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CASE NO.:

Appeal (civil) 7463 of 1993

PETITIONER:

State of Madhya Pradesh & others

RESPONDENT:

M/s K.C.T. Drinks Limited

DATE OF JUDGMENT: 04/03/2003

BENCH:

M.B. SHAH , ASHOK BHAN & ARUN KUMAR.

JUDGMENT:

J U D G M E N T

Shah, J.

The respondent company having a D-2 licence for

manufacture of Indian Made Foreign Liquor from rectified spirit by

blending, reducing and compounding Indian Made Foreign Liquor

concentrate, challenged the levy of full costs of supervision and

establishments of excise staff posted at its factory premises by filing

M.P. No.1456 of 1993 in the High Court of Madhya Pradesh at

Jabalpur. By judgment and order dated 4.5.1993, the High Court

quashed the levy of expenses incurred on supervision and

establishment cost on the ground that Rule 22 of M.P. Breweries

Rules, 1970 was struck down as ultra vires by this Court in case of

M/s Lilasons Breweries (Pvt.) Ltd. v. State of Madhya Pradesh

[(1992) 3 SCC 293]. In M/s Lilasons Breweries (Pvt.) Ltd.'s case,

this Court arrived at the conclusion that Rule 22 to the extent it

permits raising a demand, which in sum and substance is additional

excise duty, without its being actually due, is ultra vires the Act and

beyond the rule making power of the State.

Impugned judgment and order passed by the High Court is

challenged by filing this appeal.

It has been pointed out that the High Court proceeded on a

misconception that D-2 licences were issued under Rule 22 of the

M.P. Breweries Rules, 1970. As a matter of fact, licences were issued

under Rules (IV) and (V) of the Distillery & Warehouse Rules. It is

pointed out that Brewery Rules are not applicable to the unit of the

respondent as it is not a brewery.

In support of the aforesaid contention, learned counsel for the

appellants has drawn our attention to the Rules applicable to all

distilleries and warehouse in Madhya Pradesh. Relevant Rules (IV) &

(V) for the grant of licence are as under:

IV. The Collector may issue, on payment of a fee of

Rs.1000/- a licence in Form D-2 for the

construction and working of a distillery to any

person to whom a wholesale supply licence has

been issued.

V. Subject to sanction of the State Government the

Excise Commissioner may issue a licence in Form

D-2 for the construction and working of a distillery

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on payment of a fee of Rs.1000/-.

These Rules are framed by the State Government in exercise of

powers conferred under Section 18 read with Section 62(2)(e)(g) &

(h) of the M.P. Excise Act, 1915. Section 62(2)(h) empowers the

State Government to make Rules prescribing the scale of fees or the

manner of fixing the fees payable in respect of any licence, permit or

pass. Section 18 empowers the State Government to lease to any

person the right of manufacturing or of supplying or of selling liquor

or intoxicating drug within any specified area, which is under:

"18. Power to grant lease of right to manufacture,

etc.The State Government may lease to any person,

on such conditions and for such period as it may think

fit, the right:

(a) of manufacturing, or of supplying by

wholesale, or of both, or

(b) of selling by wholesale or by retail, or

(c) of manufacturing or of supplying by

wholesale, or of both, and selling by retail,

any liquor or intoxicating drug within any specified area.

2. The licensing authority may grant to a lessee under

sub-section (1) a licence in the terms of his lease; and

when there is no condition in the lease which prohibits

sub-letting, may, on the application of the lessee, grant a

licence to any sub-lessee approved by such authority."

Section 27 also empowers the State Government to accept the

payment of a sum in consideration of grant of any lease under Section

18, which is as under:

"27. Payment for grant of leases. (1) Instead of

or in addition to any duty leviable under this Chapter, the

State Government may accept payment of a sum in

consideration of the grant of any lease under Section 18.

(2) Nothing contained in sub-section (1) shall be

construed to preclude the State Government from

enhancing or reducing the sum received in consideration

of a grant of any lease under Section 18 during the course

of a financial year or during the currency of a licence and

the power to enhance or reduce the sum shall include

power to give retrospective effect to such enhancement

or reduction from a date not earlier that the

commencement of the financial year."

In view of Sections 18 and 27, the State Government is entitled

to accept payment of a sum in consideration of grant of any lease in

lump sum in addition to any duty leviable under the Act on terms and

conditions which are mentioned in the licence deed. Condition 8 of

the licence provides that the licensee shall pay the full cost of excise

supervisory staff posted at the premises of KCT Drinks, Mandideep,

Distt. Raisen.

Similar provisions were considered by this Court and their

validity is upheld in Government of Andhra Pradesh v. M/s

Anabeshahi Wine and Distilleries Pvt. Ltd. [(1988) 2 SCC 25]

wherein this Court observed thus:

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"5. The perusal of the aforesaid provisions of

the Act and the Rules leaves no manner of doubt that it

was open to the appellant to grant the exclusive privilege

of manufacturing and selling wine etc. to the respondent

only provided it was, apart from making any other

payment, also willing to pay the salaries and allowances

referred to in the aforesaid provisions which for the sake

of convenience have been described as establishment

charges, and which were sought to be recovered as such

under the impugned notice of demand. The respondent-

Company was not under any obligation to take the

licence. It was open to it to have refrained from taking

any licence under the Act and the Rules if it was not

willing to pay the price as required by the government for

the grant of privilege to manufacture and sell intoxicants.

The nature of the payment which a licensee such as the

respondent is required to make to the State by reason of

the State parting with the privilege in regard to

manufacture sale etc. of intoxicants came up for

consideration before a Constitution Bench of this Court

in Har Shankar v. Deputy Excise and Taxation

Commissioner (1975) 3 SCR 254. It was held that the

amounts charged to the licensees are neither in the

nature of tax nor excise duty, but constituted the price

or consideration which the government charges to the

licensees for parting with its privileges and granting

them to the licensees..

6. The principles laid down in the

aforementioned cases will, in our opinion, apply to the

instant case also. The fact of the demand being with

regard to establishment charges will make no difference.

A predetermined amount equivalent to or even higher

than the amount which is sought to be recovered by the

appellant from the respondent calculated for the entire

period of the licence could have been demanded in a

lump sum as price for parting with the privilege and it

could not have been challenged by the respondent in

view of the principle enunciated by this Court in the

aforesaid cases. Simply because the demand was spread

over with a view to making it just and reasonable so as

to represent the actual expenditure incurred by the

government to maintain the requisite excise staff at the

factory premises of the respondent as contemplated by

the relevant provisions of the Act and the Rules, it

would not become illegal and vulnerable."

In Shri Bileshwar Khand Udyog Khedut Sahakari Mandali

Ltd. v. State of Gujarat & Anr. [(1992) 2 SCC 42] validity of demand

under Section 58A of the Bombay Prohibition Act, 1949 for

maintenance of excise staff for supervision of manufacture of

industrial alcohol was assailed on the ground of lack of legislative

competence of the State. In that case, the Court observed thus:

"4. According to learned counsel since the

entire judgment of the High Court proceeded on privilege

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theory it cannot withstand the principle laid down in

Synthetics and Chemicals Ltd. v. State of U.P. [(1990) 1

SCC 109]. Levy as a fee under Entry 8 of List II of

Seventh Schedule or excise duty under Entry 51 are

different than cost of supervision charged under Section

58-A. The former has to stand the test of a levy being in

accordance with law on power derived from one of the

constitutional entries. Since Synthetics and Chemicals

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 Seventh Schedule 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

Synthetics and Chemicals 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 Section 58-A.

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 the appellant."

The aforesaid decision was referred to and relied upon in M/s

Gujchem Distillers India Ltd. v. State of Gujarat [(1992) 2 SCC

399].

In view of the aforesaid settled legal position, the condition

empowering the State Government to recover the actual cost of

supervisory staff posted at the premises of respondent cannot be said

to be in any way illegal or ultra vires as it constitutes the price or

consideration which the Government charges to the licensee for

parting with its privilege and granting licence. In this view of the

matter, the impugned judgment and order passed by the High Court

requires to be set aside.

In the result, the appeal is allowed and the impugned judgment

and order passed by the High Court is set aside. There shall be no

order as to costs.