http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8

PETITIONER:

GUJCHEM DISTILLERS INDIA LTD.

Vs.

RESPONDENT:

STATE OF GUJARAT AND ANR.

DATE OF JUDGMENT17/02/1992

BENCH:

MOHAN, S. (J)

BENCH:

MOHAN, S. (J)

SAWANT, P.B.

CITATION:

1992 AIR 1256 1992 SCR (1) 675

1992 SCC (2) 399 JT 1992 (2) 20

1992 SCALE (1)447

ACT:

Bombay Prohibition Act, 1949-Section 58(A)-

Constitutional validity of-supervision under-Legality of.

Constitution of India, 1950-Article 136-Appeal-matter

not contended before High court whether permitted to contend

in appeal.

HEADNOTE:

The appellant, a company registered under the Indian

Companies Act, 1956, was using industrial alcohol as one of

the raw materials for manufacturing resins, chemicals,

sodium carboxy methyl, cellulose and certain other

chemicals. In May, 1970, the company installed its own

distillery for the purpose of manufacturing industrial

alcohol from mollasses.

The respondent No.2 on 3.7.1969 issued a licence to the

company for manufacturing spirit. In accordance with the

conditions No. 2 and No. 3, the respondent No. 2 appointed a

9 member supervisory staff consisting of one Inspector, one

Sub-Inspector, one Nayak, one Jamadar and five constables,

to supervise the manufacture of the spirit in the company's

distillery plant. The appellant-company was required to

provide residential accommodation to the supervisory staff

within its factory premises and to deposit supervisory

charges from time to time. The company complied the

requirements.

In 1973 the appellant-company filed a Civil Application

in the High Court challenging the constitutional validity of

the Section 58(A) of the Bombay Prohibition Act, 1949.

The High Court dismissed the petition, hence this

appeal by certificate granted by the High Court under

Articles 132(1)133(1)(a) of the Constitution.

The appellant-company contended that this Court in

Synthetics and Chemicals Ltd. case, [1989] Supp.1 SCR 623

held that in respect of

676

industrial alcohol, the States had no power to impose the

impost;that in view of the judgment of this Court, the

theory of privilege as adumbrated by the High Court could

not be sustained, and that there was no quid pro quo.

The respondent-State submitted that the Synthetics and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8

Chemicals Ltd. case dealt merely with the vend fees, and not

about supervisory charges.

Dismissing the appeal, this Court

HELD: 1.01. 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. This is an added

reasoning to uphold the validity of Section 58(A).

[684D, F-G]

Synthetics & Chemicals Ltd.v.State of U.P. and Ors.,

[1989] Supp.1 SCR 623-Followed.

1.02.Section 58(A) of the Bombay Prohibition Act

creates a statutory duty of supervision and incidentally

provides for recovering from a manufacturer or a businessman

having been permitted under a licence to carry on lawfully a

business or industrial activity which would otherwise have

been unlawful. [684G-685A]

1.03.The maintenance of the staff contemplated under

Section 58(A) of the Act is primarily for the purpose of

ensuring that while dealing with industrial alcohol, no

attempt shall be made to divert non-potable alcohol.

Therefore, by regulatory measures, the State sees to it that

industrial alcohol is not diverted for the use as potable

alcohol. Such a regulatory measure is perfectly valid.

However, such a power was sustained though not on police

power but as a regulatory measure. [679C-D]

Southern Pharmaceuticals & Chemicals v. State of

Kerala, AIR 1981 S.C. 1863; Sh. Bileshwar Khand Udyog Khedut

Sahakari Mandali Ltd. v. The State of Gujarat & Anr., C.A.

No. 503 of 1974-Followed.

2. The appellants are precluded from contending that

the services did not make the impost, since the High Court

has noted that it was not contended before it that there was

not sufficient quid pro quo between the

677

quantum of impost and the services rendered to the

manufacturer or businessman. [679E-F]

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 350 of

1974.

Appeal by Certificate from the Judgment and Order dated

29/30-8-1973 of the Gujarat High Court in Special Civil

Application No. 163 of 1973.

M.H.Baig, Rajiv Shakdhar, R.Sasi Prabhu (for M/s S.A.

Shroff & Co.) for the Appellants.

P.S. Poti, Bimal Roy Jad. Anip Sachthey and Ms. Rashmi

Dhariwal for the Respondents.

The Judgment of the Court was delivered by

MOHAN, J. This is an appeal by certificate granted by

the High Court of Gujarat at Ahmedabad under articles 132(1)

and 133 (1)(a) of the Constitution of India. It is directed

against the judgment dated 29/30th August, 1973 in special

Civil Application No. 163 of 1973.

The facts leading to this appeal are briefly as under:-

The Appellant is a company registered under Indian

Companies Act. It is engaged in the business of

manufacturing resins, chemicals, sodium carboxy methyl,

cellulose and certain other chemicals. Industrial alcohol is

one of the raw materials used by the appellant company.

Though, till the year 1969, the appellant was

purchasing industrial alcohol from the market, it installed

its own distillery from may 1970 at Bilimora, within the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8

State of gujarat. This was for the purpose of manufacturing

industrial alcohol from molasses.

On July 3rd, 1969 the second respondent, the Director

of Prohibition and excise, Gujarat State, Ahmedabad issued a

licence to the appellant for manufacturing spirit. In

accordance with the conditions No. 2 and 3 of the licence,

the 2nd respondent appointed a staff of 9 persons. The said

staff consisted of one Inspector, one Sub-Inspector, one

Nayak, one jamadar and five constables to supervise the

manufacture of spirit in the

678

appellant's distillery plant. The appellant was also

required to provide residential accommodation to the

supervisory staff within the factory premises. On July 3rd,

1969 the 2nd respondent asked the appellant to deposit the

supervisory charges. From time to time, these supervisory

charges were also deposited in accordance with the

directions of 2nd respondent.

It requires to be stated at this stage that the levy of

supervisory charges, is traceable to section 58(A) of Bombay

Prohibition Act of 1949. The Section says:

"Sec.58(A) : The State government may be general

or special order direct that the manufacture,

import, export, transport, storage, sale,

purchase, use collection or cultivation of any

intoxicant, denatured spirituous preparation, hemp,

mhowra flowers, or molasses shall be under the

supervision of such Prohibition and Excise or

Police Staff as it may deem proper to appoint, and

that the cost of such staff shall be paid to the

State Government by person manufacturing,

importing,exporting,transporting, storing,selling,

purchasing, using, collecting or cultivating the

intoxicant, denatured spirituous preparation

hemp, mhowra flowers or molasses:

Provided that the State Government may exempt any

class of persons or institution from paying the

whole or any part of the cost of such staff."

Section 143 of the said Act confers power for making

rules. Rules have been framed called Bombay Prohibition

(Manufacture of Spirit) (Gujarat)Rules, 1963. These rules

inter alia regulate the working of distilleries,

manufacturing spirit. Rule 2 provides for the licence.

Condition Nos.2 and 3 of the licence require payment of the

supervisory staff and for provision of quarters for the

residential accommodation of the staff respectively.

The appellant filled Civil Application No. 163 of 1973

in the High court of Gujarat challenging the constitutional

validity of Section 58(A) of the Act. By the impugned

judgment,, the said petition was dismissed.

Hence, the present civil appeal.

679

The arguments of the appellant briefly stated will boil

down to this. It has been categorically laid down in

Synthetics & Chemicals Ltd. v. State of U.P. & Ors., [1989]

Supp. 1 SCR 623 that in respect of industrial alcohol, the

states have no power to impose the impost as is sought to be

done in the instant case. The theory of privilege as

adumbrated by the High court can no longer be sustained in

view of the judgement.

Even otherwise, there is no quid pro quo.

In countering the submissions, it is argued on behalf

of the State that Synthetics and Chemicals Ltd. etc. (supra)

dealt merely with the vend fees. That is not the case here.

The maintenance of the Staff contemplated under Section

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8

58(A) of the Act is primarily for the purpose of ensuring

that while dealing with industrial alcohol, no attempt shall

be made to divert nonpotable alcohol. Therefore, by

regulatory measures, the States sees to it that industrial

alcohol is not diverted for the use as potable alcohol.

Such a regulatory measure is perfectly valid as seen from

Southern Pharmaceuticals & Chemicals v. State of Kerala, AIR

1981 SC 1863. This decision was noted with approval in

Synthetics & Chemicals Ltd. Etc. (Supra). However, such a

power was sustained though not on police power but as a

regulatory measure.

As regards the services rendered, the appellants are

precluded from contending that the services did not make the

impost, since the High Court has noted that it was not

contended before it that there was not sufficient quid pro

quo between the quantum of impost and the services rendered

to the manufacturer or businessman.

We are relieved of the necessity of deciding the

correctness of these submissions by a detailed judgment,

since identical points were raised in Civil Appeal No. 503

of 1974 (Sh. Bileshwar Khand Udyog Khedut Sahakari Mandali

Ltd. v. The State of Gujarat & Anr.) to which one of us

(Mohan, J.) was a party. The said Civil Appeal has been

dismissed considering these aspects and upholding the

validity of Section 58(A). The said judgment will squarely

cover this case as well. We fully concur with the reasons

contained therein. In Synthetics & Chemicals Ltd. etc.

(supra) concerning the power to make regulations in order

that non-potable alcohol may not be diverted for use as

potable alcohol, the following observations are found at

page 681:

680

"The position with regard to the control of

alcohol industry has undergone material and

significant change after the amendment of 1956 to

the IDR Act. After the amendment, the state is

left with only the following powers to legislate

in respect of alcohol:

(a) it may pass any legislation in the nature of

prohibition of potable liquor referable to entry 6

of list II and regulating powers.

(b) it may lay down regulations to ensure that

non-potable alcohol is not diverted and misused as

a substitute for potable alcohol.

(c) the State may charge excise duty on potable

alcohol and sales tax under entry 52 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 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."

In this connection, we may also usefully refer to

southern Pharmaceuticals & Chemicals (supra). This case

related to the constitutional validity of Sections 12-A, 12-

B,14(e) & (f), 68-A of Kerala Abkari Act (1 of 1077) and

Rules 13 and 16 of the Kerala Rectified Spirit Rules, 1972.

One of the contentions raised was that the provision

contained under Section 14 (e) of the Act for the collection

of supervisory charges was clearly invalid inasmuch as:

(a) They are in conflict of Rule 45 of Central Excise

Rules and,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8

(b) They could not be sustained as fee as there was no

quid pro quo.

In the said judgment at page 1875, para.27 Southern

Pharmaceuticals & Chemicals (supra) reads as under:

" A fee may be charged for the privilege or

benefit conferred,

681

or service rendered or to meet the expenses

connected there-with. A fee my be, levied to meet

the cost of supervision and may be, something more.

It is in consideration for the privilege, licence

or service".

Again in para 29, it was stated thus:

"There is a broad co-relationship between the fee

collected and the cost of the establishment under

Section 14(e) of the Act it is provided that the

commissioner, with the previous approval of the

Government may prescribe the size and nature of the

establishment necessary for supervision of a

manufactory and the cost of the establishment and

other incidental charges in connection with such

supervision be realised from the licensee. There

can be no doubt that the supervisory staff is

deployed in a bonded manufactory by the Government

for its own protection to prevent the leakage of

revenue, but there is no denying the fact that a

licensee undoubtedly receives a service in return.

The cost of the establishment levied under Section

14(e) of the Act is to be collected from

the licensee in the manner provided by Rule 16(4)

of the Kerala Rectified Spirit Rules, 1972,relevant

part of which reads:

"(4) All the transactions in the spirit store shall

be conducted only in the presence of an Excise

Officer not below the rank of an Excise Inspector.

Such officer shall be assisted by at least two

Excise Guards. The cost of establishment of such

officer and the guards shall be payable by the

licensee in advance in the first week of every

month as per counter-signed challan to be obtained

from such officer. The rate at which the cost of

establishment is to be paid by the licensee shall

be fixed by the Commissioner from time to time and

intimated to the licensee in writing....."

There is admittedly no provision made in the

Central Rules for the recovery of supervisory

charges, perhaps because as the Court observed in

the Hyderabad Chemicals and Pharmaceutical's case

(AIR 1964 SC 1870) (supra) it was felt that the

duty on medicinal and toilet preparations

containing alcohol

682

would be sufficient to defray the cost of such

supervision. But the absence of such a provision

in the Central Rules, as we have already indicated,

does not deprive the State from making a provision

in that behalf. It is true that the supervisory

charges are in the nature of a compulsory exaction

from a licensee and the collections are not

credited to a separate fund, but are taken to the

consolidated fund of the State and are not

separately appropriated towards the expenditure

incurred in redering the service. However, as

observed in Government of Madras v. Zenith Lamp &

Electricals Ltd., [1973] 2 SCR 973; (AIR 1973 SC

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8

724) followed in State of Rajasthan v. Sajjanlal

Panjawat,[1974] 2 SCR 741; (AIR 1975 SC 706) that

by itself is not decisive, by reason of ART. 266 of

the Constitution. It is equally true that normally

a fee is uniform and no account is taken of the

paying capacity of the recipient of the service,

but absence of uniformity will not make it a tax if

co-relationship is established [see Commissioner

H.R.E., Madras v. Lakshmindra Thirtha Swamiar of

Shirur Mutt and Government of Madras v.Zenith Lamp

and Electricals Ltd., AIR 1954 SC 282 and AIR 1973

SC 724 (supra)]. The cost of supervision would

necessarily vary with the nature and extent of the

business carried on by a licensee. Therefore, the

supervisory charges can be sustained even if they

are regarded as a fee for services rendered by the

State or its instrumentalities."

In dealing with Synthetics Chemical case (supra) the

following observations were made:

"Learned Advocates-General for the States of

Gujarat and Kerala have also made their

submissions, and referred to several decision and

the concept of police power, and contented 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

683

and sale of intoxicating liquor. Such police power

could be exercised as to impose reasonable

restriction as to effectuate the power. He

referred to the observations of this Court in

Cooverjee B.Bharucha v. The Excise Commissioner and

the Chief Commissioner, Ajmer & Ors., [1954] SCR

873 which quoted the passage from Crowley v.

Christensen,(1890) 24 Lawyers' Edn. 620. Reference

was also made to Hari Shanker's case (supra). Where

this Court quoted Vol. 38 of the American

Jurisprudence where it was stated that the higher

the fee is imposed for a licence, better is the

regulation. Reliance was also placed on P. N.

Kaushal's case (supra). It was contended that it

has been accepted by this Court that the police

power is excercisable for regulation of an activity

of a legislature within the permissible field or

impost as regulatory measure. It may be valid

though it may neither be fee nor a tax in the

limited sense of the term. See the observations of

this court in Southern Pharmaceuticals & Chemicals.

Trichur & Ors., etc. v. State of Kerala &

Ors.,etc.[1982] 1 SCR 519 at 537 . Regarding

regulatory measures in connection with medicinal

preparations containing alcohol it was observed by

this Court that the impugned provisions had to be

enacted to ensure that the Rectified spirit is not

misused under the pretext of being used for toilet

and medicinal preparations containing alcohol. Such

a regulation is a necessary concomitant of the

police power of the State to regulate such trade or

business which is inherently dangerous to public

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8

health. The American doctrine of police power is

not perhaps applicable as such in India, but power

of sovereignty to regulate as part of the power of

the competent legislature to effectuate its aim are

there.

It is true that that in the State of West

Bengal v. Subodh Gopal Bose & Ors., [1954]V SCR 587

at 601-604 and Kameshwar Prasad & Ors., v. The

State of Bihar & Anr., [1962] 3 Suppl.SCR 369 the

concept of police power was accepted as such, but

this doctrine was not accepted in India as an

independent power but was recognised as part of the

power of the State to legislate with respect to the

matters enumerated in the State and Concurrent

Lists, subject to constitutional limitations. It

684

was that the American jurisprudence of police

power as distinguished from specific legislative

power is not recognised in our Constitution and is,

therefore, contrary to the scheme of the

Constitution. In interpreting the provisions of our

Constitution, we should go by the plain words used

by the Constitution makers and the importing of

expression like 'police power', which is a term of

variable and indefinite connotation can only make

the task of interpretation more difficult. It was

contended 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 the 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

grab of regulations a legislation which is in pith

and substance, as we look upon the instant

legislation, fee or levy which has no connection

with the cost or expenses administering the

regulation, can be imposed purely as regulatory

measure. Judges 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."

This is an added reasoning to uphold the validity of

Section 58(A).

Turning to the second argument about the absence of

quid pro quo, we need only extract the following from the

judgment of the High Court:

"Section 58(A) of the Bombay Prohibition Act

creates a statutory duty of supervision and

incidentally provides for recovering from a

manufacturer or a businessman the cost of

supervision which is primarily necessitated by the

manufacturer

685

or businessman having been permitted under a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8

licence to carry on lawfully a business or

industrial activity which would otherwise have been

unlawful. We need not go into the details of this

aspect because it has not been contended before us

that if the levy under Section 58A is held to be a

fee, there is no sufficient quid pro quo between

the quantum of the impost and the services rendered

to the manufacturer or businessman."

In the result, the appeal fails and is dismissed with

cost.

V.P.R. Appeal dismissed.

686