TaxTMI 
TaxTMI 
1989 (10) TMI 214
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.... of 1973, R.P. Nos. 263, R.P. Nos. 264, R.P. Nos. 265, R.P. Nos. 266, R.P. Nos. 267, R.P. Nos. 268, R.P. Nos. 269 of 1980, C.A. No. 4384 of 1984, R.P. No. 17 of 1980, S.L.P. (C) No. 9974, S.L.P. (C) No. 10184, S.L.P. (C) No. 10276 of 1980, I.A. No. 1 of 1989, C.A. Nos. 466, C.A. Nos. 467 of 1980, C.A. Nos. 2191, C.A. Nos. 2192, C.A. Nos. 2193, C.A. Nos. 2194, C.A. Nos. 2195, C.A. Nos. 2198 of 1978, W.P. Nos. 4663, W.P. Nos. 4664 of 1978, R.P. Nos. 202, R.P. Nos. 203, R.P. Nos. 204 of 1980, C.A. No. 2248 of 1978, W.P. No. 182 of 1980 F.S. Nariman, M.H. Baig, A.B. Divan, Rajinder Sacher and Dr. L.M. Singhvi, Senior Advocates (R.N. Banerjee, K.J. John, Harish N. Salve, S.C. Sharma, S.S. Shroff, Mrs. P. Shroff, Ms. S. Sharma, J.B. Dadachanji, A.P. Hathi, S. Ganesh, S. Sukumaran, D.N. Misra, Mrs. A.K. Verma, Sandip I. Thakore, R.F. Nariman, P.H. Parekh, Shishir Sharma, Poppat, Ms. Shalini Soni, Ms. Sunita Sharma, M.L. Lahoty, Shiv Prasad Sharma, Himanshu Shekhar, D.D. Gupta, Ms. M. Gupta, A.T.M. Sampath, Mrs. Swaran Mahajan, Ms. Anuradha Mahajan, K.K. Mohan, Laxmi Kant Pandey, R.B. Mehrotra, K.C. Dua, K.R. Nagaraja, P.D. Sharma, V. Balachandran, O.P. Sharma, A.K. Sangal, Anil ....
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....4B of the U.P. Excise Act, 1910, as amended in 1972 and 1976 declaring exclusive privilege of the Government for manufacture and sale of foreign liquor as defined (which includes denatured spirit and industrial alcohol). Then there are Writ Petitions Nos. 3163 and 3164 of 1981 (All India Alcohol Based Industries Development Association v. State of Maharashtra) which challenge the amendment to section 49 of the Bombay Prohibition Act, 1949, treating exclusive privilege for State in liquor trade and imposing a transport fee of Rs. 1.15 per bulk litre. There is Writ Petition No. 4501 of 1978 (Chemicals & Plastics India Ltd. v. State of Tamil Nadu). Writ Petition No. 2580 of 1982 (Kolhapur Sugar Mills v. S.R. Hegde), which challenges the Bombay Prohibition Act, 1949, as amended from time to time along with Ordinance No. 15 of 1981 which amended the Bombay Prohibition Act, 1949 and section 49 added by reason of which the State was granted exclusive privilege of importing, exporting, transporting, manufacturing, bottling, selling, buying, processing or using any intoxicant. Thereafter, the Bombay Rectified Spirit (Transport-in- Bond) Rules, 1951, was amended and transport fee was increas....
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....untry. During the initial stages of the Constitution, the only well-known industrial sectors in India were iron and steel, textiles, jute and cement. The rest of the production was raw materials geared to feed and supply the industrial base of the foreign power. After independence, an Industrial Policy Resolution was adopted to achieve rapid industrialisation in a big way. In the last few decades, there has been a great transformation and tremendous upsurge not only in industry and commerce, but also in sophisticated technology and industries. The chemical, fertilizer, plastic and engineering industries are only some of the fields in industrial development. In this background, the views expressed previously relating to "intoxicating liquor" and "alcoholic liquor for human consumption" have to be borne in mind. It is, in this connection, also necessary to refer to article 47 of the Constitution. The said article which deals with the duty of the State to raise the level of nutrition and the standard of living and to improve public health, enjoins that the State shall regard the raising of the level of nutrition and the standard of living of its people and the improvement of public....
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....einbefore, claimed as a part of the exclusive privilege of the States to impose a levy as a consideration or price for manufacturing of and/or dealing with industrial alcohol. It is essential that there should be uniformity in the industry so that these are free from the vagaries and arbitrary and differential treatment meted out from State to State and even in the same State from time to time. Arbitrary and excessive imposts under the so-called privilege are a great disincentive for development of industries in the public interest and for industrial development in general and can render units unviable and sick. In the above background, it is necessary to refer to certain facts and as such it would be appropriate to refer to the facts and contentions in Writ Petition No. 182 of 1980, i.e., Synthetics & Chemicals Ltd. v. State of U.P., which is under article 32 of the Constitution, filed by M/s. Synthetics & Chemicals Ltd., a registered company in Bombay, and one Mr. A.K. Roy, director and shareholder of the said company. The respondents therein are the State of Uttar Pradesh and the Excise Commissioner, Uttar Pradesh. In the said writ petition, a notification of the State of ....
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....rnors' provinces and of the province of Burma from the functions of the Governor-General-in-Council. It was provided that any matter which is included in the List of provincial subjects set out in Part II of Schedule I of the said Act shall, to the extent of such inclusion, be excluded from any Central subject of which, but for such inclusion, it would form part. Part II of the Government of India Act, 1915, provided that any matter which is included in the provincial subjects set out in Pan II of the First Schedule shall, to the extent of such inclusion, be excluded from any Central subject of which, but for such inclusion, it would form part. Part II dealt with provincial subjects. Item 16 of Part II provided as under: "Excise, that is to say, the control of production, manufacture, possession, transport, purchase, and sale of alcoholic liquor and intoxicating drugs, and the levying of excise duties and licence fees on or in relation to such articles, but excluding, in the case of opium, control of cultivation, manufacture and sale for export." It appears that the Government of U.P. levied a vend fee on denatured spirit for the first time at 8 annas per bulk gallon, vide No....
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....ears that on 3rd April, 1948, the Constituent Assembly acting as the Dominion Legislature passed the Indian Power Alcohol Act, 1948, which received the assent of the Governor-General on the same day. By this Act, the Central Government took under its control the power alcohol industry. This was in pursuance of the declaration made by the Dominion Legislature under entry 34 of List I of the Seventh Schedule to the Government of India Act, 1935. The entry was: "Development of industries where development under Dominion control is declared by Dominion Law to be expedient in public interest". "Power alochol" was defined as meaning ethyl alcohol containing not less than 95.5 per cent by volume of ethanol measured at 60 degree F. corresponding to 74.4 over proof strength. It may be mentioned that rectified spirit is ethyl alcohol or ethanol with 96 per cent alcohol v/v. On dehydration, ethyl alcohol with 99.5 per cent volume of ethanol is produced. It was suggested that take over by the Dominion of the potable liquor industry was precluded by virtue of entries 29 and 31 of List II read with entry 34 of List I of the Government of India Act, 1935. It may be mentioned that the word "ind....
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....t is asserted by M/s. Synthetics & Chemicals Ltd., that one Tulsidas Kilachand, who had promoted the said company, was invited by the U.P. Government to set up a synthetic rubber factory in the State of Uttar Pradesh. It is stated that the Government of Uttar Pradesh assured the said Tulsidas Kilachand of the supplies of alcohol necessary for the factory up to 20 million gallons, on payment only of Rs. 7.50 per kilo litre as administrative charges. It is the case of M/s. Synthetics & Chemicals Ltd. that there was no assertion or claim or privilege on behalf of the State Government in respect of denatured spirit nor was the said company or its promoters informed that there might be a charge of rental or consideration for parting with any such privilege. On 30th December, 1960, the Government of U.P. issued a notification under section 4(2) of the U.P. Excise Act, 1910, by which all "rectified, perfumed, medicated and denatured spirits wherever made" was included under the definition of "foreign liquor". Thereafter, the said notification was embodied in rule 12 of the U.P. Excise Rules, 1910. On or about 28th November, 1952, the Power Alcohol Authority and Excise Commissioner of U....
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....e U.P. Legislature passed Act No. 5 of 1976 being U.P. Excise Amendment (Re-enactment and Validation) Act, 1976, inter alia, introducing sections 24A and 24B in the U.P. Excise Act, 1910, and making other amendments with retrospective effect. Sections 24A and 24B are as follow: "24-A. (1) Subject to the provisions of section 31, the Excise Commissioner may grant to any person a licence or licences for the exclusive or other privilege: (a) of manufacturing or of supply by wholesale, or of both; or (b) of manufacturing or of supplying by wholesale, or of both and selling by retail; or (c) of selling by wholesale (to wholesale or retail vendors); or (d) of selling by retail at shops (for consumption 'off' the premises only); any foreign liquor in any locality. (2) The grant of licence or licences under clause (d) of sub-section (1) in relation to any locality shall be without prejudice to the grant of licences for the retail sale of foreign liquor in the same locality in hotels and restaurants for consumption in their premises. (3) Where more licences than one are proposed to be granted under clause (d) of sub-section (1) in relation to any locality for the same p....
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.... which alcohol is used only as a solvent or processing agent and the product does not contain alcohol, which is generally recovered for reuse, such as cellulose and its derivatives, pectin, etc. (3) Form FL 41 for use in industries in which alcohol is used directly or alcohol is used as solvent or vehicle and appears in the final produce to some extent such as lacquers, varnishes, polishes, adhesives and anti-freezers, etc. The Allahabad High Court in W.P. No. 8069 of 1972, referred to hereinbefore, held that the State did not have the legislative competence to impose a tax under entry 8 of List II of the Seventh Schedule to the Constitution following the decision of Sheopat Rai v State of U.P. [1972] All LJ 1000. The High Court held that the power of regulation does not carry with it the power of taxation and thus vend fee could not be justified. The High Court also held that the levy could not be justified as a fee as there was no quid pro quo. It appears that in view of the judgment of the High Court, a telegram was issued to the distilleries by the Excise Commissioner that vend fee should not be charged from the petitioner. Instead the State Government resorted to imposit....
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....umption cannot be confined to consumption of beverages only. When liquor is put to any use such as manufacture of other articles, the liquor is all the same consumed. The State is empowered to declare what shall be deemed to be country liquor or foreign liquor. "Foreign liquor" is defined as meaning all rectified, perfumed, medicated and denatured spirit wherever made. Therefore, this Court in that case held that the plea that the Excise Commissioner had no right to accept payment in consideration for the grant of licence for the exclusive privilege for selling in wholesale or retail, foreign liquor which includes denatured spirit cannot be accepted. It was further held that the definition of "alcohol" includes both ordinary as well as specially denatured spirit. The specially denatured spirit for industrial purposes is different from denatured spirit only because of the difference in the quantity and quality of the denaturants. Specially denatured spirit and ordinary denatured spirit are classified according to their use and denaturants used. Therefore, the contention that specially denatured spirit for industrial purposes is different from the ordinary denatured spirit has no ....
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...., been treated as a class by themselves by all civilised communities." Review petition has been moved by Synthetics & Chemicals Ltd. which was purchaser or user and not manufacturer or dealer. It is contended that the Synthetics & Chemicals Ltd. were never manufacturers of denatured spirit and they were and have been purchasers of denatured spirit. It is contended that this Court in Synthetics & Chemicals Ltd.'s case [1980] 2 SCR 531, had proceeded on the basis that State's privilege is with respect to manufacture or sale of foreign liquor or denatured spirit. It is contended that they were not liable to pay the vend fee. The judgment aforesaid had not dealt with that submission and, therefore, it was claimed that there was an error and that this judgment should be reviewed. It was contended that the fee charged is not a vend fee but fee in respect of licence for possession of denatured spirit. It was contended that the judgment had not held that the purchasers are liable to pay vend fee. The State's appeal should have been dismissed and the petitioners' appeal should have been allowed, it was pleaded in the review petition. There was an error, it was contended. It may ....
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....by the order of this Court. Meanwhile, certain wholesale dealers in denatured spirit filed writ petitions in the High Court of Judicature at Allahabad, claiming refund of the vend fee paid by them. Against the judgment of the High Court of Allahabad dated 6th October, 1978, appeals were admitted being Civil Appeal Nos. 2191 to 2198 of 1978. All these have been disposed of by the Bench of two learned Judges of this Court, as mentioned hereinbefore. It appears that Kesar Sugar Works Ltd. filed writ petition challenging the validity both of licence fee and vend fee on the ground that the fees charged have all the characteristics of a duty of excise which is beyond the legislative competence of the State and that the alcohol industry is covered by the IDR Act. Writ Petitions Nos. 4663 and 4664 of 1978 were also disposed of by the judgment of this Court in Synthetics & Chemicals Ltd. [1980] 2 SCR 531. Notification was issued thereafter by the Government of U.P. in 1979 in exercise of powers under section 40, sub-section (1) of the U.P. Excise Act of 1910, read with clause (d) of sub- section (2) of the said section, amending the U.P. Excise (Amendment) Rules, 1979. By virtue of this ame....
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....duction, manufacture, possession, transport, purchase and sale of intoxicating liquors and drugs, the levy of duties of excise and countervailing duties of alcoholic liquor for human consumption and opium, Indian hemp and other narcotic drugs and narcotics and to provide for matters connected therewith in the State of Andhra Pradesh. Writ Petition No. 1892 of 1973 (Hindustan Polymers Ltd. v. State of Andhra Pradesh) challenges the Andhra Pradesh Distillery Rules, 1970, and Andhra Pradesh Rectified Spirit Rules, 1971. The Tamil Nadu Prohibition Act is also challenged in C.A. Nos. 466 and 467 of 1980 as well as Writ Petition No. 4501 of 1978. In all these the point is similar and we have heard learned counsel and the respective Advocates-General. Appearing for the petitioners S/Shri Nariman, Diwan, Baig and Banerjee and others have made their submissions. We have also heard Mr. Trivedi, learned Additional Advocate-General of U.P., Mr. Yogeshwar Prasad, Dr. Singhvi, Mr. Sanghi, learned Advocates-General of Andhra Pradesh and other States. We had also the advantage of the submissions made by learned Attorney-General on behalf of Union of India. It was submitted in the statemen....
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....t II is confined to potable liquor or includes all liquors. According to the Union of India, in view of the difference of language in entry 8 and entry 51 of List II, it is reasonably possible to take the view that intoxicating liquors include both liquors. It was submitted by the Union of India that there are no grounds for overruling Balsara's case [1951] SCR 682 decided in 1951, after 38 years, particularly when it has been followed and applied in later decisions. In that case it upheld the power of the States to completely prohibit, manufacture, sell, etc., of potable liquor, it struck down the provisions of the Bombay Act in so far as it imposed restrictions on medicinal and toilet preparations as violative of article 19(1)(f) of the Constitution. It is stated that this decision had proceeded on the basis that there could not be a complete prohibition in regard to medicinal preparations containing alcohol. Hence, it was submitted that so far as alcohol not fit for human consumption is concerned, it cannot be held that trade in such an article cannot be considered to be a noxious trade. It will be a noxious trade only where it is produced or manufactured for purposes of human c....
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....r to levy duties of excise on goods manufactured or produced in India including medicinal and toilet preparations containing alcohol or opium or Indian hemp or other narcotic drugs. But Parliament has no legislative competence to levy excise duty on (a) alcoholic liquor for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics (entry 84 of List 1). The State Legislature has legislative competence to levy excise duty on the following goods manufactured or produced in the State and countervailing duties on similar goods manufactured in India- (1) alcoholic liquor for human consumption; (b) opium, Indian hemp and narcotics. But learned Attorney-General emphasised that State Legislature has no power to levy excise duty on medicinal and toilet preparations which contain alcohol or opium or Indian hemp and other narcotic drugs in such medicinal and toilet preparations. Under entry 51 of List II the State Legislature, it was submitted by him, had no power to levy excise duty on industrial alcohol as the latter is not fit for human consumption. State Legislature has power to levy taxes on entry of goods in local areas for consumption, use or....
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....the State as recognised by article 47 of the Constitution. The State can, therefore, collect an amount called vend fee, shop rent, etc., for conferring on a citizen the right to manufacture and sell alcoholic liquors if it is for human consumption. This power cannot extend to industrial alcohol or alcohol contained in the medicinal or toilet preparations. According to the learned Attorney-General, there is no power to levy such rent or fee with regard to industrial alcohol because (a) industrial alcohol and alcoholic liquor for medicinal and toilet preparations cannot be completely prohibited; (b) as there is a right to carry on business in industrial alcohol any prohibition on manufacture of industrial alcohol would be violative of article 19(1)(g) of the Constitution. Accordingly, in the absence of a power to completely prohibit there will be no power to collect sums for conferring rights to manufacture or sell except the levy of taxes and fee. On behalf of the State of U.P. both the learned Additional Advocate- General Mr. Trivedi as well as Mr. Yogeshwar Prasad made exhaustive submissions and submitted that in order to appreciate the controversy it is necessary to real....
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....s a pre-Constitution levy. The U.P. Excise Act, 1910, and the vend fee levied thereunder were pre-Constitution Act/levy by a competent authority and will not cease to continue after the enforcement of the Constitution, merely because the authority lost its legislative competence over the subject-matter. It was submitted that the levy was a pre-Constitution levy, so saved under article 277 of the Constitution. According to the State of U.P., the law continued under article 277 and is not a law either under article 246 or under article 254 of the Constitution, so outside the purview of the Central Act. At the outset, it may be noted that in view of the subsequent amendments and the additions to the levies it cannot, in our opinion, be with legitimate force contended that the levies which are sought to be impugned in the present litigation are pre-Constitutional levies. So, these submissions on behalf of the State do not require any serious consideration. It was further submitted that the Union of India has no power to effect the levy as the levy was pre-Constitutional law and further as the expression "alcoholic liquor for human consumption" in List I and the residuary entry 97....
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....diluted to the requisite concentration for the concerned beverage and subjected to other processes like reduction, blending and flavouring, etc., and ethyl alcohol is further distilled for higher concentration- 99.4 per cent power alcohol and 100 per cent absolute alcohol. It was submitted that no alcohol as such is fit for human consumption, It was contended that the effect is ultimate consumption, whether delayed or instantaneous. The effect of alcohol is fatal, it was stated-may be spread out on long span or instant depending upon the concentration, dose and the person drinking it. Sleeping pills are illustrative, overdose puts the man to eternal sleep. It is in this background that we were reminded that the State being a welfare State, would be guilty in levying a lower levy on the alcohol. It is the duty of the State for being a welfare State to denature by incurring extra cost and effort. The industry does not need the denaturing. Our attention was drawn to various observations of Krishna Iyer, J., in P.N. Kaushal's case [1979] 1 SCR 122. There is indeed a great deal of attempts made by some for wrong utilisation of alcohol and thereby endangering the community and peop....
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....cisions, some of which have been referred to hereinbefore, it has been ruled that the charge is neither a fee nor a tax and termed it as privilege. The levy is on the manufacture, possession of alcohol. The rate of levy differs on its use, according to the State of U.P. The impost is also stipulated under the trading powers of the State under article 298 and it was contended that the petitioners and/or appellants were bound by the terms of their licence. It was submitted that the Parliament has no power to legislate on industrial alcohol, since industrial alcohol was also alcoholic liquor for human consumption. Entry 84 in List I expressly excludes alcoholic liquor for human consumption; and due to express exclusion of alcoholic liquor for human consumption from List I, the residuary entry 97 in List I will not operate as against its own legislative interest. These submissions have been made on the assumption that industrial liquor or ethyl alcohol is for human consumption. It is important to emphasise that the expression of the Constitution must be understood in its common and normal sense. Industrial alcohol as it is, is incapable of being consumed by a normal human being. The ex....
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.... of the Constitution, covers alcohol unfit for human consumption. The second issue, according to him, is, whether assuming that the entry does not include alcohol unfit for human consumption, its scope in that respect is curtailed because of item 26 of the Schedule to the IDR Act, 1951. The third issue, according to him, is, whether having regard to entry 51 in List II, the State can (a) impose regulations by creating economic disincentives for consumption of drinkable alcohol and (b) prevention of misuse of non-drinkable alcohol for consumption. On behalf of the State both Mr. Trivedi and Mr. Yogeshwar Prasad contended that regulatory power of the State was there and in order to regulate it was possible to impose certain disincentives in the form of fees or levies. Imposition of these imposts as part of regulatory process is permissible, it was submitted. Our attention was drawn to the various decisions where by virtue of "police power" in respect of alcohol the State has imposed such impositions. Though one would not be justified in adverting to any police power, it is possible to conceive sovereign power and on that sovereign power to have the power of regulation to imp....
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....ishment. Ordinarily, States have the authority to allow or not to allow any industry to be established under entry 24 of List II. This power is not taken away by the IDR Act. According to Mr. Dholakia, if industry is allowed to be established by law within the policy of the State then its control thereafter would vest with the State. Ordinarily, a citizen has fundamental right to establish an industry and only reasonable restrictions can be placed on these. However, the case of intoxicating liquor is different. By virtue of article 47 of the Constitution the State may impose absolute prohibition in respect of intoxicating liquor. In such a case, the State is authorised to deny a citizen the right to establish an industry in intoxicating liquor. No person can claim that he is entitled to establish an industry for manufacturing whisky in any particular State. The true test, according to Mr. Dholakia, is to ascertain if there was no IDR Act, to which entry of the State List, various regulations in respect of "alcohol industry" would be traced. It was submitted that the regulations would have to be traced to entry 24 of List II and not to entry 8. It was submitted that in case of al....
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....f a State like Punjab. According to him, the historical and social conditions there are quite different. The power of the State Government with regard to potable liquor was sustained in the dissenting judgment of Justice Hidayatullah in the case of Guruswami and Co. v. State of Mysore [1967] 1 SCR 548. It was, however, suggested that levies in the instant case are not duties of excise as understood in the said decision. For these reasons, Mr. Dholakia submitted that the Bombay Prohibition Act cannot be challenged. According to him, the relevant section of the said Act and the Denatured Spirit Rules, 1959, have to impose and advance the cause of prohibition while at the same time assuring a reasonable availability of denatured spirit and rectified spirit at reasonable prices. Learned Advocate-General of the State of Andhra Pradesh has also submitted in support of the imposition made under the A.P. Excise Act. He has referred us to the relevant definitions and sections contending that the Act falls within the legislative competence of the Andhra Pradesh State Legislature by virtue of entries 8 and 51 of List II and entry 33 of List III of the Seventh Schedule. He contended that....
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.... be interpreted so as to mean and take within its sweep alcohol as first obtained in the process of or as a product of fermentation industry. At this stage, it is capable of being rendered potable. The fact that it may be rendered unfit for human consumption, does not render the substance any less liable for taxation. Learned Advocates-General for the States of Gujarat and Kerala have also made their submissions, and referred to several decisions and the concept of police power, and contended that imposition of a fee would be the most effective method of regulating intoxicating liquor other than alcohol. According to the Advocate-General of Kerala, that would be justified as the reasonable measure in regard to intoxicating liquor. According to him, it has been accepted by courts all along that the "police power" of the State enables regulations to be made regarding manufacture, transport, possession and sale of intoxicating liquor. Such police power could be exercised as to impose reasonable restrictions as to effectuate the power. He referred to the observations of this Court in Cooverjee B. Bharucha v. Excise Commissioner and the Chief Commissioner, Ajmer [1954] 1 SCR 873 whic....
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....tended that in enacting a law with respect to intoxicating liquor as part of the legislative power measures of social control and regulation of private rights are permissible and as such may even amount to prohibition. We are of the opinion that we need not detain ourselves on the question whether the States have police power or not. We must accept the position that the States have the power to regulate the use of alcohol and that power must include power to make provisions to prevent and/or check industrial alcohol being used as intoxicating or drinkable alcohol. The question is whether in the garb of regulations a legislation which in pith and substance, as we look upon the instant legislation, imposed fee or levy which has no connection with the cost or expenses administering the regulation, can be passed purely as 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. In this view of the matter we do not detain ourselves with examining the numerous American decisions to which our attention was drawn by learned counsel very elaborately and thoroughly....
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....or jointly, indicates that they are sought to convey a different sense. The word "control" has in the context, a narrower meaning, excluding details of regulatory nature by the State. According to him, comparing entries 7, 23, 24, 27, 62, 64 and 67, of List I with entry 52, would demonstrate that under entry 52 it is not the entire field which is sought to be covered but only the control of industries; and that the absence of inclusion of qualifying words like "the control of which" cannot be brushed aside. By referring to the several decisions, he contended that in view of the declarations made in section 2 of the IDR Act and the provisions made therein the entire field was not occupied and the vend fee or other impost by the State legislatures were not infringing in the field treaded by the Central Legislature. Before we deal with the contentions of the petitioners/appellants, it is necessary to reiterate the principles by which these questions will have to be judged. It is well to remember that the meaning of the expressions used in the Constitution must be found from the language used. We should interpret the words of the Constitution on the same principle of inter....
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....ue intent and purpose and to examine the particular legislation in question. Each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. In interpreting an entry it would not be reasonable to import any limitation by comparing or contrasting that entry with any other in the same List. It has to be interpreted as the Constitution must be interpreted as an organic document in the light of the experience gathered. In the Constitutional scheme of division of powers under the legislative lists, there are separate entries pertaining to taxation and other laws. The aforesaid principles are fairly well-settled by various decisions of this Court and other courts. Some of these decisions have been referred to in the decision of this Court in Civil Appeal No. 62 of 1970 (India Cement Ltd. v. State of Tamil Nadu). The Balsara's case [1951] SCR 682, was in the context of the business of potable alcohol. Problems arose with regard to auctions, vends, licences and the business of manufacturing, selling, etc., of potable alcohol. Until the case of Synthetics & Chemicals Ltd, [1980] 2 SCR 531, which is under challeng....
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....ourt has laid down that- (i) legislative entries are to be liberally construed. But when a topic is governed by two entries, then they have to be reconciled. It cannot be that one entry is to be liberally construed and the other entry is not to be liberally construed. (ii) under the Constitutional scheme of division of powers under legislative Lists, there are separate entries pertaining to taxation and other laws. A tax cannot be levied under a general entry. (iii) a Constitution is an organic document and has to be so treated and construed. (iv) if there is a conflict between the entries, the first principle is to reconcile them. But the Union power will prevail by virtue of article 246(1) and (3). The words "notwithstanding" and "subject to" are important and give primacy to the Central legislative power. In In re Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 [1938] 1 STC 1 at 35; [1939] FCR 18 at 37- 38, the Federal Court had emphasised that Constitution of a Government is a living and organic thing which of all instruments has the greatest claim to be so construed as to make it live. In Indian Mica and Micanite Industries Lt....
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....ect of alcoholic liquors for human consumption is, therefore, circumscribed and it might only be levied as excise duty, that is a duty levied on the production and manufacture of alcoholic liquors. Reliance was placed on R.C. Jall Parsi v. Union of India [1962] Supp 3 SCR 436. In Om Prakash Agarwal v. Giri Raj Kishori [1986] 1 SCR 149, at pages 158 and 163 of the report, Venkataramiah, J., as the learned Chief Justice then was, held that no tax can be levied in the guise of a fee. It was held at page 158 of the report as follows: "As observed in M.P.V. Sundararamier & Co. v. State of Andhra Pradesh [1958] 9 STC 298 (SC); [1958] SCR 1422, in List II of the Seventh Schedule to the Constitution entries I to 44 form one group mentioning the subjects on which the States can legislate and entries 45 to 63 in that List form another group dealing with taxes that may be levied by States. Entry 64 refers to offences against laws with respect to any of the matters in List II and entry 65 refers to jurisdiction of courts. Entry 66 empowers the States to levy fees in respect of any of the matters in List II. Unless the cess in question can be brought under any of the entries from 45 to 63....
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....n of entry 8 of List II. Entry 8 of List II cannot support a tax. The above entry contains the words "intoxicating liquor". The meaning of the expression "intoxicating liquor" has been rightly interpreted by the Bombay High Court in the Balsara's case. The decision of the Bombay High Court is reported in AIR 1951 Bom 210 (FB), at page 214. In that light, perhaps, the observations of Fazal Ali, J., in Balsara's case [1951] SCR 682, requires consideration. It appears that in the light of the new experience and development, it is necessary to state that "intoxicating liquor" must mean liquor which is consumable by human being as it is and as such when the word "liquor" was used by Fazal Ali, J., they did not have the awareness of full use of alcohol as industrial alcohol. It is true that alcohol was used for industrial purposes then also, but the full potentiality of that user was not then comprehended or understood. With the passage of time, meanings do not change but new experiences give new colour to the meaning. In Har Shankar's case [1975] 3 SCR 254, a Bench of five Judges have surveyed the previous authorities. That case dealt with the auction of the right to sell potable liq....
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....o say whether it is good law or not. But this must be held that the reasoning therein would apply with greater force to industrial alcohol. Article 47 of the Constitution imposes upon the State the duty to endeavour to bring about prohibition of the consumption except for medicinal purpose of intoxicating drinks and products which are injurious to health. If the meaning of the expression "intoxicating liquor" is taken in the wide sense adopted in Balsara's case [1951] SCR 682, it would lead to an anamolous result. Does article 47 oblige the State to prohibit even such industries as are licensed under the IDR Act but which manufacture industrial alcohol? This was never intended by the above judgments or the Constitution. It appears to us that the decision in the Synthetics Chemicals Ltd.'s case [1980] 2 SCR 531, was not correct on this aspect. Reference in this connection may be made to the decision in Ostime (Inspector of Taxes) v. Australian Mutual Provident Society [1959] 3 All ER 245, at page 256 of the report, Lord Denning in his dissenting judgment observed as follows: "My Lords, I ask myself: What authority is to be given in these circumstances to the decision of....
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....hief Justice then was, in Guruswami and Co. v. State of Mysore [1967] 1 SCR 548, at pages 573-574 and other decisions mentioned hereinbefore. In that view of the matter, it appears to us that the relevant provisions of the U.P. Act, A.P. Act, Tamil Nadu Act, Bombay Prohibition Act, as mentioned hereinbefore, are unconstitutional in so far as these purport to levy a tax or charge imposts upon industrial alcohol, namely alcohol used and usable for industrial purposes. Having regard to the principles of interpretation and the Constitutional provisions, in the light of the language used and having considered the impost and the composition of industrial alcohol, and the legislative practice of this country, we are of the opinion that the impost in question cannot be justified as State imposts as these have been done. We have examined the different provisions. These are not merely regulatory. These are much more than that. These seek to levy imposition in their pith and substance not as incidental or as merely disincentives but as attempts to raise revenue for States' purposes. There is no taxing provision permitting these in the Lists in the field of industrial alcohol for the ....
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....potable alcohol. (c) the State may charge excise duty on potable alcohol under entry 51 and sales tax under entry 54 of List II. However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the State on industrial alcohol. (d) However, in case the State is rendering any service, as distinct from its claim of so-called grant of privilege, it may charge fees based on quid pro quo. See in this connection, the observations in Indian Mica's case [1971] Supp SCR 319. On an analysis of the various Abkari Acts and Excise Acts, it appears that various Provinces/States reserve to themselves in their respective States the right to transfer exclusive or other privileges only in respect of manufacture and sale of alcohol and not in respect of possession and use. Not all but some of the States have provided such reservation in their favour. The price charged as a consideration for the grant of exclusive and other privileges was generally regarded as an excise duty. In other words, excise duty and price for privileges were regarded as one and the same thing. The so-called privileg....
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....ise Department from 1st March, 1986, on alcohol manufactured by the company in their captive distillery is over Rs. 4 crores. This Court by its order dated 1st October, 1986, as confirmed on the 16th October, 1986, had permitted the State Government to collect the levy on alcohol manufactured in company's captive distillery subject to adjustment of equities and restrained the Central excise authorities from collecting any excise duty on such alcohol. It is, therefore, necessary to declare that in future no further realisation will be made in respect of this by the State Government from the petitioners. So far as the past realisations made are concerned, we direct that this application for that part of the direction, should, in accordance with our decision herein, be placed before a Division Bench for disposal upon notice both to the State Government and the Central Government. In the facts and the circumstances of the case, the parties will bear and pay their own costs. G.L. OZA, J.-While I agree with my learned brother Hon'ble Mukharji, J., as regards the conclusions, I would like to add the following reasons: In these matters the main question that arises for considerati....
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....re when in List II, entry 51 the words used are alcoholic liquors for human consumption. Entry 84 in List I reads: "84. Duties of excise on tobacco and other goods manufactured or produced in India except- (a) alcoholic liquors for human consumption, (b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry." Entry 51 in List II reads: "51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India: (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry." A comparison of the language of these two entries clearly demonstrates that the powers of taxation on alcoholic liquors have been based on the way in which they are used as admittedly alcoholic liquor is a very wide term and may include variety of types of alcoholic li....
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....spect of regulation the authority of the State Legislature in entry 8 in List II, could only be subject to the Industries (Development and Regulation) Act or Rules made by the Centre. Under these circumstances, therefore, it is clear that the State Legislature had no authority to levy duty or tax on alcohol which is not for human consumption as that could only be levied by the Centre. The main emphasis it appears is that this duty on alcohol and alcoholic liquors is a substantial revenue of State and it appears that it was this obsession which was reflected and demonstrated when this concept of consideration for parting with privilege was invented by our courts on the basis of some judgments from United States based on some judgments from England and it is on this basis that all through the States have been justifying their respective levies and duties on alcohol and alcoholic beverages and overcome the test of reasonableness, double taxation and of limitation as it being a consideration for transfer of privilege it could be anything and no limits could be placed thereupon. The main edifice of the argument on behalf of the State is that the State has the sole privilege to ....
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....f our Constitution especially article 21 and article 47. The concept of royal privilege has been derived historically from England as Great Britain continues to be a Monarchy with democracy. The Head of the State is the Crown. It was on these bases that what has not been provided for was supposed to be the privilege of the Crown but under Indian Constitution the Head of the State and the three functionaries of the State, the Executive, the Legislature and the Judiciary have their powers defined under the Constitution. There is nothing like privilege vested in any one of the functionaries of the State and in the background of this basic feature of our Constitution the doctrine of privilege is difficult to reconcile with. If we examine this privilege of trading in commodities injurious to health and dangerous to life in the context of article 21 and article 47 of our Constitution. Article 21 of the Constitution reads: "21. Protection of life and personal liberty.-No person shall be deprived of his life or personal liberty except according to procedure established by law." This article casts a duty on the State to protect the life of every citizen except as is provided und....
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....cussion by various authors in texts on jurisprudence as referred to in Indian context under our Constitution does not appear to be applicable. In the Constitution of U.S.A. basic factor which must be kept in mind is: that various States after getting independence from their European masters came together to form a Federal State and, therefore, what was not conceded to the Federal State, i.e., the residuary powers vested in the State and as it was not conceded to the Federal Government that this residuary power of maintenance of law and order peace so essential for the development in a civilised society was evolved as a doctrine of police powers vested in the State. In India as the Constitution was enacted or was framed after having the experience of various countries in the World, the concept of fundamental rights and rights like life, liberty, procedure established by law and various legislative functions which were divided between the States and the Union left no scope for any power except that which could be derived from any provision in the Constitution coupled with an entry in one of the three Lists which would indicate the power vested in either the State or the Centre. Ap....