Full Judgment Text
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PETITIONER:
SH. BILESHWAR KHAND UDYOG KHEDUTSAHAKARI MANDALI LTD
Vs.
RESPONDENT:
STATE OF GUJARAT AND ANR.
DATE OF JUDGMENT28/01/1992
BENCH:
SAHAI, R.M. (J)
BENCH:
SAHAI, R.M. (J)
MOHAN, S. (J)
CITATION:
1992 AIR 872 1992 SCR (1) 391
1992 SCC (2) 42 JT 1992 (1) 597
1992 SCALE (1)194
ACT:
Constitution of India, 1950:
Article 245 and 246/VII Schedule-List II Entries 26 and
27/List III Entry 33:
Legislative Competence of State-Section 58A of Bombay
Prohibition Act-Enactment of-Whether within the legislative
competence.
Bombay Prohibition Act:
Section 58A-Whether within the legislative competence
of State-Constitutional validity of
HEADNOTE:
Rule 2 of the Bombay Prohibition (Manufacture of
Spirit) (Gujarat) Rules, 1963, framed by the State
Government in exercise of powers conferred under Section 58A
of the Bombay Prohibition Act, dealt with grant of licence
for working of distillery for the manufacture of spirit.
One of the conditions for grant of licence was that the cost
of maintenance of staff, viz. payment of salary and
allowances, was to be paid to the Government by the
licensees. This was challenged by the appellant and the
High Court upheld the levy as being within the legislative
competence of the State.
Aggrieved against the High Court’s order, the appellant
has preferred the present appeal.
The appellants contended that since the judgement
appealed against proceeded on privilege theory, it cannot
withstand the principle laid down in Synthetic & Chemicals,
case; and that levy as a fee under Entry 8 of list II of
Seventh Schedule or excise duty under Entry 51 is different
than the cost of supervision charged under Section 58A of
the Bombay Prohibition Act.
Dismissing the appeal, this Court,
392
HELD: 1.1 Even though the power to levy tax or duty on
industrial alcohol is vested in the Central Government, the
State was till left with power to lay down regulations to
ensure that non-potable alcohol, that is, industrial
alcohol, was not diverted and misused as substitute for
potable alcohol. This is enough to justify a provision like
58A of the Bombay Prohibition Act. [394 D]
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1.2 Principle of occupied field precluded State from
trenching on any power which was already covered by Central
legislation. But in absence of any provision in Industries
(Development & Regulation) Act touching upon regulation or
ensuring that industrial alcohol was not divered, the State
was competent to legislate on it under Entry 33 list III of
VII Schedule. [394 F-G]
1.3 Trade and commerce and supply and distribution of
goods are exclusive state subject under entries 26 and 27
of List II of VII Schedule. But both are subject to entry 33
of List III. What is covered in entry 33 is excluded from
List II. And the power to legislate in respect of what is
covered by List III is enjoyed both by Central and State
legislatures subject to Article 246 of the Constitution.
Since section 58A can be traced to regulatory power of the
State exercisable under entry 33 of List III the challenge
to its validity is liable to fail. Thus, Section 58A of the
Bomaby Prohibition Act is valid and is not violative of any
constitutional provision. [395 B-C].
1.4 It cannot be said that no cost for supervision
could be demanded unless the power to issue licence for
production was found to exist in State. [395 d]
Synthetics & Chemicals Ltd. & Ors., v. State of U.P &
Ors. [1990] 1 SCC 109, followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 503 of
1974.
From the Judgement and order dated 29/30.8.1973 of the
Gujarat High Court in Special Civil Application No. 129 of
1973.
Joseph Vellapally and D.N. Mishra for the Appellants.
R.N. Sachthey, Anip Sachthey and Ms. Rashmi Dhariwal
for the Respondents.
393
The Judgement of the Court was delivered by
R.M. SAHAI, J. Validity of demand, under Section 58A
of the Bombay Prohibition Act, for maintenance of excise
staff for supervision of the manufacture of industrial
alcohol was assailed on lack of legiislative competence of
the State.
Section 58A is extracted below:
"58A: The State Government may by general or
special order direct that the manufacture, import,
export, transport, storage, sale, purchase, use,
collection or cultivation of any intoxitant,
denatured spirituous preparations, hemp, Mowra
flowers, or molasses shall be under the supervision
of such Prohibition and Excise or Police Staff as
it may deem proper to appoint, and that the cost
of such staff shall be paid to the State Govt. by
person manufacturing, importing, exporting,
transporting, storing, selling, purchasing, using,
collecting or cultivating the intoxicant, denatured
spirituous preparation, hemp, Mowra flowers or
molasses:
"Provided that the State Government may exempt any
class of persons or institutions from paying the
whole or any part of the cost of such staff".
Rule 2 of Bombay Prohibition (Manufacture of Spirit)
(Gujarat) Rules, 1963, framed by the State of Gujarat
empowered the director to grant a licence for working of the
distillery for the manufacture of the spirit. Condition
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Nos.2 and 3 of the licence issued provided for employment of
excise staff for supervision of the operations of
manufacture and storage of spirit as well as for payment of
salary and allowances to staff so posted. Attack was not
on power to supervise or even the right to post staff for
supervision but on demand of cost of maintenance of such
personnel. Levy was upheld, by the High Court, as fee under
entry 8 of List II of the VIIth Schedule read with entry 66
of the same list. In Synthetics & Chemicals Ltd. & Ors. v.
State of U.P. & Ors., [1990] 1 SCC 109 a Constitution Bench
after exhaustively reviewing the constitutional entries and
various decisions held that industrial alcohol being unfit
for human consumption as no levy on it could be made by a
State either under Entry 51 or Entry 8 of List II of VIIth
Schedule. Nor such levy could be justified on doctrine of
privilege or police power. Therefore it was urged that the
order of High Court was liable to be set aside and the
provision was liable to be struck down as ultra vires.
Such understanding of the judgement is not warranted.
The Constitu-
394
tion Bench while distinguishing between potable and non-
potable alcohol and holding that the State had no privilege
in it upheld the power of State to regulate and ensure that
non-potable alcohol was not diverted and misued.
According to learned counsel since the entire judgment
of the High Court proceeded on privilege theory it cannot
withstand the principle laid down in Synthetic & Chemical’s
case. Levy as a fee under Entry 8 of List II of VIIth
Schedule or excise duty under Entry 51 are different than
cost of supervision charged under Section 58A. The former
has to stand the test of levy being in accordance with law
on power derived from one of the constitutional entries.
Since Synthetic & Chemical’s case finally brought down the
curtain in respect of industrial alcohol by taking it out of
the purview of either Entry 8 or 51 of List II of VIIth
Schedule of the competency of the State to frame any
legislation to levy any tax or duty is excluded. But by
that a provision enacted by the State for supervision which
is squarely covered under Entry 33 of the concurrent list
which deals with production, supply and distribution which
includes regulation cannot be assailed. The Bench in
Synthetic & Chemical’s case made it clear that even though
the power to levy tax or duty on industrial alcohol vested
in the Central Government the State was still left with
power to lay down regulations to ensure that non-potable
alcohol,that is, industrial alcohol, was not diverted and
misused as substitute for potable alcohol. This is enough
to justify a provision like 58A. In paragraph 88 of the
decision it was observed that in respect of industrial
alcohol the States were not authorised to impose the impost
as they have purported to do in that case but that did not
effect any imposition of fee where there were circumstances
to establish that there was quid pro quo for the fee nor it
will affect any regulatory measure. This completely
demolishes the argument on behalf of appellant.
Principle of occupied field precluded State from
trenching on any power which was already covered by central
legislation. But in absence of any provision in Industries
(Development & Regulation) Act touching upon regulation or
ensuring that industrial alcohol was not diverted the state
was competent to legislate on it under Entry 3 List III of
VIIth Schedule which is extracted below,
"33. Trade and Commerce in, and the production,
supply and distribution of-
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(a) The products of any industry where the control
of such industry by Union is declared by Parliament
by Law to be
395
expedient in the public interest, and imported
goods of the same kind as such products.
(b)..............................
(c)..............................
(d)..............................
(e)..............................
Trade and commerce and supply and distribution of goods
are exclusive state subjects under entry 26 and 27 of List
II of VIIth Schedule. But both are subject to entry 33 of
List III. That is what is covered in entry 33 is excluded
from list II. And the power to legislate in respect of
what is covered by list III is enjoyed both by Central and
State subject to Article 246 of the Constitution. Since 58A
can be traced to regulatory power of the State exercisable
under entry 33 the challenge to its validity is liable to
fail. It could not therefore be successfully claimed that
it was violative of any constitutional provision or the
section was invalid in view of the ratio in Synthetic &
Chemicals’ case.
Failing on the principal submission the learned counsel
urged that no cost for supervision could be demanded unless
the power to issue licence for production was found to exist
in State. Reliance was placed on observations in Synthetic
& Chemical’s case. Since it stands answered by the
constitution Bench itself it is unnecessary to dilate on
it. Suffice it is to extract the following observation,
"The position with regard to the control of alcohol
industry has undergone material and significant
change after the amendement of 1956 to the IDR Act.
After the amendment, the State is left with only
the following powers to legislate in respect of
alcohol:
(a)....................................
(b) It may lay down regulations to ensure that
non-potable alcohol is not diverted and misued as a
substitute for potable alcohol.
(c)....................................
(d) However, in case State is rendering any
service, as distinct from its claim of so-called
grant of privilege, it may charge fees based on
quid pro quo".
Feeble attempt was made to challenge absence of any
quid pro quo. But no serious effort was made in High Court
is clear from following observation.:
396
"If any quid pro quo is to be established between
the quantum of the levy and the services rendered
it must be established between the actual cost of
supervision paid by a manufacturer or a businessman
and the quantum of profits made by him by lawfully
carrying on his business into a prohibited
commodity. We have no doubt in our mind that the
annual payment of a few thousand rupees by way of
cost of supervision under Section 58A brings to
each of the three petitioners profits which must be
quite disproportionate in size. We need not go into
the details of this aspect because it has not been
contended before us that if the levy under Section
58A is held to be a fee, there is no sufficient
quid pro quo between the quantum of the impost and
the services rendered to the manufacturer or
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businessman."
In the result, this appeal fails and is dismissed with
costs.
G.N. Appeal dismissed.
397