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2015 (8) TMI 588 - SUPREME COURT

2015 (8) TMI 588 - SUPREME COURT - TMI - Legality of a demand of ₹ 1/- per bulk litre of industrial alcohol manufactured - levy and collection of administrative/regulating service fee - Held that:- It was not incumbent for collections or contributions to be recovered from only those who were directly involved in the subject transactions, since the newly established administrative machinery was necessary for the smooth and legal conduct of the entire business pertaining to the securities ma .....

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iversion of industrial or ethyl alcohol is possible at the stage where it is rectified spirit or industrial alcohol, contrary to the argument of the Respondents. Therefore, so long as expenses are incurred by the State Government in ensuring that industrial alcohol is not used as potable alcohol, recovery thereof shall be permissible.

SEBI Act postulated and permitted the charging of two types of fees (i) under Section 11(2)(k) of the SEBI Act for carrying out the several and sundr .....

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or connection with the possible misuse and diversion of industrial alcohol to potable alcohol.

If administrative or service charges are sought to be recovered from the Respondent Distilleries to cover nefarious activities carried out by third parties such as smuggling and countryside brewing etc. which have no causal connection with the production of industrial alcohol, or for collection of excise duties from other industries carrying out distinctly different production or manufactur .....

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ture on collection of fee at the rate of 1/- per bulk litre either before this Court or any of the subordinate courts. In fact, there was a hiatus in the litigation even in the High Court where collections were made at the increased rate even though that was quashed by the High Court. We clarify that there was no justification for the Appellant State or its Excise Department to collect charges at the rate of 1/- after it had been quashed by the learned Single Judge. Keeping in perceptive the abs .....

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Adv. Mr. K. V. Mohan, Adv. Mr. Ambrish Kumar,Adv. JUDGMENT Vikramajit Sen, J. 1 The Appellants before us have laid siege to the concurrent conclusions of the learned Single Judge, as well as the Division Bench of the High Court of Judicature at Madras in a matter where the writ petitioners, i.e. the Respondents before us, have assailed the legality of a demand of .1/- per bulk litre of industrial alcohol manufactured by them. Earlier, the Respondents had unsuccessfully assailed the impost of 50 .....

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XIII) Department, dated 12.04.2000, are unconstitutional, illegal and void. The learned Single Judge noted that the decision of a Seven-Judge Bench of this Court in the case of Synthetics and Chemicals Ltd. v. State of U.P. (1990) 1 SCC 109; AIR 1990 SC 1927 concluded the conundrum. In that case it was held that the sundry States of the Union of India are not competent to impose taxes/levies on industrial alcohol or rectified spirit. This Court, however, clarified that the States are empowered u .....

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decade. 2 By G.O.M. No.64, dated 12.04.2000, Home Prohibition and Excise (XIII) Department, the Appellant State Government has amended Rule 5-A and thereby increased administrative service fees to .1/- per bulk litre for industrial alcohol produced by the sundry distilleries located in that State. The stance of the State Government was that administrative fees related strictly to the establishment charges occurred in the distilleries themselves together with other expenses incurred by the State .....

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g Khedut Sahakari Mandali Ltd. v. State of Gujarat (1992) 2 SCC 42, Gujchem Distillers India Ltd. v. State of Gujarat, (1992) 2 SCC 399 and Bihar Distillery v. Union of India AIR 1997 SC 1208. It opined that the State had the power to comprehensively regulate and monitor the production of industrial alcohol in order to ensure that there was no misuse or diversion of this product for its conversion to potable alcohol. The Writ Court then went on to consider the second question, viz. whether the l .....

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ted that the test of correlation is to be reckoned at the aggregate level and not at the individual level as was clarified in P. M. Ashwathanarayana v. State of Karnataka (1989) Supp.1 SCC 696. In this conspectus of the law, the learned Single Judge reached the conclusion that the State was competent and justified in recovering expenses for ensuring the prevention of illegal diversion of industrial alcohol within the premises of the distilleries themselves, as also expenses incurred for supervis .....

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material to establish that the impost indeed had the character of quid pro quo. Referring to the quantum of recoveries made on the basis of 50 paise per bulk litre for almost one decade, it was noted that this collection roughly corresponded to one-third of the total expenses incurred by the Excise Department, which per se was not excessive; and that there can be no cavil that in regulating the trade of potable liquor the State is gathering considerable income. So far as the increased demand of .....

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00 was quashed. It appears that despite this ruling the State has coerced the writ petitioners into paying the so called administrative regulatory charges at 1/- per bulk litre. 3 The Appellant State thereupon assailed the decision of the learned Single Judge in W.A. Nos.1566 to 1571 of 2001, but in the event, with continued failure. The Division Bench again analysed the numerous judgments of this Court, the foremost being of the Seven-Judge Bench in Synthetics and Chemicals Ltd., and noted that .....

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introduced as this Court in Seven-Judge ruling in Synthetics and Chemicals Ltd. had approved the collection of administrative service fee, as indubitably and avowedly the State Government through its Excise Department was incurring expenses for the purpose of blocking any attempt to divert industrial alcohol as potable alcohol. Quite correctly, the Division Bench also posited on the strength of the decision of this Court in Vam Organic Chemicals Ltd. that the Excise Department was effectively co .....

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administrative fee aggregating 11.73 crores which collection, therefore, was excessive. Whilst it seems to us that there is no scope for our interference in the impugned Judgment, we must hasten to clarify that the charges should not be restricted only to those establishment expenses incurred by the State in the distilleries alone, or that any collection over and above those expenses would ipso facto tantamount to unjust enrichment. However, the fact remains that the figures noted by the Divisio .....

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hat there is no diversion thereof for the purpose of or reconversion to potable alcohol, had not been provided in this regard. We are in no manner of doubt that the State has woefully failed to furnish credible details of expenditure which, according to it, related to administrative or regulatory or service expenses. 4 We do not propose to make this Judgment prolix by once again minutely analyzing the several decisions of this Court, which have clarified that administrative or service charges ca .....

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on of industrial alcohol for the purposes of producing potable alcohol. The extracted paragraph from Synthetics and Chemicals Ltd which distills the precedents on the State s legislative s powers with regard to industrial alcohol, deserves careful consideration: 86. 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 .....

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rice 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. 5 Over the years, the inflexibility with which the principle of quid pro quo was to be applied, which may have been sired from a pedantic perusal of Synthetics and Chemicals Ltd, has been clarified and crystallized by this Court. We shall reproduce these para .....

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to the primary motive of regulation in public interest. This Court said that in determining whether a levy is a fee or not emphasis must be on whether its primary and essential purpose is to render specific services to a specified area or class. In that process if it is found that the State ultimately stood to benefit indirectly from such levy, the same is of no consequence. It also held that there is no generic difference between a tax and a fee and both are compulsory exactions of money by pub .....

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It also held that the element of quid pro quo in the strict sense is not always a sine qua non for a fee, and all that is necessary is that there should be a reasonable relationship between the levy of fee and the services rendered. That judgment also held that the earlier judgment of this Court in Kewal Krishan Puri v. State of Punjab(1980) 1 SCC 416 is only an obiter..... ...... 38. As noticed in the City Corpn. of Calicut (1983) 2 SCC 112 the traditional concept of quid pro quo in a fee has u .....

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the benefit of the entire industry, there is sufficient quid pro quo between the levy recovered and services rendered to the industry as a whole. If we apply the test as laid down by this Court in the abovesaid judgments to the facts of the case in hand, it can be seen that the statute under Section 11 of the Act requires the Board to undertake various activities to regulate the business of the securities market which requires constant and continuing supervision including investigation and inst .....

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(commonly referred to as Vam Organic II ) this important aspect of the law has been further crystallised thus - 34. The word service in the context of a fee could, therefore, include, a levy for a compulsory measure undertaken vis-à-vis the payer in the interest of the public. This coercive measure has been subsequently judicially clarified to mean a regulatory measure . But in the case of both kinds of services, whether compulsorily imposed or voluntarily accepted, there would have to be .....

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under Section 548 of the Calcutta Municipal Act, 1951 had been challenged on the ground that no service was rendered commensurate with the tax. 7 Considerable reliance was placed by the learned Senior Counsel for the Appellant State on the decision of this Court in B.S.E. Brokers Forum, but in our view, without justification. Indubitably, this Court held that it was not incumbent for collections or contributions to be recovered from only those who were directly involved in the subject transactio .....

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the charging of two types of fees - (i) under Section 11(2)(k) of the SEBI Act for carrying out the several and sundry purposes contained in Section 11, and (ii) for the registration of applicants under Section 12(2). It was also clarified by the Court that the said service or regulatory or administrative fee can be levied on all contributors, regardless of whether or not services were being directly rendered to them. This decision cannot be extrapolated to permit the State to make recoveries i .....

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under Section 11(2)(k) could legitimately meet both capital expenditure and costs of services. This Court also found on the strength of evidence before it that the bulwark (50%) of its total expenditure would be towards broker-related services, apart from protecting the interests of the investors, regulating the acquisition of shares, taking over of companies and undertaking inspections and audits of stock exchanges, mutual funds, insider trading, etc. Most importantly, this Court accepted the .....

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It further noted that stock-brokers formed a distinct class. 8 We may also, with short shrift, reject an argument put forward on behalf of one of the Respondents, namely, Tvl. Chemplast Sanmar Limited, that its production of industrial alcohol was entirely captive for its own activity of manufacture of PVC. Even assuming this to be so, there is always a brooding and omnipresent possibility of diversion of industrial alcohol to potable alcohol. 9 It seems to us, facially, that if administrative o .....

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