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Wednesday, August 26, 2015

Rule 17 - Rectified spirit – Whether Rule 17 which empowers the Government to fix the price of rectified spirit, valid? K.Shivashankar Bhat, J., Held. - Rule 17 of the State rules, invoked in the present case, nowhere lays down nor indicate the principles or factors to be considered while the Excise Commissioner fixes the price with the prior approval of the State Government. The case of other liquors may be different, because, in those cases, the State has exclusive privilege to deal with those liquors/intoxicants, unlike the case of rectified spirit. The permissible limits of delegation of legislative function cannot be stretched so as to make it notional. It cannot be said that the limitation on the delegation of legislative function has reached a vanishing point. Limitation is needed to prevent any possible dictatorial power being vested in the executive by the legislature. Rule 17 insofar as it empowers of the fixation of price of rectified spirit, is therefore, declared as unconstitutional and ultra vires the provisions of the State Act.

                                                                  REPORTABLE



                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL No. 860 OF 2006




SRI MALAPRABHA CO-OP SUGAR FACTORY
LTD                                               ..APPELLANT(S)


      Versus



STATE OF KARNATAKA & ORS.                  .. RESPONDENTS







                           J  U  D  G  M  E  N  T



VIKRAMAJIT SEN,J.


1     This Appeal brings into challenge the Judgment of the  Division  Bench
of the High Court of Karnataka  in  terms  of  which  the  Judgment  of  the
learned Single Judge had been upheld; however, with the direction  that  the
competent authority shall examine the claim made by the Appellant for  being
classified as a non-captive unit.  On 29.7.2004,  while  issuing  notice  it
had been clarified that the impugned Judgment had not been stayed.

2      The  facts  that  are  relevant  for  deciding  the  present  Appeal,
succinctly, are that the Respondent State had fixed the price  of  rectified
spirit  uniformly  at  [pic]  6/-  per  litre  by  Government  Order   dated
12.5.1992.   While  doing  so,  it  had  been  indicated  that  the  captive
distilleries would be entitled to receive only [pic] 5/- per litre, and  the
balance [pic] 1/- per litre would be receivable  by  the  Respondent  State.
For the period of 1.7.1992 to 30.6.1993, supplies of rectified  spirit  were
made by the Appellant to various parties and the entire sum at the  rate  of
[pic] 6/- per litre was recovered/received by the  Appellant.   It  will  be
relevant to underscore that the supply of rectified spirit  (ethyl  alcohol)
was made by the Appellant with full knowledge of  the  Government  Order  to
which challenge has been made, namely, the payment of [pic]  1/-  per  litre
to the State Government.  The Appellant  does  not  dispute  that  it  is  a
captive distillery, since it produces molasses which is then  distilled  and
converted  into  ethyl  alcohol/rectified  spirit/industrial  alcohol.   The
Government Order dated 12.5.1992 has not been assailed by the  Appellant  at
any point of time.   When a demand  for  a  sum  of  [pic]  13,32,000/-  was
raised by the Superintendent of Excise, Huballi, by letter  dated  15.12.93,
a challenge by way of  the filing of a writ petition was initiated.

3     The Respondent State is  empowered  to  fix  the  price  of  rectified
spirit by virtue of  Rule  17  of  the  Karnataka  Excise  (Manufacture  and
Bottling  of  Arrack)  Rules,  1987,  the  vires  of  which  have  not  been
questioned.  The Rule is reproduced for facility of reference:

      Rule 17 -   Rectified spirit – Whether  Rule  17  which  empowers  the
Government to fix the price of rectified spirit, valid?

      K.Shivashankar Bhat, J., Held. -  Rule 17 of the State rules,  invoked
in the present case, nowhere  lays  down  nor  indicate  the  principles  or
factors to be considered while the Excise Commissioner fixes the price  with
the prior approval of the State Government.  The case of other  liquors  may
be different, because, in those cases, the State has exclusive privilege  to
deal with those liquors/intoxicants, unlike the case  of  rectified  spirit.
The permissible limits of  delegation  of  legislative  function  cannot  be
stretched so as to make it notional.  It cannot be said that the  limitation
on the delegation of  legislative function has reached  a  vanishing  point.
Limitation is needed to prevent any possible dictatorial power being  vested
in the executive by the legislature.  Rule 17 insofar as it empowers of  the
fixation  of  price  of  rectified  spirit,  is   therefore,   declared   as
unconstitutional and ultra vires the provisions of the State Act.

4     The manner in which the trade of arrack is conducted can  be  gleaned,
inter alia, from a  reading  of  Rule  13,  which  is  also  reproduced  for
convenience:

Rule 13.     Stock of rectified spirit. –  (1)  The  quantity  of  rectified
spirit required for the warehouse shall  be  allotted  by  the  Commissioner
from time to time.  It shall be drawn from the distillery  on  indents  duly
countersigned by the Warehouse Officer.  The  transportation  charges  shall
be borne by the licensee.  The  distillery  shall  issue  such  quantity  of
rectified spirit as allotted by the Commissioner, to the  warehouse  at  the
rates fixed by the Commissioner under Rule 17.

(2)  The stock of spirit when received at the warehouse  shall  be  verified
by the Warehouse Officer by volume and strength  or  the  quantity  of  pure
alcohol in it and taken to the storage vats.  The  Warehouse  Officer  shall
furnish a  certificate  of  such  verification  to  the  Distillery  Officer
concerned and shall keep a register showing the details of  stock  indented,
issued by the distillery and the stock as received in the warehouse.

(3)  Gauging of spirit shall be made by the Warehouse  Officer  everyday  in
the presence of the  licensee  or  his  authorized  representative  and  the
result thereon shall be recorded in a register, which shall be  attested  by
both the Officer and the licensee or his representative.

(4)  (a)  The licensee or his authorized  representative  shall      give  a
requisition for the transfer of such quantity of spirit for  the  production
of arrack to the vessels  kept  for  the  purpose.   The  requisition  shall
contain information as to the date,  batch,  number,  quantity,  spirit  vat
number from which to be issued, and the vessel number to which it should  be
transferred.

        (b)  The Warehouse Officer on receipt of the requisition may  permit
the transfer after gauging the stock in volume and strength.

A perusal of the said Rule makes it patently  clear  that  the  Commissioner
allots quantities of rectified spirit from the distillery to a  ‘warehouse’,
and the indents are duly counter signed by the Warehouse Officer.  The  Rule
clarifies that the transportation charges are to be borne by  the  licencee.
  This  arrangement,  so  far  as  transportation  expenses  are  concerned,
obviously does not arise where molasses is readily  available  in  the  very
same premises where its conversion or  distillation  into  rectified  spirit
takes place.   The contention of learned counsel for the Appellant  is  that
the State is not entitled to take away the extra profit  of  [pic]  1/-  per
litre which the Appellant earns because molasses is  available  in  its  own
premises.   This argument, however, conveniently ignores the fact  that  the
Respondent State had made it incontrovertibly clear  that  it  would  permit
the Appellant to sell rectified spirit at the common fixed rate of [pic] 6/-
 provided it transferred  [pic]  1/-  per  litre  to  the  State.    If  the
Appellant was serious in questioning the legal capacity  of  the  Respondent
State recover the said [pic] 1/- per litre, it  perforce  had  to  challenge
the Government Order dated 12.5.1992.   Having failed to do  so  it  cannot,
thereafter, challenge the Demand dated 15.12.1993 which is predicted on  the
Government Order itself.  Learned counsel for the Respondent State has  made
an attempt to rely on the decisions of this Court in  Bihar  Distillery  vs.
Union of India AIR (1997) SC 1208, as also Synthetics &  Chemicals  Ltd.  v.
State of U.P. (1990) 1 SCC 109.   We have not permitted him  to  do  so  for
the simple reason that the question of law that had  engaged  the  attention
of the Court in those cases, as well as in Vam Organics  Chemicals  Ltd.  v.
State of  U.P. (1997) 2 SCC 715 was altogether  different.    In  the  three
cases, the challenge was to  the  competence  of  the  State  Government  to
impose administrative  charges  for  regulating  the  holding  of  rectified
spirit, since there is an omnipresent danger of the rectified  spirit  being
surreptitiously diverted for the illicit production of arrack and  for  that
matter even Indian-Made Foreign Liquor  (IMFL).   Learned  counsel  for  the
Appellant has endeavoured to place  reliance  on  the  decision  in  Pratima
Chowdhury v. Kalpana Mukherjee (2014) 4 SCC 196, in order  to  buttress  the
argument that estoppel cannot be claimed by the  Respondent  State;  we  are
unable to appreciate the reliance  on  this  decision  in  support  of  this
contention.  What we have before us is a simple case of  recovery  of  dues,
viz. at rates which had been declared well before the permission  to  supply
rectified spirit was accorded to the  Appellant.    The  position  may  have
been different had the Respondent State failed to pass  relevant  orders  or
had it failed  to  inform  the  Appellant  that,  since  it  did  not  incur
transportation costs, this  amount,  which   had   been   predetermined   at
[pic]1/- per litre, would be payable to the State.

5     There were three Appellants before the  Division  Bench  of  the  High
Court of  Karnataka but only one of them, i.e. the Appellant before us,  has
decided to further challenge the Demand of [pic] 13,32,000/- being  accorded
at [pic] 1/- per litre sold by the  Appellant.    It  is  also  relevant  to
mention that the Appellant has not challenged the Demand  of  transportation
charges of [pic] 1/- per litre for any subsequent charges.

6     We  find  no  substance  in  the  Appeal.    The  Appellant  had  full
knowledge of the fact that it had been permitted to supply rectified  spirit
to third parties who are engaged in the business of production of arrack  on
the condition that of the general fixed price of [pic] 6/- per litre,  [pic]
1/- per litre would have to be made over to the Respondent State.

7     The Appeal is accordingly dismissed, with no order as to costs.




..............................................J.
                                                  [VIKRAMAJIT SEN]



..............................................J.
                                               [SHIVA KIRTI SINGH]
New Delhi;

August 21,   2015.





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