Bhan Pratap Singh,etc.etc. vs State of U.P.& Ors.etc,etc.

Om Prakash, J.—In this bunch, there are as many as 27 writ petitions. Three counsel: Sarvasri K.D. Misra, Shri Mukesh Prasad and Shri Neeraj Sharma appeared on behalf of different petitioners.

In these writ petitions, the petitioners either hold EL. 16 licence, that is, a licence for wholesale vend of ordinary denatured spirit having strength of 93.30% V/V or EL. 17 Licence, that is, a licence for retail vend of ordinary denatured spirit, which is unfit for human consumption.

The petitioners, inter alia, seek a common relied for quashing of the impugned notification dated March 12, 1994, Annexure 2 to the writ petition and impugned order, dated 2851994 passed by the Additional Excise Commissioner, U.P. Annexure 1 to the writ petition and, therefore, for convenience sake facts are stated from the writ petition No. 651 of 1994, Mis. Bhan Pratap Singh v. State of U.P & others, which has been argued by Shri K.D. Misra on behalf of the petitioner and his arguments have been adopted by other learned Counsel for the petitioners who made some other arguments as well which will be considered by us at an appropriate place. The petitioner in this case holds EL. 17 licence for the retail sale to the consumers of ordinary denatured spirit at Katra, Allahabad. The impugned notification, Annexure 2 to the writ petition came to be issued by the Excise Commissioner after the predecessor notification dated 2911990 was quashed by a Division Bench of this Court in the case of Ram Surat Tewari v. State of U.P. and others, (1991) 2 Civil & Revenue Cases 1218. Rules relating to the wholesale and retail vend of denatured spirit came to be amended from time to time. After the 1989 amendment in the rules, 25% and 20% ad valorem licence fee was imposed on F.L. 16 and EL. 17 respectively. By the predecessor notification dated 2911990, licence fee on EL. 16 and F.L. 17 was raised to 40% and 25% ad valorem respectively. When the notification dated 2911990 was quashed by this Court, impugned notification dated 1231994, Annexure 2 to the writ petition came to be issued declaring that licence fee on F.L. 16 and F.L. 17 shall be 25% and 20% ad valorem respectively.

The impugned notification has been challenged by the petitioner on two rounds: (1) that no power is vested in the tate Government to levy licence fee on the denatured spirit; and (2) that licence fee at the rate of 25% and 20% ad valorem on F.L. 16 and F.L. 17 licence respectively is excessive having no corelationship with the revenue realised and the expenditure incurred and hence that is in the nature of the price for transfer of privilege or duty on industrial alcohol which the State Government is legally incompetent to levy and is not a part of regulatory measures.

The Additional Excise Commissioner then consequent upon the impugned notification passed the impugned order, dated 2851994, Annexure 1 to the writ petition directing the licence holders to deposit ad valorem fee for the period from the date of stay till the date of the notification Le. 1231994 at the rate of 25% in the case of F.L. 16 and 20% in the case of F.L. 17 licence. He thus vacated the stay order passed in similar cases and directed the district excise authorities to realise thedue amount in toto and permit the renewal of their licences only thereafter.

Feeling aggrieved of the impugned notification dated 1231994 and theorder dated 2851994, Annexures 2 & 1 to the writ petition respectively, the petitioners pray for their quashing in this bunch of writ petitions.

By notification dated 2911990 licence fee on F.L. 16 was raised to 40% ad valorem from the existing rate of 25% and licence fee of F.L. 17 was raised to 25% from 20% ad valorem. Then the notification dated 2911990 was quashed by this Court in the case of Ram Surat Tewari (supra) by judgment dated 441991, impugned notification dated 1231994, Annexure 2 to the writ petition had been issued by the Commissioner reducing the licence fee on F.L. 16 to 25% ad valorem and F.L. 17 to 20% ad valorem. This Court then relying on the case of Synthetics and Chemical Ltd. v. State of U.P. and others, AIR 1990 SC 1927, held that the State might lay down regulations to ensure that nonpotable alcohol is not divested and misused as a substitute for potable alcohol and further in case the State is rendering any service, it may charge fee based on quid pro quo and that the State does not have power to legislate in respect of nonpotable alcohol and the imposition of taxes and other similar levy on such alcohol by the State is unconstitutional. The Court was of the view that imposition of 40% ad valorem fee on F.L. 16 licence by means of a notification dated 2911990 was the price charge by the Government for parting with its right or privilege in favour of the licensees and not a part of regulatory measure. A supplementary affidavit was filed on behalf of State of U.P. in that case before the Court and an attempt was made to show that the State Government is spending huge amount in running the excise department. On behalf of the State it was contended that a large number of officials have been appointed for potable and nonpotable alcohol so as to supervise the production, distribution and delivery of denatured alcohol to different units and for supervision of the distilleries and the industrial unit as well as licensees like the petitioner and for this purpose the State is incurring annual expenditure of about Rs. 8 crores for maintaining the excise department, whereas only about Rs. 70 lacs are collected from the petitioner and other licensees like him. The Court rejecting the contention of the respondents observed: (Para. 12, 24)

"10. The expenses of Rs. 8 crores for maintaining the Excise Department cannot be recovered by the State Government only from the licensees like the petitioner. Excise department of the State is not meant for regu lating the activities of the licensees only as its activities extend to much wider areas covering various fields with which the persons like the petitioner having nothing to do. The Government was in a position to place the material before this Court to show the probable cost of administering the regulations and its co relationship with the licence fee realised but the Government has failed to do so and has not established even the broad basis of the corelationship between the amount spent and the fee charged. The levy of fee at the rate of 40% ad valorem on the sale made by the distillery to the licensees is excessive and exorbitant. It is obvious that this levy was imposed so as to recover the price of the privilege and the benefit granted to the wholesale dealers by the Government, as is clear from the Division Bench judgment of this Court in the case of State of U.P. v. Mis. Aganval Spirit Supply Co. (supra). This rate of fee specified for recovering the price or consideration for transfer right or privilege cannot be said to be regulatory. It is highly excessive and exorbitant and cannot be sustained."

The writ petition was accordingly allowed and the notification dated 2011990 was quashed. The Court further directed the respondent not to realise 40% ad valorem licence fee. The Court concludingly observed in para 12 at p. 225 as follows:

"12. It is however, open to the State to adopt regulatory measure and prescribe fee to defray the cost of administering the regulation within a period of six months from today and during this period the interim order dated 1781990, extracted above, shall continue."

The fact remains that no regulatory measures were taken by the respondents within 6 months from the date of judgment as directed by the Court. After that judgment the impugned notification dated March 12, 1994 came to be published on 1641994 substituting 25%advalorem fee on F.L. 16 licence and 20% ad valorem fee on F.L. 17 licence in place of 40% and 25% ad valorem fee respectively.

As to the authority to charge 25% and 20% ad valorem fee on F.L. 16 and F.L. 17 licence had come to an end after the expiry of 6 months from the date of judgment in the case of Ram Surat Tewari (supra), the Additional Excise Commissioner with a view to overcoming that difficulty directed the excise authorities to recover 25% and valorem fee from F.L. 16 licensees and 20% ad valorem fee from F.L. 17 licensees right from the date of stay granted in the case of Ram Surat Tewari (supra) till the date impugned notification dated 1231994.

In this connection the contention of the petitioner is that the impugned notification dated 1231994, Annexure 2 to the writ petition will come into force only from the date of its publication in the Gazette. The said notification came to be published on 1641994. It is, therefore, contended that no licence fee at the rate of 25% and 20% ad valorem can be charged from F.L. 16 and F.L. 17 licensees for the period anterior to 1641994 and that no licence fee under the impugned notification dated 1231994, Annexure 2 to the writ petition can be charged from the existing licensees; as the notification would become operative only prospectively, meaning thereby, that only those licensees who either acquired licence after 1641994 or whose licences were renewed after that date would be governable by the notification dated 1231994. The contention of the petitioner, therefore, is that the licence fee already recovered by respondents for the period anterior to 1641994 on the strength of the notification dated 1231994 is liable to be refunded by the respondents.

This is how the petitioner prays, for quashing of the notification dated 1231994, for quashing 20% ad valorem fee proposed on F.L. 17 licensees for quashing the order dated 2851994, Annexure 1 to the writ petition passed by the Additional Excise Commissioner for quashing an order dated 2561994, Annexure 4 to the writ petition, passed by the Excise Inspector Sector III, Allahabad in sequel to the impugned order, dated 2851994 passed by the Additional Excise Commissioner, for a writ of mandamus directing the respondents to refund the licence fee already recovered from him for the period posterior to 441991 viz. the date of judgment in the case of Ram Surat Tewari (supra) and for restraining the respondents not to interfere in the right of the petitioner for obtaining the denatured spirit from the distilleries/wholesale dealers.

The respondents filed a counter; affidavit raising several pleas which need 1 not be stated as Shri Dwivedi, learned Additional Advocate General appearing for the respondents categorically stated before us that the licence fee proposed under the impugned notification Annexure 2 to the writ petition is in the nature of regulatory fee. His contention is that 25% ad valorem fee on F.L. 16 licence and 20% ad valorem fee on F.L. 17 licence is fair, just and reasonable and not exhorbitant and excessive. It is averred in the counteraffidavit that the order dated 2851994, Annexure 1 to the writ petition has passed by the Additional Excise Commissioner in exercise of the powers delegated to him by the Commissioner and, therefore, the order is valid.

The respondents also filed a supplementary counteraffidavit giving the details of the officials of various types working in the Excise Department, of the nature of job undertaken by them, of the expenditure incurred on them and of the revenue realised from various types of licensees.

A learned Additional Advocate General unequivocally stated before us that licence fee proposed by the impugned notification Annexure 2 to the writ petition for consideration is whether the respondents are entitled to levy regulatory fee. The contention of the respondents is that the ordinary denatured spirit which the petitioners may obtain under F.L. 16 and F.L. 17 licence is not fit for human consumption and, therefore, one of the major jobs of the department is to ensure that nonpotable alcohol is not misused as potable alcohol by the spirit licensees and for that purpose the department has to spend considerable amount for the recovery of which regulatory fee has been proposed under the notification, Annexure 2 to the writ petition. Whether or not the respondents can levy regulatory fee, this question has become academic after the decision of the Supreme Court in the case of Synthetics Chemical Ltd. (supra). In para 85 at p. 1956 of the case of Synthetics and Chemicals Ltd. (supra), the Supreme Court ruled down that after the amendment of 1956 to the I.D.R. Act, the State is left with only the following powers to legislature in respect of alcohol:

(a) it may pass any legislation in the nature of prohibition of potable liquor referable to Entry 6 of List II and regulating powers;

(b) it may lay down regulations to ensure that nonpotable alcohol is not diverted and misused as a substitute for potable alcohol.

In para 87 on the same page, the Supreme Court opined that the decision that in respect of industrial alcohol, States are not authorised to impose the impost, they have purported to do will not affect "any imposition of levy on industrial alcohol fee where there are circumstances to establish that there was quid pro quo for the fee sought to be imposed. This will not effect any regiilatingmeasure as such."

Similar view was taken by a Division Bench of this Court in Writ Petition No. 16782 of 1990 Vam Organics Chemicals Ltd. and another v. State of U.P. and others, decided on 991991.

The legal position is clear that although the State cannot tax industrial alcohol, it can regulate it so as to prevent its misuse.

Then the question is whether the element of quid pro quo is necessary for imposing licence fee. In Ram Surat Tewari (supra) this Court held that ''licence fee'' does not necessarily means ''fee'' for service. In para 5 at p. 1221 of that case, the Court relying on several authorities pointed out:

"5. Although, it is open, as mentioned above, for the State to regulate any trade or business by means of licence and to charge licence fee in connection therewith; but in such cases principles of quid pro quo do not apply as by regulating the trade or business the State is not rendering any service to the licence holders but enforcing the regulation by placing restrictions on their rights to trade and business for the good of the society. By exercising the control on the activities of the licensees, State makes their activities subject to reasonable restrictions, which is not a service rendered to them........."

We are in respectful agreement with the view taken by this Court in the case of Ram Surat Tewari (supra) and hold that the element of is not a sine qua non of regulatory fee.

The argument of Shri Mishra is that by the impugned notification, Annexure 2 to the writ petition, the respondents levied the duty on nonpotable alcohol in the grab of purported regulatory fee which the State Government is not competent to levy in view of the decision of the Supreme Court in the case of Synthetics Chemicals Ltd. (supra) and, therefore, the impugned notification is liable to be quashed.

This is his inferential argument inference drawn from the fact that the licence fee realised from F.L. 16andF.L. 17 licensees is far more than the amount spent on supervision by the department of such licensees. He submits that regulatory fee always be commensurate to the expenditure incurred, but the licence fee realised from F.L. 16 and F.L. 17 licensees being wholly disapportionate to the amount spent, is in the nature of the price of parting with the right or privilege. The law is wellsettled by now that the respondents are not under the duty to establish by mathematical precision that the regulatory fee realised is just equal to the expenditure incurred hut what is required is simply to establish a broad corelationship between the receipt of this nature and the expenditure incurred. To established the corelationship, details have be en furnished by the respondents in the supplementary counteraffidavit, but Shri Mishra has vehemently challenged the correctness of such details. The argument of Shri Mishra is that whereas the respondents have inflated the expenditure said to have been incurred on the supervision to ensure that nonpotable alcohol is not misused or diverted as a substitute for potable alcohol, they have clearly suppressed the amount of licence fee, realised from F.L. 16 and F.L. 171icensees.

The question is: is this submission of Shri Mishra correct? In para 6 of the Supplementary counteraffidavit, details of receipt of licence fee from F.L. 16 and F.L. 17 licensees for the year 199495 are as follows:

F.L. 16...........Rs. 36, 65, 802

F.L. 17...........Rs. 22, 40, 764

Rs. 59, 06, 566

In para 13 of the supplementary counteraffidavit, approximate total expenditure on regulation of F.L. 16 and F.L. 17 licensees is said to be Rs. 70 lacs. This is how Shri Dwivedi, learned Addl. Advocate General submits that total expenditure inr curred on regulation of F.L. 16 and F.L. 17 licensees was more than the receipt of licence fee. If the figures, as stated in the supplementary counteraffidavit of the receipt and expenditure relating to F.L. 16 and F.L. 17 licensees are correct then the version of the department will not be doubted. Shri Mishra, however, submits that the figures of receipt as well as of expenditure relating to F.L. 16 and F.L. 17 licensees are incorrect and wholly unreliable. To demonstrate the error he drew our attention to the averments made in para 9 of the supplementary rejoinderaffidavit. In para 4 of the supplementary counteraffidavit, details of the total quantity of denatured spirit lifted by F.L. 16 licensees are as follows:

199394..........1126053 bulk litres

199495..........733160 bulklitres

It is admitted in para 4 of the supplementary counteraffidavit that the total quantity lifted by F.L. 16 licence holders was purchased by F.L. 17 licensees and they in turn, had sold the entire quantity purchased by them during the year. The system is that ordinary denatured spirit is purchased by F.L. 16 licensees from the distillery and after taking delivery from the distillery they remove the same to their depots and from them to spirit is purchased by F.L. 17 licensees who sell the same further to the consumers.

In para 9 of the supplementary rejoinderaffidavit, it is stated that the average ad valorem fee on F.L. 16 and F.L. 17 licences is Rs. 6.20 and Rs. 7.25 per bulk litre respectively, aggregating to Rs. 13.95. If the total quantity Le. 735860 bulk litres lifted and sold by F.L. 16 and F.L. 17 licensees during the year, 199495 is multiplied by 13.95 then the total licence fee obtained from F.L. 16andF.L. 17 licensees will come to Rs. 1, 02, 27, 582 (1, 02, 275, 582 wrongly shown in para 9 of the supplementary rejoinderaffidavit) as against Rs. 59, 06, 566 as shown in para 6 of the supplementary counteraffidavit. It shows that receipt of licence fee from F.L. 16 and F.L. 17 licensees is deflated by respondents. Error in the figures furnished by respondents is apparent otherwise also. The average rate of ad valorem fee on F.L. 17 licences is Rs. 7.75/ per bulk litre and, admittedly, the entire quantity purchased by F.L. 17 licensees from F.L. 16 licensees during the year had been sold by the former. Average ad valorem licence fee on F.L. 17 licence being Rs. 7.75 Le. higher than the average ad valorem fee on F.L. 16 licence, the receipt of licence fee from F.L. 17 licensees will be naturally higher than the licence fee obtained from F.L. 16 licensees, but the respondents have shown viceversa. It shows that the figures relating to the receipt of ad valorem licence fee from F.L. 16 and F.L. 17 licensees as furnished by the respondents, are apparently erroneous.

Then comes the question of correctness of the expenditure. It is stated in the supplementary counteraffidavit that there are different wings in the excise department for supervising F.L. 16 and F.L. 17 licensees so that they may not divert nonpotable alcohol for potable purposes. Details of different wings, number of staff employed and annual expenditure incurred on each wing areas follows:

Wing 1 No. of staff Annual Expenditure (in Rupees)

Distilleries staff 306 1, 51, 35, 960

Enforcement staff 238 91, 79, 180

Technical staff 13 6, 43, 000

Licensing Section Not mentioned 4, 89.000

Intelligence Bureau Laboratories 37 Not men 17, 10, 500 9, 88, 042

tioned

Legal Section do 16, 47, 756

Of the total expenditure incurred on the excise staff, expenditure incurred on each wing qua F.L. 16 and F.L. 17 licensees is apportioned by respondents as follows.

Wing

Proportion of Expenditure on F.L. 16 & F.L. 17 licences Actual amorist of Expenditure incurred nn F.L. 16&F.L.17 licensees Distilleries staff 25% 25, 00, 000 Enforcement 33% 30, 59, 737 staff Technical staff not mentioned not mentioned Licensing Sec not mentioned 2, 50, 000

Intelligence 33% 5.70, 167 Bureau Laboratories Not mentioned Legal Section 25%Rs. 4, 00, 000

On the basis of these details, the respondents say that the total expenditure incurred on regulation of F.L. 16 and F.L. 17 licensees comes to about Rs. 70 lacs. In the supplementary7 rejoinderaffidavit, it is stated that less than two hours per weeks are devoted by distillery staff on denaturation and issue of ordinary denatured spirit to F.L. 16 licensees from the distillery, and for rest of time, the distillery staff remain engaged in: (a) Supervision of weighing of molasses; (b) Fermentation supervision; (c) Distillation work supervision; (d) Issues of spirit including denatured spirit specially denatured spirit and rectified spirit from the issue vats once a week and verification of receiver vats daily; (e) Reduction, manufacture and bottling of potable liquors; and (f) issue of potable liquors. This is how it is urged by Shri Mishra that of the total expenditure incurred on the distillery staff, less than 5% can be attributed to the activities relating to the F.L. 16 licensees. The distillery staff has nothing to do with F.L. 17 licensees, because they purchase the spirit from the depots of F.L. 16 licensees. It is stated that the main duty of the technical staff is to advise the Excise Commissioner in the matters relating to control, erection of distilleries and pharmacies and industries based on use of industrial alcohol and that has nothing to do with > he supervision over F.L. 16 and F.L. 17 licensees. Similarly it is said that there is no worthwhile contribution by the licensing section, litigation section and laboratories.

Shri Mishra submits that Excise Department has to administer the following enactments:

(a) U.P. Excise Act, 1910,

(b) U.P. Sheera Niyantran Adhiniyam, 1964,

(c) U.P. Motor Spirit, Diesel Oil and AlcoholTaxationAct. 1939,

(d) Medical and Toilet Preparations (Excise Duties) Act, 1955,

(e) Spirituous Preparations (InterState Trade and Commerce) Control Act, 1955,

(f) Narcotic Drugs and Psychotropic Substances Act, 1985.

Considering the voluminous task of administering as many as 6 enactments engaging major attention of the excise department and the total expenditure of excise department (expenditure being 11.24 crores during the year, 199394) Shri Mishra submits that F.L. 16 and F.L. 17 licensees will not engage more than 10% time of the excise staff and, therefore, the expenditure incurred on F.L. 16andF.L. 17 licensees can reasonably be apportioned to Rs. 20 lacs annually, which can be realised from them by imposing a fixed fee, which was the practice invoke prior to the amendment of 1979 in the relevant rules.

By amending the rules, made in this behalf with effect from July 1, 1979, licence fee was imposed at the rate of 15% ad valorem and 20% ad valorem on F.L. 16 and F.L. 17 licences respectively and prior to that it is said that fixed fee was being charged.

The main question for consideration is whether the respondents have done any exercise to rationalise the system of licence fee after the judgment rendered in the case of Ram Surat Tewari (supra) by which the notification on dated 2911990 raising the licence fee to 40% and 25% ad valorem on F.L. 16 and F.L. 17 licence respectively was quashed on the ground that there was no broad corelationship between the amount received from the licence holders and the amount spent on their being regulated. The submission of Shri Mishra is that after the case of Ram Surat Tewari (supra) the respondents without making any scientific study to establish co relationship between the amount received as licence fee and expenditure incurred on regulating the relevant licences sealed down the ad valorem fee from 40% to 25% and from 25% to 20% in relation to F.L. 16 and F.L. 17 licence respectively. We called upon Shri Dwivedi time and again to produce the material which was taken into consideration after Ram Surat Tewari (supra) case to come to the conclusion that licence fee imposed under the impugned notification, Annexure 2 to the writ petition is in close proximity to the expenditure incurred on regulating F.L. 16 and F.L. 17 licensees. No such details have been furnished excepting furnishing the details of the duties undertaken by the excise department and the expenditure incurred on various wings of the department; nor any cogent basis has been shown to apportion the total expenditure incurred by the department on the supervision and regulation of F.L. 16 and F.L. 171icensees.

No doubt, it is quite difficult for the respondents to point out a method with mathematical precision to establish co relationship between the amount received and expenditure incurred on F.L. 16 and F.L. 17 licensees, but furnishing the details to establish close proximity and broad co relationship between the two is not impossible. We are, therefore, constrained to observe that there is no change in the position obtaining today and as it obtained at the time when the decision was rendered in the case of Ram Surat Tewari (supra). Excepting furnishing some details based on surmises which do not induce us at all to accept the case of respondents that ad valorem fee imposed by the impugned notification dated 1231994 is nearer if not equivalent to the annual expenditure likely to be incurred by the department on regulation of EL. 16 and EL. 17 licensees, nothing further has been done by respondents. The petitioner has successfully demonstrated that the figures with regard to receipt and expenditure furnished by the respondents are incorrect, inasmuch as the former is understated and the latter is exaggerated.

We are, therefore, left with no option but to infer that the ad valorem licence fees levied under the impugned notification dated 1231994, cannot be anything but a price for parting with the privilege or the right vested in the State Government to carry on such business imposed in the garb of purported regulatory fee.

Regulatory fee is nothing but compensatory in that it is realised to compensate the department to the extent it is financially burdened by the regulatory expenses. Anything realised more than that beyond nearest approximation will clothe it with the character of excise duty, which the State cannot impose.

The respondents will do better if they resort to a more relevant method to apportion the annual expenditure to the regulatory activity and then proceed to levy regulatory fee approximately equivalent to the estimated expenditure either by way of fixed amount or by way of advalorem fee.

For the reasons the impugned notification, Annexure 2 to the writ petition deserves to be quashed.

Turning to the impugned order, Annexure 1 to the writ petition issued by the Additional Excise Commissioner, it is suffice to say that the said order cannot bridge the period gap ranging from 4th October, 1991 when the timelimit of six months allowed by this Court in the case of Ram Surat Tewari (supra) for adopting the new rules expired to 1641994 when the impugned notification, Annexure 2 to the writ petition was published. The impugned notification, no doubt, could not have come into force prior to 1641994 when that was published. From this it follows that there was no authority to realise the licence fee during the period from 4101991 to 1541994 as there was no notification in force during that period. By the impugned order, Annexure 1 to the writ petition, the Additional Excise Commissioner directed F.L. 16 and F.L. 17 licensees to deposit the ad valorem fee for the period commencing from 4101991 till the date of the notification i, e. 1231994. This order is wholly illegal, inasmuch as impugned notification was not and could not have been retrospective in operation; otherwise also the impugned notification could not have come into force before it was published in the official Gazette. Undoubtedly, the date of publication is 1641994 and, therefore, upto 1541994 there was no valid notification in force and on the strength of the impugned notification dated 1231994, the Additional Excise Commissioner could not have directed F.L. 16 and F.L. 17 licensees to deposit ad valorem licence fee. The impugned notification, did not confer any authority on the Excise Commissioner/Additional Excise Commissioner to impose ad valorem licence fee for the period when there was no valid notification. It has come in the evidence that though there was no notification at all, much less valid notification upto 1541994 from 4101991, yet the department continued to realise ad valorem licence fee from F.L. 16 and F.L. 17 licensees for the said period and the licensees obtained stay orders from the Excise Commissioner only after some time which the Additional Excise Commissioner vacated by the impugned order, passed by him.

Shri Mishra contends that ad valorem licence fee realised during the interregnum period le. from 4101991 to 1541994 is liable to be refunded by the department. The question is whether refund is a necessary consequence of an illegal realisation, there is no case of petitioners herein that they suffered liability of ad valorem licence fee themselves and that, that liability was not passed on by F.L. 16 licensees to F.L. 17 licensees and EL. 17 licensees in their turn, did not pass on the same to the consumer. Normal presumption unless rebutted by the petitioners, is that the liability of ad valorem licence fee was passed on by F.L. 16 licensees to F.L. 171icensees and F.L. 17 licensees in turn, passed on the same to the consumers. If this is so, can the petitioners claim refund of ad valorem licence fee illegally realised by the respondents during the interregnum period from 4101991 to 1541994. In Indian Oil Corporation v. Municipal Corporation, Jallundhar, (1993) 1 SCC 333, similar question came up for consideration and then the Court enunciated : (para 23 p. 344)

"23. Before parting with the appeal, we would, however, like to take note of the submission made on behalf of Municipal Corporation �with regard to the question of refund of the octroi duty already deposited by the appellant. The question of refund in our opinion, does not arise. The IOC has collected the octroi duty from its dealers and agent, who have in turn passed on the burden to the consumer. Thus having collected the octroi duty there is no equity in favour of the IOC to claim a refund of the same........."

Again the same question came up in the case of Entry Tax Officer, Bangalore etc. v. M/s. Chandanmal Champalal and Co., (1994) 4 SCC 463. In this case the Court relying on the case of Indian Oil Corporation (supra) and agreeing with the principles stated in that case, held that in the absence of any allegation and proof that the burden was not passed on by the dealer to consumer, direction of refund was not called for.

When certain amount is illegally realised by the department but that burden is passed on by the dealers to the consumers, the Supreme Court consistently held that refund of such amount to the dealers who passed on the liability to the consumers, could amount to unjust enrichment of such dealers as they did not suffer any loss themselves. Following such principles, we have no inhibition in holding that ad valorem licence fee though was illegally realised by the respondents from the petitioners herein during the period from 4101991 to 1541994 but the latter are not entitled to refund as they have neither pleaded nor led any evidence that such liability was not passed on by FL. 16 licensees to F.L. 17 licensees and to the consumers by the latter.

The submission of Shri Mishra is that the petitioner being an existing licensee cannot be subjected to the impugned notification as according to him the said notification could apply only to those licensees who were granted licence on or after 1641994. In short, he says that the impugned notification will apply to future licensees and that existing licensees are not liable to pay licence fee prescribed there under. In support of his submission, he relied on the cases : (1) Darshan Lal, Delhiv. State of U.P and others, 1981UPTC 156; (2) Vijay Prakash Jaiswal and other sv. State of U.P. and others, 1984 EFR (Excise & Food Adulteration Reports) 77 and (3) Jawahar Lal Jaiswal v. State of U.P, AIR 1981 All 292 (F.BA The impugned notification being liable to be quashed, we do not consider it necessary to go into the question whether impugned notification will apply to future licensees only because the petitioner will not be burdened with any liability under the said notification. When no liability accrues at all under the impugned notification, the question whether that will govern the existing licensees or only future licensees is merely academic.

Though Shri MuKesh Prasad, learned Counsel for some of the writ petitioners herein has adopted the arguments advanced by his senior colleague Shri Misra, he made an additional submission that unless fresh rules are framed levying regulatory fee, no fee can be realised from the petitioners on the basis of the impugned notification. We see no substance in the submission, inasmuch as by impugned notification the U.P. Excise Licences for the Wholesale and Retail Vend of Spirit Rules have been amended and, therefore, it cannot be said that without amending the rules, ad valorem licence fee at the rate of 25% and 20% in the case of F.L. 16andF.L. 17 licensees, was sought to be realised. The impugned notification, Annexure 2 to the writ petition gives birth to the U.P. Excise Licences for" the Wholesale and Retail Vend of Denatured Spirit (Amendment) Rules, 1984 and the notification was issue in exercise of powers under Section 41 of the U.P.

Excise Act, 1910 (U.P. Act IV of 1910), read with Section 21 of the U.P. General Clauses Act, 1904 (U.P. Act No. 1 of 1904). The rules relating to licences for the wholesale and retail vend of denatured spirit published under the notification, dated March 25, 1996 as amended from time to time, came to be amended further by the U.P. Excise Licences for the Wholesale and Retail Vend of Denatured Spirit (Amendment) Rules, 1994.

Net submission made by him is that the cost of regulatory activities will not vary with the amount of the spirit fore, there is no justification to levy ad valorem licence fee and that regulatory fee can be realised by fixing a reasonable amount, total realisation of which does not exceed the total expenditure incurred by the department on the regulatory activities. Ad valorem licence fee in all facts and circurnstances cannot be said to be invalid. The only onus to be discharged by the respondents is that regulatory fee either realised in fixed amount or by way of ad valorem fee does not unreasonably exceed the total expenditure incurred by the department on the supervision and regulation. If this onus is successfully discharged then regulatory fee can be realised even by way of advalorem fee.

Lastly, we come to the submission made by Shri Neeraj Sharma who too represents some of the writ petitioners herein. The only submissions made by him is that the notification dated 1231994 will be effective from the date of publication in the Gazette. We have already answered this question in the affirmative.

Then the question is whether in view of Our finding that the impugned notification is liable to be quashed, no regulatory fee can be charged by the respondent, though they incurred expenditure on the supervision of F.L. 16 and F.L. 17 licensees throughout. In Ram Surat Tewari''s case (supra), the respondents were permitted to continue to charge licence fee at the rate fixed under the 1989 notification for a period of six months during which the respondents were expected to adopt regulatory measure. As the respondents do incur regulatory expenses on F.L. 16 and F.L. 17 licensees, we, from the equity point of view and for doing complete justice, hold that the respondents may realise licence fee for a period of three months from today at a tentative flat rate of 15% ad valorem from F.L. 16 and F.L. 17 licensees and may adopt appropriate regulatory fee in the meantime.

In the result, all the writ petitions succeed and are allowed with costs; impugned order dated 2851994 passed by the Additional Excise Commissioner and the impugned order dated 2561994 passed by the Excise Inspector Sector III Allahabad (Annexures 1 and 4 respectively in the leading writ petition) and the impugned notification, dated 1231994 are quashed ; all interim orders passed in this fascicle of writ petitions are vacated. It is, however, open to the State to continue to realise regulatory fee for a period of three months from today at a flat rate of 15% ad valorem from F.L. 16 and F.L. 17 licensees and to levy proper regulatory fee in the meantime. Petitions allowed.