B. P. Jeevan Reddy, C.J. - (1.) VAM Organic Chemicals Ltd., the petitioner herein, is seeking issuance of an appropriate writ, order or direction quashing the notification dated 18th May 1990 (annexure 1 to the writ petition), issued by the Excise Commissioner, U. P. in exercise of his rule making power. The impugned notification amends the rules issued earlier by means of a notification dated 26th September, 1990. Rule 2 of the impugned notification substitutes the existing rule 2 under the heading "denaturation of spirit" in 1910 rules. The amended rule provides for a new licence in form DS-I to be taken out by a distillery. This licence is for denaturation of spirit for supply to persons holding licences in form FL-16, FL-39, FL-40 and FL-41. The licensee is also obliged to pay licence fee in advance at the rate of 7 paise per liter of spirit so denatured by it for supply to persons referred to above. For a proper appreciation of the contentions urged by the petitioner, it is necessary to notice the pleadings of the parties as also the relevant provisions of the law. We shall first refer to the pleadings of the parties. The petitioner has come forward with the following averments;
(2.) THE petitioner Vam Organic Chemicals Ltd. owns a factory/plant for manufacturing vinyl acetate monomer, a basic organic chemical. Industrial alcohol is the main feed stock for manufacturing the said product. Initially, the petitioner was obtaining the requisite supply of industrial alcohol from others, but subsequently it set up a distillery of its own. THE entire industrial alcohol produced in the petitioners' distillery is consumed in the petitioners' chemical factory. THE distillery, which is having a licence in form PD 2 produces ethyl alcohol. "Ethyl alcohol is an industrial alcohol even though it is not denatured. Ethyl alcohol produced in the distillery is first denatured as per the method approved by the State Excise Authorities and the denatured alcohol, which is unfit for human consumption and can be used only for industrial purposes to produce chemicals such as acetic anhydride, acetic acid, acetal dehyde and vinyl acetate monomer, and is carried through closed and sealed pipes directly to its main chemical plant for manufacture of other chemicals, which ensures that ethyl alcohol so manufactured in the distillery cannot be diverted at all". THE industrial alcohol produced in the petitioners' distillery cannot be sold outside. THE petitioner company has no facility for manufacturing of intoxicating liquors from the industrial alcohol produced in the distillery. Indeed, wherever the industrial alcohol produced in the petitioner's distillery is not sufficient to meet the requirements of the chemical plant, the petitioner obtains its requirements from other distilleries. THE petitioners' chemical factory has obtained a licence in form FL 39 with a view to enable it to use the industrial alcohol as main raw material for being converted into the aforesaid chemicals. While so, the Excise Commissioner has issued the notification dated 18th May, 1990 where under the petitioners distillery is obliged to take out a licence in form DS-1 (prescribed by the impugned notification) and pay a licence fee at the rate of 7 paise per litre with effect from 2nd June, 1990. This creates an uncalled for burden upon the petitioner. THE impugned notification is incompetent and is not authorised by law. Even the State Legislature has no power to impose such a fee, if so, the Excise Commissioner cannot do it by way of a rule made under the Act. THE petitioner denatures the spirit produced by it in accordance with the procedure prescribed by the U. P. Government notification dated 25-10-1975. THE detaturing is done under the supervision of the Excise Officer-in-charge of the factory and in the manner prescribed by the said notification. THE entire operation is carried out by the distillery under the supervision of the Excise Officials. THE industrial alcohol is not potable alcohol. It is not fit for human consumption. This is a matter exclusively within the competence of the parliament by virtue of the declaration made by it in section 2 of the Industries (Development and Regulation) Act, 1951. Even if it is assumed for any reason that the Excise Commissioner was competent to make the said rule, it is bad for the reason that no manner of service is being rendered for levying the said fee. At any rate, the fee charged is not commensurate with -the services rendered, if any. For all these reasons, the impugned notification ought to be quashed. On behalf of the respondents (State of U. P., Excise Commissioner and other Excise Officials), a counter-affidavit has been filed, sworn to by Tara Singh posted as Excise Inspector at the petitioner's distillery. The following are the averments in the counter affidavit. Right from 1863, rectified spirit of the prescribed strength was not considered liqour unfit for human consumption and that is why by Act no. XVI of 1863, a provision was made for rendering the rectified spirit, or any spirit for that matter, permanently unfit for human consumption. Section 1 of the Act XVI of 1863 read as follows :- "Sec 1 :-Spirit intended to be used exclusively in arts, manufacture or chemistry may be removed from any licensed distillery in any part of British India on payment of duty not exceeding 5 per cent on the value of the spirits provided no spirits shall be so removed until they have been effectively and permanently rendered unfit for human consumption." For making the rectified spirit unfit for human consumption, certain unpalatable, nauseating and obnoxious denaturants have to be mixed properly before the spirit is allowed to be removed from the premises of the distillery for industrial purposes. If really the rectified spirit was unfit for human consumption as contended by the writ petitioners, question of denaturing it for making it unfit for human consumption would never arise and the process of denaturation would be an exercise in futility. Denaturation of rectified spirit is a highly technical process. Every drum/lot/batch has to be tested by Chief Development Officer at the Excise Head Quarters Labouratory so as to ensure that the same is according to the prescribed specification before they are allowed to be used for denaturing the rectified spirit. After they are properly tested, the denaturants have to be separately stored under look and key of the officer-in-charge of the distillery, and measured quantities are pumped into denaturation vats at the time of denaturation. The process of mixing goes on for several hours. The resultant mixture is denatured spirit or specially denatured spirit, as the case may be. After denaturing, it is again tested to find out whether it has been properly denatured or not. The Excise Department is obliged to, and does maintain laboratory for this purpose at the Head Quarters of the Excise Commissioner. There is a Chief Development Officer, assisted by four Assistant Alcohol Technologists and a large number of supporting staff apart from apparatus and other equipment. Denaturation takes place under the close supervision of the Excise Officials in accordance with the provisions of rule 785 of the U. P. Excise Manual, Volume 1. It is, therefore, wrong to say that the State is not rendering any services for the impugned fee. The several units in the State engaged in production, distribution and . delivery of industrial alcohol are closely controlled and supervised; While the denaturation fee fetches merely a sum of Rs. 70 lacs, the expenses incurred by the Department is in a sum of Rs. 8 crores. The levy of the impugned fee is perfectly competent and within the authority of the Excise Commissioner conferred upon him by the U. P. Excise Act. It is wholly incorrect to say that the ethyl alcohol, which is rectified spirit of 95% V/V in strength, produced in the petitioner's company is highly toxic and unfit for human consumption. If rectified spirit were toxic and unfit for human consumption, as stated by the petitioners, it could not become fit for human consumption just by mixing water with it. In fact, in whole of India, rectified spirit diluted with water is sold as country spirit and is taxed as such If rectified spirit were unfit for human consumption then the enormous expenditure incurred by the authorities world over will be an exercise in futility. With the development of chemical industry, it is a child's play to eliminate denaturants from denatured spirit and make it fit for human consumption. In fact people are prone to re-nature the denatured spirit. Therefore, provision has been made under section 62 of the U. P. Excise Act for punishing persons trying to re-nature the denatured spirit. In the petitioner's distillery also, rectified spirit is first manufactured and stored in the Receiver Room where it is guaged and probed by the Officer incharge of the company and then transferred to storage vats. From these storage vats, rectified spirit is transferred to the denaturation vats, where denaturants are added to make it unfit for human consumption. After denaturing the spirit and after proper chemical analysis, the denatured spirit is transported to the chemical plant of the petitioner through sealed pipes for manufacture of other products, Evan so, it can be pilfered from the Receiver Room as well as from storage and denaturation vats. There is thus a possibility of the rectified spirit manufactured by the petitioners' distillery being diverted for potable purposes. "It is denied that the petitioners' company has no facility for .manufacturing potable liquor from rectified spirit produced in the captive distillery." The distillery has enough supply of potable water and adequate storage facilities in the shape of vats to manufacture country spirit and the same facility is likely to be misused for manufacture and surreptitious sale of potable liquor. A substantial number of Excise staff is maintained at the factory and for analysis purposes, for which huge expenditure is incurred by the State. It is to off set the said expenditure that the impugned licence fee is charged. The impugned levy is, therefore perfectly valid and justified. The petitioners have filed a rejoinder-affidavit, in which the several averments made in the writ petition are re-iterated. In particular, it is stated that whereas the total income of the (J. P State Excise Department was Rs. 478 crores in the year 1990-91, the expenditure is only Rs 6.98 crores. The said amount is the expenditure incurred on the entire department and not on the several laboratories meant for distilleries manufacturing rectified spirit or denatured spirit as the case may be.
(3.) SRI K. Parasaran, learned counsel appearing for the petitioners, urged the following contentions :- (i) Ethyl alcohol, which is rectified spirit containing alcohol 95% V/V, is industrial alcohol, as held by the Supreme Court in Synthetics and Chemicals Ltd. v. State of U. P., (1990) 1 SCC 109, Industrial alcohol is not fit for human consumption. It is not potable alcohol. If so, the State Legislature has no power to make a law with respect to it or to charge a licence fee or levy any other impost. Industrial alcohol is within the exclusive domain of the Parliament by virtue of the declaration made by it in section 2 of the IDR Act and the addition of item 26 in the schedule to the Act. The impugned levy cannot be sustained either with respect to Entry 8 or 51 of list II the Seventh Schedule to the constitution. It cannot also be sustained with reference to Entry 33 of List III inasmuch as the field is already occupied by the provisions contained in section 18-G of I.D.R. Act (ii) The impugned fee is a licence fee. A fee can be justified only if it is supported by commensurate service rendered by the state. In short, there is no quid pro quo for the said fee. The counter-affidavit does not give any particulars to sustain the impugned levy: Merely giving an estimate of the expenditure incurred on the Entire Excise Department is not enough. The respondents ought to have indicated the expenditure incurred by them on the staff and/or equipment and laboratories meant for supervising the activities of the distilleries manufacturing rectified spirit/industrial alcohol. In the absence of such material, levy of fee cannot be sustained. On the other hand, the learned Advocate-General, appearing for the respondents, sustained the levy with reference to Entries 6 and 8 of List II as also Entry 33 of List III of the Seventh Schedule to the Constitution. He submitted that the said fee is levied for the services rendered by the State, namely, for regulating and supervising the process of denaturation and also for ensuring that the denatured spirit is again not re-natured for rendering it fit for human consumption. It is not true to say that section 18-G of the IDR Act occupies the field covered by the impugned notification. Both of them operate on distinct and different fields. The judgment of the Supreme Court in Shynthetics and Chemicals Ltd, (1990) 1 SCC 109, should be read along with and in the light of the subsequent judgment of the Supreme Court in State of U. P. v. Synthetics and Chemicals Ltd., JT 1991 (3) SC 268. Indeed, the levy is sustainable even with reference to the principles enunciated in the main judgment, (1990) 1 SCC 109. The learned Advocate-General further submitted that, the counter-affidavit filed by the respondents contains sufficient material and sets out adequate data to establish that the State is rendering services broadly approximating to the fee charged. There has been a good amount of change in the concept of fee and service evidenced by several recent decisions of the Supreme Court. It is not necessary for the State to render a precise account of the fee collected and the services rendered; a broad co-relationship is enough.;