TMI Blog1997 (1) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 petitionerdistillery 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 manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 observed that while enacting the Government of India Act, 1935, the British ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, 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 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 renatured 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 dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rit is, without a doubt, a product of an industry specified in the first schedule to the IDR Act. If so, both the 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 prerequisite 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Seve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 have the power to legislate on this field - field not occupied by any law made by the Union. It is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 excise duties ..... X X X X Extracts X X X X X X X X Extracts X X X X
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