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PETITIONER:

SH. BILESHWAR KHAND UDYOG KHEDUTSAHAKARI MANDALI LTD

Vs.

RESPONDENT:

STATE OF GUJARAT AND ANR.

DATE OF JUDGMENT28/01/1992

BENCH:

SAHAI, R.M. (J)

BENCH:

SAHAI, R.M. (J)

MOHAN, S. (J)

CITATION:

1992 AIR 872 1992 SCR (1) 391

1992 SCC (2) 42 JT 1992 (1) 597

1992 SCALE (1)194

ACT:

Constitution of India, 1950:

Article 245 and 246/VII Schedule-List II Entries 26 and

27/List III Entry 33:

Legislative Competence of State-Section 58A of Bombay

Prohibition Act-Enactment of-Whether within the legislative

competence.

Bombay Prohibition Act:

Section 58A-Whether within the legislative competence

of State-Constitutional validity of

HEADNOTE:

Rule 2 of the Bombay Prohibition (Manufacture of

Spirit) (Gujarat) Rules, 1963, framed by the State

Government in exercise of powers conferred under Section 58A

of the Bombay Prohibition Act, dealt with grant of licence

for working of distillery for the manufacture of spirit.

One of the conditions for grant of licence was that the cost

of maintenance of staff, viz. payment of salary and

allowances, was to be paid to the Government by the

licensees. This was challenged by the appellant and the

High Court upheld the levy as being within the legislative

competence of the State.

Aggrieved against the High Court's order, the appellant

has preferred the present appeal.

The appellants contended that since the judgement

appealed against proceeded on privilege theory, it cannot

withstand the principle laid down in Synthetic & Chemicals,

case; and that levy as a fee under Entry 8 of list II of

Seventh Schedule or excise duty under Entry 51 is different

than the cost of supervision charged under Section 58A of

the Bombay Prohibition Act.

Dismissing the appeal, this Court,

392

HELD: 1.1 Even though the power to levy tax or duty on

industrial alcohol is vested in the Central Government, the

State was till left with power to lay down regulations to

ensure that non-potable alcohol, that is, industrial

alcohol, was not diverted and misused as substitute for

potable alcohol. This is enough to justify a provision like

58A of the Bombay Prohibition Act. [394 D]

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1.2 Principle of occupied field precluded State from

trenching on any power which was already covered by Central

legislation. But in absence of any provision in Industries

(Development & Regulation) Act touching upon regulation or

ensuring that industrial alcohol was not divered, the State

was competent to legislate on it under Entry 33 list III of

VII Schedule. [394 F-G]

1.3 Trade and commerce and supply and distribution of

goods are exclusive state subject under entries 26 and 27

of List II of VII Schedule. But both are subject to entry 33

of List III. What is covered in entry 33 is excluded from

List II. And the power to legislate in respect of what is

covered by List III is enjoyed both by Central and State

legislatures subject to Article 246 of the Constitution.

Since section 58A can be traced to regulatory power of the

State exercisable under entry 33 of List III the challenge

to its validity is liable to fail. Thus, Section 58A of the

Bomaby Prohibition Act is valid and is not violative of any

constitutional provision. [395 B-C].

1.4 It cannot be said that no cost for supervision

could be demanded unless the power to issue licence for

production was found to exist in State. [395 d]

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

Ors. [1990] 1 SCC 109, followed.

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 503 of

1974.

From the Judgement and order dated 29/30.8.1973 of the

Gujarat High Court in Special Civil Application No. 129 of

1973.

Joseph Vellapally and D.N. Mishra for the Appellants.

R.N. Sachthey, Anip Sachthey and Ms. Rashmi Dhariwal

for the Respondents.

393

The Judgement of the Court was delivered by

R.M. SAHAI, J. Validity of demand, under Section 58A

of the Bombay Prohibition Act, for maintenance of excise

staff for supervision of the manufacture of industrial

alcohol was assailed on lack of legiislative competence of

the State.

Section 58A is extracted below:

"58A: The State Government may by general or

special order direct that the manufacture, import,

export, transport, storage, sale, purchase, use,

collection or cultivation of any intoxitant,

denatured spirituous preparations, hemp, Mowra

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 Govt. by

person manufacturing, importing, exporting,

transporting, storing, selling, purchasing, using,

collecting or cultivating the intoxicant, denatured

spirituous preparation, hemp, Mowra flowers or

molasses:

"Provided that the State Government may exempt any

class of persons or institutions from paying the

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

Rule 2 of Bombay Prohibition (Manufacture of Spirit)

(Gujarat) Rules, 1963, framed by the State of Gujarat

empowered the director to grant a licence for working of the

distillery for the manufacture of the spirit. Condition

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Nos.2 and 3 of the licence issued provided for employment of

excise staff for supervision of the operations of

manufacture and storage of spirit as well as for payment of

salary and allowances to staff so posted. Attack was not

on power to supervise or even the right to post staff for

supervision but on demand of cost of maintenance of such

personnel. Levy was upheld, by the High Court, as fee under

entry 8 of List II of the VIIth Schedule read with entry 66

of the same list. In Synthetics & Chemicals Ltd. & Ors. v.

State of U.P. & Ors., [1990] 1 SCC 109 a Constitution Bench

after exhaustively reviewing the constitutional entries and

various decisions held that industrial alcohol being unfit

for human consumption as no levy on it could be made by a

State either under Entry 51 or Entry 8 of List II of VIIth

Schedule. Nor such levy could be justified on doctrine of

privilege or police power. Therefore it was urged that the

order of High Court was liable to be set aside and the

provision was liable to be struck down as ultra vires.

Such understanding of the judgement is not warranted.

The Constitu-

394

tion Bench while distinguishing between potable and non-

potable alcohol and holding that the State had no privilege

in it upheld the power of State to regulate and ensure that

non-potable alcohol was not diverted and misued.

According to learned counsel since the entire judgment

of the High Court proceeded on privilege theory it cannot

withstand the principle laid down in Synthetic & Chemical's

case. Levy as a fee under Entry 8 of List II of VIIth

Schedule or excise duty under Entry 51 are different than

cost of supervision charged under Section 58A. The former

has to stand the test of levy being in accordance with law

on power derived from one of the constitutional entries.

Since Synthetic & Chemical's case finally brought down the

curtain in respect of industrial alcohol by taking it out of

the purview of either Entry 8 or 51 of List II of VIIth

Schedule of the competency of the State to frame any

legislation to levy any tax or duty is excluded. But by

that a provision enacted by the State for supervision which

is squarely covered under Entry 33 of the concurrent list

which deals with production, supply and distribution which

includes regulation cannot be assailed. The Bench in

Synthetic & Chemical's case made it clear that even though

the power to levy tax or duty on industrial alcohol vested

in the Central Government the State was still left with

power to lay down regulations to ensure that non-potable

alcohol,that is, industrial alcohol, was not diverted and

misused as substitute for potable alcohol. This is enough

to justify a provision like 58A. In paragraph 88 of the

decision it was observed that in respect of industrial

alcohol the States were not authorised to impose the impost

as they have purported to do in that case but that did not

effect any imposition of fee where there were circumstances

to establish that there was quid pro quo for the fee nor it

will affect any regulatory measure. This completely

demolishes the argument on behalf of appellant.

Principle of occupied field precluded State from

trenching on any power which was already covered by central

legislation. But in absence of any provision in Industries

(Development & Regulation) Act touching upon regulation or

ensuring that industrial alcohol was not diverted the state

was competent to legislate on it under Entry 3 List III of

VIIth Schedule which is extracted below,

"33. Trade and Commerce in, and the production,

supply and distribution of-

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(a) The products of any industry where the control

of such industry by Union is declared by Parliament

by Law to be

395

expedient in the public interest, and imported

goods of the same kind as such products.

(b)..............................

(c)..............................

(d)..............................

(e)..............................

Trade and commerce and supply and distribution of goods

are exclusive state subjects under entry 26 and 27 of List

II of VIIth Schedule. But both are subject to entry 33 of

List III. That is what is covered in entry 33 is excluded

from list II. And the power to legislate in respect of

what is covered by list III is enjoyed both by Central and

State subject to Article 246 of the Constitution. Since 58A

can be traced to regulatory power of the State exercisable

under entry 33 the challenge to its validity is liable to

fail. It could not therefore be successfully claimed that

it was violative of any constitutional provision or the

section was invalid in view of the ratio in Synthetic &

Chemicals' case.

Failing on the principal submission the learned counsel

urged that no cost for supervision could be demanded unless

the power to issue licence for production was found to exist

in State. Reliance was placed on observations in Synthetic

& Chemical's case. Since it stands answered by the

constitution Bench itself it is unnecessary to dilate on

it. Suffice it is to extract the following observation,

"The position with regard to the control of alcohol

industry has undergone material and significant

change after the amendement 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)....................................

(b) It may lay down regulations to ensure that

non-potable alcohol is not diverted and misued as a

substitute for potable alcohol.

(c)....................................

(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".

Feeble attempt was made to challenge absence of any

quid pro quo. But no serious effort was made in High Court

is clear from following observation.:

396

"If any quid pro quo is to be established between

the quantum of the levy and the services rendered

it must be established between the actual cost of

supervision paid by a manufacturer or a businessman

and the quantum of profits made by him by lawfully

carrying on his business into a prohibited

commodity. We have no doubt in our mind that the

annual payment of a few thousand rupees by way of

cost of supervision under Section 58A brings to

each of the three petitioners profits which must be

quite disproportionate in size. 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

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businessman."

In the result, this appeal fails and is dismissed with

costs.

G.N. Appeal dismissed.

397