State power over industrial alcohol ends at denaturation, so permit fee on denatured spirit was invalid.

Denatured spirit, as industrial alcohol and not alcoholic liquor for human consumption, falls outside the State's regulatory competence for levy of permit fee under Rule 22 of the Punjab Liquor Permit and Pass Rules, 1932. The State may regulate industrial alcohol only to prevent diversion into potable liquor, but that power ends once the spirit is denatured. On that basis, the amended notification enhancing the permit fee was treated as an impermissible impost beyond legislative competence. The levy and its enhancement on denatured spirit were held invalid and unsustainable in favour of the assessee.

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Issues: Whether the State had legislative competence to levy and enhance permit fee under Rule 22 of the Punjab Liquor Permit and Pass Rules, 1932 on denatured spirit used as industrial alcohol, and whether the impugned notification enhancing the fee was valid.

Analysis: Denatured spirit, being industrial alcohol and not alcoholic liquor for human consumption, falls outside the State's regulatory field so far as levy of such permit fee is concerned. The Constitution Bench and later authority relied upon in the judgment recognised that the State may regulate to prevent diversion of industrial alcohol into potable liquor, but its power ends with denaturation and does not extend to controlling denatured spirit as such. The levy under Rule 22, as amended, was therefore treated as an impermissible impost on an area beyond the State's competence.

Conclusion: The levy and its enhancement on denatured spirit were held invalid and unsustainable, in favour of the assessee.

Ratio Decidendi: A State cannot levy permit fee on denatured spirit, since industrial alcohol is not alcoholic liquor for human consumption and State regulatory power does not extend beyond denaturation.

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