KALYAN CHEMICALS Vs. GOVERNMENT OF A.P. & ORS.

Tags Tax/ Tax Settlement, Excise Duty

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 5307-5308 of 2005, Judgment Date: Aug 12, 2015

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 [pic] 1 per bulk litre was 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 [pic]2,09,500, it was
to get a refund of [pic]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 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 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 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.