Suneeta Laboratories, Pvt. Ltd., Indore vs State of Madhya Pradesh and others

Shiv Dayal, C.J.—By Notification No. 2521-1483 v. SR.69 dated August 21, 1969, published in the Madhya Pradesh Government Gazette dated October 17, 1969, the Denatured Spirit Rules framed under the Madhya Pradesh Excise Act, 1915, were amended as follows:--

VII-A. Possession of denatured spirit for the use in manufactory.--The Collector or an officer authorised by him in that behalf may issue a licence in Form D. S. 4 for the possession of denatured spirit for use in the process manufacture of solid extracts and other basic drugs and aromatic chemicals which are not dutiable under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955), to any manufactory subject to the conditions mentioned below:--

(i) The manufacturer shall apply in writing for a licence to the Collector of the District in which the manufactory is located or proposed to be located. Every such application shall contain the following particulars, namely: --

(a) Name of the applicant and his address.

(b) Name of the manufactory, if any, in which the denatured spirit is to be used and its location.

(c) Quantity of denatured spirit required annually.

(d) Names of preparations to be manufactured.

(e) Whether the applicant holds a licence under the Drugs Act, for the manufacture of the preparations, and, if so, kind, number and date of the licence.

(ii) The Collector or any other officer duly authorised by him shall, after consulting the Director of Health Services, Madhya Pradesh or the Director of Industries, Madhya Fradesh, as the case may be, and on his being satisfied about the bona fides of the applicant, issue a licence in Form D. S. 4 on payment of a fee of Rs. 10 for the year or part of the year ending on the 31st March next following,

(iii) The special denatured spirit to be obtained under the licence shall be imported or transported under a pass granted in Form D. S. 5 or D. S. 6 on payment of excise duty at such rates as may be fixed by the State Government, from time to time.

(iv) The manufacturer shall deposit in the Government Treasury Rs. 1,000 as cash security and shall also execute a bond for Rs. 1,000 in Form ''D. S. 4-A for the proper observance of the Denatured Spirit Rules and conditions of licence:

VIII. Imparts and exports.--(1) Denatured spirit may be imported from other States provided that there is sufficient guarantee that the spirit imported has been adequately denatured in the manufacturing State. All imports and exports of denatured spirit or special denatured spirit from and to any place outside the State shall be under a pass in Form D. S. 5 granted by the Collector of the district or any officer authorised by him in that behalf.

(2) Every application for a pass id Form D. S. 5 shall be accompanied by a treasury challan indicating that the applicant has credited into a Government treasury situated in the district of import, a permit fee of rupee 1.10 per bulk litre on the quantity of denatured spirit or special denatured spirit for which an import permit is required. No permit fee, however, shall be charged on imports of denatured spirit to Military Installations and Units belonging to the Indian Armed Forces. Permit fee shall also not be charged on imports of special denatured spirit required by a person for soap making:

Provided that a permit fee of 55 paise per bulk litre shall be charged on special denatured spirit imported for the manufacture of basic drugs and other aromatic chemicals not containing alcohol required by the industries.

(3) An application for a pass in Form D. S. 5 for permission to export denatured spirit outside the State be accompanied by a treasury challan indicating that the applicant has credited into a Government treasury situated in the district from which export is to be made, permit fee at the rate of 3 paise per bulk litre on the quantity of denatured spirit or special denatured spirit for which export permit is required.

IX. Transport.--(1) A permit fee of rupee 1.10 per bulk litre shall be charged on the quantity of denatured spirit issued from a distillery or a bonded warehouse for sale or consumption of the State;

Provided that a permit fee of 55 paise per bulk litre shall be charged on special denatured spirit issued from a distillery or a bonded warehouse for the manufacture of basic drugs and other aromatic chemicals not containing alcohol required by the industries.

(2) All transports of denatured spirit in excess of two quart bottles shall be covered by a pass in Form D. S. 6 granted by the Collector or an officer authorised by him.

The petitioner, M/s. Suneeta Laboratories Private Ltd. carries on business of manufacture of basic drugs at its factory situate at the Industrial Estate, Polo ground, Indore. Among other things, it manufactures the following basic drugs, which do not contain alcohol:--

(i) Thiacentazone.

(ii) Meprobamate.

(iii) Procaine Hydrochloride.

(iv) Phenacetin.

The petitioner''s contention is that by reason of the aforesaid amended rules, it is required to pay a permit fee originally at the rate of Rs. 1.10 per bulk litre and now at Rs. 0.55 per bulk litre on the quantities of special denatured spirit imported or transported by the petitioner as aforesaid. It is not leviable because in effect and substance, it is "excise duty". It is contended that what is called ''permit fee'' is really excise duty and since it does not fall within the definition of excisable article u/s 2(6) of the Act, its levy is illegal and ultra vires. The expression "any alcoholic liquor for human consumption" cannot include denatured spirit because according to the definition of ''denatured spirit'' in section 2(5) of the Act, it means spirit which is rendered unfit for human consumption by the addition of approved denaturants. The petitioner has paid from 1968 to June 30, 1973, a total amount Rs. 81,273.75 by way of permit fee. By this petition, the said Rules VII-A, VIII and IX of the denatured Spirit Rules and the relevant notifications have been sought to be quashed and consequential suitable directions have been prayed for, including for the refund of Rs. 81,273.75.

Case for the respondent-State of Madhya Pradesh is that the State has Police power to protect the health and morality of the community. In exercise of that power, it has authority to regulate and put any conditions and terms for the import, export, transport, possession, sale, etc. of any intoxicants or dangerous goods. Any consideration paid to the State for the permit to the citizen to do any of the things in regard to the intoxicants or dangerous goods is neither excise duty nor fee nor tax. Any label given to the consideration is of no consequence. Whatever is levied is "consideration or price" for parting with the privilege which is vested in the State in regard to intoxicants or dangerous goods.

Learned counsel for the petitioner relies on Indian Mica Micanite Industries Vs. The State of Bihar and Others, . Learned Advocate-General, on the other hand, relies on Har Shankar and Others Vs. The Dy. Excise and Taxation Commr. and Others, . In Bar Shankar''s case (supra), petitions bed been filed by the appellants (liquor contractors and hoteliers) to challenge the demands made upon them by the Department of Excise and Revenue, Government of Punjab. In two appeals, the appellants held licences for the retail sale of foreign liquor for consumption on the premises of their respective establishments. It was contended inter alia that the fee which could be imposed u/s 34 of the Act could only be justified if it had a reasonable relation to the services rendered to the licensees. If it was imposed solely or mainly for the purpose of collecting revenue, it was outside the ambit of Item 66 of List 11 of the Seventh Schedule of the Constitution. The amounts realised in the auctions in the guise of licence fees were so exhorbitant that they could not possibly be justified under Item 66.

In that case, their Lordships held that the fees given by the appellants constituted the offers and upon their acceptance by the Government, pending agreements came into existence between the parties. The conditions of auction became the terms of the contract and it was on those terms that licences were granted, to the successful bidders. However, the appeals were not dismissed on the narrow ground that the reliefs or some of them sought by the appellants could not be awarded in writ petitions. Their Lordships adverted to the merits of the case. The following passages are valuable: --

The main and the real focus of controversy is the power of the Government to levy and realise large licence fees either through the medium of auctions or on scales fixed under the rules (para 24)..... Liquor licensing has a long history. (Para. 25)....... The provisions of the Punjab Excise Act, 1914, like the provisions of similar Acts in force in other States, reflect the nature and the width of the power which the State Governments are empowered to exercise in the matter of liquor licensing .......(para 26)......... section 5 of the Act empowers the State Government 10 regulate the maximum or minimum quantity of any intoxicant which may be sold by retail or wholesale section 16 provides that no intoxicant shall be imported, exported or transported except after payment of the necessary duty or execution of p. bond for such payment and in compliance with such conditions as tine State Government may impose section 17 confers upon the State Government the power to prohibit the import or export of any intoxicant into or from Punjab or any part thereof and to prohibit the transport of any intoxicant (para. 27).... Section 34(1) of the Act provides that every licence, permit or pass under the Act shall be granted (a) on payment of such fees, if any, (b) subject to such restrictions and on such conditions, (c) in such form and containing such particulars, and (d) for such period as the Financial Commissioner may direct. By section 35(2), before any licence is granted for the retail sale of liquor for consumption on any premises, the Collector has to ascertain local public opinion in regard to the licensing of such premises, (para 29).

Their Lordships also made reference to the prohibition and excise laws in force in other States, including the Madhya Pradesh Excise Act, 1915, where extensive powers are conferred on the State Government in the matter of liquor licensing. Their Lordships further reiterated that the State has the power to prohibit trades which are illegal or immoral or injurious to the health or welfare of the public. And, then their Lordships held as follows:--

In our opinion, the true position governing dealings in intoxicants is as stated and reflected in the Constitution Bench decisions of this Court in The State of Bombay and Another Vs. F.N. Balsara, , Cooverjee B. Bharucha Vs. The Excise Commissioner and the Chief Commissioner, Ajmer and Others, , The State of Assam Vs. A.N. Kidwai, Commissioner of Hills Division and Appeals, Shillong, , Nagendra Nath Bora and Another Vs. The Commissioner of Hills Division and Appeals, Assam and Others, Amar Chandra Chakraborty Vs. The Collector of Excise, Government of Tripura and Others, and The State of Bombay Vs. R.M.D. Chamarbaugwala, as interpreted in State of Orissa and Others Vs. Harinarayan Jaiswal and Others, and Nashirwar and Others Vs. State of Madhya Pradesh and Others, . There is no fundamental right to do trade or business in intoxicants. The State, under its regulatory powers, has the right to prohibit absolutely every form of activity in relation to intoxicants--its manufacture, storage, export, import, sale and possession. In alt their manifestations, these rights are vested in the State and indeed without such vesting there can be no effective Regulation of various forms of activities in relation to intoxicants. In ''American Jurisprudence'', Volume 30 it is stated that while engaging in liquor traffic is not inherently unlawful, nevertheless it is a privilege and not a right, subject to governmental control (page538). This power of control is an incident of the society''s right to self-protection and it rests upon the right of the State to care for the health, morals and welfare of the people. Liquor traffic is a source of pauperism and crime (pp. 539, 540, 541.)

Learned Advocate General relies on the following dictum which followed the above decision:

The power of the Government to charge a price for parting with its rights and not the mode of fixing that price is what constitutes the essence of the matter. Nor indeed does the label affixed to the price determined either in the true nature of the charge levied by the Government or its right to levy the same.

In our opinion Har Shanker''s case (supra) is the final authority on the question of validity of any licence fee which a State Government charges when it auctions a liquor shop and permits sale of liquor. The ratio of that case applies with equal force to all intoxicants. And, it also applies to duty on import of intoxicants. As reproduced above the Supreme Court considered in Har Shanker''s case (paragraph 27) provisions contained in section 16 of the Punjab Act which provides that no intoxicants shall be imported, exported or transported except after payment of the necessary duty or execution of a bond for such payment and in compliance with such conditions as the State Government may impose. In the M.P. Excise Act, 1915 the corresponding provisions are these:--

(a) [..........] prohibit throughout the State or in any specified area thereof, the import or export of any intoxicant;

(b) prohibit the transport of any intoxicant;

(c) make suitable provisions for effective control of Mahua (Bassia Latifolio ard Bassia Longfolio) or any other base which is or which can be utilised for the manufacture of liquor.

Restriction on import, export or transport--Without the sanction of the State Government no intoxicant shall be imported, exported or transported, except--

(a) after payment of any duty to which it may be liable under this Act, or execution of a bond for such payment;

(b) on compliance with such conditions as the State Government may impose.

Section 28 enacts as follows:

S. 28.--Form and conditions of licence, etc.--Every licence, permit or pass granted under this Act--

(a) shall be granted--

(i) on payment of such fees (if any),

(ii) for such period,

(iii) subject to such restrictions, and on such condition, and

(b) shall be in such form and contain such particulars as the State Government may direct either generally by rules made u/s 62 or in any particular instance",

Now, denatured spirit is an "intoxicant", as defined in section 2(11-a) which runs thus:--

''intoxicant'' means any liquor or intoxicating drug. Clause (13) defines thus-- ''Liquor'' means intoxicating and includes spirits of wine, spirit, wine, tari beer, all liquid consisting of or containing alcohol and any substance which the State Government may, by notification, declare to be liquor for the purpose of this Act, and Clause 17 defines ''spirit'' means any liquor containing alcohol obtained by distillation whether it is denatured or not.

On this analysis denatured spirit is an intoxicant. From the provisions of the Madhya Pradesh Excise Act it is abundantly clear that the State Government has the power to prohibit, inter alia, the import of any intoxicant and in exercise of that power it can require any person, who wants to import an intoxicant to pay to the State Government, consideration for parting with that privilege. Such consideration may be called by any name, such as, 4,tax", "tee", or "duty". But it is really the pi ice or consideration which the State Government charges to the licensees for parting with its privileges and granting them to the licensees. In Har Sharker''s case (supra) after pointing cut the distinction between a "tax", "fee", and "excise duty" Mr. Justice Chandrachud, speaking for the Court, has said:

Since rights in regard to intoxicants belong to part with those rights for a consideration.................................The word "fee" is not used in the Act or the Rules in the technical sense of the expression. By ''licence fee'' or ''fixed fee'' is meant the price or consideration which the Government charges to the licensees for parting with the privileges and granting them to the licensees. As the State can carry on a trade or business, such a charge is the normal incident of a trading or business transaction,

We may now advert to the Supreme Court decision in Indian Mica and Micanite Industries Ltd. v. State of Bihar, which is the sheet anchor of Shri Chaphekar''s argument. The learned counsel contends that in this case their Lordships considered a case of imposition of fee for licensee to possess denatured spirit. Now in that case after pointing out the distinction between fee end tax, the Supreme Court held as follows:--

From the above discussion it is clear that before any levy can be upheld as fee, it must be shown that the levy has reasonable co-relationship with the services rendered by the Government. In other words the levy must be a quid pro-quo for the services rendered. But in these matters it will be impossible to have an exact corelationship. The corelation-ship expected is one of a general character and not as of arithmetical exactitude.

The corelationship between the services rendered and the fee levied is essentially a question of fact. In our opinion this ruling does not help the petitioner. In that case, because of concession that the levy was a "fee", the limited question for consideration was whether there were sufficient quid pro quo for the levy. It was observed by their Lordships:--

In the High Courts various contentions came up for consideration. The High Court has come to the conclusion that the levy made under the impugned rule is a fee. That finding was not challenged before us by any of the parties. Therefore all that we have to see is whether the fee levied is within the permissible limit. In other words whether there is sufficient quid pro quo for the levy in question.

Thus, that case was decided on concession, and is clearly distinguishable.

It may also be mentioned that, in the present case, the State Government filed a supplementary return in paragraph 4 of which it is stated as follows:--

Even assuming that the fees imposed by the respondents require quid pro quo, it is submitted that the answering respondents have already in their return given the details. It is however further submitted that the State Government regulates the trade of sale and purchase of special denatured spirit in the general public interest. The State Government also takes the decision about the number of licences which shall be granted. By limiting the number of licences, the licensees get the privilege of secured market. The licensees virtually get a kind of monopoly in the locality fixed for his licence. The State Government employs a team of supervisory staff to ensure the uninterrupted enjoyment of the privilege by the licensee. Cases of illegal sale have also to be detected. Supervision is also exercised to ensure against misuse of the privilege. The grant, verification of permits and verification of consignments of special denatured spirit is also done by the office and supervisory staff. The expenditure involved for the service rendered by the personnel of the Excise Department is far in excess of the permit fee and licence fee charged. The licensees have the scope of unrestricted margin of profit, since the selling rates for the basic drugs and other aromatic chemicals prepared out of special denatured spirit brought on the basis of the permits are not prescribed. The consideration for the grant of licences and permits and services rendered by the department is loosely called a fee but it is neither a tax nor a fee but may rightly be called a ''charge''. In determining the amount of this charge due regard has also to be taken of the profit potential, the number of such persons during the period of licence and to collect the largest income for the State which the trade can give consistent with the above consideration and commensurate with the expenses involved for the services rendered for the proper functioning of the privilege. The imposition of permit fee is a regulatory measure to control consumption of denatured spirit in public interest.

This statement is supported by the affidavit of R.S. Tiwari, District Excise Officer, Indore. It was filed on September 22, 1975. This additional return was ordered to be taken on record (see order sheet dated October 6, 1975). The order sheet reads as follows:

Shri Chapbekar counsel for the petitioner prays for time to study the same and take suitable action. One month''s time is granted for the purpose.

If Shri Chapbekar wants to amend his petition, he may do so.

The petitioner never amended the petition. In other words, the statement made in the additional return has not been controverted. Nor did learned counsel for the petitioner make any endeavour to tell us at the hearing why the above statement should not be believed. The petitioner has not, by amending the petition, shown nor were we told at the hearing, that the fee is not commensurate with services rendered.

This petition is, therefore, dismissed. However, having regard to the above circumstances, we direct that the parties shall bear their own costs. The security amount shall be refunded to the petitioner.