In a major relief for United Spirits Limited, the Bombay High Court has quashed demand notices amounting to over ₹236 crore raised by the Water Resources Department against the company’s distillery unit in Dharmabad, Nanded district. The dispute revolved around water charges under the Maharashtra Water Resources Regulatory Authority (MWRRA) tariff orders of 2018 and 2022, with the authorities classifying the company as a “raw material industry” and billing it accordingly.
The case, titled United Spirits & Anr. v. State of Maharashtra & Ors., was heard by a Division Bench comprising Justice Manish Pitale and Justice YG Khobragade, which held that the authorities had adopted an arbitrary and unsustainable approach by treating the entire water drawn from the Godavari river as raw material use.
The Core Dispute
United Spirits operates a major liquor manufacturing unit in Dharmabad, which sources water from the Godavari river. Beginning in December 2018, the Water Resources (Irrigation Department) issued successive demand notices, charging the company at ₹240 per cubic metre under the category of raw material industries. This resulted in cumulative demand notices exceeding ₹236 crore, culminating in a final notice in August 2022.
The authorities argued that liquor manufacturing primarily uses water as a raw material, justifying the categorization. United Spirits, however, maintained that while some of the water indeed constitutes raw material, the majority is used for ancillary purposes like cooling, washing, and processing, which cannot be equated with raw material consumption.
The company contended that billing the entire water intake as raw material consumption ignored the distinction required by past judicial precedents and imposed an unfair financial burden.
State’s Arguments
The State of Maharashtra, represented by advocates Uday Warunjikar, VB Tapkir, SV Hange, and Pratap P Mandlik, defended the demand notices. The State claimed:
- Liquor industries squarely fall under the raw material category.
- United Spirits had enjoyed interim protection from recovery while failing to pay dues exceeding ₹400 crore.
- A NEERI (National Environmental Engineering Research Institute) report supported the argument that a substantial proportion of water consumed in liquor manufacturing should be treated as raw material use.
Thus, the authorities justified their classification of the entire water intake as raw material consumption.
United Spirits’ Case
United Spirits, represented by Senior Advocate Zal Andhyarujina along with advocates Shrey Sancheti, Vijay Purohit, Faizan M Mithaiwala, Samit Jain, Vinit Kamdar, Sagar S. Vidwauns, and Amol A. Waghmare from P&A Law Offices, challenged the demand notices on the following grounds:
- Only a fraction of the water intake is used as raw material, with the bulk being for process-related purposes.
- The authorities failed to conduct a factual determination of water usage patterns.
- Past High Court judgments required authorities to make a distinction between raw material use and ancillary process use.
- The tariff orders of 2018 and 2022 were being misapplied, though not unconstitutional.
The High Court’s Findings
After examining the case, the Bench made several key observations:
- Tariff Orders are Valid: The Court upheld the validity of the MWRRA tariff orders of 2018 and 2022, rejecting the plea that they were arbitrary or unconstitutional. The Court clarified that these tariff orders were consistent with the MWRRA Act.
- Arbitrary Billing: The Court criticized the authorities for their failure to distinguish between raw material use and ancillary use of water. The Bench observed:
“Evidently, the said respondents have not undertaken any exercise to ascertain the extent to which the consumption of water by the manufacturing unit of the petitioner is towards raw material and the extent to which it is utilized for other purposes like washing, cooling, etc. during the process of manufacturing.”
- Quashing of Demand Notices: The Court set aside all demand notices raised since 2018, including the *₹236.5 crore demand of August 2022, as well as the orders of both the *Primary Dispute Resolution Officer (PDRO) and the appellate authority.
- Deposit Requirement: At the same time, the Court directed United Spirits to deposit ₹66.5 crore with the Water Resources Department within six weeks. This figure was based on earlier precedents estimating that 65% of water use in breweries qualifies as raw material consumption. The Court clarified that this deposit would be subject to adjustment once a fresh assessment was carried out.
- Fresh Assessment Ordered: The Court directed the Executive Engineer of the Water Resources Department to undertake a fresh inspection and reassessment of United Spirits’ water usage within three months. The reassessment must:
- Distinguish between raw material and ancillary use.
- Follow principles of natural justice.
- Consider all material evidence and submissions by United Spirits.
- Future Adjustment: Any excess deposit made by United Spirits was directed to be adjusted against future bills, ensuring that the company was not unfairly penalized.
Significance of the Judgment
This ruling underscores an important principle in industrial regulation: fair classification of water usage. While industries must pay appropriate charges for their consumption, blanket categorization without factual determination can result in disproportionate financial liabilities.
For liquor manufacturers and other water-intensive industries, this judgment sets a precedent that regulatory authorities must undertake detailed and transparent assessments of actual water use, distinguishing between raw material and process-related usage.
The judgment also reflects a careful judicial balance:
- On one hand, the Court upheld the validity of the tariff framework.
- On the other hand, it protected the company from arbitrary and excessive billing by ensuring that due process and fair categorization are followed.
Broader Implications
- Impact on Water-Intensive Industries: Other industries facing similar disputes with regulatory authorities may rely on this judgment to seek relief from arbitrary water usage classifications.
- Revenue vs. Fairness: The case highlights the tension between government efforts to maximize water revenue and the need for fairness in billing practices.
- Judicial Oversight: The Bombay High Court has reaffirmed its role in ensuring that regulatory authorities act within the law and uphold natural justice.
- Encouragement for Compliance: By directing a partial deposit of ₹66.5 crore, the Court ensured that United Spirits remained compliant while awaiting reassessment, preventing misuse of interim relief.
Conclusion
The Bombay High Court’s decision to quash the ₹236 crore water bill against United Spirits marks a significant development in industrial regulation and water resource management. The ruling reinforces that while industries must be held accountable for their consumption, authorities cannot adopt arbitrary classifications that impose disproportionate financial burdens.
By ordering a fresh assessment and requiring compliance through a reasonable interim deposit, the Court has struck a balance between protecting industrial interests and ensuring regulatory discipline. This judgment will likely influence future disputes between industries and regulatory bodies over water usage charges in Maharashtra and beyond.
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