STATE OF U.P. AND ORS. versus VAM ORGANIC CHEMICALS LTD. AND ORS.

Citation: [2003] SUPP. 4 S.C.R. 957 · Decided: 17-10-2003 · Supreme Court of India · Bench: RUMA PAL · Disposal: Dismissed

Judgment (excerpt)

STATE OF U.P. AND ORS. 
v. 
V AM ORGANIC CHEMICALS LTD. AND ORS. 
OCTOBER 17, 2003 
[RUMA PAL AND B.N. SRIKRISHNA, JJ.] 
U.P. licences for the Possession of Denatured Spirit and Specially 
Denatured Spirit Rules, 1978: Rule 3(a). 
A 
B 
Industrial alcohol-Specially Denatured Spirit (SDS)-Dcence fee- C 
Levy of-High Court quashed notification imposing licence fee on SDS~ 
Correctness of-Held: Once industrial alcohol was denatured its conversion 
into potable liquor became impossible-Hence, no licence fee /eviable on 
such industrial alcohol-Moreover, no correlation existed between the fee 
levied and the cost of additional regulatory measures-Such licence fee 
only a tax in the garb of a fee-U.P. Excise Act, 1910. 
D 
Constitution of India, 1950 : 
Article 265-Tax and fee-Distinction between-Explained. 
The respondents filed writ petitions in the High Court challenging E 
a notification under Rule 3(a) of the U.P. Licences for the Possession 
of Denatured Spirit and Specially Denatured Spirit Rules, 1978 whereby 
a licence fee was sought to be imposed on the quantity of Specially 
Denatured Spirit (SDS) i.e. denatured industrial alcohol obtained from 
the distilleries of the respondents. High Court allowed the writ F 
petitions. Hence the appeal. 
On behalf of the appellant, it was contended that it had the power 
to impose the fee in exercise of its regulatory powers since it was 
necessary to see that the denatured spirit was not re-natured into G 
potable alcohol; that unless the State took steps to prevent diversion 
of denatured spirit, heavy loss would be caused to the exchequer of the 
Government and that it would amount to a health hazard if lhe re-
natured spirit was consumed. 
On behalf of the respondents, it was contended that the State H 
957 
958 
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R. 
A legislature did not have the legislative competence to legislate on 
denatured spirit; that the fee was in the nature of tax and that it was 
excessive. 
Dismissing the appeal, the Court 
B 
HELD : 1.1. The State Government is competent to levy fee for 
the purpose of ensuring that industrial alcohol is not surreptitiously 
converted into potable alcohol so that the State is deprived of revenue 
on the sale of such potable alcohol and the public is protected from 
consuming such illicit liquor. But this power stops with the denaturation 
C of the industrial alcohol. Assuming that denatured spirit may by 
whatever process be re-natured and then converted into potable liquor 
this would not give the State the power to regulate it. [975-E-F-G) 
Varn Organic Chemicals Ltd. v. State of UP., [1997) 2 SCC 715, 
D relied on. 
Bihar Distillery v. Union of India, [1997) 2 SCC 727; Deccan Sugar 
& Abkari Co. Ltd. v. Commissioner of Excise, [1998) 3 SCC 272, 
Synthetics and Chemicals Ltd. v. State of UP., [1990) 1 SCC 109 and State 
E of UP. v. Modi Distillery, [1995) 5 sec 753, referred to. 
1.2~ The fee is required to be justified with reference to the cost 
of regulation of denatured spirit. The industry is already paying a fee 
under Rule 2 of the U.P. Licences for the Possession of Denatured 
F Spirit and Specially Denatured Spirit Rules,·1978 for such regulation. 
Indeed the justification for levying the fee under Rule 3(a) is the 
identical justification given by the state for levying the fee under Rule 
2. Presumably, a full complement of Excise Officers and staff are 
appointed by the State in the Excise Department to carry out their 
duties under the U.P. Excise Act, 1910 to oversee, control and keep 
G duty oli the various kinds of intoxicants under the Act. It is assumed 
that apart from the normal strength, additional officers and staff were 
appointed to regulate the denaturation of the industrial alcohol. There 
is nothing to show that there has been any deployment of any 
additional staff to oversee the possibility of renaturation of the 
H denatured spirit. [976-A-B-C-D) 
STATE v. VAM ORGANIC CHEMICALS LTD. 
959 
2. The State has not produced any material to show that it was A 
incurring any additional cost for any further regulation of denatured 
spirit. In the absence of any such correlation the fee under Rule 3(a) is 
not a fee at all levied for the purpose of additional regulation or for any 
service rendered but is really a tax in the garb of a fee. [976-E-F, G-H] 
Anil Kumar Neotia v. Union of India, [1998] 2 SCC 587, referred 
to. 
3. The word 'service' in the context of a fee could include a levy 
for a

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