Holding

Section 58A is a valid fee for supervision under the State’s regulatory power under Entry 33 of List III and is not an ultra‑vires tax on industrial alcohol.

Summary

Sh. Bileshwarkhan Udyog Khedut Sahakari Mandali Ltd. challenged a levy imposed by the Gujarat Government under Section 58A of the Bombay Prohibition Act, which required licensees to pay the cost of excise staff for supervising the manufacture of industrial alcohol. The High Court upheld the levy as a fee within the State's power. The appellant argued that the levy was a tax on industrial alcohol, which is a central subject, and that the High Court relied on the privilege doctrine, contrary to the Supreme Court’s decision in Synthetics & Chemicals Ltd. v. State of UP. The Supreme Court held that the State may regulate to prevent diversion of non‑potable industrial alcohol and that such regulation, including a fee for supervision, falls under Entry 33 of List III of the Seventh Schedule, a concurrent subject, not a tax under List II. Consequently, Section 58A is constitutionally valid. The appeal was dismissed, leaving the High Court’s decision intact.

Issues considered

Whether Section 58A of the Bombay Prohibition Act, which imposes a cost for supervision of industrial alcohol manufacture, is within the legislative competence of the State of Gujarat.
Whether the levy constitutes a tax/duty under Entry 8 or Entry 51 of List II, or a fee for services under Entry 33 of List III.
Whether the privilege doctrine applied by the High Court is consistent with the ratio in Synthetics & Chemicals Ltd. v. State of UP.

Legislation cited

Bombay Prohibition Acts. 58A
Constitution of Indias. Article 245, s. Article 246, s. Schedule VII List II Entries 8, 26, 27, 51, s. Schedule VII List III Entry 33
Industries (Development & Regulation) Act

Subjects

legislative competencestate levyindustrial alcoholBombay Prohibition Actfee vs taxprivilege doctrineconcurrent listEntry 33regulationSupervision cost

Judgment

SH.BILESHW AR KHANO UDYOG KHEDUT A
SAHAKARI MANDALI LTD.
v.
STATE OF GUJARAT AND ANR.

JANUARY 28,1992
B
[R.M. SAHAI ANDS. MOHAN, JJ.]

Constitution of India, I 950:

Article 245 and 246/VII Schedule-List II Entries 26 and 27/List Ill
&~n: c
Legislative competence qf State~5ection 58A of Bombay prohibi-
.tion Act-Enactment of-Whether within the legislative competence.

Bombay Prohibition Act:
D
Section 58A-Whether within the legislative competenco qf State-
Constitutional validity of

Rule 2 of the Bombay Prohibiiion (Manufacture of Spirit) (Gujarat)
-'1- Rules, 1963, framed by the State Government in exercise of powers
conferred under Section SSA of the Bombay Prohibition Act, dealt E
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. F

Aggrieved against the High Court's order, the appellant has pre~
'-- • ferred the present appeal.

The appellant contended that since the judgement appealed against
proceeded on privilege theory, it cannot withstand the principle laid G
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 SSA of
the Bombay Prohibition Act.

Dismissing the appeal, this Court, H

391
392 SUPREME COURT REPORTS (1992] 1 S.C.R.

A HELD: 1.1 Even though the power to levy tax or duty on indus-
trial 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
SSA of the Bombay Prohibition Act. (394 D]
B
1.2 Principle of occupied field precluded State from trenching
on any power which was already convered 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 33
c 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
D
respect of what is covered by List III is enjoyed both by Central and
State legislatures subject to Article 246 of the Constitution. Since sec-
tion SSA 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 SSA of the Bombay Prohibition Act is valid and is not
violative of any constitutional provision. [39S B-C(.
E
l.4 It cannot he said that no cost for supervision could be de-
manded unless the power to issue licence for production was found to ·
exist in State. [ 39S DJ

F Synthetics & Chemicals Ltd. & Ors. v. State of UP. & Ors., [1990]
1 SCC.109, followed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 503 of 1974.

From the Judgment and order dated 29/30.8.1973 of the Gujarat
G 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
H Respondents.
KHAND UDYOG v. STATE !SAHA!, J.j 393

The Judgment of the Court was delivered by A
R.M. SAHA!, J. Validity of demand, under Section 58A of the
Bombay Prohibition Act, for maintenance of the excise staff for supervi-
sion of the manufacture of industrial alcohol was assailed on lack of
legislative·competence of the State.

Section 58A is extracted below:
B

"58A: The State Government may be general or special order
direct that the manufacture, import, export, transport, storage,
sale, purchase, use, collection or cultivation of any intoxitant,
+ denatured spirit~ous preparations, hemp, Mowra flowers, or
molasses shall be under the supervision of such Prohibiti.on c
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 flow-
ers or molasses: D
"Provided t.hat 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 ·or Bombay Prohibition (Manufacture of Spirit) (Gujarat) E
Rules, 1963, framed by the State of Gujarat empowered the director to
grant a licence for working ef the distillery for t.he manufacture of the
spirit ·condition Nos.2 and 3 of the licence issued provided for employ-
ment '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 F
staff for supervision but on demand of cost of maintenance of such per-
'--, sonnel. Levy was upheld, by the High Court, as fee under entry 8 of List
II of the Vllth Schedule read with entry 66 of the same list. In Synthetits
& Chemicals Ltd. & Ors. v. State of UP.& ors., [1990] I SCC 109 a
Constitution Bench after exhaustively reviewing the constitutional entries
and various decisions held that industrial alcohol being unfit for human G
co.nsumption as no levy on it could be made by a State either under Entry
51 or Entry 8 of List II of Vllth Schedule. Nor such levy could levy
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 judgment is not warranted. The Constitu-
394 SUPREME COURT REPORTS [1992] I S.C.R.

A 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 r~gulate and ensure that non-potable alcohol was not diverted and
misused.

According to learned counsel since the entire judgment of the High
B 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 VI!th 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 le'vy being in accordance with law on power derived from one of
the constitutional entries. Since Synthetic & Chemical's case finally brought
c 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 Vllth Schedule of the compe-
tency of the State to frame any legislation t() 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 whkh includes regulation
D 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
E 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 argu-
ment on behalf of appellant.
F
Principle of occupied field precluded State from trenching on any >
f

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 of List III of Vllth
G Schedule which is extracted below,

"3 3. Trade and commerce in, and the production, supply and
distribution of-
(a) The products of any industry where the control of such
;..
H industry by the Union is declared by Parliament by law to be
KHAND UDYOG '"STATE [SAHA!, J.] 395

. - ,,,,_ expedient in the public interest, and imported goods of the A
same kind as such products;
(b)
(c)
(d)
(e) B
Trade and commerce and supply and distribution of goods are exclu-
sive state subjects under entry 26 and 27 of List II of Vllth Schedule. But
both are subject to entry 33 of List 111. That is what is covered in entry 33
is excluded from list II. And the power t9 legislate in respect of what is
covered by list III is enjoyed both by Central and State subject to Article ·c
246 of the Constitution. Siilce 58A can be traced to regulatory power of
the State exerfisable 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.
D
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 Synfhetic & Chemical's case. Since it stands answered by
the constitutions Bench itself it is um1ecessary to dilate on it. Suffice it is
to extract the following observation, E

"The position with regard to·11Je' control of alcohol industry
has undergone material and significant change after the amend-
ment of 1956 to the !DR Act. After the amendent, the State is
left with only the following powers to legislate. in respect of
alcohol: F
(a)
(b) It may lay down regulations to ensure that non-potable
alcohol is not diverted and misused as a substitute for
potable alcohol.
(c) G
(d) However, in case State is rendering any service, as dis-
tinct from its claim of so-called grant of privilege, it may
charge fees based on q11id pro q110. "
Feeble attempt was made to challenge absence of any q11id pro quo.
But no' serious effort was made in High Court as is clear from following
observation: H
396 SUPREME COURT REPORTS [1992] 1 S.C.R.

A "If any q11id pro q110 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 c.ommodity.
We have not doubt in our mind that the annual payment of a
B few thousand rupees by way of cost of supervision under Sec-
lion 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
tis that if the levy under Section 58A is held to be a fee, there
is no sufficient q11id pro q110 between the quantum of the im- +
c post and the services rendered to the manufacturer or business-
1nan."
In the result, this appeal fails and is dismissed with costs.

G.N. Appeal dismissed.

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