against legislative competence of the  State so  far as  ethyl alcohol/rectified  spirit is concerned. Further,  they say that even if the State is left with  regulatory  power  to  prevent  misuse  of  industrial alcohol for  potable purposes,  such power  did not  include power to  levy any  impost. Further, the appellants say that denaturation is  a statutory  duty imposed by a Notification under the  U.P. Excise Act and no service by the State being provided for  the same,  no fee  could be charged and in any case even  if the  State  has  to  incur  any  expenses  for enforcement of  the requirement of denaturation, there is no quid pro  quo between  the expenses  incurred and  the  fees charged.      We may  not that  the term  ‘industrial alcohol’ is not used in  nay of  the Lists  in the  Seventh Schedule  of the Constitution. All  the entries quoted in the earlier part of the judgment  have to  be  read  with  Article  248  of  the Constitution which specifies residuary powers of the Union:      "248.    Residuary     powers    of      legislation. -  (1) Parliament  has      exclusive power  to  make  any  law      with  respect  to  any  matter  not      enumerated in  the Concurrent  List      or State List.      (2)  Such power  shall include  the      power of  making any law imposing a      tax  not  mentioned  in  either  of      those Lists."      This is  reflected in  Entry 97  of      List-I :      "97. Any    other     matter    not      enumerated in  List II  or List III      including any  tax not mentioned in      either of those Lists."      Whether alcoholic liquors other than "alcoholic liquors for human  consumption" of "intoxicating liquor" was a State subject or  a Union  subject should be the real controversy. It is with a view to describing this kind of liquor that the term ‘industrial  alcohol’ is used. After an analysis of all the provisions  of law  giving the  Union Parliament and the State Legislature jurisdiction to legislate on alcohol, this Court in  the Synthetic  Chemical case (supra) held that the impugned Notifications  imposing certain fees as vend fee or transport fee  etc., were  held to be within the legislative competence of  the State. A careful reading of that judgment shows that  the Court  was fully  aware  of  the  fact  that rectified spirit  was the ingredient for intoxicating liquor or alcoholic liquor for human consumption although rectified spirit/ethyl  alcohol   as  well  as  denatured  spirit  are referred to  as ‘industrial  alcohol’ in that judgment. This Court did  not hold  that  the  State  will  have  no  power whatsoever in  relation to "industrial alcohol". In fact, in the judgment  itself, the  Court has  enumerated the various areas relating  to industrial  alcohol in  which  the  State could still  legislate or  make rules. The following part of the judgment can be read with profit.      "The position  with regard  to  the      control  of  alcohol  industry  has      undergone material  and significant      change after  the amendment of 1956      to   the   IDR   Act.   After   the      amendment, the  State is  left with      only  the   following   powers   to      legislate in respect of alcohol:      (a)  it may pass any legislation in

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    the  nature   of   prohibition   of      potable liquor referable to entry 6      of list II and regulating powers.      (b)  it may lay down regulations to      ensure that  non-potable alcohol is      not  diverted   and  misused  as  a      substitute for potable alcohol.      (c)  the state  may  charge  excise      duty on  potable alcohol  and sales      tax under  entry  52  of  list  II.      However,  sales   tax   cannot   be      charged on  industrial  alcohol  in      the present case, because under the      Ethyl   Alcohol   (Price   Control)      orders, sales tax cannot be charged      by the state on industrial alcohol.      (d)  however,  in   case  State  is      rendering any  service, as distinct      from its  claim of  so-called grant      of privilege,  it may  charge  fees      based on  quid pro quo. See in this      connection,  the   observations  of      India Mica’s case (supra)."      (1989) Supp.1. SCR 623 (681-682).      Denaturation of  spirit meant  for  industrial  use  is meant to  prevent misuse  of non-potable  alcohol for  human consumption and  as such specifically mentioned by the Court to be within the legislative competence of the State.      It is to be noticed that the States under Entries 8 and 51 of  List-II read  with Entry  84 of List-I have exclusive privilege to  legislate on  intoxicating liquor or alcoholic liquor  for   human  consumption.  Hence,  so  long  as  any alcoholic preparation  can be diverted to human consumption, the States  shall have  the power  to legislate  as also  to impose taxes,  etc. In  this view, denaturation of spirit is not only  an obligation  on the  States but  also within the competence of the States to enforce.      This court  had occasion  to deal with the same entries in the three Lists and their effect when confronted with the IDR Act  in the  case of  Shri Bileshwar  Khan Udyog  Khedut Sahakari Mandali  Ltd. v.  State of  Gujarat & Anr. [1992] 1 S.C.R. 391. In that case, the matter under challenge was the validity  of   demand  under  Section  58-A  of  the  Bombay Prohibition Act  for maintenance  of the  excise  staff  for supervision of  the manufacture  of industrial alcohol which was assailed  for lack  of  legislative  competence  of  the State. The appellant in that case urged that even if State’s power to  supervise production  of alcohol  is conceded, the State could not be said to have the power to impose any levy to meet the cost of supervision. The court observed:      "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

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    brought 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."      The judgment  was followed  in a later case raising the same questions  and challenging the validity of Section 58-A of the  Bombay Prohibition  Act, namely,  Gujchem Distillers India Ltd. v. State of Gujarat and Anr. 1992. (1)  S.C.R. 675.  On a  proper  appreciation  of  the  legal situation, the  fee of 7 paise per litre has to be seen as a part of  the regulatory  measure,  namely,  denaturation  of spirit and supervision of the said process. More recently  by effect  of interaction of entries 8 and 24 List II,  entry 52  of List  I of  the Seventh  Schedule and entry 26  of the  First Schedule  of the  IDR Act came to be considered in  the case  of State  of A.P.  & Ors.  etc.  v. McDowell &  Co. &  Ors. etc. reported in JT 1996 (3) SC 679. The State  of Andhra  Pradesh prohibited  the manufacture of liquor by  an amendment  in the  Andhra Pradesh  Prohibition Act, 1995. ‘Liquor’ in the Act was defined as under:      "(7). ‘Liquor’ includes, -      (a)  spirit of wine, wine, beer and      every  liquid   consisting  of   or      containing alcohol including Indian      liquor and Foreign Liquor,      (b)  any     other     intoxicating      substance which  the Government may      by  notification,   declare  to  be      liquor for  the  purposes  of  this      Act,      but   does   not   include   today,      denatured,   spirits,    methylated

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    spirits and rectified spirits;"      We  may   also  notice  Section  7A.  By  that  Section manufacture of liquor came to be prohibited.      M/s. McDowell  &  Co.,  manufacturers  of  intoxicating liquors challenged the constitutional validity of the Act by which the  Prohibition Act was amended to include Section 7- A. One  of the  grounds of challenge was lack of Legislative competence in  view of entry 26 in the First Schedule of the IDR Act  which according to the writ petitioners, vested the control of  alcohol industries  exclusively in the Union and denuded the  State Legislature  of its  power to  licence or regulate the  manufacture of  liquor.  This  submission  was based on the fact that fermentation industries were included in the  Schedule of  the IDR  Act and  hence the  State  was denuded of  its power to licence and regulate manufacture of liquor.  Entry   26  reads   "Fermentation  Industries;  (1) Alcohol, (2)  other products of fermentation industries". It was  argued   that  after  the  amendment  the  control  and regulation of  such industries and their product fell within the exclusive province of the Union and hence the State lost its competence to grant, refuse or renew the licences. After an analysis  of all  the relevant  provisions of the law the Court concluded as under:      "(W)e  must  first  carve  out  the      respective fields  of Entry  24 and      Entry 8  in List  II. Entry 24 is a      general    entry     relating    to      industries whereas  Entry  8  is  a      specific and special entry relating      inter alia to industries engaged in      production   and   manufacture   of      intoxicating liquors.  Applying the      well-known rule  of  interpretation      applicable  to   such  a  situation      (special excludes  the general), we      must  hold   that  the   industries      engaged    in     production    and      manufacture of intoxicating liquors      do not  fall within Entry 24 but do      fall within  Entry 8.  This was the      position at the commencement of the      Constitution  and   this   is   the      position today  as well.  once this      is so,  the making of a declaration      by the  Parliament as  contemplated      by Entry 52 of List I does not have      the  effect   of  transferring   or      transplanting, as it may be called,      the    industries     engaged    in      production   and   manufacture   of      intoxicating liquors from the State      List to Union Lists. As a matter of      fact, the  Parliament  cannot  take      over  the   control  of  industries      engaged  in   the  production   and      manufacture of intoxicating liquors      by making a declaration under Entry      52 of  List-I, since the said entry      governs only  Entry 24  in List  II      but not Entry 8 in List II."      It was  reiterated in the later part of the judgment as under:      "It   follows    from   the   above      discussion that the power to make a      law with respect to manufacture and

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    production  and   its   prohibition      (among other  matters mentioned  in      Entry   8   in   List-II)   belongs      exclusively    to     the     State      Legislatures. Item  26 in the First      Schedule to  the I.D.R. Act must be      read subject  to Entry  8 - and for      that matter,  Entry 6 - in List-II.      So read, the said item does not and      cannot   deal   with   manufacture,      production of intoxicating liquors.      All the  petitioners before  us are      engaged  in   the  manufacture   of      intoxicating  liquors.   The  State      Legislature     is,      therefore,      perfectly competent  to make  a law      prohibiting their  manufacture  and      production -  in addition  to their      sale, consumption,  possession  and      transport  -   with  reference   to      Entries 8  and 6  in List-II of the      Seventh     Schedule     to     the      Constitution read  with Article  47      thereof."      The High  Court in  the impugned  judgment has  drawn a distinction  between   fees  charged   for  licences,  i.e., regulatory fees  and  the  fees  for  services  rendered  as compensatory fees.  The distinction  pointed out by the High Court can be seen in clause (2) of Article 110 :      "110.(2) -  A  Bill  shall  not  be      deemed to be a Money Bill by reason      only  that   it  provides  for  the      imposition  of   fines   or   other      pecuniary  penalties,  or  for  the      demand  or   payment  of  fees  for      licences  or   fees  for   services      rendered, or  by  reasons  that  it      provides   for    the   imposition,      abolition, remission, alteration or      regulation of  any tax by any local      authority   or   body   for   local      purposes."      The High Court has quoted from this Court’s decision in Corporation of  Calcutta v. Liberty Cinema, AIR 1965 SC 1107 1965 2  S.C.R. 477,  which was  based  on  a  Privy  Council judgment in  Shennon v. Lower Mainland Dairy Products Board, 1938, AC  708 =  AIR 1939  PC 36.  This Court  said  in  the Corporation of Calcutta v. Liberty Cinema (supra) :      "In fact,  in our  Constitution fee      for licence  and fee  for  services      rendered   are    contemplated   as      different kinds of levy. The former      is not  intended to  be a  fee  for      services rendered. This is apparent      from  a  consideration  of  Article      110(2)  and  Article  199(2)  where      both    expressions     are    used      indicating thereby  that  they  are      not the same.’      The High  Court has  taken the view that in the case of regulatory fees,  like the  licence fees,  existence of quid pro quo  is not  necessary although the fee imposed must not be, in  the circumstances  of the  case, excessive. The High Court further  held that  keeping in  view the  quantum  and nature of  the work  involved in  supervising the process of

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denaturation and  the consequent  expenses incurred  by  the State, the  fee of  7 paise  per litre  was  reasonable  and proper. We  see no  reason to  differ with  this view of the High Court.      In view of the foregoing, the appeals are dismissed. No costs.