2015 (8) TMI 587 - SC - VAT and Sales Tax

Supreme Court Upholds Administrative Fee on Industrial Alcohol, Sets Precedent on Regulatory Fees

Kalyan Chemicals Versus Government of A.P. & Others

The Supreme Court upheld the legality of the Administrative Fee on industrial alcohol at a rate of 50 paise per bulk litre, with retrospective effect, in ... Levy of Administrative Fee at the rate of 50 paise per bulk litre - industrial alcohol obtained from a distillery. - Competency of State legislature - Held that:- Appellant contends that the abovementioned amendment cannot be given retrospective effect, and that the fees should be levied at the rate of 7 paise per litre, since this amount was found to be “reasonable and proper” in Vam Organics Chemicals Ltd [1997 (1) TMI 512 - SUPREME COURT OF INDIA] - No ground has been made out for the former contention - 7 paise was deemed to be reasonable on the facts of that case which does not in any way indicate that a larger amount would be excessive especially with the passage of time. We have discussed when administrative and service charges can be recovered along with the relevant case law in some detail in our judgment of even date in the Appeal titled as State of Tamil Nadu vs. Tvl. South Indian Sugar Mills [2015 (8) TMI 588 - SUPREME COURT], which should be adverted to in the interests of avoiding prolixity. We uphold the High Court’s finding that in light of Synthetics and Chemicals Limited [1989 (10) TMI 214 - SUPREME COURT OF INDIA] and Vam Organics Chemicals Ltd., the subject Regulatory Fees intended to prevent the conversion of alcoholic liquor for industrial use to that for human consumption is legal, and need not be strictly quid pro quo as long as it is not excessive - Decided against assessee. Issues:Challenge to the legality of levy of Administrative Fee on industrial alcohol obtained from a distillery. Retroactive effect of the amendment to Rule 3 of the Andhra Pradesh Denatured Spirit and Denatured Spirituous Preparations Rules, 1971. Reasonableness of the Administrative Fee at the rate of 50 paise per bulk litre. Applicability of quid pro quo principle in levying regulatory fees on industrial alcohol.Issue 1: Challenge to the legality of levy of Administrative FeeThe Appellant contested the legality of the levy of an Administrative Fee at the rate of 50 paise per bulk litre on industrial alcohol obtained from a distillery. The Appellant argued that the collection of such a fee without providing any service was illegal, arbitrary, and unjustified. The High Court, citing the case of Synthetics and Chemicals Limited, emphasized that regulatory fees could be imposed by the State to prevent the conversion of alcoholic liquors for industrial use to those for human consumption. The High Court also referred to the case of Vam Organics Chemicals Ltd., where the Supreme Court held that as long as alcoholic preparations could be diverted to human consumption, States had the power to legislate and impose taxes. The High Court found that the Administrative Fee was legal and not excessive.Issue 2: Retroactive effect of the amendment to Rule 3The Appellant argued that the amendment to Rule 3 of the 1971 Rules, introducing the Administrative Fee, could not be given retrospective effect. However, the Supreme Court upheld the retrospective effect of the rule, citing Section 72(3) of the Andhra Pradesh Excise Act, 1968, which allows rules to be made with retrospective effect. The Court found no grounds to support the contention that the rule could not have retrospective effect.Issue 3: Reasonableness of the Administrative FeeThe Appellant contended that the Administrative Fee should be levied at the rate of 7 paise per litre, citing a previous case where this amount was deemed reasonable. However, the Supreme Court found no merit in this argument, stating that the reasonableness of the fee in a previous case did not imply that a larger amount would be excessive, especially over time. The Court upheld the 50 paise per bulk litre Administrative Fee as reasonable.Issue 4: Applicability of quid pro quo principle in levying regulatory feesThe Appellant raised concerns regarding the quid pro quo principle in levying regulatory fees on industrial alcohol. The Supreme Court, referencing previous judgments, clarified that for regulatory fees like license fees, the existence of quid pro quo is not necessary, as long as the fee is not excessive. The Court upheld that the Regulatory Fees were intended to prevent the conversion of industrial alcohol for human consumption, and thus, did not need to strictly adhere to the quid pro quo principle as long as they were not excessive.In conclusion, the Supreme Court dismissed the Appeals, upholding the legality of the Administrative Fee on industrial alcohol, the retrospective effect of the rule amendment, the reasonableness of the fee at 50 paise per bulk litre, and the applicability of regulatory fees without strict adherence to the quid pro quo principle. The Court's decision was based on established legal principles and precedents, emphasizing the State's power to regulate and impose fees to prevent misuse of alcoholic liquors.