{"id":249491,"date":"1997-01-21T00:00:00","date_gmt":"1997-01-20T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/vam-organic-chemicals-limited-vs-the-state-of-uttar-pradesh-others-on-21-january-1997"},"modified":"2018-10-13T05:32:06","modified_gmt":"2018-10-13T00:02:06","slug":"vam-organic-chemicals-limited-vs-the-state-of-uttar-pradesh-others-on-21-january-1997","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/vam-organic-chemicals-limited-vs-the-state-of-uttar-pradesh-others-on-21-january-1997","title":{"rendered":"Vam Organic Chemicals Limited & … vs The State Of Uttar Pradesh & Others on 21 January, 1997"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Vam Organic Chemicals Limited & … vs The State Of Uttar Pradesh & Others on 21 January, 1997<\/div>\n
Author: Ahmadi<\/div>\n
Bench: A.M.Ahmadi, S.C. Sen<\/div>\n
           PETITIONER:\nVAM ORGANIC CHEMICALS LIMITED & ANOTHERINDIA GLYCOLS LIMITED\n\n\tVs.\n\nRESPONDENT:\nTHE STATE OF UTTAR PRADESH & OTHERS\n\nDATE OF JUDGMENT:\t21\/01\/1997\n\nBENCH:\nA.M.AHMADI, S.C. SEN\n\n\n\n\nACT:\n\n\n\nHEADNOTE:\n\n\n\nJUDGMENT:\n<\/pre>\n
\t\t\t    WITH
\n\t\tCIVIL APPEAL NO. 231 OF 1997
\n       (Arising out of SLP (Civil) No. 16889 of 1991)
\n\t\t      J U D G M E N T
\n     Ahmadi, CJI
\n     Leave granted.\n<\/p>\n
     These two appeals are filed against the judgment of the
\nHigh Court  of Allahabad  dated 9.9.1991  whereby  the\twrit
\npetitions filed\t by the\t appellants herein  challenging\t the
\nNotification No.25\/Licence\/Part-3  dated 18.5.1990 issued by
\nthe Excise  Commissioner, Uttar Pradesh, were dismissed. The
\nimpugned Notification dated 18.5.1990 was issued in exercise
\nof powers  conferred by\t Section 41  of the U.P. Excise Act,
\n1910 (hereinafter  called the  Act’) with the prior approval
\nof the\tState Government.  By the  said Notification certain
\namendments  were   made\t in   the   Rules   published\twith
\nNotification No.  423-Five\/284\/B, dated 26th September 1910.
\nSection 41 of the Act gives power to the Excise Commissioner
\nto make\t Rules, inter  alia, for regulating the manufacture,
\nsupply, storage\t or sale  of any  intoxicant; for regulating
\ndeposit and  removal of\t any intoxicant\t and prescribing the
\nscale of  fees or  manner of  fixing the  fees\tpayable\t for
\nlicence, permit\t or pass,  including for  the grant  of\t any
\nexclusive or  other privilege  under Sections  24 and 24A of
\nthe said  Act. The  earlier Rule  2 was substituted by a new
\nRule 2\tentitled “Denaturation\tof Spirit”. The amended rule
\nprovides for  a new  license for denaturation of spirit in a
\nprescribed form\t to  be\t issued\t by  the  Collector  to\t all
\ndistilleries situated  within his  district holding  licence
\nPD-1 or\t PD-2 and persons holding licences FL-16, FL-39, FL-
\n40 and\tFL-41 to  denature the spirit. It further prescribed
\nthat the  distilleries mentioned  above and  holding licence
\nfor  denaturation  of  spirit  shall  be  liable  to  pay  a
\ndenaturation fee  at the  rate\tof  7  paise  per  litre  in
\nadvance. The  appellants Vam  Organic Chemicals\t Limited are
\nmanufacturing  vinyl   acetate\tmonomer,   a  basic  organic
\nchemical for  which industrial\talcohol\t is  the  main\tfeed
\nstock. The  industrial alcohol\tis  being  produced  in\t the
\ndistillery of the appellants and according to the appellants
\nthe entire  industrial alcohol\tproduced is denatured as per
\nthe method  approved by\t the State Excise Authorities and is
\nbeing used  in their factory for manufacturing vinyl acetate
\nmonomer. The  other appellants,\t viz., India Glycols Limited
\nand another,  are manufacturing\t Monoethylene Glycol and its
\nproducts Diethylene glycol and heavy glycol. One part of the
\nfactory of  these appellants is being used for manufacturing
\nethyl alcohol produced by them for being captively consumed.\n<\/p>\n
     The appellants  hold licences  in the  form of FL-39 to
\nenable them  to use  the industrial  alcohol as the main raw
\nmaterial for  their product.  They were\t obliged to take out
\nlicence in  the form  of DS-1  as prescribed in the impugned
\nNotification and  pay a\t licence fee  at the rate of 7 paise
\nper litre  with effect from 2nd June, 1990. The Notification
\nis challenged  on two  grounds, namely,\t that the  State  of
\nUttar Pradesh  has no  power  to  legislate  in\t respect  of
\nindustrial alcohol  or to  levy taxes in respect thereof and
\nfurther that  the levy\tbeing not  based on quid pro quo was
\notherwise bad. The State of Uttar Pradesh contested the writ
\npetitions. By the impugned judgment, the High Court rejected
\nall the contentions of the appellants and dismissed the writ
\npetitions. Hence these appeals by special leave.\n<\/p>\n
     Before  proceeding\t  further,  it\twill  be  proper  to
\nunderstand  the\t  difference  between\tindustrial  alcohol,
\ndenatured  spirit  and\tpotable\t liquor.  Ethyl\t alcohol  is
\nrectified spirit of 95% v\/v in strength. Rectified spirit is
\nhighly toxic  and  unfit  for  human  consumption.  However,
\nrectified spirit  diluted  with\t water\tis  country  liquor.
\nRectified spirit,  as it  is, can be used for manufacture of
\nvarious\t other\t products  like\t chemicals,  etc.  Rectified
\nspirit,\t produced  for\tindustrial  use\t is  required  by  a
\nNotification issued  under the\tAct to be denatured in order
\nto  prevent   the  spirit   from  being\t directed  to  human
\nconsumption.  Rectified\t  spirit  is   denatured  by  adding
\ndenaturants  which   make   the\t  spirit   unpalatable\t and
\nnauseating. As\tsuch rectified\tspirit can  be converted  to
\npotable liquor\tbut once  denatured it\tcan be\tused only as
\nindustrial alcohol. The process of denaturation described by
\nthe  respondent\t is  narrated  by  the\tHigh  Court  in\t the
\nfollowing words:\n<\/p>\n
     “Denaturation of  rectified  spirit
\n     is\t a   highly  technical\tprocess.
\n     Every  drum\/lot\/batch   has  to  be
\n     tested by Chief Development Officer
\n     at\t  the\tExcise\t Head\tQuarters
\n     Laboratory so as to ensure that the
\n     same is according to the prescribed
\n     specification   before   they   are
\n     allowed to\t be used  for denaturing
\n     the rectified  spirit.  After  they
\n     are    properly\t tested,     the
\n     denaturants have  to be  separately
\n     stored under  lock and  key of  the
\n     officer-in-charge\t    of\t     the
\n     distillery, and measured quantities
\n     are pumped\t into denaturation  vats
\n     at the  time of  denaturation.  The
\n     process  of   mixing  goes\t on  for
\n     several   hours.\t The   resultant
\n     mixture  is   denatured  spirit  or
\n     specially denatured  spirit, as the
\n     case may  be. After  denaturing, it
\n     is again tested to find out whether
\n     it has  been properly  denatured or
\n     not.  The\t Excise\t Department   is
\n     obliged  to,   and\t does\tmaintain
\n     laboratory for  this purpose at the
\n     Head   Quarters   of   the\t  Excise
\n     Commissioner.  There   is\ta  Chief
\n     Development  Officer,  assisted  by
\n     four\tAssistant\t Alcohol
\n     Technologists and a large number of
\n     supporting\t  staff\t   apart    from
\n     apparatus\tand   other   equipment.
\n     Denaturation takes\t place under the
\n     close  supervision\t of  the  Excise
\n     Officials in  accordance  with  the
\n     provisions of  rule 785 of the U.P.
\n     Excise Manual, volume I.”<\/p><\/blockquote>\n
     The first\tcontention raised  before the High Court was
\nthat rectified\tspirit being  industrial alcohol  as held by
\nthe Supreme  Court in  Synthetic and Chemicals Ltd. v. State
\nof U.P<\/a>.\t [(1990) 1  SCC 109]  and being\t not fit  for  human
\nconsumption, the  State Legislature  has no  power to make a
\nlaw with  respect to it or to charge licence fee or levy nay
\nother impost.  It was  submitted  by  the  petitioners\tthat
\nindustrial alcohol  is within  the exclusive  domain of\t the
\nParliament by  virtue of declaration made by it in Section 2<\/a>
\nof  the\t Industries  Development  &  Regulations  Act<\/a>,\t1956
\n(hereinafter referred  to as “the IDR Act”) and the addition
\nof Item\t 26 in\tthe Schedule  to the  Act. Further,  it\t was
\nsubmitted that\tEntry 8\t or 51\tof List\t II of\tthe  Seventh
\nSchedule to  the Constitution  cannot support  the  impugned
\nNotification.  Entry   33  of\tList  III,  the\t petitioners
\nsubmitted, could not sustain it as the field was occupied by
\nthe provisions of Section 18G of the IDR Act.
\nSo far as List II is concerned, the impugned judgment refers
\nto Entries  6, 8,  24,\t51  and\t 66  to\t conclude  that\t the
\nNotification is\t covered by  Entries 6 & 8. The said entries
\nare reproduced below:-\n<\/p>\n
     “6.  Public health\t and sanitation;
\n     hospitals and dispensaries.\n<\/p><\/blockquote>\n
     8.\t  Intoxicating liquors,\t that is
\n\t  to   say,    the   production,
\n\t  manufacture,\t     possession,
\n\t  transport, purchase  and  sale
\n\t  of intoxicating liquors.<\/p><\/blockquote>\n
     24.  Industries  subject\tto   the
\n     provision of
\n     *\t    **
\n     Entries 7 and 52 of List I.\n<\/p><\/blockquote>\n
     51.  Duties  of   excise\ton   the
\n     following\tgoods\tmanufactured  or
\n     produced\tin    the   State    and
\n     countervailing duties  at the  same
\n     or lower  rates  on  similar  goods
\n     manufactured or  produced elsewhere
\n     in India:-\n<\/p><\/blockquote>\n
     (a)  Alcoholic  liquors  for  human
\n     consumption;\n<\/p><\/blockquote>\n
     (b)  opium, Indian\t hemp and  other
\n     narcotic drugs and narcotics;
\n     but  not  including  medicinal  and
\n     toilet   preparations    containing
\n     alcohol or\t any substance\tincluded
\n     in sub-paragraph (b) of this entry.\n<\/p><\/blockquote>\n
     66.  Fees in  respect of any of the
\n     matters  in   this\t List,\tbut  not
\n     including fees taken in any court.”<\/p><\/blockquote>\n
     Production, possession,  storage, and  distribution  of
\ncountry liquor,\t IMFLs, wines  etc. are\t fully controlled by
\nthe State.  (See Section  24-B<\/a>, U.P.  Excise Act).  The U.P.
\nExcise Act  & Rules  made thereunder  prescribe a  system of
\nlicensing for producing rectified spirit, for
\n___________________________________________________________
\n*    7. Industries  declared by\t Parliament  by\t law  to  be
\nnecessary for  the purpose of defence or for the prosecution
\nof war.\n<\/p>\n
**   52. Quoted in the following page.\n<\/p>\n
     obtaining\tcountry\t  liquor,  etc.,   as  well  as\t for
\npossession,    storage and  trade  in  these  products.\t The
\nlicensing has the twin objective, the High Court points out,
\nof raising  revenue and\t regulating  trade  in\tthe  noxious
\ngoods. The  High Court finds the Entries 6 & 8 of List-II as
\nproviding the filed for legislation and consequent licensing
\nfor denaturation  of spirit  and Entry\t51 as  providing the
\nscope for levy of duties.\n<\/p>\n
     Coming to List-III, the relevant Entry is 33:
\n     “33. Trade and commerce in, and the
\n     production, supply and distribution
\n     of,\n<\/p>\n
     (a)  the products\tof any\tindustry
\n     where the\tcontrol of such industry
\n     by\t the   Union  is   declared   by
\n     Parliament by  law to  be expedient
\n     in\t  the\tpublic\t interest,   and
\n     imported goods  of the same kind as
\n     such products;\n<\/p>\n
     (b)  foodstuffs,  including  edible
\n     oilseeds and oils;\n<\/p>\n
     (c)  cattle    fodder,    including
\n     oilcakes and other concentrates;\n<\/p>\n
     (d)  raw cotton,  whether ginned or
\n     unginned, and cotton seed; and\n<\/p>\n
     (e)  raw jute.”\n<\/p>\n
     A similar Entry is 52 is List-I:\n<\/p>\n
     “52. Industries,  the   control  of
\n     which by  the Union  is declared by
\n     Parliament by  law to  be expedient
\n     in the public interest.”\n<\/p>\n
     A declaration  is made by Section 2 of the IDR Act that
\n“it is\texpedient in  the public  interest  that  the  Union
\nshould take  under its\tcontrol the  industries specified in
\nthe First Schedule.”\n<\/p>\n
     Item 26 of the 1st Scheduled reads:
\n     “26. Fermentation Industries\n<\/p><\/blockquote>\n
     1.\t  Alcohol\n<\/p><\/blockquote>\n
     2.\t  Other products of fermentation
\n     industries.\n<\/p><\/blockquote>\n
     Recall Entry 24 of List-II :
\n     “24.  Industries\tsubject\t to  the
\n     provisions of [Entries 7 and 52] of
\n     List I.”<\/p><\/blockquote>\n
     The impugned  judgment now proceeds to examine how much
\nof the\tfield is  occupied by  the IDR\tAct so that the area
\navailable to the State Legislature can be ascertained.\n<\/p>\n
     Section 18G<\/a>  empowers the Central Government to provide
\nfor regulating\tthe supply  and distribution  and trade\t and
\ncommerce in  any article  or class  of articles relatable to
\nany scheduled  industry insofar\t as it\tappears to  it to be
\nnecessary  or\texpedient   for\t  securing   the   equitable
\ndistribution and availability at fair price. Sub-section (2)
\nspecifies the various provisions that can be made under sub-
\nsection (1) :\n<\/p>\n
     “18-G.  Power  to\tcontrol\t supply,
\n     distribution,   price,    etc.   of
\n     certain articles. – (1) The Central
\n     Government so  far as it appears to
\n     it to be necessary or expedient for
\n     securing the equitable distribution
\n     and availability  at fair prices or
\n     any article  or class  of\tarticles
\n     relatable to any schedule industry,
\n     may    notwithstanding\tanything
\n     contained in any other provision of
\n     this  Act,\t  by   notified\t  order,
\n     provide, for  regulating the supply
\n     and distribution  thereof and trade
\n     and commerce therein.\n<\/p><\/blockquote>\n
     (2)  Without   prejudice\tto   the
\n     generality of  the powers conferred
\n     by sub-section (1) a notified order
\n     made thereunder may provide –\n<\/p><\/blockquote>\n
     (a)  For controlling  the prices at
\n     which any\tsuch  article  or  class
\n     thereof may be bought or sold;<\/p><\/blockquote>\n
     (b)  For  regulating  by  licences,
\n     permits,\t or    otherwise,    the
\n     distribution,  transport  disposal,
\n     acquisition,  possession,\t use  or
\n     consumption of  any such article or
\n     class thereof;\n<\/p><\/blockquote>\n
     (c)  For\t   prohibiting\t     the
\n     withholding from  sale of\tany such
\n     article or class thereof ordinarily
\n     kept for sale;\n<\/p><\/blockquote>\n
     (d)  For\trequiring   any\t  person
\n     manufacturing producing  or holding
\n     in stock  such  articles  or  class
\n     thereof to\t sell the  whole or  the
\n     part    of\t   the\t  articles    so
\n     manufactured or  produced during  a
\n     specified period  or  to  sell  the
\n     whole or  a part of the articles so
\n     held in  stock to\tsuch  person  or
\n     class  or\t persons  and\tin  such
\n     circumstances as  may be  specified
\n     in the order;\n<\/p><\/blockquote>\n
     (e)  For regulating  or prohibiting
\n     any   class    or\t commercial   or
\n     financial transaction  relating  to
\n     such article or class thereof which
\n     in the  opinion  of  the  authority
\n     making  the   order  are,\t or   if
\n     unregulated  are\tlikely\t to   be
\n     detrimental to public interest;\n<\/p><\/blockquote>\n
     (f)  For requiring\t persons engaged
\n     in the  distribution and  trade and
\n     commerce in  any  such  article  or
\n     class thereof  to mark the articles
\n     exposed of\t intended for  sale with
\n     the sale  price or\t to  exhibit  at
\n     some easily accessible place on the
\n     premises\tthe    price-lists    of
\n     articles held  for sale and also to
\n     similarly exhibit\ton the first day
\n     of every  month, at such other time
\n     as may  be prescribed,  a statement
\n     of the total quantities of any such
\n     articles in stock;\n<\/p><\/blockquote>\n
     (g)  for collecting any information
\n     or\t statistics   with  a\tview  to
\n     regulation or  prohibiting\t any  of
\n     the aforesaid matters; and\n<\/p><\/blockquote>\n
     (h)  for\t any\tincidental    or
\n     supplementary  matters,  including,
\n     in particular,  the grant\tor issue
\n     of\t licences,   permits  or   other
\n     documents\tand   charging\tof  fees
\n     therefore.”<\/p><\/blockquote>\n
     (Emphasis supplied)
\n     Thus, the power under Section 18G<\/a> can be exercised only
\nso far as is permitted by sub-section (1) viz., for securing
\nthe equitable distribution and availability at fair price of
\nany article  or class of articles relatable to any scheduled
\nindustry. To  this extent  the State Legislature cannot make
\nany law. The High Court concludes that in other respects the
\nfield is still open to the State Legislature. The High Court
\ngoes on\t to say\t that the impugned Notification is issued to
\nensure\tthat   rectified  spirit   sought  to  be  used\t for
\nindustrial purposes  is not  diverted for  obtaining country
\nliquor or  other forms\tof potable liquor and that it is not
\nconcerned with\tequitable distribution\tand availability  at
\nfair price  of either  rectified  spirit  or  the  denatured
\nspirit. The  Notification was, thus, justified under Entry 6
\nof List-II-Public  health; and\tEntry  8  of  List  –  II  –
\nPossession and sale of intoxicating liquors.\n<\/p>\n
     This Court\t dealt\twith  the  question  of\t legislative
\ncompetence of  the State to impose tax or levy on industrial
\nalcohol in  the case of Synthetic Chemicals v. State of U.P<\/a>.
\n[(1990) 1 SCC 109] = 1989 Supp. (1) SCR 623 and ruled in the
\nnegative. The  High Court took the view that the distinction
\nbetween ethyl alcohol\/rectified spirit as such and denatured
\nspirit was  not in  issue, nor\twas it\tconsidered  in\tthat
\njudgment and  held that\t this Court  cannot be\tsaid to have
\nruled  that   every  rectified\t spirit\/ethyl\talcohol\t  is
\nindustrial alcohol.  The High  Court  reiterated  that\tonce
\ndenatured,  the\t  alcohol  becomes   exclusively  industrial
\nalcohol since it cannot be used for obtaining country liquor
\nor for\tmanufacturing IMFLs  and said  that it\tis to ensure
\nthat ethyl  alcohol meant  for industrial use is not misused
\nor diverted  for human\tconsumption that impugned regulation
\nis provided for by the State and further that the regulation
\nbeing part  of general regulation of the trade in alcohol in
\nthe interest  of public health is relatable to Entries 6 & 8
\nof List-II.\n<\/p>\n
     The second\t part of the case relates to the question of
\nquid pro  quo between the services rendered by the State and
\nthe   rate    of   fee\t  charged.    According\t   to\t the
\npetitioners\/appellants, the  fee charged  was excessive\t and
\nhence bad. The High Court pointed to the distinction between
\nthe regulatory\tfee and compensatory fee. It opined that the
\nlicence fee  imposed for  regulatory purposes  may not carry
\nwith it any service rendered, but that such licence fee must
\nbe reasonable.\tFurther, the  High Court  said, it  would be
\nappropriate to\tlook to\t the  expenditure  which  the  State
\nincurs for  administering the  regulation and  if there is a
\nbroad co-relation  between the\texpenditure which  the State
\nincurs and  the fees charged, the fees could be sustained as
\nreasonable. It also referred to the counter-affidavit of the
\nState to  conclude  that  a  good  number  of  officers\t and
\nemployees are  engaged in  managing the laboratories besides
\nthe staff  which is  posted at\tthe distilleries  and so the
\nrate of 7 paise per litre was in order.\n<\/p>\n
     In these  appeals the  appellants reiterate  that\tthis
\nCourt by  its 7-Judge  Bench decision in Synthetic Chemicals
\n(supra) has  expressly ruled  against legislative competence
\nof the\tState so  far as  ethyl alcohol\/rectified  spirit is
\nconcerned. Further,  they say that even if the State is left
\nwith  regulatory  power\t to  prevent  misuse  of  industrial
\nalcohol for  potable purposes,\tsuch power  did not  include
\npower to  levy any  impost. Further, the appellants say that
\ndenaturation is\t a statutory  duty imposed by a Notification
\nunder the  U.P. Excise Act and no service by the State being
\nprovided for  the same,\t no fee\t could be charged and in any
\ncase even  if the  State  has  to  incur  any  expenses\t for
\nenforcement of\tthe requirement of denaturation, there is no
\nquid pro  quo between  the expenses  incurred and  the\tfees
\ncharged.\n<\/p>\n
     We may  not that  the term\t `industrial alcohol’ is not
\nused in\t nay of\t the Lists  in the  Seventh Schedule  of the
\nConstitution. All  the entries quoted in the earlier part of
\nthe judgment  have to  be  read\t with  Article\t248<\/a>  of\t the
\nConstitution which specifies residuary powers of the Union:\n<\/p>\n
     “248.    Residuary\t    powers    of
\n     legislation. –  (1) Parliament  has
\n     exclusive power  to  make\tany  law
\n     with  respect  to\tany  matter  not
\n     enumerated in  the Concurrent  List
\n     or State List.\n<\/p>\n
     (2)  Such power  shall include  the
\n     power of  making any law imposing a
\n     tax  not  mentioned  in  either  of
\n     those Lists.”\n<\/p>\n
     This is  reflected in  Entry 97  of
\n     List-I :\n<\/p>\n
     “97. Any\t other\t   matter    not
\n     enumerated in  List II  or List III
\n     including any  tax not mentioned in
\n     either of those Lists.”\n<\/p>\n
     Whether alcoholic liquors other than “alcoholic liquors
\nfor human  consumption” of “intoxicating liquor” was a State
\nsubject or  a Union  subject should be the real controversy.
\nIt is with a view to describing this kind of liquor that the
\nterm `industrial  alcohol’ is used. After an analysis of all
\nthe provisions\tof law\tgiving the  Union Parliament and the
\nState Legislature jurisdiction to legislate on alcohol, this
\nCourt in  the Synthetic\t Chemical case (supra) held that the
\nimpugned Notifications\timposing certain fees as vend fee or
\ntransport fee  etc., were  held to be within the legislative
\ncompetence of  the State. A careful reading of that judgment
\nshows that  the Court  was fully  aware\t of  the  fact\tthat
\nrectified spirit  was the ingredient for intoxicating liquor
\nor alcoholic liquor for human consumption although rectified
\nspirit\/ethyl  alcohol\tas  well  as  denatured\t spirit\t are
\nreferred to  as `industrial  alcohol’ in that judgment. This
\nCourt did  not hold  that  the\tState  will  have  no  power
\nwhatsoever in  relation to “industrial alcohol”. In fact, in
\nthe judgment  itself, the  Court has  enumerated the various
\nareas relating\tto industrial  alcohol in  which  the  State
\ncould still  legislate or  make rules. The following part of
\nthe judgment can be read with profit.\n<\/p>\n
     “The position  with regard\t to  the
\n     control  of  alcohol  industry  has
\n     undergone material\t and significant
\n     change after  the amendment of 1956
\n     to\t  the\tIDR   Act.   After   the
\n     amendment, the  State is  left with
\n     only  the\t following   powers   to
\n     legislate in respect of alcohol:\n<\/p><\/blockquote>\n
     (a)  it may pass any legislation in
\n     the  nature   of\tprohibition   of
\n     potable liquor referable to entry 6
\n     of list II and regulating powers.\n<\/p><\/blockquote>\n
     (b)  it may lay down regulations to
\n     ensure that  non-potable alcohol is
\n     not  diverted   and  misused  as  a
\n     substitute for potable alcohol.\n<\/p><\/blockquote>\n
     (c)  the state  may  charge  excise
\n     duty on  potable alcohol  and sales
\n     tax under\tentry  52  of  list  II.
\n     However,  sales   tax   cannot   be
\n     charged on\t industrial  alcohol  in
\n     the present case, because under the
\n     Ethyl   Alcohol   (Price\tControl)
\n     orders, sales tax cannot be charged
\n     by the state on industrial alcohol.\n<\/p><\/blockquote>\n
     (d)  however,  in\t case  State  is
\n     rendering any  service, as distinct
\n     from its  claim of\t so-called grant
\n     of privilege,  it may  charge  fees
\n     based on  quid pro quo. See in this
\n     connection,  the\tobservations  of
\n     India Mica’s case (supra).”
\n     (1989) Supp.1. SCR 623 (681-682).<\/p><\/blockquote>\n
     Denaturation of  spirit meant  for\t industrial  use  is
\nmeant to  prevent misuse  of non-potable  alcohol for  human
\nconsumption and\t as such specifically mentioned by the Court
\nto be within the legislative competence of the State.\n<\/p>\n
     It is to be noticed that the States under Entries 8 and
\n51 of  List-II read  with Entry\t 84 of List-I have exclusive
\nprivilege to  legislate on  intoxicating liquor or alcoholic
\nliquor\tfor   human  consumption.  Hence,  so  long  as\t any
\nalcoholic preparation  can be diverted to human consumption,
\nthe States  shall have\tthe power  to legislate\t as also  to
\nimpose taxes,  etc. In\tthis view, denaturation of spirit is
\nnot only  an obligation\t on the\t States but  also within the
\ncompetence of the States to enforce.\n<\/p>\n
     This court\t had occasion  to deal with the same entries
\nin the three Lists and their effect when confronted with the
\nIDR Act\t in the\t case of  Shri Bileshwar  Khan Udyog  Khedut
\nSahakari Mandali  Ltd. v.  State of  Gujarat & Anr<\/a>. [1992] 1
\nS.C.R. 391. In that case, the matter under challenge was the
\nvalidity  of   demand  under  Section  58-A  of\t the  Bombay
\nProhibition Act\t for maintenance  of the  excise  staff\t for
\nsupervision of\tthe manufacture\t of industrial alcohol which
\nwas assailed  for lack\tof  legislative\t competence  of\t the
\nState. The appellant in that case urged that even if State’s
\npower to  supervise production\tof alcohol  is conceded, the
\nState could not be said to have the power to impose any levy
\nto meet the cost of supervision. The court observed:\n<\/p>\n
     “According to learned counsel since
\n     the entire\t judgment  of  the  High
\n     Court proceeded on privilege theory
\n     it cannot\twithstand the  principle
\n     laid down in Synthetic & Chemical’s
\n     case. Levy\t as a  fee under Entry 8
\n     of List  II of  VIIth  Schedule  or
\n     excise  duty  under  Entry\t 51  are
\n     different than  cost of supervision
\n     charged  under   Section  58A<\/a>.  The
\n     former has\t to stand  the\ttest  of
\n     levy; being  in accordance with law
\n     on power  derived from  one of  the
\n     constitutional    entries.\t   Since
\n     Synthetic & Chemical’s case finally
\n     brought purview  of either\t Entry 8
\n     or 51  of List II of VIIth Schedule
\n     of the  competency of  the State to
\n     frame any\tlegislation to\tlevy any
\n     tax or  duty is  excluded.\t But  by
\n     that a  provision\tenacted\t by  the
\n     State  for\t  supervision  which  is
\n     squarely covered  under Entry 33 of
\n     the  concurrent  list  which  deals
\n     with   production,\t   supply    and
\n     distribution     which\tincludes
\n     regulation cannot\tbe assailed. The
\n     Bench  in\tSynthetic  &  Chemical’s
\n     case made it clear that even though
\n     the power\tto levy\t tax or\t duty on
\n     industrial alcohol\t vested\t in  the
\n     Central Government\t the  State  was
\n     still left\t with power  to lay down
\n     regulations  to  ensure  that  non-\n<\/p><\/blockquote>\n
     potable\talcohol,     that    is,\n     industrial\t  alcohol,    was    not\n<\/pre>\n
     diverted and  misused as substitute
\n     for potable alcohol. This is enough
\n     to justify a provision like 58A. In
\n     paragraph 88 of the decision it was
\n     observed\tthat   in   respect   of
\n     industrial alcohol\t the States were
\n     not authorised to impose the impost
\n     as they  have purported  to  do  in
\n     that case\tbut that  did not effect
\n     any imposition  of fee  where there
\n     were  circumstances   to  establish
\n     that there was quid pro quo for the
\n     fee  nor\tit   will   affect   any
\n     regulatory measure. This completely
\n     demolishes the  argument on  behalf
\n     of appellant.”<\/p><\/blockquote>\n
     The judgment  was followed\t in a later case raising the
\nsame questions\tand challenging the validity of Section 58-A
\nof the\tBombay Prohibition  Act, namely,  Gujchem Distillers
\nIndia Ltd. v. State of Gujarat and Anr<\/a>. 1992.
\n(1)  S.C.R. 675.  On a\tproper\tappreciation  of  the  legal
\nsituation, the\tfee of 7 paise per litre has to be seen as a
\npart of\t the regulatory\t measure,  namely,  denaturation  of
\nspirit and supervision of the said process.
\nMore recently  by effect  of interaction of entries 8 and 24
\nList II,  entry 52  of List  I of  the Seventh\tSchedule and
\nentry 26  of the  First Schedule  of the  IDR Act came to be
\nconsidered in  the case\t of State  of A.P.  & Ors.  etc.  v.
\nMcDowell &  Co. &  Ors. etc. reported in JT 1996 (3) SC 679.
\nThe State  of Andhra  Pradesh prohibited  the manufacture of
\nliquor by  an amendment\t in the\t Andhra Pradesh\t Prohibition
\nAct, 1995. `Liquor’ in the Act was defined as under:\n<\/p>\n
     “(7). `Liquor’ includes, –\n<\/p><\/blockquote>\n
     (a)  spirit of wine, wine, beer and
\n     every  liquid   consisting\t of   or
\n     containing alcohol including Indian
\n     liquor and Foreign Liquor,\n<\/p><\/blockquote>\n
     (b)  any\t  other\t    intoxicating
\n     substance which  the Government may
\n     by\t notification,\t declare  to  be
\n     liquor for\t the  purposes\tof  this
\n     Act,
\n     but   does\t  not\tinclude\t  today,
\n     denatured,\t  spirits,    methylated
\n     spirits and rectified spirits;”<\/p><\/blockquote>\n
     We\t may   also  notice  Section  7A<\/a>.  By  that  Section
\nmanufacture of liquor came to be prohibited.\n<\/p>\n
     M\/s. McDowell  &  Co.,  manufacturers  of\tintoxicating
\nliquors challenged the constitutional validity of the Act by
\nwhich the  Prohibition Act<\/a> was amended to include Section 7-
\nA. One\tof the\tgrounds of challenge was lack of Legislative
\ncompetence in  view of entry 26 in the First Schedule of the
\nIDR Act\t which according to the writ petitioners, vested the
\ncontrol of  alcohol industries\texclusively in the Union and
\ndenuded the  State Legislature\tof its\tpower to  licence or
\nregulate the  manufacture of  liquor.  This  submission\t was
\nbased on the fact that fermentation industries were included
\nin the\tSchedule of  the IDR  Act and  hence the  State\t was
\ndenuded of  its power to licence and regulate manufacture of
\nliquor.\t Entry\t 26  reads   “Fermentation  Industries;\t (1)
\nAlcohol, (2)  other products of fermentation industries”. It
\nwas  argued   that  after  the\tamendment  the\tcontrol\t and
\nregulation of  such industries and their product fell within
\nthe exclusive province of the Union and hence the State lost
\nits competence to grant, refuse or renew the licences. After
\nan analysis  of all  the relevant  provisions of the law the
\nCourt concluded as under:\n<\/p>\n
     “(W)e  must  first\t carve\tout  the
\n     respective fields\tof Entry  24 and
\n     Entry 8  in List  II. Entry 24 is a
\n     general\tentry\t  relating    to
\n     industries whereas\t Entry\t8  is  a
\n     specific and special entry relating
\n     inter alia to industries engaged in
\n     production\t  and\tmanufacture   of
\n     intoxicating liquors.  Applying the
\n     well-known rule  of  interpretation
\n     applicable\t to   such  a  situation
\n     (special excludes\tthe general), we
\n     must  hold\t  that\tthe   industries
\n     engaged\tin     production    and
\n     manufacture of intoxicating liquors
\n     do not  fall within Entry 24 but do
\n     fall within  Entry 8.  This was the
\n     position at the commencement of the
\n     Constitution  and\t this\tis   the
\n     position today  as well.  once this
\n     is so,  the making of a declaration
\n     by the  Parliament as  contemplated
\n     by Entry 52 of List I does not have
\n     the  effect   of  transferring   or
\n     transplanting, as it may be called,
\n     the    industries\t   engaged    in
\n     production\t  and\tmanufacture   of
\n     intoxicating liquors from the State
\n     List to Union Lists. As a matter of
\n     fact, the\tParliament  cannot  take
\n     over  the\t control  of  industries
\n     engaged  in   the\tproduction   and
\n     manufacture of intoxicating liquors
\n     by making a declaration under Entry
\n     52 of  List-I, since the said entry
\n     governs only  Entry 24  in List  II
\n     but not Entry 8 in List II.”<\/p><\/blockquote>\n
     It was  reiterated in the later part of the judgment as
\nunder:\n<\/p>\n
     “It   follows    from   the   above
\n     discussion that the power to make a
\n     law with respect to manufacture and
\n     production\t and   its   prohibition
\n     (among other  matters mentioned  in
\n     Entry   8\t in   List-II)\t belongs
\n     exclusively    to\t   the\t   State
\n     Legislatures. Item\t 26 in the First
\n     Schedule to  the I.D.R. Act must be
\n     read subject  to Entry  8 – and for
\n     that matter,  Entry 6 – in List-II.\n<\/p>\n
     So read, the said item does not and
\n     cannot   deal   with   manufacture,
\n     production of intoxicating liquors.\n<\/p>\n
     All the  petitioners before  us are
\n     engaged  in   the\tmanufacture   of
\n     intoxicating  liquors.   The  State
\n     Legislature     is,      therefore,
\n     perfectly competent  to make  a law
\n     prohibiting their\tmanufacture  and
\n     production –  in addition\tto their
\n     sale, consumption,\t possession  and
\n     transport\t–   with  reference   to
\n     Entries 8\tand 6  in List-II of the
\n     Seventh\t Schedule     to     the
\n     Constitution read\twith Article  47<\/a>
\n     thereof.”\n<\/p>\n
     The High  Court in\t the impugned  judgment has  drawn a
\ndistinction  between   fees  charged   for  licences,  i.e.,
\nregulatory fees\t and  the  fees\t for  services\trendered  as
\ncompensatory fees.  The distinction  pointed out by the High
\nCourt can be seen in clause (2) of Article 110 :<\/a>\n<\/p>\n
     “110.(2) –\t A  Bill  shall\t not  be
\n     deemed to be a Money Bill by reason
\n     only  that\t  it  provides\tfor  the
\n     imposition\t of   fines   or   other
\n     pecuniary\tpenalties,  or\tfor  the
\n     demand  or\t  payment  of  fees  for
\n     licences  or   fees  for\tservices
\n     rendered, or  by  reasons\tthat  it
\n     provides\tfor    the   imposition,
\n     abolition, remission, alteration or
\n     regulation of  any tax by any local
\n     authority\t or   body   for   local
\n     purposes.”<\/p><\/blockquote>\n
     The High Court has quoted from this Court’s decision in
\nCorporation of\tCalcutta v. Liberty Cinema<\/a>, AIR 1965 SC 1107
\n1965 2\tS.C.R. 477,  which was\tbased  on  a  Privy  Council
\njudgment in  Shennon v. Lower Mainland Dairy Products Board,
\n1938, AC  708 =\t AIR 1939  PC 36.  This Court  said  in\t the
\nCorporation of Calcutta v. Liberty Cinema<\/a> (supra) :\n<\/p>\n
     “In fact,\tin our\tConstitution fee
\n     for licence  and fee  for\tservices
\n     rendered\tare    contemplated   as
\n     different kinds of levy. The former
\n     is not  intended to  be a\tfee  for
\n     services rendered. This is apparent
\n     from  a  consideration  of\t Article
\n     110(2)<\/a>  and  Article  199(2)<\/a>  where
\n     both    expressions     are    used
\n     indicating thereby\t that  they  are
\n     not the same.’
\n     The High  Court has  taken the view that in the case of
\nregulatory fees,  like the  licence fees,  existence of quid
\npro quo\t is not\t necessary although the fee imposed must not
\nbe, in\tthe circumstances  of the  case, excessive. The High
\nCourt further  held that  keeping in  view the\tquantum\t and
\nnature of  the work  involved in  supervising the process of
\ndenaturation and  the consequent  expenses incurred  by\t the
\nState, the  fee of  7 paise  per litre\twas  reasonable\t and
\nproper. We  see no  reason to  differ with  this view of the
\nHigh Court.<\/p><\/blockquote>\n
     In view of the foregoing, the appeals are dismissed. No
\ncosts.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Vam Organic Chemicals Limited & … vs The State Of Uttar Pradesh & Others on 21 January, 1997 Author: Ahmadi Bench: A.M.Ahmadi, S.C. Sen 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: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-249491","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nVam Organic Chemicals Limited & ... vs The State Of Uttar Pradesh & Others on 21 January, 1997 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/vam-organic-chemicals-limited-vs-the-state-of-uttar-pradesh-others-on-21-january-1997\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Vam Organic Chemicals Limited & ... vs The State Of Uttar Pradesh & Others on 21 January, 1997 - 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