Holding

Section 58(A) of the Bombay Prohibition Act is constitutionally valid, and the supervisory charges imposed on industrial alcohol manufacturers are a permissible regulatory measure.

Summary

Gujchem Distillers India Ltd, a manufacturer of industrial alcohol, was required under a licence to pay supervisory charges to a staff appointed by the Gujarat State under Section 58(A) of the Bombay Prohibition Act, 1949. The company challenged the constitutional validity of that provision, arguing that the State had no power to impose such a fee on industrial alcohol and that there was no quid pro quo. The Supreme Court, relying on Synthetics & Chemicals Ltd. v. State of U.P. (1989) and Southern Pharmaceuticals & Chemicals v. State of Kerala (1981), held that the State possesses regulatory authority over alcohol to prevent its diversion into potable use, and that supervisory charges are a permissible regulatory measure with a sufficient relationship to the service rendered. The Court rejected the claim that the fee was invalid for lack of quid pro quo and upheld the validity of Section 58(A). The appeal was dismissed with costs.

Issues considered

The constitutional validity of Section 58(A) of the Bombay Prohibition Act, 1949.
Whether the State can impose supervisory charges on manufacturers of industrial alcohol.
Whether such charges require a quid pro quo relationship between fee and service.
Whether the State's power to regulate alcohol includes preventive measures against diversion of industrial alcohol.

Legislation cited

Bombay Prohibition Act, 1949s. 58(A)
Bombay Prohibition (Manufacture of Spirit) (Gujarat) Rules, 1963
Constitution of Indias. 132(1), s. 133(1)(a), s. 136

Subjects

constitutional validityregulatory powerindustrial alcoholsupervisory feequid pro quopolice powertax vs feeBombay Prohibition Act

Judgment

' ..... GUJCHEM DISTILLERS INDIA LTD. A
v.
STATE OF GUJARAT AND ANR.

FEBRUARY 17, 1992

[P.B. SAWANT ANDS. MOHAN, JJ.] B

Bombay Prohibition Act, 1949-Section 58(A)-Co11stinuio11a/ validity
of-S11perifrion wider-Legality of

Constitution of India, 195(}-Anic/e 136--Appeai-Matter not co11-
te11ded before High Co11n whether pcnnitred to collte11d i11 appeal.
c
The appellant, a company registered under the Indian Companies
Act, 1956, W"ds 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 D
distillery for the purpose of manufacturing industrial alcohol from mol-
lasses.

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 E
of one Inspector, one Sub-Inspector, one Nayak, one Jamadar and five
constables, to supervise Ute manufacture of the spirit in the company's
distillery plant. The appellant-company was required to provide residen-
tial accommodation to the supervisory stafl'within its factory premises and
to deposit supervisory charges from time to time. The company complied
F
the requirements.

In 1973 the appellant-company tiled a Civil Application in the High
Court challenging the constitutional rnlidity of the Section 58(AJ of the
Bombay Prohibition Act, 1949.
G
The High Court dismissed the petition, hence this appeal by certifi-
cate granted by the High Court under Articles 132(1) and 133(l)(a) of the
Constitution.

The appellant-company contended that this Court in Symhctics and
Chemic/as Ltd. case, (1989] Supp.I SCR 623 held that in respect of H
675
676 SUPREME COURT REPORTS [1992] 1 S.C.R.

A industrial alcohol, the States had no power to impose. the impost; that in
•·iew 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 Chemicals
B 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
C 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]

D Synthetics & Chemicals Ltd. v. State of U.P. and Ors .. [1989] Supp.I
SCR 623-Followed.

1.02. Section 58(A) of the Bombay Prohibition Act creates a statutory
duty or supervision and incidentally provides for recovering from a
manuracturer or a businessman having been permitted under a licence to
E carry on lawfully a business or industrial activity which would otherwise
have been unlawful. [684G-685A]

1.(13. The mai.ntenance of the staff contemplated under Section 58(A)
of the Act is primarily for the purpose or ensuring that while dealing with
industrial alcohol, no attempt shall be made to divert non-potable alcohol.
F 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. Hon·ever, such a power \\'~s sustained though
not on police power but as a regulatory measure. [679C-D]

G Sowhem P/iannace11tica/s & Chemicals v. State of Kera/a, AIR 1981
S.C. 1863; Sh. Bileshwarkhand Udyog Khed11t Sahakari Mandali Ltd. v. The
State of G11jarat & 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
H contended before it that there was not sullicient quid pro quo between the
GUJCHEM DISTILLERS v. STATE [MOHAN, J.] 677

quantum of impost and the services rendered to the manufacturer or A
businessman. [679E-F]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 350 of
1974.

Appeal by Certificate from the Judgment and Order dated 29/30-8- B
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.
c
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 D
....,__ Court of Gujarat at Ahmcdahad 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 :-
E
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 hy the appellant company.
•, F
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 State of Gujarat. This was for the purpose of manufac-
turing industrial alcohol from molasses.

On July 3rd, 1969 the second respondent, the Director of Prohibition G
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
J amadar and five constables to supervise the manufacture of spirit in the H
678 '>I ;plffME COURT REPORTS [1992] I S.C.R.
•
A appellant's distillery plan!. The appellant was also required to provide
residential accommodation lo the supervisory staff within the factory
premises. On July 3rd, 1969 the 2nd respondent asked the appellant to .
deposit the supervisory charges. From time lo time, these supcr,1sory ~
charges were also deposited in accordance with the directions of 2nd
B rcspotldenl.
•··
It requires lo be staled al this stage that the le'y of supervisory
charges, is traceahle lo Section 58(A) of Bombay Prohibition Act of 1949.
The Section says:. ~

c "Sec. 58(A) : The Stale Government may by general nr special
,order direct that the manufacture, import, export, 1ransp<1rl.
storagci sale, ,purchase, use, l'ollection or cuhi\'alion nf any
intoxicant, denatured spirituous preparation, hc1np 1 inho\vra
flo\vcrs, or molasses shall he under th..: supcr\'ision of such
Prohibition and Excise or Pulice Staff as it may deem proper
D
lo appoint and that the cusl of such staff shall he paid to the
· State Go\.'..:.rnn1cnt hy person manufacturing. importing! c.xport-
.ing, transporting, storing, selling~ purLhasing. usi'1g, collecting
or cultivating' the intoxicant. d~nalun.:d spirituous prcpari:ilinn.
hemp, inho\VTa Oo\VCTS or mollascs:
E
Pro,ided that the Stale Government may exempt any class of
persons or instiltilions from paying the whole or any part of the
cost of such staff."

Section 143 of the said Ad confers power for making rules. Rules
F
have hceh framed called Bombay Prohibition (Manufacture of Spirit)
(Gujarat) Rules, 1963. These rules inrer u/ia regulate the working of distill-
eries. manufacturing spirit Ruic 2 provides for the licence. Condition Nos.
2 and 3 of the licence require payment of the supervisory staff and for
ptovisioh of quarters for the residential acco1nmo<lation of the slaff fcspcC-
G tivcly.

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 Ac!. By the impugned jutlgment, the said petition was dismissed. 11'
H Hence, the present civll appeal.
GUJCHEM DISTILLERS v. STATE [MOHAN. J.] 679 ..

The arguments of the appellant briefly slated will boil down to this. A
It has been categorically laid down in Synthetics & Chemicals Ltd. v. State
of UP. & 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. B

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 c
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 as seen from Southern Phannaceuti- D
cats & Chemicals v. State of Kera/a, 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 E
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.
F
We are relieved of the necessity of deciding the correctness of these
submissions by a detailed judgment, since indentical points were raised in
Civil Appeal No. 503 of 1974 (Sh. Bilesliwar Kliand Udyog Kliedut Sahakari
Manda/i Ltd. v. 17ie State of Gujarat & Anr.) to which one of us (Mohan,
J.) was a party. The said Civil Appeal has been dismissed considering
0

these aspects and upholding the validity of Section 58(A). The said judg- G
ment 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 foll.g observations are found
at page 681: H
. ... .. - ..

680 SUPR~ME C0URTREPO~TS . .· [199iJ 1 S.C.R.

A ."The position with regard t~ th~ c.\nttol.of alcohol industry has
undergone material .and sigqiti~t· chilz!ge after. the amend··....
ment of 1956to the ID!l Ai:t. After tlie att1erii.lineiit, the State ·.• .
. .is left With. only th~ folloWing po"'e~i; to iegisiaie in respect of
alcohol:'· . · · . . .
,\ .·

. (a) i~·~a; pasii ~~Jegislatlon in the nature of prohibition pf
><·.·
pbtabl~ 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 artd·misused as a substitute for potable
>--
c alcohoL ·

(c) the State may cl&ge·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
D under the Ethyl Alcohol · (price Control) Oiders, sales · tax
. ':"5 . ca11Dot be charged by the State on industrial alcohol.
~-
· (d) however, in case State is rendering any service, as distinct
from its claim of soccalled grant of privilege, it may charge· fees .
based on quid pro quo."
E
In this connection, we may also usefully ·refer to Souti!em Phar-
macelllica/s & 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.
F -{
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 :
... : ..
'(~)T~ey iJe lil conflict of Rule 45 of Central Excise Rules and,
ti G
(b).Theycould not be Sustained as fee as there was no quid pro quo.
•
In the said judgment at page 1875, para 27 Southern Pharmaceuticals
0

& C/1emicals (supra) rea1t5 under :
-,-.·
H .. · «A fee may be .charged for the privilege or benefit conferred,
GUJCHEM DISTILLERS"· STATE (MOHAN, J.) 681

or service rendered, or to m.ect the expenses connected there- .A
with. A foe may be, levied to meet the oost or supervision and
may be, something more. It is in consideration for the privilege,
licence or service".

Again in. para 29, it wa5 stated thus: ·
B
"There is a broad co-relationship between the fee collected and
the cost or the establishment under Section 14(e) of the Act it ·
is provided that the Commissioner, with the previous approval
or the Government may prescribe the size and nature or the
establishment' necessary for supervision or a manufaciory and C
the cost or 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 protec-
tion to prevent the leakage or revenue, but there is no. denying D
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 :
E
"(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 hy at least
two Excise Guards. The cost or establishment of such officer
and the guards shall be payable by the licensee in advance in F
· 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 writi~g.... ~ ........"
G
There is admittedly no provision made in the Central Rules for
the recovery of supervisory charges, perhaps because as the
Coan observed in the Hyderabad Chemicals and Plraffna-
ceitiica/'s case (AIR 1964 SC 1870) (supra) it was felt that the
duty on medicinal and toilet preparations containing alcohol . H
682 SUPREME COURT REPORTS [1992] 1 S.C.R.

A 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 arc not credited to a separate fund, but are taken
B
to the consolidated fund of the State and are not separately
appropriated towards the expenditure incurred in rendering
the service. However, as observed in Govemmellf of Madras v.
Zenith Lamp & Electricals Ltd., [1973) 2 SCR 973; (AIR 1973
SC 724) followed in State of Rajasthan v. Sajjanlal Panjawat,
c [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 norn1ally 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 estab-
D lished [sec Commissioner H.R.E., Madras·v. Lakshmindra 77zir-
tha Swamiar of Shinll' Mutt and Govemment of Madras v. Zenith
Lamp and £/ecrrica/s 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
E
even if they arc regarded as a fee for services rendered by the
State or its instrumentalities."

In dealing with Synllzelics Chemical case (supra) the following ohser-
vations were .made :
F
"Learned Advocates-General for the States of Gujarat and
Kcrala have also made their submissions, and referred to
several decisions and the concept of police po\ver, and con-
tended that imposition of a fee would be the most effective
G method of regulating intoxicating liquor other than alcohol.
According to the Advocate-General of Kenia, that would be
justified as the reasonable measure in regard to intoxicating
liquor. According to him, it has been accepted hy courts all
along that the 'police power' of the State enables regulations
H to be made regarding manufacture, transport, possession and -.,..
GUJCHEM DISTILLERS,.. STATE [MOHAN. J.] 683

sale of intoxicating liquor. Such police power could be excr, A
cised as to impose reasonable restrictions as to effectuate the
power. He referred to the observations of this Court iri Coover-
jee B. Bhantdia v. The Excise Commissioner and the Chief
Commissioner, Ajmcr & Ors., 119541SCR873 which quoted the
passage from Crowley v. Christensen, (1890) 24 Lawyers' Edn. B
620. Reference was also made to Hori Slta11ker'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 C
is exercisable 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 Southem
Phannaceuticals & Chenziclas. Tn"chur & Ors., etc. v. State of D
Kera/a & Ors. etc., [19821 I SCR 519 at 537. Regarding
regulatory measures in connection with medicinal prepara'tions
containing alcohol it was observed by this Court that tl.e im-
pugned provisions had to be enacted to ensure that the Rec-
tified Spirit is not misused under the pretext of being used for E.
toilet and medicinal preparations containing alcohol. Such a
regulation is a necessary concomitant of the police po\vcr of
the State to regulate such trade or business which is inherently ·
dangerous to public health. The American doctrine of police
power is not perhaps applicable as such in India, hut powers
of the sovereignty to regulate as part of the power of the F
competent legislature to effectuate its aim are there.

It is true that that in the State of West Bengal v. Subod/1 Copa!
Bose & Ors., 11954] V SCR 587 at 601-604 and Kameshwar
Prasad & Ors. v. The State of Bihar & Anr., 11962] 3 Suppl. SCR G
369 the concept of police power was accepted as such, but this
doctrine was not accepted in India as an independent po\vcr
but was recognised as part of the power of the State to legislate
\vith respect to the matters enumerated in the State and Con-
current Lists, subject to constitutional limitations. It \Vas stated H
684 SUPREME COURT REPORTS (1992) 1 s.C.R, ,.a..

A that the American jurisprudence of police power as .distiii-
guished from specific legislative power is not rr.mgnised in our ·.-
Constitution and is, therefore, contrary to the .scheme of t•e
.Constitution. In interpreting the provisions of our Constitution,
we should go by the plain words used by .the Comtitution-
B makers and the importing of expression like 'polic:c power',
· which is a term of variable and indefinite connotation Call only
make the ~k of inicrpretation more. diff'aCult. It was contended
·that in enacting a law with respeci. lo intoxicating liquor as part ·
of the legislative power measures of social control and regula-
tion of private rights are permissible and as such may even .
c amount to prohibition.

We are of the opinion that we need not detain ~Ives on the
question whether the States have police power or not. We must
accept the position that the Stales haw the power to regulate
D 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 garb of regulations a legislation which is in piih and sub-
stance, as we look upon the instant legislation, fee or levy which
has no connection with the cost or expenses administeriilg the
E 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 · ihe numerous
F Ameriean 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,
G we need· only extract the following from the judgment of the High Court:
"Section S!l(A) of the Bombay Prohibition Act. creates a
statutory ·duty of supervision .and. incidentally provides · for . 7""...
recovering from a manufacturer or. a businessman the cost of .·
H supervision .which is primarily necessitated by the manufacturer .
··~ ..

- GUJCHEM DISTILLERS v. STATE [MOHAN, J.)

or businessman having been permitted under a lice11ce to carry A
685

. on lawfully a business or industrial activity which would other-
wise have been unlawful. We need not go into the details of
this aspect bai:ause it has not been contended before us that if
the levy Under Section 58A · is ~eld to be a fee, there is no
sufficient quid pro quo between the_ quantum of the impost and · B
the services rendered to the manufacrurer or businessman."

. In the result, the appeal fails and is dismissed witli costs.
V.P.R .. .Appeal dismissed.

..
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