SRI MALAPRABHA CO-OP SUGAR FACTORY LTD.versusSTATE OF KARNATAKA & ORS.

                      [2015] 12 S.C.R. 837


    SRI MALAPRABHACO-OP SUGAR FACTORY LTD.                             A
                                v.
               STATE OF KARNATAKA & ORS.
                 (Civil Appeal No. 860 of 2006)
                                                                       B
                       AUGUST 21, 2015
    [VIKRAMAJIT SEN AND SHIVA KIRTI SINGH, JJ.]

       Karnataka Excise (Manufacture and Bottling ofArrack)
Rules, 1987- r 17- Fixation of price of rectified spirit- By           c
Government Order, State fixed the price of rectified spirit
uniformly at Rs. 61- per litre wherein captive distilleries entitled
to receive only Rs. 5/- per litre, and the balance Rs. 11- per
litre receivable by the State -Appellant supplied rectified
spirit to various parties and received the entire sum at the           D
rate of Rs. 61- per litre - Demand raised by the Excise
Department, being accorded at Rs.11- per litre sold by the
appellant, - Challenge to, by the appellant- Held: The State
had clarified that it would permit the appellant to sell rectified
spirit at the common fixed rate of Rs. 61- provided it transferred     E
Rs.11- per litre to the State- If the appellant was serious in
questioning the legal capacity of the State to recover the said
Rs.11- per litre, it perforce had to challenge the Government
Order- Having failed to do so it cannot, thereafter, challenge
the Demand which is predicted on the Government Order                  F
itself- More so, the appellant had full knowledge of the fact
that it had been permitted to supply rectified spirit to third
parties on the condition that of the general fixed price of Rs.
61- per litre, Rs. 11- per litre would have to be made over to the
~~                                                                     G

      Bihar Distillery vs. Union of India AIR (1997) SC
      1208: 1997 (1) SCR 680; Synthetics &Chemicals
      Ltd. v. state of U.P. (1990) 1 sec 109: ~ 989 (1)
                                                                       H
                               837
838        SUPREME COURT REPORTS                 [2015] 12 S.C.R.


A         Suppl. SCR 623 ; Vam Organics Chemicals Ltd.
          v. State of UP (1997) 2 sec 715: 1997 (1) SCR
          403; Prat1ma Chowdhury v. Kafpana Mukhef}ee
          (2014) 4 sec 196- referred to.

 B                       Case Law Reference

      1997 (1) SCR 680             referred to           Para4

      1989 (1) Suppl. SCR 623      referred to           Para 4

 c 1997 (1) SCR 403                referred to           Para4

      (2014) 4 sec 196             referred to           Para4

           CIVILAPPELLATE JURISDICTION : Civil Appeal No.
      860 of 2006
 D
           From the Judgment and Order dated 16.04.2004 of the
      High Court of Karnataka at Bangalore in W.A. No. 7352 of
      1999

 E         Rajesh Mahale, Adv., for the Appellant.

           V. N. Raghupathy,Adv., for the Respondents.

           The judgment of the Court was delivered by

 F       VIKRAMAJIT SEN, J. 1. This Appeal brings into
   challenge the Judgment of the Division Bench of the High Court
   of Karnataka in terms of which the Judgment of the learned
   Single Judge had been upheld; however, with the direction that
   the competent authority shall examine the claim made by the
 G Appellant for being classified as a non-captive unit. On
   2.9.7.2004 , while issuing notice it had been clarified that the
   impugned Judgment had not been stayed.

       2. The facts that are relevant for deciding the present
 H Appeal, succinctly, are that the Respondent State had fixed
  SRI MALAPRABHACO-OP SUGAR FACTORY LTD. u                              839
     STATE OF KARNATAKA[VIKRAMAJIT SEN, J.]

the price of rectified spirit uniformly at ' 6/- per litre by           A
Government Order dated 12.5.1992. While doing so, it had
been indicated that the captive distilleries would be entitled to
receive only ' 51- per litre, and the balance ' 1/- per litre
would be receivable by the Respondent State. For the period
of 1. 7.1992 to 30.6.1 993, supplies of rectified spirit were made      B
by the Appellant to various parties and the entire sum at the
rate of ' 6/- per litre was recovered/received by the Appellant.
It will be relevant to underscore that the supply of rectified spirit
(ethyl a!coho\) was made by the Appellant with full knowledge
of the Government Order to which challenge has been made,               C
namely, the payment of ' 1/- per litre to the State Government.
The Appellant does not dispute that it is a captive distillery,
since it produces molasses which is then distilled and
converted into ethyl alcohol/rectified spirit/industrial alcohol.
                                                                        0
The Government Order dated 12.5.1992 has not been assailed
by the Appellant at any point of time. When a demand for a
sum of ' 13,32,000/- was raised by the Superintendent of
Excise, Huballi, by letter dated 15.12.93, a challenge by way
of the filing of a writ petition was initiated.
                                                                        E
       3. The Respondent State is empowered to fix the price
of rectified spirit by virtue of Rule 17 of the Karnataka Excise
(Manufacture and Bottling of Arrack) Rules, 1987, the vires of
which have not been questioned. The Rule is reproduced for
facility of reference:                                           F

           Rule 17- Rectified spirit- Whether Rule ·17 which
      empowers the Government to fix the price of rectified
      spirit, valid?
           K.ShivashankarBhat, J., Held.- Rule 17 ofthe State G
       rules, invoked in the present case, nowhere lays down
       nor indicate the principles or factors to be considered
       while the Excise Commissioner fixes the price with the
     · prior approval of the State Government. The case of H
840       SUPREME COURT REPORTS                    [2015]12 S.C.R.


A         other liquors may be different, because, in those cases,
          the State has exclusive priviiege to deal with those liquors/
          intoxicants, unlike the case of rectified spirit. The
          permissible limits of delegation of legislative function
          cannot be stretched so as to make it notional. It cannot
 B        be said that the limitation on the delegation of legislative
          function has reached a vanishing point. Limitation is
          needed to prevent any possible dictatorial power being
          vested in the executive by the legislature. Rule 17 insofar
          as it empowers of the fixation of price of rectified spirit,
 c        is therefore, declared as unconstitutional and ultra vires
          the provisions of the State Act.
         4. The manner in which the trade of arrack is conducted
   can be gleaned, inter alia, from a reading of Rule 13, which is
 D also reproduced for convenience:
              Rule 13. Stock of rectified spirit. - (1) The quantity
          of rectified spirit required for the warehouse shall be
          allotted by the Commissioner from time to time. It shall
 E        be drawn from the distillery on indents duly countersigned
          by the Warehouse Officer. The transportation charges
          shall be borne by the licensee. The distillery shall issue
          such quantity of rectified spirit as allotted by the
          Commissioner, to the warehouse at the rates fixed by
 F        the Commissioner under Rule 17.
              (2) The stock of spirit when received at the warehouse
          shall be verified by the Warehouse Officer by volume and
          strength or the quantity of pure alcohol in it and taken to
          the storage vats. The Warehouse Officer shall furnish a
 G        certificate of such verification to the Distillery Officer
          concerned and shall keep a register showing the details
          of stock indented, issued by the distillery and the stock
          as received in the wa: ~house.
 H             (3) Gauging of spirit shall be made by the Warehouse
  SRI MALAPRABHA CO-OP SUGAR FACTORY LTD. v.                       841
     STATE OF KARNATAKA [VIKRAMAJIT SEN, J.]

     ·Officer everyday in the presence of the licensee or his A
      authorized representative and the result thereon shall be
      ~ecorded in a register, which shall be attested by both
      t~e Officer and the licensee or his representative.

     (4) (a) The licensee or his authorized representative shall
                                                                 8
        give a requisition for the transfer of such quantity of
        spirit for the production of arrack to the vessels kept
        for the purpose. The requisition shall contain
        information as to the date, batch, number, quantity,
        spirit vat number from which to be issued, and the c
        vessel number to which it should be transferred.
         (b) The Warehouse Officer on receipt of the requisition
         may permit the transfer after gauging the stock in
         volume and strength.
                                                                   D
A perusal of the said Rule makes it patently clear that the
Commissioner allots quantities of rectified spirit from the
distillery to a 'warehouse', and the indents· are duly counter
signed by the Warehouse Officer. The Rule clarifies that the
transportation charges are to be borne by the licencee. This E
arrangement, so far as transportation expenses are
concerned, obviously does not arise where molasses is readily
available in the very same premises where its conversion or
distillation into rectified spirit takes place. The contention of
learned counsel.for the Appellant is that the State is not entitled F
to take away the extra profit of ' 1/- per litre which the Appellant
earns because molasses is available in its own premises. This
argument, however, conveniently ignores the fact that the
Respondent State had made it incontrovertibly clear that it
would permit the Appellant to sell rectified spirit at the common G
fixed rate of .. 6/- provided it transferred ' 1/- per litre to the
State. If the Appellant was serious in questioning the legal
capacity of the Respondent State recover the said .. 1/- per
litre, it perforce had to challenge the Government Order dated
                                                                     H
842       SUPREME COURT REPORTS                  [2015112 S.C.R.


A 12.5.1992. Having failed to do so it cannot, thereafter,
  challenge the Demand dated 15.12.1993 which is predicted
  on the Government Order itself. Learned counsel for the
  Respondent State has made an attempt to rely on the decisions
  of this Court in Bihar Distillery vs. Union of India AIR (1997)
B SC 1208, as also Synthetics & Chemicals Ltd. v. state ofU.P.
  (1990) 1 SCC 109. We have not permitted him to do so for
  the simple reason that the question of law that had engaged
  the attention of the Court in those cases, as well as in Vam
  Organics Chemicals Ltd. v. State of U.P. (1997) 2 SCC 715
C was altogether different. In the three cases, the challenge
  was to the competence of the State Government to impose
  administrative charges for regulating the holding of rectified
  spirit, since there is an omnipresent danger of the rectified
  spirit being surreptitiously diverted for the illicit production of
0
  arrack and for that matter even Indian-Made Foreign Liquor
  (IMFL). Learned counsel for the Appellant has endeavoured
  to place reliance on the decision in Pratima Chowdhury v.
  Kalpana Mukherjee (2014) 4 SCC 196, in order to buttress
E the argument that estoppel cannot be claimed by the
   Respondent State; we are unable to appreciate the reliance
  on this decision in support of this contention. What we have
  before us is a simple case of recovery of dues, viz. at rates
  which had been declared well before the permission to supply
F rectified spirit was accorded to the Appellant. The position
   may have been different had the Respondent Stat~ failed to
   pass relevant orders or had it failed to inform the Appellant
  that, since it did not incur transportation costs, this amount,
   which had been predetermined at ' 1/- per litre, would be
G payable to the State.

         5. There were three Appellants before the Division Bench
   of the High Court of Karnataka but only one of them, i.e. the
   Appellant before us, has c"~cided to further challenge the
 H Demand of ~ 13,32,000/- being accorded at . . 1/- per litre
    SRI MALAPRABHA CO-OP SUGAR FACTO~Y LTD. v.                        843
       STATE OF KARNATAKA[VIKRAMAJIT SEN, J.]

  sold by the Appellant. It is also relevant to mention that the A
  Appellant has not challenged the Demand of transportation
· charges of . . 1/- per litre for any subsequent charges.

       6. We find no substance in the Appeal. The Appellant
 had full knowledge of the fact that it had been permitted to B
 supply rectified spirit to third parties who are engaged in the
 business of production of arrack on the condition that of the
 general fixed price of . . 6/- per litre, . . 1/- per litre would have
 to be made over to the Respondent State.
                                                                      c
       7. The Appeal is accordingly dismissed, with no order
 as to costs.

 Nidhi Jain                                       Appeal dismissed.