Court upholds distillery classification and price-fixing power, dismisses writ appeals, allows reclassification review.

The court upheld the classification of distilleries into captive and non-captive units based on production cost differentials. Distilleries cannot challenge prices post-supply if they accepted them without protest initially. The state's power to fix prices of rectified spirit was affirmed, with restrictions on imposing excise duty. An additional appellant's grievance for reclassification was acknowledged for examination within three months. Writ appeals were dismissed, except for the reclassification review, with each party bearing its costs.

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Issues Involved:
1. Classification of distilleries into captive and non-captive units.
2. Whether distilleries can question the price of rectified spirit post-supply without prior protest.
3. State's power to fix prices of rectified spirit produced by petitioner-distilleries.

Issue-wise Detailed Analysis:

Re: Classification of Distilleries into Captive and Non-Captive Units
The classification of distilleries into captive and non-captive units is based on an intelligible differentia. The cost of production of rectified spirit varies depending on whether a distillery has raw material (molasses) available on-site or has to purchase and transport it from other sugar mills. The Chartered Accountant's report indicated that captive units, which do not incur transportation and tax costs on molasses, have a lower production cost compared to non-captive units. This classification ensures that the cost of rectified spirit supplied to arrack contractors is uniform, regardless of the distillery's status. The classification was deemed rational and legally sound.

Re: Distilleries Questioning Price Post-Supply Without Prior Protest
The distilleries supplied rectified spirit without demur or protest, and only later sought to challenge the price fixed by the government. The contracts of sale were conditioned by the government order fixing the price. The distilleries were aware of the price at all relevant times and did not raise any objections before making the supplies. The Sale of Goods Act, 1930, stipulates that the price in a contract of sale can be fixed by the contract or determined by the course of dealings between the parties. In this case, the price was fixed by the government order, and the distilleries accepted it by their conduct. The principle of estoppel by conduct applies, preventing the distilleries from later demanding a higher price. The court held that the distilleries are not entitled to a higher price than what was stipulated in the government order.

Re: State's Power to Fix Prices of Rectified Spirit
The Supreme Court in Deccan Sugar and Abkari Company Limited v. Commissioner of Excise, Andhra Pradesh, held that the state can levy excise duty only on potable liquor fit for human consumption, and rectified spirit does not fall under this category. Consequently, the state cannot impose excise duty on rectified spirit. Although the state has the authority to regulate the manufacture, transportation, and use of rectified spirit to prevent its misuse, the court did not find it necessary to delve into these arguments in detail for this case. The appeals were determined based on the answers to the first two questions.

Additional Grievance of Appellant in W.A. No. 7354 of 1999
The appellant in W.A. No. 7354 of 1999 claimed to be wrongly classified as a captive unit and sought reclassification as a non-captive unit. The respondents acknowledged the representation and assured it would be examined. The court directed the competent authority to examine the appellant's claim for reclassification within three months from the date of serving a copy of the order.

Conclusion
Writ Appeal Nos. 8220 and 7352 of 1999 were dismissed. W.A. No. 7354 of 1999 was allowed to the extent that the competent authority must examine the appellant's claim for reclassification within three months. Each party was directed to bear its own costs.

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