R.P. Sharma v. State of U.P., 2004 SCC OnLine All 159

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2004 SCC OnLine All 159 : (2004) 5 AWC 4318
Allahabad High Court

(BEFORE M. KATJU AND POONAM SRIVASTAVA, JJ.)
R.P. Sharma
Versus
State of U.P. and others
C.M.W.P. No. 1027 of 1999
Decided on February 12, 2004
The Judgment of the Court was delivered by
M. KATJU, J.:— Heard learned counsel for the parties.
2. This writ petition has been filed making four prayers. The petitioner has only
pressed to relief Nos. (ii) and (iv) in the petition. Prayer Nos. (ii) and (iv) read as
under:
“(ii) A writ, order or direction in the nature of certiorari quashing the levy of licence
fee at the rate of 15% ad valorem by means of Notification No. 1327, dated
25.5.1999 known as U.P. Licences for the Possession of Denatured Spirit and
Specially Denatured Spirit (Fourth Amendment) Rules, 1999 (Annexure-2 to the
writ petition).
(iv) A writ, order or direction in the nature of mandamus commanding the
respondents to refund the licence fee Illegally collected from the petitioner during
the last 3 years beginning
Page: 4319
from the date of filing of this writ petition along with interest at the rate of 12% per
annum till the date of refund.”
3. The petitioner holds a licence in Form FL 41 granted under the provisions of the
U.P. Excise Act, 1910 and the rules framed thereunder. A true copy of the form is
Annexure-1 to the petition. The petitioner is aggrieved by levy of licence fee on the
sale of specially denatured spirit to licensees holding licence in Form FL-41 at the rate
of 15% ad valorem on the sale made by a distillery/wholesale vendor to FL-41 licences
under the provisions of the U.P. Licences for the Possession of Denatured Spirit and
Specially Denatured Spirit Rules, 1976 as amended from time to time. The rules were
amended by notification dated 25.5.1999 called U.P. Licences for the Possession of
Denatured Spirit and Specially Denatured Spirit (Fourth Amendment) Rules, 1999
which was published in the U.P. Gazette on 25.5.1999. A true copy of the 1976 Rules
is Annexure-3 and a true copy of the Amended Rules of 1999 is Annexure-2 to the
petition. It is alleged in para 4 of the petition that the licence fee on FL-41 licence is
neither regulatory nor compensatory fee because no services are rendered to the
licensee nor it can be justified as a regulatory fee. Denatured spirit has been defined in
Section 3(9) of the U.P. Excise Act, 1910 as follows:
“denatured” means rendered unfit for human consumption in such manner as may
be prescribed by the State Government by notification in this behalf when it is
proved that any sprit contains any quantity of any substance prescribed by the
State Government for the purpose of denaturation the Court may presume that
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such spirits contains or has been derived from denatured spirit.”

4. It is alleged in para 9 of the petition that denatured and specially denatured
spirit are industrial alcohol and are unfit for human consumption and hence are
excluded from the definition of potable liquor.
5. Learned counsel for the petitioner has relied on the recent Supreme Court
decision in State of U.P. v. Vam Organic Chemicals Lid., JT 2003 (8) SC 1, and has
submitted that the petitioner's case is squarely covered by the aforesaid decision.
6. A counter-affidavit has been filed by the respondents and we have perused the
same. In para 3(vi) of the counter-affidavit it is stated that the licence fee is charged
in order either to defray the cases of administering the local regulations or to increase
the general funds of the province or for both the purposes. The provision for
Imposition of licence fee does not necessarily lead to the conclusion in that the fee
must be for the service rendered.
7. Thus, the contention of the respondent is that he impugned licence fee is
charged for administering the local regulation and to Increase the general fund or for
both the purposes.
8. In our opinion the stand of the respondents is not tenable. As held by the
Supreme Court in State of U.P. v. Vam Organic Chemicals Ltd. (supra) denatured spirit
is outside the seisin of the State Legislature. Under the constitutional scheme the
State Legislature has jurisdiction over only potable alcohol.
9. It may be mentioned that when alcohol is first produced it is called ethyl alcohol
or rectified spirit which contains about 95% alcohol, and hence is unfit for human
consumption. However, by diluting rectified spirit with water the liquid can become fit
for human consumption after a certain stage of dilution. If, however, certain chemicals
called denaturants are put into the rectified spirit then even by adding water into it, it
will remain a toxic substance and will not be fit for human consumption.
10. According to the constitutional Scheme, the State Legislature can legislate on
potable alcohol but not on alcohol which is unfit for human consumption. Rectified
spirit by itself is unfit for human consumption since
Page: 4320
its alcoholic level is very high. However, by the mere process of adding water into it, it
can be made fit for human consumption. Rectified spirit, being unfit for human
consumption, is not within the scope of the legislative powers of the State Legislature.
Once, however, water is put into it in sufficient quantity to make it fit for human
consumption, it comes within the legislative competence of the State Legislature.
However, where denaturants are added to rectified spirit it becomes denatured or
specially denatured spirit and becomes unfit for human consumption as it becomes
toxic. Hence denatured and specially denatured spirit are outside the scope of
legislative power of the State Legislature, as held in the 2nd Vam Organic case
(supra).
11. No doubt regulations can be framed, and a regulatory fee can be charged, to
ensure that rectified spirit is not surreptitiously diverted for human consumption. It is
obvious that the State Government has an interest in realising the excise duty on
potable liquor and hence it can frame regulations to ensure that its revenue is not lost
by surreptitious diversion of rectified spirit to use for human consumption, and for that
purpose the State can levy and realise regulatory fees as it will have to maintain staff
and incur other expenses, but even here there must be a broad co-relation between
the fee realised and the regulatory expenses incurred, as held in the 2nd Vam Organic
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case (supra).
12. In the present case it is not the case of the respondents that the fee in question
is being charged for ensuring that the rectified spirit is not diverted and used for
human consumption. The fee is being charged for sale/purchase of denatured spirit.
13. In our opinion this is clearly illegal as held in State of U.P. v. Vam Organic case
(supra).
14. In para 3(9) of the counter-affidavit it has been alleged that the Excise
Department has to ensure that the denatured spirit is not renatured and made fit for
human consumption. This aspect has also been dealt with by the Supreme Court in
State of U.P. v. Vam Organic Chemical case (supra).
15. In para 42 of the Supreme Court, the Supreme Court has observed:
“Assuming that de-natured spirit may by whatever process be re-natured, (a
proposition which is seriously disputed by the respondents) and then converted into
potable liquor this would not give the State the power to regulate it.”
16. Thus, the impugned licence fee was wholly illegal.
17. A similar view has been taken by the Division Bench of this Court in Bindal Agro
Chemicals Ltd. v. State of U.P.. Writ Petition No. 640 of 1990, decided on 10.2.2004.
18. For the reasons given above this petition is allowed. The impugned licence fee
is declared illegal. The impugned rule imposing the said fee is also declared to be
illegal. The respondents are directed to refund the fee collected from the petitioner
along with interest at 10% per annum from the date of realisation/deposit till the date
of refund and the entire payment must be paid to the petitioner within two months of
production of certified copy of the judgment before the respondent No. 2.
19. We may mention that we are passing the direction for interest since interest is
the normal accretion on capital.
20. Often there is a misconception about interest. Interest is not a penalty or
punishment at all.
21. For instance, if A had to pay a certain sum of money to B at a particular time,
but he pays it after delay of several years, the result will be that the money remained
with A and he would have earned interest thereon by investing it somewhere. Had he
paid that amount at the time when it was payable then B would have invested it
somewhere and earned interest thereon.
22. Hence if a person has illegally retained some
Page: 4321
amount of money then he should ordinarily be directed to pay not only the principal
amount but also the interest earned thereon.
23. Money doubles every six years (because of compound interest). Rs. hundred in
the year 1990 would become Rs. two hundred in the year 1996 and it will become Rs.
400 in the year 2002. Hence if A had to pay B a sum of rupees 100 in the year 1990
and he pays that amount only in the year 2002, the result will be that A has pocketed
Rs. 300 with himself. This clearly cannot be justified because had he paid that amount
to B in the year 1990 B would be having Rs. 400 in the year 2002 instead of having
only Rs. 100. Hence ordinarily interest should always be awarded whenever any
amount is detained by someone, otherwise the person receiving the amount after
considerable delay Would be losing the entire interest thereon, which will be pocketed
by the person who managed the delay. It is for this reason that we have ordered for
payment of interest along with the amount realised as licence fee.
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R.P. Sharma v. State of U.P., 2004 SCC OnLine All 159

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SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 1 Sunday, March 31, 2024

2004 SCC OnLine All 159 : (2004) 5 AWC 4318

Allahabad High Court

such spirits contains or has been derived from denatured spirit.”

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