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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 5307-5308 OF 2005

KALYAN CHEMICALS  … APPELLANT

VERSUS

GOVERNMENT OF A.P. & ORS            … RESPONDENTS

J U D G M E N T

VIKRAMAJIT SEN, J.

1 The  Appellant  before  us  assail  the  concurrent  findings  of  the  learned

Single Judge and the Division Bench of the High Court of Andhra Pradesh at

Hyderabad, upholding the legality of the levy of an Administrative Fee at the

rate  of  50  paise  per  bulk  litre  or  any  other  rate  as  may  be  fixed  by  the

Government from time to time on industrial alcohol obtained from a distillery.  

2 The Appellant is a manufacturer of Ethyl Acetate, the basic raw material

for which is industrial alcohol. The Appellant has been receiving allotments of

denatured spirit from the Respondents since 1972. By way of an amendment to

Rule  3  of  the  Andhra  Pradesh  Denatured  Spirit  and  Denatured  Spirituous

Preparations Ruled, 1971 (1971 Rules for brevity), the collection of a gallonage

fee,  under  the  head  of  privilege  fees,  at  the  rate  of   1  per  bulk  litre  was

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introduced. The Appellant filed a writ petition in 1995 contending that the levy

and  collection  of  such  an  amount  without  rendering  any  service  is  illegal,

arbitrary  and  without  justification.  The  High  Court  vide  its  order  dated

13.10.1997 disposed of the writ petition, directing the Appellant to approach the

concerned authorities seeking a refund and with a direction to the authorities to

consider the same in accordance with the law. In pursuance of G.O.M. No. 147

dated 6.3.1998, the Government introduced the collection of Administrative Fee

of  50  paise  per  bulk  litre  in  lieu  of  withdrawal  of  collection  of  the

abovementioned privilege fees as per the orders of the Seven Judge Bench of

this Court in Synthetics & Chemicals Limited vs. State of U.P. (1990) 1 SCC

109.   This  Rule  was  given  retrospective  effect  from  25.10.1989.  The

Government therefore responded to the Appellant by issuing G.O.Rt. No. 313

dated  13.3.2000,  whereby  in  accordance  with  G.O.M.  No.  147,  the

Commissioner  of  Prohibition and Excise  was permitted  to  adjust  the  excess

amount  of  privilege  fees  paid  with  effect  from  25.10.1989  towards  future

allotments  of  alcohol  for  industrial  purposes  against  Administrative  Fee.

Since the Appellants had paid an amount of 2,09,500,  it  was  to  get a refund

of   1,04,750 after the adjustment of an equal amount towards administrative

fees. Aggrieved by this order, the Appellant approached the High Court once

again,  seeking  the  issuance  of  a  writ  of  Mandamus  declaring  that  the

amendment of Rule 3 of the 1971 Rules as amended by G.O.M. No. 147 is

arbitrary, illegal, ultra vires and unenforceable, and a further declaration that the

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Appellant is entitled to the refund of the entire amount collected as gallonage

fees with interest at 18% per annum. The Appellant’s case was that the State

cannot make any law in purported exercise of its legislative competence with

reference to Entry 8 of List II to levy privilege fees or any other fees in respect

of alcoholic liquors which are not meant or fit for human consumption.  

3 The High Court placed reliance on Synthetics and Chemicals Limited,

wherein this Court observed as follows:

“The State, in exercise of powers under Entry 8 of List II and by  appropriate law may, however, regulate and that regulation could  be to prevent the conversion of alcoholic liquors for industrial use  to one for human consumption and for the purpose of regulation,  the regulatory fees only could be justified. In fact, the regulation  should be the main purpose, the fee or earning out of it has to be  incidental.”

The  High  Court  also  considered  this  aspect  of  the  law  in  Vam  Organics

Chemicals Ltd. vs. State of U.P. (1997) 2 SC 715, the Appellants wherein were

manufacturers of ‘vinyl acetate monomer’, for which industrial alcohol is the

main stock. The Appellants therein were liable to pay a denaturation fee at the

rate of 7 paise per litre. They challenged this, contending that the State of U.P.

had no power to legislate or levy taxes in respect of industrial alcohol, and that

the levy was bad as it was not based on a quid pro quo basis. The Supreme

Court held that “so long as any alcoholic preparation can be diverted to human

consumption,  the States  shall  have  the  power  to  legislate  as  also  to  impose

taxes, etc.”   Ergo, the State has the competence and the obligation to supervise

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the  denaturation  of  spirit.  Furthermore,  this  Court  held  that  “in  the  case  of

regulatory fees, like the license fees, existence of quid pro quo is not necessary

although  the  fee  imposed  must  not  be,  in  the  circumstances  of  the  case,

excessive.”  Keeping  in  view  the  quantum  and  nature  of  work  involved  in

supervising the process of denaturation and the consequent expenses incurred

by the State, the fee of 7 paise per litre was held to be reasonable and proper.

The  High  Court  found  that  the  decision  of  the  Supreme  Court  in  Vam

Organics Chemicals Ltd.  was a complete answer to the submissions of the

Appellant. There was found to be no reason to hold that the administrative fee at

the rate of 50 paise per bulk litre was excessive.  

4 Furthermore, the Appellant’s plea that the Rule could not have been made

efficacious with retrospective effect was dismissed in light of the fact that the

competency of the rule making authority to impart retrospective effect was not

in dispute and no other ground was made out to support this contention. The

Single  Judge  accordingly  dismissed  the  writ  petition  on  21.10.2003.  The

Appellant’s Review Petition was also dismissed on 2.7.2004.

5 The Appellant has now filed these Appeals before us, contending that the

abovementioned amendment cannot be given retrospective effect, and that the

fees should be levied at the rate of 7 paise per litre, since this amount was found

to be “reasonable and proper” in  Vam Organics Chemicals Ltd. We find no

force behind either of these contentions. No ground has been made out for the

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former contention, and Section 72(3) of the Andhra Pradesh Excise Act, 1968

specifically  allows  that  –  “Any  rules  under  this  Act  may  be  made  with

retrospective effect and when such a rule is made the reason for making the rule

shall  be specified in a statement  to be laid before both Houses of  the State

Legislature.”  Regarding  the  latter  contention,  7  paise  was  deemed  to  be

reasonable on the facts of that case which does not in any way indicate that a

larger amount would be excessive especially with the passage of time. We have

discussed when administrative and service charges can be recovered along with

the relevant case law in some detail in our judgment of even date in the Appeal

titled as State of Tamil Nadu vs. Tvl. South Indian Sugar Mills, which should be

adverted to in the interests of avoiding prolixity.   We uphold the High Court’s

finding that in light of Synthetics and Chemicals Limited and Vam Organics

Chemicals Ltd., the subject Regulatory Fees intended to prevent the conversion

of alcoholic liquor for industrial use to that for human consumption is legal, and

need not be strictly quid pro quo as long as it is not excessive. We find no merit

in these Appeals and they are accordingly dismissed.  

…………………………….…J. [VIKRAMAJIT SEN]

…………………………….…J. [SHIVA KIRTI SINGH]

New Delhi, August 12, 2015.