Case: THE STATE OF JHARKHAND AND ORS Vs. M/S AJANTA BOTTLERS AND BLENDERS PVT LTD

within reasonable limits the number of those who may engage in it.?58. In the view we have taken, the argument that the Government cannot by contract do what it cannot do under a statute must fail. No statute forbids the Government from trading in its own rights or privileges and the statute under consideration, far from doing so, expressly empowers it by Sections 27 and 34 to grant 11 44 L Ed 728 12 52 L Ed 578 13 52 L Ed 581 leases of its rights and to issue the requisite licences, permits or passes on payment of such fees as may be prescribed by the Financial Commissioner.59. The argument that in Cooverjee case the impugned power having been exercised in respect of a centrally administered area, the power was not fettered by legislative lists loses its relevance in the view we are taking. It is true that in that case it was permissible to the Court to find, as in fact it did, that the fee imposed on the licensees was?more in the nature of a tax than a licence fee?. As the authority which levied the fee had the power to exact a tax, the levy could be upheld as a tax even if it could not be justified as a ?fee?, in the constitutional sense of that term. But the ?licence fee? or ?fixed fee? in the instant case does not have to conform to the requirement that it must bear a reasonable relationship with the services rendered to the licensees. The amount charged to the licensees is not a fee properly so-called nor indeed a tax but is in the nature of the price of a privilege, which the purchaser has to pay in any trading or business transactions.? (emphasis supplied)13. Indeed, if the State legislation was to provide for levy on the imported rectified spirit per se the same would be without jurisdiction, as consistently held, including by the Constitution Bench in Deccan Sugar & Abkari Co. Ltd. Vs. Commissioner of Excise, A.P. 14 , paragraph No.2 of this decision, which reads thus:?2. It is settled by the decision of this Court in Synthetics and Chemicals Ltd. v. State of U.P. that the State Legislature has no jurisdiction to levy any excise duty on rectified spirit. The State can levy excise duty only on potable liquor fit for human consumption and as rectified spirit does not fall under that category the 14 (2004) 1 SCC 243 State Legislature cannot impose any excise duty. The decision in Synthetics and Chemicals Ltd. v. State of U.P. has been followed in State of U.P. v. Modi Distillery 15 where certain wastage of ethyl alcohol was sought to be taxed. This Court following the decision in Synthetics and Chemicals Ltd. came to the conclusion that this cannot be done.?14. The next question is whether the levy is in the nature of tax or excise duty. If it is a case of excise duty on potable liquor produced by use of imported rectified spirit, the State has jurisdiction to legislate in respect of duty on the production or manufacture of such goods produced or manufactured within the State. In the present case, we find merits in the submissions of the appellant State that the impost is neither in the nature of a tax nor excise duty but it is towards the charges by whatever name, for regulating the production of potable liquor to preserve public health and morality including for parting with its rights or privileges regarding manufacture, supply or sale of potable liquor or intoxicating liquor and to regulate the use of imported rectified spirit for production and sale of potable liquor. In such a case, the State need bear no quid pro quo to the services rendered to the licencee for production of foreign liquor (IMFA). 15 (1995) 5 SCC 753 15. The fact that the manufacturer-respondent has already obtained requisite licences for import of rectified spirit and production of foreign liquor (IMFA) on payment of fixed rates does not mean that the State has surrendered all facets of its rights in respect of every form of activity in relation to potable liquor – its manufacture, storage, export, import, sale and possession. The amended provision is an enabling provision authorising the State to levy charges or impost for ceding its one or more of the activity in respect of foreign liquor (IMFL) produced by use of imported rectified spirit. Such impost can be in addition to the general power of the State to issue licence on payment of fees for production and sale of potable liquor. As observed in Har Shankar (supra), in paragraph No.56, the State need bear no quid pro quo to the services rendered to the licensees of producer of foreign liquor.16. The respondent, however, placed heavy reliance on the decision in State of U.P. & Ors. Vs. Vam Organic Chemicals Ltd. and Ors. 16 , to contend that the State is obliged to justify the impost based on quid pro quo. We are afraid, this decision is of no avail to the respondent. In that case, the Court was dealing with 16 (2004) 1 SCC 225 challenge to Rule 3(a) therein on the ground that the State Legislature did not have legislative competence to legislate on ?denatured spirit? which is unfit for human consumption. In that context, this Court relied on the decision in Synthetics and Chemicals Ltd. and Ors. Vs. State of U.P. and Ors. 17 and answered the issue. If the case under consideration was to be regarding legislation on imported rectified spirit as such, this decision would have come handy. However, having opined that the purport of the impugned Rule 106(Tha), is to permit impost on the final processed product being foreign liquor ?IMFL?, before bottling as fit for human consumption, the State has jurisdiction to legislate on that subject and need bear no quid pro quo to the services rendered to the licencee of manufacturer of foreign liquor (IMFL).

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

Explanation:
1[ds]10. We have adverted to the above-mentioned process, noted in the written submissions filed by the appellant, so as to give proper interpretation to the impugned notification and the subject rules, in particular Rule 106(Tha). English version of the said rule noted in the notification (as translated by the official translator of this Court reproduced in paragraph 2 above), in our opinion, makes it amply clear that the levy or impost fructifies only upon completion of distillation process (in two stages- first from rectified spirit to ENA and then from ENA to IMFL) and in particular converting into a final product ?IMFL?. The collection of impost is, however, deferred until the bottling of that product. In other words, the levy is not at the stage of import of rectified spirit within the State; nor at the stage of initial distillation thereof to Extra Neutral Alcohol (ENA) and not until the product IMFL is ready for bottling as such. Thus, the levy under the impugned rule ripens or fructifies only after the original raw material (imported rectified spirit) has undergone distillation process at two different stages and transmute and mutate into an intoxicant or potable alcohol palatable to human consumption, but its (impost) collection is effected just before bottling it in that form (potable liquor). Indeed, the levy predicated in this rule is on the total quantity of imported rectified spirit utilised for mutating it in the form of IMFL, a new produce. The last part of the rule stipulates the quantum of charges to be levied on such utilized imported rectified spirit for production of the foreign liquor. For that limited purpose, the quantity of imported rectified spirit utilized in the production of potable liquor, is reckoned.11. Reading the impugned provision as a whole and line by line or word by word in this perspective, it must follow that the substance of the provision is to levy charges on the product IMFL produced or manufactured by use of imported rectified spirit. In that sense, the levy is not on the input (imported rectified spirit) of the final product as such but is on the manufactured or produced product being potable alcohol palatable to human consumption. For the purposes of computing the levy, the yardstick of Rs.6 per LPL on the total quantity of imported rectified spirit utilized for production of IMFL is reckoned. Thus, the impost is not on the imported rectified spirit as such but only on the produced foreign liquor before it is bottled for sale in the wholesale or retail market, as the case may be. If so understood, the whole edifice of the argument of respondents regarding the interpretation of the impugned rule must collapse. For, the challenge to the impugned rule is on the assumption that it permits the competent authority to levy charges on the imported rectified spirit and not fit for human consumption but which has the potency of being used for producing intoxicants or potable liquor though exclusively meant for industrial purposes. Once that assumption is discounted or disregarded, nothing more survives for consideration. We say so because, it is well established that the State may pass any legislation in the nature of prohibition of potable liquor referable to Entry 6 and 8 of List II and may also laydown regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol. Had it been the case of levy on non- potable alcohol (imported rectified spirit) per se, only then the question about the competency of the State Legislature or the justness of the levy on the doctrine of quid pro quo may become relevant. However, if it is a case of legislation in respect of potable alcohol, as has been noted by us hitherto, the State would be competent to legislate in that regard and levy charges – be it for regulating the same or impost for parting with its rights regarding manufacture, storage, export, sale and possessionit is a case of excise duty on potable liquor produced by use of imported rectified spirit, the State has jurisdiction to legislate in respect of duty on the production or manufacture of such goods produced or manufactured within the State. In the present case, we find merits in the submissions of the appellant State that the impost is neither in the nature of a tax nor excise duty but it is towards the charges by whatever name, for regulating the production of potable liquor to preserve public health and morality including for parting with its rights or privileges regarding manufacture, supply or sale of potable liquor or intoxicating liquor and to regulate the use of imported rectified spirit for production and sale of potable liquor. In such a case, the State need bear no quid pro quo to the services rendered to the licencee for production of foreign liquor (IMFA). 15 (1995) 5 SCC 753  15. The fact that the manufacturer-respondent has already obtained requisite licences for import of rectified spirit and production of foreign liquor (IMFA) on payment of fixed rates does not mean that the State has surrendered all facets of its rights in respect of every form of activity in relation to potable liquor – its manufacture, storage, export, import, sale and possession. The amended provision is an enabling provision authorising the State to levy charges or impost for ceding its one or more of the activity in respect of foreign liquor (IMFL) produced by use of imported rectified spirit. Such impost can be in addition to the general power of the State to issue licence on payment of fees for production and sale of potable liquor. As observed in Har Shankar (supra), in paragraph No.56, the State need bear no quid pro quo to the services rendered to the licensees of producer of foreign liquor.16. The respondent, however, placed heavy reliance on the decision in State of U.P. & Ors. Vs. Vam Organic Chemicals Ltd. and Ors. 16 , to contend that the State is obliged to justify the impost based on quid pro quo. We are afraid, this decision is of no avail to the respondent. In that case, the Court was dealing with 16 (2004) 1 SCC 225 challenge to Rule 3(a) therein on the ground that the State Legislature did not have legislative competence to legislate on ?denatured spirit? which is unfit for human consumption. In that context, this Court relied on the decision in Synthetics and Chemicals Ltd. and Ors. Vs. State of U.P. and Ors. 17 and answered the issue. If the case under consideration was to be regarding legislation on imported rectified spirit as such, this decision would have come handy. However, having opined that the purport of the impugned Rule 106(Tha), is to permit impost on the final processed product being foreign liquor ?IMFL?, before bottling as fit for human consumption, the State has jurisdiction to legislate on that subject and need bear no quid pro quo to the services rendered to the licencee of manufacturer of foreign liquor (IMFL).