IMPORTANT POINT
Andhra Pradesh Rectified Spirits Rules, 1971 is valid but rule 145 thereof is ultra vires.

JUDGMENT

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 Prades