Chinnappa Reddy, J. - (1.) The petitioner is a licensed manufacturer of certain medicinal preparations which require alcohol as a basic raw material. The finished product manufactured by the petitioner contains no alcohol as an identifiable substance. He obtains his requirements of alcohol in the form of 'denatured spirit' which is nothing but alcohol rendered unfit for human consumption by the addition of denaturant. He purchases 'denatured spirit' from the Government distillery at Hyderabad pursuant to a licence issued by the Board of Revenue, now under the Andhra Pradesh Denatured Spirit Rules, 1971 and previously under the Hyderabad Denatured Spirit Rules, 1955. The price of alcohol is fixed at 25.7 paise per litre under the Ethyl Alcohol Price Control Order, 1966 and where it is supplied in the form of 'denatured spirit' an addition of 2 paise per litre is required to be made if the denaturant is supplied by the purchaser and 5 paise per litre in other cases. Under the Denatured Spirit Rules, old and new, in addition to the price of the denatured spirit, a purchaser is required to pay what is termed as "gallonage fees" at the rate of one rupee per gallon or 22 paise per litre. It is the levy of this fees that is now in question in this writ petition.
(2.) The writ petition was filed before the Ahdhra Pradesh Denatured Spirit Rules, 1971 came to be made. At that time the gallonage fees was being levied under the Hyderabad Denatured Spriti Rules, 1955. According to the petitioner the Hyderabad Denatured Spirit Rules, ceased to be in force with the repeal of the Hyderabad Abkari Act and the continued levy of gallonage fees under those rules was therefore illegal. The next contention of the petitioner is that the Hyderabad Denatured Spirit Rules were and the Andhra Pradesh Denatured Spirit Rules are beyond the rule-making power of the Government. The last and the most important submission is that the levy of the gallonage fees at the rate of one rupee per gallon is far too excessive and not at all commensurate with the services rendered by the excise department and is therefore illegal.
(3.) At the outset it has to be mentioned that it was conceded by the learned Government Pleader that the levy of gallonage fees cannot be a tax. It cannot be otherwise because if it is a tax it would be beyond the competence of the State Legislature. Duties of Excise on alcoholic liquors other than alcoholic liquors for human consumption fall within Item 84 of List I of the Seventh Schedule to the Constitution while duties of Excise on 'alcoholic liquors for human consumption' come within Item 51 of List II. Therefore, the State Legislature is not competent to levy any duty on denatured spiritwhich is an alcoholic liquor but not one for human consumption. The levy of fees is, however, permissible since the production, manufacture, possession, transport, purchase and sale of intoxicating liquors is Item 8 of List II. If gallonage fees is fees then it must be shown to be a payment for or in respect of services rendered. If it, is found to be an exaction without doing any service or if it is found that the levy is wholly disproportionate to the services rendered then the levy is invalid. We will consider this question last after dealing with the other submissions of Sri K. Raghava Rao, learned Counsel for the Petitioner.;