Case: State Of U.P.  Vs. Vam Organic Chemicals Ltd.

the regulation, and if we find that there is a broad co-relation between the expenditure and the fees charged, we should sustain the same." 41. The Court noticed the facts stated in the counter affidavits particularly setting up of a Headquarters laboratory and deployment of a good number of officers and employees who were engaged in manning the laboratory besides the staff which is posted at the distilleries. There was, according to the High Court, a broad co-relationship between the amount of fee charged and the expenses incurred for implementing and over seeing the regulation. The challenge to the levy of licence fee under Rule 2 was accordingly dismissed. As we have noted the appeal of Vam Organic was dismissed by this Court affirming this reasoning of the High Court because it found no reason to differ with it. 42. "Considering the various authorities cited, we are of the view that the State Government is competent to levy fee for the purpose of ensuring that industrial alcohol is not surreptitiously converted into potable alcohol so that the State is deprived of revenue on the sale of such potable alcohol and the public is protected from consuming such illicit liquor. But this power stops with the denaturation of the industrial alcohol. Denatured spirit has been held in Vam Organics I, to be outside the seisin of the State Legislature. Assuming that the denatured spirit may by whatever process be renatured, (a proposition which is seriously disputed by the respondents) and then converted into potable liquor this would not give the State the power to regulate it. Even according to the demarcation of the fields of legislative competence as envisaged in Bihar Distillery, industrial alcohol for industrial purposes falls within the exclusive control of the Union and according to Bihar Distillery "denatured spirit, of course, is wholly and exclusively industrial alcohol". 43. Besides, the fee is required to be justified with reference to the cost of such regulation. The industry is already paying a fee under Rule 2 for such regulation. Indeed the justification for levying the fee under Rule 3(a) is the identical justification given by the State for levying the fee under Rule 2. Presumably, a full complement of Excise Officers and staff are appointed by the State in the Excise Department to carry out their duties under the Act to oversee, control and keep duty on the various kinds of intoxicants under the Act. Having regard to the decision in Vam Organics I, we must also assume that apart from the normal strength, additional officers and staff were appointed to regulate the denaturation of the industrial alcohol. There is nothing to show that there has been any deployment of any additional staff to over-see the possibility of renaturation of the denatured spirit. 44. The question is (to borrow the language in Synthetics) whether in the garb of regulations a legislation which is in pith and substance, as we look upon the instant legislation, a fee or levy which has no connection with the cost or expenses administering the regulation, can be imposed purely as a regulatory measure. Judged by the pith and substance of the impugned legislation, we are definitely of the opinion that these levies cannot be treated as part of regulatory measures." The State has not produced any material to show that it was incurring any additional cost for any further regulation of denatured spirit. Any trace of a lingering doubt as to the propriety of the levy under Rule 3(a) must be taken to have been noted off effectively with the order passed by three Judges of this Court in the Writ Petition filed by Synthetics challenging the same levy as we have noted earlier. That order has resulted in granting Synthetics & Chemicals Ltd. relief from payment under Rule 3(a). The only distinction between the present respondents cases and Synthetics was that the respondents chose to challenge the levy before the High Court. That could be no rational basis for denying the respondents who are otherwise identically situated, the same relief. [See: Anil Kumar Neotia vs. Union of India (1998) 2 SCC 587]. In the absence of any such correlation the fee under Rule 3 is not a fee at all levied for the purpose of additional regulation or for any service rendered but is really a tax in the garb of a fee.45. The appeals must therefore be and are hereby dismissed. It appears from the records that since 1982 the High Court had passed interim orders in the series of writ petitions filed by the respondents challenging the validity of the imposition of the licence fee, staying the impugned levy. Separate writ petitions were filed in respect of the assessment years and interim orders obtained in respect of each year. For the excise year 1994-95 initially an order was passed staying the levy of the impugned licence fee subject to the respondents furnishing adequate security. This order was clarified on 2.9.1984 by allowing the respondents to furnish bank guarantee in respect of the licence fee for the excise year in question subject to which the levy was stayed. For the subsequent years the same interim order was passed. The respondent had therefore made no payment to the appellant of the licence fee but had furnished several bank guarantees which were kept renewed until the disposal of all the writ petitions by the High Court. After allowing the writ petition the High Court directed the discharge of the bank guarantees. Although this order was stayed when the appeal was admitted by this Court on 25.9.2000, there has been no collection of the disputed levy by the appellants. There is as such no question of any refund being directed of any amount by the appellant to the respondents. Where the levy itself has been held to be invalid, the State-appellant cannot be permitted to realize the amount recovered by the bank guarantees (See: Somaiya Organics vs. State of U.P. (2001) 5 SCC 519 para 35).

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

Explanation:
0[ds]g the various authorities cited, we are of the view that the State Government is competent to levy fee for the purpose of ensuring that industrial alcohol is not surreptitiously converted into potable alcohol so that the State is deprived of revenue on the sale of such potable alcohol and the public is protected from consuming such illicit liquor. But this power stops with the denaturation of the industrial alcohol. Denatured spirit has been held in Vam Organics I, to be outside the seisin of the State Legislature. Assuming that the denatured spirit may by whatever process be renatured, (a proposition which is seriously disputed by the respondents) and then converted into potable liquor this would not give the State the power to regulate it. Even according to the demarcation of the fields of legislative competence as envisaged in Bihar Distillery, industrial alcohol for industrial purposes falls within the exclusive control of the Union and according to Bihar Distillery "denatured spirit, of course, is wholly and exclusively industrial alcohol".Besides, the fee is required to be justified with reference to the cost of such regulation. The industry is already paying a fee under Rule 2 for such regulation. Indeed the justification for levying the fee under Rule 3(a) is the identical justification given by the State for levying the fee under Rule 2. Presumably, a full complement of Excise Officers and staff are appointed by the State in the Excise Department to carry out their duties under the Act to oversee, control and keep duty on the various kinds of intoxicants under the Act. Having regard to the decision in Vam Organics I, we must also assume that apart from the normal strength, additional officers and staff were appointed to regulate the denaturation of the industrial alcohol. There is nothing to show that there has been any deployment of any additional staff tothe possibility of renaturation of the denatured spirit.The question is (to borrow the language in Synthetics) whether in the garb of regulations a legislation which is in pith and substance, as we look upon the instant legislation, a fee or levy which has no connection with the cost or expenses administering the regulation, can be imposed purely as a regulatory measure.Judged by the pith and substance of the impugned legislation, we are definitely of the opinion that these levies cannot be treated as part of regulatory measures." The State has not produced any material to show that it was incurring any additional cost for any further regulation of denatured spirit. Any trace of a lingering doubt as to the propriety of the levy under Rule 3(a) must be taken to have been noted off effectively with the order passed by three Judges of this Court in the Writ Petition filed by Synthetics challenging the same levy as we have noted earlier. That order has resulted in granting Synthetics & Chemicals Ltd. relief from payment under Rule 3(a). The only distinction between the present respondents cases and Synthetics was that the respondents chose to challenge the levy before the High Court. That could be no rational basis for denying the respondents who are otherwise identically situated, the same relief. [See: Anil Kumar Neotia vs. Union of India (1998) 2 SCC 587]. In the absence of any such correlation the fee under Rule 3 is not a fee at all levied for the purpose of additional regulation or for any service rendered but is really a tax in the garb of a fee.45. The appeals must therefore be and are hereby dismissed. It appears from the records that since 1982 the High Court had passed interim orders in the series of writ petitions filed by the respondents challenging the validity of the imposition of the licence fee, staying the impugned levy. Separate writ petitions were filed in respect of the assessment years and interim orders obtained in respect of each year. For the excise yearinitially an order was passed staying the levy of the impugned licence fee subject to the respondents furnishing adequate security. This order was clarified on 2.9.1984 by allowing the respondents to furnish bank guarantee in respect of the licence fee for the excise year in question subject to which the levy was stayed. For the subsequent years the same interim order was passed. The respondent had therefore made no payment to the appellant of the licence fee but had furnished several bank guarantees which were kept renewed until the disposal of all the writ petitions by the High Court. After allowing the writ petition the High Court directed the discharge of the bank guarantees. Although this order was stayed when the appeal was admitted by this Court on 25.9.2000, there has been no collection of the disputed levy by the appellants. There is as such no question of any refund being directed of any amount by the appellant to the respondents. Where the levy itself has been held to be invalid, thecannot be permitted to realize the amount recovered by the bank guarantees (See: Somaiya Organics vs. State of U.P. (2001) 5 SCC 519 para 35).