Full Judgment Text
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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
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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