Holding

Administrative or service charges may be recovered only to the extent they have a reasonable nexus with the State's actual regulatory expenses, and the State failed to demonstrate such a nexus for the Rs.1 per bulk litre fee.

Summary

The State of Tamil Nadu amended its Distillery Rules to raise the administrative service fee for industrial alcohol from Rs.0.50 to Rs.1 per bulk litre. The petitioners (industrial distilleries) challenged the increase, arguing that the fee must be based on a quid pro quo relationship between the State's expenses and the levy. The High Court quashed the amendment, but the State continued to collect the higher fee. The Supreme Court held that while administrative fees are permissible, they must have a reasonable nexus with the actual expenses incurred, and the State failed to provide credible expenditure details to justify the Rs.1 rate. Consequently, the Court dismissed the appeals, refused to order a refund of the excess collections, and directed the State to pay the respondents' litigation costs.

Issues considered

The validity of the increased administrative service fee of Rs.1 per bulk litre for industrial alcohol under Tamil Nadu Distillery Rules.
Whether such a fee must be calculated on a quid pro quo basis, i.e., a reasonable correlation between State expenses and collections.
The requirement for the State to disclose detailed expenditure to justify the fee.
The legality of continuing to collect the increased fee after it was quashed by the High Court.
The liability of the State to pay costs incurred by the respondents.

Legislation cited

Securities and Exchange Board of India Act, 1992s. 11, s. 12(2)

Subjects

administrative feeindustrial alcoholquid pro quoregulatory feetax vs feeTamil Nadu Distillery Rulesexcise departmentstate powercorrelation of expenses and revenuecost of litigation

Judgment

[2015]9S.C.R.148

A STATE OF TAMIL NADU &ANR.
v.
TVL. SOUTH INDIAN SUGAR MILLS ASSN. & ORS.
(Civil Appeal Nos. 1028-1037 of 2005)
B
AUGUST 12, 2015
[VIKRAMAJIT SEN AND SHIVA KIRTI SINGH, JJ.]
Tamil Nadu Distillery Rules - r. 5-A [as amended by
c G.O.M. No. 64, dated 12.4.2000, Home Prohibition and
Excise (XIII) Department of the State Government]- Increase
in administrative service fee to Rs. 11- per bulk litre (from 50
paise per bulk litre) for industrial alcohol produced by the
sundry distilleries located in the State - Challenged on the·
D ground that the calculation of the fee is not based on quid
pro quo - Single Judge as well as Division Bench of High
Court quashed the G 0. M. No. 64 - Despite the order, State
coerced the petitioners to pay the fee@ Rs. 11- per bulk litre
- On appeal, held: Administrative or service charges can be
E recovered, but there must be a perceptible correlation
between the expenses and the collections - In the present
case, collection even at 50 paise per bulk litre would cover
expenses over and above those incurred by the State- The
State has failed to furnish credible details of its expenditure
F - However, in the facts of the case, refund of the charges
over and above 50 paise not directed - Direction to State to
pay cost of litigation before High Court and this Court to the
respondent company.

G Dismissing the appeals, the Court

HELD: 1.1 The charges should not be restricted
only to those establishment expenses incurred by the
State in the distilleries alone, or that any collection over
H and above those expenses would ipso facto tantamount
148
STATE OF TAMIL NADU v. TVL. SOUTH INDIAN SUGAR 149
MILLS ASSN.

to unjust enrichment. However, the fact remains that A
the figures of expenditure as noted by the Division Bench
of High Court in the impugned judgment were ~93.20
lakhs, whereas the collections even at the rate of 50 paise
per bulk litre aggregated 11.73 crore, which since it was
not interfered with, would undoubtedly cover expenses . B
over and above those incurred by the State only on its
establishments/office in the respective distilleries. The
Division Bench also underscored the fact that details 'Of
expenses incurred by the State in connection with the
supervision or regulation of production of industrial C
alcohol, with a view to ensure that there is no diversion
thereof for the purpose of or reconversion to potable
alcohol, had not been provided in this regard. Thus, the
State has failed to furnish credible details of expenditure
0
whicti, according to it, related to administrative or
regulatory or ser-Vice expenses. [Para 3] [156-C-F]

1.2 Administrative or service charges can be
recovered, but nothing over and above them. While it
· would be unfair to insist on mathematical exactitude in E
the calculation of administrative service charges, there
must bea perceptible correlation between the expenses
and the collections. It will not be permissible for the State
to collect fees in respect of expenses incurred· in its F
Excise Department, except those bearing a reasonable
nexus with the administrative steps taken to ensure that
there is no misutilisation or diversion of industrial alcohol
for the purposes of producing potable alcohol. [Para 4]
[156-G-H; 157-A-B] G
Synthetics and Chemicals Ltd. v. State of U.P. (1990) 1
SCC 109: 1989 (1) Suppl. SCR 623 - followed.
State of U.P. v. Varn Organic Chemicals Ltd. (2004) 1
SC 225: 2003 (4) Suppl. SCR 957- relied on.
H
150 SUPREME COURT REPORTS [2015] 9 S.C.R.

A B.S.E. Brokers' Forum, Bombay and Ors. v. Securities
and Exchange Board of India and Ors. (2001) 3 SCC
482 - referred to.

Shri Bileshwar Khand Udyog Khedut Sahakari Mandali
B Ltd. v. State of Gujarat (1992) 2 SCC 42: 1992 (1) SCR
391; Gujchem Distillers India Ltd. v. State of Gujarat
(1992) 2 SCC 399: 1992 (1) SCR 675; BiharOistillery
. v. Union oflndia AIR 1997 SC 1208: 1997 (1) SCR
680; Sreenivasa General Traders v. State of Andhra
C Pradesh (1983) 4 SCC 353: 1983 (3) SCR 843; PM.
Ashwathanarayana v. State ofKamataka (1989) Supp.1
SCC 696; Vam Organic Chemicals Ltd. v. State of UP
(1997) 2 SCC 715: 1997 (1) SCR 403; Secunderabad
Hyderabad Hotel Owners' Association v. Hyderabad
D Municipal Corporation (1992) 2 SCC 274 - referred
to.

2. If administrative or service charges are sought to
be recovered from the Respondent Distilleries to cover
E nefarious activities carried out by third parties such as -
smuggling and countryside brewing etc. which have no
causal connection with the production of industrial
alcohol, or for collection of excise duties from other
industries carrying out distinctly different production or
F manufacture, the fee would metamorphose into a tax.
The illegal or illicit diversion of industrial or ethyl alcohol
is possible at the stage where it is rectified spirit or
industrial alcohol. Therefore, so long as expenses are
incurred by the State Government in ensuring that
G industrial alcohol is not used as potable alcohol, recovery
thereof shall be permissible. [Para 9] [162-C-E]

3. Collections were made at the increased rate even
though that w_as quashed by the High Court. There was
H no justification for the Appellant State or its Excise
STATE OF TAMIL NADU v. TVL. SOUTH INDIAN SUGAR 151
MILLS ASSN.

Department to collect charges at the rate of 1/- after it A
had been quashed by the Single Judge of the High Court.
Keeping in perspective the absence of diligence by the
Respondent Distilleries from seeking timely variations
or modification of Orders passed by the Court, the Court
desists from directing that the collection of charges over B
and above 50 paise per bulk litre should be refunded.
[Para 1O] [164-C-E]

4. However, in view of the concurrent failure of the
Appellant State in this litigation, it shall be liable to pay C
the costs incurred by the Respondents in the litigation,
not only before the High Court but in present Appeals
as well. [Para11] [164-F]

Case Law Reference D
1992 (1) SCR 391 referred to Para 2
1992 (1) SCR 675 referred to Para 2
1997 (1) SCR 680 referred to Para 2
1983 (3)' SCR 843 referred to Para 2 E
(1989) Supp.1 sec _696 referred to Para 2
1997 (1) SCR 403 referred to Para 2
(1992) 2 sec 214 referred to Para 2
1989 (1) Suppl. SCR 623 followed Para 4 F
(2001) 3 sec 482 referred to Para 5
2003 (4) Suppl. SCR 957 relied on Para 6
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
1028-1037 of 2005 G
From the Judgment and Order dated 16.03.2004 of the
High Court of Madras in Writ Appeal Nos. 1566 to 1575 of
2001

L. Nageshwara Rao, Subramo_nium Prasad, Rakesh H
152 SUPREME COURT REPORTS [2015] 9 S.C.R.

A Sharma, R. Shase, B. Balaji for the Appellants.

C. A. Sundaram, Pravin H. Parekh, Gopal
Sankaranarayanan, K. V. Mohan, K. V. Balakrishnan, R. K.
Raghavan, Ambrish Kumar, E. R. Kumar, Sameer Parekh,
B Faisal Sherwani, Abhinay (for Parekh & Co.) for the
Respondents.

The Judgment of the Court was delivered by

VIKRAMAJIT SEN, J. 1. The Appellants before us have
C 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
D demand of .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.
E In the said writ petitions, the ten petitioners therein had prayed
for a declaration that Rule 5-Aofthe Tamil Nadu Distillery Rules
introduced byG.O.M. No.662 issued by Home, Prohibition and
Excise( Ill) Department, dated 4.6.1990, and the amendment
to the said Rule brought into effect by G.O.M. No.64, Home
F Prohibition and Excise (XIII) Department, dated 12.04.2000,
are unconstitutional, illegal a·nd 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
G 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
H this business and ensure that industrial alcohol is not diverted
STATE OF TAMIL NADU v. TVL. SOUTH INDIAN SUGAR 153
MILLS ASSN. [VIKRAMAJIT SEN, J.]

as potable alcohol, and in carrying out this exercise, States A
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. B

2 ByG.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 .1 /-per bulk litre for industrial alcohol produced C
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 D
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 E
subject impostwas, 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 F
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 G
conversion to potable alcohol. The Writ Court then went on to
consider the second question, viz. whether the levy or fees
impost must perforce 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) H
154 SUPREME COURT REPORTS [2015] 9 S.C.R.

A 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
B also reiterated that the test of correlation is to be reckoned at
the aggregate level and not at the individual level as was
clarified in P. M. Ashwathanarayana v. State of Karnataka
(1989) Supp.1 SCC 696. In this conspectus of the law, the
learned Single Judge reached the conclusion that the State
C was competent and justified in recovering expenses for
ensuring the prevention of illegal diversion of industrial alcohol
within the premises of the distilleries themselves, as also
expenses incurred for supervising the transit of industrial
D alcohol from the distilleries to the trader. The Writ Court then
adverted to the decision in Varn Organic Chemicals Ltd. v.
State of UP (1997) 2 sec 715, as well as Secunderabad
Hyderabad Hotel Owners' Association v. Hyderabad Municipal
Corporation (1992) 2 SCC 274. It is important to note that
E the learned Single Judge, after carrying out the said analysis
of the law, pithly observed that the Appellant State had not
furnished the relevant and requisite particulars and material to
establish that the impost indeed had the character of quid pro
quo. Referring to the quantum of recoveries made on the basis
F of 50 paise per bulk litre for almost one decade, it was noted
that this collection roughly corresponded to one-third of the
total expenses incurred by the Excise Department, which per
se was not excessive; and that there can be no cavil that in
regulating the trade of potable liquor the State is gathering
G considerable income. So far as the increased demand of 1/-
per bulk litre of industrial alcohol is concerned, the learned
Single Judge concluded that it would amount to effecting an
increase in recovery from 1/3rn to 213rn of total expenses incurred
by the Excise Department which, therefore, ceased to be
H based on the principle of quid pro quo. By this directive, the
STATE OF TAMIL NADU v. TVL. SOUTH INDIAN SUGAR 155
MILLS ASSN. [VIKRAMAJIT SEN, J.]

writ petitions were partly allowed, making it legal for the State A
to impose and collect only 50 paise per bulk litre. G.O.M. No.64
Home Prohibition and Excise (XIII) Department dated
12.4.2000 was quashed. It appears that despite this ruling
the State has coerced the writ petitioners into paying the so
called administrative regulatory charges at 1/-per bulk litre. B

3 The Appellant State thereupon assailed the deCision
of the learned Single Judge in W.A. Nos.1566 to 1571 of 2001,
but in the event, with continued failure. The Division Bench
again analysed the numerous judgments of this Court, the C
foremost being of the Seven-Judge Bench in Synthetics and
Chemicals Ltd., and noted that the State Governments are
empowered to levy excise duty or tax on alcoholic liquor fit for
human consumption, but so far as industrial alcohol is
concerned, that power is reposed in the Union Government D
alone .. However, this does not mean that the State Government
was powerless to regulate the production of industrial alcohol
so long as that activity was calculated to circumvent the
diversion of industrial alcohol into potable alcohol. The Division
Bench, however, noted that Rule 5-Acame to be introduced E
as this Court in Seven-Judge ruling in Synthetics and
Chemicals Ltd. had approved the collection of administrative
service fee, as indubitably and avowedly the State Government
through its Excise Departmentwas incurring expenses_ for the F
purpose of blocking any attempt to divert industrial alcohol as
potable alcohol. Quite correctly, the Division Bench also
posited on the strength of the decision of this Court in Varn
Organic Chemicals Ltd. that the Excise Department was
effectively conducting recovery measures and was not G
providing corresponding services to these distilleries.
Significantly, the Division Bench concluded that the collections
made by the State by way of administrative service fee
recovered even at the rate of 50 paise per bulk litre
corresponded to approximately 60 per cent of the total H
156 SUPREME COURT REPORTS (2015) 9 S.C.R.

A expenditure of the Excise Department. The Division Bench
was of the opinion that there was only an expenditure of 93.2
lakhs against which there was an estimated collection of
administrative fee aggregating 11. 73 crores which collection,
therefore, was excessive. Whilst it seems to us that there is
B no scope for our interference in the impugned Judgment, we
must hasten to clarify that the charges should not be restricted
only to those establishment expenses incurred by the State in
the distilleries alone, or that any collection over and above those
expenses would ipso facto tantamount to unjust enrichment.
C However, the fact remains that the figures noted by the Division
Bench were 93.20 lakhs whereas the collections even at the
rate of 50 paise per bulk litre aggregated 11.73 crore, which
since it was not interfered with, would undoubtedly cover
D. expenses over and above those incurred by the State only on
its establishments/office in the respective distilleries. The
Division Bench also underscored the fact that details of
expenses incurred by the State in connection with the
supervision or regulation of production of industriai"alcohol,
E with a view to ensure that there is no diversion thereof for the
purpose of or reconversion to potable alcohol, had not been
provided in this regard. We are in no manner of doubt that the
State has woefully failed to furnish credible details of
expenditure which, according to it, related to administrative or
F regulatory or service expenses.

4. We do not propose to make this Judgment prolix by
once again minutely analyzing the several decisions of this
Court, which have clarified that administrative or service
G charges can be recovered, but nothing over and above them;
that while it would be unfair to insist on mathematical exactitude
in the calculation of administrative service charges, there must
be a perceptible correlation between the expenses and the
collections; that it will not be permissible for the State to collect
H fees in respect of expenses incurred in its Excise Department,
STATE OF TAMIL NADU v. TVL. SOUTH INDIAN SUGAR 157
MILLS ASSN. [VIKRAMAJIT SEN, J.]

except those bearing a reasonable nexus with the A
administrative steps taken to ensure that there is no
misutilisation or diversion of industrial alcohol for the purposes
of producing potable alcohol. The extracted paragraph from
Synthetics and Chemicals Ltd which distills the precedents
on the State's legislative's powers with regard to industrial B
alcohol, deserves careful consideration:

86. The position with regard to the control of alcohol
industry has undergone material and significant change
after the amendment of 1956 to the IDR Act. After the C
amendment, the State is left with orily the following powers
to legislate in respect of alcohol:

(a) It may pass any legislation in the nature of prohibition
of potable liquor referable to Entry 6 of List II and D
. regulating powers.

(b) It may lay down regulations to ensure that non-
potable alcohol is not diverted and misused as a
substitute for potable alcohol. E
(c) The State may charge excise duty on potable alcohol
and sales tax under Entry 52 of List II. However, sales
tax cannot be charged on industrial alcohol in the
present case, because under the Ethyl Alcohol
F
(Price Control) Orders, sales tax cannot be charged
by the State on industrial alcohol.

(cf) However, in case State is rendering any service, as
distinct from its claim of so-called grant of privilege,
it may charge fees based on quid pro quo. G

5 Over the years, the inflexibility with which the principle
of quid pro quo was to be applied, which may have been sired
from a pedantic perusal of Synthetics and Chemicals Ltd,
has been clarified and crystallized by this Court. We shall H
158 SUPREME COURT REPORTS [2015] 9 S.C.R.

A reproduce these paragraphs from B.S.E. Brokers' Forum,
Bombay and Others v. Securities and Exchange Board of India
and others, (2001) 3 sec 482 to enable their fruitful
consideration:

B 30. This Court in the case of Sreenivasa General Traders
v. State of A.P. (1983) 4 SCC 353 has taken the view
that the distinction between a tax and a fee lies primarily
in the fact that a tax is levied as part of a common burden,
while a fee is for payment of a specific benefit or privilege
c although the special advantage is secondary to the
primary motive of regulation in public interest. This Court
said that in determining whether a levy is a fee or not
emphasis must be on whether its primary and essential
purpose is to render specific services to a specified area
D or class. In that process if it is found that the State
ultimately stood to benefit indirectly from such levy, the
same is of no consequence. It also held that there is no
generic difference between a tax and a fee and both are
compulsory exactions of money by public authorities. This
E was on the basis of the fact that the compulsion lies in
the fact that the payment is enforceable by law against a
person in spite of his unwillingness or want of consent. It
also held that a levy does not cease to be a fee merely
because there is an element of compulsion or
F
coerciveness present in it, nor is it a postulate of a fee
that it must have a direct relation to the actual service
rendered by the authority to each individual who obtains
the benefit of the service. It also held that the element of
G quid pro quo in the strict sense is not always a sine qua
non for a fee, and all that is necessary is that there should
be a reasonable relationship between the levy of fee and
the services rendered. That judgment also held that the
earlier judgment of this Court in Kewal Krishan Puri v.
H State of Punjab( 1980) 1 SCC 416 is only an obiter.....
STATE OF TAMIL NADU v. TVL. SOUTH INDIAN SUGAR 159
MILLS ASSN. [VIKRAMAJIT SEN, J.)

A

38. As noticed in the City Corpn. of Calicut (1983) 2
sec 112 the traditional concept of quid pro quo in a fee
has undergone considerable transformation. From a
conspectus of the ratio of the above judgments, we find B
that so far as the regulatory fee is concerned, the service
to be rendered is not a condition precedent and the same
does not lose the character of a fee provided the fee so
'
charged is not excessive. It is also not necessary that
the services to be rendered by the collecting authority c
should be confined to the contributories alone. As held in
Sirsilk Ltd. 1989 Supp. (1) SCC 168 if the levy is for the
benefit of the entire industry, there is sufficient quid pro
quo between the levy recovered and services rendered
to the industry as a whole. If we apply the test as laid D
down by this Court in the abovesaid judgments to the
facts of the case in hand, it can be seen that the statute
under Section 11 of the Act requires the Board to
undertake various activities to regulate the business of
the securities market which requires constant and E
continuing supervision includi_ng investigation and
instituting legal proceedings against the offending
traders, wherever necessary. Such activities are clearly
regulatory activities and the Board is empowered under
F
Section 11 (2)(k) to charge the required fee for the said
purpose, and once it is held that the fee levied is also
regulatory in nature then the requirement of quid pro quo
recedes to the background and the same need not be
confined to the contributories alone. G
6. Subsequently, in State of U.P v. Varn Organic
• Chemicals Ltd. (2004) 1 SC 225 (commonly referred to as
"Varn Organic II') this important aspect of the law has been
further crystallised thus -
H
160 SUPREME COURT REPORTS [2015) 9 S.C.R.

A 34. The word "service" in the context of a fee could,
therefore, include, a levy for a compulsory measure
undertaken vis-a-vis the payer in the interest of the public.
This "coercive" measure has been subsequently judicially
clarified to mean a "regulatory measure". But in the case
B of both kinds of services, whether compulsorily imposed
or voluntarily accepted, there would have to be a
correlation between the levy imposed and the
"counterpayment or quid pro quo". However,
correlationship between the levy and the services
c rendered is one of general character and not of
mathematical exactitude. All that is necessary is that there
should be a reasonable "relationship" between levy of
the fee and the service rendered. Contrariwise when there
is no such correlation, the levy, despite its nomenclature
D
is in fact a tax. In Corpn. of Calcutta v. Liberty Cinema
the licence fee charged under Section 548 of the Calcutta
Municipal Act, 1951 had been challenged on the ground
that no service was rendered commensurate with the tax.
E 7. Considerable reliance was placed by the learned
Senior Counsel for the Appellant State on the decision of this
Court in 8.5.E. Brokers' Forum, but in our view, without
justification. Indubitably, this Court held that it was not
F incumbent for collections or contributions to be recovered from
only those who were directly involved in the subject
transactions, since the newly established administrative
machinery was necessary for the smooth and legal conduct of
the entire business pertaining to the securities market. We
G find this to be self-evident from a perusal of the Preamble to
the SEBI Act: "An Act to provide for the establishment of a
Board to protect the interests of investors in securities and to
promote the development of, and to regulate, the securities
market. ...... " This Court had held that the SEBI Act postulated
H and permitted the charging of two types of fees - (i) under
STATE OF TAMIL NADU v. TVL. SOUTH INDIAN SUGAR 161
MILLS ASSN. [VIKRAMAJIT SEN, J.)

Section 11 (2)(k) of the SEBI Act for carrying out the several A
and sundry purposes contained in Section 11, and (ii) for the
registration of applicants under Section 12(2). It was also
clarified by the Court that the said service or regulatory or
administrative fee can be levied on all contributors, regardless
of whether or not services were being directly rendered to them. B
This decision cannot be extrapolated to permit the State to
make recoveries in the guise of administrative expenses of all
the outgoings of its Excise Department even though they have
no bearing· or connection with the possible misuse and
diversion of industrial alcohol to potable alcohol. This Court C
was concerned with the imposition and collection of fees by
Securities and Exchange Board of India (SEBI) in order to
perform the mandates cast upon it by virtue of Section 11 (2)(k)
in addition to registration charges under Section 12(2) of the
0
Act. The proceeds of collection under Section 11 (2)(k) could
legitimately meet both capital expenditure and costs of
services. This Court also found on the strength of evidence
before it that the bulwark (50%) of its total expenditure would
be towards broker-related services, apart from protecting the E
interests of the investors, regulating the acquisition of shares,
taking over of companies and undertaking inspections and
audits of stock exchanges, mutual funds, insider trading, etc.
Most importantly, this Court accepted the contention of SEBI
that it had no other source of income other than that derived F
under Sections 11 (2)(k) and 12. Transactions had a direct
bearing on the regulatory expenses of the Board. Hence, this
classification had a direct nexus with the object to be achieved.
The Preamble to the SEBI Act emblazons that its purpose is
to provide for the establishment of a Board to protect the G
interests of the investors in securities and to promote the
_. development of, and to regulate, the securities market. It further
•
noted that stock-brokers formed a distinct class.

8. We may also, with short shrift, reject an argument put H
162 SUPREME COURT REPORTS (2015] 9 S.C.R.

A forward on behalf of on13 of the Respondents, namely, Tvl.
Chemplast Sanmar Limited, that its production of industrial
alcohol was entirely captive for its own activity of manufacture
of PVC. Even assuming this to be so, there is always a
brooding a!1d omnipresent possibility of diversion of industrial
B alcohol to potable alcohol.

9. It seems to us, facially, that if administrative or service
charges are sought to be recovered from the Respondent
Distilleries to cover nefarious activities carried out by third
C parties such as smuggling and countryside brewing etc. which
have no causal connection with the production of industrial
alcohol, or for collection of excise duties from other industries
carrying out distinctly different production or manufacture, the
fee would metamorphose into a tax. We must hasten to
D explicate that the illegal or illicit diversion of industrial or ethyl
alcohol is possible at the stage where it is rectified spirit or
industrial alcohol, contrary to the argument of the Respondents.
Therefore, so long as expenses are incurred by the State
Government in ensuring that industrial alcohol is not used as
E potable alcohol, recovery thereof shall be permissible.· The
Process Chart submitted by the Appellant is reproduced for
the facility of clarification:

F

G

H
STATE OF TAMIL NADU v. TYL. SOUTH INDIAN SUGAR 163
MILLS ASSN. [VIKRAMAJIT SEN, J.]

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164 SUPREME COURT REPORTS [2015] 9 S.C.R.

A 10. A fervent prayer had been made by the Respondents
before us that in the event of our preferring the view that the
Appeals are sans merit, the collection ofadministrative/service
charges at the rate of 1/- per bulk litre should be refunded along
with interest. On the first date of hearing, this Court had directed
B maintenance of status quo and this being the position, no party
can be made to suffer. It is apposite to observe that the
Respondent Distilleries did not express any discomfiture on
collection of fee at the rate of 1/- per bulk litre either before this
Court or any of the subordinate courts. In fact, there was a
C hiatus in the litigation even in the High Court where collections
were made at the increased rate even though that was quashed
by the High Court. We clarify that there was no justification for
the Appellant State or its Excise Department to collect charges
D atthe rate of 1/- after it had been quashed by the learned Single
Judge. Keeping in perspective the absence of diligence by
the Respondent Distilleries from seeking timely variations or
modification of Orders passed by the Court, we desist from
directing that the collection of charges over and above 50 paise
E per bulk litre should be refunded.

11. However, in view of the concurrent failure of the
Appellant State in this litigation, it shall be liable to pay the
costs incurred by the Respondents in the litigation, not only
F before the High Court but in present Appeals as well. The
Appeals are accordingly dismissed.

Katpana K. Tripathy Appeals dismissed.