Case: Industrial Chemical Corporation Vs. Excise Commissioner, U.P., Allahabad

J. C. Shah, J.1. Messrs Industrial Chemical Corporation-petitioners herein - set up a business at Ghaziabad of manufacturing Nitrocellulose Thinners. On December 2, 1959, the petitioners obtained from the Assistant Collector, Central Excise, Meerut, a licence in Form L-6 under Rules 174 and 192 of the Central Excise Rules, 1944, for the period ending December 31, 1959, authorising them to obtain without payment of excise duty, power alcohol and toluene to be used by them in the manufacture of Thinners. This licence has been extended in favour of the petitioners by the Assistant Collector year after year. In reply to an order for the supply of 100 gallons of power alcohol, placed by the petitioners with the Central Distillery and Chemical Company Ltd., Meerut Cantt., a private distillery engaged in the production of power alcohol, the officer-in-charge of the distillery informed the petitioners that without a permit from the Excise Commissioner, U.P., Allahabad, "the quantity of power alcohol demand cannot be supplied, for power alcohol is for the purpose of the U.P. Excise Act, IV of 1910, Denatured Spirit, and under the Rules framed under the Indian Power Alcohol Act, denatured spirit may be given only under a permit or licence issued by the Excise Commissioner."2. The petitioners then applied to the Excise Commissioner, U.P. praying that instructions be issued to the Central Distillery, Meerut, to issue to the petitioners the quantity of power alcohol demanded by them. It was claimed by the petitioners that the Central Government had control over the manufacture and distribution of power alcohol, and the petitioners having obtained a licence in Form L-6 for use of power alcohol for industrial purposes, there was nothing in the U.P. Excise Act or Rules made thereunder which authorised the Central Distillery, Meerut, or the Excise Inspector to refuse to honour the demand. The Excise Commissioner by his letter dated December 29, 1959, informed the petitioners that the licence in From L-6 granted under the Central Excise Laws and Rules merely exempted the petitioners from payment of excise duty and did not authorise the petitioners to obtain power alcohol from a distillery in Uttar Pradesh without a permit under the U.P. Excise Act, IV of 1910. The petitioners application to the State of U.P. praying that the order of the Excise Commissioner be revised did not meet with success.3. The petitioners then moved this Court under Article 32 of the Constitution for a writ of certiorari quashing the order passed by the Excise Commissioner and the State of U.P. or a writ of mandamus commanding them to act according to law. The petitioners claimed that on the issue of a licence in From L-6 under the Central Excise Rules, they acquired a right to obtain from any distillery power alcohol required by them for their business without complying with the Rules regulating the issue of excisable articles in operation in the State of Uttar Pradesh, and by refusing to instruct the Central Distillery to Supply power alcohol according to their demand, the Excise Commissioner and the State of Uttar Pradesh infringed the fundamental right of the petitioners under Article 19(1)(g) of the Constitution. This contention is, for reasons to be presently set out, wholly without substance. The relevant statutory provisions and rules framed thereunder which have a bearing on the plea raised by the petitioners may be briefly reviewed.4. To consolidate and amend the law relating to central duties of excise on goods manufactured or produced in certain parts of India and to salt, the Central Legislature enacted the Central Excises and Salt Act I of 1944. By Section 2(d) of the Act the expression "excisable goods" means goods specified in the First Schedule as being subject to duty of excise and includes salt. Item 4 in the First Schedule is Motor Spirit which includes Power alcohol, "that is to say, ethyl alcohol of any grade (including such alcohol when denatured or otherwise treated), which by itself or in admixture with any other substance, is suitable for use as fuel for internal combustion engines". By Section 3 of the Act duty is leviable in such manner as may be prescribed on all excisable goods other than salt produced or manufactured in India. Section 6 authorises the Central Government to provide that no person shall from such date as may be specified in the notification issued in that behalf, except under the authority and in accordance with the terms and conditions of a licence granted under the Act, engage, among other activities, in the production or manufacture or any process for the production or manufacture of any specified goods included in the First Schedule or of any specified component parts or ingredients of such goods. Section 37 invests the Central Government with power to make rules to carry into effect the purposes of the Act and in particular, amongst other purposes, to exempt wholly or in part the duties imposed by the Act.5. By notification dated January 20, 1953, the Government of India, Ministry of Finance (Revenue Division), granted exemption from the payment of excise duty leviable on power alcohol under Section 3 of the Central Excises and Salt Act, 1944, provided that it was proved to the satisfaction of the Collector of Central Excise that such power alcohol was intended for use in the manufacture of Nitrocellulose Finishes, Lacquers and Thinners, and the procedure set out in Chapter X of the Central Excise Rules, 1944, was followed in respect of such power alcohol.6. Rule 174 of the Central Excise Rules provides that every manufacturer, trader or person, among others, using excisable goods without payment of duty for specified industrial purposes, shall take out a licence and shall not conduct his business in regard to such goods otherwise than by the authority, and subject to the terms and conditions of a licence granted by a duly authorised officer in the proper form. By Rule 192 provision for remission of duty on goods used for special industrial purposes in made. Licence in Form L-6 prescribed under Rules 174 and 192 authorises the holder to use excisable goods for special industrial purposes without payment of duty. The petitioners had obtained a licence for conducting a business in which power alcohol was to be used for special industrial purposes without payment of duty and the requirements of Rules 174 were complied with. But by obtaining a licence in Form L-6 the petitioners were not excused from complying with the provisions of the Indian Power Alcohol Act, 1948, and the Rules framed thereunder.7. The Dominion Parliament enacted the Indian Power Alcohol Act, XXII of 1948, after making a declaration that in the view of the Dominion Government it was expedient that the power alcohol industry should be developed under the control of the Central Government. The reason for assuming control over power alcohol industry was this : Prior to 1920 alcohol of strength higher than 95 per cent was obtainable in laboratories or in small scale plants at cost which rendered its use as fuel prohibitive. During World War II on account of great scarcity of motor fuel, necessity to tap indigenous sources for a substitute for petroleum was acutely felt. It was found that alcohol could be used as fuel for propelling heavy vehicles, but ordinarily fuel alcohol contained moisture which hindered satisfactory working of internal combustion engines. Diverse processes were devised for removing humidity and water, and the resultant product called commercial power alcohol with a strength of 99 per cent mixed with petroleum worked satisfactorily as motive power for automobiles. Several factories were soon set up in the Uttar Pradesh area, and to control manufacture and production of power alcohol, the U.P. Legislature enacted Act 10 of 1940.8. The Central Government then enacted the Indian Power Alcohol Act XXII of 1948 with the objection of developing the power alcohol industry under the control of the Central Government. By Section 3(c) of the Act power alcohol was defined as meaning ethyl alcohol containing not less than 99.5 per cent, by volume of ethanol measured at sixty degrees Fahrenheit corresponding to 74.4 over proof strength. By Section 4 manufacture of power alcohol from any substance other than molasses or such other substance as may be specified by the Central Government was prohibited. By Section 5 the Central Government was authorised to regulate the production and disposal of power alcohol by any distiller situated in any area in which the section was for the time being in force. By Section 8 the Central Government was authoirsed by notification to direct that any power conferred by the Act, subject to such conditions, if any, as may be specified in the direction, be exercisable by such officer or authority subordinate to the Central Government or such. Provincial Government or such other officer or authority subordinate to a Provincial Government as may be specified in the direction. By Section 10 power was conferred upon the Central Government to make rules for the purpose of carrying into effect the provisions of the Act and in particular for certain specified purposes including the power to licence manufacture of power alcohol, fixing the price at which the power alcohol may be sold, providing for imposing and collecting a duty or power alcohol and prescribing conditions in respect of transport and storage of power alcohol, and for other matters which may be prescribed under the Act. By Clause 10 of the Rules framed under the Power Alcohol Act, it was provided that subject to the provisions of the Act and the rules, the provisions of Chapter IX of the Excise Manual, Uttar Pradesh, Vol. I, shall apply to the manufacture of power alcohol and by-products, storage at distilleries, denaturation, issues, wastages and transport of power alcohol. We are not concerned in this case with the proviso which deals with the modifications in the rule applicable to the State of Bombay. By Section 33 it was provided :-"No person shall be permitted to sell or store for sale power alcohol at any premises which are not covered both by the licence required under the provisions of the Petroleum Act, 1934, and by a licence under these rules in Form P.A. 15.Provided that power alcohol may be issued in limited quantities to a consumer direct from a distiller with the general or special permission of the Central Government or the Power Alcohol Authority of the State concerned on production or a treasury challan in support of pre-payment of Central Excise Duty and the sales tax (if imposed by the Government of the State concerned) or after adjustment of the amount due against on advance deposit by the distillery in any treasury approved for the purpose."It is clear from the provisions of the Indian Power Alcohol Act and the Rules framed under the Act that manufacture, production and disposal of power alcohol are controlled and regulated and that power alcohol may not be issued, stored, denatured or transported otherwise than as provided in Chapter IX of the Excise Manual, U.P. Vol. I, but limited quantities may be issued to consumers direct from a distillery under the general or special permission of the Central Government or the Power Alcohol Authority. Under Rule 2(q) of the Rules framed under the Indian Power Alcohol Act, the Excise Commissioner, U.P. has been appointed as the Power Alcohol Authority.9. The licence in Form L-6 under the Central Excises and Salt Act, 1944, issued to the petitioners merely authorised them to obtain without payment of duty power alcohol for industrial purposes. But the issue of such a licence did not obviate the necessity of complying with the relevant provisions made under the Indian Power Alcohol Act, for the licence under the Central Excise Rules authorises the use of power alcohol obtained without payment of duty, but for obtaining power alcohol, the provisions of the Power Alcohol Act and the Rules have to be complied with.10. The statutory provisions and the Rules issued thereunder which we have set out in detail clearly prescribe that power alcohol may be issued to a consumer direct from a distillery as provided by the proviso to Rule 33 of the Power Alcohol Rules, and to the issue of power alcohol from a distillery in the State of U.P., Chapter IX of the Excise Manual which contains the relevant rules framed under the U.P. Excise Act applies.11. The right to obtain power alcohol directly from a distillery was therefore subject to the provisions of the Indian Power Alcohol Act, 1948, the Rules framed under that Act which incorporated therein the U.P. Excise Manual Chapter IX. The contention of the petitioners that since they obtained a licence in Form L-6 under the Central Excises Act they were entitled to obtain the quantity of power alcohol required for the purpose of their business without any restriction as to the quantity or the conditions as to obtaining permits is therefore wholly without substance. The Excise authorities required the petitioners to obtain permit after "satisfying all other necessary procedural details prescribed." In so directing, the Excise authorities were acting according to law. The contention raised by the petitioners that the provisions of Chapter IX of the U.P. Excise Manual, Vol. I, apply to power alcohol which is intended to be used as fuel and not otherwise, has, in our judgment, no substance. Rules 10 and 33 proviso of the Power Alcohol Rules apply to power alcohol used for all purposes and are not restricted to its use as fuel.12. The validity of Chapter IX of the U.P. Excise Manual which has been incorporated by Rule 10 in the Rules framed under the Indian Power Alcohol Act, has not been challenged before us. It is true that the petitioners had, under Article 19(1)(g) of the Constitution a fundamental right to carry on business of manufacture of Thinners. But that fundamental right is subject to restrictions prescribed under the Indian Power Alcohol Act and the Rules framed thereunder. The reasonableness of those restrictions has not been challenged before us. The only argument advanced by the petitioners in support of the petition is that the Central Government having granted a licence in Form L-6 no further conditions could be imposed restricting the right of the petitioners to obtain power alcohol required by them for the purpose of their business. That contention on the Rules framed under the Power Alcohol Act is wholly unwarranted, and must be rejected.

Decision:
0[ds]This contention is, for reasons to be presently set out, wholly without substance. The relevant statutory provisions and rules framed thereunder which have a bearing on the plea raised by the petitioners may be briefly reviewed.It is clear from the provisions of the Indian Power Alcohol Act and the Rules framed under the Act that manufacture, production and disposal of power alcohol are controlled and regulated and that power alcohol may not be issued, stored, denatured or transported otherwise than as provided in Chapter IX of the Excise Manual, U.P. Vol. I, but limited quantities may be issued to consumers direct from a distillery under the general or special permission of the Central Government or the Power Alcohol Authority. Under Rule 2(q) of the Rules framed under the Indian Power Alcohol Act, the Excise Commissioner, U.P. has been appointed as the Power Alcohol Authority.9. The licence in Formunder the Central Excises and Salt Act, 1944, issued to the petitioners merely authorised them to obtain without payment of duty power alcohol for industrial purposes. But the issue of such a licence did not obviate the necessity of complying with the relevant provisions made under the Indian Power Alcohol Act, for the licence under the Central Excise Rules authorises the use of power alcohol obtained without payment of duty, but for obtaining power alcohol, the provisions of the Power Alcohol Act and the Rules have to be complied with.10. The statutory provisions and the Rules issued thereunder which we have set out in detail clearly prescribe that power alcohol may be issued to a consumer direct from a distillery as provided by the proviso to Rule 33 of the Power Alcohol Rules, and to the issue of power alcohol from a distillery in the State of U.P., Chapter IX of the Excise Manual which contains the relevant rules framed under the U.P. Excise Act applies.11. The right to obtain power alcohol directly from a distillery was therefore subject to the provisions of the Indian Power Alcohol Act, 1948, the Rules framed under that Act which incorporated therein the U.P. Excise Manual Chapter IX. The contention of the petitioners that since they obtained a licence in Formunder the Central Excises Act they were entitled to obtain the quantity of power alcohol required for the purpose of their business without any restriction as to the quantity or the conditions as to obtaining permits is therefore wholly without substance. The Excise authorities required the petitioners to obtain permit after "satisfying all other necessary procedural details prescribed." In so directing, the Excise authorities were acting according to law. The contention raised by the petitioners that the provisions of Chapter IX of the U.P. Excise Manual, Vol. I, apply to power alcohol which is intended to be used as fuel and not otherwise, has, in our judgment, no substance. Rules 10 and 33 proviso of the Power Alcohol Rules apply to power alcohol used for all purposes and are not restricted to its use as fuel.12. The validity of Chapter IX of the U.P. Excise Manual which has been incorporated by Rule 10 in the Rules framed under the Indian Power Alcohol Act, has not been challenged before us. It is true that the petitioners had, under Article 19(1)(g) of the Constitution a fundamental right to carry on business of manufacture of Thinners. But that fundamental right is subject to restrictions prescribed under the Indian Power Alcohol Act and the Rules framed thereunder. The reasonableness of those restrictions has not been challenged before us. The only argument advanced by the petitioners in support of the petition is that the Central Government having granted a licence in Formno further conditions could be imposed restricting the right of the petitioners to obtain power alcohol required by them for the purpose of their business. That contention on the Rules framed under the Power Alcohol Act is wholly unwarranted, and must be rejected.