2005 Supreme(SC) 65

2005(1) Supreme 297
Supreme Court of India
(From Patna High Court)
S.N. Variava, Dr. AR. Lakshmanan and S.H. Kapadia, JJ.
State of Bihar and Ors. —Appellants
versus
Shree Baidyanath Ayurved Bhawan (P) Ltd. and Ors. —Respondents
Civil Appeal Nos. 1543-1547 of 1999
Decided on 11-1-2005
Counsel for the Parties :
For the Appellants : Dinesh Dwivedi, Sr. Advocate,­ Kumar Rajesh Singh, Rajnish Prasad, Advocate for B.B. Singh, Advocate.­
For the Respondent Nos. 2 & 4 : V.A. Mohta, Sr. Advocate, A.K. Sanghi, Neelkanth Nayak, Ms. Gauri Gupta, Advocates.
For the Respondent No.1 : Vivek Sood, Advocate for R.P. Wadhwani, Advocate.

Important point The Bihar Legislature was competent in redefining the word ‘intoxicant’ in Section 2(12a) of the Bihar Excise Act, 1915 by including therein ‘medicinal and toilet preparations’ containing alcohol by Bihar Amending Act No. 6 of 1985.

Headnote:Constitution of India—Articles 245, 246, 254 Entry 84, List I and Entries 6 and 8 of List II, Seventh Schedule—Bihar Excise Act, 1915—Section 2(12a)—Medicinal and Toilet Preparations (Excise Duties) Act, 1955—Validity and constitutionality of Section 2(12a)(iv) (as amended) challenged—Main ground of challenge that State Legislature had no competence to levy duty on manufacture of medicinal and toilet preparations containing alcohol under the Bihar Act after enactment of the Medicinal Act—State Legislature redefining the word ‘intoxicant’ in Section 2(12a) of the Bihar Act by including therein ‘medicinal and toilet preparations’ containing alcohol by Bihar Amending Act No. 6 of 1985—Challenge made by some of the manufacturers of Ayurvedic medicinal pre­parations containing alcohol like Mritsanjivani Sura and Mritsanjivani Sudha—Manufacturers case that the Bihar Act as, amended, was repugnant to the provisions of the Drugs Act—According to the manufacturers, the entire field stood occupied by the Central enactments—Whether High Court was justified in holding that the State Legislature was wrong in including ‘medicinal preparations’ within the meaning of the word ‘intoxicant’ u/s 2(12a) of the Bihar Act—(No)—Bihar Legislature was competent to enact the 1915 Act as amended—Whether fees levied under the impugned notifications violated Article 301 of the Constitution—(No).

       Held : On reading the provisions of the Drugs Act with the Rules, we find that the Act is confined to use of Ayurvedic medicines containing alcohol for diagnosis, treatment, mitigation or prevention of disease and not to its use as alcoholic beverages. Under the rules, the manufacture of Ayurvedic drug for sale alone is regulated. There is no provision in the Rules regulating the use of such drugs as alcoholic beverages. The object of the Drugs Act is to maintain the quality of drugs as drugs. Its use as any other commodity in the hands of the consumer is not regulated. Hence, the Drugs Act is relatable to Entry 19 of List-III, which deals with drugs and poisons, subject to Entry 59 of List-I regarding opium. Lastly, the said Act regulates the manufacture of drug for sale and distribution as a drug. If a druggist sells a drug across the counter, he cannot be faulted. His license cannot be cancelled. He has not converted the drug into an alcoholic beverage, which activity can be resorted to by a consumer. The consumer can misuse or abuse the drug after he buys the same from chemist. Such an activity falls within the provisions of the Bihar Act, 1915, as amended and not under the Drugs Act, 1940. (Para 14)

       A question of constitutional importance arises in these appeals, namely, whether the State Legislature was competent to include medicinal and toilet preparations containing alcohol governed by the provisions of Medicinal Act, 1955 into the definition of the word “intoxicant” in section 2 (12a) of the Bihar Act, 1915, as amended by Act No. 6 of 1985. (Para 16)

       In the present case, we are concerned with use and possession of substances containing alcohol capable of being used as alcoholic beverages. They may be medicinal preparations for the purposes of excise duty, however, these substances are also capable of being used as alcoholic beverages and, therefore, the question which arises for decision before this Court is whether the State Legislature was entitled to regulate the use and possession of these substances which are capable of being used as alcoholic beverages under the Bihar Act, 1915 as amended. In our view, the said Bihar Act is relatable to Entry 8 read with Entry 6 of List-II in the Seventh Schedule to the Constitution. As stated above section 2 (12a) of the Bihar Act defines the word ‘intoxicant’ to mean liquor or any substance from which liquor may be distilled or intoxicating drug or medicinal preparation as defined under the Medicinal & Toilet Preparations Act, 1955. Under the said Act, liquor is also defined vide section 2(14) to include all liquids consisting or containing alcohol such as wine, spirit, tari and any other substance which the State may by notification declare to be liquor. Hence, the 1915 Act covers use and possession of medicinal preparations containing alcohol, which subject matter is not covered by the 1955 Act. (Para 20)

       As stated above, use/misuse of Ayurvedic preparations as alcoholic beverage can become the subject matter of regulation and control by the State. It is the subject of the Bihar Act, 1915. Hence, the State Act is relatable to Entry 8 read with Entry 6 of List-II. The State law operates in a different field vis-a-vis Medicinal Act, 1955 which is relatable to Entry 84 List-I. We have examined the scheme of the two Acts. Medicinal Act, 1955 levies excise duty on the manufacture of medicinal and toilet preparations. The said 1955 Act is a taxing statute. Entry 84 List-I is an entry which deals with taxing power. On the other hand, Entry 8 read with Entry 6 of List-II refers to general subject of legislation. It refers to regulation and control of substances in public interest. The Act is enacted in public interest to secure good health for the citizens. Therefore, the two Acts are in different spheres. There is no trenching even incidentally by the Bihar Rules and the impugned notifications into the provisions of the Medicinal Act, 1955 read with the Rules. It is well settled that even if at all there is any trenching or incidental encroachment such encroachment will not affect the competence of the Legislature to enact the law nor will it affect its validity. (Para 26)

       As stated above, an Ayurvedic medicinal preparation containing alcohol is capable of being used as an alcoholic beverage, just as an industrial alcohol is capable of being diverted to human consumption. It is now well settled by a catena of decisions that the manufacture of industrial alcohol is covered by the Central laws, however, its diversion can be regulated by State laws enacted with reference to Entries 6 & 8 of List-II. Similarly, duty on manufacture of medicinal preparations containing alcohol would fall under the said 1955 Act, however, use and possession thereof will fall under the State law, like the said 1915 Act. Similarly, manufacture for sale of a substance containing alcohol as a drug would stand covered by the said 1940 Act, however, its use and possession as an alcoholic beverage would fall under the State law. Licensing and regulation of an activity like use/misuse of medicine is an enormous activity involving heavy expenditure. Hence, it is open to the State Government to delegate some of its powers to the Board of Revenue to prescribe forms of license, license fees, regulation of retail sales etc. In the circumstances, the State as well as the Board was competent to issue the impugned notifications/communications under sections 5, 19(4), 38, 39 and 90 of the said 1915 Act (as amended) to license and regulate the use of such preparations as alcoholic beverages. In the circumstances, we hold, that the High Court had erred in holding that the impugned notifications/communications had encroached upon the filed occupied by the said 1940 Act and the said 1955 Act and the Rules framed thereunder. (Para 27)

       According to the High Court, the State in the garb of fees or fixed payment was trying to impose tax/excise duty which could not be done as the State was not competent to levy excise duty on medicinal and toilet preparations which are already subjected to duty under the provisions of 1955 Act. According to the High Court the same products cannot be subjected to double taxation. The reasoning of the High Court is erroneous. As held hereinabove, the State was competent to enact a law in respect of use and possession of Ayurvedic preparations containing alcohol as alcoholic beverages. As a part of regulation and control of such activity, the State was entitled to call upon the manufacturers to obtain a license on payment of fees. The State has to incur expenses incidental to regulation and control of such activities. Hence, the fee leviable and payable by the manufacturers under the impugned notification is in the nature of regulatory fee for which quid pro quo is not necessary. We also find the rate of fee to be reasonable. (Para 30)

       The next point which arises for determination is whether the fees levied under the impugned notifications violated Article 301 of the Constitution. We have held that the fees levied under the impugned notifications are regulatory in nature. (Para 33)

       This Court has held that if a measure is regulatory in character, it would be immune from challenge under Article 301 of the Constitution. In the circumstances, by levy of fees under the impugned notifications, there is no violation of freedom of inter state trade and commerce, as held by the impugned judgment. (Para 33)