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REPORTABLE  

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL NO.5138 OF 2019  (Arising out of SLP (C) No.449 of 2014)  

   The State of Jharkhand & Ors.     ..…Appellant(s)   

Versus  

 M/S Ajanta Bottlers & Blenders Pvt. Ltd.  ….Respondent(s)  

J U D G M E N T  

   A.M. Khanwilkar, J.    

1. Leave granted.  

 2. This appeal takes exception to the impugned judgment and  

order of the High Court of Jharkhand at Ranchi in Writ Petition (T)  

No.7499 of 2012 dated 25th July, 2013, whereby the writ petition  

filed by the respondent to assail the notification dated 6th  

November, 2012, as published in the official gazette on 10th  

November, 2012, issued by the Board of Revenue, Jharkhand in  

exercise of powers conferred under Section 90 of the Jharkhand

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Excise Act, 1915 came to be allowed on the ground that the State  

had no legislative competence to levy tax/fee on the import of  

rectified spirit, as it is a non-potable liquor i.e. alcohol not fit for  

human consumption. Additionally, the High Court opined that the  

appellant-State had failed to justify the impugned levy on rectified  

spirit on the basis of services provided by the State in lieu thereof  

or being in the nature of quid pro quo. The original notification is  

in Hindi, the same reads thus:   

“ANNEXURE-3

______  

( )

( )

( )

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( )

(d)

( ) (iii)

( )

( )

( )   

( )

( )

4    

( )

( )

( )

( )

( )

     ( )

"  

Free translation thereof has been filed by the appellant as  

annexure P-2. However, during the hearing as some doubt was  

raised about the accuracy of annexure P-2, we thought it  

appropriate to get the document (original in Hindi) translated from

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the official translator of this Court.  That translated version, reads  

thus:   

“Translated version of Gazette by the Official  Translator of the Supreme Court.  

ANNEXURE -3     THE  

JHARKHAND GAZETTE  

EXTRAORDINARY  PUBLISHED BY THE GOVERNMENT OF JHARKHAND   

-----–----------------------------------------------------  

No. 680  19 Kartik, 1934 Shakabd     

Ranchi, Saturday, 10th November 2012   -------–---------------------------------------------------  

REVENUE BOARD   

Notification   6th November 2012   

---------------–---------------------------------------------------   No.1/ Policy-40-21/2012-928/ Ra. Pa.- In exercise of  the power conferred by section 90 of Jharkhand Excise  

Act 1915 (Act-2 1915), the Revenue Board, Jharkhand  makes the following addition of new rule in Rule 106  (Tha) after Rules Rule 106 (Ta) in Notification No. 23-

137-2 dated 29th April 1919.      

Rule 106 (Tha):  Foreign Liquor under sub-head (d)  of  head 'Foreign Liquor' in Para-3 of Notification No. 470  F. dated 15 January 1919, which manufacturing shall  

be done in accordance with section-2 (15)(iii) of Excise  Act, for its manufacturing, the imported spirit/ rectified  

spirit, which shall be first used for manufacturing of  E.N.A. through repeated distillation, for foreign liquor  beverage (at the time of conversion), but before bottling  

of liquor, for this purpose Import fee shall be deposited  at the rate of Rs. 6/- per L.P. liter on the total quantity  of imported spirit/rectified spirit.”   

  This notification shall come into force on the date  

of its publication in the official gazette.     No.1/Policy-40-21/2012-927/Ra.Pa.- In exercise  of the power conferred by Section 90 of Jharkhand  Excise Act, 1915 (Act 2, 1915), Board of Revenue,  

Jharkhand makes the addition of new Rule – 106(Da)

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after Rule 106(Tha) of the Rules prepared under Board  Notification No.23-137-2 dated 29th April, 1919.  

 Rule 106(Da):- With the purpose of manufacturing of  

country liquor/spiced country liquor beverage in the  State of Jharkhand, at the time of conversion in  imported alcohol/rectified country spirit and spiced  

country liquor, but before bottling and storage of liquor,  with the described purpose, the import fee shall be  deposited at the rate of Re.0.25 (Twenty Five Paise) per  

Bulk Litre on the total amount of imported  spirit/rectified spirit.   

  This notification shall come into force on the date  of its publication in the Official Gazette.   

  No.1/Policy-40-21/2012-928/Ra.Pa. – In  Exercise of the power conferred by Section 90 of  Jharkhand Excise Act, 1915 (Act 2, 1915), the Board of  Revenue, Jharkhand, makes amendment in the Rule  

106 (Ja) made vide notified notification No.1/Policy-10- 32/2008-583, dated 15th May 2008 in the Rules made  

vide Board Notification No.23-137-2 dated 29 April  1919:-    

Rule 106(Ja) :- On the import of spirit/rectified  spirit/ENA beverage from any place/area outside the  state of Jharkhand, the permit fee at the rate of Re.0.25  

(Twenty Five Paisa) per Bulk Litre will be payable on the  imported quantity in the State of Jharkhand.  

 This notification shall come into force on the date  

of its publication in the official gazette.  

 By the order of Board of Revenue, Jharkhand  

Sd/-illegible  

Deputy Secretary,”    

3. As aforesaid, the High Court accepted the challenge to the  

above-mentioned notification for the reasons noted hitherto. The  

relevant discussion in the impugned judgment in that behalf,  

reads thus:  

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“13. The State under List-II is empowered to levy fee  under Entry 66 in respect of any of the matters in the  

list but not including fees taken in any Court. Entry 66  read with entry 8 of List II therefore provides  

competence to the State to levy fee in respect of  intoxicating liquor i.e. alcoholic liquor fit for human  consumption i.e. to say on the production,  

manufacture, possession, transport, purchase and sale  of intoxicating liquor. The present levy seeks to levy  fee on the import of rectified spirit to be utilized for  

the purpose of, firstly for manufacture of ENA  through re-distillation process and then for  

manufacture of IMFL. Rectified spirit is not fit for  human consumption and it therefore does not come  within the meaning of intoxicating liquor as contained  

in Entry 8 of List II. Levy on the import of rectified spirit  is not a fee on intoxicating liquor i.e. fit for human  

consumption. By the impugned notification, the  Board of Revenue in exercise of power conferred  under section 90 of the Excise Act, 1915 has chosen  

to levy fee on the import of rectified spirit which is  used for manufacture of ENA through re-distillation  process and then for the purpose of manufacture of  

IMFL at the time before bottling @ Rs. 6.00 per LP  Litre. Industrial alcohol/non-potable spirit i.e. rectified  

spirit being not alcoholic liquor fit for human  consumption, cannot be the subject matter of any  regulation or control by the State under Entry 8, 51 and  

66 of List II of Seventh Schedule of the Constitution.  The State has the power to levy fees under the garb  of grant of privilege from those who deal in liquor or  

alcohol fit for human consumption i.e. potable  liquor as distinct from non-potable liquor or  

alcoholic liquor unfit for human consumption.    Under Entry 51 of List-II, State has been empowered to  

levy excise duty on alcoholic liquor fit for human  consumption manufactured or produced in the State  

and countervailing duty at the same rate or lower rates  on similar goods manufactured or produced elsewhere  in India. Even under the instant Entry, the rectified  

spirit which is non potable liquor, does not come within  the meaning of alcoholic liquor fit for human  consumption on which the State can levy excise duty  

under Entry 51 of List-II. The levy of import fees on  rectified spirit therefore by the State Legislature  

before bottling of IMFL by shifting the event of  taxation, cannot be held to be justified as in pith

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and substance, the levy is on import of rectified  spirit i.e. non-potable liquor i.e. alcohol not fit for  

human consumption. Levy of fee on non-potable liquor  i.e. unfit for human consumption or industrial alcohol  

is permissible under Entry 52 of List-I of Seventh  Schedule of the Constitution. Under Entry 84 of List-I,  excise duty on tobacco and other goods manufactured  

or produced in India can be levied except on alcoholic  liquor for human consumption; opium, Indian hemp  and other narcotic drugs and narcotics. In the wake of  

such clear demarcation of legislative fields between  Union and State Legislature, the impugned notification  

levying import fees on rectified spirit i.e. non potable  liquor or alcoholic liquor unfit for human consumption  by applying the rule of pith and substance, 18 cannot  

come within the legislative competence of the State  Legislature. The impugned levy therefore is beyond  

the legislative competence of the State Legislature  and consequentially also beyond the rule making  power of the Board of Revenue.”  

(emphasis supplied)  

 And again…………….  

“16. The respondent State sought to justify the levy as  a regulatory measure for supervision and control of  

potable liquor to protect public health and morality.  However, there are no materials brought on record  by the respondent State to justify that any services  

in lieu thereof are provided in the nature of quid pro  quo to justify the imposition of such a levy. The  

petitioner is already having various licences granted by  the Excise Department, Government of Jharkhand in  Form- 19, 19(B), 20, 25 and 28(A) prescribed by the  

Board of Revenue and is paying the licence fee for grant  of such licences. Under Form-19 a licence for  compounding and blending of foreign liquor is given. In  

Form-19(B), petitioner has been granted licence for the  manufacture of foreign liquor / beer as also for the sale  

of foreign liquor / beer through licencee distributors as  also to import or transport the same under bond. The  petitioner has a licence for bottling of potable foreign  

liquor under Form-20 for which it pays fees in advance  of Rs. 50,000/- for the year. In Form-25 it has been  

granted licence to manufacture denatured spirit at its  distillery / warehouse. The petitioner also has a licence  under Form-28(A) to manufacture spirit in distillery not

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used in the manufacture of potable liquor for which it  also pays a licence fees. It is the contention of the  

petitioner that it is paying establishment charges on the  posting of excise official at its premises. Therefore, the  

respondent State have not been able to justify the  impugned levy on rectified spirit on the basis of  services provided in lieu thereof. Besides this, the  

petitioner has been paying licence fee for issuance  of licence under different forms in the nature of a  regulatory fee. The impugned levy therefore, is not  

justifiable on this account as well.     

17. In these circumstances, levy of import fee on  rectified spirit which is impermissible for the State  Legislature, also has the effect of impeding the inter-

State trade and commerce as guaranteed under Article  301 of the Constitution of India. At the same time, it is  

within the exclusive legislative competence of  Parliament to levy any duty or tax on rectified spirit i.e.  industrial alcohol. Such action therefore, is in teeth of  

the Article 301 of the Constitution of India.     18. In view of the aforesaid reasons and discussions and  

in view of the settled law laid down by the judgments of  the Hon'ble Supreme Court referred to herein above, the  

notification dated 10th November 2012 issued by the  Board of Revenue, Jharkhand in exercise of powers  conferred under section 90 of the Jharkhand Excise  

Act, 1915, cannot be sustained in law and it is  accordingly quashed. Consequentially, the demand  raised vide notice dated 24th November 2012  

(Annexure-4) for deposit of import fees on rectified  spirit, is also quashed. Petitioner shall be entitled to  

refund of any such import fees deposited under the  impugned notification.   Writ petition is accordingly allowed.”  

(emphasis supplied)  

 The correctness of the view so taken by the High Court is the  

subject matter of challenge in this appeal, at the instance of the  

State. In defending the notification before the High Court, the

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appellant-State had asserted that the rule inserted by the subject  

notification being Rule 106 (Tha), is an impost and is merely  

described as an import fee. Because, it is reckoned on the basis of  

quantity of pure alcohol content of rectified spirit (which is known  

as “London Proof Liter”), imported for the purposes of manufacture  

of potable Foreign Liquor after the process of compounding,  

blending and reduction of strength of spirit from over proof  

strength to under proof strength is complete. Further, the unit for  

charging import fee is London Proof Liter (for short, “LPL”)  

because, it does not change even after the spirit has undergone  

through the process of compounding, blending & reduction of  

strength. Indisputably, nothing can be nor will be charged in  

advance, so long as the imported rectified spirit is non-potable and  

till it is in the form of raw material. In other words, nothing is  

charged on industrial alcohol. Thus, it is neither a violation of  

provisions of the Constitution nor is it an arbitrary use of power  

under Section 90(7) by the Board of Revenue who was competent  

to issue the same towards levy of any kind of fee on potable liquor.  

In substance, the stand of the appellant-State is that the stated  

import fee is not on rectified spirit in its raw form as such, but on  

pure alcoholic liter “LPL” in the form of potable liquor. Further, it

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is a regulatory fee only for supervision and control of production of  

potable liquor to protect public health and morality. It was further  

asserted that no right inheres in any person for doing business in  

intoxicants. That right exclusively belongs to the State.  

Resultantly, it is open to the State to part with those rights for a  

consideration on conditions as may be deemed appropriate. There  

is no need for the State to establish commensurate services  

rendered by it to apply the doctrine of quid pro quo, in respect of  

impost of any kind of fee on potable liquors.   

 4. The High Court, however, was not impressed by the stand  

taken by the State and proceeded to answer the matters in issue  

against the State for reasons afore-quoted, in the extracted portion  

of the impugned judgment.   

 5. The appellant-State has approached this Court to assail the  

view so taken by the High Court. More or less, the State has  

reiterated its stand as was taken before the High Court. In that,  

the charge in terms of the impugned Rule 106(Tha) to the licensees  

was neither in the nature of a tax nor excise duty. The impost is a  

normal incidence of a trading or business transaction in respect of  

the rights exclusively inhering in the State - with regard to

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production and manufacture of intoxicating liquor covered by  

Entry 8 of list II of the Seventh Schedule of the Constitution of  

India. The levy is, essentially, to regulate and ensure that the  

imported rectified spirit is not diverted and misused as a substitute  

for potable alcohol. It is open to the State to deal in intoxicants its  

manufacture, possession, sale, transport, import, export,  

consumption on premises of hotel and restaurants etc. Further,  

the State has exclusive rights and privileges of manufacturing and  

selling liquor. It is urged that the approach of the High Court is  

completely wrong and against the settled legal position.   

 6. Per contra, the respondents have supported the conclusions  

reached by the High Court and would contend that a close reading  

of Rule 106(Tha) clearly indicates that it purports to levy “import  

fee” on imported rectified spirit, used for production of Indian  

Made Foreign Liquor (for short, “IMFL”) manufactured in the  

respondent factory under a valid licence for import and also to  

manufacture of the product (IMFL). It is urged that the provision  

regarding collection of the fee after the rectified spirit has been  

used to first produce ENA and then potable liquor, would not alter  

the character of the levy being impost on the imported rectified

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spirit. The State is not competent to legislate on imported  

industrial liquor or levy any charge or tax thereon as such. The  

postponement of realization of charges predicated in the impugned  

rule would not alter the efficacy of the rule, providing for levy of  

import fee on rectified spirit. Relying on the decisions of this Court  

it was urged that rectified spirit is highly intoxicating and cannot  

be consumed by humans. It is industrial alcohol on which the  

State is not competent to legislate or levy taxes in the garb of duty  

or fee. The imported rectified spirit, in that form, would not attract  

excise duty. That can primarily be imposed on the happening of  

production or manufacture of goods produced or manufactured  

within the State. It is then urged that the respondent is engaged  

in production of “IMFL” for which it has obtained all essential  

licences prescribed by the Board of Revenue on payment of  

licensing fees for grant of such licenses such as “Form 19” for  

compounding and blending of foreign liquor, Form19-B for  

manufacture of foreign liquor/beer as also for the sale of foreign  

liquor/beer through licensee distributors as also to import or  

transport the same, Form 20 for bottling of potable foreign liquor,  

Form 25 for manufacture denatured spirit at its distillery/  

warehouse, Form 28(A) for manufacture of spirit in distillery not

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used in the manufacture of potable liquor. In that view of the  

matter, it is not open to the State to levy impugned charges in the  

garb of import duty, or excise duty, as the case may be, on the  

imported rectified spirit, for production of “IMFL”. The respondent  

prays that the appeal be dismissed being devoid of merits and the  

decision of the High Court be affirmed.   

 7. We have heard learned counsel for the parties. Additionally,  

they have filed written submissions.   

 8. The seminal issue to be answered in this appeal is about the  

purport of the notification dated 6th November, 2010 as published  

on 10th November, 2012 and whether it is in the nature of  

legislation by the State on the subject of industrial alcohol. Alcohol  

can generally be classified into the following categories:   

 “I. Isopropyl alcohol (or IPA or isopropanol) is a  

compound with the chemical formula CH3CHOHCH3. It  is a colourless, flammable chemical compound with a  

strong odour. As an isopropyl group linked to a hydroxyl  group, it is the simplest example of a secondary alcohol,  where the alcohol carbon atom is attached to two other  

carbon atoms. If consumed, Isopropanol is converted  into acetone in the liver, which makes it extremely toxic.  

Often used for disinfecting skin an antiseptic.   

II. Methyl Alcohol (or Methanol): Chemical Formula –  CH3OH: Not for human consumption. If consumed, can  

cause blindness and death. Methanol acquired the  name wood alcohol because it was once produced

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chiefly by the destructive distillation of wood. Today,  methanol is mainly produced industrially by  

hydrogenation of carbon monoxide.   

III. Ethyl alcohol, (also known as Ethanol and abbreviated  

as EtOH), is a colourless, volatile, and flammable liquid  that is soluable in water. Its chemical formula is C2H6O,  or can be written as C2H5OH or CH3CH2OH. It has one  

methyl (-CH3) group, one methylene (-CH2-) group, and  one hydroxyl (-OH-) group.”   

The first two categories are poisonous, toxic and fatal for human  

consumption, rendering its use only for industrial purposes. It is  

stated that Isopropanol and methanol, because of their inherent  

chemical properties, cannot be purified and used for the  

production of ‘intoxicating liquor’ or ‘potable liquor’ by adopting  

‘physical means’ like decantation, filtration, redistillation,  

fractional distillation etc. The third category namely, Ethyl Alcohol  

or Ethanol (in India is usually produced from molasses derived  

from sugarcane) in its concentrated form and it is also known as  

“Rectified Spirit” and its strength measured in  LPL signifies the  

strength of alcohol by volume, 13 parts of which weigh exactly  

equal to 12 parts of water at 51 degrees Fahrenheit.   

 9. Be that as it may, rectified spirit after it undergoes certain  

‘physical changes’ by adopting ‘physical means’ like re-distillation,  

rectification (repeated or fractional distillation) to remove

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impurities, it becomes purer and is known as Extra Neutral  

Alcohol (ENA). Thereafter, by addition and mixing of colouring and  

flavouring agents (compounding), as well as after dilution with  

water, ENA is left for maturation, to be bottled and used as  

‘intoxicating liquor’ or ‘potable liquor’ known as Indian Made  

Foreign Liquor (IMFL). Whereas the country liquor, also known as  

‘Desi Sharab’ is prepared from rectified spirit or low grade ENA  

having alcohol content below 40% (as decided by different State  

Governments) which may be coloured (by caramel) and may be  

spiced too. Notably, the chemical composition of Ethyl alcohol or  

Ethanol (C2H6O or C2H5OH or CH3CH2OH) remains the same in  

the entire process, though addition of colouring and flavouring  

agents makes it a mild concoction/mixture/solution (in chemical  

parlance a solution of alcohol is known as ‘tincture’) which renders  

it more palatable to human consumption.   

 10. We have adverted to the above-mentioned process, noted in  

the written submissions filed by the appellant, so as to give proper  

interpretation to the impugned notification and the subject rules,  

in particular Rule 106(Tha). English version of the said rule noted  

in the notification (as translated by the official translator of this

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Court reproduced in paragraph 2 above), in our opinion, makes it  

amply clear that the levy or impost fructifies only upon completion  

of distillation process (in two stages- first from rectified spirit to  

ENA and then from ENA to IMFL) and in particular converting into  

a final product “IMFL”. The collection of impost is, however,  

deferred until the bottling of that product. In other words, the levy  

is not at the stage of import of rectified spirit within the State; nor  

at the stage of initial distillation thereof to Extra Neutral Alcohol  

(ENA) and not until the product IMFL is ready for bottling as such.  

Thus, the levy under the impugned rule ripens or fructifies only  

after the original raw material (imported rectified spirit) has  

undergone distillation process at two different stages and  

transmute and mutate into an intoxicant or potable alcohol  

palatable to human consumption, but its (impost) collection is  

effected just before bottling it in that form (potable liquor). Indeed,  

the levy predicated in this rule is on the total quantity of imported  

rectified spirit utilised for mutating it in the form of IMFL, a new  

produce. The last part of the rule stipulates the quantum of  

charges to be levied on such utilized imported rectified spirit for  

production of the foreign liquor. For that limited purpose, the

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quantity of imported rectified spirit utilized in the production of  

potable liquor, is reckoned.   

 11. Reading the impugned provision as a whole and line by line  

or word by word in this perspective, it must follow that the  

substance of the provision is to levy charges on the product IMFL  

produced or manufactured by use of imported rectified spirit. In  

that sense, the levy is not on the input (imported rectified spirit) of  

the final product as such but is on the manufactured or produced  

product being potable alcohol palatable to human consumption.  

For the purposes of computing the levy, the yardstick of Rs.6 per  

LPL on the total quantity of imported rectified spirit utilized for  

production of IMFL is reckoned. Thus, the impost is not on the  

imported rectified spirit as such but only on the produced foreign  

liquor before it is bottled for sale in the wholesale or retail market,  

as the case may be. If so understood, the whole edifice of the  

argument of respondents regarding the interpretation of the  

impugned rule must collapse. For, the challenge to the impugned  

rule is on the assumption that it permits the competent authority  

to levy charges on the imported rectified spirit and not fit for  

human consumption but which has the potency of being used for

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producing intoxicants or potable liquor though exclusively meant  

for industrial purposes. Once that assumption is discounted or  

disregarded, nothing more survives for consideration. We say so  

because, it is well established that the State may pass any  

legislation in the nature of prohibition of potable liquor referable  

to Entry 6 and 8 of List II and may also laydown regulations to  

ensure that non-potable alcohol is not diverted and misused as a  

substitute for potable alcohol. Had it been the case of levy on non-

potable alcohol (imported rectified spirit) per se, only then the  

question about the competency of the State Legislature or the  

justness of the levy on the doctrine of quid pro quo may become  

relevant. However, if it is a case of legislation in respect of potable  

alcohol, as has been noted by us hitherto, the State would be  

competent to legislate in that regard and levy charges – be it for  

regulating the same or impost for parting with its rights regarding  

manufacture, storage, export, sale and possession thereof.   

  12. We may usefully advert to the Constitution Bench decision  

(Five Judges) in Har Shankar and Ors. Vs. The Dy. Excise and

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Taxation Commissioner and Ors.1, paragraph Nos.53 to 59,  

which read thus:   

“53. In our opinion, the true position governing dealings  in intoxicants is as stated and reflected in the  Constitution Bench decisions of this Court in Balsara  case2, Cooverjee case3, Kidwai case4, Nagendra Nath  case5, Amar Chakraborty case6 and the R.M.D.C. case7,  as interpreted in Harinarayan Jaiswal case8 and  Nashirwar case9. There is no fundamental right to do  trade or business in intoxicants. The State, under its  regulatory powers, has the right to prohibit  absolutely every form of activity in relation to  

intoxicants — its manufacture, storage, export,  import, sale and possession. In all their  manifestations, these rights are vested in the State  

and indeed without such vesting there can be no  effective regulation of various forms of activities in  

relation to intoxicants. In American Jurisprudence,  Vol. 30 it is stated that while engaging in liquor traffic  is not inherently unlawful, nevertheless it is a privilege  

and not a right, subject to governmental control (p.  538). This power of control is an incident of the  

society’s right to self-protection and it rests upon  the right of the State to care for the health, morals  and welfare of the people. Liquor traffic is a source  

of pauperism and crime (pp. 539, 540, 541).  

54. It was unnecessary in Krishna Kumar Narula case10  to examine the question from this broader point of view,  

as the only contention bearing on the constitutional  validity of the provision impugned therein was not  

permitted to be raised as it was not argued in the High  

                                                           1 (1975) 1 SCC 737  2 1951 SCR 682 : AIR 1957 SC 414  3 1954 SCR 873 : AIR 1954 SC 318  4 1957 SCR 295 : AIR 1957 SC 414  5 1958 SCR 1240 : AIR 1958 SC 398  6 (1973) 1 SCR 533 : (1972) 2 SCC 442  7 1957 SCR 874 : AIR 1957 SC 699  8 (1972) 3 SCR 784 : (1972) 2 SCC 36  9 (1975) 1 SCC 29  10 (1967) 3 SCR 50 : AIR 1967 SC 1368

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Court. The discussion of the question whether a citizen  has a fundamental right to do trade or business in  

liquor proceeded in that case, avowedly, from a desire  to clear the confusion arising from the “different views”  

expressed by the two Judges of the High Court. This  may explain why the Court restricted its final  conclusion to holding that dealing in liquor is business  

and the citizen has a right to do business in that  commodity. The Court did not say, though such an  implication may arise from its conclusion, that the  

citizen has a fundamental right to do trade or business  in liquor. If we may repeat, Subba Rao, C.J. said:  

“We, therefore, hold that dealing in liquor is  business and a citizen has a right to do  business in that commodity; but the State  can make a law imposing reasonable  

restrictions on the said right, in public  interests.”  

It is significant that the judgment in Krishna  Kumar Narula case does not negate the right of the  State to prohibit absolutely all forms of activities in  relation to intoxicants. The wider right to prohibit  

absolutely would include the narrower right to  permit dealings in intoxicants on such terms of  

general application as the State deems expedient.  

55. Since rights in regard to intoxicants belong to  the State, it is open to the Government to part with  those rights for a consideration. By Article 298 of  

the Constitution, the executive power of the State  extends to the carrying on of any trade or business  

and to the making of contracts for any purpose. As  observed in Harinarayan Jaiswal case, (SCC p. 44, para  13)  

“if the Government is the exclusive owner  of those privileges, reliance on Article  19(1)(g) or Article 14 becomes irrelevant.  Citizens cannot have any fundamental  right to trade or carry on business in the  

properties or rights belonging to the  Government, nor can there be any  infringement of Article 14, if the  

Government tries to get the best available  price for its valuable rights.”

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Section 27 of the Act recognises the right of the  Government to grant a lease of its right to manufacture,  

supply or sell intoxicants. Section 34 of the Act read  with Section 59(d) empowers the Financial  Commissioner to direct that a licence, permit or pass be  granted under the Act on payment of such fees and  subject to such restrictions and on such conditions as  

he may prescribe. In such a scheme, it is not of the  essence whether the amount charged to the licensees is  

pre-determined as in the appeals of Northern India  Caterers and of Green Hotel or whether it is left to be  determined by bids offered in auctions held for granting  

those rights to licensees. The power of the  Government to charge a price for parting with its  

rights and not the mode of fixing that price is what  constitutes the essence of the matter. Nor indeed  does the label affixed to the price determine either  

the true nature of the charge levied by the  Government or its right to levy the same.  

56. The distinction which the Constitution makes for  

legislative purposes between a “tax” and a “fee” and the  characteristics of these two as also of “excise duty” are  well-known. “A tax is a compulsory exaction of money  

by public authority for public purposes enforceable by  law and is not a payment for services rendered”. A fee is  a charge for special services rendered to individuals by  

some governmental agency and such a charge has an  element in it of a quid pro quo. Excise duty is primarily  

a duty on the production or manufacture of goods  produced or manufactured within the country. The  amounts charged to the licensees in the instant case  

are, evidently, neither in the nature of a tax nor of  excise duty. But then, the “licence fee” which the  State Government charged to the licensees through  

the medium of auctions or the “fixed fee” which it  charged to the vendors of foreign liquor holding  

licences in Forms L-3, L-4 and L-5 need bear no quid  pro quo to the services rendered to the licensees.  The word “fee” is not used in the Act or the Rules in  

the technical sense of the expression. By “licence  fee” or “fixed fee” is meant the price or  

consideration which the Government charges to the  licensees for parting with its privileges and granting  them to the licensees. As the State can carry on a

23    

trade or business, such a charge is the normal  incident of a trading or business transaction.  

57. While on this question, we may with advantage cite  a passage from American Jurisprudence (Vol. 30, pp.  642, 645) which is based on the decisions in Gundling  v. Chicago11, Phillips v. Mobile12 and Richard v. Mobile13,  It says:  

“the familiar principle that the imposition  

of licence fees on useful and honourable  occupations must not exceed the cost of  

issuing the licence, plus the expense of  inspecting and regulating the business  licensed ... is not necessarily applicable to  

a liquor license. The liquor traffic is not  something which is licensed for the  purpose of promoting it. Indeed, licence  

fees may be exacted in amounts  intended to discourage participation in  

the business. The courts have quite  generally refused to hold that the  licence fee imposed, merely because it is  

large, is a tax, where the object is to  control, regulate, and restrict, and not  

to encourage the liquor traffic, the  revenue being the result of the system  and not the motive for its adoption . . . .  

The higher the fee imposed for a licence,  it is sometimes said, the better the  regulation, as the effect of a high fee is  

to keep out the business those who are  undesirable, and to keep within  

reasonable limits the number of those  who may engage in it.”  

58. In the view we have taken, the argument that the  Government cannot by contract do what it cannot do  

under a statute must fail. No statute forbids the  Government from trading in its own rights or privileges  

and the statute under consideration, far from doing so,  expressly empowers it by Sections 27 and 34 to grant  

                                                           11 44 L Ed 728  12 52 L Ed 578  13 52 L Ed 581

24    

leases of its rights and to issue the requisite licences,  permits or passes on payment of such fees as may be  

prescribed by the Financial Commissioner.  

59. The argument that in Cooverjee case the impugned  power having been exercised in respect of a centrally  

administered area, the power was not fettered by  legislative lists loses its relevance in the view we are  taking. It is true that in that case it was permissible to  

the Court to find, as in fact it did, that the fee imposed  on the licensees was “more in the nature of a tax than  

a licence fee”. As the authority which levied the fee had  the power to exact a tax, the levy could be upheld as a  tax even if it could not be justified as a “fee”, in the  

constitutional sense of that term. But the “licence fee”  or “fixed fee” in the instant case does not have to  

conform to the requirement that it must bear a  reasonable relationship with the services rendered  to the licensees. The amount charged to the  

licensees is not a fee properly so-called nor indeed a  tax but is in the nature of the price of a privilege,  which the purchaser has to pay in any trading or  

business transactions.”  

      (emphasis supplied)      

13. Indeed, if the State legislation was to provide for levy on the  

imported rectified spirit per se the same would be without  

jurisdiction, as consistently held, including by the Constitution  

Bench in Deccan Sugar & Abkari Co. Ltd. Vs. Commissioner of  

Excise, A.P.14, paragraph No.2 of this decision, which reads thus:   

“2. It is settled by the decision of this Court in Synthetics  and Chemicals Ltd. v. State of U.P. that the State  Legislature has no jurisdiction to levy any excise duty  

on rectified spirit. The State can levy excise duty only  on potable liquor fit for human consumption and as  rectified spirit does not fall under that category the  

                                                           14 (2004) 1 SCC 243

25    

State Legislature cannot impose any excise duty. The  decision in Synthetics and Chemicals Ltd. v. State of U.P.  has been followed in State of U.P. v. Modi Distillery15  where certain wastage of ethyl alcohol was sought to be  

taxed. This Court following the decision in Synthetics  and Chemicals Ltd. came to the conclusion that this  cannot be done.”  

   14. The next question is whether the levy is in the nature of tax  

or excise duty. If it is a case of excise duty on potable liquor  

produced by use of imported rectified spirit, the State has  

jurisdiction to legislate in respect of duty on the production or  

manufacture of such goods produced or manufactured within the  

State. In the present case, we find merits in the submissions of the  

appellant State that the impost is neither in the nature of a tax nor  

excise duty but it is towards the charges by whatever name, for  

regulating the production of potable liquor to preserve public  

health and morality including for parting with its rights or  

privileges regarding manufacture, supply or sale of potable liquor  

or intoxicating liquor and to regulate the use of imported rectified  

spirit for production and sale of potable liquor. In such a case, the  

State need bear no quid pro quo to the services rendered to the  

licencee for production of foreign liquor (IMFA).    

                                                           15 (1995) 5 SCC 753

26    

15. The fact that the manufacturer-respondent has already  

obtained requisite licences for import of rectified spirit and  

production of foreign liquor (IMFA) on payment of fixed rates does  

not mean that the State has surrendered all facets of its rights in  

respect of every form of activity in relation to potable liquor – its  

manufacture, storage, export, import, sale and possession. The  

amended provision is an enabling provision authorising the State  

to levy charges or impost for ceding its one or more of the activity  

in respect of foreign liquor (IMFL) produced by use of imported  

rectified spirit. Such impost can be in addition to the general power  

of the State to issue licence on payment of fees for production and  

sale of potable liquor. As observed in Har Shankar (supra), in  

paragraph No.56, the State need bear no quid pro quo to the  

services rendered to the licensees of producer of foreign liquor.   

16. The respondent, however, placed heavy reliance on the  

decision in State of U.P. & Ors. Vs. Vam Organic Chemicals  

Ltd. and Ors.16, to contend that the State is obliged to justify the  

impost based on quid pro quo. We are afraid, this decision is of no  

avail to the respondent. In that case, the Court was dealing with  

                                                           16 (2004) 1 SCC 225

27    

challenge to Rule 3(a) therein on the ground that the State  

Legislature did not have legislative competence to legislate on  

“denatured spirit” which is unfit for human consumption. In that  

context, this Court relied on the decision in Synthetics and  

Chemicals Ltd. and Ors. Vs. State of U.P. and Ors.17 and  

answered the issue. If the case under consideration was to be  

regarding legislation on imported rectified spirit as such, this  

decision would have come handy. However, having opined that the  

purport of the impugned Rule 106(Tha), is to permit impost on the  

final processed product being foreign liquor “IMFL”, before bottling  

as fit for human consumption, the State has jurisdiction to  

legislate on that subject and need bear no quid pro quo to the  

services rendered to the licencee of manufacturer of foreign liquor  

(IMFL).   

 17. In view of the above, we do not intend to dilate on other  

arguments and reported decisions pressed into service by the  

respective parties. Suffice it to observe that the challenge to the  

amended Rule 106 (Tha), in our opinion, is unfounded and is  

based on erroneous assumption that it purports to authorise the  

                                                           17 (1990) 1 SCC 109

28    

State to levy charges on the imported rectified spirit as such.  

However, upon proper interpretation of the said rule we hold that  

it purports to empower the State to levy charges on the final  

processed product being foreign liquor (IMFL) manufactured by  

use of imported rectified spirit. This appeal, therefore, ought to  

succeed.   

18. Accordingly, we allow this appeal and quash and set aside  

the impugned judgment and order of the High Court dated 25th  

July, 2013 passed in WP(T) No.7499 of 2012. The said writ petition  

stands dismissed. All pending interim applications are disposed of.  

No order as to costs.   

     ……………………………..J        (A.M. Khanwilkar)  

     ……………………………..J        (Ajay Rastogi)  

New Delhi;  

July 02, 2019.