# SOUTHERN PHARMACEUTICALS & CHEMICALS TRICHUR & ORS. ETC v. STATE OF KERALA & ORS. ETC

- **Citation:** [1982] 1 S.C.R. 519
- **Court:** Supreme Court of India
- **Decided:** 1981-09-01
- **Case number:** Civil Appeal No. 533 of 1979
- **Bench:** 0. Chinnappa Reddy, A.P. Sen, Baharul Islam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/southern-pharmaceuticals-chemicals-trichur-ors-etc-v-state-of-kerala-ors-etc-8299
- **Pages:** 32

## Headnote

519
Kera/a Abkari Act 1077 ( 1of1077), SS. 12A, 12B, 14( e}, {f} and 68A and
Kerala Rectified Spirit Rules. 1972, Rules 13 and 16-Validity of-State GovernA
B
ment whether competent to enact law relating to medicinal and toilet preparations.
C
Constitution of India 1950, Schedule Vil, List I, Entry 84, List II Entries 8
and 54-Scope of-State legislature whether competent to enact a law with respect
to <intoxication liquors' or for le11ying excise duty on alcoholic requirements for
human consumption.
Doctrine of 'occupied field'-App/ication of-Incidental encroachment on
forbidden field-Whether affects competence of legislature to enact Jaw-Necessity
for examination of the sche1ne of both enactments-Charging section of statute
index to the real character of tax.
Tax and Fee-Distinction ~between-Quid pro quo stricto sensu-Whether
sine qua non of'fee'.
Words and Phrases-' Shall have due regard to'-Meaning of.
The appellants, who were manufacturers of medicinal and toilet preparations
containing alcohol challenged the constitutional validity in their writ petitions
under Art. 226 of the Constitution of the provisions of ss. 12A, 12B, 14(e) and
D
E
(f ), 56A and s. 68A of the Kerala Abkari Act, 1967 (Act No. X of 1967) and
F
Rules 13 and 16 of the Kerala Recti11.ed Spirit Rules, 1973 and rr. 5, 6 and 7 of
the Kerala Spiritious Preparations Rules, 1969 on the ground that the State
Legislature had no power to enact a law relating to medicinal and toilet preparations as the topic of the legislation was within the exclusive domain of Parliament
under Entry 84, List I of the Seventh Schedule of the Constitution and also on
the ground that they were violative of Art. 19(1) (g) read with Art. 301 of the
Constitution. The High Court dismissed the writ petition holding that there was
G
no conflict between the impugned provisions and the Central law, i.e., the
Medicinal and Toilet Preparations (Excise Duties) Act, 1955 or the Medicinal
and Toilet Preparations (Excise Duties) Rules, 1956 framed thereunder as they
dealt with different subjects. The High Court further held that the impugned
provisions do not offend against Art. 19(1) (g) or Art. 301 of the Constitution.
In the appeal and the special leave petition to this Court it was contended
on behalf of the appellants (1) The State Legislature had no legislative competence
H
520
SUPREME COURT REPORTS
(1982] I S.C.R.
A
to enact 1te irr.i:trr:cd rrc\'isicns tecsufe lhe fidd was occupied by the provisions
of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (The Central
Act) and the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 (the
Central Rules), and alternatively, the impugned provisions are violative of the
fundamental right guaranteed in Art. 19(1) (g) of the Constitution. (2) ''Drugs
and Pharmaceuticals" having been declared by Parliament under s. 2 of the
Industries (Development and Regulation) Act, 1951 to be a scheduled industry,
B
being item 22 of the First Schedule thereof, the power ·or the State Legislature
to make a law in respect of medicinal and toilet preparations containing alcohol
was taken away. (3) The provisions made ins. 14{e) of the Act for the collection
of supervisory charges was clearly invalid in as much as (a) they are in conflict
with r. 45 of the Central Rules, and (b) they could not be sustained as a fee as
there was no quid pro quo. (4) Rule 13 of the Kerala Rectified Spirit Rules,
1972, providing for the levy of excise duty as excess wastage of alcohol in the
C
manufacture of medicinal and toilet preparations cannot be supported in terms
of the charging provision contained in s. 17 of the Act. (5) The power to restrict
the quantity of ayurvedic asavas and arishtas in which alcohol is self-generated
in the process of manufacture having regard to the total requirement of such
medicinal preparations for consumption or use in the State is an unreasonable
restriction on the fundamental right to carry on trade or business guaranteed
unde

## Text

_Characters 0–39,651 of 78,248. This is a partial read: ask again with offset=39651 for what follows._

SOUTHERN PHARMACEUTICALS & CHEMICALS
TRICHUR & ORS. ETC.
v.
STATE OF KERALA & ORS. ETC.
September 1, 1981
(0. CHINNAPPA REDDY, A.P. SEN & BAHARUL ISLAM, JJ.]
519
Kera/a Abkari Act 1077 ( 1of1077), SS. 12A, 12B, 14( e}, {f} and 68A and
Kerala Rectified Spirit Rules. 1972, Rules 13 and 16-Validity of-State GovernA
B
ment whether competent to enact law relating to medicinal and toilet preparations.
C
Constitution of India 1950, Schedule Vil, List I, Entry 84, List II Entries 8
and 54-Scope of-State legislature whether competent to enact a law with respect
to <intoxication liquors' or for le11ying excise duty on alcoholic requirements for
human consumption.
Doctrine of 'occupied field'-App/ication of-Incidental encroachment on
forbidden field-Whether affects competence of legislature to enact Jaw-Necessity
for examination of the sche1ne of both enactments-Charging section of statute
index to the real character of tax.
Tax and Fee-Distinction ~between-Quid pro quo stricto sensu-Whether
sine qua non of'fee'.
Words and Phrases-' Shall have due regard to'-Meaning of.
The appellants, who were manufacturers of medicinal and toilet preparations
containing alcohol challenged the constitutional validity in their writ petitions
under Art. 226 of the Constitution of the provisions of ss. 12A, 12B, 14(e) and
D
E
(f ), 56A and s. 68A of the Kerala Abkari Act, 1967 (Act No. X of 1967) and
F
Rules 13 and 16 of the Kerala Recti11.ed Spirit Rules, 1973 and rr. 5, 6 and 7 of
the Kerala Spiritious Preparations Rules, 1969 on the ground that the State
Legislature had no power to enact a law relating to medicinal and toilet preparations as the topic of the legislation was within the exclusive domain of Parliament
under Entry 84, List I of the Seventh Schedule of the Constitution and also on
the ground that they were violative of Art. 19(1) (g) read with Art. 301 of the
Constitution. The High Court dismissed the writ petition holding that there was
G
no conflict between the impugned provisions and the Central law, i.e., the
Medicinal and Toilet Preparations (Excise Duties) Act, 1955 or the Medicinal
and Toilet Preparations (Excise Duties) Rules, 1956 framed thereunder as they
dealt with different subjects. The High Court further held that the impugned
provisions do not offend against Art. 19(1) (g) or Art. 301 of the Constitution.
In the appeal and the special leave petition to this Court it was contended
on behalf of the appellants (1) The State Legislature had no legislative competence
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520
SUPREME COURT REPORTS
(1982] I S.C.R.
A
to enact 1te irr.i:trr:cd rrc\'isicns tecsufe lhe fidd was occupied by the provisions
of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (The Central
Act) and the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 (the
Central Rules), and alternatively, the impugned provisions are violative of the
fundamental right guaranteed in Art. 19(1) (g) of the Constitution. (2) ''Drugs
and Pharmaceuticals" having been declared by Parliament under s. 2 of the
Industries (Development and Regulation) Act, 1951 to be a scheduled industry,
B
being item 22 of the First Schedule thereof, the power ·or the State Legislature
to make a law in respect of medicinal and toilet preparations containing alcohol
was taken away. (3) The provisions made ins. 14{e) of the Act for the collection
of supervisory charges was clearly invalid in as much as (a) they are in conflict
with r. 45 of the Central Rules, and (b) they could not be sustained as a fee as
there was no quid pro quo. (4) Rule 13 of the Kerala Rectified Spirit Rules,
1972, providing for the levy of excise duty as excess wastage of alcohol in the
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manufacture of medicinal and toilet preparations cannot be supported in terms
of the charging provision contained in s. 17 of the Act. (5) The power to restrict
the quantity of ayurvedic asavas and arishtas in which alcohol is self-generated
in the process of manufacture having regard to the total requirement of such
medicinal preparations for consumption or use in the State is an unreasonable
restriction on the fundamental right to carry on trade or business guaranteed
under Art. 19(1) (g) and was also violative of Art. 301 as there was demand for
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such medicinal preparations not only in the State but throughout the country.
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Dismissing t-he Appeal and Special Leave Petition,
HELD : (1) The Central and State Acts operate in two separate and distinct
fields and are not in conflict with each other. While the main purpose of the
impugned Act is to consolidate the law relating to manufacture, sale and
possession of intoxicating Jiquors and intoxicating drugs, a subject which fa11s
under Entry 8 of List II of the Seventh Schedule, the main object of the Central
Act is to provide for the levy and collection of duties of excise on medicinal and
toilet preparations containing alcohol falling under Entry 84 List I. [536 G-Fl
2(i). The enactment of the Medicinal and Toilet Preparations (Excise
Duties) Act, 1955 by Parliament under Entry 84, List I of th.e Seventh ScheduJe
of the Constitution, or the framing of the Medicinal and Toilet Preparations
(Excise Duties) Rules, 1956 by the Central Government in exercise of their rulemaking power under section 19 of the Act, for the purpose of levying duties of
excise on medicinal and toilet preparations containing alcohol etc., do not prevent the State Legislature from making a law under Entry 8, List II of the Seventh
Schedule to the Constitution with respect to 'intoxicating liquors' or a law under
Entry 51 List II for levying excise duties on alcoholic requirements for human
consumption. [528 C-D]
(ii) It is the charging section which gives the true index to the real character
of a tax. The nature of the n1achinery by which the tax is to ho assessed is not
of assistance, except in so far as it may throw light on the general character of
the tax. The charging section in s. 3 of the Central Act clearly shows that it
does not seek to levy a duty of excise on alcohol liquor for human consumption
falling within Entry 51 List II of the Seventh Schedule, but to levy a duty of
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SOUTHERN PHARMACEUTICALS V. KERALA
521
excise on medicinal and toilet preparations containing alcohol etc. The topic
of legislation under Entry 84, List I of the Seventh Schedule is 'duties of excise
on medicinal and toilet preparations containing alcohol etc. The Central Act
must in pith and substance, be attributed to Entry 84, List. I. [532 C-E]
(iii) The Central and the State Legislations operate on two different and distinct fields. The Central Rules, to some extent, trench upon the field reserved to
the State Legislature, but that is merely incidental to the main purpose, that is, to
levy duties of excise on medicinal and toilet preparation containing alcohol. Some
of the impugned provisions may be almost similar to some of the provisions of
the Central Rules, but that does not imply that the State Legislature had no
competence to enact the provisions.
The State Legislation is confined to
'intoxicating liquor', that is, to ensure proper utilisation of rectified spirit in the
manufacture of medicinal and toilet preparations and, therefore, within the
powers granted to the State Legis1ature under Entry 8, List II. It further seeks
to regulate the manufac.ture of bona fide medicinal preparations and prevent
misuse of rectified spirit in the manufacture of spurious medicinal and toilet preparations containing alcohol capable of being used as ordinary alcoholic
beverages.
(532 F-533 A]
(iv) The enumeration of 'intoxicating liqour' in Entry 8, List II, confers
exclusive power to the State to legislate in respect of medicinal and toilet preparations containing alcohol. (533 B]
(v) In matters of seeming conflict or encroachment of jurisdictions, what
is more important is the true nature and character of the legislation. A neces$ary
corollary of the doctrine of pith and substance is that once it is found that in pith
and substance the impugned Act is a law on a permitted field, any incidental
encroachment on a forbidden field does not affect the competence of the legislature to enact the law. [534 B-C]
Prafu//a Kumar Mukherjee and Ors. v. Bank of Commerce Lzd. Khulna,
A.I.R. 1947 PC 60 at 65 and State of Bombay v. F. N. Balsara [1951] SCR 682
at 694-5 referred to.
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(vi) There can be no doubt that the impugned Act is relatable to Entry 8,
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List II of the Seventh Schedule. [536 A]
(vii) When the frame-work of the two enactments is examined, it would
be apparent that the Central and the State Legislature operate in two different
and distinct fields. In the matter of making rules or detailed provisions to
achieve the object and purpose of a legislation, there may be some provisions
seemingly overlapping or encroaching upon the forbidden field, but that does not
warrant the striking down of the impugned Act as ultra vires the State Legislature.
G
[536 G-537 A]
Hyderabad Chemical and Pharmaceutical Works Ltd. v. State of Andhra
Pradesh and Ors. [1964] 7 S.C.R. 376 distinguished.
(viii) No citizen has any fundamental right guaranteed under Art. 19(1) (g)
of the Constitution to carry on trade in any noxious and dangerous goods like
intoxicating drugs or intoxicating liquors, The power to legislate with regard to
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intoxicating liqour carries with it the power to regulate the manufacture, sale and
possession of medicinal and toilet preparations containing alcohol, not for the
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522
SUPREME COURT REPORTS
(1982] I S.C.R.
purpose of interfering with the right of citizens in the matter of consumption or
use for bona fide medicinal and toilet preparations, but for preventing intoxicating
liquors from being passed on under the guise of medicinal and toilet preparations.
It was within the competence of the State Legislature to prevent the noxious use
of such preparations i.e. their use as a substitute for alcoholic beverages. [537B· DJ
In the instant case the provision-. have been enacted to ensure that rectified
spirit is not misused under the pretext of being used for medicinal and toilet
preparations containing alcohol. Such regulation is a necessary concomitant of
the police power of the State to regulate such trade or business which is inherently
dangerous to public health. (537 El
(ix) All that the provisions of ss. 12A and l 2B ordain is that the Com·
missioner "shall have due regard to the total requirement of such medicinal
preparations for consumption or use in the State". The Commissioner has,
therefore, only to take into account the total requirements within the State as an
element which should enter the assessment and no more. As a necessary corol·
1ary, it follows that in fixing the quantity of medicinal and toilet preparations to
which alcohol is added or in ~which it is self·generated, normally the Commis·
sioner shall have regard to larger requirements of the manufacturer, if the manufactured product has a market outside the State. The restrictions imposed by
section 12B as to the alcoholic content of medicinal and toilet preparations and
the requirement that they shall not be manufactured except and in accordance
with the terms and conditions of a licence granted by him, are nothing but
reasonable restrictions within the meaning of Art. 19(6). The impugned pro·
visions, therefore, cannot be struck down as offending Art. 19(1) (g) of the
Constitution. [538 E-539 Bl
3. The State Act, in pith and substance, is not a legislation under Entry 24,
List II and, therefore, the question does not arise. [539 E]
4(i) (a) The provision contained ins. 14(e) of the Act is clearly relatable
to the State's power to make a Jaw under Entry 8 read with Entry Sl(a). List II
of~the Seventh Schedule. S. 14(e) of the Act is valid in so far as it provides
that the Commissioner may prescribe the size and nature of the establishment
for such supervision and the cost of establishment and other incidental charges
in connection with such supervision to be realised from the licensee. There is no
warrant for the submission that the framing of such an incidental provision like
r. 45(1) of the Central Rules takes away the State's power to recover supervisory
charges from the licensee. (540 B-C]
(b) 'Fees' are the amounts paid for a privilege and are not an obligation.
Fees are distinguished from taxes in that the chief purpose of a tax is to raise
funds for the support of the Government or for a public purpose, while a fee
may be charged for the privilege or benefit conferred, or service rendered or to
meet the expenses connected therewith. Thus, fees are nothing but payment for
some special privilege granted or service rendered. Taxes and taxation are,
therefore, distinguishable from various other contributions, charges, or burdens
paid or imposed for particular purposes and under particular powers or functions
of the Government. It is now increasingly realised that merely because the
collections for the services rendered or grant of a privilege or licence, are taken
to the Consolidated Fund of the State and are not separately appropriated
towards the expenditure for rendering the service is not by itself decisive. It is
also increasingly realised that the element of quid pro quo stricto sensu is not
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SOUTHERN PHARMACEUTICALS v. KERALA
523
always a sint qua non of a fee.
It is needless to stress that the element cf quid
pro quo is not necessarily absent in every tax, [541 G.542 D]
Mahant Shri Jagannath Ramanuj Das v. The State of Ori8'a [1954] SCR
1040, Ratllal Panachand Gandhi v. The State of Bombay [1954) SCR 1055,
Constitutional Law of India by H.,M. Seervai, 2nd Edn. Vol. 2, p. 1252, para
22.39 & Kewal Krishan Puri & Anr. v. State of Punjab & Ors. (1979] 2 SCR 1217
at 1230 referred to.
(ii) In the case of a manufacturer of medicinal and toilet preparations
containing alcohol in a bonded manufactory, the imposition of the cost of estah·
Jishment under s. t4(e) of the Act calculated in accordance with the nature and
extent of that establishment could not be said to be an imposition of a duty of
excise, but is a price for his franchise to carry on the business. [543 D-E]
(iii) No one has a fundamental right to the supply of rectified spirit which
is an intoxicating liquor. It is upto the State to control and regulate its supply
from a distillery or a spirit warehouse in the State under and in accordance with
the terms and conditions of a licence or permit its import from outside by grant
of a privilege and charge a fee for the same.
A fee may be charged for the
privilege or benefit conferred, or service rendered, or to meet the expenses
connected therewith. A fee may be Jevied to meet the cost of supervision and
may be something more. It is in consideration for the privilege, licence or service.
The State is undoubtedly entitled to levy excise duty on the rectified spirit issued
from a distillery under s.17(f) of the Act read with r. 13 of the Kerala Rectified
Spirit Rules, 1972 but it refrained from making any such levy by reason of rule
21 of the Central Rules and has, therefore, by proviso to rule 8 allowed a manufacturer of medicinal and toiJet preparations to draw rectified spirit from a
distillery without payment of duty. It is thus a privilege conferred on the licensee.
To claim the privilege he must comply with the conditions prescribed. If one of
the conditions is the payment of cost of establishment under section 14(e) of
the Act read with rule 16(4) of the Central Rules, the manufacturer of such preparations must ne:essarily bear the burden as the licensee gets services in return
in lieu of such payment. [543 G-544 CJ
5. Rule 13(2) is nothing but a corollary of rule 13(1).
On a combined
reading of section 17(0 and rule 8 read with the proviso thereof, no duty is
chargeable on alcohol actua11y used in the manufacture of medicinal and toilet
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preparations. The Government realised that some margin for wastage should
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be allowed and, therefore, inserted the proviso to rule 13(2}, which provides that
the Government may, in consultation with the Drugs Controller and the Chemical
Examiner, by notification in the Gazette, permit allowance for wastage occurring
during the manufacture. Beyond the permissible limit, the State has the right to
levy a duty on e:rccess wastage of alcohol, i.e. on alcohol not accounted for.
[548 D-F]
6. The restriction imposed by section 12A of the Act as to the quantity of
medicinal preparations to be manufactured relate not only to preparations to
which alcohol is added but also to medicinal preparations in which alcohol is
self-generated. There can be no doubt that avurvedic asavas and aristhas which are
capable of being misused as alcoholic beverage and come within the purview of
the definition of 'liquor• contained in section 3(10) of the Act being liquid containing alcohol. The contention that Note to rule 3(1) is an ureasonable restriction on the freedom of trade guaranteed under Article 19(1) (g) of the Constitution has no substance. [549 B-D]
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SUPREME COURT REPORTS
[1982] 1 S.C.R.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 533 of
1979.
From the judgment and order dated 2nd January, 1979 of the
High Court of Kerala in Original Petition No. 4935 of 1974-D.
and
Special Leave Petition No. 81 OF 1971.
From the judgment and order dated the 27th July, 1971
of the Kerala High Court in O.P. No. 4706 of 1969.
C
T.S. Krishnamoorthy Iyer, C.J. Balakrishnan, K. Prabhakaran,
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P. Parameswaran and A.S. Nambiar for the appellant in C.A. No.
533/79.
P. Govindan Nair. Mrs. Baby Krishnan, K.R. Nambiar and
K.M.K. Nair for the respondent in C.A. No. 533/79.
S.B. Sahariya and V.B. Sahariya for the petitioner in S.L.P.
No. 81/72.
The Judgment of the Court was delivered by
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SEN, J. This appeal. by special leave, is directed against a
judgment of the Kerala High Court by which the High Court dis·
missed the writ petition of the appellants who are manufacturers of
medicinal and toilet preparations containing alcohol and upholding
the constitutional validity of ss. 12A, 12B, 14(e) and (f) and 68A of
the Abkari Act, 1077 (l of 1077) (hereinafter called 'the Act'),
F
introduced by the Abkari (Amendment) Act, 1967 (10 of 1967), and
rr. 13 and 16 of the Kerala Rectified Spirit Rules, 1972.
The main
question in the appeal is as to the legislative competence of the State
to enact a law relating to medicinal and toilet preparations containing alcohol under Entry 8, List II of the Seventh Schedule to the
Constitution.
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The appellants, by virtue of a licence in Form 25 granted under
the Drugs and Cosmetics Act, l 940:and a licence in Form LI granted
under the Medicinal and Toilet Preparations (Excise Duties) Act,
1955 (hereinafter referred to as 'the Central Act') are entitled to
manufacture the drugs specilied therein.
They filed a writ petition in
the High Court complaining that they were entitled to the supply of
alcohol free of duty for the manufacture of their medicinal and toilet
SOUTHERN PHARMACEUTICALS v. KERALA (Sen, J.)
525
preparations under r. 21 of the Medicinal and Toilet Preparations
(Excise Duties) Rules, 1956 (hereinafter referred to as 'the Central
Rules'), and r. 8 of the Kerala Rectified Spirit Rules, 1972, and
challenged the validity of the impugned provisions mainly on the
ground that the State Legislature has no power to enact the law
relating to medicinal and toilet preparations as the topic of legis·
lation is within the exclusive domain of Parliament under Entry 84,
List I of the Seventh Schedule to the Constitution. The High Court
held that there was no conflict between the impugned provisions and
the Central law as they dealt with different subjects.
The impugned provisions, as introduced by the Abkari
(Amendment) Act, 1967, in so far as they are relevant, are as
follows:
Section l 2A reads :
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l 2A. No preparation to which liquor or intoxi·
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eating drug is added during the process of its manufacture or in which alcohol is self-generated during such
process shall be manufactured in excess of the quantity
specified by the Commissioner :
Provided that in specifying the quantity of a
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medicinal preparation, the Commissioner shall have
due regard to the total requirement of that preparation
for consumption or use in the State.
Section l 2B provides :
12B. (I) No person shall utilise liquor or intoxi·
eating drug in the manufacture of any preparation, in
excess of the quantity specified by the Commissioner
and except under and in accordance with the terms
and conditions of a licence granted by the Commis·
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siooer in that behalf :
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Provided that where such preparation is a medi·
cinal preparation, Commissioner shall, in specifying
the quantity of liquor or intoxicating drug have due
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regard to the total requirement of such medicinal
preparation for consumption or use in the State.
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SUPREME COURT REPORTS
[1982] I s.c.R.
Section 14 provides :
14. The Commissioner may, with the previous
approval of the Government, -
(d) prescribe the mode of supervision that may be
necessary in a ... .. . ... .. . ... . .. . ..
manufactory where
preparations containing liquor or intoxicating drugs are
manufactured, to ensure the proper collection of duties,
taxes and other dues payable under this Act or the
proper utilisation of liquor or intoxicating drugs;
(e) prescribe the size and nature of the establishment necessary for such supervision and the cost of
the establishment aud other incidental charges in
connection with such supervision to be realised from
the licensees; and
(f) prescribe
the allowance for
wastage
of
alcohol that may occur in -
(i)
(ii)
the process of manufacture of any preparation containing alcohol; and
(iii)
Section 68A provides that the Government shall appoint an Expert
Committee consisting of the Drugs Controller, the Chemical E>raminer to the Government, two representatives each one of them shall
be a non-official, of the Allopathic, Indigenous and Homoeopathic
systems of medicine appointed by the Government, and an officer of
the Excise Department not below the rank of Deputy Commissioner;
and the Committee shall advise the Commissioner (a) as to whether
a medicinal preparation is a bona fide medicinal preparation or not;
and (b) as to the total requirements of medicinal preparations containing liquor or intoxicating drugs or in which alochol is self-generated during the process of their manufacture, for the whole of the
State during one year.
Before this Court the constitutional validity of the impugned
provisions was mainly challenged on these grounds, namely : (I) The
State Legislature had no legislative competence to enact the impugned
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SOUTHERN PHARMACEUTICALS v. KERALA (Sen, J.)
527
provisions because the field was occupied by the provisions of the
Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (the
Central Act) and the Medicinal and Toilet Preparations (Excise
Duties) Rules, 1956 (the Central Rules), and
alternatively, the
impugned provivions are violative of the fundamental right guaranteed in Art. 19(1) (g) of the Constitution.
(2) The Parliament
having made a declaration in s. 2 of the Industries (Development and
Regulation) Act, 1951, declaring "Drugs and Pharmaceuticals" to
be a scheduled industry, being item 22 of the First Schedule thereof,
the power of the State Legislature to make a law in respect of medicinal and toilet preparations containing alcohol
is taken away.
(3) The provisions made ins. 14(e) of the Act for the collection of
supervisory charges was clearly invalid in as much as (a) they are
in conflict with r. 45 of the Central Rules, and (b) they could not
be sustained as a fee as there was no quid pro quo.
( 4) Rule 13 of
the Kerala Rectified Spirit Rules, 1972, providing for the levy of
excise duty as excess wastage of alcohol in the manufacture of medicinal and toilet preparations cannot be supported in terms of the
charging provision contained in s. 17 of the Act.
We cannot accept
any of these contentions.
With regard to the first ground, it was submitted that the
conferral of power on the Commissioner under s. 12A of the
Act to restrict the quantity of medicinal and toilet preparations
to which liquor or intoxicating drug is added during the process of
its manufacture with the requirement that the Commissioner shall, in
specifying such quantity, have due regard to the total requirements
of consumption or use in the State, the prohibition contained in
s. 12B of the Act that no person shall utilise liquor or intoxicating
drug in the manufacture of any preparation, in excess of the quantity
so specified by the Commissioner and the condition that no person
shall manufacture any such preparations except under and in accor•
dance with the terms and conditions of a licence granted by him,
is clearly contrary to the general scheme of the Central law
and in particular, rr. 18 and 21 of the Central Rules.
In
this respect, it was said that under r.
18 of the Central Rules,
rectified spirit ordinarily had to be supplied to a manufacturer from
a distillery or a spirit warehouse of the State in which the manufactory is situate, and the manufacturer was not precluded from
obtaining his requirements of rectified spirit from sources outside
the State.
Under r. 21, rectified spirit had to be issued without
previous payment of duty for the manufacture of medicinal and
toilet preparations containing alcohol subject to the condition that
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manufacturer enters inlo a bond in Form Bl with sufficient security
as laid down in r. 96, towards due payment of duty and observance
of the rules. It is submitted that the State Legislature bas no power
to make any such law imposing restrictions on a person carrying on
the business of manufacture and sale of medicinal and toilet preparations containing alcohol in as much as the matter relates to an
occupied field.
There is no merit in these contentions.
The enactment of the Medicinal and Toilet Preparations
(Excise Duties) Act, 1955 by Parliament under Entry 84, List I of
the Seventh Schedule of the Constitution, or the framing of the
Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 by
the Central Government in exercise of their rule-making power
under s. 19 of the Act, for the purpose of levying duties of excise on
medicinal and toilet preparations containing alcohol etc., do not
prevent the State Legislature from making a law under Entry 8, List
II of the Seventh Schedule to the Constitution with respect to
'intoxicating liquors', or a law under Entry 51, List II for levying
excise duties on alcoholic liquor for human consumption. In order
to appreciate the contention regarding the applicability of the
doctrine of 'occupied field', it is necessary to examine the scheme of
both the enactments.
The scheme of the Act, as reflected in the preamble, is that it
is an Act "to consolidate and amend the law relating to the import,
export, transport, manufacture, sale and possession of intoxicating
liquor and all intoxicating drugs in the State of Kerala". It is not
necessary to set out all the provisions of the Act in question, but
reference may be made to the definitions of expressions 'spirit',
'liquor', 'country liquor', 'foreign liquor' and 'intoxicating liquor'
defined in ss. 3(9), (IO), (12), (13) and (14).
The expression 'liquor'
as defined in s. 3( 10) reads :
3(10). 'Liquor' includes spirits of wine, methylated
spirits, spirits, wine, toddy, beer, and all liquid consisting of
or containing alcohol.
Section 12(1) provides :
12(1). No liquor or intoxicating drug shall be manufactured ...... except under the authority and subject to the
terms and conditions of licence granted by the Commissioner in that behalf, or under the provisions of section 21;
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SOUTHERN PHARMACEUTICALS v. KERALA (Sen, J.)
529
Section 15 provides :
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15. No liquor or intoxicating drug shall be sold without a licence from the Commissioner, provided that a
person having the right to the toddy drawn from any tree
may sell the same without a licence to a person licensed to
manufacture or sell toddy under this Act.
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Section 17 provides :
17. A duty of excise or luxury tax or both shall, if the
Government so direct, be levied on all liquor and intoxicating drugs :-
C
(f} issued from a distillery, brewery, winery or
other manufactory or warehouse licensed or
established under section 21 or section 14; or
The Act is clearly relarable to the State's power to make a law on
the topics of legislation covered by Entries 8 and 51, List II of the
Seventh Schedule to the Constitution, which read as under :
8. Intoxicating liquors, that is to say, the production,
manufacture, possession, transport, purchase and sale of
intoxicating liquors.
51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at
the same or lower rates on similar goods manufactured or
produced elsewhere in India : -
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs
and narcotics;
but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b)
of this entry.
The legislative history of the Central Act is well known. Under
Entry 40, List II of the Seventh Schedule to the Government of
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SUPREME COURT REPORT~
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India Act, 1935, medicinal and toilet preparations containing alcohol
etc., were subjected to Provincial excise duties.
Under the Constitution, the entry relating to the excise duty on medicinal and toilet
preparations containing alcohol was transferred to the Union List.
In the light of experience gained, there was necessity to achieve a
synthesis from a vast body of existing rules and regulations in force
in the States having regard to the sole object of the measure, namely,
to bring about uniform treatment in excise matters.
This was a
highly complicated subject because, firstly, the excise duty was to be
collected and retained by the State Governments, and, secondly, a
certain amount of flexibility in statutory operations was necessary
if spurious medicines were not to defeat the policy of prohibition
which is one of the Directive Principles of State Policy under Art.
47 of the Constitution. Some of the provisions of the Central Act
are so designed as to lay down only broad principles. Matters of
detail, such as classification of the preparations as capable or not
capable of being used as ordinary alcoholic beverages, regulation
for the purpose of the Act, of production, storage and movement,
were left to be regulated by rules.
Parliament accordingly enacted the Medicinal
and Toilet
Preparations (Excise Duties) Act, 1955, to provide for the levy and
collection of duties of excise on medicinal and toilet preparations
containing alcohol. The Act is relatable to Entry 84, List I of the
Seventh Schedule to the Constitution, which reads :
84. Duties of excise on tobacco and other goods
manufactured or produced in India except-
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and
narcotics,
but including medicinal and toilet preparations containing
alcohol or any substance included in sub-paragraph (b) of
this entry.
The scheme of the Central Act is to provide for the levy and
collection of duties of excise on medicinal and toilet preparations
containing alcohol etc. The Act is entitled as "An Act to provide
for the levy and collection of duties of excise on medicinal and
toilet preparations containing alcohol, opium. Indian hemp or other
narcotic drug or narcotic". Section 2 is the definition Section and
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SOU.THERN PHARMACEUTICALS v. KERALA (Sen, J.)
531
the expression 'dutiable goods' as defined in s. 2(c) takes in medicinal
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and toilet preparations specified in the Schedule. The expression
'medicinal preparation' is defined in s. 2(g) as :
2(g). 'medicinal preparation' includes all drugs which
are a remedy or prescription prepared for internal or
external use of human beings or animals and all substances
intended to be used for or in the treatment, mitigation or
prevention of disease in human beings or animals;
It is not necessary to refer to the definition of 'toilet' preparation in
s. 2(k) as it is not relevant for the present purpose. Section 3 is
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the charging section which levies duties of excise on all 'dutiable
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goods' manufactured in India and also lays down the mode of
collection of the said duties.
Section 3 (I) reads :
3(1). There shall be levied duties of excise, at the
rates·specified in the Schedule, on all dutiable goods manufactured in India.
Section 6 prohibits any person from engaging in the production or
manufacture of any dutiable goods etc., except under the authority
and in accordance with the terms and conditions of the licence
granted under the Central Act.
Section 19 (l) empowers the
Central Government to make rules to carry out the purposes of the
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Act, and sub·s. (2) thereof specifies the 'arious matters in respect of
which such rules may be made. Section 21 provides for the repeal
iu1d savings. The Schedule to the Act contains a description of
'dutiable goods' and the rates of duty payable thereon.
In exercise of the powers conferred by s. 19 (l) of the Central
Act, the Central Government framed the Central Rules which
practically deal with all the facets of manufacture and production
of.mecliCtnal and toilet preparations, as required in els. (i) to (xxi)
ot sub:s. (2) ihereof, with the ultimate object of providing a machinery for collection of duty·. on the said preparations. Chapter IV
of the Central Rules deals with 'Manufacture'. Rule 18 in Chapter
IV provides that· rectified spirit shall ordinarily be supplied to a
manufacturer from ·a distillery ... of the State in which the manufactory is situated. It further provides that the manufacturer is not
precluded from obtaining his requirements of rectified spirit from
soμrces oμtside the State, Rule 21 provides tlia( rectified spirit
shall.be.issuecl without previous pliyment of duty to a manufacturer
of m.edicinal.and toilet preparatioμs containlntl alcohol .. Rule 33
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SUPREME COURT REPORTS
[I ~82] 1 S.C.R.
provides for taking of samples of the manufactured product for
analysis for determining the strength of alcohol and medicaments.
Rule 38 provides for wastage in manufacture.
Rule 45(1) enjoins
that the officer-in-charge shall exercise such supervision as is required
to ensure that alcohol issued for a certain preparation is added to
the materials which go to make that preparation and that no portion'
of such alcohol is diverted to other purposes. These rules are
intended and meant to carry out the main object of the Central Act.
i.e. to levy and collect duties of excise on medicinal and toilet
preparations containing alcohol etc.
It is the charging section which gives the true index to the·
real character of a tax. The nature of the machinery by which
the tax is to be assessed is not of assistance, except in so far as it
may throw light on the general character of the tax.
The charging
section in s. 3 of the Central Act clearly shows that it does not seek
to levy a duty of excise on alcoholic liquor for human consumption
falling within Entry 51, List II of the Seventh Schedule, but to levy
a duty of excise on medicinal and toilet preparations containing
alcohol etc. The topic of legislation under Entry 84, List I of the
Seventh Schedule is not 'duties of excise on alcoholic liquors for
human consumption' but 'duties of excise on medicinal and toilet
preparations containing alcohol etc'. There can be little doubt that
the Central Act must, in pith and substance, be attributed to Entry
84, List I.
In determining whether an enactment is a legislation 'with
respect to' a given power, what is relevant is not the consequences
of the enactment on the subject matter or whether it affects it, but
whether, in its pith and substance, it is a law upon the subject
matter in question. The Central and the State Legislations operate
on two different and distinct fields. The Central Rules, to some
extent, trench upon the field reserved to the State Legislature, but
that is merely incidental to the main purpose, that is, to levy duties
of excise on medicinal and toilet preparations containing alcohol.
Similarly, some of the impugned provisions may be almost similar
to some of the provisions of the Central Rules, but that that does
not imply that the State Legislature had no competence to enact the
provisions.
It is sufficient to say upon the first ground that the impugned
legislation is confined to 'intoxicating liquor', that is, to ensure
proper utilisation of rectified spirit in the manufacture of medicinal
and toilet preparations and, therefore, within the powers granted
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SOUTHERN PHARMACEUTICALS v. KERALA (Sen, J.)
533
to the State Legislature under Entry 8, List II.
It further •eeks to
regulate the manufacture of bona fide medicinal preparations and
prevent misuse of rectified spirit in the manufacture of spurious
medicinal and toilet preparati011s containing alcohol capable of
being used as ordinary alcoholic beverages. It was suggested that
the provisions are identical with the provisions contained in the
'Central Rules and, in particular, to rule 45(1) and, therefore, the
legislation is in the occupied field. The answer is that the enumer-
·ation of 'intoxicating liquor' in Entry 8, List II, confers exclusive
power to the State to legislate in respect of medicinal and toilet
preparations containing alcohol.
In Prafulla Kumar Mukherjee and Ors. v. Bank of Commerce
-Ltd., Khulna(') the Privy Council in dealing with the question of
distribution of powers laid down the tests that in order to see
whether an Act is in respect of a particular subject, one must look
to "its true nature and character"; "its pith and substance", Lord
Porter, in delivering the judgment of the Judicial
Committee,
observed
"As Sir Maurice Gwyer, C.J. said in the Subramanyam
Chettiar Case : ' It must inevitably happen from time to
time that legislation, though purporting to deal with a
subject in one list, touches also on a subject in another
.list, and the different provisions of the enactment may be
so closely inter-twined that blind observance to a strictly
verbal interpretation would result in a large number of
statutes being declared invalid
because the legislature
enacting them may appear to have legislated in a forbidden
sphere.
Hence the rule which has been evolved by the
Judicial Committee, whereby the impugned statute is
examined fo ascertain its 'pith and substance', or 'its
true nature and character', for the purpose of determining
whether it is legislation with respect to matters in this list
or in that".
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The doctrine of 'pith and substance' evolved by the Privy Council
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·has been followed by this Court throughout. Thus, in State of
Bombay v, F. N. Balsara(') Faz! Ali, J., followed the decision of the
Judicial Committee, reiterated :
·(!) A.J.R. 1947 PC 60 at 65,
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(2) ,[1951] S.C.R._ 682 at 694-5.
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SUPREME COURT REPORTS
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"If the Act, when so viewed, substantially falls within
the powers expressly conferred upon the Legislature which
enacted it, then it cannot be held to be invalid, merely
because it incidentally encroaches on matters which have
been assigned to another Legislature."
In such matters of seeming conflict or encroachment of jurisdictions,
what is more important is the true nature and character of the
legislation.