Case: Southern Pharmaceuticals and Chemicals Trichur and Others Vs. State of Kerala and Others Etc

v. Zenith Lamp and chemicals Ltd. supra). The cost of supervisory charges can be sustained even if they are regarded as a fee for services rendered by the State or its instrumentalities. 34. The last ground on which the appellants took their stand is even less tenable. It is urged that r. 13 of the Kerala Rectified Spirit Rules, 1972, providing for the levy of excise duty on excess wastage of alcohol in the manufacture of medicinal and toilet preparations cannot be supported in terms of the charging provision contained in s. 17 of the Act. Rule 13 reads as follows:13(1) If the rectified spirit imported or purchased P under these rules is used for the manufacture of medicinal and toilet preparations which duty of excise is leviable under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (Centra l Act 16 of 1955), no duty shall be collected under the Abkari Act 1 of 1077 on so much quantity of alcohol, as is present in the finished product. (2) The assessment of duty under the Medicinal and Toilet Preparations Excise Duties) Act, 1955 (Central Act 16 of 1955) being applicable only to the quantity of spirit existing in the finished product, all spirit wasted during the course of manufacture of any medicinal or toilet preparation shall be assessable to duty under the Abkari Act, 1 of 1077. Provided that the Government may, in consultation with the Drugs Controller and the Chemical Examiner, by notification in the Gazette. permit such allowance a s they think fit for such wastages occurring during the manufacture. 35. No exception is taken to r. 13(1) which provides that no duty shall be collected under the Act on so much quantity of alcohol "as is present in the finished product ". The objection is to the validity of r. 13(2) in so far as it enables the levy of duty on excess wastage of alcohol. We find it difficult to appreciate the contention that r. 13(2) cannot be supported in terms of the charging provision in s. 17(f ). Rule 13(2) is nothing but a corollary of r. 13(1). On a combined reading of s. 17(f) and r. 8 read with the proviso thereof, no duty is chargeable on alcohol actually used in the manufacture of medicinal and toilet preparations. The Government fully realised that some margin for wastage should be allowed and, therefore inserted the proviso to r. 13(1). It provides that the Government may, in consultation with the Drugs Controller and the Chemical Examiner, by notification in the Gazette, permit such allowance as they think fit for such wastages occurring during the manufacture. Beyond the permissible limit, the State has the right to levy a duty on excess wastage of alcohol, i.e. On alcohol not accounted for. 36. In the connected Special Leave Petition, the petitioner, P. Krishna Wariyar, Managing Trustee, Arya Vaidyasala, Kottakkal, who is engaged in the business of manufacture for sale of ayurvedic medicinal preparations, challenges the validity of ss. 12A, 56A and 68A of the Act and rr. 5, 6 and 7 of the Kerala Spirituous Preparations Rules. 1969. Apart from the question of legislative competence, two other grounds were raised: (1) the power to restrict the quantity of medicinal preparations to be manufactured, by the Commissioner under s. 12 cannot be exercised in relation to ayurvedic preparations as alcohol is self-generated in the process of manufacture; and (2) the impugned provisions off end against Art. 301 of the Constitution. As regards the Rules, it was generally said that they constitute unreasonable restrictions on the fundamental right guaranteed under Art. 19(1) (g) of the Constitution. None of these contentions can prevail. 37. It is to be observed that restriction imposed by s. 12A of the Act as to the quantity of medicinal preparations to be manufactured relates not only to such preparations to which alcohol is added, but also to medicinal preparation s in which alcohol is self-generated. There can be no doubt that ayurvedic asavas and aristhas which are capable of being misused as alcoholic beverages can come within the purview of the definition of liquor contained in s. 3(10) of the Ac t being of the Spirituous Preparations (Control) Rules, 1969 liquids containing alcohol The contention that Note to r. 3(1) is an unreasonable restriction on the freedom of trade guaranteed under Art. 19(1) (g) of the Constitution has no substance. It provides that unless otherwise declared by the Expert Committee, asavas and aristas and other preparations containing alcohal are deemed to be spurious if their self-generated alcohol content exceeds 12% by volume. It is a matter of common knowledge that such preparations are always likely to be misused as a substitute for alcoholic beverages and, therefore, the restriction imposed by s. 12A is a reasonable restriction within the meaning of s 19(6) of the Constitution, 38. So far as the contention based on Art. 301 of the constitution is concerned, it is urged that there is demand for the petitioners medicinal preparations not only in the State, but throughout the country and to limit the quantity to be manufactured, taking into account the requirements of the State alone, is but an abridgment on the freedom of inter-State trade and commerce. In our opinion, s. 12A has no such effect. As already stated, the expression shall have regard to as interpreted by the Judicial Committee in the Ryots of Garobandhos case (supra), means shall take into consideration. All that the provision enjoins is that the Commissioner shall have regard to the total requirements for consumption and use in th e State, while fixing the quantity of the medicinal preparations to be manufactured. Furthermore, the challenge with regard to Art. 301 does not arise as, admittedly, the Bill was reserved for the assent of the President, and is, therefore, protected by Art. 304(b) of the Constitution. It is not disputed that the provisions are regulatory in nature and they impose reasonable restrictions on the freedom of trade. 39.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The supervisory staff which has to be paid for under r. 36 therefore is meant for the supervision of the manufacture of medicinal preparations and it is for that purpose only that expenses have to borne by the laboratory concerned. The purpose of the rule therefore is clearly covered by the Act an d the Rules framed thereunder and it cannot survive the Act and the rules in view of s. 21 of the Act and r 143 of the 1956-Rules, and the proviso to s 21 cannot be availed of by the State.While repelling the contention that r. 36 could still be good law as it was meant to carry out the general law relating to alcohol and intoxicating drugs, the Court pointed out that the Central Rules make no provision for recovery of supervisory charges, the intention being that the duty under the Act would cover all expenses for enforcing it and observed (1)We are of opinion that there is no force hl this contention either. In the first place, as we have already indicated, the main object of the supervisory staff mentioned in r. 36 is to supervise the manufacture of medicinal preparations. In that connection the supervisory staff will certainly see that the alcohol supplied is used for the purpose for which it is supplied and it is not used in any other manner. Rule 36 is only concerned with seeing that the manufacture of medicinal preparations is made properly and is done under the supervision of the establishment attached to each laboratory; and it is only incidentally that in that connection the establishment is also to see that the alcohol supplied is not used otherwise than for the purpose of manufactureIt is not disputed by the appellants that the impugned Act does not levy a duty of excise on medicinal and toilet preparations containing alcohol, but they contend that, whatever be the intention, the State Legislature had, in fact, encroached upon an occupied field. The contention is, in our opinion, wholly misconceived. The main purpose of the impugned Act is to consolidate the law relating to manufacture, sale and possession of intoxicating liquor and intoxicating drugs which squarely falls under Entry 8, List II of the Seventh Schedule, while the main object of the Central Act is to provide for the levy and collection of duties of excise on medicinal and toilet preparations containing alcohol falling under Entry 84, List I of the Seventh Schedule. When the frame-work of the two enactments is examined, it would be apparent that the Central and the State Legislations operate in two different and distinct fields. In the matter of making rules or detailed provisions to achieve the object and purpose of a legislation, there may be some provisions seemingly overlapping or encroaching upon the forbidden field, but that does not warrant the striking down the impugned Act as ultra virus the State Legislature.The alternative contention that the impugned provisions are violative of Art. 19(1)(g) of the Constitution, is wholly devoid of any merit. No citizen ha s any fundamental right guaranteed under Art. 19(1)(g) of the Constitution to carry on trade in any noxious and dangerous goods like intoxicating drugs or intoxicating liquors. The power to legislate with regard to intoxicating liquor carries wi th it the power to regulate the manufacture, sale aud possession of medicinal and toilet preparations containing alcohol, not for the purpose of interfering with the right of citizens in the matter of consumption or use for bona fide medicinal and toilet preparations, but for preventing intoxicating liquors from being passed on under the guise of medicinal and toilet preparations. It was within the competence of the State Legislature to prevent the noxious use of such preparations, i.e. their use as a substitute for alcoholic beveragesThe general test for determining what medicinal preparations containing alcohol are capable of being misused and, therefore, must be considered intoxicating within the meaning of the term intoxicating liquor, is the capability of the article in question tor use as a beverage. The impugned provisions have been enacted to ensure that rectified spirit is not misused under the pretext of being used for medicinal and toilet preparation s containing alcohol. Such regulation is a necessary concomitant of the police power of the State to regulate such trade or business which is inherently dangerous to public healthIt is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the tax-payers consent and the payment is enforced by law. A The second characteristic of tax is that it is an imposition made for public purpose withou t reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when collected forms part of the public revenues of the State. As the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of quid pro quo between the tax payer and the public authority. Another feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the tax payer depends gene rally upon his capacity to pay.Coming now to fees, a fee is generally defined to be a charge for a special service rendered to individuals by some Governmental agency. The amount of fee levied is supposed to be based on the expenses incurred by the Government in rendering the service, though in many cases the costs are arbitrarily assessed. Ordinarily, the fees are uniform and no account is taken of the varying abilities of different recipients to pay. These are undoubtedly some of the general characteristics, but as there may be various kinds of fees, it is not possible to formulate a definition that would be applicable to all casesTo our mind, these observations are not intended and meant as laying down a rule of universal application. The Court was considering the rate of a market fee, and the question was whether there was any justification for the increase in rate from Rs. 2/- per every hundred rupees to Rs. 31-. There was no material placed to justify the increase in rate of the fee and, therefore, it partook the nature of a tax. It seems that the Court proceeded on the assumption that the element of quid pro quo must always be present in a fee. The traditional concept of quid pro quo is undergoing at seems obvious that. in the case of a manufacturer of medicinal and toilet preparations containing alcohol in a bonded manufactory, the imposition of the cost of establishment under s. 14(e) of the Act calculated in accordance with the nature and extent of that establishment could not be said to be an imposition of a duty of excise, but is a price for his franchise to carry on the business. If an exaction is to be classed as a duty of excise, it must, of course, be a tax; its essential distinguishing feature is that it is a tax imposed "upon" or "in respect of or "in relation to" goods: Matthews v. Chickory Marketing Board (l). The exaction is in truth, as it purports to be, simply a fee payable as a con dition of a right to carry on a businessThere is admittedly no provision made in the Central Rules for the recover of supervisor charges, perhaps because as the Court Observed in the Hyderabad Chemicals and Pharmaceuticals case A (supra) it was felt that the duty on medicinal and toilet preparations containing alcohol would be sufficient to defray the cost of such supervision. But the absence of such a provision in the Central Rules, as we have already indicated, does not deprive the State from making a provision in that behalf. It is true that the supervisory charges are in the nature of a compulsory exaction from a licensee and the collections are not credited to a separate fund, but are taken to the consolidated fund of the State and are not separately appropriated towards the expenditure incurred in rendering the serviceIt is to be observed that restriction imposed by s. 12A of the Act as to the quantity of medicinal preparations to be manufactured relates not only to such preparations to which alcohol is added, but also to medicinal preparation s in which alcohol is self-generated. There can be no doubt that ayurvedic asavas and aristhas which are capable of being misused as alcoholic beverages can come within the purview of the definition of liquor contained in s. 3(10) of the Ac t being of the Spirituous Preparations (Control) Rules, 1969 liquids containing alcohol The contention that Note to r. 3(1) is an unreasonable restriction on the freedom of trade guaranteed under Art. 19(1) (g) of the Constitution has no substance. It provides that unless otherwise declared by the Expert Committee, asavas and aristas and other preparations containing alcohal are deemed to be spurious if their self-generated alcohol content exceeds 12% by volume. It is a matter of common knowledge that such preparations are always likely to be misused as a substitute for alcoholic beverages and, therefore, the restriction imposed by s. 12A is a reasonable restriction within the meaning of s 19(6) of theo far as thecontention based on Art. 301 of the constitution is concerned, it is urged that there is demand for the petitioners medicinal preparations not only in the State, but throughout the country and to limit the quantity to be manufactured, taking into account the requirements of the State alone, is but an abridgment on the freedom ofe trade and. In our opinion, s. 12A has no such effect. As already stated, the expression shall have regard to as interpreted by the Judicial Committee in the Ryots of Garobandhos case (supra), means shall take into consideration. All that the provision enjoins is that the Commissioner shall have regard to the total requirements for consumption and use in th e State, while fixing the quantity of the medicinal preparations to be manufactured. Furthermore, the challenge with regard to Art. 301 does not arise as, admittedly, the Bill was reserved for the assent of the President, and is, therefore, protected by Art. 304(b) of the Constitution. It is not disputed that the provisions are regulatory in nature and they impose reasonable restrictions on the freedom of trade.