JUDGMENT R.A. Sharma, J. - Petitioner is holding F.L-16 licence for whole sale vend of ordinary denatured spirit having strength of 93.39% V/V. which is unfit for human consumption. By this writ petition he has challenged the enhancement of licence fee by the impugned notification dated 29-1-1990 and has also prayed for writ of mandamus directing the respondents not to realise purchase tax and ad valorem licence fee and not to stop supply of ordinary denatured spirit for non payment of purchase tax and ad valorem licence fee. At the time when the writ petition was filed, this court passed the following interim order : "Pending further orders of this Court respondents are directed to supply ordinary denatured spirit to the petitioner on payment of licence fee at the rate of 25% of the ad valorem on sale made by the distillery to him. So far as purchase tax is concerned, there shall be no stay pending further orders of this Court. State has filed a counter-affidavit and in reply thereto the petitioner has filed a rejoinder affidavit. A supplementary affidavit on behalf of the State and a supplementary rejoinder affidavit in reply thereto by the petitioner have also been filed. The writ petition is being disposed of in accordance with the Rules of the Court. 2. Rule 680 of U.P. Excise Rules, which authorises the Collector to grant F.L.-16 licence for the whole sale vend of denatured spirit, provided for levy of fee for such licence at the rate of 15% ad valorem on the sale made by a distillery to the licensee. This rate of 15% was by subsequent amendment raised to 25% and by the impugned notification it has further been raised to 40% ad valorem. 3. Learned counsel for the petitioner has attacked the levy on the ground that the State Government has no right to levy licence fee on industrial alcohol and in any case there isnoquid pro quo and the levy is highly excessive and exhorbitant. Learned Standing Counsel on the other hand has tried to justify the levy both on the ground of right of State to impose such a levy as well as on the ground of principles of quid pro quo. 4. Learned Standing Counsel on the other hand has tried to justify the levy both on the ground of right of State to impose such a levy as well as on the ground of principles of quid pro quo. 4. The Supreme Court in the case of Synthetics and Chemical Ltd. v. State of U.P., AIR 1990 SC 1927 , has laid down that State does not have power to legislate in respect of non-potable alcohol, and the imposition of taxes and other similar levy on such alcohol by the State is unconstitutional and ultra vires, as this power belongs to the Union of India. Supreme Court has, however, in the said case made it clear that the State may lay down regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol and further in case the State is rendering any service, it may charge fee based on quid pro quo. In this connection paragraph 85 of the judgment is quoted below : 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 amendment, the State is left with only 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 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. (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 (price control) orders, sales tax cannot be charged by the State on industrial alcohol. (d) however, in case State is rendering any service, as distinct from its claim of so-called grant of privilege, it may charge fee based on quid pro quo. See in this connection, the observations of India Mica's case, AIR 1971 SC 1182 (supra)." In paragraph 87 of the judgment the same thing was restated as follows : "We are clearly of the opinion that in respect of industrial alcohol the States are not authorised to impose the impost they have purported to do. See in this connection, the observations of India Mica's case, AIR 1971 SC 1182 (supra)." In paragraph 87 of the judgment the same thing was restated as follows : "We are clearly of the opinion that in respect of industrial alcohol the States are not authorised to impose the impost they have purported to do. In that view of the matter, the contentions of the petitioners must succeed and such impositions and imposts must go as being invalid in law so far as industrial alcohol is concerned. We make it clear that this will not affect any impost so far as potable alcohol as commonly understood is concerned. It will also not affect any imposition of levy on industrial alcohol fee where there are circumstances to establish that there was quid pro quo for the fee sought to be imposed. This will not affect any regulating measure as such." Although, the State cannot tax industrial alcohol but it can regulate it so as to prevent its misuse. Licence and permits are well recognised modes of regulation of a trade or business and the power to regulate by licence includes the power to charge licence fee. 'Licence fee' does not necessarily mean `fee' for service. As observed by the Supreme Court in the case of the Corporation of Calcutta v. Liberty Cinema, AIR 1965 SC 1107 , there is difference between the 'Fee' and 'Licence fee' and it is open to the State to charge licence fee to meet the cost incurred in regulation of any trade or business or for raising revenue or for both. Paragraph 8 of the aforesaid judgment, being relevant, is reproduced below : This contention is not really open to the respondent for S. 548 does not use the word `Fee, it uses the words Licence fee and those words do not necessarily mean a fee in return for services. In fact in our constitution fee for licence and fee for services rendered are contemplated as different kinds of levy. The former is not intended to be a fee for services rendered. This is apparent from a consideration of Article 110(2) and Article 199(2) where both the expressions are used indicating thereby that they are not the same. In Shannon v. Lower Mainland Dairy Products Board, 1938 AC 708 : AIR 1939 PC 36 , it was observed at pp.721-722 (of AC) : (at pp. This is apparent from a consideration of Article 110(2) and Article 199(2) where both the expressions are used indicating thereby that they are not the same. In Shannon v. Lower Mainland Dairy Products Board, 1938 AC 708 : AIR 1939 PC 36 , it was observed at pp.721-722 (of AC) : (at pp. 38-39 of AIR): "If licences are granted, it appears to be no objection that fees should be charged in order either to defray the costs of administering the local regulation or to increase the general funds of the province or for both purposes..... It cannot, as their Lordships think, be an objection to a licence plus a fee that it is directed both to the regulation of trade and to the provision of revenue." It would, therefore, appear that a provision for the imposition of a licence fee does not necessarily lead to the conclusion that the fee must be only for services rendered." Generally licensing system is adopted and the licence fee is charged (i) for collection of revenue, (ii) for regulation and for raising of revenue, (iii) for granting any benefit or privilege to a person to exploit the properties of the Government which otherwise he could not have done under the law, (iv) for rendering service; and (v) for regulating any trade or business. When the object of the licensing is to collect revenue and regulation is only incidental devised as a means to collect revenue, licence fee in such case is a tax and not' fee'. However, if the object of the licence is both regulation and collection of revenue, there is substantial element of regulatory measure involved and in such cases fee is charged for meeting the cost of regulation as well as for earning revenue. Licence fee for parting with the privilege and conferring it on the licensee is not a'fee' but a price for the right or the privilege transferred by the State to the licensee. When licence fee is charged for service rendered, it is a 'fee' in true sense of term. In such cases, although the principles of quid pro quo with arithmetical exactitude are not necessary to be established, broad co-relationship between the amount charged and the service rendered is required to be maintained. When licence fee is charged for service rendered, it is a 'fee' in true sense of term. In such cases, although the principles of quid pro quo with arithmetical exactitude are not necessary to be established, broad co-relationship between the amount charged and the service rendered is required to be maintained. The position is different when the licensing system is adopted and licence fee is charged for the purpose of regulating any trade, business or industry. Here the sole object is to regulate certain activities and the fee is charged to defray the cost of administering the regulation. In such cases the object is neither to collect revenue nor to charge the price for some right or privilege. 5. Although, it is open, as mentioned above, for the State to regulate any trade or business by means of licence and to charge licence fee in connection therewith; but in such cases principles of quid pro quo do not apply as by regulating the trade or business the State is not rendering any service to the licence holders but enforcing the regulation by placing restrictions on their rights to trade and business for the good of the society. By exercising the control on the activities of the licensees, State makes their activities subject to reasonable restrictions, which is not a service rendered to them. Object of law, which places restrictions on the fundamental right to trade and business, is not to confer any benefit on those, whose rights are being regulated but to regulate their activities in the interest of general public. As observed by the Supreme Court in Indian Mica and Nicanite Industries Ltd. v. State of Bihar, AIR 1971 SC 1182 : "The requirement to take a licence is prescribed to safeguard public interest and not as a source to gather revenue. What is made punishable is either a persons' failure to take the required licence or the breach of the conditions of the licence. Otherwise there would be no sanction behind the rule requiring to take a licence. Generally speaking by granting a licence the State does not confer any privilege or benefit on any one. All that it does is to regulate a trade, business or profession in public interest. Otherwise there would be no sanction behind the rule requiring to take a licence. Generally speaking by granting a licence the State does not confer any privilege or benefit on any one. All that it does is to regulate a trade, business or profession in public interest. To the same effect are the observations made by the Supreme Court in the case of the Corporation of Calcutta v. Liberty Cinema, AIR 1965 SC 1107 (supra) wherein it has been mentioned that inspection of cinema houses by officials is not service to the licensees, as the object of the inspections is to control the licences activities and to make him observe the conditions of the licence. 6. When the State makes the law for regulation of any trade or business by means of licensing, it is open to it to charge licence fee to defray the cost of administering the regulation. In these cases although the principles of quid pro quo do not apply; but the fee so charged should have broad corelation ship with the cost of administering the regulation. What is essential is that fee should not be excessive or exorbitant. This is clear from paragraph 62 of the decision of the Supreme Court in the case of Synthetics and Chemical Ltd. v. State of U.P., AIR 1990 SC 1927 (supra), the relevant passage from which is quoted below. "We are of the opinion that we need not detain ourselves on the question whether the States have police power or not. We must accept the position that the States have the power to regulate the use of alcohol and that power must include power to make provisions to prevent and/or check industrial alcohol often being used as intoxicating or drinkable alcohol. The question is whether in the garb of regulations a legislation which is in pith and substance, as we look upon the instant legislation, fee or levy which has no connection with the cost or expenses administering the regulation, can be imposed purely as regulatory measure. The question is whether in the garb of regulations a legislation which is in pith and substance, as we look upon the instant legislation, fee or levy which has no connection with the cost or expenses administering the regulation, can be imposed purely as regulatory measure. Judged by the pith and substance of the impugned legislation, we are definitely of the opinion that these levies cannot be treated as part of regulatory measures." Hon'ble Oza, J. in the concurrent judgment in the aforesaid case had also laid down the same principles in paragraph 105 of the judgment, relevant extract of which is reproduced below : "In our opinion, therefore, so far as the present case is concerned the State in exercise of powers under Entry 2 of List II and by appropriate law regulate and that regulation could be to prevent the conversion of alcoholic liquors for industrial use to one for human consumption and for purpose of regulation, the regulatory fees only could be justified. In fact, the regulation should be the main purpose, the fee or earning out of it has to be incidental and that is why the learned Counsel appearing for the State attempted to use this terminology saying that the purpose is regulation, the earnings are incidental but frankly conceded that in fact the earnings are substantial." 7. In the instant case the imposition of fee under Rule 680 was upheld by this court in the case of State of U.P. v. M/s. Agarwal Spirit Supply Co., 1978 All LJ 1112 : AIR 1978 All 529 on the ground that it is a price or consideration for the grant of privilege of the whole sale vend by the State Government to the licensee. The relevant passage from this decision is reproduced below : "In our view both the charges mentioned in sub-rule (1) or sub-rule (2) constitute the fee payable for the licence. Sub-rule (1) prescribes the scale of fees, while sub-rule (2) provides another manner of fee so payable. Both kinds of fee are payable as condition to the grant of the licence, i.e. for parting with the right of wholesale vend. xxx xxx xxx xxx "The label of vend fee attached by sub- rule (2) is neither material nor decisive to judge its true nature and character. Both kinds of fee are payable as condition to the grant of the licence, i.e. for parting with the right of wholesale vend. xxx xxx xxx xxx "The label of vend fee attached by sub- rule (2) is neither material nor decisive to judge its true nature and character. Since the fee charged under sub-rule (2) is at the time of issue of denatured spirit from a distillery, that is to say it it payable at the time of sale by the distillery, it has been called a vend fee. It is an integral part of the scheme of the rental or consideration for the grant of the privilege." Such a fee, which is the price charged by the Government for parting its right or privilege in favour of the licensee, cannot be said to be regulatory fee. 8. In the supplementary affidavit filed on behalf of the State of U.P. an attempt has been made to show that State Government is spending huge amount in running the Excise department. In this connection learned standing counsel has invited our attention to paragraph 10 of this affidavit in which it has been mentioned that large number of officials have been appointed for potable and non potable alcohol so as to supervise the production, distribution and delivery of denatured alcohol to different units and for regulation and supervision of distilleries and the industrial units as well as licensees like the petitioner and for this purpose the State, is incurring annual expenditure of about Rs. 8 crores for maintaining the Excise Department. Where only about Rs. 70 lakhs are collected from the petitioner and other licensees like him. In this manner the State has tried to show that it is spending much more than the collection made by it. The petitioner has, however, denied these allegations and it has further been argued on his behalf that in view of the case of Indian Mica and Micanite Industries Ltd. v. State of Bihar, AIR 1971 SC 1182 (supra) the cost of supervising the manufacturing process and the subsequent transfer of the denatured spirit cannot be recovered from licensees as they had nothing to do with the manufacturing process and the employment of elaborate staff by the Excise department for various other purposes. The relevant extract from the said judgment of the Supreme Court, relied upon by the learned counsel for the petitioner is quoted below (at p. 1187 of AIR) : "According to the finding of the High Court the only services rendered by the Government to the appellant and to other similar licensees is that the Excise department have to maintain an elaborate staff not only for the purposes of ensuring that denaturing is done properly by the manufacturer but also for the purpose of seeing that the subsequent possession of denatured spirit in the hands either of a whole sale dealer or retail seller or any other licensee or permit holder is not misused by converting the denatured spirit into alcohol fit for human consumption and thereby evade payment of heavy duty. So far as the manufacturing process is concerned, the appellant or other similar licensees have nothing to do with it. They are only the purchasers of manufactured denatured spirit. Hence the cost of supervising the manufacturing process or any assistance rendered to the manufacturers cannot be recovered from the consumers like the appellant. Further under rule 9 of the Board's Rules, the actual cost of supervision of the manufacturing process by the Excise department is required to be borne by the manufacturer. There cannot be a double levy in that regard. In the opinion of the High Court the subsequent transfer of denatured spirit and possession of the same in the hands of various persons such as whole sale dealer, retail dealer or other manufacturers also requires close and effective supervision by cause of the risk of the denatured spirit being converted into potable liquor and thus evading heavy duty. Assuming this conclusion to be correct by doing so, the State is rendering no service to the consumer. It is merely protecting its own rights." 9. In the aforesaid case of India Mica and Nicanite Industries Ltd. v. State of Bihar, AIR 1971 SC 1182 the question as to whether the State can charge fee for regulation and if so to what extent was neither raised nor decided This is clear from paragraph 2 of the judgment wherein it has been observed as follows : "The High Court has come to the conclusion that the levy made under the impugned rule is a fee. That finding was not challenged before us by any of the parties. That finding was not challenged before us by any of the parties. Therefore, all that we have to see is whether the fee levied is within the permissible limit. In other words whether there is sufficient quid pro quo for the levy in question." Although, what was charged in that case was licence fee but the case was decided as if it is `fee for service rendered and in that connection the, observations contained in the passage reproduced herein above were made by the Supreme Court. But even in cases where the licence fee is charged for administering the regulations, a broad correlation ship between the fee charged and the probable amount spent in administration of the regulation has to be maintained. In this connection also some of these observations of the Supreme Court are relevant in order to find out whether the amount, which is charged as licence fee for regulation of the trade and business is not excessive or exorbitant and has a reasonable correlation ship with the amount spent by the State in regulating activities. 10. The expenses of Rs.8 crores for maintaining the Excise Department cannot be recovered by the State Government only from the licensees like the petitioner. Excise department of the State is not meant for regulating the activities of these licensees only as its activities extend to much wider areas covering various fields with which the persons like the petitioner have nothing to do. The Government was in a position to place the material before this court to show the probable cost of administering the regulations and its correlation ship with the licence fee realised but the Government has failed to do so and has not established even on broad basis the correlation ship between the amount spent and the fee charged. The levy of fee at the rate of 40% ad valorem on the sale made by the distillery to the licensees is excessive and exorbitant. It is obvious that this levy was imposed so as to recover the price of the privilege and the benefit granted to the wholesale dealers by the Government. As is clear from the Division Bench Judgment of this Court in the case of State of U.P. v. M/s. Agarwal Spirit Supply Co., 1978 AllLJ 1112 (supra). It is obvious that this levy was imposed so as to recover the price of the privilege and the benefit granted to the wholesale dealers by the Government. As is clear from the Division Bench Judgment of this Court in the case of State of U.P. v. M/s. Agarwal Spirit Supply Co., 1978 AllLJ 1112 (supra). The rate of fee specified for recovering the price or consideration for transfer of right or privilege cannot be said to be regulatory. It is highly excessive and exorbitant and cannot be sustained. 11. A Division Bench of this court has already held that State Government cannot, charge purchase tax on the industrial alcohol. 12. The writ petition is accordingly allowed with costs. The impugned Notification dated 20-1-1990 is quashed. The respondents are directed not to realise purchase tax and ad valorem licence fee and not to stop supply of denatured spirit to the petitioner for nonpayment of purchase tax and ad valorem licence fee. It is however, open to the State to adopt regulatory measure and prescribe fee to defray the cost of administering the regulation within a period of six months from today and during this period the interim order dated 17-8-1990, extracted above, shall continue.