SHREE KRISHNA GYANODAY SUGAR LTD.versusSTATE OF BIHAR

A               SHREE KRISHNA GYANODAY SUGAR LTD.
                                v.
                          STATE OF BIHAR

                                  AUGUST 14, 1996

B               [S.P. BHARUCHA AND S.B. MUJMUDAR, JJ.]

          Excise Law:

          Bihar and Orissa Excise Rules, 1919 : Rule 9.
c          Excise staff and establishment "to the charge of a distillery''-Power of
    coriunissioller to appoint alld levy establishment cost Oil distillery-Held: llot
    ultra vires the provisions of Act-Power could be traced to S. 38(1)(a)(ii) r/w.
    sub-sections (J)(a) Gild 9(i) & (ii) ofAct-Bihar excise Act, 1915, S. 38( l)(a),
    90(i)(a) & (9), 13, 15 and 49.
D
          Rule 9 (first pmt)-Excise officers and establishment "to the charge of
    a distillery''-Appointment oHfeid : words "to the charge of a distillery"
    meant to be ill charge or control of distille1y alld not at the cost of distille1y.


E          Rule 9 (second pwt)-Applicability of-collditions for-Excise staff and
    establish Oil distillery 'licensed solely for purposed of manufacture of dena-
    tured spirit or any other commercial spi1it'-Levy of cost of-Held: distilleries
    licensed for mallufactu1ing de11atured spirit or other industrial spirits unfit for
    human collsumption along with potable liquor fit for humall consumptioll do
F   not fall withill the ambit of secolld part of Rule 9-Word "or" ill expression
    "n1anufacture of denatured spi1it or any other conunercial spirit' could not be
                                             1                             11
    read as 'and'-171e succeeding words 'any other conunercial spbit would get
    colour from preceding words" dellatured spirit".

          The appellants were licencees in respect of distilleries for manufac-
G ture of potable spirit and denatured spirit or commercial spirit. Tbe
  appellants were granted licences by the State under Bihar Excise Act, 1915.
  The Superintendent of Excise directed the appellants to pay the estab-
  lishment charges incurred over the excise staff posted at the appellants'
  distilleries. The said demand was raised under Rule 9 of the Bihar &
H Orissa Excise Rules, 1919. The appellants filed writ in the High Court
                                           680
         SHREEKRISHNAGYANODAYSUGAR LTD. v. STATE                         681

challenging the aforesaid demand which were dismissed. Being aggrieved          A
the appellants preferred the present appeal.

      On behalf of the appellants it was contended that Rule 9 of the Rules
was ultra vires the provisions of the Act; and that since the appellants
manufactured not only denatured spirit or commercial spirit but also
potable spirit, the respondent-authorities had no power or jurisdiction to      B
invoke Rule 9 of the Rules demanding establishment charges incurred on
the excise staff posted at their distilleries.

       On behalf of the respondents it was contended that Rule 9 of the
Rules was clearly sustainable under Section 38 of the Act; that the words,      C
11
 denatured spirit or any other commercial spirit" as found in the second
part of Rule 9 of the Rules could be read as "denatured spirit and any
other commercial spirit" and if so read they would include even potable
spirit manufactured by the appellants; and hence the distilleries run by
the appellants were squarely covered by Rule 9 of the Rules.
                                                                                D
      Allowing the appeal in part, this Court

      HELD : 1. Power to regulate and supervise distilleries as engrafted
in the first part of Rule 9 of the Bihar & Orissa Excise Rules, 1919 and
also to levy establishment cost from these distilleries under second part
of the Rule can squarely be traced to the statutory provisions of Section       E
38(i)(a) (ii) of the Bihar Excise Act, 1915 which entitle the Board of
Revenue to impose suitable restrictions and conditions on the licences like
appellants' distilleries who have to manufacture liquor pursuant to such
licences subject to such restrictions and conditions as are imposed on
them. Section 38(l)(a)(ii) read with Section 90 subsections (l)(a) and 9(i)     F
and (ii) represents a well-knit statutory scheme authorising the Board of
Revenue to promulgate rules for laying down restrictions and conditions
on the licencees, namely, the distilleries which could be validly subjected
to such restrictions on their manufacturing activities before they get
clearance for such activities under Section 15 read with Section 13 of the
Act. It is, therefore, not possible to agree with the contention that Rule 9    G
is ultra vires the provisions o( the Act or has no statutory coverage for its
existence. It has to be kept in view that if a distillery which manufactures
denatured spirit attempts to alter or alters any denatured spirit with the
intention that such spirit may be used for human consumption whether as
a beverage or internally as a medicine would be committing an offence           H
    682                   SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.

A which is punishable under Section 49 of the Act. It is, therefore, permis-
  sible for the excise authorities under the Act to supervise the working of
  such distilleries so that they may not commit such offences and to oversee
  their manufacturing activities. It is axiomatic to state that prevention is
  better than cure. If denatured spirit is illegally altered and made lit for
  human consumption, if is likely to have devastating effect on the health of
B consumers and may even result in fatal conse<Juences or loss of vision and
  other pernicious physical handicaps. In order to prevent such social
  calamities, if supervision is provided at the cost of distilleries, it cannot
  be said that such conditions are not germane to the requirements of the
  Act. If for this laudable purpose an establishment is put up at the door
C steps of the distilleries themselves as per the impugned rule and if cost of
  maintenance of such establishment is foisted on the licencee distilleries it
  cannot be said that such a rule is de hors the provisions of the Act. On the
  contrary such a provision squarely falls within the regulatory powers of
  the Board of Revenue of framing rules with a view to seeing that the
D provisions of the Act are not stifled or tinkered with by such licencee
   distilleries. [690-F-H; 691-A-E]

          ·Indian Mica Micanite Indusffics y. State of Bihar and Others, [1971] 2
     SCC 236 and Sylllhetics and Chemicals Ltd. and Others v. State of UP. and
     Others, [1990] 1 SCC 109, held inapplicable.
E
           M/s. Gujchem Disiillcries India Ltd. v. State of Gujarat and Anothei;
     [1992J 2 SCC 399 and S/ui Bileshwar Khand Udyog Khedut Sahakari Man-
     dali Ltd. v. State of Gujarat and Anoiher, [1992] 2 SCC 42, relied on.

           2. The first part of Rule 9 contemplates appointment of officers and
F establishment as thought fit by the Commissioner with a view to taking
   charge of the distillery for supervisory purposes. The context in which the
   said phraseology was employed the rule making authority leaves no room
   for doubt that the words "to the charge of a distillery'· were meant to
   empower such officers and establishment contemplated by Rule 9 to be in
   charge or control of distillery for the purposes of supervision. The term
 G charg;e can obviously not mean the "cost" of the distillery as the aspect of
     11     11



   cost of such establishment and officers was taken care of by the rule making
   authority by enacting the second part of the Rule. An officer cannot take
   charge of the distillery unless he is put in charge of such distillery in
   exercise of powers of the Commissioner under Rule 9, first part.
 H                                                            (695-E-G; 696-C]
         SHREEKR!SHNAGYANODAYSUGAR LTD. v. STATE                           683

     3.1. Before the second part of Rule 9 can be pressed in service against      A
any distillery the following conditions must be shown to have existed in
connection with ~uch a distillery; (696-E)

    l. The concerned distillery must have licence for the purpose of
manufacturing denatured spirit or any other commercial spirit.
                                                                                  B
      2. Such a licence must be solely for the aforesaid purpose and for no
other purpose. (696-F)

       If these two conditions are satisfied then only the whole cost of such
officers and establishment can he relJuired to be born by such distillery. It     C
is not possible to accept the contention that the word "or" found in between
the terms "denatured spirit" and "any other commercial spirit" may be read
as "and" and that when so read it can be held that second part of Rule 9 can
apply to even those distilleries which have licences for manufacturing dena-
tured spirit and also other commercial spirits including potable liquor.          D
Such a contention would ignore the term "solely" employed by the rule
making authority in its wisdom in the second part of Rule 9. Before it can
be applied to any distillery it must be shown that such distillery is licensed
solely or wholly to manufacture either denatured spirit or any other com-
mercial spirit. If a distillery has the licence to manufacture denatured spirit
and also a licence to manufacture any other commercial spirit, it cannot be       E
said to be having a licence solely for the manufacture of either of these two
types of spirits. On the express language of the rule, distilleries having
multiple licences get excluded from its sweep. [696-G; 697-A-B' D)

      3.2. Even if the word "or" is read as "and" it will result in the
succeeding words 11 any other commercial spirit" getting colour from the
                                                                                  F
preceding words "denatured spirit" meaning thereby any other commercial
spirit contemplated by the said phrase must fall in the same category or
class as denatured spirit which precedes the class of such residuary
commercial spirit as the succeeding words refer to "any other commercial
sprit" meaning thereby commercial spirits other them denatured spirits. G
Consec1uently, if the word "or" is read as "and" any other commercial spirit
would fall in the same category as denatured spirit meaning thereby those
spirit which not fit for human consumption. They would not cover potable
spirits even assuming that they are commercial spirits. However, other
commercial spirits as contemplated by the Rule are those spirits which are H
    684                   SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.

A   untit for human consumption and they do not cover potable liquor which
    cannot fall in line with denatured spirit. In the context of denatured spirit
    as mentioned in the Rule the succeeding words, 'or any other commercial
    spirit' must mean those spirits which fall in the category of spirits unfit
    for human consumption like denatured spirits. Thus, the terms 'other
B   commercial spirits' would take in its sweep only those spirits which are
    used for industrial purposes or any other purpose other than for human
    consumption. Consequently reading the word 'or' as 'or' or even reading
    it as 'and' the appellants' distilleries which are having multiple licences to
    manufacture not only denatured spirit or other industrial spirit but also
    potable liquor would get out of the sweep of the second part of Rule 9. It
c   must, therefore, be held that second part of Rule 9 will apply to only those
    distilleries which are licensed solely and wholly for the purpose of
    manufacturing either denatured spirit or any other commercial spirit unfit
    for human consumption but would not include those distilleries which are
    licensed for manufacturing along with denatured spirit or other industrial
D   spirits unfit for human consumption, also potable liquor which is fit for
    human consumption. As the appellants' distilleries are. not having such
    sole and only licences for manufacturing denatured spirit or other com·
    mercial spirjt unfit for human consumption but are al~o having composite
    ancf multiple licences to 1nanufacture potable liquor "'hich obviously )ie!ds
E large revenue to the State by way of excise duties, they are outside the sweep
    of second part of Rule. 9. It is obvious that to such distilleries the first part
    of tl1e Rule may apply wherein State will have to bear the cost of providing
    supervisors and establishments for that purpose but the cost of such estab·
    lishment. cannot be foisted on such distilleries. [697-G-H; 698-A-F]
F         CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4762-63
    of 1996 Etc.

          From the Judgment and Order dated 18.5.92 of the Patna High Court
    in C.W.J.C. Nos. 560 and 611 of 1980.
G
        Y.V. Giri, Joyti Seran, Praveen Kumar and Ms. Vijay Lakshmi
    Menonfor the Appellants.

           S.B. Sanyal and B.B. Singh for the Respondents.

H          The Judgment of the Court was delivered by
   SHREE KRJSHNA GYANODAY SUGAR LTD."· STATE (S.B. MAlMUDAR, J.J 685


       S.B. MAJMUDAR, J. These civil·appeals, arising out of special leave         A
to appeal granted against a common judgment rendered by a Division
Bench of the Patna High Court in three writ petitions moved by the
appellants, raise a common question as to whether Rule 9 of the Bihar &
Orissa Excise Rules, 1919 (hereinafter referred to as the Rules') framed
under Bihar Excise Act, 1915 (hereinafter referred to as 'the Act') is ultra
                                                                                   B
vires the provisions of the said Act and in the alternative whether the said
rule covers appellants' distilleries which are manufacturing not only dena-
tured spirit but also potable liquor. The appellants' aforesaid twin conten-
tions have been repelled by the High Court and that is how they are before
us in these appeals.
                                                                                   c
Introductory facts

        A few relevant facts leading to these proceedings may be noted at this
stage. Appellant in Civil Appeal Nos. 4762-63 of 1996 is the licencee in respect
of two distilleries, one situated at Lauriya and another at Mirganj in the         D
districts of West Champaran and Gopalganj respectively in Bihar State. It has
been granted licences by the State of Bihar under the Act. The appellant's
distilleries are manufacturing liquor on the basis of licences granted in Form
No. 19 for compounding and blending foreign liquor; in Form No. 19-A for
manufacture of sacramental wine or altar wine or mass wine containing not
more than 42% of proof spirit; in Form No. 25 for the manufacture of               E
denatured spirit; in Form No. 27 for wholesale country spirit; in Form No 28
for manufacture of spirit in a distillery issued to the grantee of the exclusive
privilege of supply of country spirit under Section 22 of the Act; and licence
issued in Form No. 28-A for manufacture of spirit in distillery for use in the
manufacture of chemical, and for industrial, scientific and other purposes. The    F
licences in Form Nos. 27 and 28 were withdrawn with effect from 1st April
1979. The Superintendent of Excise directed the appellant to pay a sum of Rs.
1,68,128.77 towards the establishment charges said to have been incurred over
the excise staff posted at the lauriya distillery from March 1973 till July 1979
and at Mirganj distillery for the years 1975-76 to 1978-79. The said demand
was raised as per impugned Rule 9 of the Rules. That led to two writ petitions     G
moved by the appellant before the High Court.

       Appellant in Civil Appeal No. 4764 of 1996 challenged in its writ
petition before the High Court, an order dated 27th December 1979 passed
by the Member, Board of Revenue, an order dated 27th September 1978 H
    686                   SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.

A passed by the Commissioner of Excise and the demand made by Superin-
    tendent of Excise, Bhagalpur contained in Memorandum dated 5th Novem-
    ber 1976. The said appellant has a distillery in Sultariganj in the district of
    Bhagalpur in Bihar State. It manufactures country spirit and holds licences
    in Form Nos. 25, 27, 28 and 28-A. However, licences granted to it in Form
    Nos. 27 and 28 were withdrawn with effect from 1st April 1979.
B
           Both the appellants contended before the High Court that their
    distilleries were having composite licences to manufacture not only dena-
    tured spirit and other spirit for industrial use but were also manufacturing
    potable spirit or country liquor and that for these distilleries the respon-
C   dent-authorities had no power or jurisdiction to invoke R.ule 9 of the Rules
    demanding establishment cost and cost of officers who were posted at these
    distilleries for the P?rpose of supervision. Their main contention was also
    to the effect that Rule 9 being ultra vires the provisions of the Act, the
    aforesaid demand of the respondents was unauthorised.
D
          As noted earlier both these contentions were rejected by the High
    Court after hearing the concerned parties. The High Court took the view
    that Rule 9 of the Rules was not ultra vires the provisions of the Act. So
    for as the alternative contention was concerned it was noted by the High
    Court but it appears that no clear finding was rendered by the High Court
E   thereon. However, ultimately all the writ petitions were dismissed leading
    to the present proceedings before this Court.

    Rival contentions

F         Learned counsel appearing for the appellants submitted that Rule 9
    the Rules beyond the scope of the Act and there was no statutory
    provisions in the said Act to sustain such a rule. It was alternatively
    contended that as the appellants' distilleries were having licence to
    manufacture liquor which was not only comprising of denatured spirit or
G   other type of industrial >pirit but also potable liquor. Rule 9 on its express
    language could not be pressed in service against the appellants' distilleries.

          On the other hand Shri Sanyal, learned senior appearing for the
    respondent, submitted that impugned Rule 9 of the Rules was clearly
    sustainable under Section 38 of the Act and it was enacted with a view to
H   seeing that the denatured spirit manufactured by the appellants' distilleries
  SHREEKRISHNAGYANODAY SUGAR LID.>'. SfATE[S.B. MAJMUDAR,J.] 687


was not illegally converted into potable liquor especially when such an A
activity itself would invoke the penalty provisions of Section 49 of the Act.
Consequently with a view to subserving the public purpose and with a view
to seeing that the society does not suffer by such illegal activities on the
part of the distilleries, Rule 9 was enacted for fructifying the purposes of
the Act and could not be said to be de hors its provisions entitling the State
                                                                               B
authorities to regulate and supervise the working of these distilleries. On
the alternative contention it was submitted by Shri Sanyal, learned senior
counsel for the respondents, that Rule 9 as framed entitled the Commis-
sioner to impose costs on the concerned distillery which was manufacturing
denatured spirit or any other commercial spirit which would include even
potable spirit which was sold in the market and, therefore, had commercial C
characteristics. Shri Sanyal also submitted that the words, 'denatured spirit
or any other commercial spirit' as found in the second part of the impugned
rule could be read a> 'denatured spirit and any other commercial spirit'
and if so read they would include even potable spirit manufactured by the
distilleries for commercial purposes, namely, for selling them at a price and D
for earning profit by the said exercise. That consequently according to Shri
Sanyal the distilleries run by the appellants were squarely covered by the
sweep of Rule 9 of the Rules and hence the High Court was justified in
dismissing the writ petitions.

Points for detennination                                                       E
      In view of the aforesaid rival contentions the following points arise
for our determination :

      1.   Where Rule 9 of the Rules is ultra vires the provisions of the
           Act?                                                                I'
      2.   In the alternative whether the second part of Rule 9 imposing
           establishment costs on the distilleries, on its express language,
           applies to the distilleries run by the appellants for manufacturing
           not only denatured spirit and spirit for industrial use but also for
           manufacturing potable liquor for human consumption?                  G

We shall deal with the points seriatim.

Point No. I

     The Act enacted m 1915 pertains to import, export, transport, H
    688                    SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.

A manufacture, possession and sale of certain kinds of liquor and intoxicating
  drugs in the then provinces of Bihar and Orissa. Section 2 which is a
  dictionary clause defines 'Board' as per clause (2) tu mean 'Board of
  Revenue'. 'Excisable article' as per clause (6) means, '(a) any alcoholic
  liquor for human consumption; or (b) any intoxicating drug. Clause (6a) of
  Section 2 refers to 'excise duty' and 'countervailing duty' whith mean, 'any
B
  such excise duty or countervailing duty, as the case may be, as is mentioned
  in entry 51 of List II in the Seventh Schedule to the Constitution'. Section
  2(12a) defines, 'intoxicant' to mean, '(i) any liquor, or (ii) any substances
  from which liquor may be distilled and which is declared by the State
  Government by notification in the official Gazette to be an intoxicant for
c the purpose of this Act, or (iii) intoxicating drug, or (iv) medicinal prepara-
  tion as defined under the Medicinal and Toilet Preparations (Excise
  Duties) Act, 1955'. The term 'liquor' is defined by Section 2(14) to include
  all liquids consisting of or containing alcohol, such as spirits of wine, spirit,
  wine, fermented tari, pachwai and beer, and also unfermented tari, and
D also any other substance which the State Government may, by notification,
  declare to be liquor for the purposes of this Act. The term 'spirit' is defined
  by clause (19) of Section 2 to mean, 'any liquor containing alcohol obtained
  by distillation, whether it is denatured or not'. The term'to denature' is
  defined by clause 5(b) to mean 'to mix spirit with one or more denaturants
  in such manner as may be prescribed by: rule made in this behalf under
E
  clause (3) of section 90, and "denatured spirit" means spirit so mixed'.
  Section 13 deals with 'licence required for manufacturing intoxicants'.
  Section 15 deals with 'establishment of distilleries, breweries or
  warehouses'. It lays down that the Excise Commissioner may subject to any
  restrictions imposed by the State Government, establish, or authorise the
F establishment of, distilleries or breweries, in which liquor may be manufac-
  tured under a license granted under Section 13. Thus under a licence
  granted under Section 13 a distillery can manufacture liquor which would
  include not only potable liquor but even denatured spirit or spirit for
   industrial use which is not potable. Section 22 deals with 'grant of exclusive
G privilege of manufacture and sale of country liquor or intoxicating drugs
   or denatured spirit or any other intoxicants'. It is the case of the appellants
   that they have no< got any such exclusive privilege under the aforesaid
   Section to manufacture country made liquor or intoxicating drugs or dena-
   tured spirit. Section 27 deals with 'power to impose duty on import, export,
H transport and manufacture of any excisable article'. It is not the case of
  SHREE KRISHNA GY ANODAY SUGAR Lill. v. SfATE (S.B. MAJ MUD AR, J.] 689


either side the Rule 9 seeks to impose any excise duty or a countervailing A
duty. The Section which is relevant for our purpose is Section 38 which
reads as under :

        "38. Fees for terms, conditions, and form of, and duration of,
        licences, permits and passes. - (1) Every licence, permit or pass
        granted under this Act -
                                                                               B

        (a) shall be granted -

             (i) on payment of such fees (if any), and

             (ii) subject to such restrictions and on such conditions, and
                                                                               c
        (b) shall be in such form and contain such particulars, as the board
        may direct.

        (2) Every licence, permit or pass under this Act shall be granted      D
        for such period (if any) as may be prescribed by rule made by the
        State Government under section 89, clause (e)."

A conjoint reading of Section 38 sub-Section (l)(a))(ii) and Sections 15
and 13 of the Act leaves no room for doubt that licences issued to the
appellants' distilleries governed by the Act can be made subject to such E
restrictions and conditions as the Board of Revenue may direct. Section 90
of the Act empowers the Board to make rules for regulating the manufac-
ture, supply or storage of any intoxicant and in particular, and without
prejudice to the generality of the provision, the Board is also authorised to
make rules for regulating the establishment, inspection, supervision, F
management and control of any place for the manufacture, supply or
storage of any intoxicant, and the provision and maintenance of fittings,
implements and apparatus therein. As per sub-Section (9) of Section 90
the Board can also prescribe restrictions under which or the conditions on
which any licence, permit or pass may be granted, and in particular, and
without prejudice to the generality of this provision, m&y make rules for (i) G
prohibiting the admixture with any intoxicant or any article deemed to be
noxious or objectionable, (ii) regulating or prohibiting the reduction of
liquor by a licensed manufacturer or licensed vendor from a higher to a
lower strength, (iii) prescribing the nature and regulating the arrangement
of the premises in which any intoxicant may be sold, and prescribing the H
    690                   SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.

A notices to be exposed at such premises. It is in exercise of the aforesaid
    rule making powers available to the Board of Revenue under Section 90
    that the impugned Rule, amongst other rules, came to be enacted. It is
    pertinent to note that Bihar and Orissa Excise Rules of 1919 as initially
    framed contained Rule 9 which read as under :

B           "The Commissioner shall appoint such officers and establishment
            as he thinks fit to the charge of a distillery."

    It was only on 23rd August 1930 that the concept of establishment cost to
    be borne by the distilleries concerned got engrafted in the said Rule by
C   way of second part. The rule consisting of both these parts is as under :

             "9. The Commissioner shall appoint such officers and estab-
             lishment as he thinks fit to the charge of a distillery.

                 In the case of a distillery licensed solely for the purpose of the
             manufacture of denatured spirit or otherany other commercial
D
             spirit, the distillary shall bear the whole cost including leave and
             pension contributions and cost of uniform of such excise staff and
             establishment as may be considered necessary by the Excise Com-
             missioner for proper supervision."

E         The appellants contend that said impugned Rule 9 cannot trace its
    origin to any of the statutory provisions of the Act. It is difficult to agree
    with this contention. The aforesaid statutory provisions clearly indicate that
    the authorities functioning under the Act can supervise and regulate the
    working of the distilleries which are licensees under the Act. Power to
    regulate and supervise these distilleries as engrafted in the first part of Rule
F   9 and also to levy establishment cost from these distilleries under second
    part of the Rule can squarely be traced to the statutory provisions of
    Section 38(1)(a)(ii) which entitle the Board to impose suitable restrictions
    and conditions on the licencees like appellants' distilleries who have to
    manufacture liquor pursuant to such licences subject to such restrictions
G   and conditions as are imposed on them. Section 38 sub-section (l)(a)(ii)
    read with Section 90 sub-Section 9(1)(a) and sub-Section 9(i) and (ii)
    represents a well-knit satutory scheme authorising the Board to promulgate
    rules for laying down restrictions and conditions on the licensees, namely,
    the distilleries which could be validly subjected to such restrictions on their
    manufacturing activities before they get clearance for such activities under
H   Section 15 read with Section 13 of the Act. It is, therefore, not possible to
  SHREE KRISHNA GYANODAY SUGAR LTD. 1•. STATE [S.B. MAJMUDAR, J.) 691

agree with the contention of the learned counsel for the appellants that A
Rule 9 is u/ira vires the provisions of the Act or has no statutory converge
for its existence. It has to be kept in view that if a distillery which
manufactures denatured spirit attempts to alter or alters any denature
spirit with the intention that such spirit may be used for human consump-
tion whether as a beverage or internally as a medicine would be committing
an offence which is punishable under Section 49 of the Act. It is, therefore, B
permissible for the excise authorities under the Act to supervise the
working of such distilleries so that they may not commit such offences and
to oversee their manufacturing activities. It is axiomatic to state that
prevention is better than cure. If denatured spirit is illegally altered and
made fit for human consumption, it is likely to have devastating effect on c
the health of consumers and may even result in fatal consequences or loss
of vision and other pernicious physical handicaps. In order to prevent such
social calamities, if supervision is provided at the cost of distilleries, it
cannot be said that such conditions are not germane to the requirements
of the Act or do not flow the statutory scheme envisaged by the Act. If for
this laudable purpose an establishment is put up at the doorsteps of the D
distilleries themselves as per the impugned rule and if cost of maintenance
of such establishment is foisted on the licensee distilleries it cannot be said
that such a rule is de hors the provisions of the Act. On the contrary such
a provision squarely falls within the regulatory powers of the Board for
framing rules with view to seeing that the provisions of the Act are not
stifled or tinkered with by such licencee distilleries.                         E

      Reliance placed by learned counsel for the appellants on a Constitu-
tion Bench judgment of this Court in Indian Mica Micanite Industries v. The
State of Bilzar and Others, (1971] 2 SCC 236 also cannot be of any avail as
in that case this Court was concerned with the question whether the F
appellant who was a consumer of denatured spirit could be subjected to a
levy by way of fee under Rule 111 of the Rules framed under Section 90
of the Act. In paragraph 17 of the Report the Constitution Bench con-
sidered the nature of the service rendered by the Government to the
appellant, namely, consumer of denatured spirit. It was observed in the said
paragraph that so far as the manufacturing process was concerned, the G
appellant or other similar licensees had nothing to do with it. They were
only the purchasers of manufactured denatured spirit. Hence the cost of
supervising the manufacturing process or any assistance rendered to the
manufacturers could not be recovered from the consumers like the appel-
lant. Further under Rule 9 of the Board's rules, the actual cost of super- H
    692                   SUPREME COURT REPORTS [1996J SUPP. 4 S.C.R.

A vision of the manufacturing process by the Excise Department was re-
    quired to be borne by the manufacturer. There could not be a double levy
    in that regard. In this connection, it was observed that the State was not
    rendering any service to the consumer of denatured spirit when it was
    maintaining its own staff for regulating the manufacturing process of such
    spirit. We fail to appreciate how this decision can be of any assistance to
B   the learned counsel for the appellants for the simple reason that in this very
    judgment Rule 9 of the Board's Rules which is impugned before us WdS
    referred to as a rule which was operative qua manufacturers of spirit. It was
    only Rule 111 which was on the anvil of scrutiny and in connection with the
    said Rule it was held that because the State was not rendering any special
C   service to the consumer of denatured spirit the impugned levy under Rule
    111 was not justified. Such is not the case before us. It is also pertinent to
    note that even though constitutional validity or Rule 9 was not challenged
    in the aforesaid case it was noted by the Court that the said Rule justifiably
    sought to recover actual cost of supervision of the manufacturing process
D   by the Excise Department from the manufacturer distillery. Learned counsel
    for the appellants then placed for our consideration decision of another
    Constitution Bench of this Court in Synthetics and Chemicals Ltd. and
     Others v. State of U.P. and Others, [1990] l SCC 109. In that case this Court
    was concerned with the constitutional validity of the levy by way of vend fee
     imposed by the respondent-State on industrial alcohol. It was held that such
E    imposition by the State was beyond the legislative powers conferred on the
    States concerned by any of the entries in List II or III of the Constitution
     of India. Reliances was placed on the observations in paragraph 86 of the
     Report wherein by way of sub-para (d) it was observed,

             11
              However, in case State is rendering any service, as distinct from
F
             its claim. of so-called grant of privilege, it may charge fees based
             on quid pro quo. See in this connection, the observations of India11
             Mica case."

    Even these observations cannot be of any assistance to the appellants for
G   supporting their contention that impugned Rule 9 is de hors the provisions
    of the Act.

           On the other hand learned senior counsel Shri Sanyal for the respon-
    dents heavily leaned on two decisions of this Court in Mis. Gujc/zem
H   Distilleries India Ltd. v. State of Gujarat a11d Another, [1992] 2 SCC 399 and
  SHREE KRISHNA GYANODAY SUGAR LTD. v. SfATE (S.B. MAJMUDAR.J.) 693


Slui Bileshwar Khand Udyog Khedut Sahaka1i Mandali Ltd. v. State of A
Gujarat and Another, [1992] 2 SCC 42 wherein this Court has taken the
view that levy of supervisory charges from manufacturers of industrial
alcohol by a manufacturer in its own distillery governed by the provisions
of Bombay Prohibition Act, 1949 was perfectly valid. Learned counsel for
the appellants, however, contended that the aforesaid two decisions were B
based on the express language of Section 58-A in the Bombay Prohibition
Act, 1949 empowering the State Government by general or special order
to direct that the manufacture, import, export, transport, storage, sale,
purchase, use, collection or cultivation of any intoxicant, denatured
spirituous preparations, hemp, mhowra flowers, or molasses shall be under
the supervision of such Prohibition and Excise or Police Staff as it may C
deem proper to appoint and that the cost of such staff shall be paid to the
State Government by person manufacturing, importing, transporting, stor-
ing, selling, purchasing, using, collecting of cultivating the intoxicant dena-
tured spirituous preparation, hemp, mhowra flowers or molasses. To that
extent learned counsel for the appellants is right. However, in the present D
Act with which we are concerned ev~n though there is no such express
provision like Section 58-A of the Bombay Prohibition Act, 1949 there is
sufficient statutory provision in that behalf in the shape of Section 38(1)
(a)(ii) read with the relevant clauses of Section 90 noted by us earlier. It
cannot, therefore, be said that the in1pugned Rule 9 is ultra vires the
provisions of the Act. The High Court was, therefore justified in rejecting E
the said challenge point No. 1 is accordingly answered in the negative.

Poi11ted No. 2

       This takes us to the consideration of Point No. 2. So far as contention   F
concerning this point goes, even though it was noted by the High Court in
para 39 of the impugned common judgment that the principal question
which arises for consideration is as to whether the Commissioner has the
power to appoint an officer and create an establishment to the charge of
distilleries only in a case where a licence has been granted solely for the      G
purpose of manufacture of denatured spirit or any other commercial spirit
and even though it observed that the words 'commercial spirits' have not
been defined under the said Act and the said words have, therefore, to be
given their ordinary meaning, the High Court has not dilated further on
this aspect. Nor has it pronounced upon the alternative contention whether
said Rule 9 on its express language can apply to the distilleries run by the     H
    694                    SUPREME COURT REPORTS 11996] SUPP. 4 S.C.R.

A appellants.
            In this connection learned counsel for the appellants vehemently
    contended that it is not in dispute between the parties that the appellants
    are having licences under Section 15 read with Section 13 not only to run
    distilleries for manufactur' ·~denatured spirit or other industrial alcohol but
B   also have licences to manufacture potable liquor, including country made
    liquor. In this connection reliance was placed on averments made in para-
    graph 2(b) of the Special Leave Petition which stated that the Hon'ble High
    Court on an incorrect premise that "commercial spirit" included all kinds of
    spirits including the one fit for human consumption (potable spirit) con-
c   cluded that the petitioner's distillery, even though it manufactured dena-
    tured and/or commercial spirit only to the extent of about 10% of its total
    production, was liable to pay the establishment charges. So far as this
    averment is concerned in the counter aflidavit on behalf or respondent No.
    1 it has been stated in paragraph 4 as under :

D            "4. In reply to para 2(a) and (b) I say that it is stated that the Distillery
             petitioner is bound to pay the costs of establishment including costs
             of leave and pension, contribution and uniform of staff posted by the
             Excise Commissioner for proper supervision, according to Rule 9
             notified by Board's Notification No. 23-137-2 dated 29th April, 1919.
E            The petitioner Distillery is holding excise licence in Form 25 and 28A.
             The licence From 25 is licence for manufacture of Denatured Spirit
             and licence Form 28A is a License for manufacture of spirit for use
             in chemicals, industrial, scientific and other purposes. Section 2(5) of
             Bihar Excise Act, 1915 (Act II of 1915) defines "to denature" as
             meaning to mix spirit with one or more denaturants in such a manner
F            as may be prescribed by Rule made in this behalf under clause (3)
             of Section 90 and denatured spirit means spirit so mixed.

                The commercial spirit is not defined in Excise Act. So it will
             have a liberal meaning i.e. spirit for use of commercial purposes.
             Petitioner licencee has got license under Excise Act for manufac-
G
             ture of spirit for commercial purposes including denatured spirit
             and is, therefore, undoubtedly liable to pay the establishment costs
             as per Rule 9 framed by Board in exercise of powers conferred
             under Section 90 of the Act.

H It, therefore, becomes clear that the averment that appellants' distilleries
  SHREEKRISHNAGYANODAYSUGARLTD.v. STATE (S.B. MAJMUDAR,J.J 695

manufacture, amongst others, potable spirit to the extent of 90% of its total     A
production as compared to 10% of its production of denatured spirit or
commercial spirit is not controverted at all. Even that apart in paragraph
2 of the judgment of the High Court it has stated as a fact that the appellant
in Civil Appeal Nos. 4762-63 of 1996 was having licence for compounding
and blending foreign liquor amongst others. Similarly in paragraph 9 of the       B
judgment in appeal it has been noted that so far as the appellant in Civil
Appeal No. 4764 of 1996 is concerned its distillery at Sultanganj was having
licence for manufacture of country spirit in Forms 25, 27, 28 and 28A. We
must, therefore, proceed on the basis of undisputed factual position on
record of these cases that the concerned distilleries of the appellants were
having licences for manufacturing not only denatured spirit or spirit which       c
could be used for industrial purposes but were also having licences for
 manufacturing potable liquor. In the background of this well established
factual position we have to consider the alternative contention canvassed
by learned counsel for the appellants. We have already extracted Rule 9
 earlier. The first part of the Rule prior to its amendment by which second       D
 part got added lo it, authorised Commissioner io appoint such officers and
 establishment as he thinks fit to the charge of a distillery. The words 'to
 the charge of the distillery' were interpreted by the High Court lo mean,
 'at cost of the distillery'. This interpretation was strongly relied upon by
 learned senior counsel Shri Sauy~I for the respondents. In our viC\V the said    E
interpretation cannot be countenanced. The first part of Rule 9 con-
 templates appointment of officers and establishment as thought fit by the
 Commissioner with a view to taking charge of the distillery for supervisory
 purposes. The context in which the said phraseology was employed by the
 rule making authority leaves no room for doubt that the words 'to the
                                                                                  F
 charge of a distillery' were meant to empower such officers and estab-
 lishment contemplated by Rule 9 to be in charge or control of distillery for
 the purposes of supervision. The term 'charge' can obviously not mean the
 'cost' of the distillery as the aspect of cost of such establishment and
 officers was taken care of by the rule making authority by enacting the
 second part of the Rule. If the term 'charge' included the cost of such          G
 officers and establishment there would have been no need to enact the
 second part of the Rule later no for imposing such costs on the concerned
 distilleries. Even that apart if wc see the first part of Rule 9 which employs
 the words 'to the charge of a distillery' in the context of succeeding rules
 especially Rule 10 which deals with the duty of the distiller to provide         H
    696                    SUPREME COURT REPORTS [1996) SUPP. 4 S.C.R.

A · suitable quarters for the officer-in-charge and other establishment, Rule 11      1

    which enjoins the officers in charge of the distillery in case of fire or
    accident to immediately attend to the same, Rule 15 which requires the
    distiller to keep accounts which should be made open at all times for
    inspection by the Excise Officer.' charge and also Rules 16 and 17 which
    deal with the authority and power of Excise Officer in charge, no doubt is
B   left that the rule making authority contemplated the concerned officers and
    establishment to be put in charge of the distillery when it employed the
    words 'to the charge of a distillery' in the first part of the Rule which got
    enacted simultaneously with the succeeding rule, that is, Rule 10 onwards
    as noted by us above. An officer cannot take charge of the distillery unless
c   he is put in charge of such distillery in exercise of powers of the Commis-
    sioner under Rule 9, first part.

           Now we come to the consideration of the moot question whether the
    second part of Rule 9 which is the main provision which is impugned in
    the present proceedings can apply to distilleries run by the appellants
D   which are having multiple licences to manufacture not only denatured spirit
    or other industrial spirit but also potable spirits or liquor fit for human
    consumption. The answer to this moot question has to be found from the
    express wording employed by the rule making authority in the second part
    of the said rule. Before the said part can be pressed in service against any
E   distillery the following conditions must be shown to have existed in con-
    nection with such a distillery :

         1. The concerned distillery must have licence for the purpose of
    manufacturing denatured spirit or any other commercial spirit.

F          2. Such a licence must be solely for the aforesaid purpose and for no
     other purpose.

     If these two conditions are satisfied then only the whole cost of such
     officers and establishment can be required to be borne by such distillery.
     It is obvious that the distilleries run by the appellants which are made to
G    defray that cost of officers and establishment under Rule 9 are not distill-
     eries which are manufacturing only denatured spirit or any other commer-
     cial spirit nor are they having licences solely for that purpose. Shri Sanyal,
     learned senior counsel for the respondents submitted that the words 'any
     other commercial spirits' would include even potable spirit or liquor fit for
H    human consumption as it has also commercial value and can be sold in the
  SHREE KIUSIINA GYANODAY SUGAR LID. v. SfATE IS.B. MAJMUDAR, J.J 697


market. He further submitted that the word 'or' found in between the terms A
'denatured spirit' and 'any other commercial spirit' may be read as 'and'
and when so read it can be held that second part of Rule 9 can apply to
even those distilleries which have licences for manufacturing denatured
spirit and also other commercial spirits including potable liquor. It is not
possible to agree with this contention for the simple reason that such a
                                                                               B
contention would ignore the term 'solely' employed by the rule making
authority in its wisdom in the second part of Rule 9. It has to be held that
before it can be applied to any distillery it must be shown that such
distillery is licensed solely or wholly to manufacture either denatured spirit
or any other commercial spirit. If the word 'or' is read as 'or' then it must
be shown by the respondents that the appellants' distilleries are having     c
licences for either solely and wholly manufacturing denatured spirit or are
having licences for solely and wholly manufacturing any other commercial
spirit which may be even assumed to include potable liquor. If a distillery
has the licence to manufacture denatured spirit and also a licence to
manufacture any other commercial spirit, it cannot be said to be having a D
licence solely for the manufacture of either of these two types of spirits.
On the express language of the rule, distilleries having multiple licences get
excluded from its sweep. On the facts of the present case, we have seen
that the appellants' distilleries are having multiple licences. None of the
distilleries of the appellants arc having licence solely to manufacture dena-
tured spirit or only to manufacture potable liquor even assuming that it is E
covered by the term 'commercial spirit'.

       Having realised this difficulty Shri Sanyal, learned senior counsel for
respondents submitted that the word 'or' may be interpreted as 'and'. Even
it the said submission is accepted it would not advance the case of !he F
respondents for the simple reason that the words 'denatured spirit and any
other commercial spirit' if read as suggested by Shri Sanyal will result in
the succeeding words 'any other commercial spirit' getting colour from the
preceding words 'denatured spirit' meaning thereby any other commercial
spirit contemplated by the said phrase mnst fall in the same category or
class as denatured spirit which precedes that class of such residuary G
commercial spirit as the succeeding words refer to 'any other commercial
spirit' meaning thereby commercial spirits other than denatured spirits.
Consequently if the word 'or' is read as 'and' any other commercial spirit
would fall in the same category as denatured spirit meaning thereby those
spirits which are not fit for human consumption. They would not cover H
    698                   SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.

A potable spirits even assuming that they are commercial spirits as contended
  by Shri Sanyal. However, in our view other commercial spirits as con-
  templated by the Rule are those spirits which are unfit for human consump-
  tion and they do not cover potable liquor which cannot fall in line with
  denatured spirit. In the context of denatured spirit as mentioned in the
  Rule the succeeding words, 'or any other commercial spirit' must mean
B those spirits which fall in the category of spirits unfit for human consump-
  tion like denatured spirits. In other words the term 'other commercial
  spirits' would take in its sweep only those spirits which are used for
  industrial purposes or any other purpose other than for human consump:
    tion. Consequently reading the \VOrd 'or' as 'or' or even reading it as 'and'
c the appellants' distilleries which are having multiple licences to manufac-
    ture not only denatured spirit or other industrial spirit but also potable
    liquor would get out of the sweep of the second part of Rule 9. On the
    express language of Rule 9, second, the alternative contention canvassed
    by the learned counsel for appellants has got to be accepted. It must,
D   therefore, be held that second part of Rule 9 will apply to only those
    distilleries which are licensed solely and wholly for the purpose of manufac-
    turing either denatured spirit or any other commercial spirit unfit for
    human consumption but would not include those distilleries which are
    licensed for manufacturing along with denatured spirit or other industrial
    spirits unfit for human consumption, also potable iiquor which is fit for
E   human consumption. As the appellants' distilleries are not having such sole
    and only licences for manufacturing denatured spirit or other commercial
    spirit unfit for human consumption but are also having composite and
    multiple licences to manufacture potable liquor which obviously yields
    large revenue to the State by way of excise duties, they are outside the
    sweep of second part of Rule 9. It is obvious that to such distilleries the
F
    first part of the Rule may apply wherein the State will have to bear that
    cost of providing supervisors and establishments for that purpose but the
    cost of such establishment cannot be foisted on such distilleries. Point No.
     2 is, therefore, answered in the negative.

G       In the result the appeals partly succeed. The common judgment
  under appeal is set aside. The writ petitions filed by the appellants in
  the High Court will stand allowed in part by holding that even though
  Rule 9 is intra vires the provisions of the Act the second part of Rule
  9 regarding foisting of establishment costs on the appellants' distilleries
H does not cover these distilleries. However, it is clarified that first part
  SHREE KRISHNA GYANODAY SUGAR LTD. v. STATE fS.B. MAJMUDAR, J.f 699


of Rule 9 can be applied to the appellants' distilleries but at the cost of A
the State exchequer only. By an interim order dated 21st March 1996 the
interim stay of the impugned demands was continued subject to the con-
dition that the appellants shall pay 50% of the arrears of the demand within
eight weeks and will continue to pay 50% of the future demand .......... .
....... Even if the appellants succeeded they will be entitled to refund of the
                                                                                B
amount paid by them with interest at the rate of 12%. In view of this interim
order, as the appellants have succeeded in these appeals as aforesaid in
getting the impugned demands quashed the respondents are directed to
refund the amounts collected by them from the appellants pursuant to the
impugned demands pending these appeals with 12% interest from the date
of receipt of such amounts till repayment. The amounts shall be refunded c
within eight weeks from the receipt of the copy of this order by the
respondents. The appeals accordingly are partly allowed. In the facts and
circumstances of the cases there will be no order as to costs all throughout.

v.s.s.                                              Appeals partly allowed.