Full Judgment Text
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PETITIONER:
BIHAR DISTILLERY AND ANR.
Vs.
RESPONDENT:
UNION OF INDIA AND ORS.
DATE OF JUDGMENT: 29/01/1997
BENCH:
B.P. JEEVAN REDDY, SUJATA V. MANOHAR
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
B.P. JEEVAN REDDY. J.
Until the commencement of the Constitution and for a
few years thereafter, rectified spirit was mainly used for
the purpose of manufacturing country liquor. Indian Made
Foreign Liquors [I.M.F.L.] and other intoxicating drinks.
Its used for industrial purposes was not significant. The
rapid pace of industrialization from mid-fifties onwards
brought into existence several industries, which required
rectified spirit as one of their raw materials, with the
result the demand of rectified spirit for industrial
purposes went up substantially and has been going up.
Evidently, in recognition of this fact, did the Union of
India amend, in the year 1956, the Schedule to the
Industries [Regulation and Development] Act, 1951 including
the alcohol industry therein.
Notwithstanding the aforesaid amendment of the Schedule
to the Industries [Regulation and Development] Act, 1951,
the establishment of a distillery, its working and the
distribution and sale of the rectified spirit produced by it
continued to be regulated by the States as before, under
various enactments in force in those States. Similar was the
position in the State of Bihar where the first petitioner-
distillery is located. As a matter of fact, right up to the
year 1991-92, it was getting its license renewed under the
provisions of the Bihar Excise Act. The original license
itself was granted under the Bihar Act. I on or about the
year 1992, the authorities of the Bihar State proposed to
cancel the petitioner’s license for certain reasons assigned
by them. The petitioner objected it on the ground that the
grant and cancellation of license in respect of a distillery
manufacturing rectified spirit is the exclusive province of
the Government of India and that the State government had no
say in the matter. With this contention has it approached
this Court. It relies upon the seven-Judge Constitution
Bench decision of this Court in Synthetics and Chemicals
Limited v. State of Uttar Pradesh [1990 (1) S.C.C. 1091. The
petitioner says that it was licensed to manufacture and
manufactures only ‘industrial alcohol’ and no other alcohols
or liquors.
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According to the division of legislative powers
contained in the Seventh Schedule to the Constitution
[relatable to Article 246], the power to legislate on the
subject of "industries" is assigned to the States. Entry 24
in List-II reads: "24. Industries subject to the provisions
of Entries 7 and 52 of List-I".* Entries 7 and 52 in List-I,
referred to in Entry 24 of List-II, read thus:
"7. Industries declared by
Parliament by law to be necessary
for the purpose of defence or for
the prosecution of war.
52. Industries, the control of
which by the Union is declared by
Parliament by law to be expedient
in the public interest."
* Prior to Constitution [Seventh Amendment] Act, 1956
only Entry 52 was referred to in this Entry. By the said
Amendment Act, Entry 7 was also added.
In the year 1951, the Parliament enacted the Industries
[Development and Regulation] Act, 1951 [I.D.R. Act]. Section
2 contains a declaration in we terms of Entry 52 of List-I.
By virtue of this enactment, the Parliament took over the
control of the industries specified in the first Schedule
denuding the States of that power. In the year 1956, the
Schedule to the I.D.R. Act was amended, as stated herein
before, including inter alia Item 26. Item 26 reads: "26.
Fermentation Industries: (i) alcohol; (ii) other products of
fermentation industries". As a matter of fact, however, the
several state enactments continued to regulate the
establishment, functioning and disposal of rectified spirit
and other products of these distilleries even after 1956.
Nobody ever questioned it until an industry,. Synthetics and
Chemicals Limited [Synthetics] did so by way of writ
petitions filed in the Allahabad High Court in or about the
years 1975-78. Synthetics was a licensee for the wholesale
vend of denatured spirit. It questioned the levy of vend
fee
Denatured spirit is rectified spirit. Denaturants are
added to it to make it unfit for use in manufacture of
I.M.F.Ls., other intoxicating liquors or for diluting it to
obtain country liquor. Denaturing is not necessary for its
use for industrial purposes. Indeed, some industries cannot
use denatured rectified spirit. But, by and large, rectified
spirit supplied to industries is denatured.
on denatured spirit impose sd by the State of Uttar
Pradesh under the provisions of the Uttar Pradesh Excise Act
and the Rules made thereunder. It contended that the power
to levy excise duty or tax on denatured spirit vested
exclusively in the Parliament and that the State was totally
incompetent to levy the same. The High Court rejected the
contention holding, that the expression "intoxicating
liquors" occurring in Entry 8 of List-II of the Seventh
Schedule to the Constitution took in its fold denatured
spirit as well and, therefore, the State had exclusive
privilege to deal in denatured spirit. The matter was
carried to this Court wherein it was contended that by
virtue of Item 26 of the Schedule to the I.D.R. Act, the
Union has taken under its control the industries engaged in
the manufacture of industrial alcohol and that the States
have been denuded of any power to deal with denatured spirit
including the power to levy vend fees. The contention was
rejected by this Court [A.C. Gupta and P.S. Kailasam, JJ.]
as well, vide 1980 (2) S.C.R. 531. This Court referred inter
alia to the history of State Excise laws in this country and
to the wide definition of ‘liquor’ in those enactments and
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observed that while enacting the Government of India Act,
1935, the British Parliament must have been aware of and
must be deemed to have accepted the said wide definition
[i.e., including non-potable liquors as well. Synthetics was
not satisfied with the judgment. It filed a petition to
review the same. Meanwhile, several other industrial units
approached this Court by way of writ petitions raising
contentions similar to those raised by Synthetics. The
matter was referred to and heard ultimately by a larger
Constitution Bench of seven learned Judges whose decision is
reported in 1990 (1) S.C.C. 109. Sabyasachi Mukharji, J.
spoke for himself, E.S. Venkataramiah, CJ., Ranganath Misra,
B.C.Ray, K.N.Singh and S. Natarajan, JJ., while G.L.Oza, J.
rendered a separate concurring opinion. This decision,
reversing the decision in 1980 (2) S.C.R. 531 and upholding
the contention of the writ petitioners, brought about a sea
change in the thinking on the subject. It held that the
expression "intoxicating liquors" in Entry 8 of List-II
means and refers to only potable liquors and that the
potability is determined by the standards specified by
I.S.I. [Indian Standards Institutel, i.e., alcohol content
not exceeding 43% v/v. Entry 51 of List-II was also
similarly held limited to potable liquors. The power of the
States to legislate in respect of liquors was held to be
restricted to potable liquors alone. The Court held further
that "rectified spirit" [which expression was used
interchangeably with the expression "ethyl alcohol" and
"industrial alcohol"] which is of 95% and above purity
cannot be treated as a potable liquor and hence lies within
the exclusive control of the Union by virtue of the I.D.R.
Act. After 1956, the Court held, the power of the States is
confined to (1) making a law prohibiting potable liquor and
to regulate it, (2) laying down regulations to ensure that
nonpotable alcohol is not diverted and mis-used for potable
purposes, (3) charging excise duty on potable alcohol and
(4) to charge fees for rendering any service. [See Para 86
at Page 158]. The decision was rendered on October 25, 1989.
When the present writ petition came up for admission
before a Bench comprising one of us [B.P. Jeevan Reddy, J.]
and K.S. Paripoornan, J., it was thought necessary to give
notice to all the State governments and to the Union of
India in view of the peculiar nature of the problem arising
herein. The order made by the Bench of May 9, 1996, insofar
as is relevant, reads thus:
"The question arising herein is a
thorny one. It is also arising
frequently. The decision of the
larger Constitution Bench of this
Court in Synthetics & Chemicals
Ltd. & Anr. Vs. State of U.P. &
Ors. (1990 (1) SCC 109) calls for
demarcation of the spheres of the
Union and the States particularly
in the matter of alcoholic liquors.
Recently, this Court has held in
State of A.P. Vs. McDowell (JT 1996
(3) SC 679) that so far as the
intoxicating liquors/potable
liquors are concerned, it is the
exclusive province of the States.
But for manufacturing intoxication
liquors, or for manufacturing
industrial alcohol as the case may
be, one must have to manufacture or
purchase alcohol. It is only
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thereafter that the alcohol is
either converted into industrial
alcohol (by denaturing it) or into
potable liquors by reducing the
strength of alcohol (which is
normally of 95% purity or above).
Indeed, alcohol can be used for
industrial purposes even without
denaturing it. Saying that States
step in only when alcohol becomes
potable and not before it leaves a
large enough room for abuse apart
from difficulties of supervision
and regulation. In the matter of
licensing too, problems would
arise, as to who should licence
such industry - whether the Center
alone or the States or both. Having
regard to the importance of the
question, we think that this is a
proper cases where notice should go
to all the States who will be heard
on this question. The Union of
India is already a party to the
writ petition."
Accordingly, notices have been issued to all the State
governments. We have directed notice to learned Attorney
General as well. We have heard Sri Bimal Kumar Sinha,
learned counsel for the writ petitioner, Sri Shanti Bhushan
for the State of West Bengal, Sri Rakesh Dwivedi, Additional
Advocate General for the State of Uttar Pradesh for Uttar
Pradesh and Bihar, Sri Santosh Hegde for the State of
Karnataka, Sri M.S. Nargolkar for the State of Maharashtra,
Sri V. Krishnamurthy for the State of Tamil Nadu, Sri K.Ram
Kumar for the State of Andhra Pradesh, Sri G. Prakash for
the State of Kerala, Ms. Subhashini for the State of Goa,
Sri P.N. Misra for the State of Orissa and Sri T. Sridharan
for the State of Himachal Pradesh. Sri M.S. Usgaonkar,
learned Additional Solicitor General appeared for the Union
of India. We also requested Sri Harish N. Salve, who was
appearing in the connected matter [Special Leave Petition
(C) No. 8963/96 - involving inter alia the question at issue
herein] to address us on the general question which he has
agreed gracefully to do.
Let us first notice the relevant entries in the Seventh
Schedule to the Constitution. Entry 6 in List-II deals with
"Public Health and Sanitation; Hospitals and Dispensaries".
Entry 8 reads: "Intoxicating liquors, that is to say, the
production, manufacture, possession, transport, purchase and
sale of intoxicating liquors". Entry 24, which has already
been referred to, reads: "24. Entries subject to the
provisions of Entries 7 and 52 of List-I". Entry 51, which
is one of the taxing entries in List-II reads:
"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
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toilet preparations containing
alcohol or any substance included
in sub-paragraph (b) of this
entry."
The last entry in List-II, viz., Entry 66 speaks of
"fees in respect of any of the matters in this List, but not
including fees taken in any court."
Entries 7, 52 and 84 in List-I which alone are relevant
herein read thus:
"7. Industries declared by
Parliament by law to be necessary
for the purpose of defence or for
the prosecution of war.
52. Industries, the control of
which by the Union is declared by
Parliament by law to be expedient
in the public interest.
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 not including medicinal and
toilet preparations containing
alcohol or any substance included
in sub-paragraph (b) of this
entry."
Entry 33 in List-III [Concurrent List] may also be
noticed. It reads:
"33. Trade and Commerce in, and the
production, supply and distribution
of,--
(a) the products of any industry
where the control of such industry
by the Union is declared by
Parliament by law to be expedient
in the public interest, and
imported goods of the same kind as
much products;
(b) foodstuffs, including edible
oil seeds and oils;
(c) cattle fodder, including
oilcakes and other concentrates;
(d) raw cotton, whether ginned or
ungineed, and cotton seed; and
(e) raw jute."
A reading of the above entries would immediately
disclose that Entry 51 in List-II and Entry 84 in List-I
compliment each other. Both provide for duties of excise but
while the State are empowered to levy duties of excise on
(a) alcoholic liquors for human consumption and (b) opium,
Indian hemp and narcotics manufactured or produced in the
State and countervailing duties at the same or lower rates
on similar goods manufactured or produced elsewhere in India
[but excluding medicinal and toilet preparation containing
alcohol or any substance included in sub-paragraph (b) of
this Entry], the Union is empowered to levy 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 including drugs and
narcotics. Medicinal and toilet preparations containing
alcohol or any substance included in sub-paragraph (b) which
are excluded from entry. For our purposes, the relevant
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expression in "alcoholic liquors for human consumption"
which is included in Entry 51 in List-II and excluded from
Entry 84 in List-I. The words employed denote that there may
be alcoholic liquors meant for human consumption as well as
for other purposes. Now coming to Entry 8 in List-II, i t
does not use the expression "alcoholic liquors for human
consumption". It employes the expression "intoxicating
liquors" which expression is, of course, not qualified by
words "for human consumption". This is for the obvious
reason that the very word "intoxicating" signifies "for
human consumption". Entry 8, it is necessary to emphasize,
places all aspects of intoxicating liquors within the
State’s sphere; production, manufacture, possession,
transport, purchase and sale of intoxicating liquors is
placed within the exclusive domain of the States. Entry 6,
which inter alia speaks of "public health" is relevant only
for the reason that it furnishes a ground for prohibiting
consumption of intoxicating liquors. Coming to Entry 33 in
List-III, the language of clause (a) thereof is significant.
Even though control of certain industries may have been
taken over by the Union by virtue of a declaration made by
Parliament in terms of Entry 52 in List-I, yet the "trade,
commerce in, and the production, supply and distribution of
the products" of such industry is placed in the concurrent
field, which in the present context means that though the
control of alcohol industry is taken over by the Union,
trade commerce in and the production, supply and
distribution of the products of alcohol industry can be
regulated both by the Union and the States subject, of
course, to Article 254. It also means, as will be explained
later, that insofar as the field is not occupied by the laws
made by Union, the States are free to legislate.
In the matter of industries mentioned in List-II, Entry
24 in List-II is in the nature of general entry. It speaks
of industries but is made expressly subject to Entries 7 and
52 of List-I. By making a declaration in terms of Entry 52
in List-I in Section 2 of the I.D.R. Act, the Parliament has
taken control of the several industries mentioned in the
Schedule to the Act. The States have been denuded of their
power to legislate with respect to those industries on that
account. It has, however, to those industries on that
account. It has, however, been held by a three-Judge Bench
of this Court in State of Andhra Pradesh v. McDowell [1996
(3) S.C.C. 709] that Entry 52 over-rides only Entry 24 in
List-II and no other Entry in List-II. It has been held that
Entry 8 is not overridden or over-borne in any manner by
Entry 52 - which means that so far as intoxicating liquors
are concerned, they are within the exclusive sphere of the
States. We may pause at this stage and append a
clarification which has become necessary in the light of
certain words occurring in Para 85 of the judgment of
Sabyasachi Mukharji, J. in Synthetics. At the inception of
Para 85 of the said judgment, the following statement
occurs:
"After the 1956 amendment to the
IDR Act bringing alcohol industries
(under fermentation industries) as
Item 26 of the First Schedule to
IDR Act the control of this
industry has vested exclusively in
the Union. Thereafter, licences to
manufacture both potable and non-
potable alcohol is vested in the
Central Government. Distilleries
are manufacturing alcohol under the
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central licences under IDR Act. No
privilege for manufacture even if
one existed, has been transferred
to the distilleries by the State."
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whenever we refer to "Synthetics" hereafter, it would mean
the judgment of the seven’ Judge Constitution Bench reported
in 1990 (1) S.C.C. 109.
It is obvious that the words "both potable and" occur
here as a result of some accidental or typographical error.
The entire preceding discussion in the judgment repeatedly
affirms that so far as potable alcohols are concerned, they
are governed by Entry 8 and are within the exclusive domain
of the States. The aforesaid words cannot fit in with the
said repeatedly affirmed reasoning. We are, therefore, of
the opinion that the said passage cannot be understood as
holding that even in respect of the industries engaged in
the manufacture or production of potable liquors, the
control is vested in the Union by virtue of Item 26 of the
First Schedule to the I.D.R. Act. In view of the express
language of Entry 8 - as has been clearly explained in
McDowell - so far as potable liquors are concerned, their
manufacture, production, possession, transport, purchase and
sale is within the exclusive domain of the States and the
Union of India has no say in the matter. For a similar
clarification with respect to the power of the State to levy
sales tax on industrial alcohol, reference may be had to
State of Uttar Pradesh v. Synthetics and Chemicals Limited
[1991 (4) S.C.C. 139].
The several State governments, to whom notices have
been given, have responded. Some of them have filed very
elaborate counters setting out their case. The first and
foremost contention urged on their behalf is that rectified
spirit is "intoxicating liquor" within the meaning of Entry
8 of List-II. In other words, their contention, based upon
the ration in McDowell, is that rectified spirit is
"intoxicating liquor" within the meaning of Entry 8 of List-
II, and hence, outside the purview of Entry 24 of List-II,
which in turn means that the Union cannot take over its
control by making a declaration in terms of Entry 52 of
List-I and further that Item 26 of the Schedule to the
I.D.R. Act is ineffective and invalid insofar as it seeks to
regulate the production, manufacture et al of rectified
spirit. In support of their submission, they have relied
upon the legislative history of the several State enactments
in India apart from a wealth of material including technical
data. They submit that the decision to the contrary in
Synthetics is not correct and requires reconsideration. they
have also assigned several reasons why the holding in
Synthetics insofar as the meaning of "intoxicating liquor"
is concerned should be held to be obtainer. They submitted
that in the interests of maintaining the balance between the
Centre and the States and to preserve the federal nature of
our Constitution - which is one of its basic features - the
matter must be referred to a larger Bench to consider the
correctness of Synthetics. They submitted that the relevant
words in Entry 51 of List-II and Entry 84 of List-I are
"alcoholic liquors for human consumption" and not "alcoholic
liquors fit for human consumption". They complained with a
good amount of emotion that the decision in Synthetics reads
the word "fit" into the said entries and makes it a basis
for curtailing the legislative power of the States. There is
no warrant for such addition, they submitted. In addition to
the above submissions, the following facts are stated in the
affidavit filed on behalf of the State of Uttar Pradesh: the
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reduction process of converting rectified spirit into
country liquor involves mixing of water and stirring. By
adding water, the alcoholic content is reduced to 35% v/v to
make it country liquor. Adding of spices is optional. Rule
45 of the Uttar Pradesh Excise Rules defines the expression
"reduction of liquor". According to the definition, it means
"the reduction of liquor from a higher to a lower strength
by the addition of water". Mere mixing of water, it is
submitted, makes rectified spirit country liquor. On this
basis too, his submitted, rectified spirit is really and
essentially an intoxicating liquor and merely because water
is required to be added to make it country liquor, it does
not cease to be intoxicating liquor. By way of analogy, it
is submitted that even the whiskies and brandies are not
ordinarily consumed as such but only after mixing water or
soda. Addition of water or soda, it is submitted, does not
change the character of whisky or brandy either. It is next
submitted that bulk of rectified spirit manufactured in
Uttar Pradesh is used for the purpose of obtaining country
liquor or I.M.F.Ls. Only a small quantity is used for
industrial purposes. Having regard to the predominant use to
which rectified spirit is put, it is submitted, it must be
understood as intoxicating liquor. The addition of
denaturants is only with a view to ensure that the rectified
spirit is not used for potable purposes. Yet another
submission put forward by the State of Uttar Pradesh is that
even during the course of manufacture of rectified spirit,
potable liquor into existence. It is submitted that the main
raw material for rectified spirit is molasses. The process
of manufacture is eleborately set out, supported by
technical literature. The samples taken from certain
distilleries by the Excise staff and the result of the
analysis of the said samples is also relied upon. It is
submitted that the process of manufacture of rectified
spirit involves increasing the alcoholic content by
repeatedly processing it. The alcoholic content keeps on
rising from stage to stage. It is submitted that at several
intermediary stages, the liquor can be taken out and used
for drinking purposes, whether as it is or after mixing
water, as the case may be. Sri Rakesh Dwivedi, learned
Additional Advocate General for the State of Uttar Pradesh,
placed strong reliance upon the reasoning and conclusions in
the judgment of the Allahabad High Court in Vam Organic
Chemicals Limited v. State of Uttar Pradesh [Writ Petition
(C) No. 16782 of 1990 dated September 9, 1991], which, it is
brought to our notice by written submissions, has since been
affirmed by this Court in Civil Appeal No. 230 of 1997
decided on January 21, 1997 by a Bench consisting of the
Hon’ble Chief Justice and Sen, J.
On the other hand, it is submitted by the learned
counsel for the petitioner and Sri Salve that there are no
good and valid reasons for doubting the correctness of the
decision in Synthetics or for referring the issue to a
larger Constitution Bench of nine or more Judges. The
acceptance of the States’ submission would make Item 26 in
the Schedule to the I.D.R. Act superfluous and meaningless.
The decision in Synthetics, Sri Salve submitted, has
correctly drawn the dividing line between the respective
spheres of the Union and the States and there is no good
reason to doubt its correctness. Learned counsel took us
through the judgment of Sabyasachi Mukharji, J. at
considerable length to emphasis his submission that what all
is urged now was indeed urged before the larger Bench and
considered. The law laid down after an elaborate
consideration of submissions made by several parties and
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several State governments cannot and need not be reopened,
urged Sri Salve. The learned counsel for the petitioner
submitted that the petitioner-factory is engaged in the
manufacture of industrial alcohol alone and that the
rectified spirit manufactured by it is not allowed to be
moved out except after denaturing it.
Sri Usgaonkar for the Union of India took the stand
that the decision in Synthetics lays down the law correctly
and that the powers of the States are only those as are
specified therein.
Inasmuch as strong reliance is placed by the learned
Additional Advocate General for the State of Uttar Pradesh
on the decision of a Division Bench of the Allahabad High
Court in Writ Petition 16782 of 1990 disposed of on
September 9, 1991 [rendered by one of us, B.P. Jeevan Reddy,
as the Chief Justice of that Court], it is necessary to
notice the relevant reasoning and the findings in the said
judgment in view of the fact that the same have been
affirmed by this Court. The High Court first dealt with the
factual situation on the basis of the pleadings and material
placed before it and recorded the following finding, which
it repeatedly affirmed, was central to the entire reasoning
and conclusion in that judgment.
"Ethyl alcohol, which is also
called rectified spirit, the
alcoholic content of which is 95%
V/V, can be used both as an
industrial alcohol and also for
obtaining country liquor and other
liquors. Even without denaturing
it, rectified spirit can be used
for industrial purposes. But it is
not correct to say that ethyl
alcohol/rectified spirit can be
used only for industrial purposes
and for no other purpose. As stated
by the respondents, just by mixing
water with it, it becomes country
liquor and is sold and taxed as
such by the State. Further, it can
also be used as a raw material for
producing Indian made foreign
liquors (IMFL), wines, rums etc.
Denaturing is insisted upon by the
State with a view to ensure that a
particular quantity of rectified
spirit/ethyl alcohol is not misused
or diverted for being utilised for
human consumption, viz. either for
obtaining country liquor or for
manufacturing IMFLs, wines etc.
Once denatured, the rectified
spirit/ethyl alcohol cannot be used
other for obtaining country liquor
or for manufacturing IMFLs, wines,
etc. unless, of course, it is re-
natured again."
Referring to the decision of this Court in Synthetics,
the High Court made the following observations:
"It must, however, be made clear
that in the said decision, the
distinction between ethyl
alcohol/rectified spirit as such
and denatured spirit was not in
issues, nor was it considered. It
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was generally mentioned that ethyl
alcohol/rectified spirit containing
95% alcohol V/V is an industrial
alcohol. As we have pointed out
hereinabove, even without
denaturing, such ethyl
alcohol/rectified spirit can be
used for industrial
purposes......The distinction,
which is brought out in this case,
was not in issue before the Supreme
Court in Synthetics and Chemicals
(main judgment). It, therefore,
cannot be said that the Supreme
Court has ruled, as a matter of
law, that any and every rectified
spirit/ethyl alcohol is an
industrial alcohol."
At a later stage, the Bench dealt with the distinction
between regulatory fees and fees for services rendered with
reference to the decision of this Court in Corporation of
Calcutta v. Liberty Cinema [1965 (2) S.C.R. 477] and held,
that in the case of regulatory fees the State is not bound
to prove quid pro quo.
Yet another finding recorded by the High Court is that
by virtue of enactment of the I.D.R. Act [after insertion of
Item 26 aforementioned] the State is not totally denuded of
any power to make a law with respect to rectified spirit or
for that matter industrial alcohol. After noticing Entry 33
of List-III in the Seventh Schedule, Section 18-G read with
other provisions f I.D.R. Act and the Rule [made by the
State Excise authority] concerned therein, the High Court
observed:
"All this discussion is for the
purpose of establishing that by
virtue of the IDR Act, the State
Legislatures are not completely and
totally deprived of the power
conferred upon them by Entry 24 of
List II, but that the deprivation
is only partial, viz., to the
extent indicated in the IDR Act.
This discussion is equally relevant
for the purpose of determining
whether the felicitated by Entry 33
of List III has been totally
occupied by Parliament or whether
any field is still left unoccupied
for the State Legislature to make a
law. Entry 33, it may be
reiterated, empowers both
Parliament and State Legislatures
to make a law with respect to trade
and commerce in products of any
industry included in the first
schedule to the IDR Act. The said
entry further empowers both
Parliament and State Legislatures
to make a law with respect to
production, supply and distribution
of the products of such industry.
Rectified spirit is, without a
doubt, a product of an industry
specified in the first schedule to
the IDR Act. If so, both the
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Parliament and State Legislatures
can make a law with respect to the
production, supply and distribution
of products of such industry. By
virtue of Section 18-G of the IDR
Act, the State Legislature cannot,
of course, make a law regulating
the supply and distribution of
and/or trade and commerce in such
products for securing the equitable
distribution and availability at
fair prices of such product; such
an order can be made only by the
Central Government under that
Section, but in other respects, the
field is open for the State
Legislatures.
Relying upon the holding in Tika Ramji v. State of
Uttar Pradesh [1956 S.C.R. 393], the High Court observed
that "the possibility of an order under Section 18-G being
issued by the Central Government would not be enough. the
existence of such an order would be the essential pre-
requisite before any redundancy could ever arise". It was
held that the rule made by the State and Section 18-G of the
I.D.R. Act "operate on different fields" and not even on
cognate fields if examined applying the doctrine of pith and
substance.
The reasoning in the said judgment has been approved by
this Court in all respects in its judgment dated January 21,
1997. The following observations in the judgment dated
January 21, 1997 in Civil Appeal No. 230 of 1997 are
apposite:
"This Court dealt with the question
of legislative competence of the
State to impose tax or levy on
industrial alcohol in the case of
Synthetic Chemicals v. State of
U.P. [(1990) 1 S.C.C. 109] = 1989
supp. (1) Supp. (1) SCR 623 and
ruled in the negative. The High
Court took the view that the
distinction between ethyl
alcohol/rectified spirit as such
and denatured spirit was not in
issue, nor was it considered in
that judgment and held that this
Court cannot be said to have ruled
that every rectified spirit/ethyl
alcohol is industrial alcohol. The
High Court reiterated that once
denatured, the alcohol becomes
exclusively industrial alcohol
since it cannot be used for
obtaining country liquor or for
manufacturing IMFLs and said that
it is to ensure that ethyl alcohol
meant for industrial use is not
misused or diverted for human
consumption that impugned
regulation is provided for by the
State and further that the
regulation being part of general
regulation of the trade in alcohol
in the interest of public health is
relatable to Entries 6 & 8 of List-
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II."
At a later stage, the learned Chief Justice, speaking
for the Bench, observed:
"A careful reading of that judgment
[Synthetics] shows that the Court
was fully aware of the fact that
rectified spirit was the ingredient
for intoxicating liquor or
alcoholic liquor for human
consumption although rectified
spirit/ethyl alcohol as well as
denatured spirit are referred to as
‘industrial alcohol’ in that
judgment. This Court did not, hold
that the State will have no power
whatsoever in relation to
‘industrial alcohol’.
This Court observed further:
"It is to be noticed that the
States under Entries 8 and 51 of
List-II read with Entry 84 of List-
I have exclusive privilege to
legislate on intoxicating liquor or
alcoholic liquor for human
consumption. Hence, so long as any
alcoholic preparation can be
diverted to human consumption, the
States shall have the power to
legislate as also to impose taxes,
etc."
[Emphasis added]
The decision also affirms the reasoning and conclusion
of the High Court on the inter-play of the I.D.R. Act and
the rule impugned therein in the context of Entry 33 of
List-III, referred to herein before. [We may say that this
aspect has been kept in mind by us while demarcating
hereinafter the respective spheres of the Union and the
States in the matter of control over production and disposal
of rectified spirit.] The learned Chief Justice also relied
upon the earlier decision of this Court in McDowell, and in
particular upon the following holding therein:
"It follows from the above
discussion that the power to make a
law with respect to manufacture and
production and its prohibition
(among other matters mentioned in
Entry 8 in List-II) belongs
exclusively to the State
Legislatures. Item 26 in the First
Schedule to the I.D.R. Act must be
read subject to Entry 8 - and for
that matter, Entry 6 - in List-II.
So read, the said item does not and
cannot deal with manufacture,
production of intoxicating liquors.
All the petitioners before us are
engaged in the manufacture of
intoxicating liquors. The State
Legislature is, therefore,
perfectly competent to make a law
prohibiting their. manufacture and
production - in addition to their
sale, consumption, possession and
transport - with reference to
Entries 8 and 6 in List-II of the
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Seventh Schedule to the
Constitution read with Article 47
thereof".
We are of the respectful and considered opinion that
the decision in Synthetics did not deal with the aspects
which are arising for consideration herein and that it was
mainly concerned with industrial alcohol, i.e., denatured
rectified spirit. While holding that rectified spirit is
industrial alcohol, it recognised at the same time that it
can be utilised for obtaining country liquor [by diluting
it] or for manufacturing I.M.F.Ls. When to decision says
that rectified spirit with 95% alcohol content v/v is
"toxic", what it meant was that if taken as it is, it is
harmful and injurious t health. By saying "toxic" it did not
mean that it cannot be utilised for potable purposes either
by diluting it or by blending it with other items. The
undeniable fact is that rectified spirit is both industrial
alcohol as well as a liquor which can be converted into
country liquor just by adding water. It is also the basis
substance from which I.M.F.Ls. are made. [Denatured
rectified spirit, of course, is wholly and exclusively
industrial alcohol.] This basic factual premise, which is
not and cannot be denied by any one before us*, raises
certain aspects for consideration herein which were not
raised or considered in Synthetics. Take a case where two
industries ‘A’ and
------------------------------------------------------------
*If rectified spirit is toxic and unfit for human
consumption, why is it necessary to denature it, asks the
learned Additional Advocate General for the State of Uttar
Pradesh. Denaturing is meant precisely for making what is
meant for human consumption unfit for human consumption, he
says.
‘B’ come forward with proposals to manufacture
rectified spirit; ‘A’ says that it proposes to manufacture
rectified spirit and then denature it immediately and sell
it as industrial alcohol while ‘B’ says that it will
manufacture rectified spirit and utilise it entirely for
obtaining country liquor [arrack or by whatever other name,
it may be called] or for manufacturing I.M.F.Ls. from out of
it or to supply it to others for the said purpose. According
to Synthetics, ‘A’ is under the exclusive control of the
Union and the only powers of the State are those as are
enumerated in Para 86 quoted above. But what about ‘B’? The
rectified spirit manufactured by it is avowedly meant only
for potable purposes. Can it yet be called "industrial
alcohol"? Can it still be said that the State concerned has
no power or authority to control and regulate industry ‘B’
and that the Union alone will control and regulate it until
the potable liquors are manufactured? The Union is certainly
not interested in or concerned with manufacture or process
of manufacture of country liquor or I.M.F.Ls. Does this
situation not leave a large enough room for abuse and misuse
of rectified spirit? It should be remembered that according
to many States before us, builk of the rectified spirit
produced in their respective States is meant for and is
utilised for obtaining or manufacturing potable liquors. Can
it be said even in such a situation that the State should
fold its hands and wait and watch till the potable stage is
reached. Yet another and additional circumstance is this: it
is not brought to our notice that any notified orders have
been issued under Section 18-G of the I.D.R. Act regulating
the sale, disposal or use of rectified spirit for the
purpose of obtaining or manufacturing potable liquors which
means that by virtue of Entry 33 of List-III, the States do
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have the power to legislate on this field - field not
occupied by any law made by the Union. It is these and many
other situations which have to be taken into consideration
and provided for in the interests of law, public health,
public revenue and also in the interests of proper
delineation of the spheres of the Union and the States. The
line of demarcation can and should be drawn at the stage of
clearance/removal of the rectified spirit. Where the
removal/clearance is for industrial purposes [other than the
manufacture of potable liquor], the levy of duties of excise
and all other control shall be of the Union but where the
removal/clearance is for obtaining or manufacturing potable
liquors, the levy of duties of excise and all other control
shall be that of the States. This calls for a joint control
and supervision of the process of manufacture of rectified
spirit and its use and disposal. We proceed to elaborate:
(1) So far as industries engaged in manufacturing rectified
spirit meant exclusively for supply to industries
[industries other than those engaged in obtaining or
manufacture of potable liquors], whether after denaturing it
or without denaturing it, are concerned, they shall be under
the total and exclusive control of the Union and be governed
by the I.D.R. Act and the rules and regulations made
thereunder. In other words, where the entire rectified
spirit is supplied for such industrial purposes, or to the
extent it is so supplied, as the case may be, the levy of
excise duties and all other control including establishment
of distillery shall be that of the Union. The power of the
States in the case of such an industry is only to see and
ensure that rectified spirit, whether in the course of its
manufacture or after its manufacture, it not diverted or
misused for potable purposes. They can make necessary
regulations requiring the industry to submit periodical
statements of raw material and the finished product
[rectified spirit] and are entitled to verify their
correctness. For this purpose, the States will also be
entitled t post their staff in the distilleries and levy
reasonable regulatory fees to defray the cost of such staff,
as held by this Court in Shri Bileshwar Khand Udyog Khedut
Sahakari Mandali Ltd. v. State of Gujarat & Anr. [1992 (1)
S.C.R. 391] and Gujchem Distillers India Ltd. v. State of
Gujarat & Anr. [1992 (1) S.C.R. 675].
(2). So far as industries engaged in the manufacture of
rectified spirit exclusively for the purpose of obtaining or
manufacturing potable liquors - or supplying the same to the
State government or its nominees for the said purpose - are
concerned, they shall be under the total and exclusive
control of the States in all respects and at all stages
including the establishment of the distillery. In other
words, where the entire rectified spirit produced is
supplied for potable purposes - or to the extent it is so
supplied, as the case may be - the levy of excise duties and
all other control shall be that of the States. According to
the State governments, most of the distilleries fall under
this category.
(3) So far as industries engaged in the manufacture of
rectified spirit, both for the purpose of (a) supplying it
to industries [other than industries engaged in obtaining or
manufacturing potable liquors/intoxicating liquors] and (b)
for obtaining or manufacturing or supplying it to
Governments/persons for obtaining or manufacturing potable
liquors are concerned, the following is the position: the
power to permit the establishment and regulation of the
functioning of the distillery is concerned, it shall be the
exclusive domain of the Union. But so far as the levy of
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excise duties is concerned, the duties on rectified spirit
removed/cleared for supply to industries [other than
industries engaged in obtaining or manufacturing potable
liquors], shall be levied by the Union while the duties of
excise on rectified spirit cleared/removed for the purposes
of obtaining or manufacturing potable liquors shall be
levied by the concerned State government. The disposal,
i.e., clearance and removal of rectified spirit in the case
of such an industry shall be under the joint control of the
Union and the concerned State to ensure evasion of excise
duties on rectified spirit removed/cleared from the
distillery. It is obvious that in respect of these
industries too, the power of the States to take necessary
steps to ensure against the misuse or diversion of rectified
spirit meant for industrial purposes [supply to industries
other than those engaged in obtaining or manufacturing
potable liquors] to potable purposes, both during and after
the manufacture of rectified spirit, continues unaffected.
Any rectified spirit supplied, diverted or utilised for
potable purposes, i.e., for obtaining or manufacturing
potable liquors shall be supplied to and/or utilised, as the
case may be, in accordance with the concerned State Excise
enactment and the rules and regulations made thereunder. If
the State is so advised, it is equally competent to prohibit
the use, diversion or supply of rectified spirit for potable
purposes.
(4) It is advisable - nay, necessary - that the Union
government makes necessary rules/regulations under the
I.D.R. Act directing that no rectified spirit shall be
supplied to industries except after denaturing it save those
few industries [other than those industries which are
engaged in obtaining or manufacturing potable liquors] where
denatured spirit cannot be used for manufacturing purposes.
(6) So far as rectified spirit meant for being supplied to
or utilised for potable purposes is concerned, it shall be
under the exclusive control of the States from the moment it
is cleared/removed for that purpose from the distillery -
apart from other powers referred to above.
(7) The power to permit the establishment of any industry
engaged in the manufacture of potable liquors including
I.M.F.Ls., beer, country liquor and other intoxicating
drinks is exclusively vested in the States. The power to
prohibit and/or regulate the manufacture, production, sale,
transport or consumption of such intoxication liquors is
equally that of the States, as held in McDowell.
The writ petition is disposed of with the above
directions and clarifications. The show-cause notice issued
by the Bihar Excise authorities to the writ petitioner shall
be disposed of in the light of the law declared herein,
after making necessary enquiry into relevant factual
position, according to law.
No costs.