import of Web Printing Machine on concessional rate of custom duty = High court refused to give relief = one of the conditions needs to be satisfied to avail the concessional rate of duty @ 35% ad valorem under the aforesaid Notification is that the machine is having output of 30,000 or more copies per hour. Whereas the appellant contends that the machine in question churned out 36,000 copies per hour, the High Court has found it otherwise. As per the High Court the output of the machine was 25,000 copies per hour, which was reflected in the leaflet of the manufacturer of the machine, which leaflet was filed along with Bill of Entry.

                                                                  REPORTABLE
                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                       CIVIL APPEAL NO.  4417 OF 2003


|D.R. ENTERPRISES LTD.                      |.....APPELLANT(S)            |
|VERSUS                                     |                             |
|ASSISTANT COLLECTOR OF CUSTOMS AND ORS.    |.....RESPONDENT(S)           |


                               J U D G M E N T


A.K. SIKRI, J.
                 The appellant herein is aggrieved by the impugned  judgment
of the High Court whereby the High Court has refused to allow the  appellant
import of Web Printing Machine on concessional  rate  of  custom  duty.  The
appellant had endeavored to avail the concessional rate of  custom  duty  on
the import of the  aforesaid  machine  under  Open  General  Allowance  (for
short,  'OGL')  with  the  aid  of  Notification   No.   114/80-CUS,   dated
19.06.1980.  The High Court has held  that  the  said  Notification  is  not
applicable in the instant case  as  the  appellant  has  not  been  able  to
satisfy one particular eligibility condition contained therein.  To  put  it
pithily, one  of  the  conditions  needs  to  be  satisfied  to  avail   the
concessional rate of duty @ 35% ad valorem under the aforesaid  Notification
is that the machine is having output of 30,000  or  more  copies  per  hour.
Whereas the appellant contends that the  machine  in  question  churned  out
36,000 copies per hour, the High Court has found it otherwise.  As  per  the
High Court the output of the machine was 25,000 copies per hour,  which  was
reflected in the leaflet of the manufacturer of the machine,  which  leaflet
was filed along with Bill of Entry.

In order to find out the details of the factual background under  which  the
aforesaid issue has cropped up, let us traverse through the  facts  in  some
more details.

The appellant herein had imported  one  printing  machine  of  make  'Harris
Graphic V-15H Model'  which arrived at Mumbai airport on 24.10.1987.  Custom
house agent of the appellant filed Bill of Entry for Home Consumption  under
OGL on 13.11.1987 and claimed concessional rate of duty  under  Notification
No. 114/80-CUS.

On 26.11.1987, the Appraiser of Customs House, Bombay issued  a  query  memo
with regard to the printing capacity of the imported machine which had  been
shown in the import invoice as 36,000 copies per  hour,  but  was  shown  as
25,000 in the leaflet furnished along with the Bill  of  Entry.  Some  other
queries were also raised. The appellant answered the issue on 21.01.1988.

Having not been satisfied with the reply furnished  by  the  appellant,  the
customs authorities directed it to warehouse the goods under Section  49  of
the Customs  Act,  1962  (hereinafter  referred  to  as  the  'Act'),  after
depositing the admitted customs duty. Accordingly, the imported machine  was
warehoused.

Thereafter, some queries regarding the output of  the  machine  were  raised
and the appellant tried to meet them. It also filed communications  received
from the manufacturer  explaining  that  the  machine  was  custom-made  for
Indian purposes, i.e, for the appellant enhancing  its  capacity  to  36,000
copies per hour as against normal capacity of 25,000 copies,  which  is  the
normal product manufactured by the said manufacturer.  On  that  basis,  the
appellant  wrote  to  the  customs  authorities   for   arranging   physical
examination of the consignment to satisfy themselves  that  the  machine  in
question was capable of giving output of 36,000 copies  per  hour.  However,
no action was taken by the customs authorities thereafter.

Taking note of the inaction of the customs authorities to get  the  imported
consignment physically inspected and proceeding with the  clearance  of  the
same, on 24.04.1988, the appellant filed a writ petition before  the  Bombay
High Court (being Civil Writ No. 2229/1988) praying for a  declaration  that
the  imported  machine  was  covered  by  OGL  and  was  entitled   to   the
concessional rate of customs duty under Notification No. 114/80-CUS and  for
directing the respondents to permit clearance of the same.   Interim  relief
of release of the machinery was also prayed for.

The  Assistant  Commissioner  of  Customs  (S.I.I.B.),  Bombay,   filed   an
affidavit opposing the admission  of  the  petition  and  grant  of  interim
relief.

On 10.08.1988, the High Court passed an order directing the  respondents  to
submit a list of relevant material required by them to the appellant  on  or
before  17.08.1988  and  directed  the  appellant  to  comply   with   those
requirements on or  before  26.08.1988  and  further  directed  the  customs
authorities to pass appropriate orders  within  one  week  thereafter.   The
matter was adjourned to 31.08.1988.  On  02.09.1988,  when  the  matter  was
again heard by the High Court, taking note of  the  fact  that  no  list  of
materials was served by the customs authorities  on  the  appellant  and  no
adjudication order was passed, the learned Single Judge of the  Bombay  High
Court passed an  order  directing  the  parties  to  inspect  and  test  the
consignment under the supervision of the Court Appointed  Officer  within  5
days from 02.09.1988 and directing the Adjudicating  Authority  to  pass  an
order within 7 days from the inspection and testing. It  was  not  done  and
further time was sought. However, when the needful was not done  even  after
getting time extension, on 03.10.1988,  the  Bombay  High  Court  passed  an
order allowing clearance of the imported machine in  question  in  terms  of
prayer clause (c)(i) of the writ petition.

Pursuant to the aforesaid interim order of the  High  Court,  the  appellant
was allowed to clear the consignment in question.  However,  the  main  writ
petition was kept pending thereafter which came up for final hearing in  the
year 2002, i.e. 14 years after the filing of  the  writ  petition.  By  that
time the imported printing machine had been in use by the appellant for  all
these years. The learned counsel  appearing  for  the  appellant,  in  these
circumstances, impressed upon the High Court  to  decide  itself  the  issue
involved, namely, whether imported machine could  print  36,000  copies  per
hour or its speed was less than 30,000  copies  per  hour  and  whether  the
appellant was not entitled to the benefit  of  the  concerned  Notification.
The High Court went into the issue and  by  its  detailed  judgment  it  has
decided this issue against the appellant. The basis  for  arriving  at  such
conclusion shall be stated by us in some details at the later stage.

Mr.  L.  Nageshwar  Rao,   learned  senior  counsel  who  appeared  for  the
appellant, challenged the very approach of the High Court  in  deciding  the
issue on merits as well as the finding arrived at by the High  Court in  the
following manner:
(i)   In the first place,  it  was  argued  that  the  High  Court  was  not
competent to  go  into  this  issue  when  the  Act  provides  for  complete
adjudication machinery to adjudicate  this  issue.  Learned  senior  counsel
referred to the provisions of Section 28  of  the  Act,  as  per  which  the
authorities are supposed to issue show cause  notice  to  the  importer  and
after giving opportunity to the importer  to meet the allegations  contained
in show cause notice, the Adjudicating  Officer  is  to  pass  an  Order-in-
Original deciding the case stated in the show cause notice. He  pointed  out
that against the order of the Adjudicating Authority there  is  a  provision
for appeal before the Customs, Excise and  Service  Tax  Appellate  Tribunal
(for short, 'CESTAT'). Against the order of the CESTAT, appeal  is  provided
to the Supreme Court. He further submitted that the Authority  and  Tribunal
are  the  fact   finding   authorities,   which   are   supposed   to   take
evidence/material on record and arrive at a finding on that basis. Mr.  Rao,
in this backdrop, submitted that  not  only  this  procedure  was  sidelined
thereby causing great prejudice to the appellant, even otherwise,  the  High
Court, while exercising its extraordinary writ  jurisdiction  under  Article
226 of the Constitution, was not competent to decide the disputed  questions
of facts.
(ii)  Mr. Rao also impressed upon the fact that  it  was  not  open  to  the
Department now to contend that the machine  in  question  was  incapable  of
producing 36,000 copies per hour and have the  matter  adjudicated  when  by
this time the matter had become time barred. In this behalf, it was  pointed
out that in the writ petition filed by the appellant,  there  was  no  order
restraining the respondents from issuing show cause notice under Section  28
of the Act and to proceed with the process of  adjudication.  Therefore,  it
was open to the customs authorities to invoke the said machinery  under  the
Act. However, it was not done, which resulted in accruing valuable right  in
favour of the appellant.  The learned counsel, thus, insisted that when  the
customs authorities were  precluded  from  taking  any  action  against  the
appellant because of embargo of limitation coming in  their  way,  the  High
Court was equally incompetent to decide the said issue on merit and  passing
the liability upon the appellant in respect of time barred claim.
(iii) Another submission of Mr. Rao was that the writ petition was filed  in
the year  1988  in  which  interim  order  was  granted  in  favour  of  the
appellant. The High Court  was  forced  to  pass  such  an  order  directing
release of the machine to the appellant when the authorities failed  to  get
the machine inspected to find out the potential output of the said  machine.
Therefore, the Department allowed the chance to be slipped  away  to  verify
this fact on which the entire decision depended, and benefit thereof  should
have been given to the appellant as it was not possible  to  ascertain  this
fact after 14 years. In any case, it was argued that  even  the  High  Court
before deciding the issue did not go into this aspect.
(iv)  The last submission of Mr. Rao was on merits of the  case  emphasising
that the High Court was merely influenced by  the  leaflets  containing  the
literature about the machine and did not appreciate other material  produced
by  the  appellant,  including   the   clarifications   furnished   by   the
manufacturer itself stating  that  advance  version  of  the  machine,  with
modification, was manufactured and supplied to the appellant and insofar  as
machine in question is concerned it had  the  printing  capacity  of  36,000
copies per hour. He, thus, submitted that even on merits,  the  findings  of
the High Court were coerced.

Mr. A.K. Panda, learned  senior  counsel  appearing  for  the  Revenue,  per
contra,  refuted  the  aforesaid   submissions   forcefully.   He   put   it
emphatically that it did not behove well on the part  of  the  appellant  to
now question the jurisdiction and competence of the High Court  to  go  into
the issue when the High Court was requested and persuaded by  the  appellant
itself to decide the  issue,  as  is  reflected  in  the  impugned  judgment
itself. He, thus, argued that the appellant was estopped from  raising  such
an  issue  when  the  appellant  itself  invited  the  judgment  on  merits.
According to Mr. Panda, this fact would also negate the  contention  of  the
appellant predicated on limitation. His submission in this behalf  was  that
the appellant had itself  raised  this  issue  in  the  High  Court  in  its
petition which was  pending  adjudication.   That  was  a  reason  that  the
Revenue authorities did not initiate any  action  as  per  the  adjudicatory
mechanism provided in the Act. Therefore, the appellant was not entitled  to
rake up the issue of limitation as  well.  On  merits,  the  learned  senior
counsel submitted that once the High Court was invited to decide  the  issue
on the basis of material that was placed on record by both  the  sides,  the
High Court had looked into the said material in its entirety and  has  found
that the machine in question imported by the appellant  does  not  meet  the
requirement of Notification  No. 114/80-CUS as its  output  is  only  25,000
copies per hour which is less than 30,000 copies that  is  needed  to  avail
the benefit of the Notification. He, therefore, pleaded  for  the  dismissal
of the appeal.

We have considered the respective submissions of  the  learned  counsel  for
the parties on either side with reference to the record. In  a  matter  like
this, it is necessary in the first instance to take note  of  the  scope  of
the writ petition that was filed by the appellant in the  High  Court  which
is dismissed by the judgment impugned.  A  copy  of  the  said  judgment  is
placed on record and  a  perusal  thereof  would  show  that  the  appellant
contested and disputed  the  position  taken  by  the  Department  that  the
imported machine did not fulfill  the  aforesaid  requirement  of  exemption
Notification No.   114/80-SC.  The  appellant  enclosed  copies  of  various
documents procured from the  manufacturer  and  others  in  support  of  its
submission on the basis of which it was claimed that the appellant was  able
to establish that the speed of the  imported  printing  machine  was  36,000
copies per hour.  On that basis, contention raised in the writ petition  was
that action of the Department in not allowing the  appellant  to  clear  the
machine was illegal. The appellant also alleged failure and refusal  on  the
part of the customs authorities in not permitting the  appellant  to  effect
clearance for an inordinately long period of  time  after  the  machine  was
landed. On the basis of these pleadings, following main relief  was  claimed
in the prayer clause:
“The petitioner, therefore, prays:

(a)   For a declaration that the petitioner is in  law  entitled  to  import
and clear the said printing machine covered by the said Bill  of  Entry  for
Home Consumption (Exhibit 'A' hereto) as  an  Actual  User  under  the  Open
General Licence;”

Another prayer was made to permit the appellant to clear the  said  imported
Harris Web Printing Machine and to issue  a  detention  certificate  to  the
appellant in respect of the said machine, covering the  entire  period  from
importation thereof upto the time the same is cleared by the appellant.   In
addition, interim prayer for immediate  clearance  of  the  machine  by  the
appellant and issuance of detention certificate were also made  pending  the
hearing and final disposal of the writ petition.

As mentioned above, this interim prayer  was  allowed  by  the  High  Court.
However, the writ petition was still kept pending  for  the  obvious  reason
that the appellant had sought the main relief of declaration  that  it  was,
in law, entitled to import and clear  the  said  machine  as  the  same  was
covered by the Bill of Entry for Home Consumption, as filed,  as  an  actual
user under OGL. Thus, the appellant had raised the dispute in the said  writ
petition on merits as well.

No doubt, when the High Court passed the interim  order  in  favour  of  the
appellant, the High Court could  dispose  of  the  writ  petition  with  the
observation that the aforesaid issue involved on merit can be gone  into  by
the appropriate authority  by  putting  the  machinery  of  adjudication  in
motion via Section 28 route.  For some reason, that was not done and it  was
more so as the appellant had itself prayed for declaration  to  this  effect
in the writ petition, which means it called upon the High  Court  to  decide
this issue.

In the aforesaid scenario, when the writ petition was pending, wherein  this
issue was raised, probably for this reason the Department  also  stayed  its
hands off. No doubt, there was no stay of adjudication proceedings  and  the
competent authority  could  go  ahead  with  the  adjudication  proceedings.
However, if there was a show cause notice  in  the  year  2002,  whether  it
would have been time barred or not is not even required  to  be  gone  into.
Such a guess game is not needed because of  one  simple  reason.   When  the
writ petition came up for  final  hearing  in  the  year  2002,  it  is  the
appellant who is responsible for inviting the decision on  merits.  Even  at
that stage, the appellant could have simply withdrawn the writ  petition  as
with the passing of interim order it had got the  printing  machine  cleared
from the customs authorities and was using the same.  However,  it  did  not
choose to do so. Had it done so, and thereafter received show  cause  notice
under Section 28 of the Act, it could have defended that notice raising  the
plea of limitation as well.  Only then question  would  have  arisen  as  to
whether the period during which the writ petition remained  pending  had  to
be excluded  or  not,  for  the  purpose  of  computing  limitation  period.
However, for the reasons best known to the appellant, the  appellant  argued
exactly the opposite of the submissions made before us by Mr. Rao. We  point
out, at the cost  of  repetition,  that  it  was  at  the  instance  of  the
appellant that this issue was taken up for hearing. We reproduce  below  the
following discussion in the impugned judgment touching upon this aspect:
“The long pendency of this petition for 14  years  and  the  peculiar  stand
taken by the petitioners prevented us from  remitting  this  matter  to  the
adjudicating authorities under the Act to determine the  disputed  questions
of fact. Left with no other alternative, we are constrained to  decide  this
matter on merits on appreciation of evidence for the following reasons:

Then, as many as seven reasons were given by the High Court which  compelled
the High Court to decide the issue on merits. After  noting  those  reasons,
the High Court recorded as follows:
“In the aforesaid circumstances, though we initially thought of getting  the
issue adjudicated  through  the  adjudicating  authority  by  directing  the
respondents to issue show cause notice under Section  11-A  [(sic);  Section
28] of the Act, so as to afford reasonable opportunity to  both  parties  to
place their case before the adjudicating authority  leaving  on  merits  all
the  rival  contentions  open,  the  petitioners  vehemently  opposed   this
approach and placed reliance on the judgment of the Apex Court in  the  case
of Gotak Patel  Volkart  Ltd.  Vs.  Collector  of  Central  Excise,  Belgaon
reported in 1987 (28) ELT 53 (SC) so as to contend that  show  cause  notice
cannot be issued beyond six months under Section 11-A  [(sic);  Section  28]
of the Act, and that after 14 years petitions cannot be asked  to  face  the
adjudication process. This is how the petitioners pressed for  the  decision
on merits.”


It shows that High Court was not oblivious of Section  28  of  the  Act  and
that determination of such an issue is  to  be  more  appropriately  in  the
hands of Adjudicating Authority. It also appears that High Court might  have
disposed of the writ petition with liberty to the Adjudicating Authority  to
initiate proceedings under Section 28 of the Act. Curiously, such an  action
was not taken at the instance of the appellant  which  contended  otherwise,
as is clear from the following narration:
“The learned counsel for the petitioners contended  that  this  Court  would
not be justified in dismissing the  petition  as  not  maintainable  on  the
grounds of availability of alternate remedy  especially  when  the  petition
was entertained, kept pending for 14 years   and when it is being  heard  on
merits. He also raised a  contention  that  the  availability  of  alternate
remedy does not affect the jurisdiction of the Court to issue writ. He  also
brought to our notice judgment of this Court in the case  of  Nehawas  Steel
Traders Vs. Union of India,  1993  (68)  ELT  721  (Bom.).  The  petitioners
therein were permitted to  clear  the  assignment  on  certain  terms  under
interim order which specifically provided that the respondents would  be  at
liberty to serve show cause notice and pass appropriate adjudication  order.
The respondents having failed to take any follow up action for more than  10
years, this Court in that case had observed that no fruitful  purpose  would
be  served  by  permitting  the   respondents   to   commence   adjudication
proceedings hereinafter. In this view of the matter, submission was made  to
decide this petition on its own merits on the available material.”


After inviting the High Court to decide the matter  on  merits  and  finding
that the decision has gone  against  the  appellant,  contrary  argument  is
nothing but a desperate attempt to chicken out of  the  situation  which  is
appellant's  own  creation.  This  kind  of  somersault,  taking  completely
reverse stand before us, cannot be countenanced. We, therefore,  reject  the
contention of the appellant that High Court was not competent to decide  the
issue in exercise of its writ jurisdiction.

The position would have been different if it was a case of inherent lack  of
jurisdiction.  That is not so.  The powers of the High Court  under  Article
226 of the Constitution, while issuing appropriate  writs,  are  very  wide.
Even if there is an alternate remedy that may not preclude  the  High  Court
from exercising the jurisdiction in a  particular  case.   In  the  face  of
alternate statutory remedies, when the High Court declines to  exercise  the
jurisdiction under Article 226 of the Constitution, it  is  a  self  imposed
restriction only. In the instant case, what is pertinent is that it  is  the
appellant which not only made a prayer in the  writ  petition  for  deciding
the issue in question, even at the time of hearing (as noted above),  it  is
the appellant which pressed  for  the  decision  with  the  submission  that
existence of alternate remedy should not  deter  the  Court  to  render  the
decision on merits.  In such a situation, the  objection,  if  any,  to  the
maintainability  of  the  writ  petition  could  have  been  taken  by   the
respondent and it does not behove the appellant to raise this  objection  in
the present appeal after pleading in the  High  Court  that  the  matter  be
decided on merits.

For the same reason, the argument that the issue involved disputed  question
of fact is also not available.  Order of  the  High  Court  clearly  records
that the appellant had requested the High Court to decide the issue  on  the
basis of material on record.

We are not impressed with the argument of the appellant that the matter  had
become time barred.  In fact,  reasons  for  rejecting  this  argument  have
already surfaced while discussing the  preceding  submission.   However,  we
would like to recapitulate them with focus on the issue  at  hand  which  is
being addressed now.

The issue as to whether the import of Web Printing Machine  was  covered  by
Notification No. 114/80-CUS dated 19.06.1980 was pending in the  High  Court
in respect of which petition was filed by the appellant itself way  back  in
the year 1988 raising this issue.  The appellant even got the interim  order
in its favour.  When the writ  petition  came  up  for  final  hearing,  the
appellant impressed  the  Court  to  decide  the  said  issue.   In  such  a
situation, question of limitation does not arise inasmuch as  it  is  not  a
case where proceedings under Section 28 of the Act  were  taken  out  giving
any show cause notice under the said section.  The  question  of  limitation
would have arisen only in case the respondent had issued show  cause  notice
under Section 28 of the Act.  Further, it is not that  the  High  Court  was
oblivious of the provisions of Section 28.  That is  categorically  recorded
in the impugned judgment.  Curiously, it  is  the  appellant  who,  pointing
this very reason, invited the decision on merits.  Now, therefore, issue  of
limitation is not even open for the appellant to urge before us.

Other arguments of Mr. Rao were on the merits of the  case.   Now  we  shall
advert to those submissions.

As pointed out above, the case of the appellant is that the High  Court  has
given undue weightage to the two leaflets as  against  the  other  material,
including the certificate of  the  manufacturer  clearly  stating  that  the
machine in question which was supplied to  the  appellant  was  an  upgraded
version capable of producing 36,000 prints  per  hour.   However,  from  the
reading of the impugned judgment, it  becomes  clear  that  each  and  every
document which  was  filed  and  relied  upon  by  the  appellant  has  been
discussed.  The High Court observed that insofar as  the  documents  of  the
appellant are concerned, they can conveniently be divided into  parts.   One
part of the document consists of two leaflets furnishing technical data  and
description of the printing machine in question along  with  Bill  of  Entry
and certificate showing date 08.02.1987 issued by the  manufacturer  of  the
machine M/s. Harris Graphics Corporation,   USA.   The  other  part  of  the
document is  nothing  but  a  correspondence  made  by  the  appellant,  its
Clearing and Holding Agent and one M/s. S.L. Kulkarni & Co., which deals  in
printing machinery, projecting themselves to be the  Indian  agent  of  M/s.
Harris Graphics Corporation, USA.  The said second  part  of  the  documents
can well  be  described  as  self  serving  evidence.   Likewise,  documents
produced by the respondent  were  also  divided  in  two  parts.   One  part
represents the  document  in  the  nature  of  Inspection  Report  based  on
examination of the entire consignment which  was  completed  on  28.09.1988,
while complying with the part of the directions issued by the High Court  by
order dated 02.09.1988, and the other part of  documents  is  basically  the
reproduction of documents supplied by the appellant itself.

Thereafter, the High  Court  formulated  the  question  as  to  whether  the
appellant had discharged its burden  to  prove  that  the  subject  printing
machine imported by it under OGL was having an output of  more  than  35,000
copies per hour so as to entitle it to claim  exemption  under  Notification
No. 114/80-CUS, as amended from time to time.  On that touchstone, the  High
Court has examined, appreciated and analyzed all the documents  produced  by
both the parties.  This detailed analysis runs into several  pages.   It  is
not necessary for us to go through this evidence and discuss the same as  we
find that the ultimate conclusion drawn by the High Court in this behalf  is
correct and plausible.  We would, however, like to reproduce  the  following
observations of the High Court  wherein  the  certificates  of  manufacturer
produced by the appellant vis-a-vis the leaflets  giving  technical  details
of the machine which were found along with the machine, are discussed:
“38.  The bare reading of the above certificate gives a picture that  Model-
15-H is with JF-25, JF-4, JF-10.  If this certificate is read in  the  light
of leaflets referred to hereinabove, the  relevant  portions  of  which  are
extracted in the above par, it would be clear that  the  manufacturer  wants
to suggest that  the  folder  JF-25-B  has  been  upgraded  to  JF-25,  with
additional  folders  JF-4  and  JF-10.   Firstly,  as  already  stated,  the
leaflets do not support this picture sought  to  be  projected  through  the
above certificate dated 3rd June, 1986.   Secondly,  had  it  been  so,  the
subsequent leaflet alleged to be a catalogue of  modified  model  would  not
have been omitted to mention this special feature  of  the  upgraded  model.
It does not support the assertion sought to be made in  the  certificate  in
question.  No reference is to be found to the additional folders  styled  as
JF-4 and JF-10 in the said literate.  Thirdly, the inspection report of  the
machine furnished by the Customs based on the  inspection  completed  before
28th September, 1988 shows that the folder base of the machine  in  question
was found as JF-25-B model.  Had the folder been  upgraded  from  JF-125-Bto
JF-25 then the machine in question ought to have been with  modified  folder
JF-25 and could not have been with folder  base  JF-25-B.   Fourthly,  other
modified folders JF-4 and JF-10 are not to be found in the inspection  note,
obviously, for want of such machine or model  with  such  modified  folders.
This inspection note has not been objected to by the petitioners.  Thus,  it
can be safely treated as undisputed document.  One more shade  of  the  same
evidence needs further appreciation.  The letter of M/s S.L. Kulkarni &  Co.
dated 21st January 1988 (Exh. J) makes out a case that the original model V-
15-H exported to India has been  modified  to  run  at  36,000  speed.   The
modification pertains to design changes in folder of the machine to  run  at
that speed and to take additional load due to higher speed, the horse  power
of the machine has also been suitably modified is  the  case  sought  to  be
made out.  We have  already  observed  and  recorded  our  finding  that  no
evidence is available on record to establish  modifications  of  the  folder
base of the machine or model in question.  If this be our finding, then  the
logical conclusion is that no modifications have been  made  in  the  folder
base of the machine or model in question.  If that be so,  then  in  absence
of modification of the folder base, machine cannot be said to be capable  of
taking additional load.  Therefore, it cannot given higher speed  so  as  to
given higher production to the extent of more than 35,000 copies  per  hour.
The certificate and the letter  of  M/s  S.L.  Kulkarni  &  Co.,  therefore,
cannot be relied upon.  The same cannot be given  any  credence.   The  said
evidence, for the aforesaid reasons, is not acceptable to us.

39.  One more aspect of the above certificate needs  to  be  noticed.   This
certificate of the manufacturer is dated 3rd June  1986.   The  contract  to
purchase machine in question has been shown to be dated  24th  March,  1987.
The copy of  the  contract  dated  24th  March,  1987  as  already  observed
hereinabove has not been produced on record.  One more  document  styled  as
agreement dated 24th April 1986 (Exh. G) is produced on record.  Both  these
documents are prior to the date of formation of contract  i.e.  24th  March,
1987.  No evidence is on record to connect these documents with the  subject
contract dated 24th March, 1987 or with the machine in question.  It is  not
known whether the same agreement culminated  in  the  final  contract  dated
24th March, 1987 or the same was  modified  or  a  new  contract  has  taken
place.  It is settled principle of law of contract that the  document  prior
to formation of contract cannot be taken into account  to  interpret  or  to
understand the contract in question unless it is shown to be a part  of  the
same contract or negotiation.  Therefore, for want of  material  on  record,
the said documents cannot be treated as part of  the  same  contract.   Even
otherwise the time gap between the alleged agreement dated 24th  April  1986
(Exh. G) and contract (dated 24th March, 1987) is such that it was  all  the
mere necessary to  prove  that  the  said  document  was  the  part  of  the
subsequently concluded contract.”

We are in agreement with the view taken by the High Court on merits,  having
regard to the fact that burden of proof was on the  appellant  to  establish
that the machine  imported  by  it  generates  more  than  35,000  composite
impressions or copies per hour.  The appellant has failed to do so.

As a result, the appeal fails and is hereby dismissed with no  order  as  to
costs.

                             .............................................J.
                                                                (A.K. SIKRI)



                             .............................................J.
                                                               (N.V. RAMANA)

NEW DELHI;
AUGUST 12, 2015.

We uphold the 1971 Rules and find that the Respondent State had the these impositions partake of a totally different character, transferring it power to enact these Rules. However, we strike down Rule 15 dealing with the export of rectified spirit, finding that it imposes a tax, not a fee, on the Appellants and is outside the Respondent State’s legislative competence. It has not been conclusively shown by the Respondent State that it has been constrained to monitor or superintend that industrial alcohol is not illegally diverted to other uses within the State. If industrial alcohol is exported outside the State as industrial alcohol, into a tax. These Appeals are disposed of in these terms.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL No. 5020 OF 2005


M/S K.C.P. LTD.                                           … APPELLANT
                                   VERSUS
GOVERNMENT OF A.P. & ORS                            … RESPONDENTS

                                    WITH

                     CIVIL APPEAL NOS.5021-5022 OF 2005


                           J  U  D  G  M  E  N  T



VIKRAMAJIT SEN,J.

1     The Appellants before us assail the  impugned  Judgment  of  the  High
Court of Andhra Pradesh, which had upheld the  legality  of  Andhra  Pradesh
Rectified Spirits Rules, 1971 (1971 Rules for brevity)  and  had  found  the
requirement of obtaining a licence and the payment of Excise duty  and  Pass
fee for exporting rectified spirit to be legal.

2     The Appellants have  distilleries  which  produce  various  grades  of
industrial alcohol from molasses, also known as ethyl  alcohol  or  ethanol.
In exercise of powers conferred under  Section  72  of  the  Andhra  Pradesh
Excise Act, 1968, the Respondent State enacted the 1971 Rules.  Rules 4,  13
and 15 are laid out herein for the facility of reference; although in  these
Appeals it is Rule 15 which is in focus --

Rule 4: Rectified spirit  shall  not  be  issued  from  a  distillery  or  a
warehouse without pre-payment of administrative  fee  meant  for  industrial
purposes. In case of potable purposes, rectified spirit shall not be  issued
from a distillery or a warehouse without pre-payment of Excise  Duty  except
when rectified spirit is moved in bound or when payment of Excise  Duty  has
been exempted.

Rule 13: (1) No person shall be granted license for possession  and  use  of
rectified spirit for industrial purposes unless the applicant:
(a)  deposits as security for the fulfillment of all the conditions  of  his
license such sum as may be fixed by the Government from time to  time  which
shall not be less than Rs. 15,000 in cash in the Government treasury; and
(b) executes an agreement in Form R.S.-V for payment of the  costs,  charges
and expenses including salaries and allowances of such Excise staff  as  may
be determined by the Commissioner  or  his  nominee  to  be  posted  at  the
manufactory of the licensee in connection with  the  supervision  to  ensure
compliance with the provisions of the  Act,  the  rules  and  terms  of  the
license. The staff shall  be  under  the  supervision  and  control  of  the
Commissioner or the Authorised Officer.

Rule 15: (1) No rectified spirit shall be  exported  save  under  an  export
permit and in accordance with these rules.
(2) Any person manufacturing  or  possessing  rectified  spirit  desires  to
export (herein-after referred to as the exporter) it for the purpose of  its
exportation to any area outside the State, shall apply in Form ARS-V to  the
Commissioner for export permit in that behalf. No such application shall  be
entertained unless  rectified  spirit  is  in  surplus  in  the  State.  The
application shall be accompanied by an import  permit,  or  a  no  objection
certificate or an import license issued by  a  competent  authority  of  the
place to which the rectified spirit is to be exported.
      (3) (i) on receipt of  the  application  for  permit  to  export,  the
Commissioner shall make such enquiry  as  he  considers  necessary  and  may
grant in accordance with these rules as export permit,  on  payment  of  the
export permit fee of  Rupees  Ten  per  bulk  litre  in  Form  R.S.  VII  in
triplicate.
(ii) Such permit shall not be granted unless  an  Indemnity  Bond  shall  be
submitted by the Exporter  total  quantity  of  Proof  litres  permitted  to
export, binding himself severally to pay the full  duty  at  Rs.  15-40  per
Proof litre on all losses, by way of drainage, short delivery,  non-delivery
of rectified spirit or otherwise over and above the  admissible  loss  limit
of 0.5% towards transit wastage with interest on all losses in transit.

3      The  Appellants  before  the  High  Court  contended  that  they  had
previously supplied to the Government  a  major  portion  of  the  rectified
spirit which they had produced, which was thereafter used by the  latter  as
raw material for manufacturing  potable  alcohol  and  Indian  Made  Foreign
Liquor (IMFL).  As a consequence of  the  imposition  of  prohibition,  this
demand within the State of Andhra Pradesh was drastically reduced;  and  the
Appellants were left with no alternative but to export  the  said  rectified
spirit to other States.  However, due to the higher power  tariffs,  licence
fees, duties, etc. in Andhra Pradesh, the Appellants could not compete  with
the prices of rectified  spirit  produced  in  some  of  the  other  States,
further leaving them with no alternative but to explore the  possibility  of
exporting their said product to other countries.  In  this  factual  matrix,
the  Appellants  filed  writ  petitions  before  the  High  Court  with  the
following prayer:
“For the reasons stated above it is prayed that this Hon’ble  Court  may  be
pleased to issue a writ or order or direction declaring the A.P.R.S.  Rules,
1971 in so far as they pertain to Rectified  Spirit  (Industrial  Grade)  as
illegal, ultra vires the  Constitution,  null  and  void;  (2)  declare  the
action of the  respondents  in  insisting  upon  the  petitioner  to  obtain
licence, pay excise  duty  and  pass  fee  for  exporting  Rectified  Spirit
(Industrial Grade) as illegal, ultra vires, unconstitutional  and  violative
of the petitioner rights guaranteed under Art. 14, 19(1)(g), 265 and 301  of
the Constitution  of  India  and  consequently  issue  a  writ  of  Mandamus
directing the respondents not to interfere with the export of  R.S.  by  the
petitioners and pass such order or orders as this Hon’ble  Court  deems  fit
and proper.”

The major premise of the  Appellants  is  that  rectified  spirit/industrial
alcohol is outside the purview of the Excise Act; that the  State  can  only
legislate with regard to alcohol which is fit  for  human  consumption;  and
that  since  rectified  spirit  is  not  potable,  it  is  only  the   Union
Government, which is competent to legislate this activity.

4     The High Court, upon a detailed examination of the existing case  law,
found that the State cannot charge Excise duty on alcohol that  is  not  fit
for human consumption but it is entitled to charge a fee on a quid  pro  quo
basis  in  case  it  renders  any  monitoring  service.   Upon   considering
Synthetics & Chemicals Limited vs. State of U.P. (1990) 1 SCC 109, the  High
Court  held    that  where  rectified  spirit  is  removed  or  cleared  for
industrial purposes, the levy of Excise duty and all other controls  are  to
be with the Union, but where the use of rectified  spirit  is  intended  for
the manufacture of potable  alcohol,  State  Governments  are  competent  to
impose  any  levies.   This  calls  for  joint  control,   supervision   and
monitoring over the process of manufacture, use and  disposal  of  rectified
alcohol, which was in fact being carried out by  the  Excise  Department  of
the State Government.  It was thus well  within  the  powers  of  the  State
Government to impose a fee to cover its  expenses.   The  High  Court  noted
that  adding  water  to  rectified  spirit  would  make  it  fit  for  human
consumption, so the responsibility on the State was tremendous  and  onerous
even with  regard  to  liquor  meant  for  industrial  purposes.  The  State
Government was held to be entitled to post its staff at distilleries and  to
levy a reasonable regulatory fee to defray the expenses of such  staff.   No
data was laid down by either party based on which the Court could come to  a
conclusion on whether the fee levied was reasonable or  not.   It  was  held
that the amount levied from the Appellants was in the nature of  a  fee  for
services rendered,  and  not  by  way  of  tax.   The  writ  petitions  were
therefore dismissed.

5     The Appellants have now filed these  Appeals  before  us,  challenging
once again the Constitutional validity of the 1971  Rules  insofar  as  they
are applicable to industrial alcohol, and  in  the  alternative,  contending
that the fee charged does not satisfy the test of  quid  pro  quo.  We  have
contemporaneously considered the circumstances in which  administrative  and
service charges can be recovered  by  a  State  Government  along  with  the
relevant case law in detail in our Judgment  of  even  date  in  the  Appeal
titled as State of Tamil Nadu vs. Tvl. South Indian Sugar Mills,  and  shall
therefore  not  repeat  our  reasoning  herein  in  interest   of   avoiding
prolixity.  We  merely  reiterate  that  while  State  Governments  are  not
competent to impose taxes/levies on  industrial  alcohol,  fee  charged  for
services rendered to prevent the  diversion  and  conversion  of  industrial
alcohol for human consumption is permissible and legal; such  fee  need  not
be charged strictly on quid pro quo basis and it will pass legal  muster  so
long as it is  not  excessive.   We  therefore  find  that  the  1971  Rules
themselves are not illegal, but rather are well within the  purview  of  the
Constitutional  powers  of  the  State  Government.    Rules  such  as   the
administrative fee postulated in Rule 4  (supra)  are  essential  to  defray
expenses incurred by State Governments to prevent the illegal conversion  of
industrial alcohol to potable alcohol.  The quantum of fee  levied  has  not
been challenged either before us or before the High Court and  no  empirical
evidence in this regard is available  in  the  Appeal  records.    We  shall
accordingly desist from commenting on whether the various heads of  fee  are
excessive, thereby metamorphosing them from a fee to a tax.  The  fact  that
the export permit fee was reduced from Rs. 10 to Rs. 3 and finally to Re.  1
per bulk litre indicates that there has been due application of mind by  the
Respondent State in deciding the quantum of fee.

6      In deciding the vires of Rule 15, the discussion  must  consider  the
distinguishing features between a  fee  and  a  tax.   An  analysis  of  the
Judgments of this Court will reveal that, inter alia, a  tax  is  levied  as
part of a common  exaction,  whereas  a  fee  is  payment  towards  services
rendered. Thus a “fee” ostensibly collected to prevent nefarious  activities
such as smuggling and countryside brewing, which have no  causal  connection
with the production of industrial alcohol, would thus  metamorphose  into  a
tax.  It appears to us that that the State  Government  has  not  undertaken
any supervisory activity which would constitute  a  quid  pro  quo  for  the
imposition of the “export permit fee” charged  under  Rule  15(3)(i).    Any
expenses  incurred  on  such  supervisory  or  administrative  activity  has
perforce already been recovered  or  reimbursed  from  fees  on  account  of
storage or sale transactions on industrial alcohol.  These dues paid by  the
Appellants are channelled  towards  preventing  the  illegal  activities  of
unrelated third parties for which the Appellants are in no way  responsible.
 It  is  evident  that  the  intention  behind  this  “fee”  is  to  prevent
manufacturers from exporting industrial  alcohol  to  breweries  of  potable
alcohol in other States that would fetch them a better price than  producers
of other products within their own State.  It is thus clearly,  in  reality,
a tax. Rule 15(2), which holds that export will only be allowed if there  is
a surplus in the State evidences the apprehension of  the  State  Government
that it may run short of industrial alcohol.  This sub-Rule, as well  others
such as Rule 15(1) which imposes the requirement of  an  export  permit  and
Rule 15(3)(ii) which adds the requirement of an  indemnity  bond,  are  also
outside the jurisdiction and powers of State Governments, as  their  purpose
is clearly not  to  prevent  industrial  alcohol  from  being  diverted  and
converted to potable alcohol; their purpose  is  to  regulate,  control  and
discourage the export of industrial alcohol.   The imposition of  a  tax  to
regulate export under its own head is entirely feasible,  if  introduced  by
the competent authority, i.e. the Union Government as held in  Synthetics  &
Chemicals Limited.   However, this is not the scenario before us,  both  for
the want of vires and for the ambiguity behind the intention of  this  Rule.
The Respondent State has given no explanation to justify this Rule, and  has
not shown any service rendered in return.

7     We uphold the 1971 Rules and find that the Respondent  State  had  the
these impositions partake of a totally different character, transferring  it
power to enact these Rules.  However, we strike down Rule  15  dealing  with
the export of rectified spirit, finding that it imposes a tax,  not  a  fee,
on  the  Appellants  and  is  outside  the  Respondent  State’s  legislative
competence.  It has not been conclusively  shown  by  the  Respondent  State
that it has been constrained  to  monitor  or  superintend  that  industrial
alcohol is not illegally diverted  to  other  uses  within  the  State.   If
industrial alcohol is exported outside  the  State  as  industrial  alcohol,
into a tax.   These Appeals are disposed of in these terms.


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




...............................................J.
                                            [SHIVA KIRTI SINGH]
New Delhi;
August 12, 2015.

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.

                                                                  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.

We clarify that there was no justification for the Appellant State or its Excise Department to collect charges at the rate of [pic]1/- after it had been quashed by the learned Single Judge. Keeping in perceptive the absence of diligence by the Respondent Distilleries from seeking timely variations or modification of Orders passed by the Court, we desist from directing that the collection of charges over and above 50 paise per bulk litre should be refunded. 11 However, in view of the concurrent failure of the Appellant State in this litigation, it shall be liable to pay the costs incurred by the

                                                                  REPORTABLE



                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL NOs. 1028-1037 OF 2005


STATE OF TAMIL NADU & ANR.                        …..APPELLANTS

      Versus

TVL. SOUTH INDIAN SUGAR MILLS ASSN.
 & ORS.                                                  …..RESPONDENTS




                           J  U  D  G  M  E  N  T



VIKRAMAJIT SEN, J.


1       The  Appellants  before  us  have  laid  siege  to  the   concurrent
conclusions of the learned Single Judge, as well as the  Division  Bench  of
the High  Court  of  Judicature  at  Madras  in  a  matter  where  the  writ
petitioners, i.e. the Respondents before us, have assailed the  legality  of
a demand of [pic].1/- per bulk litre of industrial alcohol  manufactured  by
them.  Earlier, the Respondents had unsuccessfully assailed  the  impost  of
50 paise per bulk  litre  of  industrial  alcohol  but  that  challenge  was
primarily predicated on the legislative competence of  the  State  of  Tamil
Nadu to make that demand.   In the said writ petitions, the ten  petitioners
therein had prayed for a  declaration  that  Rule  5-A  of  the  Tamil  Nadu
Distillery Rules introduced by G.O.M. No.662  issued  by  Home,  Prohibition
and Excise(III) Department, dated 4.6.1990, and the amendment  to  the  said
Rule brought into effect  by  G.O.M.  No.64,  Home  Prohibition  and  Excise
(XIII) Department,  dated  12.04.2000,  are  unconstitutional,  illegal  and
void.  The learned Single Judge noted that the  decision  of  a  Seven-Judge
Bench of this Court in the case of Synthetics and Chemicals  Ltd.  v.  State
of U.P. (1990) 1 SCC 109; AIR 1990 SC  1927  concluded  the  conundrum.   In
that case it was held that the sundry States of the Union of India  are  not
competent to impose taxes/levies on industrial alcohol or rectified  spirit.
  This Court, however, clarified that the States are empowered  under  Entry
8 of List II of the  Seventh  Schedule  to  the  Constitution  of  India  to
regulate this business and ensure that industrial alcohol  is  not  diverted
as potable alcohol, and in carrying  out  this  exercise,  States  would  be
fully competent to collect administrative/regulating service fee.  The  writ
petitioners’ first foray in the  Writ  Court  did  not  meet  with  success.
Accordingly, the State of Tamil Nadu appears to have collected 50 paise  per
bulk litre towards its administrative fees for almost a decade.

2     By G.O.M. No.64, dated 12.04.2000, Home Prohibition and Excise  (XIII)
Department, the Appellant State Government has amended Rule 5-A and  thereby
increased administrative service  fees  to  [pic].1/-  per  bulk  litre  for
industrial alcohol produced by  the  sundry  distilleries  located  in  that
State.   The stance of the State Government  was  that  administrative  fees
related strictly to the establishment charges occurred in  the  distilleries
themselves together with other expenses incurred by  the  State  to  enforce
the  Regulation.      In  their  second  salvo,  the  Petitioners  have  not
challenged the power of the State to recover administrative fees,  but  have
contended that this exercise  had  to  be  meticulously  calculated  on  the
premise of quid pro quo.   Relying on  Synthetics  and  Chemicals  Ltd.  the
learned Single Judge came to the conclusion that the subject impost was,  in
pith and substance, an endeavour to raise  revenues  for  the  State.    The
Writ Court also applied the ratios of  Shri  Bileshwar  Khand  Udyog  Khedut
Sahakari Mandali  Ltd.  v.  State  of  Gujarat  (1992)  2  SCC  42,  Gujchem
Distillers India Ltd. v. State of  Gujarat,  (1992)  2  SCC  399  and  Bihar
Distillery v. Union of India AIR 1997 SC 1208.   It opined  that  the  State
had the power to comprehensively regulate  and  monitor  the  production  of
industrial alcohol in order to ensure that there was no misuse or  diversion
of this product for its conversion to potable alcohol.  The Writ Court  then
went on to consider the second question,  viz.  whether  the  levy  or  fees
impost must per force be confined and founded on the rule of quid  pro  quo.
  Relying on the decision of this Court in  Sreenivasa  General  Traders  v.
State of Andhra Pradesh (1983) 4 SCC 353, it  was  reiterated  that  by  and
large the principle of quid  pro  quo  governs  the  quantification  of  the
service rendered, but not necessarily with mathematical  exactitude;  it  is
necessary that a reasonable relationship  between  the  collection  and  the
services rendered must be evident.   It was also reiterated  that  the  test
of correlation is to be reckoned at the  aggregate  level  and  not  at  the
individual level as was clarified in P.  M.  Ashwathanarayana  v.  State  of
Karnataka (1989) Supp.1 SCC  696.   In  this  conspectus  of  the  law,  the
learned Single Judge reached the conclusion that  the  State  was  competent
and justified in recovering expenses for ensuring the prevention of  illegal
diversion of industrial alcohol within  the  premises  of  the  distilleries
themselves, as  also  expenses  incurred  for  supervising  the  transit  of
industrial alcohol from the distilleries to the  trader.    The  Writ  Court
then adverted to the decision in Vam Organic Chemicals Ltd. v. State  of  UP
(1997)  2  SCC  715,  as  well  as  Secunderabad  Hyderabad  Hotel   Owners’
Association v. Hyderabad Municipal Corporation (1992) 2  SCC  274.    It  is
important to note that the learned Single  Judge,  after  carrying  out  the
said analysis of the law, pithly observed that the Appellant State  had  not
furnished the relevant and requisite particulars and material  to  establish
that the impost indeed had the character of quid pro quo.  Referring to  the
quantum of recoveries made on the basis of  50  paise  per  bulk  litre  for
almost one decade, it was noted that this  collection  roughly  corresponded
to one-third of the total expenses incurred by the Excise Department,  which
per se was not excessive; and that there can be no cavil that in  regulating
the trade of potable liquor the State is gathering considerable income.   So
far as the increased  demand  of  [pic]1/-  per  bulk  litre  of  industrial
alcohol is concerned, the learned  Single  Judge  concluded  that  it  would
amount to effecting an increase in recovery from 1/3rd  to  2/3rd  of  total
expenses incurred by the Excise Department which, therefore,  ceased  to  be
based on the principle of  quid  pro  quo.   By  this  directive,  the  writ
petitions were dismissed, making it  legal  for  the  State  to  impose  and
collect only 50 paise per bulk litre.  G.O.M.  No.64  Home  Prohibition  and
Excise (XIII) Department dated  12.4.2000  was  quashed.   It  appears  that
despite this ruling the State has coerced the writ petitioners  into  paying
the so called administrative regulatory charges at [pic]1/- per bulk  litre.


3     The Appellant State thereupon assailed the  decision  of  the  learned
Single Judge in W.A. Nos.1566 to 1571  of  2001,  but  in  the  event,  with
continued  failure.   The  Division  Bench  again  analysed   the   numerous
judgments of this Court, the foremost being  of  the  Seven-Judge  Bench  in
Synthetics and Chemicals Ltd., and noted  that  the  State  Governments  are
empowered to levy excise duty or tax  on  alcoholic  liquor  fit  for  human
consumption, but so far as industrial alcohol is concerned,  that  power  is
reposed in the Union Government alone.   However, this does  not  mean  that
the State Government was powerless to regulate the production of  industrial
alcohol so long as that activity was calculated to circumvent the  diversion
of industrial alcohol into potable alcohol.  The  Division  Bench,  however,
noted that Rule 5-A came to be  introduced  as  this  Court  in  Seven-Judge
ruling in Synthetics and Chemicals  Ltd.  had  approved  the  collection  of
administrative  service  fee,  as  indubitably  and   avowedly   the   State
Government through its Excise Department  was  incurring  expenses  for  the
purpose of blocking any attempt to  divert  industrial  alcohol  as  potable
alcohol.  Quite correctly, the Division Bench also posited on  the  strength
of the decision of this Court in Vam Organic Chemicals Ltd. that the  Excise
Department  was  effectively  conducting  recovery  measures  and  was   not
providing corresponding services to these distilleries.  Significantly,  the
Division Bench concluded that the collections made by the State  by  way  of
administrative service fee recovered even at the rate of 50 paise  per  bulk
litre corresponded to approximately 60 per cent of the total expenditure  of
the Excise Department.  The Division Bench was of  the  opinion  that  there
was only an expenditure of  [pic]93.2  lakhs  against  which  there  was  an
estimated collection of administrative  fee  aggregating  [pic]11.73  crores
which collection, therefore, was excessive.   Whilst it  seems  to  us  that
there is no scope for our interference in the  impugned  Judgment,  we  must
hasten to clarify that the charges should not be restricted  only  to  those
establishment expenses incurred by the State in the distilleries  alone,  or
that  any  collection  over  and  above  those  expenses  would  ipso  facto
tantamount to unjust  enrichment.    However,  the  fact  remains  that  the
figures noted by the  Division  Bench  were  [pic]93.20  lakhs  whereas  the
collections even  at  the  rate  of  50  paise  per  bulk  litre  aggregated
[pic]11.73 crore, which since it was not interfered with, would  undoubtedly
cover expenses over and above those  incurred  by  the  State  only  on  its
establishments/office in the respective distilleries.   The  Division  Bench
also underscored the fact that details of expenses incurred by the State  in
connection with the supervision or regulation of  production  of  industrial
alcohol, with a view to ensure that there is no diversion  thereof  for  the
purpose of or reconversion to potable alcohol,  had  not  been  provided  in
this regard.   We are in no manner of doubt  that  the  State  has  woefully
failed to furnish credible details of expenditure which,  according  to  it,
related to administrative or regulatory or service expenses.

4     We do not propose to make this Judgment prolix by once again  minutely
analyzing the several decisions of this Court,  which  have  clarified  that
administrative or service charges can be recovered,  but  nothing  over  and
above them; that  while  it  would  be  unfair  to  insist  on  mathematical
exactitude in the calculation of administrative service charges, there  must
be a perceptible correlation between the expenses and the collections;  that
it will not be permissible for the State  to  collect  fees  in  respect  of
expenses  incurred  in  its  Excise  Department,  except  those  bearing   a
reasonable nexus  with the administrative steps taken to ensure  that  there
is no misutilisation or diversion of industrial alcohol for the purposes  of
producing potable alcohol.  The  extracted  paragraph  from  Synthetics  and
Chemicals Ltd which distills the precedents  on  the  State’s  legislative’s
powers with regard to industrial alcohol, deserves careful consideration:
86. The position  with  regard  to  the  control  of  alcohol  industry  has
undergone material and significant change after the  amendment  of  1956  to
the IDR Act. After the amendment, the State is left with only the  following
powers to legislate in respect of alcohol:
(a)   It may pass any legislation in the nature of prohibition of potable
liquor referable to Entry 6 of List II and regulating powers.
(b)   It may lay down regulations to ensure that non-potable alcohol is  not
diverted and misused as a substitute for potable alcohol.
(c)   The State may charge excise duty on  potable  alcohol  and  sales  tax
under Entry 52  of  List  II.  However,  sales  tax  cannot  be  charged  on
industrial alcohol in the present case,  because  under  the  Ethyl  Alcohol
(Price Control) Orders,  sales  tax  cannot  be  charged  by  the  State  on
industrial alcohol.
(d)   However, in case State is rendering any service, as distinct from  its
claim of so-called grant of privilege, it may charge fees based on quid  pro
quo.



5     Over the years, the inflexibility with which  the  principle  of  quid
pro quo was to be applied,  which  may  have  been  sired  from  a  pedantic
perusal  of  Synthetics  and  Chemicals  Ltd,   has   been   clarified   and
crystallized by this  Court.   We  shall  reproduce  these  paragraphs  from
B.S.E. Brokers’ Forum, Bombay and Others v. Securities  and  Exchange  Board
of  India  and  others,  (2001)  3  SCC  482  to   enable   their   fruitful
consideration:

30. This Court in the case of Sreenivasa General Traders v.  State  of  A.P.
(1983) 4 SCC 353 has taken the view that the distinction between a  tax  and
a fee lies primarily in the fact that a tax is levied as part  of  a  common
burden, while a fee is for  payment  of  a  specific  benefit  or  privilege
although the special  advantage  is  secondary  to  the  primary  motive  of
regulation in public interest. This Court said that in  determining  whether
a levy is a fee  or  not  emphasis  must  be  on  whether  its  primary  and
essential purpose is to render specific services  to  a  specified  area  or
class. In that process if it is found that the  State  ultimately  stood  to
benefit indirectly from such levy, the same is of no  consequence.  It  also
held that there is no generic difference between a tax and a  fee  and  both
are compulsory exactions of money by public authorities.  This  was  on  the
basis of the fact that the compulsion lies in the fact that the  payment  is
enforceable by law against a person in spite of his  unwillingness  or  want
of consent. It also held that a levy does not  cease  to  be  a  fee  merely
because there is an element of compulsion or  coerciveness  present  in  it,
nor is it a postulate of a fee that it must have a direct  relation  to  the
actual service rendered by the authority to each individual who obtains  the
benefit of the service. It also held that the element of  quid  pro  quo  in
the strict sense is not always a sine qua non for a fee,  and  all  that  is
necessary is that there should be  a  reasonable  relationship  between  the
levy of fee and the services rendered. That  judgment  also  held  that  the
earlier  judgment  of  this  Court  in  Kewal  Krishan  Puri  v.  State   of
Punjab(1980) 1 SCC 416 is only an obiter.....
             ......
38. As noticed  in  the  City  Corpn.  of  Calicut  (1983)  2  SCC  112  the
traditional concept of quid pro quo in  a  fee  has  undergone  considerable
transformation. From a conspectus of the ratio of the  above  judgments,  we
find that so far as the regulatory fee  is  concerned,  the  service  to  be
rendered is not a condition  precedent  and  the  same  does  not  lose  the
character of a fee provided the fee so charged is not excessive. It is  also
not necessary that the services to be rendered by the  collecting  authority
should be confined to the contributories alone.  As  held  in  Sirsilk  Ltd.
1989 Supp. (1) SCC 168 if  the  levy  is  for  the  benefit  of  the  entire
industry, there is sufficient quid pro quo between the  levy  recovered  and
services rendered to the industry as a whole. If we apply the test  as  laid
down by this Court in the abovesaid judgments to the facts of  the  case  in
hand, it can be seen that the statute under Section 11 of the  Act  requires
the Board to undertake various activities to regulate the  business  of  the
securities  market  which  requires  constant  and  continuing   supervision
including  investigation  and  instituting  legal  proceedings  against  the
offending  traders,  wherever  necessary.  Such   activities   are   clearly
regulatory activities and the Board is empowered under Section  11(2)(k)  to
charge the required fee for the said purpose, and once it is held  that  the
fee levied is also regulatory in nature then the  requirement  of  quid  pro
quo recedes to the background and the same  need  not  be  confined  to  the
contributories alone.

6     Subsequently, in State of U.P. v. Vam Organic Chemicals Ltd. (2004)  1
SC 225 (commonly referred to as “Vam Organic II’) this important  aspect  of
the law has been further crystallised thus –

34. The word “service” in the context of a fee could, therefore, include,  a
levy for  a  compulsory  measure  undertaken  vis-à-vis  the  payer  in  the
interest of the  public.  This  “coercive”  measure  has  been  subsequently
judicially clarified to mean a “regulatory measure”.  But  in  the  case  of
both  kinds  of  services,  whether  compulsorily  imposed  or   voluntarily
accepted, there would have to be a correlation between the levy imposed  and
the “counterpayment or quid pro quo”. However, correlationship  between  the
levy and the services rendered is  one  of  general  character  and  not  of
mathematical exactitude. All that is necessary is that  there  should  be  a
reasonable “relationship” between levy of the fee and the service  rendered.
Contrariwise when there is  no  such  correlation,  the  levy,  despite  its
nomenclature is in fact a tax. In Corpn. of Calcutta v. Liberty  Cinema  the
licence fee charged under Section 548 of the Calcutta  Municipal  Act,  1951
had been challenged on the ground that no service was rendered  commensurate
with the tax.



7     Considerable reliance was placed by the  learned  Senior  Counsel  for
the Appellant State on the decision of this Court in B.S.E. Brokers’  Forum,
but in our view, without justification.  Indubitably, this Court  held  that
it was not incumbent for collections or contributions to be  recovered  from
only those who were directly involved in  the  subject  transactions,  since
the newly established administrative machinery was necessary for the  smooth
and legal conduct of  the  entire  business  pertaining  to  the  securities
market.   We find this to be self-evident from a perusal of the Preamble  to
the SEBI Act:  “An Act to provide  for  the  establishment  of  a  Board  to
protect the  interests  of  investors  in  securities  and  to  promote  the
development of, and to regulate, the securities market…….”  This  Court  had
held that the SEBI Act postulated and permitted the charging  of  two  types
of fees – (i) under Section 11(2)(k) of the SEBI Act for  carrying  out  the
several and sundry purposes contained  in  Section  11,  and  (ii)  for  the
registration of applicants under Section 12(2).  It was  also  clarified  by
the Court that the said service or regulatory or administrative fee  can  be
levied on all contributors, regardless  of  whether  or  not  services  were
being directly rendered to them.  This decision cannot  be  extrapolated  to
permit the State to make recoveries in the guise of administrative  expenses
of all the outgoings of its Excise  Department  even  though  they  have  no
bearing or connection with the possible misuse and diversion  of  industrial
alcohol to potable alcohol. This Court was  concerned  with  the  imposition
and collection of fees by Securities and Exchange Board of India  (SEBI)  in
order to perform the mandates cast upon it by virtue of Section 11(2)(k)  in
addition to registration charges  under  Section  12(2)  of  the  Act.   The
proceeds of collection under Section 11(2)(k) could legitimately  meet  both
capital expenditure and costs of services.   This Court also  found  on  the
strength of  evidence  before  it  that  the  bulwark  (50%)  of  its  total
expenditure would be towards broker-related services, apart from  protecting
the interests of  the  investors,  regulating  the  acquisition  of  shares,
taking over of companies and undertaking inspections  and  audits  of  stock
exchanges, mutual funds,  insider  trading,  etc.   Most  importantly,  this
Court accepted the contention of SEBI that it had no other source of  income
other than that derived under Sections 11(2)(k) and 12.  Transactions had  a
direct bearing on  the  regulatory  expenses  of  the  Board.   Hence,  this
classification had a direct nexus with  the  object  to  be  achieved.   The
Preamble to the SEBI Act emblazons that its purpose is to  provide  for  the
establishment of a Board to  protect  the  interests  of  the  investors  in
securities  and  to  promote  the  development  of,  and  to  regulate,  the
securities market. It further noted that  stock-brokers  formed  a  distinct
class.



8     We may also, with short shrift, reject  an  argument  put  forward  on
behalf of one of the Respondents, namely,  Tvl.  Chemplast  Sanmar  Limited,
that its production of industrial alcohol was entirely captive for  its  own
activity of manufacture of PVC.   Even assuming this  to  be  so,  there  is
always a brooding and omnipresent possibility  of  diversion  of  industrial
alcohol to potable alcohol.

9     It seems to us, facially, that if administrative  or  service  charges
are sought to  be  recovered  from  the  Respondent  Distilleries  to  cover
nefarious activities carried out by third  parties  such  as  smuggling  and
countryside  brewing  etc.  which  have  no  causal  connection   with   the
production of industrial alcohol, or for collection of  excise  duties  from
other  industries  carrying   out   distinctly   different   production   or
manufacture, the fee would metamorphose into  a  tax.   We  must  hasten  to
explicate that the illegal or  illicit  diversion  of  industrial  or  ethyl
alcohol is possible at the stage where it is rectified spirit or  industrial
alcohol, contrary to the argument of the Respondents.   Therefore,  so  long
as  expenses  are  incurred  by  the  State  Government  in  ensuring   that
industrial alcohol is not used as potable alcohol,  recovery  thereof  shall
be  permissible.    The  Process  Chart  submitted  by  the   Appellant   is
reproduced for the facility of clarification:








     +













                                    Fermen-
                      +                                    tation







  +










10    A fervent prayer had been made by the Respondents before  us  that  in
the event of our preferring the view that the Appeals are  sans  merit,  the
collection of administrative/service charges at the  rate  of  [pic]1/-  per
bulk litre should be refunded along with interest.  On  the  first  date  of
hearing, this Court had directed maintenance of status quo  and  this  being
the position, no party can be made to suffer.   It is  apposite  to  observe
that the  Respondent  Distilleries  did  not  express  any  discomfiture  on
collection of fee at the rate of [pic]1/- per bulk litre either before  this
Court or any of the subordinate courts.  In fact, there was a hiatus in  the
litigation even in the  High  Court  where  collections  were  made  at  the
increased rate even though that was quashed by the High Court.   We  clarify
that there was no justification  for  the  Appellant  State  or  its  Excise
Department to collect charges at the rate of  [pic]1/-  after  it  had  been
quashed by the learned Single Judge.   Keeping in perceptive the absence  of
diligence by the Respondent Distilleries from seeking timely  variations  or
modification of Orders passed by the Court, we desist  from  directing  that
the collection of charges over and above 50 paise per bulk litre  should  be
refunded.

11    However, in view of the concurrent failure of the Appellant  State  in
this litigation, it shall be  liable  to  pay  the  costs  incurred  by  the
Respondents in the litigation,  not  only  before  the  High  Court  but  in
present Appeals as well.    The Appeals are accordingly dismissed.



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




..............................................J.
                                      [SHIVA KIRTI SINGH]
New Delhi;
August 12, 2015

-----------------------
                                  MOLASSES
                     (may contain about 35 to 55% Sugar)

                       Fermented Wash (8% of Alcohol)


                                YEAST CULTURE


                                  MOLASSES
                            (10% Sugar Solution)


                                    WATER

                              Rectified Spirit/
                             Industrial Alcohol
                        (95% Ethyl Alcohol or Ethanol)

                            Country Spirit/Liquor


                                    WATER

     Denatured Spirit for Industrial purposes (90-95% of Ethyl Alcohol)
              (commonly denatured with Methanol and/or Pyridine

     Neural Spirit for Potable purposes – IMFS (94-96% of Ethyl Alcohol)


-----------------------
17

Sale set aside = Official Liquidator - Prima facie, it appears that the objections raised by the appellant were not properly considered inasmuch as the objections were not heard on merit and the auction sale was confirmed. Shri Sharad Sharma, Advocate, had made the aforesaid statement before the Company Court on 28.5.2004, however, he had never been engaged either by Mr. Rajiv Gosain or by any person authorized by him. Therefore, making statement by the Advocate that he has no instruction or waiving the disposal of objection on merit, was without any basis which ought to have been considered by the High Court.Be that as it may, the conduct of the Official Liquidator in selling the property at a price of Rs. 45.45 lakhs without proper publicity through advertisement or fixing any reserve price for the assets cannot be sustained in law, particularly, when the predecessor Official Liquidator reported that the property put in auction is of much higher valuation. Having considered the illegality and irregularity committed in the auction sale of the property, the entire process is vitiated. Further we are of the view that the Company Judge also failed to exercise its judicial discretion to see that the properties are sold at a reasonable price.Apart from that, when the valuation report was submitted before the Company Judge, it ought to have been disclosed the secured creditors and other interested persons in order to ascertain the market value of the property before property was auction sold. Since the same has not been done, the auction sale and the order confirming the sale are liable to be set aside.We, therefore, allow these appeals and set aside the judgment and order passed by the Company Judge and also the order passed by the High Court in appeal. Consequently the Official Liquidator is directed to forthwith recover the possession of the properties and proceed with a fresh auction after obtaining the fresh valuation report and fixing the reserve bid. Needless to say that all further actions shall be taken in accordance with the procedure established by law.

                                                                  REPORTABLE

                          IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL Nos. 6055-6056 OF 2015
            (Arising out of SLP (Civil) Nos. 27113-27114 of 2013)

M/s. Tech Invest India (Pvt.) Ltd.
Thr. Major Shareholder Rajiv Gosain                 …..Appellant

                                   versus

M/s. Assam Power & Electricals Ltd.
and others                                                ..Respondents


                                  JUDGMENT

M. Y. EQBAL, J.



      Leave granted.




   These appeals by special leave are directed against the  judgments  dated
25.09.2012 and 16.07.2012 of the High  Court  of  Uttarakhand  at  Nainital,
which dismissed the appeal and review application  filed  by  the  appellant
company challenging the order confirming  the  sale  and  handing  over  the
assets of the appellant-company to the respondent.





The facts of the case lie in a narrow compass.  The  respondent  no.  1  had
sent a statutory notice under Section 434 of the  Companies  Act,  1956  and
filed a winding up petition against the appellant-company alleging that  the
appellant-company had taken a loan of Rs. 6 lakhs from respondent no.  1  on
23rd March, 1999 and promised to repay it within 30 days with 18%  interest.
The appellant-company was alleged to have, however,  initiated  measures  to
shut down its operations and sell its assets and issued closure  notices  in
May, 1999 without repaying the dues to the respondent.




The Company Judge appointed an Official Liquidator  on  14.10.1999  and  the
possession of the assets of the appellant-company  was  taken  over  by  the
Official Liquidator who was also granted permission to assess the  valuation
in terms of  order  dated  23.02.2000.  The  Official  Liquidator  filed  an
application for selling  the  assets  of  the  appellant-company  through  a
public auction and it was allowed on 11.08.2003. The public auction  was  to
be held on 29.09.2003.




The appellant-company filed an  application  to  stay  the  auction  on  the
ground that its assets worth  Rs.  7  crores  were  going  to  be  auctioned
without fixing the minimum reserve price and after issuing the auction  sale
notice only once. The appellant  accordingly  expressed  apprehension  about
the  highest  price  being  secured.  The  Company  Judge  disposed  of  the
application vide order dated  26.09.2003  refusing  to  interfere  with  the
auction  and  directed  the  appellant-company  to   raise   the   aforesaid
objections at the time of confirmation of sale.





In the auction, respondent no. 3 purchased  the  assets  of  the  appellant-
company for Rs. 45.55 lakhs and deposited 10%  of  the  consideration.  Vide
order dated 28.05.2004,  respondent  no.  3  was  directed  to  deposit  the
remaining amount  after  it  was  noted  that  the  counsel  for  the  major
shareholders  in  the  appellant-company  had  no  objection.   Noting  that
respondent no. 3 had deposited the said amount  as  directed,  the  sale  in
favour of respondent no. 3 was confirmed and possession  of  the  assets  of
the company was directed to be given vide order dated 30.06.2004.




Rajiv Gosain, a shareholder in the appellant-company, filed  an  application
for rejecting the auction sale and  for  re-auction.  It  was  alleged  that
respondent no. 1 and the Official Liquidator had appointed  S.  K.  Ahuja  &
Associates who had inspected the assets of the appellant-company and  valued
the assets to be worth Rs. 6.25 crores. The  same  was  said  to  have  been
communicated to the petitioner vide letter dated 15.05.2000 and  it  was  in
turn said  to  have  been  communicated  by  the  appellant-company  to  the
Official Liquidator vide letter dated 26.06.2003.  The  Official  Liquidator
was, however, alleged to have not informed the High Court of  the  valuation
by S. K. Ahuja  and  Associates  and  consequently  secured  permission  for
valuation on 23.02.2000  pursuant  to  which  the  Official  Liquidator  was
alleged to  have  illegally  and  with  mala  fide  intention  appointed  an
ineligible valuer, Mr. S. B. Bhargava, to value the assets of the appellant-
company. Mr. S. B. Bhargava was alleged to have  drastically  and  illegally
reduced the value of the assets of the appellant-company to Rs. 76.80  lakhs
and his report was submitted to the High Court by the  Official  Liquidator.
The same was alleged to have led to the issuance  of  an  erroneous  auction
notice which did not mention minimum reserve  price  and  many  other  vital
details and which notice only came  to  the  knowledge  of  a  very  limited
number of individuals. The auction was further challenged on the  ground  of
procedural irregularity.





One Advocate Mr. Sharad Sharma appeared before the High Court on  13.04.2004
claiming to represent the shareholders  of  the  appellant-company  and  the
matter was listed for filing of objections by  him  and  on  30.04.2004  one
last opportunity was given to him for filing of objections.





On 28.05.2004, the High Court, after noting that  the  counsel  representing
the shareholders  of  the  appellant-company  had  no  objections,  directed
respondent no. 3 to deposit the remaining amount. On  30.06.2004,  the  High
Court confirmed the sale in favour of respondent no. 3  and  the  assets  of
the appellant-company were directed to be given to respondent no. 3.




The appellant-company filed an appeal to the  Division  Bench  of  the  High
Court contending that its assets were worth much  more  than  the  price  at
which it was sold and that its objections were not considered  at  the  time
of confirmation of sale.  The  Division  Bench  dismissed  the  appeal  vide
judgment dated 16.07.2012 on the ground that the counsel for the  appellant-
company had not made any objections at the time the sale was confirmed.




The appellant-company filed a review application alleging that  the  counsel
who claimed to be representing  the  appellant-company  before  the  Company
Judge on 28th May, 2004 was not engaged by  them  and  hence  there  was  an
error on the face of judgment dated 16.07.2012 which had made  recorded  the
same. The High Court, however, held that such a statement  in  the  judgment
dated 16.07.2012 was a mere repetition of  what  was  stated  in  the  order
dated 28.05.2004 of the Company Judge and hence an error,  if  any,  was  in
the order dated 28.05.2004 which was  appealed  against  by  the  appellant-
company. The High Court held that the appeal filed by the  appellant-company
was dismissed mainly because the sale was confirmed in favour of  respondent
no. 3, possession handed over and encumbrances  created,  before  any  steps
were taken by the appellant-company. The High  Court  accordingly  dismissed
the review application vide judgment dated 25.09.2012.




Hence, the present appeals.




We have heard learned counsel for the parties.  We  have  also  perused  the
entire facts of the case and the order passed by the High Court.




Prima facie, it appears that the objections raised  by  the  appellant  were
not properly considered inasmuch as the objections were not heard  on  merit
and the auction sale was confirmed.  Shri Sharad Sharma, Advocate, had  made
the aforesaid statement before the Company Court on 28.5.2004,  however,  he
had never been  engaged  either  by  Mr.  Rajiv  Gosain  or  by  any  person
authorized by him.  Therefore, making statement by the Advocate that he  has
no instruction or waiving the disposal of objection on  merit,  was  without
any basis which ought to have been considered by the High Court.




Be that as it may, the conduct of the Official  Liquidator  in  selling  the
property at a price of Rs. 45.45  lakhs  without  proper  publicity  through
advertisement  or  fixing  any  reserve  price  for  the  assets  cannot  be
sustained in law, particularly, when  the  predecessor  Official  Liquidator
reported that the property put in auction is of much higher valuation.




Having considered the illegality and irregularity committed in  the  auction
sale of the property, the entire process is vitiated. Further we are of  the
view that the Company Judge also failed to exercise its judicial  discretion
to see that the properties are sold at a reasonable price.




Apart from that, when the valuation report was submitted before the  Company
Judge, it ought to have been  disclosed  the  secured  creditors  and  other
interested persons in order to ascertain the market value  of  the  property
before property was auction sold.   Since the same has not  been  done,  the
auction sale and the order confirming the sale are liable to be set aside.





We, therefore, allow these appeals and set  aside  the  judgment  and  order
passed by the Company Judge and also the order passed by the High  Court  in
appeal. Consequently  the  Official  Liquidator  is  directed  to  forthwith
recover the possession of the properties and proceed with  a  fresh  auction
after obtaining the fresh valuation  report  and  fixing  the  reserve  bid.
Needless to say that all further actions shall be taken in  accordance  with
the procedure established by law.


                               …………………………….J.
    (M.Y. Eqbal)



                                 …………………………….J.
    (Arun Mishra)
New Delhi
August 11, 2015
ITEM NO.1A               COURT NO.10               SECTION X
(For Judgment)
               S U P R E M E  C O U R T  O F  I N D I A
                       RECORD OF PROCEEDINGS
Civil Appeal Nos. 6055-6056 of 2015 @ Petition(s) for Special Leave to
Appeal (C)  No(s).  27113-27114/2013

M/S TECH INVEST INDIA PVT. LTD. THROUGH MAJOR
SHAREHOLDER RAJIV GOSAIN                             Petitioner(s)
                                VERSUS

ASSAM POWER AND ELECTRICALS LTD & ORS.         Respondent(s)

Date : 11/08/2015 These petitions were called on for pronouncement of
judgment today.

For Petitioner(s)
                     Mrs. Priya Puri,Adv.
                        Mr. Ranjay Kr. Dubey, Adv.
For Respondent(s)
                     Mr. M. T. George,Adv.

                     Mr. Ravindra Kumar,Adv.

                     Mr. Subhash Chandra Jain,Adv.

                     Mr. M. C. Dhingra,Adv.

                     Mr. Rajinder Mathur,Adv.

                     Mr. Subhash Chandra Jain,Adv.

            Hon'ble Mr. Justice M.Y. Eqbal pronounced the  judgment  of  the
Bench comprising His Lordship and Hon'ble Mr. Justice Arun Mishra.
            Leave granted.
            The appeals are  allowed  in  terms  of  the  signed  reportable
judgment.

 [INDU POKHRIYAL]                       [SUKHBIR PAUL KAUR]
  COURT MASTER                       A.R.-CUM-P.S.
      (Signed reportable judgment is placed on the file)