IMPORTANT POINTS
State is entitled to impose and collect administrative fee for ensuring non-diversion of industrial alcohol for purposes of producing potable alcohol. However the fees should be on quid pro quo basis.
When the High Court directed the State to charge the Administrative fee @Re.0.50 per litre, there is no justification for the State to continue to charge the same @ Re. 1/- per litre.

JUDGMENT

VIKRAMAJIT SEN, J.

The Appellants before us have laid siege to the concurrent conclusions of the learned Single Judge, as well as the Division Bench of the High Court of Judicature at Madras in a matter where the writ petitioners, i.e. the Respondents before us, have assailed the legality of a demand of Rs.1/-per bulk litre of industrial alcohol manufactured by them. Earlier, the Respondents had unsuccessfully assailed the impost of 50 paise per bulk litre of industrial alcohol but that challenge was primarily predicated on the legislative competence of the State of Tamil Nadu to make that demand. In the said writ petitions, the ten petitioners therein had prayed for a declaration that Rule 5-A of the Tamil Nadu Distillery Rules introduced by G.O.M. No.662 issued by Home, Prohibition and Excise(III) Department, dated 4.6.1990, and the amendment to the said Rule brought into effect by G.O.M. No.64, Home Prohibition and Excise (XIII) Department, dated 12.04.2000, are unconstitutional, illegal and void. The learned Single Judge noted that the decision of a Seven-Judge Bench of this Court in the case of Synthetics and Chemicals Ltd. v. State of U.P. (1990) 1 SCC 109; AIR 1990 SC 1927 concluded the conundrum. In that case it was held that the sundry States of the Union of India are not competent to impose taxes/levies on industrial alcohol or rectified spirit. This Court, however, clarified that the States are empowered under Entry 8 of List II of the Seventh Schedule to the Constitution of India to regulate this business and ensure that industrial alcohol is not diverted as potable alcohol, and in carrying out this exercise, States would be fully competent to collect administrative/regulating service fee. The writ petitioners’ first foray in the Writ Court did not meet with success. Accordingly, the State of Tamil Nadu appears to have collected 50 paise per bulk litre towards its administrative fees for almost a decade.

2. By G.O.M. No.64, dated 12.04.2000, Home Prohibition and Excise (XIII) Department, the Appellant State Government has amended Rule 5-A and thereby increased administrative service fees to Rs.1/-per bulk litre for industrial alcohol produced by the sundry distilleries located in that State. The stance of the State Government was that administrative fees related strictly to the establishment charges occurred in the distilleries themselves together with other expenses incurred by the State to enforce the Regulation. In their second salvo, the Petitioners have not challenged the power of the State to recover administrative fees, but have contended that this exercise had to be meticulously calculated on the premise of quid pro quo. Relying on Synthetics and Chemicals Ltd. the learned Single Judge came to the conclusion that the subject impost was, in pith and substance, an endeavour to raise revenues for the State. The Writ Court also applied the ratios of Shri Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. v. State of Gujarat (1992) 2 SCC 42, Gujchem Distillers India Ltd. v. State of Gujarat, (1992) 2 SCC 399 and Bihar Distillery v. Union of India AIR 1997 SC 1208.

It opined that the State had the power to comprehensively regulate and monitor the production of industrial alcohol in order to ensure that there was no misuse or diversion of this product for its conversion to potable alcohol. The Writ Court then went on to consider the second question, viz. whether the levy or fees impost must per force be confined and founded on the rule of quid pro quo. Relying on the decision of this Court in Sreenivasa General Traders v. State of Andhra Pradesh (1983) 4 SCC 353, it was reiterated that by and large the principle of quid pro quo governs the quantification of the service rendered, but not necessarily with mathematical exactitude; it is necessary that a reasonable relationship between the collection and the services rendered must be evident. It was also reiterated that the test of correlation is to be reckon