TMI Blog1981 (9) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... Art. (1) (g) of the Constitution. It is to be observed that restriction imposed by s. 12A of the Act as to the quantity of medicinal preparations to be manufactured relates not only to such preparations to which alcohol is added, but also to medicinal preparations in which alcohol is self-generated. There can be no doubt that ayurvedic asavas and aristhas which are capable of being misused as alcoholic beverages can come within the purview of the definition of 'liquor' contained in s. 3(10) of the Act being of the Spirituous Preparations (Control) Rules, 1969 liquids containing alcohol The contention that Note to r. 3(1) is an unreasonable restriction on the freedom of trade guaranteed under Art. 19(1) (g) of the Constitution has no substance. It provides that unless otherwise declared by the Expert Committee, asavas and aristas and other preparations containing alcohal are deemed to be spurious if their self-generated alcohol content exceeds 12% by volume. It is a matter of common knowledge that such preparations are always likely to be misused as a substitute for alcoholic beverages and, therefore, the restriction imposed by s. 12A is a reasonable restriction within the meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... medicinal and toilet preparations under r. 21 of the Medicinal and Toilet Preparations A (Excise Duties) Rules, 1956 (hereinafter referred to as 'the Central Rules'), and r. 8 of the Kerala Rectified Spirit Rules, 1972, and challenged the validity of the impugned provisions mainly on the ground that the State Legislature has no power to enact the law relating to medicinal and toilet preparations as the topic of legislation is within the exclusive domain of Parliament under Entry 84, List I of the Seventh Schedule to the Constitution. The High Court held that there was no conflict between the impugned provisions and the Central law as they dealt with different subjects. The impugned provisions, as introduced by the Abkari Amendment) Act, 1967, in so far as they are relevant, are as follows: Section 12A reads: 12A. No preparation to which liquor or intoxicating drug is added during the process of its manufacture or in which alcohol is self generated during such process shall be manufactured in excess of the quantity specified by the Commissioner: Provided that in specifying the quantity of a medicinal preparation, the Commissioner shall have due regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislative competence to enact the impugned provisions because the field was occupied by the provisions of the A Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (the Central Act) and the Medicinal and Toilet Preparations (Excise Duties ) Rules, 1956 (the Central Rules), and alternatively, the impugned provisions are violative of the fundamental right guaranteed in Art. 19(1) (g) of the Constitution. (2) The Parliament having made a declaration in s. 2 of the Industries (Development and Regulation) Act, 1951, declaring Drugs and Pharmaceuticals to be a scheduled industry, being item 22 of the First Schedule thereof, the power of the State Legislature to make a law in respect of medicinal and toilet preparations containing alcohol is taken away. (3) The provisions made in s. 14(e) of the Act for the collection of supervisory charges was clearly invalid in as much as (a) they are in conflict with r. 45 of the Central Rules, and (b) they could not be sustained as a fee as there was no quid pro quo. (4) Rule 13 of the Kerala Rectified Spirit Rules, 1972, providing for the levy of excise duty as excess wastage of alcohol in the manufacture of medicinal and toilet preparatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of excise on medicinal and toilet preparations containing alcohol etc., do not prevent the State Legislature from making a law under Entry 8, List II of the Seventh Schedule to the Constitution with respect to 'intoxicating liquors', or a law under Entry 51, List II for levying excise duties on alcoholic liquor for human consumption. In order to appreciate the contention regarding the applicability of the doctrine of 'occupied field', it is necessary to examine the scheme of both the enactments. The scheme of the Act, as reflected in the preamble, is that it is an Act to consolidate and amend the law relating to the import, export, transport, manufacture, sale and possession of intoxicating liquor and all intoxicating drugs in the State of Kerala . It is not necessary to set out all the provisions of the Act in question, but reference may be made to the definitions of expressions 'spirit', 'liquor', 'country liquor', 'foreign liquor and 'intoxicating liquor' defined in ss. 3(9), (10), (12), (13) and (14). The expression 'liquor' as defined in s. 3(10) reads: 3(10). 'Liquor' includes spirits of wine, methylated sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in excise matters. This was a highly complicated subject because, firstly, the excise duty was to be collected and retained by the State Governments, and, secondly, a certain amount of flexibility in statutory operations was necessary if spurious medicines were not to defeat the policy of prohibition which is one of the Directive Principles of State Policy under Art. 47 of the Constitution. Some of the provisions of the Central Act are so designed as to lay down only broad principles. Matters of detail, such as classification of the preparations as capable or not capable of being used as ordinary alcoholic beverages, regulation for the purpose of the Act, of production, storage and movement, were left to be regulated by rules. Parliament accordingly enacted the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, to provide for the levy and collection of duties of excise on medicinal and toilet preparations containing alcohol. The Act is relatable to Entry 84, List I of the Seventh Schedule to the Constitution, which reads: 84. Duties of excise on tobacco and other goods manufactured or produced in India except- (a) alcoholic liquors for human consumption; (b) opium, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. (2) thereof, with the ultimate object of providing a machinery for collection of duty on the said preparations. Chapter IV of the Central Rules deals with 'Manufacture'. Rule 18 in Chapter IV provides that rectified spirit shall ordinarily be supplied to a manufacturer from a distillery.. Of the State in which the manufactory is situated. It further provides that the manufacturer is not precluded from obtaining his requirements of rectified spirit from sources outside the State. Rule 21 provides that rectified spirit H shall be issued without previous payment of duty to a manufacturer of medicinal and toilet preparations containing alcohol. Rule 33 provides for taking of samples of the manufactured product for analysis for determining the strength of alcohol and medicaments. Rule 38 provides for wastage in manufacture. Rule 45(1) enjoins that the officer-in-charge shall exercise such supervision as is required to ensure that alcohol issued for a certain preparation is added to the materials which go to make that preparation and that no portion of such alcohol is diverted to other purposes. These rules are intended and meant to carry out the main object of the Central Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holic beverages. It was suggested that the provisions are identical with the provisions contained in the Central Rules and, in particular, to rule 45(1) and, therefore, the legislation is in the occupied field. The answer is that the enumeration of 'intoxicating liquor' in Entry 8, List II, confers exclusive power to the State to legislate in respect of medicinal and toilet preparations containing alcohol. In Prafulla Kumar Mukherjee and Ors. v. Bank of Commerce Ltd., Khulna(1) the Privy Council in dealing with the question or distribution of powers laid down the tests that in order to see whether an Act is in respect of a particular subject, one must look to its true nature and character ; its pith and substance . Lord Porter, in delivering the judgment of the Judicial Committee, observed: As Sir Maurice Gwyer, C.J. said in the Subramanyam Chettiar Case: ' It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely inter twined that blind observance to a strictly verbal interpretation would result in a lar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge at the stage of manufacture of medicinal and toilet preparations, and not with the levy of supervisory charges at the stage of the supply and utilisation of rectified spirit in the manufacture of medicinal and toilet preparations. This is clear from an observation at p. 380 of the Report to the effect: The supervisory staff which has to be paid for under r. 36 therefore is meant for the supervision of the manufacture of medicinal preparations and it is for that purpose only that expenses have to borne by the laboratory concerned. The purpose of the rule therefore is clearly covered by the Act and the Rules framed thereunder and it cannot survive the Act and the rules in view of s. 21 of the Act and r 143 of the 1956-Rules, and the proviso to s 21 cannot be availed of by the State. While repelling the contention that r. 36 could still be good law as it was meant to carry out the general law relating to alcohol and intoxicating drugs, the Court pointed out that the Central Rules make no provision for recovery of supervisory charges, the intention being that the duty under the Act would cover all expenses for enforcing it and observed (1) We are of opinion that there is no for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommon parlance especially when that word is prefixed by the qualifying word 'intoxicating', but in my opinion having regard to the numerous statutory definitions of that word, such a meaning could not have been intended to be excluded from the scope of the term 'intoxicating liquor' as used in entry 31 of List II. It is not disputed by the appellants that the impugned Act does not levy a duty of excise on medicinal and toilet preparations containing alcohol, but they contend that, whatever be the intention, the State Legislature had, in fact, encroached upon an occupied field. The contention is, in our opinion, wholly misconceived. The main purpose of the impugned Act is to consolidate the law relating to manufacture, sale and possession of intoxicating liquor and intoxicating drugs which squarely falls under Entry 8, List II of the Seventh Schedule, while the main object of the Central Act is to provide for the levy and collection of duties of excise on medicinal and toilet preparations containing alcohol falling under Entry 84, List I of the Seventh Schedule. When the frame-work of the two enactments is examined, it would be apparent that the Central and the St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 provides that no person shall utilise liquor or intoxicating drug in the manufacture of any preparation, in excess of the quantity specified by the Commissioner and except under and in accordance with the terms and conditions of a licence granted by the Commissioner in that behalf: Provided that where such preparation is a medicinal preparation, the Commissioner shall, in specifying the quantity of liquor or intoxicating drug, have due regard to the total requirement of such medicinal preparation for consumption or use in the State. Now, s. 68A provides for the Government to appoint an Expert Committee to advise the Commissioner as to whether a medicinal preparation is a bona fide medicinal preparation or not and as to the total requirement of the medicinal preparations containing alcohol or intoxicating drug or in which alcohol is self-generated during the process of their manufacture for the whole of the State during one year. The challenge to the validity of ss. 12A and of the Act is mainly based on the words shall have due regard to the total requirement of such medicinal preparations for consumption or use in the State occurring in the provisions thereof. The submission is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation) Act, 1951 declaring drugs and pharmaceuticals to be a scheduled industry, being item 22 of Schedule I thereof, the State Legislature was denuded of its competence to enact the impugned provisions under Entry 8, List II, cannot be accepted. In Ishwari Khetan Sugar Mills (P) Ltd. v. State of Uttar Pradesh(1), this Court held that the legislative power of the States under Entry 24, List II is eroded only to the extent of control assumed by the Union by reason of a declaration made by Parliament in respect of a 'declared industry' as spelt out by a legislative enactment under Entry 52, List I, and the field occupied by such enactments is the measure of erosion. But subject to such erosion, on the remainder the State Legislature will still have power to legislate in respect of a declared industry without, in any way, trenching upon the occupied field. Now, the impugned Act, in pith and substance, is not a legislation under Entry 24, List II and, therefore, the question really does not arise. The third ground that the levy of supervisory charges under s.14(e) of the Act and r.16(4) of the Kerala Rectified Spirit Rules, 1972 being in conflict with r. 45(1) of the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval the definition of 'tax' given by Latham, C.J. in Matthews v. Chickoory Marketing Board(3). In that case, the learned Chief Justice observed: A tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered. Dealing with the distinction between 'tax' and 'fee' the learned Judge observed :(4) It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the tax-payer's consent and the payment is enforced by law. A The second characteristic of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when collected forms part of the public revenues of the State. As the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of quid pro quo between the tax payer and the public authority. Another feature of taxation is that as it is a part of the common burden, the quantum of impositi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of a fee. It is needless to stress that the element of quid pro quo is not necessarily absent in every tax. We may, Din this connection, refer with profit to the observations of Seervai in his Costitutional Law, to the effect: (1) It is submitted that as recognised by Mukherjee, J. him self, the fact that the collections are not merged in the consolidated fund, is not conclusive, though that fact may enable a court to say that very important feature of a fee was present. But the attention of the Supreme Court does not appear to have been called to Art. 266 which requires that all revenues of the Union of India and the States must go into their respective consolidated funds and all other public moneys must go into the respective public accounts of the Union and the States. It is submitted that if the services rendered are not by a separate body like the Charity Com missioner, but by a government department, the character of imposition would not change because under Art. 266 the moneys collected for the services must be credited to the consolidated fund. It may be mentioned that the element of quid pro quo is not necessarily absent in every tax. (emphasis added) Our attention ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. It is in consideration for the privilege, licence or service. The State is undoubtedly entitled to levy H excise duty on the rectified spirit issued from a distillery under s. 17(f) of the Act read with r. 13 of the Kerala Rectified Spirit Rules, 1972, but it refrained from making any such levy by reason of r. 21 of the Central Rules and has, therefore, by proviso to r. 8, allowed a manufacturer of medicinal and toilet preparations to draw rectified spirit from a distillery without payment of duty. It is thus a privilege conferred on the licensee. To claim the privilege he must comply with the conditions prescribed. If one of the condition is the payment of cost of establishment under s. 14(e) of the Act read with r. 16(4) of the Central Rules, the manufacturer of such preparations must necessarily bear the burden as the licensee gets services in return in lieu of such payment. The decision in the Indian Mica Micanite Industries case (supra) on which reliance is placed furnishes a complete answer to the appellant's contention. The Court there was concerned with the validity of supervisory charges of the excise establishment from a consumer and not from the manufacturer un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion because of the risk of the denatured spirit being converted into palatable liquor and thus evading heavy duty. Assuming this conclusion to be correct, by doing so, the State is rendering no service to the consumer. It is merely protecting its own rights. Further in this case, the State which was in a position to place material before the Court to show what services had been rendered by it to the appellant and other similar licensees, the costs or at any rate the probable costs that can be said to have been incurred for rendering those services and the amount realised as fees has failed to do so. On the side of the appellant, it is alleged that the State is collecting huge amounts as fees and that it is rendering little or no service in return. The co- relationship between the services rendered and the fee levied is essentially a question of fact. Prima facie, the levy appears to be excessive even if the State can be said to be rendering some service to the licensees. The State ought to be in possession of the material from which the co-relationship between the levy and the services rendered can be established at least in a general way. But the State has not chosen to place tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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 rendering the service. However, as observed in Government of Madras v. Zenith Lamp and Electricals Ltd. (1) followed in State of Rajasthan v. Sajjanlal Panjawat and Ors. (2), that by itself is not decisive, by reason of Art. 266 of the Constitution. lt 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 chemicals Ltd. supra). The cost of supervisory charges can be sustained even if they are regarded as a fee for services rendered by the State or its instrumentalities. The last ground on which the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on excess wastage of alcohol, i.e. On alcohol not accounted for. In the connected Special Leave Petition, the petitioner, P. Krishna Wariyar, Managing Trustee, Arya Vaidyasala, Kottakkal, who is engaged in the business of manufacture for sale of ayurvedic medicinal preparations, challenges the validity of ss. 12A, 56A and 68A of the Act and rr. 5, 6 and 7 of the Kerala Spirituous Preparations Rules. 1969. Apart from the question of legislative competence, two other grounds were raised: (1) the power to restrict the quantity of medicinal preparations to be manufactured, by the Commissioner under s. 12 cannot be exercised in relation to ayurvedic preparations as alcohol is self-generated in the process of manufacture; and (2) the impugned provisions offend against Art. 301 of the Constitution. As regards the Rules, it was generally said that they constitute unreasonable restrictions on the fundamental right guaranteed under Art. 19(1) (g) of the Constitution. None of these contentions can prevail. It is to be observed that restriction imposed by s. 12A of the Act as to the quantity of medicinal preparations to be manufactured relates not only to such preparations to which alcohol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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