ALCO CHEMICAL LTD Vs. STATE OF UTTAR PRADESH

JUDGEMENT

(1.) THIS group of writ petitions is by distillers manufacturing Indian made foreign liquor under a licence granted to them in Form P.D. 1. The petitioners are exercised over the levy and demand of licence fee imposed under the U. P. Excise (Establishment of Distilleries) (First Amend ment) Rules, 1974, which came into force on 4th June, 1974. THIS notification amended rule 703 of the Excise Rules. Sub-rule (1) of this rule provides that no spirit shall be manufactured and no person shall use, keep or have in his posession any material, still implement an apparatus whatsoever, for the purpose of manufacturing spirit except under the authority and subject to terms and conditions of licence granted by the Excise Commissioner in Form P.D. 1 or P.D. 2. A licence to work a distillery in premises owned by the Government shall be granted in Form P.D.I, whereas a licence to work .I distillery in a premises owned by any person other than the Government shall be granted in Form P.D. 2. Sub-rule (4) of rule 703 further provides that no licence in Form P.D. 1 or P.D. 2 shall be granted until the applicant has :- "(a) satisfied the Excise Commissioner that the proposed building, vessels, plant and apparatus to be used in connection with the manufacture of spirit and its storage and issue are strictly in accordance with the rules made in this behalf and are in conformity with the plans submitted by the applicant and further that due precaution has been taken against fire ; (b) Deposited security as required by rule 4, and (c) Deposited the following licence fee in advance for the year or part thereof for which the licence is granted. For distilleries having an yearly installed production capacity of 1,000 kilolitres or less, a licence fee at the rate of Rs.3 (rupees three only) per kilolitre of installed production capacity shall be payable but in no case this fee shall be less than Rs.2,000/(Rupees two thousand) and for the distilleries having an yearly installed production capacity of over 1,000 kilolitres, a licence fee at the rate of Rs.2.50 paise (Rupees two and fifty paise only) per kilo/litre of installed production capacity shall be payable subject to a minimum of Rs.4.000/- (Rupees four thousand only)." Mr. Suri, learned counsel for the petitioners, submitted that the levy of fee was relatable to the manufacturing capacity of the distiller. It was hence a levy on the event of manufacture of spirits and was therefore, levy of duty of excise, which was unauthorised. The labelling of this levy as licence fee was illegal. We are unable to agree. In A. B. Abdul Kadir v. State of Kerala, A.I.R. 1967 S.C. 182 it was ruled that it is essential that the levy of excise duty should be linked with the production or manufacture of the excisable article. Where, however, the levy imposed has no nexus with the manufacture or production of an article, the impost or tax cannot be regarded to be one in the nature of excise duty. In that case the charging section created a liability for payment of luxury tax on the stocking and vending of tobacco. There was no provision which was concern ed with production or manufacture of tobacco, or which linked the tax with the production or manufacture of tobacco. The levy of tax was not held to be in the nature of excise duty. In the present case the levy of fee is to enable a person to establish a distillery. The fee is chargeable for permission to establish the manufacturing unit. It is payable in advance. It is not at all linked with the event of manufacture. Even if a person, after establishing the distillery, does not manufacture, he is not exempt from paying licence fee. The licence fee has no nexus with the quantity actually manufactured in a year. The fee has been fixed at a slab scale. Distilleries having an installed production capacity of less than 1000 kilo/litres have one rate, while those having an installed production capacity of more than 1000 kilo/litres have another rate. It is because of this variable system of prescribing the fee that the criteria of installed production capacity was employed. Under rule 703 the taxable event is the intention to run a distillery, and not the actual manufacture or production. We are hence unable to accept the submission that the licence fee prescribed by rule 703 is in essence or in law a duty of excise. Accordingly each of the writ petitions in this group fails and is dismissed with costs.