CIVIL WRIT JURISDICTION CASE No.3025 OF 1992 (In the matter of an application under Articles 226 and 227 of the Constitution of India.) ******** Shivashankar Chemical Industries (Bihar) Ltd. Jagdishpur, P.S. Rajoun, District- Benka, a company incorporated under the Indian Companies Act, through its Director, Shiv Kumar Kishorpuriya son of Sagarmull Kishorpuriya, Resident of D.N. Singh Road, P.S. Kotwali, District- Bhagalpur ---------------Petitioner Vs. 1. The State of Bihar through the Secretary to the Government of Bihar, Department of Excise & Prohibition, Vikas Bhawan, Patna. 2. The Member, Board of Revenue, Bihar, Patna 3. The Commissioner of Excise, Bihar, Patna. 4. The Deputy Secretary, Board of Revenue, Bihar Patna. 5. The Collector, Banka. 6. The Superintendent of Excise, Bhagalpur-in-Charge, Banka 7. The Superintendent of Excise, Shivashankar Chemical Industries (Bihar) Ltd. Jagdishpur, P.S. Rajoun, District- Banka. --------------Respondents With C.W.J.C. No. 2868 of 1992 New Swadeshi Distillery (Proprietor Oudh Sugar Mills Ltd.) through its Executive President Sri Madhusudan Sharma, at P.O- Narkatiaganj, District- West Champaran. -----------------Petitioner Vs 1. The State of Bihar. 2. The Member, Board of Revenue, Bihar Patna. 3. The Commissioner of Excise, Government of Bihar, New Secretariat, Patna. 4. The Collector, West Champaran, Bettiah 5. The Superintendent of Excise, Bettiah 6. The Superintendent of Excise, Narkatiganj. ----------Respondents With CWJC 3026 of 1992 2 Mc. Dowell & Comp. Ltd., Hathidah, P.S. Hathidah, District- Patna through its General Manager, Lalit Mohan Sharma son of Ram Kishore Sharma, residing at Mc Dowell & Co. Ltd. Campus at Hathidah, P.S. Hathidah, District- Patna. --------------Petitioner Vs. 1. The State of Bihar through the Secretary to the Government of Bihar, Department of Excise & Prohibition, Vikas Bhawan, Patna. 2. The Member, Board of Revenue, Bihar, Patna. 3. The Commissioner of Excise, Bihar, Patna. 4. The Deputy Secretary, Board of Revenue, Bihar Patna. 5. The Collector, Patna 6. The Assistant Commissioner of Excise, Patna. 7. The Superintendent of Excise, Hathidah Distillery, P.S. Hathidah, District- Patna --------------Respondents With CWJC 3690 of 1992 Arun Chemical Industries Ltd., Sultanganj, P.S. Sultanganj District Bhagalpur through its Director Ramakant Sharma Son of Late Pandit Ram Dayal Joshi, Residing at Shree Baikyanath Ayurved Bhawan Road, P.S.- Chiraiya Tand, District- Patna. ------------Petitioner Vs. 1. The State of Bihar through the Secretary to Government of Bihar, Department of Excise & Prohibtion, Vikas Bhawan, Patna.. 2. The Member, Board of Revenue, Bihar, Patna. 3. The Commissioner of Excise, Bihar, Patna. 4. The Deputy Secretary, Board of Revenue Bihar, Patna. 5. The Collector, Bhagalpur 6. The Superintendent of Excise, Bhagalpur. 7. The Superintendent of Excise, Sultanganj Distillery, Sultanganj, District- Bhagalpur. -------------Respondents With CWJC 6360 of 1993 United Distillers Ltd. Mirganj, P.S. Mirganj, District- Gopalganj through its General Manager Ravindra Kumar Mohan (Ret) son of Major T. N. Mohan (Rtd) residing at the campus of United Distillers Ltd. Mirganj P.S. Mirganj District- Gopalganj -------------Petitioner Vs. 3 1. The State of Bihar through the Secretary to Government of Bihar, Department of Excise & Prohibition, Vikas Bhawan, Patna. 2. The Member, Board of Revenue, Bihar, Patna 3. The Commissioner of Excise, Bihar, Patna 4. The Deputy Secretary, Board of Revenue, Bihar 5. The Collector, Gopalganj 6. The Superintendent of Excise, Gopalganj 7. The Superintendent of Excise, United Distillers Ltd. Mirganj, P.S. Mirganj, District- Gopalganj -------------------Respondents ********** For the Petitioners :- Mr. Y. V. Giri, Senior Advocate, Mr. G.P Bimal, Mr.Satyabir Bharti, Mr. Vikas Ratan Bharti, Advocates. For the State :- Mr. Ray Shivaji Nath, Senior Adv. Mr. Satish Kr.Advocate ******* P R E S E N T THE HON'BLE MR. JUSTICE NAVIN SINHA THE HON'BLE MR. JUSTICE DINESH KUMAR SINGH ******** Navin Sinha, J. 1. The common challenge in this batch of writ applications is to the notification issued by the respondent State, dated 24.3.1992 amending Rule-3 of the notification dated 20.4.1919 in exercise of powers under Section-19 of the Bihar Excise Act, 1915,( hereinafter called the Bihar Excise Act) levying License fee for establishment of Distillery based on installed production capacity and annual renewal thereof on payment of fresh license fee at the same rate on each renewal, in so far as rectified spirit and Denatured spirit unfit for human consumption are 4 concerned. 2. During the pendency of the writ application by fresh notification dated 17.10.2005 the license fee was enhanced to Rs.7, 50,000/- annually from Rs.3, 25,000/-. This has been challenged by amendment in I.A. No.4462 of 2010. Upon hearing counsel for the parties this Court considers it proper to allow the amendment satisfied that it is based on a continuity of challenge to the levy of License fee not raising any fresh issues. 3. Learned Senior Counsel Shri Y.V. Giri appearing for the petitioner in CWJC 2868/92 made the lead submissions. The facts shall therefore be primarily noticed from the same except to the extent necessary. It was submitted that the petitioner’s Distillery (hereinafter called “the Distillery”) held license under the Industries (Regulation & Development) Act, 1951 (“hereinafter called the I D R Act”), for manufacture of rectified and denatured spirit only. These were unfit for human consumption. They were ingredients as raw material for varied uses such as industrial or for manufacture of country liquor and Indian made foreign liquor by a process of dilution for the latter two purposes. Being unfit for human consumption in their original form, they did not constitute excisable articles under the Bihar Excise Act and were not within the legislative competence of the State under the Constitution 5 of India. Under Entry 7, 52 and 84 of List-1, Schedule-7 to the Constitution of India, the Industry was amenable to legislative control by the Union of India alone under the I D R Act and the Licensing of Industrial Undertaking Rules, 1952 framed there under. The State legislature was competent to legislate only in respect of matters under Entry 8 and 51 of List 2 in the 7th Schedule to the Constitution of India which related to intoxicating liquor fit for human consumption. The Distillery under Section-13 of the Bihar Excise Act held a license under Form 28A for manufacture of such spirit only, issued in 1955 renewed annually since then without levy of fee, until the issuance of the present notifications. The product manufactured under the license, being unfit for human consumption, what may be the possible user by a process of conversion to potable liquor or that the State required the petitioner to supply a portion of the spirit to warehouses, who in turn, supplied it to manufacturers of country liquor shall not render the petitioner liable to legislative control and competence of the State Government. Relying upon a notification dated 5.3.1990 of the Union of India issued in pursuance of the judgment of the Supreme Court in (1990) 1 S.C.C. 109, M/s. Synthetic and Chemicals Vs. State of U.P. & Ors., it was submitted that a clear distinction had been made between a Distillery manufacturing spirit unfit 6 for human consumption and that manufacturing potable liquor. 4. Reliance was placed on the judgement of this Court in 1983 P.L.J.R. 105 (D.B.)(The New Swadeshi Sugar Mills Ltd. & anr Vs. State of Bihar & ors) stated to have been affirmed in (2003) 11 S.C.C. 478 (State of Bihar & ors Vs. New Swadeshi Sugar Mills Ltd), 1997 (1) P.L.J.R. 77 (M/S. Industrial Corporation Pvt. Ltd. Vs State of Bihar &ors) affirmed in (2003) 11 S.C.C. 465 (State of Bihar & Ors. Vs. Industrial Corporation (Pvt. Ltd.). Reliance was further placed on and (2004) 1 S.C.C. 225 (State of U.P. & Ors. vs. Vam Organic Chemicals). The judgement of the Supreme Court in (1997) 2 S.C.C. 727 (Bihar Distillery vs. The Union of India) was urged not to have any application. 5. It was next contended that under Rule-9 and 36A of the Bihar Excise Rules framed under the Bihar Excise Act, the Excise department had already posted its officers in the Distillery to ensure that rectified and denatured spirit was not misutilized by diversion for conversion into potable liquor causing revenue loss. All costs, including salary, pension, uniform etc. were to be borne by the Distillery inclusive of such fee for the purpose as may be levied for the same. The present levy was in the garb of a tax without authority of law. If the petitioner breached any condition of the license in Form-28A it was 7 liable to prosecution apart from the possible cancellation of its license for manufacture of denatured and rectified spirit by the Union of India. Relying upon the judgments it was submitted that apart from the complete absence of legislative competence on part of the State, in absence of any element of quid pro quo the respondent State could not even impose any license fee in purported exercise of its regulatory power. 6. Shri Satyabir Bharati appearing for the petitioners in other three cases made similar submissions. He additionally relied on (2009) 3 S.C.C. 157 (Mohan Meakin Ltd. Vs. State of Himachal Pradesh & Ors ) contending that the petitioners were not liable for any License fee at the behest of the State government in respect of rectified and denatured spirit manufactured at their Distillery. They held licenses under Form 25 for manufacture of denatured spirit. They also possessed license in Form 28 for manufacture of country liquor. The manufacture of rectified spirit has no co-relation to the manufacture of country liquor as far as the legislative competence of the State with regard to spirit was concerned. Learned counsel very fairly submitted that the Distillery in C.W.J.C. 6360 of 1993 and 3690 of 1992 have since closed down permanently. The Distillery in C.W.J.C. No. 3025 of 1992 is presently closed but expects to be 8 revived sooner or later. 7. Learned Senior Counsel Shri Ray Shivaji Nath, Additional Advocate General No.4, appearing on behalf of the State submitted that Form No.28A issued under the Bihar Excise Act came to be amended on 15.12.1997. It now envisages a “License to manufacture spirit in a Distillery for use in the manufacture of potable liquor”. Since the rectified and denatured spirit manufactured by the petitioners in their Distillery was being supplied and used for manufacture of potable liquor, they are liable to pay License fee in terms of Section-38 of the Bihar Excise Act and the Rules framed by the Board of Revenue under Section-90 of the Bihar Excise Act. It was submitted that the usage of the rectified and denatured spirit for manufacture of potable liquor fit for human consumption was the determinative factor to vest legislative competence in the State in exercise of its regulatory powers. Strong reliance was placed on the judgement of the Supreme Court in the case of Bihar Distillery (Supra) to urge that the petitioners clearly fell in Categories-(2) and (3) of the categorization done in paragraph-23 of the judgement and the period prior to the amendment of Form-28A i.e. 1992- 1997 also fell within the reasoning of the judgement. The case of Bihar Distillery (Supra) was decided on 29.1.1997 and in terms thereof Form-28A was amended by 9 publication on 15.12.1997. Reliance was further placed on AIR (2005) 2 S.C.C. 762 (State of Bihar vs. Shri Baidyanath Ayurved Bhawan (P) Ltd. & Ors.) to submit that the authority of the State to impose a regulatory fee without quid pro quo to control and regulate manufacture of intoxicants was held to be justified. The judgements cited by the petitioners related to industrial Alcohol and not to rectified or denatured spirit. It was lastly submitted relying upon (1997) 2 S.C.C. 453 (State of Bihar vs. Bihar Distillery Ltd.) that there shall be a presumption in favour of the constitutionality of the imposition of licence fee by the State and unless absolutely necessary in law, the Court may not interfere with the imposition of licence fee as no one had a fundamental right to deal in liquor, rectified and denatured spirit being the raw materials for the same. 8. The issue for determination by this Court is the legislative competence of the respondent State to levy licence fee under Form-28A of the Bihar Excise Act with regard to rectified and denatured spirit produced by a Distillery wholly unfit for human consumption not constituting an Excisable item under the Bihar Excise Act. If the spirit was capable of conversion to liquor fit for human consumption by a process, will its conversion into potable liquor at a subsequent stage vest jurisdiction in the State to legislate on the theory of the 'likely or actual nature 10 of the usage of such spirit' at an earlier stage. 9. The Constitution of India envisages a division of legislative powers between the Parliament and the State Legislature under Article 246 of the Constitution to frame laws on matters as provided for in List-1, 2 and 3 of the 7th Schedule to the Constitution of India. Entry-3 is not relevant for the present. 10. The entries in List-1 relevant for the present controversy are- 7, 52 and 84 which provide as under:- "7. Industries declared by Parliament by law to be necessary for the purpose of defence or for the prosecution of war. 52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest. 84. Duties of excise on tobacco and other goods manufactured or produced in India except- (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics, but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry." 11. The entries relevant in List-2 are- 8, 51 and 66 which provide as under:- 8. "Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors". 51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India:- (a) alcoholic liquors for human consumption; 11 (b) opium, Indian hemp and other narcotic drugs and narcotics, but not including medicinal and toilet preparations containing alcohol or any substance included in sub- paragraph (b) of this entry." 66 .Fees in respect of any of the matters in this List, but not including fees taken in any Court.” 12. Rectified spirit did not constitute an Excisable item under the Bihar Excise Act, not being liquor fit for human consumption came up for consideration by this Court in The New Swadeshi Sugar Mills. Ltd. & anr Vs. State of Bihar &ors, 1983 P.L.J.R. 105 (D.B.) This Court rejected the argument of the State that because rectified spirit by subsequent dilution becomes potable and fit for human consumption liable for duty it was ample justification for levy of duty at a prior stage before the subsequent stage was reached. No Bond or duty could be levied under Form 28 A .The Court at paragraph 8 and 9 of the judgement held as under :- “8. The contention of the learned counsel for the State, apart from what is stated in the notice (Annexure 2), was that the petitioner-company is liable to pay duty on the spirit because rectified spirit by subsequent dilution becomes potable and thus fit for human consumption and, therefore, duty could be recovered from the petitioner-company, which is thus liable to compensate the loss caused to the Government due to non-delivery by application of R. 33 of the Rules made by the Board of Revenue under the notification dated the 29th April, 1919 (hereinafter referred to as 'the Rules'). 9. It is, therefore, essential to examine whether rectified spirit can be subjected to levy 12 of duty under the Act. Excisable article has been defined in S. 2(6) of the Act and Cl. (a) thereof is relevant for the present purpose, which is as follows :- "excisable article means- (a) any alcoholic liquor for human consumption. xx xx xx xx xx xx xx xx xx xx Liquor is defined in S. 2(14) of the Act which "includes all liquids consisting of or containing alcohol, such as spirit of wine, spirit, wine fermented tari pachwai and beer, and also unfermented tari, and also any other substance which the State Government may, by Notification, declare to be liquor for the purposes of this Act" Intoxicant has been defined in S. 2(12a) of the Act, which means "any liquor or intoxicating drug" Section 2(19) defines 'spirit' as 'any liquor containing alcohol obtained by distillation, whether it is denatured or not" Thus, the total effect of the definition of 'intoxicant,' 'liquor' and 'spirit,' read with the definition of excisable article, means that only a spirit meant for human consumption can be subjected to excise duty" 13. This judgment came to be upheld by the Supreme Court upon challenge by the State of Bihar in (2003) 11 SCC 478 (State of Bihar & Ors. Vs. New Swadeshi Sugar Mills Ltd. & Anr.)holding as as follows : “1. We find that the conclusion of the High Court that no duty can be levied by the appellant state on rectified spirit having regard to the provisions of the Constitution, has been upheld by this Court in the case of Synthetic and Chemical ltd. Vs. State of U.P. It has been held there that the provisions in various State Acts which purport to levy a tax or charge upon industrial alcohol also called rectified spirit and alcohol used for industrial purposes, are unconstitutional. “2. Having regard to the fact that the provision in the State Act imposing the levy is unconstitutional, it is unnecessary to go into the appellant’s argument based on a rule made in exercise of the rule making power in the State 13 Act. The rule concerned relates to duty to be paid on rectified spirit which is transported, a prescribed quantity being allowed to be deducted by way of leakage or evaporation. ........... Duty itself not being leviable that claim must also be held to be invalid”. 14. The question of the competence of the State Legislature to impose fee in respect of Industrial Alcohol came up for consideration by a Constitution Bench before the Supreme Court in Synthetics & Chemicals Ltd. (Supra). On consideration of the legislative powers of the Parliament and the State Governments, the promulgation of the Industries (Development and Regulation) Act, 1951 by the Parliament, the Court interpreting the aforesaid entries in the 7th Schedule of the Constitution held that the State Legislature had no power to enact a law levying duty on spirit not meant for human consumption and that it was the Parliament alone which was competent to legislate on Industrial Alcohal holding at paragraph-86 of the judgement as follows:- “86. The position with regard to the control of alcohol industry has undergone material and significant change after the amendment of 1956 to the IDR Act. After the amendment, the state is left with only the following powers to legislate 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 non-potable alcohol is not diverted and misused as a substitute for potable alcohol. c) the state may charge excise duty on 14 potable alcohol and sales tax under entry 52 of list II. However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the state on industrial alcohol. d) However, in case state is rendering any service, as distinct from its claim of so- called grant of privilege, it may charge fees based on quid pro quo. 15. This decision was followed in (1995) 5 S.C.C. 753 (STATE OF U.P. vs. MODI DISTILLERY). Considering the legality of a demand of excise duty inter alia on high strength spirit of 80% to 85% from distillery to warehouse and the duty levied on pipeline wastage it was held at paragraph-9 as follows:- “9.It is convenient now to note the judgment of a bench of seven learned Judges of this Court in Synthetics and Chemicals Ltd. v. State of U. P., (1990) 1 SCC 109 : (AIR 1990 SC 1927). This Court stated that it had no doubt that the framers of the Constitution, when they used the expression 'alcoholic liquors for human consumption', meant, and the expression still means, that liquor which, as it is, is consumable in the sense that it is capable of being taken by human beings as such as a beverage or drink. Alcoholic or intoxicating liquors had to be understood as they were, not what they were capable of or able to become. Entry 51 of List II was the counterpart of Entry 84 of List I. It authorised the State to impose duties of excise on alcoholic liquors for human consumption manufactured or produced in the State. It was clear that all duties of excise save and except the items specifically excepted in Entry 84 of List I were generally within the taxing power of the Central Legislature. The State Legislature had limited power to impose excise duties. That power was circumscribed under Entry 51 of List II. It had to be borne in mind that, by common standards, ethyl alcohol (which had 95 per cent strength) was an 15 industrial alcohol and was not fit for human consumption. The ISI specifications had divided ethyl alcohol (as known in the trade) into several kinds of alcohol. Beverages and industrial alcohols were clearly and differently treated. Rectified spirit for industrial purposes was defined as spirit purified by distillation having a strength not less than 95 per cent by volume of ethyl alcohol. Dictionaries and technical books showed that rectified spirit (95 per cent) was an industrial alcohol and not potable as such. It appeared, therefore, that industrial alcohol, which was ethyl alcohol (95 per cent), by itself was not only non-potable but was highly toxic. The range of potable alcohol varied from country spirit to whisky and the ethyl alcohol content thereof varied between 19 to about 43 per cent, according to the ISI specification. In other words, ethyl alcohol (95 per cent) was not an alcoholic liquor for human consumption but could be used as a raw material or input, after processing and substantial dilution, in the production of whisky, gin, country liquor etc. In the light of experience and development, it was necessary to state that "intoxicating liquor" meant only that liquor which was consumable by human beings as it was.” 16. This Court in 1997(1) P.L.J.R. 77 (D.B.) (M/s. Industrial Corporation Pvt. Ltd. Vs. State of Bihar) was considering a challenge on the competence of the State to levy penalty in respect of a license granted under Form-28A for the manufacture of spirit in the Distillery for use in the manufacture of chemical and for Industrial, Scientific and other purposes. Relying on Synthetic and Chemicals Ltd. (Supra) and Modi Distillery(Supra) it was held that license for manufacture of non-potable Alcohol vested in the Central Government alone and therefore Form-28A had no 16 meaning and should be scrapped as it is not within the jurisdiction of the State Government to grant any such license for the manufacture of spirit in any Distillery for commercial use. 17. The judgment of this Court in M/s. Industrial Corporation (Supra) came up for consideration by the Supreme Court on appeal by the State Government in ( 2003) 11 S.C.C. 465 (State of Bihar & ors vs. VS. Industrial Corporation (P) Ltd. & ors). Referring to Synthetics and Chemicals Ltd. (Supra) as also Modi Distillery (supra) it was held that the State Government was not competent to levy any penalty on the manufacture of rectified spirit, the power of the State Government being confined to potable liquor only under List-2 of the 7th Schedule of the Constitution and spirit being unfit for human consumption in its raw form was the exclusive domain of the Parliament. It was noticed at paragraph 19