IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 1.12.2004 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE F.M.IBRAHIM KALIFULLA W.A.Nos.125 to 127 of 1999 and 532 of 1996 W.A.No.125 of 1999: 1. The State Tamilnadu rep. by the Commissioner & Secretary Prohibition and Excise Department Fort St.George, Madras-9. 2. The Assistant Commissioner (Excise) Collector's Office, Madras. 3. The Collector of Madras, Collectorate, Madras. .. Appellants/Respondents Vs M/s.Alfred Berg & Co. (I) Pvt. Ltd. 1, Hunters Road, Madras-7, rep. by its Managing Director, Chandrakant. .. Respondent/Petitioner W.A.No.126 of 1999: 1. The State Tamilnadu rep. by the Commissioner & Secretary Prohibition and Excise Department Fort St.George, Madras-9. 2. The Collector and Assistant Commissioner of Excise, Chingleput District Chingleput. 3. The Bonded Manufactory Officer https://hcservices.ecourts.gov.in/hcservices/ M/s.Scortch Pharmaceutical Works 9, Lawyer Jagannathan Street Alandur, Madras-32. .. Appellants/Respondents Vs M/s.Scortch Pharmaceutical Works (A Proprietorship Concern) by its Proprietor K.J.Suresh 9, Lawyer Jagannathan Street Alandur, Madras-32. .. Respondent/Petitioner W.A.No.127 of 1999: 1. The State Tamilnadu rep. by the Commissioner & Secretary Prohibition and Excise Department Fort St.George, Madras-9. 2. The Assistant Commissioner (Excise) Collector's Office, Madras. 3. The Collector of Madras, Collectorate, Madras. .. Appellants/Respondents Vs M/s.Kousalya Pharmaceuticals (P) Ltd 242, Kilpauk Garden Road Madras-10, by its Managing Director D.Surishankar .. Respondent/Petitioner PRAYER in W.A.Nos.125 to 127 of 1999: Against the order the learned single Judge dated 13.9.1991 made W.P.No.4790 of 1984, W.P.No.778 of 1988, W.P.No.6583 of 1984. W.A.No.532 of 1996: 1. The State Tamilnadu rep. by the Commissioner & Secretary Prohibition and Excise Department Fort St.George, Madras-9. https://hcservices.ecourts.gov.in/hcservices/ 2. The Assistant Commissioner (Excise) Collector's Office, Madurai. 3. The Commissioner for Prohibition and Excise, Chepauk, Madras-5. .. Appellants/Respondents Vs M/s.Solar Pharmaceuticals (P) Industries rep. by its Managing Partner T.Raghavan, By-Pass Road Madras – 600 016. .. Respondent/Petitioner PRAYER: Appeal against the order of the learned Single Judge dated 1.11.1995 made in W.P.No.8782 of 1985. For Appellants : Mr.R.Muthukumarasamy Addl. Advocate General assisted by Mr.D.Krishnakumar, Spl. Government Pleader For Respondent : Mr.G.Masilamani, in WA: 127/99 Senior Counsel for M/s.G.M.Associates For Respondent : Mr.T.P.Manoharan in WA:532 of 1996 in WA 125/99 : Mr. S. Ramasamy J U D G M E N T (Judgment of this Court was delivered by P.D.DINAKARAN,J.) I – SUBJECT MATTER OF THE APPEAL The Writ Appeal Nos.125, 126 and 127 of 1999 are directed against the common order dated 13.9.1991 made in a batch of writ petitions viz., W.P.Nos.4790 of 1984, 778 of 1988 and 6583 of 1984, and Writ Appeal No.532 of 1996 is directed against the order dated 1.11.1995 made in W.P.No.8782 of 1985. 2. The appellants herein are the respondents in the above writ petitions filed by the respondents herein. For the purpose of convenience, the parties are arrayed as per https://hcservices.ecourts.gov.in/hcservices/ their rank in the writ petitions. While the petitioners in W.P.No.4790, 6583 of 1984 and 778 of 1988 sought for a declaration to declare Rule 11 of the Tamil Nadu Rectified Spirit Rules, 1959 (hereinafter referred to as "the Rectified Spirit Rules, 1959") as amended by G.O.Ms.No.19, Prohibition and Excise (III) Department, dated 6.1.1983 as invalid in law and to forbear the respondents from demanding and collecting the cost of establishment charge of the Bonded Manufactory Officer and B.G.S employed in the bond of the petitioners from 1.4.1983, the petitioner in W.P.No.8782 of 1985 sought for a Writ of Mandamus to forbear the respondents from demanding or collecting the cost of the establishment charges of the Bonded Manufactory Officer deputed to the petitioner. II – STATUTORY PROVISIONS 3. The Rectified Spirit Rules, 1959 were framed in exercise of the powers conferred under Sections 16, 17-B, 18, 18-B, 21 and 54 of the Tamil Nadu Prohibition Act (hereinafter referred to as "the TNP Act"), superseding the Tamil Nadu Rectified Spirit Rules, 1937. Under Section 16 of the TNP Act, the State Government is empowered, by notification and subject to such conditions as they think fit, to exempt any specified liquor or intoxicating drug or article containing such liquor or drug from the observance of all or any of the provisions of this Act on the ground that such liquor, drug or article is required for a medicinal, scientific, industrial or such like purpose. Section 17-B of the TNP Act empowers the State Government, or subject to their control, the Collector, to issue license to any person or any institution whether under the management of the Government or not, (a) for the manufacture of liquor for human consumption- (i) for the purpose of sale to persons and institutions who hold permits or licenses for sale of such liquor; (ii) for other purposes permitted under this Act; or (b) for the import, export or transport of liquor for human consumption. Section 17-C of the TNP Act empowers the State Government to grant exclusive privilege of manufacture on such conditions and for such period as they may deem for (a) of manufacturing Indian-made foreign spirits; or (b) of selling by retail Indian-made foreign spirits. Section 17- https://hcservices.ecourts.gov.in/hcservices/ C [1-A](a) of the TNP Act provides the exclusive privilege of supplying by whole sale Indian-made Foreign Spirits to the Tamil Nadu State Marketing Federation. Section 17-D of the TNP Act provides the levy of sum or fee or both in consideration of the grant of any exclusive or other privilege under Section 17-C and also a fee on licenses granted under Section 17-C of the TNP Act. Section 17-E of the TNP Act empowers the State Government or subject to the control of the State Government, the Collector, to issue licenses to any person or in respect of any institution whether under the management of the Government or not, for the export, import, transport or possession of any liquor or article containing such liquor on the ground that such liquor or article is required by such person or in respect of such institution for a bona fide purpose. Section 18 of the TNP Act empowers the State Government or subject to the control of the Government, the Collector, to issue licenses to any person or in respect of any institution whether under the management of Government or not, for the manufacture, export, import, transport, sale, possession of any liquor, intoxicating drug or article containing such liquor or drug on the ground that such liquor, drug or article is required by such person in respect of such institution for a bona fide medicinal, scientific or industrial or such like purpose. Section 18- A of the TNP Act provides the Government to levy the excise duty or countervailing duty on all liquors, intoxicating drugs permitted to be imported, exported, transported, manufactured, issued from any manufactory or institution or sold under the provisions of this Act, or any rule, notification, license or permit issued thereunder. Section 18-B of the TNP Act provides for levy of excise duty or countervailing duty on excisable articles. Section 18-C of the TNP Act provides ways of imposing duty under Section 18-B of the TNP Act. Section 21 of the TNP Act empowers the Government to impose such restrictions, limitations or conditions for grant of licenses or permits under Section 6-A, 17-B, 17-C, 18, 19 and 20 of the TNP Act. Section 54 of the TNP Act provides rule making power for the Government for the purpose of carrying into effect the provisions of this Act and for other purposes mentioned thereunder including the purpose which is relevant for the issue raised in these writ https://hcservices.ecourts.gov.in/hcservices/ petitions viz., for prevention of the use of medicinal or toilet preparations for any other purpose other than medicinal or toilet preparations and for the regulation of the use of any liquor or drug exempted from all or any of the provisions of this Act. Exercising these powers, the Government of Tamil Nadu framed the Rectified Spirit Rules, 1959, of which we are concerned. Rule 11 of the Rectified Spirit Rules, 1959 deals with the issue of licenses and permits, which is, of course, subject to Rule 10 of the Rectified Spirit Rules, 1959, which reads thus, "Nothing in these rules shall alter the operation of the Medicinal and Toilet Preparation (Excise Duties) Act, 1955 (Central Act No.16 of 1995) or the rules made thereunder." 4. It is also relevant to refer that the Parliament, in order to provide for levy and collection of duties of excise on medicinal and toilet preparations containing alcohol, narcotic drug or narcotic, enacted the Medicinal and Toilet Preparations (Excise Duties) Act by repealing the State law by which the duties and excise are imposed on medicinal and toilet preparations containing alcohol. In other words, the main object of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (hereinafter referred to as "the MTP Act") is to collect duty. Section 19 of the MTP Act empowers the State Government to make rules for the purpose of the Act and for other purposes mentioned thereunder. Exercising such power, the Central Government framed the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 (hereinafter referred to as "the MTP Rules"). Rule 2(iii) and Rule 2(iv) of the MTP Rules, which define the "bonded manufactory" and "non- bonded manufactory", are extracted below for the purpose of these writ petitions. "Rule 2(iii) : "bonded manufactory" means the premises or any part of the premises approved and licensed for the manufacture and storage of medicinal and toilet preparations containing alcohol, narcotic drugs or narcotics, on which duty has not been paid; Rule 2(iv) : "non-bonded manufactory" means he premises or any part of the premises approved and https://hcservices.ecourts.gov.in/hcservices/ licensed for the manufacture and storage of medicinal and toilet preparations containing alcohol, narcotic drugs or narcotics, on which duty has been paid;" Rule 21 of the MTP Rules provides for issue of rectified spirit without payment of duty for the manufacture of medicinal and toilet preparations containing alcohol subject to the conditions that the manufacturer enters into a bond in Form B-1 with sufficient security, as laid down in Rule 96 towards due payment of duty and observance of the rules. Rule 23 of the MTP Rules provides for the essentials of a bonded manufactory. Rules 40 to 45 of the MTP Rules refer to the officer in-charge of the bonded manufactories, maintenance of accounts in proper forms and registers, size of establishment, collection of duty and penalty etc., which read as follows: "Rule 40: Issue from a bonded manufactory.- (1) Issues of alcoholic preparations and preparations containing narcotic drugs or narcotics shall be made from a bonded manufactory on payment of duty. The licensee shall present before the office-in-charge an application in Form A.R.-2 signed by him or by his authorised representative. The officer-in-charge shall, after checking the entries and realising the duty payable, allow the required quantities to be removed after issuing a permit: Provided that issues to another bonded warehouse shall be made without payment of duty under proper security governed by the rules in Chapter VII and VIII. (2) If the licensee is also an account holder as provided for in rule 9, duty leviable on alcoholic preparations and preparations containing narcotic drugs or narcotics to be issued from a bonded manufactory shall be debited in account-current before the preparations are removed from the bonded premises. https://hcservices.ecourts.gov.in/hcservices/ Rule 41: The licensee to maintain proper accounts etc. - (1) The licensee shall maintain accounts in proper forms and registers as prescribed in the Appendix to these rules. (2) The licensee shall deliver to the officer-in- charge by the 5th of each month, a return of transactions of business in respect of the preceding month in Form R.T.1. Rule 42: Size of establishment.- It shall be open to the Excise Commissioner to determine the size of the supervisory staff in consultation with the licensee. Rule 43: Accounts.- The officer-in-charge shall maintain account in the prescribed forms and shall take steps to ensure that the licensee also maintains accounts. Separate accounts shall be written up daily by the officer-in-charge and the licensee or by any person authorised by him and shall be compared and reconciled before the manufactory is closed at the end of the day's transactions. Rule 44: Collection of duty.- The officer-in-charge shall be responsible for the correct collection of duty and penalty, if any, at the prescribed rate before any medicinal or toilet preparations containing alcohol are allowed to be removed from the premises except in the case of exports or removal under bond or under such conditions as may be permitted by the Excise Commissioner. Rule 45: Scope of duties.- The officer-in-charge shall exercise such supervision as is required to ensure that alcohol issued for a certain preparation is added to the materials which go to make that preparation and that no portion of such alcohol is diverted to other purposes. (2) Agents, clerks, compounders and other persons, who have been duly authorised in this behalf by the https://hcservices.ecourts.gov.in/hcservices/ licensee, and approved by the officer-in-charge, may enter into and carry out their work in connection with the manufacture during the working hours of the manufactory. (3) Any person duly authorised in this behalf by the licensee may sign all applications and indents for the issue of rectified spirit or finished preparations. (4) Excise Officer, specially empowered in this behalf, by the Excise Commissioner, shall inspect the manufactory in accordance with the instructions prescribed herein and shall submit the notes of their inspection to the officer specified by the Excise Commissioner. They shall also be responsible for the correct maintenance of accounts and collection of duty by the officer-in-charge." (emphasis supplied) III – IMPUGNED RULE 5. Under the scheme of the MTP Act and the MTP Rules, the method of manufacture of medicinal preparations containing alcohol are thus classified into two groups, namely manufacture 'inside bond' and manufacture 'outside bond'. If the duty not paid alcohol is used in the manufacture, it will fall under the classification 'outside bond'. The goods manufactured shall be cleared on the request of the manufacturers by the Excise Officer on payment of duty imposed under the Act and the establishment charges of the Excise Officer are borne by the Government. So far as the goods manufactured by the 'inside bond' method are concerned, the finished products shall be cleared by the Excise Officer on the request of the manufacturer on payment of duty imposed under the Act, and inasmuch as duty not paid alcohol is used in the 'inside bond' manufacture method, the Excise Officers are deputed to the manufactory by the Government to keep control and watch over the duty not paid alcohol purchased, stored and used by the manufacturer in order to prevent abuse of alcohol and the charges incurred in respect of these Excise Officers deployed at the Bonded Manufactory are sought to be recovered from the manufacturer of medicinal https://hcservices.ecourts.gov.in/hcservices/ preparations, as proposed under G.O.Ms.No.19, Prohibition and Excise (III) Department dated 6.1.1983, which is impugned in these writ petitions, by inserting Clause (c) to Rule 11 of the Rectified Spirit Rules, 1959, which reads as follows: "Rule 11(c) : All the transactions in the bonded spirit store shall be conducted only in the presence of Bonded Manufactory Officer appointed by the Government of Tamil Nadu. The cost of the Bonded Manufactory Officer and the allied staff employed including leave salary and pension contribution, shall be payable by the licensee in advance in the first week of every month as per countersigned challan to be obtained from such officer. The rate at which the cost of establishment is to be paid by the licensee shall be fixed by the Commissioner from time to time and intimated to the licensee in writing. If the licensee fails to remit the cost of establishment in the first week, the licensing authority may take action for cancellation of license in the manner prescribed in sub-rule (vi) of Rule 13 of these Rules and when the license is cancelled, the staff shall be withdrawn." (emphasis supplied) IV – GRIEVANCES & CONTENTIONS OF THE RESPECTIVE PARTIES 6.1. According to the petitioners, the power conferred on the State Legislature to impose duties on intoxicating liquors excludes from its purview of medicinal and toilet preparations containing alcohol. Hence, the State legislature has absolutely no power to make any legislation on medicinal and toilet preparations containing alcohol including right to impose any duty, tax, charge or levy. 6.2. Secondly, even though the Government was empowered to make Rectified Spirit Rules, 1959 exercising the power conferred under Sections 16, 17-B, 18, 18-B, 21 and 54 of the TNP Act with effect from 1.4.1959, they do not have legislative competency to bring the impugned amendment made by G.O.Ms.No.19, Prohibition and Excise (III) Department dated 6.1.1983, which is applicable to persons engaged in the manufacture of Medicinal and toilet https://hcservices.ecourts.gov.in/hcservices/ preparations and to call on them to take license under Rule 11(a) of the Rectified Spirit Rules, 1959 in Form RL on payment of fee for the purpose of purchasing, storing and using rectified spirit in the manufacture of medicinal preparations containing alcohol, in addition to the license in Form L1 obtained under the Central Act for the very same purpose. It is, therefore, contended that the presence of the Excise Officer at the manufactory is absolutely unnecessary, superfluous and the same is not for the benefit of the petitioners. 6.3. Thirdly, it is contended that once the retail price of the medicinal preparations are governed under the Drug Price (Control) Order, 1979 and the price of the medicinal preparations are fixed under the formula provided thereunder, the establishment charges now proposed to be borne by the petitioners in respect of the Excise Officers, who were deputed under the impugned Rules, cannot be taken into account and as a result, the petitioners are constrained to bear the said cause personally, which is again arbitrary and unreasonable. 6.4. Fourthly, it was contended that the impugned Rule does not provide any guidelines for the State to recover the cost of the staff employed at the Bonded Manufactory from the licensees concerned uniformly, which in turn violates Article 14 of the Constitution of India. 6.5. Lastly, it was contended that the unilateral deputation of the Excise Officers to Bonded Manufactory is only to watch and control the spirit stores of the licensees without rendering any service whatsoever to the licensee in the name of allegedly preventing the abuse of alcohol is unreasonable. 7.1. Per contra, the respondents-State resisted the above contentions made on behalf of the petitioners on the grounds that, if the petitioners choose to obtain L2 license in stead of L1 license under the MTP Rules he can use duty paid alcohol and there will be no necessity for appointment of Bonded Manufactory Officer and consequently, the payment of cost of establishment charges of Excise Staff would not arise. On the other hand, if the licensee https://hcservices.ecourts.gov.in/hcservices/ obtained L1 license, and proposed to use duty not paid alcohol, their transactions are liable to be supervised and scrutinized by the Officer-in-charge, namely the Bonded Manufactory Officer, for the functions under Rule 40 to 45 of the MTP Rules, referred to supra. 7.2. As there cannot be any second opinion as to the powers of the State Government in framing the Rectified Spirit Rules, 1959, exercising the powers conferred under Sections 16, 17-B, 18, 18-B, 21 and 54 of the TNP Act, equally such power is extendable to bring the impugned amendment inserting Rule 11(c) of the Rectified Spirit Rules, 1959, referred to above. 7.3. It was further contended that the grievance of the petitioners that the expenses borne by them for the establishment charges and other incidental charges for the Bonded Manufactory Officers as per the impugned rules as may be fixed by the Commissioner from time to time in writing, cannot be included in the retail prices of the medicinal preparations governed under the Drugs Price (Control) Order, 1979 and consequently, they have to bear the said expenses personally cannot be accepted as the licensees are always at liberty to apprise the above facts to the authorities concerned to bring the impugned establishment charges under the calculation of retail prices of formulations prescribed under clause 7 of the order. If their claim to include the expenses for calculating the retail prices is rejected, they are still at liberty to work out their remedies in appropriate proceedings, if they are so advised, under the provisions of the Drugs Price (Control) Order, 1979. 7.4. Similarly, the contention that the impugned rule does not provide for any guideline for fixing the charges to be borne for the appointment of the Bonded Manufactory Officers with reference to the capacity of the units, was also resisted on the ground that the apprehension of the petitioners in this regard is illegal, misconceived and unwarranted as the rule itself provides that the rates at which the cost of establishment shall be fixed by the Commissioner from time to time and the same shall be intimated to the licensee in writing. If the petitioners https://hcservices.ecourts.gov.in/hcservices/ are aggrieved by such fixation of the rates, again they are at liberty to work out their rights separately insofar as the implementation of the rules are concerned. But, such a grievance in implementing the Rule cannot be quoted to challenge the rule itself, on the ground of discrimination in fixing the rates with reference to the capacity of the units, which is obviously hypothetical. 7.5. In view of Rule 10 of the Rectified Spirit Rules, 1959, as well as the power conferred on the Bonded Manufactory Officer's under Rules 40 to 45 of the MTP Rules, it is contended that the impugned amendment is to complement the provisions of the Central Act but not in conflict with the same, because even though the MTPS Act was enacted by the Parliament, the enforcement of the same for levy, collection and appropriation of the duty imposed and collected under the Act is left to the State Government. Once the said position is clear, a statutory obligation falls on the licensee to bear the establishment charges of Bonded Manufactory Officers and the basic government servants appointed in the respective units. Since the appointment of the Bonded Manufactory Officers in the case of Form 'C' licensees who use duty not paid alcohol for the medicinal and toilet preparations is meant to discharge the functions and duties of the Bonded Manufactory Officers prescribed under Rule 40 to 45 of the MTP Rules, it cannot be said that they do not render any service to the petitioners' units. V – FINDINGS & DECISION OF THE LEARNED SINGLE JUDGE 8. The learned single Judge accepting the contentions of the State/appellant herein that the impugned rule is only to complement the provisions of the MTP Act and Rules, particularly Rule 40 to 45 of the MTP Rules, which deal with the powers and functions of the Bonded Manufactory Officers, but not to conflict with the same, held the said rule to be constitutionally valid. However, if the collection of the establishment charges from the licensees can be construed as a fee as a quid pro quo for the services rendered for the purpose of ensuring that (i) the denaturing is done properly in the manufacture of the https://hcservices.ecourts.gov.in/hcservices/ preparation of medicinal and toilet preparations; and (ii) after the said purpose, the subsequent possession of the denatured spirit in the hands of the wholesale seller, or retail seller, or any other seller or permit holder is not misused by converting the denatured spirit into alcohol for human consumption and thereby evading payment of heavy duty, such cost of supervising manufactory process or any other assistance rendered by the Bonded Manufactory officers cannot be borne unless the licensees are benefitted by the services rendered by these officers. Finding that no materials were placed by the Government/appellant herein for having rendered any services to the licensees in that regard, the learned single Judge, while holding the impugned rule as valid, held that the same is not applicable to the petitioners on the ground that they are not benefitted by