IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED :: 16-12-2006 CORAM THE HONOURABLE MR.JUSTICE M.E.N.PATRUDU WRIT PETITION Nos.24 & 52 OF 1995 AND 2324 & 2325 OF 1997 W.P.No.24 & 52 OF 1995 : Balaji Distilleries Ltd., rep.by its Executive Vice President (Distilleries & Breweries) R.Raghuram, having its corporate office at 9, Basullah Road, Madras  17. ... Petitioner -vs- 1. The Government of Tamil Nadu, represented by its Secretary, Home, Prohibition & Excise Department, Fort.St.George, Madras  9. 2. The Commissioner of Prohibition and Excise, Chepauk, Madras-5. 3. The Excise Supervisory Officer, Balaji Distilleries Ltd., Bye-pass Road, Poonamallee, Madras -56. ... Respondents W.P.Nos.2324 & 2325 OF 1997 : EMPEE Distilleries Limited, represented by its Managing Director Mr.M.P.Purushothaman and having its Corporate Office at No.695, Anna Salai, Madras  600 006. ... Petitioner -vs- 1. Government of Tamil Nadu, represented by its Secretary, Prohibition and Excise Department, Fort St.George, Madras-600 009. 2. The Special Commissioner & Commissioner of Prohibition & Excise, Chepauk, Madras  600 005. 3. The Excise Supervisory Officer, EMPEE Distilleries Limited, Mevaloorkuppam, Sriperumbudur Taluk, Anna District. ... Respondents Petitions under Articles 226 of the Constitution of India, praying for issuance of a writ of certiorari. For petitioners : Mr.M.Ravindran, Sr.Advocate, for M/s.Manoharan, P.Ponnuswamy & S.Divagar. For respondents : Mr.R.Viduthalai, assisted by Mrs.C.K.Vishnu Priya, Govt.Advcoate. COMMON ORDER The prayer in W.P.Nos.24 of 1995 and 2325 of 1997 is to declare G.O.Ms.No.762/Home, Prohibition & Excise (III) Department, dated 29.06.1990, as unconstitutional and void. 2. The prayer in W.P.No.52 of 1995 is to quash the orders of the third respondent in R.C.No.237/94/A1, dated 17.11.1994. 3. The prayer in W.P.No.2324 of 1997 is to quash the orders of the third respondent in R.C.No.3/96 A, dated 27.12.1996, 4. The facts necessary for disposal of the writs are as follows : 4.1. The petitioner Balaji Distilleries Limited has installed its re-distillation unit at their factory for purification of rectified spirit and impure spirit to produce extra neutral alcohol for use in its Indian Made Foreign Spirit (IMFS) products. 4.2. The rectified spirit is allotted by the Commissioner of Prohibition and Excise on monthly basis to the petitioner company and in the allotment order, the name of the distillery from which the petitioner has to buy the rectified spirit will be mentioned and from the distillery the rectified spirit is brought by tanker lorries and are stored in the vats in the distilleries of the petitioner company which is located at the bye-pass road, Poonamalee. 4.3. The rectified spirit stored in the vats is kept under lock and key by the Excise Supervisory Officer, who releases the required quantity of rectified spirit every day after making an entry in the register maintained for this purpose. 4.4. On behalf of petitioner, it is further stated that on receiving the rectified spirit, the same is taken to the top overhead tanks and from the overhead tanks, the rectified spirit is drawn into the purification column where it is diluted with water and heated with steam at the temperature of 85 degree centegrade to 87 degree centegrade and in this process, the alchohol vapour will emanate which is condensed in the condensers provided for this and after separation of about 15% of this condensate, the rest is refluxed back into the purification column because it will contain the impurities such as acetic acid, aldehydes etc. 4.5. It is further stated that after separation of this low boiling impurities, the balance quantity is taken to rectifying column and there again it will be heated to boiling point i.e., 105 degree centegrade and the vapour arising out of this is condensed in condensers. In the last condenser and at the bottom of the rectifying column, separation of high boiling vapour like fusal oil is separated to the extent of 10% and about 75% of the rectified spirit is collected as pure ENA. 4.6. It is also stated that spent lees from the rectifying column will flow down to an exhaust column and let out at a temperature of 105 degree centegrade so that it will not carry any alcohol as boiling point of alcohol is only 78 degree centegrade to 80 degree centegrade. 4.7. Further, the impure spirit obtained out of rectifying spirit distillation contains recoverable amount of alcohol which can be used in IMFS production. Hence, to recover alcohol, the same process of re-distillation is carried out to extract maximum amount of alcohol. The alcohol available in the rectified spirit is extracted by the repeated distillation so that the allotment of rectified spirit made to the petitioner company is utilised to the maximum possible extent to maintain high productivity. 4.8. The petitioner further states that during the distillation process, losses are unavoidable under both the processes namely distillation of rectified spirit and re-distillation of impure spirit. Fluctuations of steam pressure, power failure, water shortage and mechanical failure in the machineries are some of the factors which contribute to the losses. The distillation is a continuous process and therefore the assessment of daily output compared to inputs cannot be made accurately unless purification columns and rectifying columns are completely exhausted and re-started. It is specifically stated that if daily assessment of output has to be made accurately, the distillation process has to be completed by exhausting the above mentioned columns everyday and then restarting the same everyday. If this process is carried out daily, it will affect the production of ENA to an extent of 15% to 20% and in addition, it will affect the quality of ENA. 4.9. Issue of licence for distilleries, allotment of rectified spirit, supervision and inspection at the factory, manufacture process etc. are governed by the Tamil Nadu Indian Made Foreign Spirits (Manufacture) Rules 1981, known as IFMS Rules, framed under the Tamil Nadu Prohibition Act, hereinafter called the 'Act'. 4.10. The case of the petitioner is that when IMFS Rules were introduced in the year 1981, it did not mention anything about the loss in the manufacturing process, but it contains provisions stating that no allowances for any loss in transit from the distillery to the blending unit shall be allowed. Thus, G.O.Ms.No.642/Prohibition and Excise (III) Department, dated 29.05.1986, was issued and rules were amended and under Rule 15 A (3), an allowance of 2% was allowed for loss in the process of purification or standardisation of spirit by distillation. It did not make any distinction between the distillation of rectified spirit or re-distillation of impure spirit. 4.11. While so, through the impugned G.O.Ms.No.762/Home, Prohibition and Excise (III) Department, dated 29.06.1990, the rules were again amended and for Rule 15 A (3), a new sub-rule has been substituted and under it, an allowance of not more than 3% per batch shall be allowed for loss in the entire process of distillation of rectified spirit, re-distillation of impure spirit and handling loss and if the loss in the entire process exceeds the allowance of 3%, the Commissioner shall levy a penalty of Rs.16% per proof litre on such excess loss and no allowance shall be given for further loss in the re-process of purification of impure spirit by re-distillation or mixing it with the next batch of rectified spirit. The G.O.says that the above amendment shall be deemed to have come into force on 1st February,1988. Thus, the government orders are issued with retrospective effect. 4.12. The second respondent addressed a letter to the third respondent on the basis of the above G.O. On 26.09.1994, directing him to collect a sum of Rs.17.96 lakhs from the petitioner on the excess loss of rectified spirit occurred in the process of purification during the period from February 1988 to November, 1989, except March 1989. The third respondent by his letter dated 27.09.1994, directed the petitioner to remit the said amount towards penalty for the loss of spirit. 4.13. The petitioner made a representation that the amount demanded was based on erroneous working and incorrect application of G.O.Ms.No.762, dated 29.06.1990. The contention of the petitioner is that the amount demanded by the respondents is not based on proper working sheet. 4.14. The third respondent replied back to the petitioner on 07.10.1994, demanding to remit the amount without any reference to the working sheet. Hence, the petitioner made a representation to the Government through letter dated 15.11.1994, requesting to furnish the particulars from the working sheet for such sum and to give the petitioner an opportunity to contest the claim made by the Department, and also requesting the first respondent to keep the demand of payment in abeyance till an opportunity is given to the petitioner and the details are furnished. 4.15. The third respondent has acknowledged the receipt of the representation, but again demanded the petitioner to remit the amount, by his letter dated 17.11.1994 and threatened to take penal action. Hence, the petitioner has approached this Court for issuance of a writ of declaration to declare the G.O.Ms.No.762, dated 29.06.1990, as void and unconstitutional and that the impugned letter is to be quashed. 4.16. The main grounds on which the petitioner is attacking the G.O. are : (1)the amendment of the Rule 15 A (3) by G.O.Ms.No.762 dated 29.06.1990, giving retrospective effect from 01.02.1988 is unconstitutional (2)the penal clause cannot be introduced in the statute with retrospective effect and it will offend Article 20 of the Constitution of India (3)the penal law can only be prospective and cannot be retrospective, as the citizen should know as to what he should do and what he should not do to attract the penal law. Hence a prior notice to the citizen is mandatory (4)the Government Order is vague and it is impossible to implement in the process of distillation and re-distillation, as there cannot be any distinction between the rectified spirit and impure spirit (5)the impugned order has not taken into consideration the very process of re-distillation of impure spirit either by itself or by mixing with the rectified spirit and it is intended for extracting maximum amount of ENA out of the rectified spirit and as such no distinction can be made in the distillation process (6)the Government is getting more revenue by way of excise duty, vend fees on IMFS, by extracting more quantity of ENA, either by mixing it with rectified spirit or by itself and it is more beneficial to the revenue rather than imposing penalty on the alleged excess loss (7)the demand made by the Government is belated, as the demand has been made in 1994 for the alleged loss that occurred in the years 1988 and 1989 (8)in the distillation process, the impure spirit is unavoidable and it has to be recycled and re- purified either by itself of by mixing it with the rectified spirit to extract as much ENA as possible and the said fact has not been considered by the Government and that the Government has not given any opportunity to the petitioner to make itself to represent their case. (9)The other strong ground raised by the petitioner is that the respondents did not furnish the details that how they have worked out for Rs.17.96 lakhs and made demand. COUNTER : 5. Additional Secretary to Government, Prohibition & Excise Department, filed a counter on behalf of the respondents, wherein it is stated that the petitioner was granted licence in Form No.2 under IMFS Rules to compound, blend, mature and bottle Indian Made Foreign Spirits. The raw material required for the manufacture of Indian Made Foreign Spirits is spirit, either rectified spirit or extra neutral alcohol, which is a purified form of spirit. It is also stated that to maintain the quality, the petitioner mostly use extra neutral alcohol and as such, the petitioner used to purchase the same from other distilleries for use in the manufacture of their IMFS products in their manufacturing unit and subsequently, they applied for permission for setting up their own spirit purification plant. Accordingly, permission is granted. One of the conditions is that gauging the stock of spirit issued for purification and the spirit purified shall be made by the Manufactory Officer every day and the result recorded in a register duly attested by the officer in the presence of the licensee or his authorised representative, on which the respondents heavily relies. 5.1. It is further stated that the petitioner set up the spirit purification plant in their premises and started trial production of extra neutral alcohol from August,1987 and regular production from October,1987. In this purification plant, rectified spirit is purified after removal of impurities contained in it such as fusel oil, acetic acid, aldehyde etc., and extra neutral alcohol is obtained after such purification. Further, there is no provision in IMFS Manufacturing Rules,1981, for regulating the purification of spirit, as no purification plant was set up by anyone in the State. However, after setting up of the purification plant, the necessity to regulate the functioning of such plants had arisen. Therefore, G.O.Ms.No.642 was issued and a new rule 15-A introduced. 5.2. It is contended that the process of purification of rectified spirit involves vapourisation and condensation and there are chances for loss of spirit. Therefore, a provision was made in the above rules, providing a reasonable allowance of 2% for loss of rectified spirit in the purification process. It is stated that the writ petitioner purified the rectified spirit alone in the initial stage but subsequently requested for permission to redestill the impure spirit also, which is obtained during the process of purification of rectified spirit. Accordingly, permission is granted to redestill the spirit, subject to the condition that no further wastage will be allowed for reprocessing of impure spirit into extra neutral alcohol. Thereafter, on 08.01.1988, the writ petitioner represented that impure spirit after its repeated purification reached a stage where it alone could not be further purified and purification of this impure spirit could be possible only if it is mixed with fresh batch of rectified spirit. Therefore, they requested for permission to mix impure spirit with next batch of rectified spirit for further purification. They also gave an undertaking that they would not claim any allowance for the loss of spirit during further reprocessing of impure spirit thus mixed with next batch of rectified spirit. The loss of spirit during the initial stages i.e., when the regular purification process was started in October 1987 was around 5% which was more than the prescribed allowance of 2%. Therefore, it was considered by the authorities and time was given till 31.01.1988, so as to enable the improvement in efficiency of the spirit purification plant by that time and refixation of the admissible wastage might be done, if necessary, when the plant runs to its full capacity. 5.3. The contention of the respondents is that consequent to improvement in the efficiency of the spirit purification plant, the loss of spirit purification stabilizes around 3% . Therefore, it was proposed that the admissible wastage of spirit might be refixed at 3% for the entire process of destillation of rectified spirit, redistillation of impure spirit and handling loss and that the rate of penalty for the loss of spirit in excess of the above limit might be fixed at Rs.16/- per proof litre and based on this, the impugned G.O.Ms.No.762 was issued for inserting a new sub-rule (3) in rule 15 A in lieu of the then existing sub rule (3) with effect from 01.02.1988. 5.4. The further contention of the respondents is that the amended rule provides that no allowance shall be given for further loss in the reprocess of purification of impure spirit by redistillation either independently or after mixing it with the next batch of rectified spirit. It is also contended that though there was loss of rectified spirit in excess of 2% allowance for the period from the date of commissioning of the spirit purification plant up to 31.01.1988 and there was loss of rectified spirit, impure spirit and impure spirit mixed with rectified spirit in excess of the allowance of 3% during the period from 01.02.1988 onwards, the petitioner has not remitted the penalty for such excess loss of rectified spirit and therefore, the respondents have no other way except to issue the demand for collection of Rs.17.96 lakhs, being the penalty for excess loss of rectified spirit during the process of purification i.e., during the period from 01.02.1988 to 30.11.1989. 5.5. The forceful contention of the respondents is that in order to assess the daily output, the distillation column need not be emptied every day. There are three distillation columns in the purification plant and each purification column has an overhead tank for storing rectified spirit and feeding the same into the purification columns. The rectified spirit or impure spirit remaining in the overhead tanks is measured daily at 09.00 a.m. and the quantities of neutral alcohol and impure spirit collected during the previous day are also measured. After this process, the quantity of rectified spirit or impure spirit required for purification is allowed to be pumped into the overhead tanks and from the overhead tanks, rectified spirit is charged into the purification columns for purification in the next 24 hours i.e., from 09.00 a.m. of that day till 09.00 a.m. of the next day. 5.6. Thus, the contention of the respondents is that at 09.00 a.m. of the next day, the quantity of spirit remaining in the overhead tank is measured and the quantity actually distilled during the period of 24 hours is calculated. The basis for calculation is the quantity of spirit remaining in the overhead tanks at 09.00 a.m.for a particular day and the quantity of rectified spirit allowed to be pumped into overhead tanks for purification during the period of 24 hours commencing from 09.00 a.m. of that day and after totalling both, the quantity of spirit remaining in the overhead tanks at 09.00 a.m. of the next day is deleted and thereby the quantity of extra neutral alcohol and impure spirit collected and loss of spirit if any. The above method is being followed to find out on each day the quantities of extra neutral alcohol and impure spirit collected and loss of spirit if any and it is a fool-proof system and as such there is no need to empty the purification columns everyday to find out the above mentioned data. This method is strictly in accordance with the provisions contained in Rule 15 A (3) of the Tamil Nadu Indian Made Foreign Spirits (Manufacture) Rules,1981. 5.7. The respondents contend that the penalty amount of Rs.17.96 lakhs is levied for the excess loss of spirit during the process of purification of rectified spirit, impure spirit and impure spirit mixed with the next batch of rectified spirit, by applying the above method. While so, the writ petitioner has worked out the penalty as Rs.5,08,950/- on the basis of the quantity of rectified spirit issued every month as one batch and without taking into consideration of the wastage that has occurred when impure spirit is redistilled separately or after mixing with the next batch of rectified spirit, which is not in conformity with the provisions of the Rules. 5.8. With regard to the furnishing of the working sheets, the case of the respondents is that the statements were prepared daily, showing all the details, such as the quantities of rectified spirit, impure spirit, mixed with the next batch of rectified spirit taken up for distillation/re-distillation and also the quantities of extra neutral alcohol and impure spirit obtained after such distillation/re- distillation and the copies of the statements have been given to the writ petitioner then and there from 01.02.1988 onwards and after verifying the above statements, which are signed by the third respondent as well as the authorised representative of the writ petitioner, the amount is worked out. Therefore, there is no necessity for furnishing another working sheet to the petitioner for imposing the penalty of Rs.17.96 lakhs. Thus, the respondents contend that they need not give second working sheet, admitting that they did not give any working sheet, while demanding the penalty of Rs.17.96 lakhs. 5.9. With regard to the violation of constitutional provisions, the respondents stated that the demand for payment of penalty is not contrary to law but in total conformity with the provisions of TNIMFS Rules,1987. Since the amendment through the impugned G.O.gives retrospective, the same is in consonance with the law. 5.10. In para 9, it is admitted that though the process of distillation of rectified spirit and redistillation of impure spirit is same, these two kinds of spirit can be easily identified by subjecting them to chemical analysis, as the rectified spirit which is obtained from molasses by way of distillation will contain lesser concentration of impurities, whereas in impure spirit, the concentration of impurities would be more. It is stated that rectified spirit can be straightaway blended for producing IMFS products whereas impure spirit will not be suitable for blending, as the resultant IMFS products would cause nausea, vomiting, headache, hangover etc., for the reason that the resultant IMFS products would contain more concentration of impurities, such as fusel oil, acetic acid, aldehyde etc. 5.11. Further, in para 10, the respondents admit that the processing of impure spirit either separately or mixed with the next batch of rectified spirit, is intended to extract maximum amount of extra neutral alcohol, which in turn go into production of more IMFS products, resulting in more revenue to the Government. But, it is stated that as the cost of impure spirit would be lesser compared to that of rectified spirit, there is every possibility for its diversion for illicit manufacture of liquor, which in turn would result in loss of revenue to the Government and the health of the consumers also will be affected by impurities contained in such spirit. 5.12. Therefore, the contention of the Government is that though the Government is likely to get more revenue and there is a possibility for diversion for illicit manufacture, the G.O.is not against to the public spirit. It is stated that the allowance of 3% has been given for the loss in the entire process of distillation of rectified spirit and re-distillation of impure spirit and handling loss and since impure spirit is redistilled, there is no justification for giving another allowance for loss when it is again purified. It is also stated that in the initial stages, the loss of spirit was around 5%, which was more than the prescribed allowance. Hence, a notice was issued to the writ petitioner to remit the penalty amount for the loss of spirit occurred during the purification period from 05.10.1987 to 11.11.1987 and release of further quantity of rectified spirit for purification was also deferred and the writ petitioner has represented that the above penalty is on high side and requested for reduction and they remitted a fixed deposit of Rs.50,000/- in favour of the Commissioner of Prohibition and Excise and furnished an indemnity bond to pay the penalty amount, in the event of their request being negatived and taking all into consideration, time was given up to 31.01.1988 in order to improve the efficiency of the spirit purification plant and the refixation of admissible wastage might be done and after taking into account the fact that the loss of spirit has stabilised subsequently to 3%, rules were amended for making the provisions therein fixing the allowance for loss of spirit during purification as 3% and also for levy of penalty at Rs.16/- for proof litre. 5.13. It is stated that the petitioner having agreed to pay the penalty, now, cannot make a demand that imposing of penalty is illegal, and there are no merits in the writ petitions. 6. A reply affidavit has been filed by the petitioner, stating that they have assured that no process wastage would be claimed on the quantity of impure spirit thus mixed for purification, but they have not given any undertaking that they would not claim any allowance for the loss of spirit during further re-processing