Supreme Court of India
State Of U.P. vs M/S. Lalta Prasad Vaish And Sons on 23 October, 2024
Author: B.V. Nagarathna
Bench: B.V. Nagarathna
Reportable
2024 INSC 812
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No 151 of 2007
State of U.P. & Ors. …Appellants
Versus
M/S Lalta Prasad Vaish and sons …Respondent
With
Special Leave Petition (C)….(CC) No. 7999 of 2017
With
Special Leave Petition (C) No. 27241 of 2019
With
Special Leave Petition (C) No. 18582 of 2023
With
Special Leave Petition (C) No. 19275 of 2004
With
Special Leave Petition (C) No. 16505 of 2004
With
Special Leave Petition (C) No. 26110 of 2004
With
Special Leave Petition (C) No. 26111 of 2004
Signature Not Verified
With
Civil Appeal No. 580 of 2008
Digitally signed by
SANJAY KUMAR
Date: 2024.10.23
14:53:26 IST
With
Reason:
Civil Appeal No. 152 of 2007
Page 1 of 123
With
Civil Appeal No. 153 of 2007
With
Civil Appeal No. 610 of 2008
With
Special Leave Petition (C) No. 20204 of 2012
With
Civil Appeal No. 6768 of 2014
With
Special Leave Petition (C) No. 20519 of 2014
With
Special Leave Petition (C) No. 25447 of 2014
With
Special Leave Petition (C) No. 3160 of 2015
With
Special Leave Petition (C) No. 4057 of 2015
With
Civil Appeal No. 2084 of 2020
With
Civil Appeal No. 4987 of 2021
With
Diary No. 41507 of 2019
With
Special Leave Petition (C) No.18686 of 2022
With
Diary No. 7447 of 2023
With
Civil Appeal No. 154 of 2007
With
Civil Appeal No. 671 of 2008
With
Civil Appeal No. 672 of 2008
With
Civil Appeal No. 688 of 2008
With
Civil Appeal No. 750 of 2008
And With
Civil Appeal No. 5093 of 2011
Page 2 of 123
JUDGMENT
Dr Dhananjaya Y Chandrachud, CJI
Table of Contents
A. Background ................................................................................................... 5
i. Relevant constitutional provisions .......................................................... 5
ii. The judgment in Synthetics (7J) .............................................................. 8
iii. The aftermath of Synthetics (7J) ........................................................ 16
iv. The Reference Order(s)........................................................................... 22
B. Submissions................................................................................................ 26
i. Appellants’ submissions ........................................................................ 26
ii. Respondent’s submissions .................................................................... 35
C. The distinction between potable and non-potable alcohol ................. 42
D. Issues ....................................................................................................... 45
E. Analysis ....................................................................................................... 45
i. The constitutional distribution of legislative power ............................ 45
ii. Scheme of legislative entries ................................................................. 48
iii. The field covered by Entry 52 of List I and Entry 8 of List II ............ 51
a. The scope of Entry 8 .............................................................................. 52
I. The meaning of ‘that is to say’ ............................................................ 52
II. Product or industry based entry .......................................................... 55
Page 3 of 123
b. Scope of Entry 52 of List I: the absence of “to the extent to which” ....... 57
c. Reconciling the potential overlap between Entry 52 of List I and Entry 8
of List II ......................................................................................................... 63
iv. Scope of Entry 8: Meaning of ‘intoxicating liquor’ ............................... 70
a. Precedent on the interpretation of ‘intoxicating liquor’: exploring FN
Balsara and Southern Pharmaceuticals ................................................... 71
b. The legal import of ‘intoxicating liquor’ ................................................... 79
c. Evolution of the legislative lists on ‘intoxicating liquor’ ........................... 85
d. The harmonious interpretation ............................................................... 96
v. The correctness of the decision in Synthetics (7J)............................ 102
vi. The impact of the decision on Item 26 of the First Schedule of IDRA
113
vii. The (ir)relevance of the decision in Tika Ramji to the dispute ...... 115
viii. Section 18G of IDRA and Entry 33 of List III .................................... 119
F. Conclusion ................................................................................................ 120
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PART A
A. Background
1. “Intoxicating liquor” falls within the legislative domain of the State Legislatures
under Entry 8 of the State list, List II, of the Seventh Schedule to the
Constitution. The issues which arise for adjudication in this reference pertain
to the scope of the power of the State Legislatures under Entry 8 and the
meaning of the phrase “intoxicating liquor”. The question is whether
“intoxicating liquor” in Entry 8 only includes potable alcohol, such as alcoholic
beverages or also includes alcohol which is used in the production of other
products. In Synthetics and Chemicals Ltd. v. State of UP, 1 (“Synthetics
[7J]), a seven-Judge Bench delineated the scope of the regulatory powers of
State Legislatures on “intoxicating liquor”. The correctness of Synthetics [7J]
(supra) has been referred to a larger bench. We answer the reference in this
judgment.
i. Constitutional provisions
2. The State has the legislative competence under Entry 24 of List II over
‘industries’ but this is subject to entries 7 and 52 of List I. 2 Under Entry 52 of
List I, Parliament has legislative competence over such industries, the control
of which by the Union is declared by Parliament by law to be expedient in the
public interest 3. Entry 7 of List I deals with industries which are declared by
Parliament by law to be necessary for the purpose of defence or for the
1
(1990) 1 SCC 109
2
“24. Industries subject to the provisions of Entries 7 and 52 of List I”
3
“52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the
public interest.”
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PART A
prosecution of war. 4 Under Entry 33 of List III, the State Legislatures and
Parliament can legislate on trade and commerce in, and the production,
supply and distribution of the products of industries controlled by Parliament
under Entry 52 of List I. 5 Entry 8 of List II deals with ‘intoxicating
liquors’ 6.These words are followed by the expression “that is to say, the
production, manufacture, possession, transport, purchase and sale of
intoxicating liquors”. The Seventh Schedule also demarcates taxing powers
related to alcohol separately. Entry 84 of List I (before it was amended by the
Constitution (One Hundred and First Amendment) Act 2016) enabled
Parliament to levy duties of excise on tobacco and other goods manufactured
or produced in India except alcoholic liquors for human consumption but
including medicinal and toilet preparations containing alcohol. 7 Entry 51 of
List II confers the State Legislature the competence to levy duties of excise,
4
“7. Industries declared by Parliament by law to be necessary for the purpose of defence or for the
prosecution of war.”
5
“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 such
products;
(b) Foodstuffs, including edible oilseeds and oils;
(c) Cattle fodder, including oilcakes and other concentrates;
(d) Raw cotton, whether grinned or ungrinned, and cotton seed; and
(e) Raw jute.”
6
“8. Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale
of intoxicating liquors”
7
“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.
But including medicinal and toilet preparations containing alcohol or any substance included in sub-
paragraph (b) of this entry.”
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PART A
inter alia, on alcoholic liquors for human consumption but not including
medicinal and toilet preparations containing alcohol. 8
3. In exercise of the power under Article 246 9 read with Entry 52 of List I,
Parliament enacted the Industries (Development and Regulation) Act 1951 10.
Section 2 of IDRA stipulates that it is expedient in public interest that the Union
should take control of the industries specified in the First Schedule to the
enactment. Item 26 of the First Schedule read as follows:
“26. Fermentation industries:
(1) Alcohol
(2) Other products of fermentation industries”
4. In 2016, Item 26 of the First Schedule to the IDRA was amended to exclude
potable alcohol from the ambit of the Item.11 Item 26 reads as follows after
the amendment:
“26. Fermentation industries (other than potable
alcohol):
(1) Alcohol
(2) Other products of fermentation industries”
5. Section 18-G of IDRA 12 grants the Central Government the power to regulate
the supply and distribution “of any article or class of articles relatable to a
8
“51. Duties of excise on the following goods manufactured or produced in the State and counterveiling
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.
9
“246. Subject matter of laws made by Parliament and by the Legislatures of States.”
10
“IDRA”
11
The Industries (Development and Regulation) Amendment Act 2016
12
“18G. Power to control supply, distribution, price, etc., of certain articles.—
(1) The Central Government, so far as it appears to it to be necessary or expedient for securing the equitable
distribution and availability at fair prices of any article or class of articles relatable to any scheduled industry,
Page 7 of 123
PART A
scheduled industry” for securing equitable distribution and availability at fair
prices.
ii. The judgment in Synthetics (7J)
6. The United Provinces Excise Act 1910 13 was enacted to “consolidate and
amend the law in force in the United Provinces relating to the import, export,
transport, manufacture, sale and possession of intoxicating liquor and of
intoxicating drugs”. In exercise of the powers under the UP Excise Act, the
may, notwithstanding anything contained in any other provision of this Act, by notified order, provide for
regulating the supply and distribution thereof and trade and commerce therein.
(2) Without prejudice to the generality of the powers conferred by sub-section (1), a notified order made
thereunder may provide—
(a) for controlling the prices at which any such article or class thereof may be bought or sold;
(b) for regulating by licences, permits or otherwise the distribution, transport, disposal, acquisition,
possession, use or consumption of any such article or class thereof;
(c) for prohibiting the withholding from sale of any such article or class thereof ordinarily kept for
sale;
(d) for requiring any person manufacturing, producing or holding in stock such article or class thereof
to sell the whole or the part of the articles so manufactured or produced during a specified period or
to sell the whole or a part of the article so held in stock to such person or class of persons and in
such circumstances as may be specified in the order;
(e) for regulating or prohibiting any class of commercial or financial transactions relating to such
article or class thereof which in the opinion of the authority making the order are, or if unregulated
are likely to be, detrimental to public interest;
(f) for requiring persons engaged in the distribution and trade and commerce in any such article or
class thereof to mark the articles exposed or intended for sale with the sale price or to exhibit at
some easily accessible place on the premises the price-lists of articles held for sale and also to
similarly exhibit on the first day of every month, at such other time as may be prescribed, a statement
of the total quantities of any such articles in stock;
(g) for collecting any information or statistics with a view to regulating or prohibiting any of the
aforesaid matters; and
(h) for any incidental or supplementary matters, including, in particular, the grant of issue of licences,
permits, or other documents and charging of fees therefor.
(3) Where in pursuance of any order made with reference to clause (d) of sub-section (2), any person sells
any article, there shall be paid to him the price therefor—
(a) where the price can consistently with the controlled price, if any, be fixed by agreement, the price
so agreed upon;
(b) where no such agreement can be reached, the price calculated with reference to the controlled
price, if any, fixed under this section;
(c) where neither clause (a) nor clause (b) applies, the price calculated at the market-rate prevailing
in the locality at the date of sale.
(4) No order made in exercise of any power conferred by this section shall be called in question in any Court.
(5) Where an order purports to have been made and signed by an authority in exercise of any power conferred
by this section, a Court shall, within the meaning of the Indian Evidence Act, 1872 (1 of 1872), presume that
such order was so made by that authority.
Explanation.—In this section, the expression “article or class of articles” relatable to any scheduled industry
includes any article or class of articles imported into India which is of the same nature or description as the
article or class of articles manufactured or produced in the scheduled industry.”
13
“UP Excise Act”
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PART A
Government of the Untied Provinces levied vend fee 14 on ‘denatured spirit’
from the wholesale dealer of denatured spirit. The UP Excise Act was
amended to include Section 24-A. Section 24-A provided that the Excise
Commissioner may grant licence for the manufacture or sale of any ‘foreign
liquor’. ‘Foreign Liquor’ was defined in the subordinate Rules to include “all
rectified, perfumed, medicated and denatured spirit.”15 The constitutional
validity of the amendment including Section 24-A was challenged before the
Allahabad High Court. The High Court upheld the challenge. The UP State
Legislature enacted the U.P Excise (Amendment) (Re-enactment and
Validation) Act 1976 including Section 24-A relying on the decisions of this
Court in Nashirwar v. State of MP 16 and Har Shanker v. Dy. Excise and
Taxation Commissioner 17. The Allahabad High Court upheld the validity of
the U.P Excise (Amendment) (Re-enactment and Validation) Act 1976. 18
7. The appellants in Synthetics & Chemicals v. State of UP 19 (“Synthetics
[2J]”), held licenses for wholesale vend of ‘denatured spirit’. They instituted
proceedings under Article 226 of the Constitution before the Allahabad High
Court for seeking a direction to quash the notification by which vend fee was
levied from a wholesale licence dealer of ‘denatured spirit’. The High Court
dismissed the petitions. It held that the phrase ‘intoxicating liquors’ in Entry 8
of List II of the Seventh Schedule to the Constitution includes denatured spirit
14
Vend fee means the fee that is paid by a licenses dealer to sell the products in retain.
15
Section 4(2) of the UP Act provides that the State may declare what shall be deemed to be foreign liquor
or country liquor
16
1975 AIR 360
17
AIR 1957 SC 414
18
1976 ALJ 436 (FB)
19
(1980) 2 SCC 441
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PART A
and that the State was, therefore, competent to levy the vend fee on
denatured spirit.
8. Proceedings under Article 136 were instituted for challenging the decision of
the High Court. Proceedings were also initiated under Article 32 challenging
the constitutional validity of the levy of vend fee. A two-Judge Bench of this
Court in Synthetics (2J) (supra) heard the writ petition and the appeals
against the judgments of the Allahabad High Court together. Three issues
arose before the Bench. On the issue of the meaning of the phrase
‘intoxicating liquor’ in Entry 8, the two-Judge Bench referred to the decisions
of this Court in State of Bombay v. FN Balsara20, Nashirwar (supra) and
Har Shanker (supra) and held that the decisions indicate that the phrase
‘intoxicating liquor’ in Entry 8 of List II comprises of liquor which contains
alcohol, both potable and non-potable. 21 The second issue was whether in
view of IDRA, the power of the State to regulate alcohol (both potable and
non-potable) was denuded. In particular, reference was made to the
notification issued by the Union under Section 18-G of the IDRA prescribing
the price of various types of alcohol and rectified spirit. The two-Judge Bench
referred to the decision of a three-Judge Bench of this Court in Tika Ramji v.
State of UP 22 and entry 33 of List III to hold that the State Legislature had the
power to legislate regarding the production, supply and distribution of the
products of the industries notified by Parliament under Entry 52 of List I. 23
20
1951 SCC 860
21
(1980) 2 SCC 441 [18]
22
AIR 1956 SC 676
23
(1980) 2 SCC 441 [25-28]
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PART A
The two-Judge Bench further held that the Ethyl Alcohol (Price Control) Order
issued by the Central Government in exercise of the power under Section
18G of IDRA did not take away the exclusive rights of the State Government
relating to intoxicating liquor. 24 The third issue was whether the phrase
‘foreign liquor’ in Section 24-A includes denatured spirit or only alcohol for
human consumption. The Bench held that the meaning of the phrase cannot
be restricted to alcohol for human consumption since “when liquor is put to
any use such as manufacture of other articles, the liquor is all the same
consumed.” 25
9. Review petitions were filed against the decision of this Court in Synthetics
(2J) (supra). Writ petitions were also filed for challenging the rules by which
vend fees were levied in Uttar Pradesh, and provisions of various laws
enacted by the then State of Bombay, and the States of Tamil Nadu and
Andhra Pradesh by which exclusive privilege of dealing with any intoxicant
was vested in the State. The matters were heard by a seven-Judge Bench in
Synthetics(7J) (supra).
10. Justice Sabyasachi Mukharji, writing for himself and five other judges framed
the following issues for consideration:
“2. The main question that falls for consideration in
these matters is whether the vend fee in respect of
the industrial alcohol under different legislations and
rules in different States is valid. […] The questions
with which we are mainly concerned are the
following:
24
(1980) 2 SCC 441 [28]
25
(1980) 2 SCC 441 [34]
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PART A
Whether the power to levy excise duty in case of
industrial alcohol was with the State legislature or
the Central legislature;
What is the scope and ambit of Entry 8 of List II of
the Seventh Schedule of the Constitution?
Whether, the State Government has exclusive right
or privilege of manufacturing, selling, distributing etc.
of alcohols including industrial alcohol. In this
connection, the extent, scope and ambit of such right
or privilege has also to be examined.”
11. The decision, first, laid down the meaning of the terms, ‘rectified spirit’,
‘industrial alcohol’, and ‘ethyl alcohol’. The decision noted that the petitioners
and appellants were manufacturers of ‘ethyl alcohol’ and that ‘ethyl alcohol’,
which is also known as rectified spirit is an industrial alcohol. The judgement,
used the three phases interchangeably:
“74. It has to be borne in mind that by common standards ethyl
alcohol (which has 95 per cent) is an industrial alcohol and is
not fit for human consumption. The petitioners and the
appellants were manufacturing ethyl alcohol(95 per cent)
(also known as rectified spirit) which is an industrial alcohol.
ISI specification has divided ethyl alcohol (as known in the
trade) into several kinds of alcohol. Beverage and industrial
alcohols are clearly and differently treated. Rectified spirit for
industrial purposes is defined as “spirit purified by distillation
having a strength not less than 95 per cent of volume by ethyl
alcohol”. Dictionaries and technical books would show that
rectified spirit (95 per cent) is an industrial alcohol and is not
potable as such. It appears, therefore, that industrial alcohol
which is ethyl alcohol (95 per cent) by itself is not only non-
potable but is highly toxic. The range of spirits of potable
alcohol is from country spirit to whisky and the ethyl alcohol
content varies between 19 to about 43 per cent. These
standards are according to the ISI specifications. In other
words ethyl alcohol (95 per cent) is not alcoholic liquor for
human consumption but can be used as a raw material input
after processing and substantial dilution in the production of
whisky, gin, country liquor, etc.”
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PART A
12. This Court allowed the challenge on the following grounds:
a. The phrase ‘intoxicating liquor’ in Entry 8 means ‘liquor which is
consumable by human being as it is” for the following reasons: (i) In FN
Balsara (supra), this Court was not aware of the full use of alcohol as
industrial alcohol 26; and (ii) Only two decisions of this Court have dealt
with industrial alcohol. One was the decision in Synthetics (2J) (supra)
and the other was the decision in Indian Mica and Micancite Industries
v. State of Bihar 27 in which this Court held that Parliament had the
legislative competence to levy tax on alcoholic liquor not fit for human
consumption 28;
b. The provisions that are challenged are not regulatory but seek to levy a
tax. 29 List II does not confer the State Legislature the power to levy of
tax on industrial alcohol 30;
c. In view of Item 26 of the First Schedule to IDRA, the control of alcohol
industries vests exclusively in the Union. Thus, the power to issue
licenses to manufacture both potable and non-potable alcohol vests in
the Central Government; 31
d. The State can also not regulate industrial alcohol as a ‘product’ of the
controlled industry in terms of Entry 33 of List III because the Union
26
(1990) 1 SCC 109 [74]
27
(1971) 2 SCC 236
28
(1990) 1 SCC 109 [75]
29
On the distinction between tax and fee (see (1990) 1 SCC 109 [69-73]
30
(1990) 1 SCC 109 [83]
31
(1990) 1 SCC 109 [85]
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PART A
occupies the whole field on industrial alcohol as evinced by Section 18G
of the IDRA 32;
e. Even otherwise, the impugned provisions do not regulate a product of
the scheduled industry. Rather, they deal with the manufacture and sale
of industrial alcohol 33;
f. The power of the States to legislate on the subject of alcohol is restricted
to laws which (paragraph 86 of Synthetics (7J) (supra)):
i. Prohibit potable alcohol in terms of Entry 6 of List II which concerns
public health;
ii. Lay down regulations to ensure that non-potable alcohol is not
diverted and misused as a substitute for potable alcohol;
iii. Charge excise duty on potable alcohol and sales tax under Entry
52 of List II. However, sales tax cannot be charged on industrial
alcohol; and
iv. Charge fees on a quid pro quo basis, in return for some service
rendered by the state, as distinct from fees for grant of a privilege
in terms of Indian Mica (supra).
13. However, the judgment in paragraph 88 makes the following observations:
“On an analysis of the aforesaid decisions and
practice, we are clearly of the opinion that in respect
of industrial alcohol the States are not authorised to
32
(1990) 1 SCC 109 [85]
33
(1990) 1 SCC 109 [85]
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PART A
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.”
14. Paragraph 88 lays down the following three principles:
a. States do not have the competence to levy tax on industrial alcohol;
b. States have the competence to levy tax on potable alcohol; and
c. States have the competence to levy fee on industrial alcohol.
15. Justice Oza in his concurring opinion held:
a. The legislative entries in List I and List II clearly demarcate the taxing
powers of Parliament and State Legislature. Entry 84 of List I covers levy
of excise duty on alcoholic liquor for other than human consumption and
Entry 51 of List II covers levy of excise duty on alcoholic liquor for human
consumption 34;
b. Parliament controls the alcohol industry since Item 26 of IDRA deals with
industry based on fermentation and alcohol. The competence of the
State Legislature under Entry 8 can only be subject to IDRA 35; and
34
(1990) 1 SCC 109 [97]
35
(1990) 1 SCC 109 [100]
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PART A
c. The regulation of the State under Entry 8 of List II can only be limited to
prevent the conversion of alcoholic liquors for industrial use for human
consumption. Regulatory fee can be levied by the State for this limited
purpose.
iii. The aftermath of Synthetics (7J)
16. Subsequently, the interpretation of the decision in Synthetics (7J) (supra)
came up before this Court in numerous occasions. In Shri Bileshwar Khand
Udyog Khedut Sahakari Mandali v. State of Gujarat 36, the constitutional
validity of Section 58-A of the Bombay Prohibition Act 1949 was challenged.
Section 58-A enabled the State Government to direct that “the manufacture,
import, export, transport, storage, sale, purchase, use, collection or cultivation
of any intoxicant, denatured spiritous preparations, hemp, mhowra flowers or
molasses” would be in the supervision of persons appointed by them and the
costs of such staff were required to be borne by the person engaged in the
activity. This Court rejected the challenge. Relying on Synthetics (7J)
(supra), the two-Judge Bench observed that though industrial alcohol is not
covered by the regulatory powers under Entry 8 or the taxing power under
Entry 51 of List II, the State has powers to ensure that industrial alcohol is not
diverted to be used as potable alcohol and this is covered by Entry 33 of List
36
(1992) 2 SCC 42
Page 16 of 123
PART A
III. 37 This decision was followed by another two-Judge Bench in Gujchem
Distillers India v. State of Gujarat 38.
17. In State of AP v. McDowell 39, the prohibition of sale and consumption of
intoxicating liquor in the State of Andhra Pradesh was challenged. The
petitioners submitted that the State did not have the competence to prohibit
consumption. For this purpose, reference was made to the observations in
paragraph 85 of Synthetics(7J) (supra), where the Court had observed that
after the enactment of IDRA, the power to issue licenses to manufacture both
potable and non-potable liquor vested in Parliament. The three-Judge Bench
rejected the argument by referring to observations in paragraph 86(a)
Synthetics (7J) (supra) that States have the power to enact legislation in the
nature of prohibiting potable liquor.40 In Vam Organic Chemicals v. State of
UP 41 [“Vam Organic I”], the rules issued under the UP Excise Act providing
for power to issue licenses for denaturation of spirit and levy of denaturing fee
was challenged. Justice A M Ahmadi (as the learned Chief Justice then was)
writing for the two-Judge Bench noted that Synthetics(7J) (supra) did not
37
“4. […] Levy as a fee under Entry 8 of List II of Seventh Schedule or excise duty under Entry 51 are different
than cost of supervision charged under Section 58-A. The former has to stand the test of a levy being in
accordance with law on power derived from one of the constitutional entries. Since Synthetics and Chemicals
case [Synthetics and Chemicals Ltd. v. State of U.P., (1990) 1 SCC 109] finally brought down the curtain in
respect of industrial alcohol by taking it out of the purview of either Entry 8 or 51 of List II of Seventh Schedule
the competency of the State to frame any legislation to levy any tax or duty is excluded. But by that a provision
enacted by the State for supervision which is squarely covered under Entry 33 of the Concurrent List which
deals with production, supply and distribution which includes regulation cannot be assailed. The bench
in Synthetics and Chemicals case [Synthetics and Chemicals Ltd. v. State of U.P., (1990) 1 SCC 109] made
it clear that even though the power to levy tax or duty on industrial alcohol vested in the Central Government
the State was still left with power to lay down regulations to ensure that non-potable alcohol, that is, industrial
alcohol, was not diverted and misused as substitute for potable alcohol. This is enough to justify a provision
like Section 58-A.”
38
(1992) 2 SCC 399
39
1996 3 SCC 709
40
1996 3 SCC 709 [33]
41
(1997) 2 SCC 715
Page 17 of 123
PART A
hold that the State will not have any power over ‘industrial alcohol’. 42
Specifically, the two-Judge Bench referred to the observations in paragraph
86(b) that the State may lay down regulations to ensure that non-potable
alcohol is not misused as a substitute for potable alcohol. Justice Ahmadi
observed that the process of denaturing was to ensure it was not misused as
potable alcohol which would be covered by the observations in Synthetics
(7J) (supra). 43
18. In Bihar Distillery v. Union of India 44, the petitioner challenged the State’s
cancellation of their license for preparing “rectified spirit” on the ground that
the State lacked competence in view of Synthetics(7J) (supra). Justice B P
Jeevan Reddy, writing for the two-Judge Bench held that the observations in
paragraph 85 that Parliament has legislative competence over both potable
and non-potable alcohol in view of the enactment of IDRA was a typographical
error. 45 The Bench further observed that Synthetics (7J) (supra) was mainly
concerned with legislative competence over “denatured rectified spirit” (which
was exclusively and wholly industrial alcohol) and not “rectified spirit” (which
could be used directly for industrial purposes or denatured for industrial
purposes or used to prepare liquor for human consumption.) 46 This Court held
that the line of demarcation must be drawn at the stage of clearance of the
42
(1997) 2 SCC 715 [13]
43
(1997) 2 SCC 715 [13,14] “14. 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 taxed etc. In this view, denaturation of spirit is not
only an obligation on the States but also within the competence of the States to enforce. [ emphasis supplied]
44
(1997) 2 SCC 727
45
(1997) 2 SCC 727 [12]
46
(1997) 2 SCC 727 [23]
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PART A
rectified spirit since it was used for the preparation of both potable alcohol
(over which the State had competence under Entry 8 of List II) and non-
potable alcohol (over which the State did not have competence under Entry
8 of List II):
“23. 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.”
19. The decision further elucidated the realm of competence of the State and the
Union with respect to (a) industries engaged in manufacturing rectified spirit
meant exclusively for supply to industries; (b) industries engaged exclusively
in manufacturing rectified spirit for production of potable alcohol; and (c)
industries engaged in both of the above. This demarcation will be discussed
in detail in the subsequent sections of the judgment. To understand the
manner in which Bihar Distillery (supra) interpreted the judgment in
Synthetics (7J) (supra), it is sufficient at this stage to know that the
demarcation of the competence was based on the purpose for which the
rectified spirit was used.
20. In Government of Haryana v. Haryana Brewery 47, a two-Judge Bench
noted the dissonance in multiple decisions interpreting the judgment in
47
(1997) 5 SCC 758
Page 19 of 123
PART A
Synthetics(7J) (supra) and directed that the papers may be placed before
the Chief Justice for listing the matters before the Constitution Bench. In
particular, the Bench noted the observations in (i) McDowell (supra) that the
State has competence over production to sale of “intoxicating liquor”; (ii) Vam
Organic I (supra), that State has competence over “denatured spirit”; and (iii)
Bihar Distillery (supra) that the State’s competence over “rectified spirit’
depended on the purpose for which spirit was going to be used. The Bench
also noted the observations of a three-Judge Bench in State of UP v. Modi
Distillery 48 that the State does not have the legislative competence to levy
excise duty on the material or input that is used in the process of producing
alcoholic liquor for human consumption by relying on Synthetics (7J)
(supra) 49. However, it must be noted that the Bench in Modi Distillery
(supra), specifically recorded that it does not “express any opinion in regard
to the power of the State to regulate the manufacture of alcoholic liquors for
human consumption.”50
21. Meanwhile, another two-Judge Bench 51 referred the decision in Bihar
Distillery (supra) to a larger Bench on the ground that it was prima facie
contrary to the scheme of legislative competence as examined by the
Constitution Bench of this Court and the three-Judge Bench decision of this
Court in Modi Distillery (supra). The three-Judge Bench in Deccan Sugar &
48
(1995) 5 SCC 753
49
In this case, the challenge was to the levy of excise duty on wastage in the preparation of Indian Made
Foreign Liquor (IMFL), pipeline wastage and obscuration (which is the process of adding caramel to spirit for
the preparation of rum. The Bench relied on the observations in Synthetics (7J) that the phrase ‘alcoholic
liquor for human consumption’ means the liquor that is consumable “as it is” to hold that the State does not
have the power to levy excise duty on the stages of manufacture or preparation of the liquor.
50
(1995) 5 SCC 753 [14]
51
Deccan Sugar and Abkari Co. Ltd. V. Commissioner of Excise, AP (1998) 3 SCC 272
Page 20 of 123
PART A
Abkari v. Commissioner of Excise, AP 52, without overruling the decision in
Bihar Distillery (supra) observed that this Court in Synthetics (7J) held that
the State Legislature does not have the competence to levy any excise duty
on “rectified spirit”.53 Subsequently, another two-Judge in State of UP v. Vam
Organic 54 [“Vam Organic (II)”], dealt with the challenge to the levy of license
fee on ‘denatured industrial alcohol’, a raw material used in the preparation of
Organic compounds. In that case, the State had submitted that it had the
power to levy the fee because denatured alcohol could be renatured to
produce potable alcohol which is covered by paragraph 86(b) of the decision
in Synthetics (7J). The Bench rejected the submission holding that the State
Government is competent to levy fee to ensure that industrial alcohol (which
the judgment used alternatively for ethyl alcohol) is not “surreptitiously
converted into potable alcohol so that … the public is protected from
consuming illicit liquor”. However, the Bench relying on Vam Organic I
(supra) noted that the power stops with denaturing and that even if denatured
alcohol can be re-natured, the States would not have the power to regulate it.
The relevant observations are extracted below:
“43. […] We are of the view that the State
Government is competent to levy fee for the purpose
of ensuring that industrial alcohol is not
surreptitiously converted into potable alcohol so that
the State is deprived of revenue on the sale of such
potable alcohol and the public is protected from
consuming such illicit liquor. But this power stops
with the denaturation of the industrial alcohol.
Denatured spirit has been held in Vam Organics-
I to be outside the seism of the State Legislature.
52
(2004) 1 SCC 243
53
(2004) 1 SCC 243 [2]
54
(2004) 1 SCC 225
Page 21 of 123
PART A
Assuming that denatured spirit may by whatever
process be renatured (a proposition which is
seriously disputed by the respondents) and then
converted into potable liquor, this would not give the
State the power to regulate it. Even according to the
demarcation of the fields of legislative competence
as envisaged in Bihar Distillery industrial alcohol for
industrial purposes falls within the exclusive control
of the Union and according to Bihar Distillery
“denatured rectified spirit, of course, is wholly and
exclusively industrial alcohol.”
(emphasis supplied)
iv. The Reference Order(s)
22. Separately, the State of UP levied an ad valorem licence fee on the sale of
specially denatured alcohol by a wholesale vendor to those holding a licence
under Form FL 4155 of the UP Excise Act. The fee was levied under the
provisions of the UP Spirit Rules. The petitioner in RP Sharma v. State of
UP 56 instituted a writ petition before the Allahabad High Court, inter alia, for
challenging the relevant rule and for a refund of the fee collected by the state.
23. A Division Bench of the Allahabad High Court allowed the petition, relying on
the decision in Vam Organic-II (supra) since the fee was levied on the sale
of denatured spirit and not to ensure that rectified spirit was not diverted for
human consumption. The State of UP preferred an appeal against the
decision before this Court, resulting in the present proceedings. The Court
issued notice on the matter and granted an interim stay of the judgment of the
High Court on 27 August 2004. By its order dated 25 October 2007, a three-
55
Form FL 41 is meant for those industries where alcohol is used as a solvent but some alcohol continues
to remain in final products such as lacquers, varnish, polishes, adhesives, anti-freezers and brake fluids.
56
2004 SCC OnLine All 159.
Page 22 of 123
PART A
Judge Bench of this Court in State of UP v. Lalta Prasad 57 agreed with the
submissions advanced by counsel for the appellants on the need for
reconsideration by a larger bench. Numerous decisions were relied on to
argue that Section 18G of the IDRA would not deprive the States of the power
to enact laws with respect to Entry 33 of List III. The appellants argued that a
notification ought to be issued under Section 18G for the field under Entry 33
to be occupied. Justice Altmas Kabir, writing for the three-Judge Bench
observed that that the question of whether Section 18G occupies the field of
Entry 33 on the alcohol industry needs to be referred to a Constitution Bench:
“26. … The 7 Judge Bench did not also have the
benefit of the reasoning in Ch. Tikaramji’s case
(supra) which had held that in the absence of any
notified order under Section 18-G of the 1951 Act no
question of repugnancy could arise, which Mr.
Dwivedi urged, recognised the State’s power to
legislate with regard to matters under Entry 33 of List
III notwithstanding the provisions and existence of
Section 18-G in the 1951 Act.
27. Mr. Dwivedi then went on to refer to the judgment
of this Court in SIEL Limited v. Union of India (1998)
7 SCC 26 wherein the learned Judges relying on the
policy decision in Ch. Tikaramji’s case (supra)
explained and distinguished the decision of the 7
Judge Bench in Synthetics and Chemicals case
(supra). […]
28. Yet another case referred to by Mr. Dwivedi was
the decision of a Constitution Bench of 5 Judges of
this Court in Belsund Sugar v. State of Bihar (1999)
9 SCC 620 […]. In the said case also it was observed
by the Constitution Bench that in the absence of
promulgation of any statutory order covering the filed
under Section 18-G it could not be said that mere
existence of a statutory provision for entrustment of
such power would result in regulation of purchase
and sale of flour even if it is a scheduled industry. It
may be noted that even while noting the decision of
57
2007 13 SCC 463
Page 23 of 123
PART A
the 7 Judge Bench in Synthetics and Chemicals
case (supra) the Court placed reliance on the
decision rendered in the SIEL Ltd. Case (supra).
…
35. On consideration of the aforesaid submissions
made on behalf of the respective parties, we are of
the view that Mr. Dwivedi’s submissions have a good
deal of force, since by virtue of the interpretation
of Section 18-G in the Synthetics and Chemicals
case (supra) the power of the State to legislate
with matters relating to Entry 33 of List III have
been ousted, except to the extent as explained in
the Synthetics and Chemicals case in paragraphs
63-64 of the judgment, where the State’s power to
regulate, as far as regulating the use of alcohol,
which would include the power to make provisions to
prevent and/or check industrial alcohol being used
as intoxicant liquor, had been accepted. … As
submitted by Mr. Dwivedi, the 7 Judge Bench did
not have the benefit of the views expressed by
this Court earlier in Ch. Tikaramji case (supra)
where the State’s power to legislate under the
Concurrent List stood ousted by legislation by
the Central Government under Entry 52 of List I
and also in view of Section 18-G of the Industries
(Development and Regulation) Act, 1951.
36. In our view, if the decision in the Synthetics and
Chemicals case (supra) with regard to the
interpretation of Section 18-G of the 1951 Act is
allowed to stand, it would render the provisions of
Entry 33 (a) of List III nugatory or otiose.
37. We are, therefore, also of the view that this
aspect of the matter requires reconsideration by a
larger Bench of this Court, particularly, when the
views expressed by 7 Judge Bench on the aforesaid
question have been distinguished in several
subsequent decisions of this Court, including the two
decisions rendered by Constitution Benches of five
Judges.”
(emphasis supplied)
Page 24 of 123
PART A
24. This Court formulated six questions for adjudication by a larger Bench. They
are reproduced below:
a. Does Section 2 of the IDRA have any impact on the field covered by
Section 18G of the same or Entry 33 of List III of the Seventh Schedule?
b. Does Section 18G of the aforesaid Act fall under Entry 52 of List I of the
Seventh Schedule of the Constitution, or is it covered by Entry 33 of List
III thereof?
c. In the absence of any notified order by the Central government under
Section 18G of the above Act, is the power of the State to legislate in
respect of matters enumerated in Entry 33 of List III ousted?
d. Does the mere enactment of Section 18G of the IDRA, give rise to a
presumption that it was the intention of the Central government to cover
the entire field in respect of Entry 33 of List III so as to oust the States’
competence to legislate in respect of matters relating thereto?
e. Does the mere presence of Section 18G of the IDRA, oust the State’s
power to legislate in regard to matters falling under Entry 33(a) of List
III?
f. Does the interpretation given in Synthetics (supra), in respect of Section
18G of the IDRA correctly state the law regarding the States’ power to
regulate industrial alcohol as a product of the Scheduled industry under
Entry 33 of List III in view of clause (a) thereof?
Page 25 of 123
PART B
25. The batch was placed before a Constitution Bench pursuant to the above
order. By an order dated 8 December 2010, the Constitution Bench observed
that the decision in Synthetics (7J) (supra) requires to be considered by a
Bench of nine Judges and directed the matter be placed before a larger
Bench:
“Having meticulously examined the judgment of the
Constitution Bench of seven learned Judges in the
case of Synthetics and Chemical Limited & Ors. vs.
State of Uttar Pradesh & Ors., reported in 1990 (1)
SCC 109, we are of the view that the matter requires
consideration by a Bench of nine Judges.”
26. Though the three-Judge Bench by an order 25 October 2007 only referred the
issue of the interplay between Section 18-G of the IDRA and Entry 33 of List
III to the Constitution Bench, the order of the Constitution Bench categorically
noted that the correctness of the decision in Synthetics (7J) ought to be
reconsidered by a nine Judge Bench. Thus, this Bench is not limited to the
questions framed by the three-Judge Bench.
B. Submissions
i. Appellants’ submissions
27. This Court held in Synthetics (7J) (supra) that denatured spirit is industrial
alcohol and is outside the jurisdiction of States under Entry 8, List II of the
Seventh Schedule to the Constitution. It held that Entry 8, List II deals only
with potable alcohol. Mr Dinesh Dwivedi, learned senior counsel representing
the State of UP assailed the reasoning in Synthetics (7J) (supra) and argued
that the States have jurisdiction over industrial alcohol. He submitted that:
Page 26 of 123
PART B
a. Legislative entries are fields of legislation and must be read widely and
construed liberally to maintain the federal balance. The exclusive
jurisdiction of the States cannot be ousted by a Parliamentary
enactment. Article 245 of the Constitution is subject to Article 246 and
therefore the division of legislative powers must be given their full effect;
b. The term ‘intoxicating liquors’ appearing in Entry 8 of List II of the
Seventh Schedule to the Constitution has a rich history and legislative
practice accompanying it;
c. The term ‘intoxicating liquors’ in Entry 8 of List II is borrowed from Entry
31, List II of the 1935 Act. The 1935 Act was enacted by the British
Parliament when the term ‘intoxicating liquors’ had attained a specific
meaning. This meaning can be discerned from Section 110 of the
License Consolidation Act 1910 and Sections 3, 4, 5, 116 of the Spirit
Act 1880;
d. In British legislations, the words ‘intoxicating liquors’ were defined to
include spirit of all kinds including fermented and distilled spirits. The
terms ‘intoxicating liquors’ and ‘spirit’ or ‘liquor of all kinds’ were used
interchangeably in laws in England;
e. Various provincial statutes defined the words ‘liquor’ and ‘sprit’ to include
all liquids containing alcohol. 58 These legislations were enacted with the
knowledge that alcohol is used for industrial purposes. ‘Intoxicating
58
Bombay Abkari Act 1878, Madras Abkari Act 1886, Bengal Excise Act 1909, Bihar Excise Act 1915, MP
Excise Act 1915, Punjab Excise Act 1914, Chhattisgarh Excise Act 1915 and UP Excise Act 1910.
Page 27 of 123
PART B
liquors’ in Entry 8 of List II of the Seventh Schedule to the Constitution
is a comprehensive phrase which connotes all liquids containing alcohol.
Therefore, liquor and spirit including industrial alcohol have always been
under the jurisdiction of States;
f. The 1935 Act used different phrases in Entries 31 and 40 of List II of its
Seventh Schedule. These entries are relatable to Entries 8 and 51 of List
II of the Seventh Schedule to the Constitution respectively. Whereas the
phrase ‘alcoholic liquor for human consumption’ is used in Entry 51 List
II for taxation purposes, Entry 8 of List II uses the word ‘intoxicating
liquors’. Similarly, Entry 84 of List I uses the phrase ‘alcoholic liquor not
for human consumption’ and Article 47 uses the phrase ‘intoxicating
drinks’. It would be irrational to presume that the framers of the
Constitution used different phrases to mean the same thing;
g. The term ‘liquors’ used in a legislation under Entry 31 of List II of the
Seventh Schedule to the 1935 Act was accepted to mean all alcoholic
liquids by this Court in FN Balsara (supra). The language of Entry 8 of
List II of the Seventh Schedule to the Constitution is borrowed from Entry
31 of List II of the Seventh Schedule to the 1935 Act and must be
deemed to have the same meaning;
h. Entry 84 of List I of the Seventh Schedule to the Constitution uses the
phrase ‘alcoholic liquor not for human consumption’. Usage of widely
different terms in the Constitution would appear irrational if ‘intoxicating
liquors’ was understood to exclude alcohols used in industries;
Page 28 of 123
PART B
i. Entry 8 of List II includes alcohols used in industries. Since it is a specific
entry in List II, alcohols used in industries will be excluded from the
general entry on industries in Entry 24 of List II. The Union cannot take
over any industry in pursuance of Entry 52 of List I unless the industry
falls under Entry 24 of List II. Therefore Parliament cannot takeover
industrial alcohol by making a declaration under the IDRA, which relates
to Entry 52 of List I;
j. Entry 8 of List II is not subject to any other entry in the Seventh Schedule.
The Constitution makes specific mention where it intends a legislative
field to be subject to other entries in the Seventh Schedule; and
k. Synthetics (7J) (supra) fell into error by not considering the traditional
meaning of ‘intoxicating liquors’. It also failed to notice all previous
decisions, like Ch Tika Ramji v. State of UP, 59 which defined ‘industry’
for the purpose of Entry 24 of List II and Entry of 52 List I and delineated
its scope. It held that the product of an industry notified under the IDRA
falls under Entry 33 of List III.
28. Mr Dwivedi submitted that Entry 8 of List II governs the production,
manufacture, possession, transport, purchase and sale of intoxicating liquors.
Since alcohols used in industries fall within the remit of ‘intoxicating liquors’
the State legislature has exclusive and inalienable jurisdiction in this field.
However, in the alternative, the industry i.e. the production and manufacture
of alcohols used in industries, would be governed by the general entry, Entry
59
1956 SCC OnLine SC 9.
Page 29 of 123
PART B
24 of List II, which can be taken over by the Union upon a declaration under
Entry 52, List I. The product of the industry would be governed by Entries 26
and 27 of List II and would require a declaration under Entry 33 of List III for
the Union to occupy the field. He argued that only the production and
manufacture of industrial alcohol would be governed by the Union List even if
the requirement of a declaration under Entry 52 of List I is met by Section 2
of the IDRA read with Entry 26 of the First Schedule to the IDRA. However,
no corresponding declaration is made under Section 18G of the IDRA to
satisfy the requirements of Entry 33, List III. The Central government would
be required to issue a notified order under Section 18G of the IDRA to claim
control over the product. No such order has been issued and therefore the
product remains in the exclusive domain of the State. Therefore, the Union
has not occupied the field under Entry 33, List III.
29. Mr Arvind Datar, learned senior counsel took us through the process of
making denatured alcohol and potable liquor from molasses or grains. He
argued that a license is required to make ENA and another license is required
to make denatured spirit out of ENA. The process of denaturation is done
before a State Excise Officer and the excise or duty payable against ENA and
denatured spirit changes drastically. He argued that States can regulate
potable alcohol as well as denatured spirits because the process of
denaturing takes place within the same premises.
Page 30 of 123
PART B
30. Mr Datar argued that the Synthetics (7J) (supra) must be overruled because:
a. In para 74 of the judgment, this Court erred in assuming that industrial
alcohol and rectified spirit are the same substance. Rectified spirit or
ethyl alcohol, which is per se for human consumption, cannot be used
interchangeably with industrial alcohol which has undergone
denaturation. Ethyl alcohol or rectified spirit usually undergoes
denaturation for the purpose of their use in industries. This would involve
payment of fees and obtaining of licenses for the process;
b. The expression ‘alcoholic liquor for human consumption’ in Entry 51 of
List II was mistakenly read as ‘alcoholic liquor fit for human consumption’
which has a widely different meaning.60 For example, molasses despite
not being capable of final consumption, as it is, would be alcohol for
human consumption. It would undergo a process for making it fit for
human consumption. However, that does not take away from the fact
that molasses is intended for human consumption and is susceptible to
excise. Alcoholic liquor for human consumption means that the alcoholic
liquor is capable of being consumed by humans. It would fall under Entry
51, List II while denatured alcohol would fall under Entry 84, List I;
c. Everything except denatured spirit is alcohol for human consumption
because it has the potential to be consumed by humans. The process of
denaturation is carried out only to make the alcohol sufficiently
disagreeable for human consumption to avoid its misuse. ENA and
60
Paras 52, 54, Synthetics (supra).
Page 31 of 123
PART B
rectified spirit may therefore be for human consumption and cease to be
such upon undergoing denaturation. Mr Datar emphasized that the State
does not have the power to levy tax on ENA in terms of Synthetics (7J)
(supra) despite being for human consumption. Such an interpretation
has drastically reduced the ability of States to levy tax under Entry 51 of
List II;
d. Unlike what was held in Synthetics (7J) (supra), there are no licenses
to manufacture industrial alcohol because what is manufactured is only
the ENA. ENA can be denatured for the purpose of alcohol used in
industries. However, it does not require separate manufacturing units;
e. The 158th Report of the Law Commission of India sought to address the
practical problems which arose from the judgment of this Court in
Synthetics (7J) (supra). It noted that the excise laws in force across
different States in the country made no distinction between liquors used
for human consumption or for other purposes. These pre-Constitution
laws closely regulated and controlled the manufacture, possession, sale
and transport of all alcohol and the Union government had no say in the
matter. The Report clarified that there is no such thing as ‘industrial
alcohol’ and that rectified spirit which has 95% alcohol may be used for
industrial and non-industrial purposes. Accordingly, the report opined
that litigation on the issue be avoided by bringing an amendment to the
IDRA, namely, the substitution of item 26 in the First Schedule to the
IDRA with the phrase “Fermentation Industries but not including alcohol.”
Page 32 of 123
PART B
This was to enable the States to levy excise duties on alcohol which had
been the case for over a century prior to the judgment of this Court in
Synthetics (supra). Parliament did not amend the IDRA as suggested
by the Law Commission but instead only excluded potable alcohol from
the purview of the Union with retrospective effect from the
commencement of the IDRA; and
f. Synthetics (7J) (supra) must be overruled because it suffers from
inconsistency in holding that the States have nothing to do with alcohol
as well as holding that they can levy a regulatory fee. 61
31. Mr Datar submitted that the phrase ‘that is to say’ featuring in Entry 8 of List
II of the Seventh Schedule connotes that the entry is exhaustive. Such a
reading would mean that the entire journey of intoxicating liquor – from
production to purchase and sale will fall within the remit of Entry 8 of List II.
Since Entry 8 of List II is exhaustive and is not subject to any other entry in
List I or List III, it cannot be transgressed by a law made by Parliament.
32. Relying on the State of Madras v. Gannon Dunkerley, 62 Mr Datar argued
that to understand the meaning of ‘intoxicating liquors’, which has not been
defined in the Constitution, the Court may identify if the expression is nomen
juris and adopt the meaning which the word has obtained over a passage of
time. The British law i.e. the Spirits Act 1880 includes denatured alcohol.
Similarly, this Court in India Mica (supra) and FN Balsara (supra) held that
61
Para 86. Synthetics (supra)
62
1959 SCR 379.
Page 33 of 123
PART B
intoxicating liquor includes denatured spirits. Mr Datar also presented a list of
legislation enacted at around the same time which included denatured alcohol
in the same category as liquor. Mr Datar relied on the judgment of this Court
in SIEL Ltd v. Union of India 63 to argue that the subjects enumerated in Entry
33, List III are excluded from Entry 52, List I. Lastly, he urged that since
Section 18G of the IDRA does not specify that it extends to ‘production’, even
the issuance of a notified order would not result in the occupation of the field
by the Union with respect to production.
33. Mr Jaideep Gupta, learned senior counsel, supplemented the case of the
appellants. He submitted that if this Court were not inclined to hold that all
alcohol falls under Entry 8 of List II then, in the alternative, the judgment of
this Court in Synthetics (7J) (supra) must be overruled on the ground that
the three-fold classification of Tika Ramji (supra) has not been followed. This
Court in Tika Ramji (supra) devised a threefold classification as pre-
production, production and post-production. It held that only the second
category i.e. production would be covered by the word ‘industry’. He
submitted that the State therefore has the power to regulate the manufacture
of ENA which would fall under the pre-production category. The State would
also have the power to regulate the distribution of denatured alcohol.
Buttressing this point, Mr Jaideep Gupta argued that it becomes imperative
for the State to regulate the distribution of denatured alcohol because it may
be renatured and distributed as potable alcohol which will lead to tragedies.
63
(1998) 7 SCC 26.
Page 34 of 123
PART B
He argued that it becomes imperative for the State to regulate such instances
under Entry 8 of List II as well as Entry 6 of List II which deals with public
health.
34. Mr V Giri, learned senior counsel, differed from other counsel for the
appellants and submitted that denatured alcohol would be excluded from the
ambit of the term ‘intoxicating liquors’ and would therefore fall under Entry 24
of List II. However, he supported the arguments of the other counsel on a
notified order under Section 18G of the IDRA being a prerequisite for
Parliament to occupy the field under Entry 33 of List III.
35. Mr Balbir Singh, learned senior counsel, and Mr Shadan Farasat and Dr.
Vivek Sharma, learned counsel, have supported the above arguments on
behalf of the appellants.
ii. Respondent’s submissions
36. Mr R Venkataramani, learned Attorney General for India appearing for the
Union of India submitted that:
a. The production, manufacture, trade and commerce, supply and
distribution constitute a chain of economic activity and may not be looked
at separately. Therefore, the process of production necessarily includes
the series of actions of trade, commerce, supply and distribution. This
implies that there is a symbiotic relationship between Entry 52 of List I
and Entry of 33 List III and they may not be looked at separately. Entry
52 of List I and Entry 33 of List III are a family of entries which are
Page 35 of 123
PART B
interconnected. Entry 52 of List I can also include and touch upon all
matters relating to an industry that is brought under the control of the
Union. These matters can be production, trade, commerce, supply and
distribution, etc.;
b. Entry 52 of List I is a special entry uncontrolled by any other entry
including Entry 8 of List II. It envisages the possibility of uniform control
at the federal level of any declared industry by removing it from the
individual jurisdiction of the States. Such uniform control serves the
purpose of subserving the common good, equitable distribution, fair
prices, utility of the products of an industry for serving the interests of all
the States, etc.;
c. To the extent that Parliament legislates with respect to an industry, the
powers of the States under Entries 26 and 27 of List II are denuded.
Similarly, the powers of the States under Entry 33 of List III are denuded
if Parliament has occupied the field. Merely because a notified order is
not issued would not leave the subject to be legislated upon by the
States. This is because the lack of regulation or notification may be to
serve the interest of the industry. The principle elucidated in Tika Ramji
(supra) is not a principle of universal application i.e., in the absence of a
notified order under Section 18G, the IDRA will not be a dormant law
and the States will not derive their competence to deal with all or any
matters otherwise exhaustively dealt with by Section 18G;
Page 36 of 123
PART B
d. The observations in SIEL (supra) and Tika Ramji (supra) are incorrect
in completely separating Entry 52 of List I from Entry 33 of List III. It is
open to Parliament to enact laws in respect of trade and commerce,
production, supply, distribution. The fact that the IDRA touches upon a
certain field is enough to oust the jurisdiction of the State completely;
e. All uses of liquids containing alcohol, other than those meant for human
consumption, would fall under one category which is non-potable
alcohol. Non-potable alcohol must fall outside Entry 8 of List II.
Accordingly, the 2016 amendment to Entry 26 of Schedule I of the IDRA
must be taken to have validly taken over non-potable alcohol;
f. The focus of the framers while drafting the provisions concerning alcohol
in the Constitution was temperance, regulation of trade and commerce
in consumable alcohol preparations and to raise revenue;
g. Entry 8 of List II cannot be interpreted to carve anything out of Entry 52,
List I and Entry 33, List III. The judgment of this Court in ITC Ltd v.
Agricultural Produce Market Committee, 64 is inapplicable to the
present case because ITC (supra) was determined in the context of
overlapping entries. The ‘fermentation industry’ has been dealt with
under the IDRA, which is a self-contained legislation;
h. The term ‘intoxicating liquors’ in Entry 8 of List II does not include all
classes of alcoholic liquids. The use of the phrase ‘that is to say’
64
(2002) 9 SCC 232.
Page 37 of 123
PART B
occurring in Entry 8 of List II only refers to the range of activities
concerning one class of alcohol, namely potable alcohol, and is not
referable to other classes of liquor;
i. The framers of the Constitution may not have been aware of many
industrial uses of alcohol and that all alcohol is neither consumable by
humans nor intoxicating in nature; and
j. The Report of the Industrial Alcohol Committee in 1920 observed that it
was difficult to define ‘intoxicating liquors’ since there was no intrinsic
difference between alcohol intended for potable and non-potable
purposes.
37. Mr Tushar Mehta, learned Solicitor General of India, argued that the
adjudication on the interplay of Sections 2 and 18G of the IDRA with Entry 52
of List I and Entry 33 of List III will have a bearing on other legislation and
therefore the ruling in this case may not be restricted to the industry of alcohol.
The division of legislative powers has undergone four stages: (a) the
devolution of powers to the Federal legislature and the Provincial legislatures
under the Devolution Rules, Government of India Act 1919; 65 (b) the division
of subjects between the Centre and the Provinces under the 1935 Act; (c) the
draft Constitution which was placed before the Constituent Assembly; and (d)
the entries as they were finally adopted in the Constitution. The Solicitor
General submitted that:
65
“1919 Act”
Page 38 of 123
PART B
a. Some industries have always been considered as necessarily under
Union control. This may be because it is in national interest, requires
uniform regulation throughout the country, or when the industry or its
products are sought to be equitably distributed. Entry 52 of List I is in
furtherance of the federal principle;
b. Entry 20 of the Central Subject List in the Devolution Rules framed under
the 1919 Act which corresponds to Entry 52 of List I of the Seventh
Schedule to the Constitution used the term ‘development’. A similar
provision was inserted as Entry 34, List I of the Seventh Schedule to the
1935 Act which also used the term ‘development’. This entry was further
retained as Entry 64 of List I of the Seventh Schedule to the draft
Constitution. However, after debates in the Constituent Assembly the
entry gained the form in which it appears today in Entry 52 of List I. The
word ‘development’ was dropped from the entry but the word ‘control’
was retained. Therefore, the term ‘control’ must have been intended to
connote a wider meaning than its earlier versions;
c. This is borne out by the Constituent Assembly debates where Dr BR
Ambedkar responded to amendments which sought to introduce the
term ‘development and control’ in draft Entry 64, List I. He stated that the
intention of the Drafting Committee was not merely to allow the Union to
take over the development of an industry but also other aspects;
d. Tika Ramji (supra) must be overruled because:
Page 39 of 123
PART B
i. It did not consider the Constituent Assembly debates and wrongly
restricted the meaning of industry to manufacturing and production
only;
ii. All aspects from the sourcing of raw materials to the distribution of
products must fall within the powers of the Union to take control of
an industry under Entry 52 of List I;
iii. Article 366(12) did not define the term ‘goods’ to include raw
materials in particular;
iv. Entry 27 of List II is subject to Entry 33 of List III. The implication of
this aspect was not sufficiently dealt with by the Court in Tika Ramji
(supra); and
v. It is expedient in public interest that alcohol is regulated by a
Central legislation. Currently, the IDRA occupies the field, and any
State law on alcohol, other than potable alcohol, will be repugnant
to the IDRA. The holding in Tika Ramji (supra), that there must be
a notified order in force pursuant to Section 18G for there to be
repugnancy is not correct. Further, it was obiter dicta;
e. Synthetics (7J) (supra) rightly did not consider the observations in Tika
Ramji (supra) regarding the absence of a notified order by the Union
government;
f. The debates in the Constituent Assembly would show that the framers
of the Constitution intended the Union to have some control over the
Page 40 of 123
PART B
trade and commerce, production, supply and distribution which led to the
introduction of a concurrent list entry which is identifiable as Entry 33 of
List III;
g. The power of taxation over potable alcohol has always been with the
States and the power of taxation over non-potable alcohol has always
been with the Union. This is borne out by the evolution of Entry 84 of List
I and Entry 52 of List II of the Seventh Schedule to the Constitution. The
control and the taxing power were cumulatively given to the provinces
under Entry 16 of the provincial subject list of the Devolution Rules under
the 1919 Act. Under the 1935 Act, Entry 45 of List I specifically excluded
‘alcoholic liquor for human consumption’ from the domain of the Union
and correspondingly included it under the State list as Entry 40 of List II;
h. The term ‘intoxicating liquors’ in Entry 8 of List II means a beverage
which has the effect of intoxication upon consumption. The term is not
used elsewhere in the Seventh Schedule and instead the term ‘alcoholic
liquor for human consumption’ is used in taxing entries. The
terminological variation is because the incidence of tax is relevant in a
taxing entry. Accordingly, since intoxication is not the incidence of
taxation but the effect of consuming alcoholic liquor, it is not used in the
taxing entries;
i. Similarly, in Article 47, the term ‘intoxicating drinks’ is used to connote
all drinks which have the effect of intoxication regardless of its alcoholic
content, for example, Indian hemp;
Page 41 of 123
PART C
j. This Court, in Synthetics (7J) (supra), held that ‘intoxicating liquors’ is
limited to ‘alcoholic liquor fit for human consumption’. FN Balsara
(supra) defined liquor in a different context and did not deal with
legislative competence; and
k. Industrial alcohol is a subject which affects the entire nation and requires
a uniform approach. This is evidenced by national laws and policies such
as the Indian Power Alcohol Act 1948, Ethyl Alcohol (Price Control)
Order 1966 and the National Biofuel Policy 2018.
38. Mr Dhruv Agrawal, learned senior counsel; Mr Abhimanyu Bhandari; Mr Omar
Ahmad; Ms Tahira Karanjawala; Ms Sansriti Pathak; Mr Pawan Shree
Agarwal; Mr S Nandakumar; and Mr Akash Bajaj, learned counsel, have
supported the above arguments on behalf of the respondent.
C. The distinction between potable and non-potable alcohol
39. Before delineating the issues that fall for the consideration of this Court,
certain preliminary remarks on the process of preparation of potable alcohol,
that is, alcohol that is used as a beverage must be made. The raw material
for potable alcohol is generally molasses and grain 66, which is fermented and
distilled to produce rectified spirit. Rectified spirit, also known as ethyl alcohol,
contains about 95% alcohol and some impurities which can affect flavour and
aroma. Rectified spirit is used as a solvent in pharmaceutical and cosmetic
products. Though rectified spirit is not generally used in the preparation of
66
See FB Wright, Distillation of Alcohol and De-Naturing (2nd ed. 1907)
Page 42 of 123
PART C
alcoholic beverages, it may be used to produce home-made liqueurs. 67 Extra
Neutral Alcohol is a highly purified form of ethanol which contains more than
96% alcohol. ENA has a neutral taste and smell and is mostly used as a base
for the preparation of premium beverages. Additionally, it is also used in the
production of products like perfumes and mouthwashes. Absolute alcohol is
ethanol that contains less than 1% water and more than 99% alcohol.68 The
high purity of the alcohol makes it ideal for the preparation of pharmaceutical
products, cosmetics and chemical manufacturing that require a water-free
solvent. 69
40. ‘Industrial alcohol’ is a common term that is used to denote the alcohol that is
used in industries. As indicated above, all the above three variants of ethanol
are used in various industrial preparations. While ENA is usually used for the
preparation of alcoholic beverages, rectified spirit is also used to prepare
certain alcoholic beverages. Denaturation is a process by which ethanol is
deliberately made undrinkable by adding chemicals known as ‘denaturants’
to make it poisonous or foul smelling and unsuited for ingestion by humans.
Denaturants can be added to any of the three forms of ethanol (ENA, rectified
spirit and absolute alcohol). Denatured alcohol is also further classified into
‘Completely Denatured Alcohol’ and ‘Specially Denatured Alcohol’. Both
these formulations contain denaturants making it unconsumable. However, in
completely denatured alcohol, the denaturants cannot be easily removed
67
Stuart Walton, Norma Miller, An Encyclipedia of Spirits & Liqueurs and How to Cook with Them (2000)
68
See FB Wright, Distillation of Alcohol and De-Naturing (2nd ed. 1907)
69
See KA Jacques, TP Lyons, DR Kelsall (ed), The Alcohol Textbook: A reference for the beverage, fuel and
industrial alcohol industries (4th ed. Nottingham University Press)
Page 43 of 123
PART C
while in ‘specially denatured alcohol’, they can be easily removed. 70 In view
of this complexity, where the materials for the preparation of potable alcohol
are also used for the preparation of other products, a simplistic classification
of ‘potable’ and ‘non-potable’ alcohol cannot be made for the purposes of this
judgment.
41. This is also evident from the submissions by counsel on the scope of Entry
8 of List II. The counsel made the following submissions:
a. Entry 8 only includes the final product of potable alcohol, that is alcoholic
beverages for human consumption. Entry 8 does not include ENA which
is a raw material for the preparation of beverage 71;
b. Entry 8 includes ENA and potable alcohol 72;
c. Entry 8 includes ENA, potable alcohol and the process of ‘denaturing’
ENA 73; and
d. Entry 8 includes ENA, potable alcohol and denatured alcohol74.
70
See Alcohol Denaturants-Specification (Second Revision), ICS 71.100.80
71
See submissions of Mr Tushar Mehta, learned SG.
72
See submissions of V Giri, counsel for petitioner
73
See Vam Organic (II)
74
See submissions of Mr Dwivedi and Mr Datar senior counsel
Page 44 of 123
PART D & E
D. Issues
42. With the above preliminary observations, we have formulated the following
issues:
a. Whether Entry 52 of List I of the Seventh Schedule to the Constitution
overrides Entry 8 of List II;
b. Whether the expression ‘intoxicating liquors’ in Entry 8 of List II of the
Seventh Schedule to the Constitution includes alcohol other than
potable alcohol; and
c. Whether a notified order under Section 18G of the IDRA is necessary
for Parliament to occupy the field under Entry 33 of List III of the
Seventh Schedule to the Constitution.
E. Analysis
i. The constitutional distribution of legislative power
43. One of the prominent features of a federal Constitution is the distribution of
legislative powers between the Union and the States. Article 246 provides for
the distribution of legislative powers between Parliament and the State
Legislatures. Clause (1) of Article 246 stipulates that Parliament has exclusive
power to make laws with respect to any matter enumerated in the Union List
(List I to the Seventh Schedule) notwithstanding anything in the State or the
Concurrent Lists. Clause (2) stipulates that Parliament and the State
Legislatures have the power to legislate on any matter enumerated in the
Concurrent List (List III of the Seventh Schedule) subject to the power of
Page 45 of 123
PART E
Parliament under Clause (1) but notwithstanding the power of the State
Legislatures under Clause (3). Clause (3) provides that subject to clauses (1)
and (2), the State Legislatures have the power to legislate on any matter
enumerated in the State List (List II of the Seventh Schedule) of the Seventh
Schedule. Further, Clause (4) provides for the power of Parliament to enact
laws for Union Territories. It states that Parliament may enact laws for any
part of the territory of India which is not included in a State. This power
includes the power of Parliament to make laws with respect to entries
enumerated in the State list, for Union Territories.
44. The federal balance of the distribution of legislative powers between the
Union and the States rests on the interpretation of the phrase
“notwithstanding” in Clause (1) of Article 246 and “subject to” in Clause (3) of
Article 246. It is more than clear that the phrases provide predominance to
Parliament over State Legislatures. The federal balance lies not on the
recognition that the Constitution grants Parliament predominant legislative
power but on the identification of the scope of such predominance. The scope
of the non-obstante clause in Article 246(1) and the subjugation clause in
Article 246(3) must not be interpreted in isolation but along with the
substantive provisions of the clauses. Clause (1) of Article 246 grants
Parliament the “exclusive power” to enact laws with respect to matters in List
I. Similarly, Clause (3) of Article 246 grants the Legislature of States, the
“exclusive power” to enact laws with respect to matters in List II. On a holistic
interpretation of the provisions, it is clear that the non-obstante clause in
Article 246(1) and the subjugation clause in Article 246(3) do not permit
Page 46 of 123
PART E
Parliament to enact laws with respect to the entries in List II. Each of the
legislative bodies are sovereign and supreme within the sphere that is
allocated to them in the Seventh Schedule. 75 What then is the purpose of the
non-obstante and subjugation clause? It is crucial to note that Clause (1) of
Article 246 stipulates that the power of Parliament to make laws with respect
to entries in List I is ‘notwithstanding’ not just the power to make laws with
respect to matters in the Concurrent list but also the power to make laws with
respect to matters in the State List. A combined reading of the non-obstante
clause and the subjugation clause along with the use of the phrase “exclusive
power” means only one thing, that when there is a conflict between the entries
in List I and List II, the power of Parliament supersedes.
45. The judgment of this Court in Hoechst Pharmaceuticals v. State of Bihar 76
is the locus classicus on the constitutional scheme of legislative distribution.
The decision holds that when there is a conflict between an entry in List I and
entry in List II which is not ‘capable of reconciliation’ 77, the power of
Parliament to legislate with respect to a field covered by List I must supersede
the exercise of power by the State legislature to that extent. 78 The judgment
also proceeded to lay down the manner in which the entries in List I and List
II must be reconciled79:
75
Jindal Stainless Steel v. State of Haryana, (2017) 12 SCC 1 [617]
76
(1983) 4 SCC 45
77
Also see In re Central Provinces and Berar Act 14 of 1938, AIR 1939 FC 1
78
(1983) 4 SCC 45 [38]
79
AIR 1939 FC 1 [41]
Page 47 of 123
PART E
a. In case of a seeming conflict between the entries in the two lists, the
entries must be read together without giving a narrow and restricted
meaning to either of the entries in the Lists; and
b. If the entries cannot be reconciled by giving a wide meaning, it must
be determined if they can be reconciled by giving the entries a
narrower meaning.
46. In State of WB v. Committee for Protection of Democratic Rights 80, a
Constitution Bench held that the principle of federal supremacy in Article 246
can be resorted to only when there is an ‘irreconcilable direct conflict’
between the entries in List I and List II. 81
ii. Scheme of legislative entries
47. The lists in the Seventh Schedule demarcate the legislative fields between
Parliament and the State Legislatures. They do not confer power but stipulate
broad fields of legislation. 82 The source of the power of Parliament and State
Legislatures emanates from Articles 245 and 246 of the Constitution. These
provisions in the Constitution have been borrowed from Sections 99 and 100
of the Government of India Act 1935 83 with necessary modifications. The
demarcation of legislative fields is based on a deliberate design as well as on
the principles of federalism. Matters requiring coordination between different
regions of the country or of national importance have been placed in the field
80
(2010) 3 SCC 571
81
(2010) 3 SCC 571 [27]; Also see In re C.P & Berar Taxation Act, AIR 1939 FC 1
82
See Calcutta Gas Co. (Proprietary) Ltd. v. State of W.B., 1962 SCC OnLine SC 60; Union of India v. HS
Dhillon, (1971) 2 SCC 779; TMA Pai Foundation v. State of Karnataka, (2002) 8 SCC 481.
83
“1935 Act”
Page 48 of 123
PART E
of Parliament. Matters requiring localized focus and limited or no coordination
between States have been placed in the State List. Fields of legislation which
may require either uniform legislation for the entire nation or context and
region-specific accommodation, depending on the circumstance, are placed
in the Concurrent List. Moreover, the three lists make a clear distinction
between general entries and taxation entries. The power of taxation cannot
be derived from a general entry. 84 The entries in the legislative lists do not
cast an obligation to legislate or to legislate in a particular manner. Within the
confines of an entry, the legislature exercises plenary power subject to the
provisions of the Constitution. 85
48. Numerous language devices are used in the Seventh Schedule to prevent the
conflict of entries and ensure a clear demarcation of the fields of entry. The
entries in List II use the following language devices:
a. ‘Subject to’ a specific provision of List I or List III: Entries 2,17,22,
24,26,27,33 and 57;
b. ‘Subject to’ provisions of an entire list with regard to the subject matter:
Entry 13;
c. ‘Not specified in’ or ‘other than those specified in’ List I: Entries 13, 32
and 63; and
84
State of Karnataka v. State of Meghalaya, (2023) 4 SCC 416; Union of India v. HS Dhillon, (1971) 2 SCC
779; MPV Sundararamier & Co. v. State of Andhra Pradesh, (1958) 9 STC 298; R Abdul Quader & Co. v.
STO, (1964) 6 SCR 867; HM Seervai, Constitutional Law of India, Volume 3 (4th edn.) [25.57] 2340-2341.
85
United Province v. Atiqa Begum, (1940) FCR 110; Constitution of India, Article 13
Page 49 of 123
PART E
d. ‘Subject to’ law made by Parliament or ‘subject to’ any limitations
imposed by Parliament by law: Entries 37 and 50.
49. With respect to category (a) above, where an Entry in List II is subject to an
entry or entries in List I or List III, the extent of the legislative field covered by
the entry in List II is circumscribed by the domain covered by the entries in
Lists I or III to which the entry in List II is subject. For example, Entry 22 of
the State List deals with “courts of wards subject to the provisions of Entry 34
of List I”. Entry 34 of List I provides for “Courts of wards for the estates of
Rulers of Indian States”. The legislative field in Entry 22 of List II is wider than
the field of Entry 34 of List I. Hence the subjection of Entry 22 of List II to Entry
34 of List I indicates that that the field assigned to the States is circumscribed
to the extent of the field assigned to Parliament in Entry 34 of List I. Barring
the express legislative device of subordination, the States have complete
power to enact laws over the fields specified in List II of the Seventh Schedule
to the Constitution. The authority of the State Legislature to enact laws on
those entries of List II which are not expressly made subject to other entries
has maintained the federal balance of legislatures under the Constitution.86
50. The devices of language used in the Seventh Schedule prevent the overlap
between entries in various Lists. Now, what of the instances where there is
an overlap between provisions in different entries but the Constitution does
not use a device to resolve it? It must be recalled that the federal supremacy
of Parliament on legislative competence can only be resorted to when there
86
ibid
Page 50 of 123
PART E
is an ‘irreconcilable direct conflict’ between entries in different lists. It is crucial
to note the difference between ‘overlap’ and ‘conflict’. An overlap occurs when
two or more things or fields partially intersect. However, a conflict occurs
when two or more entries operate in the exactly same field. Courts while
dealing with an overlap of legislative entries must endeavour to diminish the
overlap and not enhance it by including it in the field of conflict. The federal
supremacy accorded to Parliament ticks in at the stage of ‘conflict’.
51. The legislative entries must be given a wide meaning. All incidental and
ancillary matters which can be fairly and reasonably comprehended must be
brought within them 87. However, if there is an overlap between two entries
the Court must endeavour to interpret the entries harmoniously. While
interpreting the entries harmoniously, it must be ensured that no entry is
rendered redundant. This principle of construction applies equally to entries
within the same List and entries within different lists. 88 The principle of
parliamentary supremacy must be applied only when the attempted
reconciliation by the above methods of interpretation fails.
iii. The field covered by Entry 52 of List I and Entry 8 of List II
52. Entry 8 of List II reads as follows:
“Intoxicating liquors, that is to say, the production,
manufacture, possession, transport, purchase and sale
of intoxicating liquors”.
(emphasis supplied)
87
United Provinces v. Atiqa Begum, (1940) FCR 110; Western India Theatres Ltd. V. Cantonment Board,
Elel Hotels & Investments Ltd. V. Union of India; Godfrey Phillips India Ltd. V. State of UP (2005) 2 SCC 515
88
See Harakchand Ratanchand Banthia v. Union of India, (1969) 2 SCC 166
Page 51 of 123
PART E
a. The scope of Entry 8
I. The meaning of ‘that is to say’
53. Entry 8 of List II deals with ‘intoxicating liquor’. The Entry specifies the scope
of the provision by the usage of the phrase ‘that is to say’. The Entry stipulates
that it includes everything from the production to the sale of intoxicating liquor,
with the use of the expressions ‘production, manufacture, possession,
transport, purchase and sale’. The Entry specifies the breadth of the provision
by couching it in over broad terms. There are a few entries which provide such
a specification, by the use of the words “that is to say” 89. Otherwise, the
general language of the Seventh Schedule is to merely mention the field such
as ‘gas and gas-works’ 90, or ‘fisheries’ 91, or ‘census’ 92, or ‘public health and
sanitation; hospitals and dispensaries’ 93. Entry 25 of List II specifies ‘gas and
gas-works’ without clarifying the scope of the provision. Similarly, Entry 21 of
List II specifies ‘fisheries’. Even within the entries that provide some
specification, there are two kinds. First, entries where the meaning of the field
is clarified. For example, Entry 71 of List I deals with the field of ‘Union
Pensions’. The phrase ‘that is to say’ is then used to specify the meaning of
the phrase ‘Union Pensions’ as pensions payable by the Government of India
or out of the Consolidated Fund of India 94. This specification operates more
or less as a definition clause. Second, the phrase is used to specify the scope
89
Seventh Schedule to the Constitution of India; Entry 71 to List I, Entry 5 to List II, Entry 13 of List II, Entry
17 of List II, Entry 18 of List II, Entry 42 of List II
90
Seventh Schedule to the Constitution of India; Entry 25 of List II
91
Seventh Schedule to the Constitution of India; Entry 21 of List II
92
Seventh Schedule to the Constitution of India; Entry 69 of List I
93
Seventh Schedule to the Constitution of India; Entry 6 of List II
94
Other examples include Entry 13 of List II which specifies the meaning of ‘communications’ to mean roads,
bridges, ferries and Entry 42 of List II which specifies State pensions to mean pensions payable by the State
or out of the Consolidated Fund of the State.
Page 52 of 123
PART E
of the provision. For example, Entry 5 of List II reads as “local government,
that is to say, the constitution and powers of municipal corporations,
improvement trusts…” 95 Entry 8 falls in the latter category.
54. The next question is whether the phrase ‘that is to say’ used in Entry 8 limits
or explains the scope of the entry. The interpretation of the phrase ‘that is to
say’ has fallen for the consideration of this Court earlier in numerous cases. 96
This Court has adopted both views. Benches have interpreted the expression
as a limiting as well as an explanatory device. In Bhola Prasad v. The King
Emperor 97, the Federal Court dealt with the meaning of the phrase ‘that is to
say’ in Entry 31 of the Provincial List in the 1935 Act. Entry 31 of the Provincial
List read as “Intoxicating liquors and narcotic drugs, that is to say, the
production, manufacture, possession, transport, purchase and sale of
intoxicating liquors, opium and other narcotic drugs.” The issue was whether
the Provincial Government had the competence to issue a notification
prohibiting the possession of intoxicating liquor. The Federal Court held that
the Provincial Government had the competence to prohibit though Entry 31
does not expressly grant the power to ‘prohibit’. The Court noted that the
words that follow the phrase ‘that is to say’ were explanatory or illustrative and
not words of either amplification or limitation. However, in other judgments
95
Other examples include Entry 17 of List II which reads as “water, that is to say, water supplies, irrigation
and canals, drainage and embankments, water storage and water power subject to the provisions of entry
56 of List I” and Entry 18 of List II which reads as ‘Land, that is to say, rights in or over land, land tenures
including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural
land; land improvement and agricultural loans; and colonization.
96
State of Karnataka v. Balaji Computers; Bansal Wire Industries v. State of UP (2011) 6 SCC 545; Sait
Rikaji Furtarnal v. State of AP (1991) Supp (1) SCC 202; CST v. Popular Trading Company (2000) 5 SCC
511; State of Punjab v. Devans Modern Brewaries (2004) 11 SCC 26; State of Bombay v. Bombay Education
Society (1954) 2 SCC 152
97
(1942) 4 FCR 17
Page 53 of 123
PART E
dealing with taxing provisions, this Court has held that the expression ‘that is
to say’ is employed to exhaustively enumerate.98 While interpreting the
expression ‘that is to say’, it must not be lost that it features in the legislative
list which must be interpreted widely and to include all ancillary items. The
interpretation of taxing statutes (which must be construed strictly) and
legislative entries in the Seventh Schedule(which are required to be construed
widely and liberally) cannot be the same. This was noticed by the Constitution
Bench in State of Bombay v. Bombay Education Society99.
55. In State of Punjab v. Devans Modern Breweries 100, the levy of tax on the
import of potable liquor manufactured in other States was challenged. Justice
SB Sinha in his dissenting opinion, considered the scope of the words ‘that is
to say’ in Entry 8 of List II. Relying on the decisions in CST v. Popular
Trading 101 and Indian Aluminium Co. Ltd. v. Assistant Commissioner of
Commercial Taxes (Appeals)102, the learned Judge held that the expression
‘that is to say’ in Entry 8 of List II is descriptive, enumerative and exhaustive
98
State of Karnataka v. Balaji Computers; Bansal Wire Industries v. State of UP, (2011) 6 SCC 545 [20]; Sait
Rikhaji Furtarnal v. State of AP (1991) Supp (1) SCC 202 [4]; CST v. Popular Trading Company (2005) 5
SCC 511
99
(1954) 2 SCC 152; “12. […] He points out that one of the meanings of the word “namely” as given in Oxford
English Dictionary, Vol. VII, p. 16 is “that is to say” and he then refers us to the decision of the Federal Court
in Bhola Prasad v. King Emperor [Bhola Prasad v. King Emperor, 1942 SCC OnLine FC 3 : (1942) 4 FCR 17
at p. 25] where it was stated that the words “that is to say” were explanatory or illustrative words and not
words either of amplification or limitation. It should, however, be remembered that those observations were
made in connection with one of the legislative heads, namely, Entry 31 of the Provincial Legislative List. The
fundamental proposition enunciated in R. v. Burah [R. v. Burah, (1878) LR 3 AC 889 (PC)] was that Indian
Legislatures within their own sphere had plenary powers of legislation as large and of the same nature as
those of Parliament itself. In that view of the matter every entry in the legislative list had to be given the widest
connotation and it was in that context that the words “that is to say”, relied upon by the learned Attorney
General, were interpreted in that way by the Federal Court. To do otherwise would have been to cut down
the generality of the legislative head itself. The same reason cannot apply to the construction of the
Government Order in the present case for the considerations that applied in the case before the Federal
Court have no application here.” [emphasis supplied]
100
(2004) 11 SCC 26
101
(2000) 5 SCC 511
102
(2001) 2 SCC 201
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PART E
and circumscribes the scope of the said entry to a great extent.” 103 However,
the opinion did not consider the decisions in Bhola Prasad (supra) and State
of Bombay v. Bombay Education Society 104 and instead referred to the
interpretation of the expression in taxing statutes. For the above reasons, the
expression ‘that is to say’ in Entry 8 of List II cannot be interpreted to
circumscribe the scope of the entry. The words that follow ‘that is to say’ are
illustrative and explanatory of the scope of the provision. The expression does
not limit the scope of the entry. Thus, the scope of Entry 8 of List II cannot be
limited to the ‘production, manufacture, possession, transport, purchase and
sale’ of Intoxicating Liquor.
II. Product or industry based entry
56. The Seventh Schedule differentiates between an industry and the product of
the industry. Entry 24 of List II deals with industries. Entries 26 and 27 of List
II deal with products of industries. Entry 26 deals with “Trade and commerce
within the State subject to the provisions of Entry 33 of List III”. Entry 27
provides for “Production, supply and distribution of goods subject to the
provisions of Entry 33 of List III”. Entry 33 of List III enables both Parliament
and the State Legislature to enact laws with respect to trade and commerce
in, and the production, supply and distribution of, inter alia, the products of the
industry where control by the Union is declared by Parliament by law to be in
the public interest. Thus, if the Union has control over an industry under Entry
52 of List I, both Parliament and the State Legislature will have the
103
(2001) 2 SCC 201 [158]
104
(1954) 2 SCC 152
Page 55 of 123
PART E
competence with respect to the products in terms of Entry 33 of List III. Under
Entries 26 and 27 of List II, the State Legislature has the exclusive power to
enact laws with respect to the products of the industries covered by Entry 24
of List II. Parliament has the competence to legislate on any ‘industry’
provided that it satisfies the condition stipulated in Entry 52 of List I (control
by the Union being declared by a law of Parliament to be in the public interest).
The necessary corollary of the enactment of the law under Entry 52 is that the
products of the industry are shifted to the Concurrent list from the State List.
57. The scope of Entry 8 must be interpreted in this background. If Entry 8 is a
product-based Entry, it will only cover the consumable end-product. However,
if it is an industry-based Entry, it would cover the production of the product as
well. 105 Entries 24, 26 and 27 of List II are general entries relating to industry
and the products of the industries. A distinction between industry and product
is made in List II to give effect to the legislative scheme by which certain
industries may be controlled by the Union under Entry 52 of List I but products
of those industries which are placed in the Concurrent list under Entry 33. To
give effect to this unique demarcation, it was necessary to separate the
entries relating to industries and products in List II. However, Entry 8 is a
specific entry dealing only with ‘intoxicating liquor’. The distinction made
between industry and products in the general entries to give effect to the
scheme of legislative distribution on industries is not adopted in Entry 8. We
have in the preceding sections emphasised that the primary principle of
105
See Tika Ramji v. State of UP, AIR 1956 SC 676
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interpreting entries in the legislative lists is to provide a wide meaning to them.
A narrow interpretation must only be adopted when either (a) the scope of the
Entry is limited by the use of language devices; or (b) a wide interpretation
creates an overlap between entries within the same list or different lists. For
example, Entry 25 of List II provides States the competence over “gas and
gas-works”. This Court in Calcutta Gas Company (supra) did not interpret
the Entry to only include the product of ‘gas and gas works’ but rather
interpreted it to include the industry. This is the construction which is in
consonance with settled principles of interpretation.
58. Entry 8 in itself indicates that the intent is to ensure that it is read as broadly
as possible. The Entry itself covers the ‘production, manufacture, possession,
transport, purchase and sale’ of intoxicating liquors. Thus, it is clear that the
Entry seeks to regulate everything from the stage of the raw materials to the
consumption of ‘intoxicating liquor’. Entry 8 of List II includes both the industry
and the product of ‘intoxicating liquor’.
b. Scope of Entry 52 of List I: the absence of “to the extent to which”
59. Entry 24 of List II deals with ‘Industries’. The entry is subject to entries 7 and
52 of List I. Entry 7 of List I deals with industries which are declared by
Parliament by law to be necessary for the purpose of defence or for the
prosecution of war. Entry 52 of List I deals with industries, the control of which
by the Union is declared by Parliament to be expedient in the public interest.
The State Legislature will have the competence to enact laws with respect to
‘industries’. However, Parliament has the power to deal with such industries
Page 57 of 123
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which are necessary to be in the control of the Union for: (a) public interest;
(b) defence; and (c) prosecution of war. Thus, the State Legislature will have
the competence to enact laws with respect to all industries, unless Parliament
has taken control of the industry under Entries 52 or 7 of List I.
60. A comparison may be drawn to Entry 54 of List I and Entry 23 of List II to cull
out the scope of Entry 52 of List I. Entry 23 of List II deals with the “regulation
of mines and mineral development subject to the provisions of List I with
respect to regulation and development under the control of the Union.” Entry
54 of List I deals with the “regulation of mines and mineral development to
the extent to which such regulation and development under the control of
Union is declared by Parliament by law to be expedient in public interest.”
The expression ‘to the extent to which’ is absent in Entry 52 of List I. In
Mineral Area Development Authority v. M/s Steel Authority of India106, a
nine-Judge Bench of this Court dealt with the scope of Entry 52 of List I and
in particular, the purport of the expression “to the extent to which”. One of the
contentions before the nine-Judge Bench was that the State Legislature does
not have any power under Entry 23 of List II because the Mines and Minerals
(Development and Regulation) Act 1957107 is a complete code that occupies
the entire field relating to regulation of mines and mineral development.
Rejecting the argument, the majority held that the words “to the extent to
which” indicates that “besides declaring that it is taking under its control any
subject relating to the regulation of mines and mineral development,
106
2024 INSC 554
107
“MMDRA”
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Parliament has to specify the extent to which the Parliamentary regulation is
deemed expedient in the public interest.”108
61. As opposed to Entry 54, Entry 52 does not use the words “to the extent to
which”. The question is whether the State Legislature is denuded from
legislating on an industry which is controlled under the IDRA or any other
similar legislation enacted under Article 246 read with Entry 52. Section 2 of
IDRA provides that the Union takes control over the industries specified in the
First Schedule. In Ishwari Khetan Sugar Mills v. State of UP 109, a
Constitution Bench of this Court dealt with the constitutional validity of the UP
Sugar Undertakings (Acquisition) Act 1971 which was challenged on the
ground that the State Legislature lacked the legislative competence. While
demarcating the scope of Entry 52 of List I and Entry 24 of list II, Justice D A
Desai (writing for himself and two other Judges), observed that the degree
and extent of control acquired by Parliament upon a declaration under Entry
52 would depend on the legislation enacted “spelling out the degree of control
assumed”. The relevant observations are extracted below:
“7. […] Entry 52 List I on its own language does not
contemplate a bald declaration for assuming control
over specified industries, but the declaration has to
be by law to assume control of specified industries
in public interest. The legislation enacted pursuant to
the power to legislate acquired by declaration must
be for assuming control over the industry and the
declaration has to be made by law enacted, of which
declaration would be an integral part. Legislation for
assuming control containing the declaration will spell
out the limit of control so assumed by the
declaration. Therefore, the degree and extent of
108
2024 INSC 554 [158-161]
109
(1980) 4 SCC 136
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control that would be acquired by Parliament
pursuant to the declaration would necessarily
depend upon the legislation enacted spelling out the
degree of control assumed. A mere declaration
unaccompanied by law is incompatible with Entry 52
List I. A declaration for assuming control of specified
industries coupled with law assuming control is a
prerequisite for taking legislative action under Entry
52 List I. The declaration and the legislation pursuant
to declaration to that extent denude the power of
State Legislature to legislate under Entry 24 List II.”
62. The opinion of Justice D A Desai referred to the judgments of this Court in
Baijnath Kedia v. State of Bihar 110 and State of Haryana v. Chanan Mal111
“on an identical Entry 54, List I.”112 It was also argued that Section 2 of
IDRA 113, unlike Section 2 of MMDRA 114 does not provide that the Union shall
take control “to the extent herewith provided”, and thus, IDRA takes full control
over the scheduled industries. Rejecting the argument, Justice D A Desai
noted that the “words of limitation on the power to make declaration are ‘by
law’”. 115 Justice R S Pathak, as the learned Chief Justice then was, (writing
for himself and Justice Koshal) observed that he would refrain from
expressing any opinion on this issue and that the challenge to the validity of
the impugned enactment could be disposed of without a reference to Entries
52 of List I and 24 of List II. 116
110
(1970) 2 SCR 100
111
(1976) 3 SCR 688
112
(1980) 4 SCC 136 [8]
113
“2. Declaration as to expediency of control by Union: It is hereby declared that it is expedient in the public
interest that the Union should take under its control the industries specified in the First Schedule.”
114
“2. Declaration as to expediency of Union Control.- It is hereby declared that it is expedient in the public
interest that the Union should take under its control the regulation of mines and the development of minerals
to the extent hereinafter provided.” [emphasis supplied]
115
(1980) 4 SCC 136 [11]
116
“44.[…] It seems to us that the observations made by this Court in Hingir-Rampur Coal Co. Ltd. v. State
of Orissa [AIR 1961 SC 459 : (1961) 2 SCR 537] , State of Orissa v. M.A. Tulloch and Co. [AIR 1964 SC
1284 : (1964) 4 SCR 461] , Baijnath Kadio v. State of Bihar [(1969) 3 SCC 838, 847-848 : AIR 1970 SC 1436
: (1970) 2 SCR 100, 113] and State of Haryana v. Chanan Mal [(1977) 1 SCC 340, 351 : AIR 1976 SC 1654
: (1976) 3 SCR 688, 700] cannot be of assistance in this behalf. In each of those cases, the declaration made
Page 60 of 123
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63. In ITC (supra), another Constitution Bench briefly dealt with this issue. It was
argued that this Court in Ishwari Khetan (supra) equated Entry 52 of List I
with Entry 54 of List II. Justice Y K Sabharwal, as the learned Chief Justice
then was, writing for the majority specifically rejected the argument that Entry
54 was equated with Entry 52 and observed that the “decision does not adopt
the mines and minerals cases for the purposes of considering the scope of
Entry 52 of List I.” 117
64. We agree with the opinion of Justice Desai in Ishwari Khetan (supra). Entries
52 and 54 of List I (and entries 23 and 24 of List II) are unique. Though entries
23 and 24 stipulate that they are subject to specific entries in List I, they are
actually subject to the law made by Parliament under the entries. The entries
are unique in the sense that the scope of an entry in the State List is not
subjected to another entry in the Union List but rather by the law made by
Parliament. The consequence of this is that when stretched to the extreme,
Parliament may by law declare that all industries must be in the control of the
Union. This would enable Parliament to render an entry in the State List
otiose. As held in the preceding section of this judgment, the entries must be
interpreted to maintain the federal balance. When there are two possible
interpretations of the entries, the Court must choose the one that maintains
the federal balance. Entries 24 of List I and 52 of List II maintain the federal
balance in a unique way. The members of the Constituent Assembly thought
by Parliament in the concerned enactment limited the control of the mines and the development of minerals
to the extent provided in the enactment. Whether the terms in which the declaration has been framed in
Section 2 of the Industries (Development and Regulation) Act — a declaration not expressly limiting control
of the specific industries to the extent provided by the Act — can be construed as being so limited is a matter
which, we think, we should deal with in some more appropriate case.”
117
(2002) 9 SCC 232 [31]
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it fit to include ‘industries’ as a legislative field in the State List because it
requires localized focus. If the draftspersons thought otherwise, they could
have included the Entry in the Union List or even the Concurrent List. The
unique placement of these entries must be considered and given due effect.
The entries must not be interpreted in a manner that would, in effect for all
purposes, place the entry in the Concurrent List.
65. The question is whether an implied limitation can be read into Entry 52 of List
I in the absence of the expression “to the extent to which”. If an implied
limitation is not read into the Entry, Parliament by a simple declaration may
take over the complete industry and subject the power of the State Legislature
to make any provision with respect to that industry to the power of Parliament.
This interpretation diminishes the scope of competence of the State
Legislature under Entry 24 of List II. Such an interpretation completely tilts the
federal balance that entries 52 of List I and 24 of List II seek to maintain. The
power of Parliament in Entry 52 of List I is defined by the phrase ‘control’.
The Entry does not read as “industries, declared by Parliament by law to be
expedient in the public interest.” The Entry states “Industries, the control of
which by the Union is declared by Parliament by law to be expedient in the
public interest.” The law enacted by Parliament must not be an abstract
declaration but must specify the extent of control that is necessary to be taken
in public interest. The State Legislature will have the competence to legislate
with respect to the field which is not the subject matter of control. The
legislative competence of the State Legislature is only denuded to the extent
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of the ‘control’ by the Union declared by the law of Parliament to be expedient
in the public interest.
c. Reconciling the potential overlap between Entry 52 of List I and Entry 8 of
List II
66. Having discerned the scope of Entry 52 of List I, it next needs to be considered
if Entry 52 of List I and Entry 8 of List II overlap, and if they overlap, whether
they can be reconciled.
67. At this juncture, the decisions of this Court that have dealt with the interplay
of Entry 52 of List I and entries of List II need to be referred to. In Calcutta
Gas Company v. State of West Bengal 118, a Constitution Bench dealt with
the overlap between Entry 52 of List I and Entry 25 of List II. Entry 25 of List
II provides for ‘gas and gas works’. The Legislature of West Bengal enacted
the Oriental Gas Company Act 1960. The constitutional validity of the
enactment was challenged on the ground that Entry 24 of List II which deals
with industries is subject to Entry 52 of List I and thus, Entry 25 of List II must
be confined to matters which are not covered by Entry 24. In short, the
submission was that the ‘industry’ of gas and gas works will be covered by
Entry 24 of List II and the other matters relating to gas and gas works will be
covered by Entry 25 of List II. Justice Subba Rao writing for the Constitution
Bench held that the ‘industry’ of gas and gas works will be covered by Entry
25 for the following reasons 119:
118
AIR 1962 SC 1044
119
AIR 1962 SC 1044 [9]
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a. Entry 25 of List II will become redundant if Entry 24 of List II (read
along with Entries 25 and 26 which deal with trade, commerce,
production, supply and distribution of products) covers the industry of
‘gas and gas works’;
b. The alternative, allows Entries 24 and 25 to operate fully in their
respective fields. Entry 24 must be interpreted to cover the entire field
of industry while Entry 25, the specific industry of gas and gas
works; 120 and
c. Parliament cannot enact laws on the gas industry under Entry 52
because the meaning of ‘industry’ in Entry 24 of List II and Entry 52
of List I is the same. Since Entry 24 does not cover the gas industry,
it cannot be included in Entry 52 as well. 121
68. In McDowell (supra), the constitutional validity of the Andhra Pradesh
Prohibition Act 1995 was under challenge. The enactment prohibited the
selling, buying, consumption and manufacture of liquor. It was submitted that
the State did not have the competence to enact the statute because the
manufacture and production of intoxicating liquors is an industrial activity
120
“9. […] If industry in Entry 24 is interpreted to include gas and gas works, Entry 25 may become redundant,
and in the context of the succeeding entries, namely Entry 26, dealing with trade and commerce, and
Entry 27, dealing with production, supply and distribution of goods it will be deprived of all its
contents and reduced to “useless lumber”. If industrial, trade, production and supply aspect are taken out of
Entry 25, the substratum of the said entry would disappear: in that event we would be attributing to the authors
of the Constitution ineptitude, want of precision and tautology. On the other hand, the alternative contention
enables Entries 24 and 25 to operate fully in their respective fields: while Entry 24 covers a very wide field,
that is, the field of the entire industry in the State, Entry 25, dealing with gas and gas-works, can be confined
wo a specific industry, that is, the gas industry.” [emphasis supplied]
121
“11. […] As we have indicated earlier, the expression “industry” in Entry 52 of List I bears the same
meaning as that in Entry 24 of List II, with the result that the said expression in Entry 52 of List I also does
not take in a gas industry.”
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covered by Item 26 of the Schedule to IDRA. It may be recalled that Item 26
before the 2016 amendment included alcohol and other products of
fermentation industry. The three-Judge Bench of this Court rejected the
submission. Justice Jeevan Reddy, writing for the Bench, observed that:
a. Entry 8 expressly refers to ‘production and manufacture’ of
intoxicating liquor. Including the production and manufacture of liquor
in Entry 24 of List II (and as a consequence in Entry 52 of List I), would
amount deleting the words “production and manufacture” in Entry 8;
b. Entry 24 is a general entry and Entry 8 is a specific entry. On the
application of the principle of generalia specialibus non derogant
(general things do not derogate from specific things), the industry of
intoxicating liquor will not fall under the general entry (Entry 24) but
the special entry (Entry 8); and
c. Entry 52 only governs Entry 24 and not Entry 8. Thus, the industry of
intoxicating liquor cannot be taking over by Parliament under Entry
52. 122
122
“26. […] Entry 24 is a general entry relating to industries whereas Entry 8 is a specific and special entry
relating inter alia to industries engaged in production and manufacture of intoxicating liquors. Applying the
well-known rule of interpretation applicable to such a situation (special excludes the general), we must hold
that the industries engaged in production and manufacture of intoxicating liquors do not have within Entry 24
but do fall within Entry 8. This was the position at the commencement of the Constitution and this is the
position today as well. Once this is so, the making of a declaration by Parliament as contemplated by Entry
52 of List I does not have the effect of transferring or transplanting, as it may be called, the industries engaged
in production and manufacture of intoxicating liquors from the State list to Union List. As a matter of fact,
Parliament cannot take over the control of industries engaged in the production and manufacture of
intoxicating liquors by making a declaration under Entry 52 of List I, since the said entry governs only Entry
24 in List II but not Entry 9 in List II.”
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Referring to the decision in Calcutta Gas Company (supra), the three-Judge
Bench observed that Entry 8 is more specific as compared to Entry 24 because
the former expressly refers to ‘production and manufacture’, and thus, it is all
the more clear that the production of liquor cannot be covered by Entry 52.123
69. In Calcutta Gas Company (supra) and McDowell (supra), this Court adopted
the following established principles of interpretation to resolve the overlap
between legislative entries: (a) generalia specialibus non derogant; (b) an
interpretation which does not render an entry redundant must be adopted;
and (c) parliamentary supremacy in Article 246 will only operate if the entries
in the State List and the Union List cannot be reconciled. The approach in
Calcutta Gas Company (supra) and McDowell (supra) on the issue of
reconciling the conflict between the entries varies on one aspect. In Calcutta
Gas Company (supra), the Constitution Bench adopted a three-step
analysis:
a. On an application of the principle of generalia specialibus non
derogant, the industry of the specific entry (in this case, the gas
industry) was traced to Entry 25 and not Entry 24 (which is a general
entry);
b. Entry 52 is co-extensive with Entry 24. Thus, the scope of Entry 54 is
circumscribed by the scope of Entry 24; and
123
“28. […] Article 246 cannot be invoked to deprive the State Legislatures of the powers inhering in them by
virtue of entries in List II. To wit, once an enactment, in pith and substance, is relatable to Entry 8 in List II or
for that matter any other entry in List II, Article 246 cannot be brought into yet hold that State Legislature is
not competent to enact that law.”
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c. The gas industry is included in Entry 25 (and not Entry 24) which is
not subject to Entry 52. Thus, Entry 52 cannot cover the gas industry.
70. In McDowell (supra), the three-Judge Bench applied the principle that the
State Legislature has full competence to enact laws with respect to those
entries which are not expressly subject to an entry in List I or List III.
71. The question is whether Parliament under Entry 52 of List I takes over the
industry of intoxicating liquor covered by Entry 8. The answer is in the
negative. Irrespective of whether the term ‘industry’ is interpreted in a narrow
or a wide manner (a point that is vehemently contested by both sides), the
industry of intoxicating liquor cannot be taken over by Parliament under Entry
52 of List I for the following reasons:
a. The general principle is that legislative lists must be interpreted widely.
The question that the Court must pose is whether the two entries would
overlap when interpreted widely. If they overlap, the Court must
reconcile them. But the method of reconciliation must maintain the
federal balance. The courts must not apply the principle of legislative
supremacy of Parliament at the stage of reconciliation. As explained
above, such an exercise would tilt the federal balance towards the
Union;
b. The only limitation in Entry 52 is that the control of the industry by the
Union must be necessary for public interest. Parliament can legislate on
any industry, provided that it satisfies the condition prescribed in the
Entry. Thus, Entry 52 when read independent of any other entry of List
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I, List II and List III does not preclude the inclusion of the industry of
intoxicating liquor (provided that the Union is able to prove that its control
is necessary in public interest). Similarly, Entry 8 of List II, when read
independently also includes, inter alia, the production and manufacture
of intoxicating liquor which is included within the meaning of industry.
Thus, Entry 52 of List I and Entry 8 of List II overlap on the aspect of
‘industry’ of intoxicating liquor;
c. Entry 8 of List II is not subject to Entry 52 of List I. Thus, the State
Legislature has the exclusive competence to enact a law on the field in
Entry 8. The Court must distinguish between entries that are expressly
subject to entries in the Union List and entries that are not. When one
entry is not subject to the other, the Court must harmonise the overlap
of the entries;
d. The only way to reconcile the entries is either to exclude the industry of
intoxicating entry from Entry 52 of List I or Entry 8 of List II. The Court
while reconciling the provisions, must ensure that neither of the entries
is rendered redundant. The principle of generalia specialibus non
derogant is used by courts to ensure that the harmonisation of the
entries does not render an entry redundant. In Wavery Jute Mills Co.
Ltd. v. Raymon & Co 124, the issue was whether Parliament or the State
Legislature had the competence to enact laws with respect to ‘forward
markets’. Applying the principles of generalia specialibus non derogant,
124
(1963) 3 SCR 209
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this Court held that the Union will have competence over ‘forward
contracts’ in terms of Entry 48 of List I (stock exchanges and future
markets) and that if it is brought within Entry 26 of List II (trade and
commerce), Entry 48 will become redundant. Similarly, in Jayant Verma
v. Union of India 125, this Court applied the principle to resolve the
overlap between Entry 30 of List II and Entry 45 of List I. A special entry
must prevail over a general entry, otherwise, the special entry may
become redundant; and
e. Entry 52 of List I is a general entry dealing with industry. Entry 8 of List
II is a special entry dealing with one particular industry.126 The
consequence of interpreting Entry 52 to cover the industry of ‘intoxicating
liquor’ is two-fold: first, it would amount to deleting the words ‘production,
manufacture’ in Entry 8; and second, the State Legislature also loses its
exclusive competence to legislate upon the product of the industry,
rendering Entry 8 fully redundant. This is because the legislative
competence on products of industries covered by Entry 52 of List I is
placed in Entry 33 of List III.
72. As a consequence, Parliament does not have the legislative competence to
enact a law taking control of the industry of intoxicating liquor under Entry 52
of List I.
125
(2018) 4 SCC 743
126
Calcutta Gas company (supra) and McDowell (supra)
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iv. Scope of Entry 8: Meaning of ‘intoxicating liquor’
73. Entry 8 of List II is a general entry and not a taxing entry. However, it is a
special entry in the sense that it specifically enumerates ‘intoxicating liquors’
as a legislative field to the exclusion of all other general entries under which
it may have otherwise been subsumed. The Entry stipulates that intoxicating
liquors would fall within the legislative domain of States. The arguments of the
counsel on either side on the scope of Entry 8 of List II rest on the
interpretation of the expression “intoxicating liquor’.
74. The appellants rely on the meaning of ‘liquor’ in statutes which predate the
Constitution to argue that the framers of the Constitution were aware of the
sense in which the phrase was used at the time and, that it included denatured
alcohol. In response, the Union argues that the word ‘intoxicating’ occurring
in the expression ‘intoxicating liquors’ must not be rendered redundant by
adopting the interpretation accorded to Entry 8 of List II by the appellants. It
argues that ‘intoxicating liquors’ means beverages which are per se meant for
human consumption for the purpose of intoxication without dilution or
modification by any process. The Union also relies on the legal history of the
division of legislative fields between the Union and the States in support of its
argument that only Parliament is competent to legislate with regard to
denatured alcohol.
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a. Precedent on the interpretation of ‘intoxicating liquor’: exploring FN Balsara
and Southern Pharmaceuticals
75. The respondents have relied on the interpretation of the phrase ‘intoxicating
liquor’ in the judgment of the Bombay High Court in FN Balsara v. State of
Bombay127. The petitioners have strongly relied on the decision of this Court
in FN Balsara (supra) which overturned the judgment of the Bombay High
Court.
76. The petitioner in Balsara (supra) had one bottle of whisky, one bottle of
brandy, one bottle of wine, two bottles of beer, one bottle of medicated wine,
one bottle of eau-de-cologne, one bottle of lavender water and some bottles
of medicinal preparations. The petitioner invoked the writ jurisdiction of the
High Court to challenge the validity of the Bombay Prohibition Act 1949.128 As
the name suggests, the statute sought to put in place and enforce the policy
of prohibition of alcohol. It was enacted with reference to Entry 31 of List II of
the Seventh Schedule to the 1935 Act, which was similar to Entry 8 of List II
of the Seventh Schedule to the Constitution, in respect of intoxicating liquors.
The Act defined ‘intoxicant’ as “any liquor, intoxicating drug, opium or any
other substance which the Provincial Government may, by notification in the
Official Gazette declare to be an intoxicant…” 129 ‘Liquor’ was defined to
include “all liquids containing alcohol”. 130 The definition clause was
challenged on the ground that it was beyond the competence of the State
127
1950 SCC OnLine Bom 57
128
“Bombay Prohibition Act”
129
Bombay Prohibition Act 1949; Section 2(22)
130
Bombay Prohibition Act 1949; Section 2(24)
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Legislature under the entries in List II and List III of the 1935 Act. Chief Justice
M C Chagla, writing for the Bench, held that the State Legislature did not have
the competence to enact laws with respect to the “legitimate use of alcoholic
preparations which are not beverages” and “the use of medicinal and toilet
preparations containing alcohol”. 131 In short, the High Court held that
‘intoxicating liquor’ in Entry 31 of List II of the 1935 Act did not include all
liquids with alcohol, and thus, the definition was beyond the scope of the
State Legislature. The reasons for the interpretation were thus:
a. Liquor ordinarily means a strong drink as opposed to a soft drink. In any
event, it must be a beverage which is ordinarily drunk;
b. The difference in the words qualifying ‘liquor’ in entries 31 132 and 40(a) 133
of List II in the 1935 Act (the Entry corresponding to Entry 51 of List II of
the Seventh Schedule to the Constitution) is very significant. In Entry 31,
the word used is ‘intoxicating’. In Entry 40(a), the word used is ‘alcoholic’.
In the Whitepaper of 1933, the entry dealt with ‘alcoholic liquor’ which
was substituted with the expression intoxicating liquor. With the
substitution, non-intoxicating liquor was excluded from the scope of the
Entry; and
131
1950 SCC OnLine Bom 57 [36]
132
“31. Intoxicating liquors and narcotic drugs, that is to say, the production, manufacture, possession,
transport, purchase and sale of intoxicating liquors, opium and other narcotic drugs, but subject, as respects
opium, to the provisions of List I and, as respects poisons and dangerous drugs, to the provisions of List III.”
133
“40. Duties of excise on the following goods manufactures or produced in the Province and countervailing
duties at the same or lower rates on similar goods manufactured or produced elsewhere in India- (a) alcoholic
liquors for human consumption…”
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c. Medicinal and toilet preparations containing alcohol are neither liquor nor
intoxicating. Thus, they are excluded from the scope of the Entry.
The 18th amendment to the US Constitution prohibits the sale, manufacture
and transportation of ‘intoxicating liquor’. 134 The petitioners relied on
judgments of the US Supreme Court to substantiate the submission that the
State Legislature can legislate on all liquids containing alcohol. The High
Court, upon an analysis of judgments noted that they only hold that
‘intoxicating liquor’ could cover drinks that contain a small percentage of
alcohol, even if it does not produce an intoxicating effect. The Court further
noted that the judgments of the US Courts hold that the State cannot regulate
the legitimate use of non-beverage, and medicinal and toilet preparations
containing alcohol, but only regulate their use for noxious purposes. Upon
the analysis of the decisions, the High Court held that the State: (a) has the
competence to legislate on alcoholic liquids which are not normally consumed
as drinks; (b) cannot legislate on the “legitimate” use of alcoholic preparations
which are not beverages; and (c) cannot legislate on the use of medicinal and
toilet preparations containing alcohol.
77. The appeals against the judgment of the High Court were allowed by a
Constitution Bench of this Court in FN Balsara (supra). This Court noticed the
meaning of the word ‘liquor’ by referring to its dictionary meaning and also
assessed the meaning assigned to it in various enactments including the
134
18th Amendment to the US Constitution; Section 1: “After one year from the ratification of this article the
manufacture, sale or transportation of intoxicating liquors within, the importation thereof into, or the
exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage
purposes is hereby prohibited.”
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National Prohibition Act 1919 in the USA, the Licensing (Consolidating) Act
1910 and the Spirits Act 1880 in England. It also referred to the Indian
enactments, namely, the Bombay Abkari Act 1878, the Bengal Excise Act
1909, the Punjab Excise Act 1914 and the UP Excise Act 1910. The judgment,
authored by Justice Fazl Ali, was careful to clarify that the Court was not
suggesting that the definition of ‘liquor’ in the Bombay Prohibition Act was
borrowed from the statutes in the USA or England but that they were referred
to show that the term was “capable of being used in a wide sense”. 135 Based
on its analysis, this Court observed that:
a. While ‘liquor’ was commonly understood to mean a drink or beverage
produced by fermentation or distillation, the various enactments referred
to indicated that the phrase extended to liquids which were not, strictly
speaking, beverages 136;
b. The definitions of ‘liquor’ and ‘intoxicating liquor’ in the provincial statutes
consistently included liquids containing alcohol. The framers of the 1935
Act were aware of the ‘accepted sense’ of the meaning assigned to the
term in the various provincial laws 137; and
c. Therefore, the term ‘intoxicating liquors’ in Entry 31 of List II of the
Seventh Schedule to the 1935 Act included not only beverages which
intoxicate but also all liquids containing alcohol. While this may not have
been the meaning attributed to ‘intoxicating liquors’ in common parlance,
135
1951 SCC 860 [43]
136
1951 SCC 860 [41]
137
1951 SCC 860 [44]
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the numerous statutory definitions made it clear that the expression in
Entry 31 of List II of the 1935 Act was broad and included all liquids
containing alcohol. 138
78. The Constitution Bench also approached the question from the perspective
of the entries on ‘public health’ and ‘public order’, and Article 47 139 of the
Constitution. The Bench noted that the word ‘liquor’ must be given a wide
meaning to include “all alcoholic liquids which may be used as substitutes for
intoxicating drinks, to the detriment of health.” 140 On the consideration of the
meaning of the phrase, both from the perspective of legislative meaning and
the constitutional directive of prohibiting intoxicating drinks which are injurious
to health, this Court reversed the finding of the High Court.141
79. Though the High Court held that the definition of ‘liquor’ in the Bombay
Prohibition Act is ultra vires and this Court reversed the finding, there is one
commonality between both the decisions. Neither of the decisions limited the
scope of the phrase to the common parlance meaning of ‘intoxicating
beverages’. Both the decisions held that the entry covered liquor which may
not produce ‘intoxication’ but which may be used for noxious purposes. The
difference is one of degree. While the High Court held that all liquids
138
1951 SCC 860 [44]
139
“47. Duty of the State to raise the level of nutrition and the standard of living and to improve public
health.- The State shall regard the raising of the level of nutrition and the standard of living of its people and
the improvement of public health as among its primary duties and, in particular, the State shall endeavor to
being about prohibition of the consumption, except for medicinal purposes of intoxicating drinks and of drugs
which are injurious to health.”
140
1951 SCC 860 [45]
141
See Paragraph 48: “… the idea of prohibition is connected with public health, and to enforce prohibition
effectively the wider definition of the word “liquor” would have to be adopted so as to include all alcoholic
liquids which may be substitutes for intoxicating drinks, to the detriment of health. On the whole, I am unable
to agree with the High Court’s finding, and hold that the definition of ‘liquor’ in the Bombay prohibition Act is
not ultra vires.” [emphasis supplied]
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containing alcohol will not be covered by Entry 31 of List II, this Court held
otherwise. However, the conclusion of this Court on the scope of the phrase
cannot be read detached from observations that a wider definition of
intoxicating liquor is necessary to cover other products which ‘may be used
as substitutes for intoxicating drinks’.
80. In Southern Pharmaceuticals and Chemical v. State of Kerala 142, the
appellants challenged the constitutional validity of the provisions of the Abkari
Act, as amended by the Abkari (Amendment) Act 1967 and Kerala Rectified
Spirit Rules 1972 which regulated the use of alcohol for the preparation of
medicines. Item 22 of the Schedule to IDRA specifies the “drugs and
pharmaceuticals” industry. The contention was that the State Legislature did
not have the competence to enact laws because the field was covered by
Parliament through IDRA. The issue before the three-Judge Bench of this
Court was whether the State Legislature had the competence to enact a law
related to medicinal and toilet preparations containing alcohol under Entry 8
of List II of the Seventh Schedule to the Constitution. This Court held that the
State had the competence to enact the impugned laws under Entry 8 of List
II because the legislations are confined to ensuring the proper utilisation of
rectified spirit in the manufacture of medicinal and toilet preparations.143 After
referring to the decision of this Court in FN Balsara (supra), the Bench held
that only medicinal preparations which are capable of being misused for
142
(1981) 4 SCC 391
143
(1981) 4 SCC 391 [14]
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“noxious” purpose can be considered ‘intoxicating liquor’. 144 This Court held
that the test to determine if it can be misused is whether the article in question
can be used as a beverage:
“19. The general test for determining what
medicinal preparations containing alcohol are
capable of being misused and, therefore, must be
considered intoxicating within the meaning of
the term “intoxicating liquor”, is the capability of
the article in question for use as a beverage. The
impugned provisions have been enacted to
ensure that rectified spirit is not misused under
the pretext of being used for medicinal and toilet
preparations containing alcohol. It was argued
that this definition was therefore ultra vires the
powers of the State legislature, which could only
make laws related to alcoholic beverages.”
(emphasis supplied)
81. The observations of this Court in Southern Pharmaceuticals (supra) follow
the precedent in FN Balsara (supra) that preparations which contain alcohol
will be covered by the phrase ‘intoxicating liquor’ in Entry 8 to prevent its
‘noxious use’. In Indian Mica (supra), the appellant challenged the vires of
the rule levying licence fee to possess denatured spirit. The Rules were
framed under the Bihar and Orissa Excise Act 1915. The State would have
the competence to enact a law levying fee on denatured spirit under Entry 66
144
“18. … The power to legislate with regard to intoxicating liquor carries with it the power to regulate the
manufacture, sale and possession of medicinal and toilet preparations containing alcohol, not for the 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.” [emphasis
supplied]
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of List II 145 if the spirit was covered by the phrase ‘intoxicating liquor’ in Entry
8 of List II. Denatured spirit in this case was used as a raw material for the
preparation of another product (micanite). In this case, the Constitution Bench
held that denatured spirit is ‘intoxicating liquor’ and thus, covered by Entry 8
of List II. 146 Further it was held that the fee charged will be valid if the levy has
a reasonable relationship with the services rendered by the Government.147
82. It is clear from the analysis of the above judgments that the meaning of the
phrase ‘intoxicating liquor’ in Entry 8 of List II has been expanded beyond the
narrow definition of alcoholic beverages that produce an ‘intoxicating effect’
upon consumption. Liquids which contain alcohol and which can possibly be
used (or misused) as intoxicating liquor have been included within the
meaning of the phrase.
83. We will test this proposition in the subsequent sections. In our opinion, there
are four possible approaches that we can adopt to determine the meaning of
the expression ‘intoxicating liquor’. The first is through the identification of the
‘legislative meaning’ of the phrase intoxicating liquor; the second is through
legislative history; the third, is the common parlance test, and the fourth is the
principle of workability. We will discuss the merits and demerits of each of the
above approaches in turn.
145
“66. Fees in respect of any of the matters in this List, but not including fees taken in any Court.”
146
(1971) 2 SCC 236 [3]
147
(1971) 2 SCC 236 [11]
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b. The legal import of ‘intoxicating liquor’
84. The petitioners submit that the expression ‘intoxicating liquor’ is a term of
recognised legal import because it has been used in numerous statutes that
pre-date the 1935 Act, where the phrase was first used in Entry 31 of List II.
The principle of ‘legal import’ has been used by this Court to interpret entries
in the Seventh Schedule. In Gannon Dunkerley (supra), a Constitution
Bench dealt with the interpretation of Entry 48 of List II of the Seventh
Schedule to the 1935 Act which specified the field of ‘taxes on the sale of
goods’. This Court was required to interpret the phrase ‘sale of goods’. On
one side it was contended that the term must be given the ‘popular meaning’
and on the other side, it was contended that it must be given the ‘legal
meaning’. This Court chose the latter. The Bench laid down the standard to
determine when a phrase has obtained a legal meaning. This Court laid down
a two-prong test: first, the phrase should have acquired a well-recognised,
definite and precise meaning in law 148; and second, the legal import of the
word must be practically unanimous. 149 It is also crucial to note that in this
148
“The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed
in their legal sense is that those words have, in law acquired a definite and precise sense, and that,
accordingly, the legislature must be taken to have intended that they should be understood in that sense. In
interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise
connotation which it possesses in law.” [emphasis supplied]
149
“It will be seen from the foregoing that there is practical unanimity of opinion as to the import of the word
“sale” in its legal sense
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case, the popular meaning of the phrase was not widely different from the
legal meaning 150. 151
85. The judgment of this Court in Gannon Dunkerley (supra) must be read in the
context of the settled principle of interpreting legislative entries, that the
entries must be conferred the widest meaning possible. Interpreting a phrase
or words in the Legislative Lists based on the legal import of the phrase is,
thus, in many ways an exception to the settled principle of interpreting entries.
This is for the simple reason that the legislative entries delimit the scope of
competence of the legislative bodies. If the entries are interpreted based on
the meanings or definitions in a legislation, the purpose of the Seventh
Schedule may become redundant. Further, the statute does not define
phrases based on popular or common parlance meaning but rather based on
the scope of the legislation and the manner in which the provisions are
drafted. A deeming fiction is often used to define phrases by conferring
artificial meanings. 152 The interpretation based on ‘legislative meaning’
elucidated in Gannon Dunkerley (supra), which narrows the interpretation of
150
“Now, in its popular sense, a sale is said to take place when the bargain is settled between the parties,
though property in the goods may not pass at that stage, as where the contract relates to future or
unascertained goods, and it is that sense that the learned Judge would appear to have had in his mind when
he spoke of a commercial or business sense. But apart from the fact that these observations were obiter,
this Court has consistently held that though the word “sale” in its popular sense is not restricted to
passing of title, and has a wider connotation as meaning the transaction of sale, and that in that sense an
agreement to sell would, as one of the essential ingredients of sale, furnish sufficient nexus for a State to
impose a tax..” [emphasis supplied]
151
The judgement in Gannon Dunkerley’s case (supra) was held to be constitutionally superseded on other
aspects by subsequent cases including Kone Elevator India (P) Ltd. v. State of T.N., (2014) 7 SCC 1.
However, the principle of interpretation referred to in this judgment continues to be good law.
152
See Ahmedabad Municipal Corporation v. GTL Infrastructure Limited (2017) 3 SCC 545 [13] “13. “… it
would be self-defeating to understand the meaning and scope of Entry 49 of List II by reference to the
definition clauses in the Gujarat Act. Definitions contained in the statute may at times be broad and
expansive; beyond the natural meaning of the words or may even contain deeming provisions. Though the
wide meaning that may be ascribed to a particular expression by the definition in a statute will have to be
given effect to, if the statute is otherwise found to be valid, it will, indeed, be a contradiction in terms to test
the validity of the statute on the touchstone of it being within the legislative entry, by a reference to the
definition contained in the statute”
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entries, thereby creating an exception to the rule of wide interpretation should
only be employed by Courts when the twin tests highlighted above. The tests
are (a) the phrase should have acquired a well-recognised, definite and
precise meaning in law; and (b) the legal import of the word must be practically
unanimous. Additionally, we also are of the view that the legislative meaning
interpretation should be adopted only when the deviation from the popular
meaning of the phrase is not too wide. The legislative meaning cannot be
used to artificially narrow legislative entries. We also deem it necessary to
note that we must be cognizant that the standard of ‘legislative meaning’ is
employed to identify the ‘intent’ of the framers of the Constitution and belongs
to the originalist school of thought, which has been consistently opposed by
this Court over the years. 153 For these reasons, the principle of interpretation
elucidated in Gannon Dunkerley (supra) must be used cautiously by Courts.
86. Let us now proceed to determine if the phrase ‘intoxicating liquor’: (a) has a
definite and precise meaning in law; (b) is unanimous; and (c) has a legal
meaning that is not widely different from its popular meaning. We must refer
to the pre-constitutional statutes for this purpose because the expression
‘intoxicating liquor’ was first used in the 1935 Act. The table below indicates
the definition of ‘Liquor’, ‘intoxicating liquor’, and ‘spirits’ in numerous pre-
constitutional statutes:
153
See Gannon Dunkerley (supra) : “… Sales tax was not a subject which came into vogue after the
Government of India Act 1935. It was known to the framers of that statute and they made express provision
for it under Entry 48.”
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Bombay Abkari Act 1878” Liquor is defined in an inclusive
manner. It includes “all liquid
consisting of or containing
alcohol…denatured or not.”154
Madras Abkari Act 1886 Liquor includes ….all liquid
consisting of or containing alcohol. 155
Spirits means any liquor containing
alcohol and obtained by distillation,
whether it is denatured or not.156
Abkari Act 1077 Liquor includes …. all liquid
consisting of or containing alcohol. 157
Bengal Excise Act 1909 158 Intoxicant means any liquor. 159
Liquor means liquid consisting and
containing alcohol. 160 Spirit means
any liquor containing alcohol,
whether denatured or not. 161
154
Bombay Abkari Act 1978; Section 3(7)
155
Madras Abkari Act 1886; Section 3(9)
156
Madras Abkari Act 1886; Section 3(8)
157
Abkari Act 1077; Section 3(10)
158
Similar definitions in Bihar and Orissa Excise Act 1915; Sections 2(14); 2(19)
159
The Bengal Excise Act 1909; Section 2(12a)
160
The Bengal Excise Act 1909; Section 2(14)
161
The Bengal Excise Act 1909; Section 2(19)
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Madhya Pradesh Excise Act 1915 162 Liquor means ‘intoxicating liquor’ and
includes …. all liquid consisting of or
containing alcohol. 163
National Prohibition Act The word ‘liquor’ or the phrase
‘intoxicating liquor’ shall be
construed to include alcohol, brandy,
whisky, rum, gin, beer, ale, porter,
and wine, and in addition thereto any
spirituous, vinous, malt, or fermented
liquor, liquids, and compounds,
whether medicating, proprietary,
patented, or not and by whatever
name called, containing one-half of 1
per centum or more of alcohol by
volume which are fit for use for
beverage purposes.
The Licensing (Consolidating Act) Intoxicating liquor means (unless
1872 inconsistent with the context) spirits,
wine, beer, porter, cider, perry and
sweets, and any fermented, distilled,
or spiritous liquor which cannot,
162
Similar definitions in The Punjab ‘article’ Excise Act 1914; Section 2(14); The Chhattisgarh Excise Act
1915; Section 2(13); United Province Excise Act 1910; Section 3(11)
163
MP Excise Act 1916; Section 2(13)
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according to any law for the time
being in force, be legally sold without
an excise law. 164
Spirits Act 1880 Spirits means spirits of any
description, and includes all liquids
mixed with spirits, and all mixtures,
compounds, or preparations made
with spirits. 165
87. The Abkari Acts have generally defined the phrase ‘liquor’ to mean liquids
containing alcohol including denatured alcohol. However, the Abkari Acts do
not define the phrase ‘intoxicating liquor’. In Excise Acts, ‘liquor’ was defined
to mean ‘intoxicating liquor’ and included liquids containing alcohol. Thus,
none of the pre-constitutional statutes have defined the phrase ‘intoxicating
liquor’ for it to have acquired a legal meaning. The phrase was defined in the
Licensing (Consolidating Act) 1910 which regulated the United Kingdom. It
cannot be concluded that the phrase used in the Indian Constitution has
acquired a legal meaning based on a definition clause in one statute which
applied to the United Kingdom. The definition of ‘liquor’ in pre-constitutional
statutes as liquids containing alcohol cannot be transposed to interpret the
legislative entry. The phrase used in the legislative entry is ‘intoxicating liquor’.
164
The Licensing (Consolidating Act) 1872; Section 74
165
Spirits Act 1880; Section 3
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The definition of one part of the expression in statutes cannot be used to
interpret expressions that are used to indicate a collective meaning,
particularly when the common parlance definition starkly varies. The common
parlance meaning of ‘intoxicating liquor’ means liquor which causes
intoxication, that is, which causes someone to lose control. Thus, the three-
prong test to identify if “Intoxicating Liquor” has acquired legislative meaning
has not been satisfied.
c. Evolution of the legislative lists on ‘intoxicating liquor’
88. We proceed to consider the evolution of the legislative field relating to
‘intoxicating liquor’ to determine the meaning of the expression. The evolution
of the legislative entries must be traced from the Devolution Rules formulated
under the 1919 Act.166 The Devolution Rules classified legislative subjects for
the purpose of distinguishing the functions of the local legislatures from those
of the federal legislature. Alcohol was placed in the ‘Provincial List’ of the First
Schedule to the Devolution Rules (equivalent to List II or the State List in the
Seventh Schedule to the Constitution). Entry 16 of the Provincial List
concerned alcohol. It is reproduced below:
“16. Excise, that is to say, the control of production,
manufacture, possession, transport, purchase and sale of
alcoholic liquor and intoxicating drugs, and the levying of
excise duties and licence fees on or in relation to such articles,
but excluding, in the case of opium, control of cultivation,
manufacture and sale for export.”
(emphasis supplied)
166
The Devolution Rules were made by the Governor General in Council with the sanction of the Secretary
of State in Council in exercise of the powers conferred by Sections 45A and 129A of the Government of India
Act 1919.
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89. Instead of two distinct entries, one which covered taxation and the other which
covered regulation, the Devolution Rules contained a single entry in the
Provincial List which extended to both aspects. The Entry related to (a) levy
of excise duties; (b) levy of fee; and (c) general regulation. That it concerned
taxation is evident from the term ‘excise’ and the ‘levying of excise duties’.
The words “the control of production, manufacture, possession, transport,
purchase and sale” indicate that the Entry extended to regulation as well. The
expression used in Entry 16 was ‘alcoholic liquor’ as opposed to ‘intoxicating
liquor’. However, it must be noted that the provision deals with both ‘alcoholic
liquor’ and ‘intoxicating drugs’.
90. The approach adopted in the 1935 Act differed from the 1919 Act. Entry 45 of
List I of the Seventh Schedule to the 1935 Act stipulated the federal domain
over duties of excise. It is reproduced below:
“45. Duties of excise on tobacco and other goods
manufactured or produced in India except —
(a) alcoholic liquor for human consumption;
(b) opium, Indian hand and other narcotic drugs and
narcotics; non-narcotic drugs;
(c) medicinal and toilet preparations containing
alcohol or any substance included in sub-paragraph
(b) of this entry.”
91. Alcoholic liquor for human consumption was among the three categories
which was excluded from the ambit of legislative competence of the Federal
legislature. Entries 31 and 40 of List II of the Seventh Schedule to the 1935
Act stipulated the Provincial legislative domain over intoxicating liquors and
narcotics, and duties of excise respectively. They are reproduced below:
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“31. Intoxicating liquors and narcotic drugs, that
is to say, the production, manufacture, possession,
transport, purchase and sale of intoxicating liquors,
opium and other narcotic drugs, but subject, as
respects opium, to the provisions of List I and, as
respects poisons and dangerous drugs, to the
provisions of List III.
…
40. Duties of excise on the following goods
manufactured or produced in the Province 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; non-narcotic drugs;
(c) medicinal and toilet preparations containing
alcohol or any substance included in sub-paragraph
(b) of this entry.”
(emphasis supplied)
92. The three categories which were excluded from duties of excise on goods
produced or manufactured in India (in Entry 45 of List I) were incorporated in
Entry 40 of List II. Thus, duties of excise on alcoholic liquors for human
consumption was a subject assigned to the Provinces. The following changes
on the legislative scope on ‘alcoholic liquors’ were introduced in the 1935 Act:
a. Taxation and regulation were placed in separate entries. Entry 40 of List
II concerned duties of excise, inter alia, on ‘alcoholic liquors for human
consumption.’ On the other hand, Entry 31 of List II covered the
regulation of ‘intoxicating liquors’ and other substances;
b. The Federal legislature could levy duties of excise on tobacco and other
goods manufactured in India but not on alcoholic liquor for human
Page 87 of 123
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consumption, medicinal and toilet preparations containing alcohol, and
other specified goods;
c. The Provincial legislatures could levy duties of excise on alcoholic liquor
for human consumption, medicinal and toilet preparations containing
alcohol, and other specified goods produced in the province; and
d. Entry 31 of List II was a regulatory entry covering intoxicating liquors and
narcotic drugs and the production, manufacture, possession, transport,
purchase and sale of intoxicating liquors, opium and other narcotic
drugs. Hence, the regulatory power in relation to intoxicating liquor lay
with the Provincial legislatures and not the Federal legislature. Where
Entry 16 of the Provincial List of the Devolution Rules as well as Entries
45 of List I and 40 of List II of the Seventh Schedule to the 1935 Act used
the term ‘alcoholic liquors’, Entry 31 of List II used the expression
‘intoxicating liquors’. This term was first used in the 1935 Act.
93. The Seventh Schedule to the Constitution also placed the regulatory powers
and the taxing powers relating to alcohol in separate entries. Entry 8 of List II
of the Seventh Schedule to the Constitution deals with ‘intoxicating liquors’.
Entry 8 of List II of the Seventh Schedule to the Constitution varies from Entry
31 of List II of the 1935 Act in a significant manner. Entry 8 only deals with
‘intoxicating liquor’. It does not cover narcotic drugs and opium. Entry 31
conferred the Provincial Legislature, the competence to legislate with respect
to narcotic drugs which included opium. It was subject to Entries in List I and
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List II which dealt with opium167 and ‘poison and dangerous drugs’ 168. The
Seventh Schedule to the Constitution placed opium in List I169 and List III 170,
completely removing it from List II.
94. Entry 84 of List I deals with duties of excise of goods except a few. The Entry
read as follows before the Constitution (One Hundred and First Amendment)
Act 2016:
“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.”
(emphasis supplied)
95. Entry 51 of List II deals with duties of excise, inter alia, on alcoholic liquor:
“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.”
(emphasis supplied)
167
Government of India Act 1935, Entry 31 of List I
168
Government of India Act 1935, Entry 19 of List III
169
Constitution of India 1950, Entry 59 of List I
170
Constitution of India 1950, Entry 19 of List III
Page 89 of 123
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96. The only change with respect to the legislative competence on duties of
excise from the 1935 Act is that Parliament (and not the State Legislature as
it was envisaged under the 1935 Act) has the competence to enact laws with
respect to medicinal and toilet preparations containing alcohol or narcotic
substances, opium and Indian hemp.171
97. The Constituent Assembly Debates which the Union of India referred to
ascertain the meaning of the phrase ‘intoxicating liquor’ are not of assistance.
The phrases ‘alcoholic liquor for human consumption’ and ‘intoxicating liquor’
were used for the first time in the 1935 Act. Entry 16 of the Provincial List of
the Devolution Rules dealt with ‘alcoholic liquor and intoxicating drugs”. The
provision dealt both with regulatory power and excise power. It is necessary
to trace the development between the 1909 Rules and the 1935 Act to
understand the context of substituting the expression ‘alcoholic liquor’ with
‘intoxicating liquor’ in the regulatory entry but retaining it in the taxing entry.
98. The 1935 Act was based on the White Paper (1931) on the proposals for
Indian Constitutional Reform 172 and the Report of the Joint Select Committee
on Indian Constitutional Reform173 which was constituted to examine and
report upon the proposals contained in the White Paper.The White Paper
171
The reason for providing Parliament the power to enact laws with respect to the excise duty on medicinal
and toilet preparations containing alcohol is reflected in the footnote to Entry 86 of List I in the Draft
Constitution of India 1948 as follows: “The committee is of the opinion that duties of excise on medicinal and
toilet preparation containing alcohol or any substance included in sub-paragraph (b) of this entry should be
included in this entry as duties leviable by the Union, as it thinks that uniform rates of excise duty should be
fixed in respect of these goods in all states for the sake of development of the pharmaceutical industry. The
levy of different rates in different States is likely to lead to discrimination in favour of goods imported from
foreign countries which would be detrimental to the interest of Indian manufacturers as was pointed out by
the Drugs Enquiry Committee in their report in 1931.”; See Shiva Rao (Vol II) pg. 666
172
“White Paper”; See Command Paper 4268
173
“Joint Committee”; See Report of the Joint Select Committee on Indian Constitutional Reform
Page 90 of 123
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recommended the demarcation of regulatory and taxation powers relating to
alcohol. However, both the entries used the words ‘alcoholic liquor’. 174 The
Report of the Joint Committee suggested the following two revisions to the
entries related to alcohol: (a) the relevant entry in the Federal List provided
that the Union did not have the competence to levy excise duty on “potable
alcoholic liquor” 175 and the Provincial List conferred States the competence
to levy excise duty on “potable alcoholic liquor” 176; and (b) the regulatory
provision in List II dealt with the “production, manufacture, possession,
transport, purchase and sale of liquors, opium and other drugs and narcotics
not covered by item 19 of List III.”177
99. Two revisions were further made to the entries as they appear in the
Government of India Bill 1935 which were subsequently reflected in the
Government of India Act 1935. The phrase ‘potable alcoholic liquor’ was
substituted with the phrase ‘alcoholic liquor’ in the taxing entry and the phrase
‘liquor’ was substituted with the phrase ‘intoxicating liquor’ in the regulatory
174
See Joint Committee on Indian Constitutional Reform (Volume 1 Part I) 369; “26. Control of production,
manufacture, possession, transport, purchase and sale of alcoholic liquors, drugs and narcotics.”; “27.
Imposition and regulation of duties of excise on alcoholic liquors, drugs and narcotics other than tobacco.”
175
List I, Entry 49 of the Revised Lists; See Joint Committee on Indian Constitutional Reform (Volume 1 Part
I) 152 “46. Duties of excise on the manufacture and production of tobacco and other articles except-
(i) Potable alcoholic liquors;
(ii) Toilet and medicinal preparations containing alcohol, Indian hemp, opium or other drugs or
narcotics;
(iii) Opium, Indian hemp, and other drugs and narcotics.
176
List II, Entry 19 of the Revised Lists; See Joint Committee on Indian Constitutional Reform (Volume 1 Part
I) 155 “19. Duties of excise on the manufacture and production of –
(i) Potable alcoholic liquors;
(ii) Toilet and medicinal preparations containing alcohol, Indian hemp, opium or other drugs
and narcotics;
(iii) Opium, narcotics, hemp and other drugs.
177
List II, Entry 18 of the Revised Lists; See Joint Committee on Indian Constitutional Reform (Volume 1 Part
I) 155 “18. Production, manufacture, possession, transport, purchase and sale of liquors, opium and other
drugs and narcotics not covered by item 19 of List III.”
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entry. The table below reflects the evolution of the Legislative entries relating
to alcohol:
Enactment Taxing Entry Regulatory Entry
Devolution Rules ‘alcoholic liquor’ 178
White Paper ‘alcoholic liquor’ 179 ‘alcoholic liquor’ 180
Joint Select Committee ‘potable alcoholic ‘liquor’ 182
on Indian Constitutional liquor’ 181
Reform
Government of India ‘alcoholic liquor for ‘intoxicating liquor’ 184
Act 1935 human consumption’ 183
Constitution of India ‘alcoholic liquor for ‘intoxicating liquor’ 186
human consumption’ 185
100. Before we proceed to lay down our inferences upon a study of the evolution
of legislative entries, we clarify that the issue before this Bench is squarely
related to the interpretation of the expression ‘intoxicating liquor’. The
178
Devolution Rules; Entry 16 of the Provincial List
179
Command paper 4268; Entry 26 of List II: “26. Control of production, manufacture, possession, transport,
purchase and sale of alcoholic liquors, drugs and narcotics.”
180
Command paper 4268; Entry 27 of List II: “27. Imposition and regulation of duties of excise on alcoholic
liquors, drugs and narcotics other than tobacco.”
181
Report of the Joint Committee on Indian Constitutional Reform; Entry 49 of List I
182
Report of the Joint Committee on Indian Constitutional Reform; Entry 19 of List II
183
Government of India Act 1935; Entry 45 of list I
184
Government of India Act 1935; Entry 31 of list II
185
Constitution of India 1950; Entry 84 of List I
186
Constitution of India 1950; Entry 8 of List II
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meaning of the expression ‘alcoholic liquor for human consumption’ and
whether it can be read as ‘alcoholic liquor fit for human consumption’ is not
before this Bench.
101. The Report of the Joint Committee does not explain why the expression
‘alcoholic liquor’ was substituted with the phrases ‘liquor’ in the regulatory
entry and ‘potable alcoholic liquor’ in the taxing entry. While the Report
explains the reasons for a few revisions from the White Paper, the entries
relating to alcohol are not one of them. 187 However, the paragraph extracted
below provides some clarity:
“241. It would extend this chapter to an
unreasonable length if we were to set out in detail all
the changes which a revision of the three Lists has
involved. We are less willing to do so, because we
recognise that the revised Lists themselves will
require further expert scrutiny before they are
finally submitted to Parliament as part of the
legislative proposals of His Majesty’s Government.
We think, however, that if the revised Lists are
compared with the Lists in the White Paper, such
changes as have been made, in addition to those
already mentioned will, for the most part, be found to
speak for themselves.”
(emphasis supplied)
102. While the revisions are not accompanied by any reasons, it is clear that the
intention of the Joint Committee was to differentiate between the product
covered by the regulatory entry and the taxing entry. It is also clear that the
Committee was aware of the possibility of alcohol not being understood as
just a final ‘consumable product’ but also as a raw material in the production
187
Joint Committee on Indian Constitutional Reform (Volume I Part I) 148-149.
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of other products. The Report of the Joint Committee specifically conferred
the States, competence over “toilet and medicinal preparations containing
alcohol, Indian help, opium or other drugs and narcotics.”188 While the taxing
entry recognised the distinction between liquor that is used as a beverage and
is a product in itself by using the words ‘potable alcoholic liquors’, and other
products that contain alcohol, the regulatory entry does not create that
distinction. The regulatory entry only refers to ‘liquor’, which is a much larger
all-encompassing phrase.
103. We are unable to trace the discussions that led to a further revision in the
1935 Act, where the expression ‘potable liquor’ was substituted with ‘alcoholic
liquor for human consumption’, and ‘liquor’ was substituted with the
expression ‘intoxicating liquor’. However, it is clear that the use of the phrases
as they appear in the relevant entries of the 1935 Act and the Constitution of
India was a matter well-thought of.
104. Another point that needs to be noted based upon a study of the evolution of
legislative entries is that until the 1935 Act, the regulatory entry covered
narcotic drugs and opium along with ‘alcoholic liquor’/’liquor’/’intoxicating
liquor’. There are two possible interpretations of the expression “intoxicating
liquor”, as it appeared in the 1935 Act, on an application of the principle of
noscitur a sociss, that is, the principle by which the meaning of an ambiguous
expression may be ascertained by reference to the meaning of the words
188
Report of the Joint Committee on Indian Constitutional Reform; Entry 19(ii) of List II
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associated with it 189. It could be interpreted to mean liquor that has an
intoxicating effect upon consumption since narcotic drugs and opium also
produce intoxication. The expression ‘intoxicating liquor’ could also mean the
regulation of alcohol used in the production of other products since opium and
narcotic drugs are also used as raw materials in the production of other
products (like pain relivers)
105. Mr TT Krishnamachari moved an amendment to delete references to narcotic
drugs and opium in Entry 40 of List II of the Draft Constitution 1948 (which
correspondes to Entry 31 of List II of the 1935 Act). The amendment was
adopted by the Assembly. Mr Krishnamachari submitted that it was necessary
to delete references to opium and narcotic drugs because they were covered
by other entries in List I and List III:
“This amendment is necessary because we have
shifted poisons and drugs to the Concurrent List and
opium happens to be in the Central List. This entry,
therefore, will suffice for the purposes of State
Governments.” 190
106. An analysis of the evolution of the legislative entries relating to alcohol does
not provide an unambiguous interpretation. While the evolution of the entries
does indicate that the drafters were aware of the distinction between potable
alcohol and alcohol used as a raw material in the production of other products,
there is no clear answer to whether ‘intoxicating liquor’ includes both. The
189
See Rainbow Steels v. Sales Tax Commissioner, UP AIR 1981 SC 2010; State of Bombay v. Hospital
Mazdoor Sabha, AIR 1960 SC 610, 613; Rohit Pulp and Paper Mills Ltd v. Collector of Central Excise, AIR
1991 SC 754
190
Constituent Assembly Debates (2 September 1949) Volume IX
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evolution of the entries provides us with some context and background but
not a conclusive answer. We now proceed to apply the third principle of
interpretation, the workability or harmonious interpretation principle.
d. The harmonious interpretation
107. The expression ‘intoxicating liquor’ can possibly be interpreted to mean the
following:
a. Alcohol which is used as a beverage for human consumption such as
beer or gin, that is, potable liquor;
b. If liquor means liquid, then Entry 8 of List II includes all liquids which
contain alcohol; and
c. Alcohol which is used as a raw material to prepare other products
such as pharmaceutical products and cosmetic drugs. This could
include denatured alcohol but also other types of alcohol that are used
in the production of products without denaturing it.
108. A preliminary observation needs to be made. It may be recalled that the State
does not have the competence to levy excise duty with respect to toilet and
medical preparations containing alcohol. However, this cannot influence the
interpretation of the phrase ‘intoxicating liquor’ in Entry 8 of List II. The
Seventh Schedule demarcates the legislative competence on taxes and
regulation. It is settled law that the Legislature cannot derive taxation powers
from a general regulatory entry.191 Thus, the lack of competence to levy tax
191
MPV Sundararamier & Co. v. State of Andhra Pradesh, (1958) 9 STC 298
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on products other than alcoholic beverage cannot influence the interpretation
of the regulatory entry. They operate in separate spheres. We now proceed
to interpret the phrase ‘intoxicating liquor’.
109. The Oxford English Dictionary provides multiple meanings of the word
‘Liquor’. They include: (a) alcoholic drinks, especially spirits; (b) water used in
brewing; (c) liquid that has been produced in or used for cooking; and (d)
liquid from which a substance has been crystallized or extracted. Liquor thus
broadly takes two meanings, of an alcoholic beverage or liquid. The word
‘intoxicate’ is defined to mean: (a) cause someone to lose control of their
senses; (b) poison; and (c) excite or exhilarate.
110. The dictionary meanings of the phrases ‘liquor’ and ‘intoxicate’ are variable.
If liquor is interpreted to mean ‘liquid’ instead of an alcoholic beverage and
intoxication a reference to alcohol, the Entry would cover all liquids that
contain alcohol. However, if liquor is interpreted to mean alcoholic beverage,
the Entry would only cover alcoholic beverages for human consumption which
causes intoxication, that is, potable alcohol.
111. Entry 51 of List II refers to duties of excise on, inter alia, “alcoholic liquors for
human consumption’. Article 47 which is placed in the Part on the Directive
Principles of State Policy stipulates that the State shall endeavour to bring
prohibition of the consumption of intoxicating drinks and drugs injurious to
health, except for medicinal purposes. The provision lists this as one of the
aspects of the duty of the State to improve public health. The phrase liquor is
also used in multiple places in the 6th Schedule to the Constitution. The 6th
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Schedule stipulates provisions on the administration of Tribal Areas in the
States of Assam, Meghalaya, Tripura and Mizoram. Paragraphs 12, 12AA
and 12B provide for the application of Acts of Parliament and of the
Legislature of the State to the autonomous districts and regions in the States
of Assam, Tripura and Mizoram. The provisions stipulate that the enactments
of the Legislature of the State “prohibiting or restricting the consumption of
any non-distilled alcoholic liquor” would not apply to the autonomous Districts
or autonomous regions 192. The expressions in the 6th Schedule will not be of
aid to interpret Entry 8 because it refers to a legislation enacted by the State
Legislature under Entry 8.
112. Thus, the Constitution uses three distinct expressions relating to alcohol:
“intoxicating liquor”, “alcoholic liquor for human consumption” and
“intoxicating drinks”. The evolution of the entries in the legislative Lists
indicate that it was a conscious decision to substitute ‘alcoholic liquor’ with
‘intoxicating liquor’ in the regulatory provision. It was also a conscious
decision to use different phrases in the taxing entry and the regulatory entry.
We do not think that it is necessary for us to lay down the contours of the
different phrases used in the Constitution. That is a decision for another day
and in another case. However, it is still possible to draw some inferences from
the different uses. The expressions “alcoholic liquor for human consumption”
and ‘intoxicating drink’ are used in the context of ‘consumption’. However, the
provision relating to “intoxicating liquor” is not limited to its consumption. It
192
Unless the District Council by a public notification directs to give effect to the Act. The District Council may
also direct that the Act shall have effect subject to ‘exceptions or modifications’; See Paragraphs 12, 12AA
and 12B of the 6th Schedule.
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stretches to its ‘production, manufacture, possession, transport, purchase
and sale of intoxicating liquors’ and beyond. The second difference is the use
of the expression ‘intoxicating’ instead of ‘alcoholic’ as the adjective to liquor.
The following inferences can be drawn from the above differences:
a. ‘Alcoholic liquor’ defines the scope of the provision based on the
ingredient, that is, ‘alcohol’. In contrast, ‘intoxicating liquor’ defines the
scope of the provision based on the effect, that is, intoxication. Thus,
even liquor which colloquially or traditionally is not considered as
alcoholic liquor may be covered by the phrase ‘intoxicating liquor’ if it
produces the effect of intoxication;
b. “Intoxicate” means the ability of someone to lose control of their
behaviour. It could also mean poison. Thus, the purpose of substituting
the adjective which indicates the ingredient (alcohol) with the impact
(intoxication) seems to be enhance the scope of the Entry to cover liquor
which has an impact on health; and
c. The public interest purpose of the provision is evident from the
accompanying words in the provision which includes every stage from
its production to consumption within the scope of the Entry. The public
interest purpose of the provision is also evident from the evolution of the
Entry. The relevant entry in the 1935 Act also regulated narcotic drugs
and opium along with intoxicating liquor. References to narcotic drugs
and opium were deleted to prevent its overlap with entries in the
Concurrent list. As highlighted in the previous section, a common thread
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that runs through alcohol, narcotic drugs and opium is that they are
products which can be noxiously used because they are also used as
raw materials in the production of other products.
It is clear from the above analysis that the meaning of the phrase ‘intoxicating
liquor’ cannot be restricted to potable alcoholic liquor, that is, alcohol that is
sold as a beverage.
113. At this juncture, it is relevant to recall that all entries in the Seventh Schedule
must be given a wide interpretation and Entry 8 of List II when interpreted
widely covers everything from the raw materials required for the production to
the consumption of ‘intoxicating liquor’. It must also be recalled that a few of
the materials that are used to prepare potable alcohol (such as rectified spirit
and ENA) are also used to prepare other pharmaceutical and cosmetic
products. For example, ENA and rectified spirit are also used to prepare
products such as varnish and hand sanitizer. Hand sanitizer is a
pharmaceutical product which is covered by Entry 19 of List III of the
Concurrent List which deals with “drugs”. Since all entries must be interpreted
widely, Entry 19 will also include the production and manufacture of drugs and
will thus cover the materials (ENA or rectified spirit) used for the preparation.
Usually the entries cover the materials used for the purpose of producing the
product covered by that Entry. However, alcohol is an inherently noxious
substance that is prone to misuse affecting public health at large. The purpose
of Entry 8 is to cover alcohol that could be used noxiously to the detriment of
public health. The Entry covers all alcohol that could be ‘prone’ to noxious
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use. It also covers variants of alcohol that are not used for the preparation of
potable alcohol but which could be misused to harm public health. This
interpretation is in consonance with the mischief sought to be covered by the
Entry. Thus, while the entry covers ENA and rectified spirit which are used in
the preparation of potable alcohol, it also covers variants of alcohol such as
denatured alcohol which though are not used in the preparation of potable
alcohol, are prone to be misused.
114. It is not disputed that denatured alcohol is prepared by adding substances
which are called denaturants to give the alcohol a foul smell and taste. The
very purpose of denaturing ethanol to prepare denatured alcohol is to make
it undrinkable. This Court in VAM Organic (II) (supra) held that the State can
regulate the process of preparing denatured alcohol because it is done to
ensure that the public is protected from consuming illicit liquor but not the
product of denatured spirit even if it can be renatured and converted to
potable liquor. 193 The petitioners further sought to make a classification
between Specially Denatured Alcohol and Completely Denatured Alcohol. It
was argued that though Specially Denatured Alcohol is not fit for human
consumption, it can be made potable by certain recovery processes while
there is no such possibility in Completely Denatured Alcohol. 194 It was argued
that Entry 8 must at the least cover Specially Denatured Alcohol. The issue
of whether denatured alcohol can be renatured to produce potable alcohol is
193
“43. […] But this power stops with the denaturation of the industrial alcohol. Denatured spirit has been
held in Vam Organic-I to be outside the seism of the State Legislature. Assuming that denatured spirit may
by whatever process be renatured (a proposition which is seriously disputed by the respondents) and then
converted into potable liquor, this would not give the State the power to regulate it.[…]”
194
See Alcohol Denaturants-Specification (Second Revision), ICS 71.100.80
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immaterial for the purposes of delineating the field of Entry 8 of List II. As held
above, Entry 8 does not only cover potable alcohol but alcohol which may be
used noxiously also. Thus, the test to be adopted is not whether the alcohol
could be converted and used for the preparation of alcoholic beverages but
whether it could be mischievously used for its preparation or as a substitute.
115. It was also argued by the petitioners that the phrase ‘intoxicating liquor’ must
be interpreted to mean liquid containing alcohol. The consequence of this
interpretation would be that it would include liquid products which may be
covered by other entries, thereby, causing an overlap of the entries. For
example, if interpreted in the above manner, the product of ‘hand sanitizer’
will be covered by both Entry 8 of List II (‘intoxicating liquor’) and Entry 19 of
List III (‘drugs’). Since the Entry must be read widely, it will then cover
everything relating to the production of the drug, substantially reducing the
scope of Entry 19 because other products of the pharmaceutical and cosmetic
industry will be covered by Entry 8. This interpretation will not be in
consonance with the settled principle of interpretation that an interpretation
that promotes the workability of provisions must be adopted. This
interpretation of the phrase is also in consonance with the precedents that we
have analysed in section E(iv)(a) of this judgment.
v. The correctness of the decision in Synthetics (7J)
116. Having interpreted Entry 8 of List II, we now turn to the decision in Synthetics
(7J) (supra). This Court in Synthetics (7J) (supra) did not undertake an
independent analysis of the meaning of the phrase ‘intoxicating liquor’.
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Without any discussion, the seven-Judge Bench readily concluded that the
interpretation of the Bombay High Court and not this Court in FN Balsara
(supra) is the correct approach. The only reasoning that this Court offered
was that when the Constitution Bench in FN Balsara (supra) interpreted the
phrase, it was not aware of the full potentiality of industrial alcohol:
“74. […] It appears that in the light of the new
experience and development, it is necessary to state
that “intoxicating liquor” must mean liquor which is
consumable by human being as it is and as such
when the word “liquor” was used by Fazl Ali J., they
did not have the awareness of full use of alcohol as
industrial alcohol. It is true that alcohol was used for
industrial purposes then also, but the full potentiality
of that user was not comprehended or understood.
With the passage of time, meanings do not change
but new experiences give new color to the meaning.”
117. These observations are erroneous for the following reasons:
a. The High Court in FN Balsara v. State of Bombay (supra) did not limit
the meaning of ‘intoxicating liquor’ to its common parlance meaning, that
is, potable alcoholic liquor. It also included alcoholic liquids which are
not normally consumed as drinks. On appeal, the Constitution Bench
held that a wider definition of intoxicating liquor is necessary to cover
other products which may be used as substitutes for intoxicating drinks.
[See section E (iv)(a) of this judgment]. This Court held that the
expression must be given a wide meaning precisely because it
recognised the potentiality of the wide use of alcohol for industrial
purposes and its consequent misuse; and
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b. The Constitution itself recognises the industrial use of alcohol. Entries
84 of List I (before the amendment in 2016) and 51 of List II specifically
refer to medicinal and toilet preparations containing alcohol.
Thus, the use of alcohol for industrial preparations was well within the
knowledge of this Court in FN Balsara (supra).
118. This Court in Synthetics (7J) (supra) did not determine the meaning of the
expressions ‘intoxicating’ or ‘liquors’ or ‘intoxicating liquors’ independently. It
did not compare the difference in the language used to describe alcohol or
liquor in different provisions of the Constitution to understand the significance
of the difference. Only Article 47 was referred to in the following terms:
“77. Article 47 of the Constitution imposes upon the
State the duty to endeavour to bring about
prohibition of the consumption except for medicinal
purpose of intoxicating drinks and products which
are injurious to health. If the meaning of the
expression “intoxicating liquor” is taken in the wide
sense adopted in Balsara case, it would lead to an
anomalous result. Does Article 47 oblige the State to
prohibit even such industries as are licensed under
the IDR Act but which manufacture industrial
alcohol? This was never intended by the above
judgements or the Constitution.”
119. Although Article 47 was mentioned, the distinction between the purpose of a
constitutional provision in Part IV and a legislative entry was not appreciated.
This leads to an incorrect inference, namely, that holding Entry 8 of List II
includes non-potable alcohol would amount to placing an obligation on the
state to prohibit non-potable alcohol in terms of Article 47. There is no doubt
that Article 47 refers only to intoxicating drinks which means potable alcohol.
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However, an analysis of the differences in the terminologies without
appreciating that the reference in Article 47 is made in the context of
consumption leads to an erroneous conclusion.
120. Further, in Synthetics (7J) (supra), this Court concluded that the impugned
fees are in the nature of a tax. In that case, the only entries that this Court
ought to have dealt with are Entries 84 of List I and Entry 51 of List II. Entry 8
deals with regulatory power and is not a taxing entry. It is a settled principle
that a tax cannot be levied under a general entry.195
121. In spite of holding that the fee charged was a tax and that the State Legislature
does not have the competence to levy tax on industrial alcohol, the Bench
proceeded to analyse the relationship between Entry 52 of List I196 and Entry
8 of List II in paragraph 84 of the judgment. The Bench noted that the “levy of
impost” is not possible in view of the occupation of the field by IDRA and that
in view of IDRA, the power to issue licences to manufacture both potable and
non-potable alcohol is vested in the Central Government. 197 These
observations are erroneous for the following reasons:
a. Under Entry 52 of List I, Parliament has the competence to enact laws
with respect to certain industries, the control of which by the Union is
necessary in public interest. It is a general entry. It does not confer any
taxing power. Thus, Entry 52 of List I may only impact the entries in List
II that deal with the regulatory aspect of industries as we have explained
195
See MPV Sundararamier & Co. v. State of AP, AIR 1958 SC 468
196
See Synthetics (7J) [84]
197
See Synthetics (7J) [85]
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in the previous section of this judgment. It does not have any impact on
taxing entries. Thus, the observation in paragraph 84 of Synthetics (7J)
(supra) is overruled; and
b. We have also held that Parliament in exercise of the power under Article
246 read with Entry 52 of List I cannot legislate with respect to the field
covered by Entry 8 of List II. The observations in paragraph 85 of
Synthetics (7J) (supra) that after the amendment to IDRA in 1956
bringing fermentation industries within the scope of the enactment, the
Union has competence over both potable and non-potable alcohol is
overruled. The law enacted in terms of Entry 52 of List I cannot render
any entry of List II (including Entry 8) otiose. Thus, Parliament cannot
take over the field covered by Entry 8.
122. In paragraph 86 of the judgment, this Court in Synthetics (7J) (supra) held
that after the inclusion of the fermentation industry in the schedule to IDRA,
the State only had legislative competence to:
a. enact any legislation in the nature of prohibition of potable liquor
referable to Entry 6 of List II and regulating powers;
b. lay down regulation to ensure that non-potable alcohol is not diverted
and misused as a substitute for potable alcohol;
c. levy excise duty and sales tax on potable alcohol under Entry 52 of List
II. However, the State cannot levy sales tax on industrial alcohol
because “under the Ethyl Alcohol (Price Control) Orders, sales tax
cannot be charged by the State on industrial alcohol”; and
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d. in case the State is rendering any service, it may charge fees based on
quid pro quo. Reliance was placed on observations in Indian Mica
(supra).
123. Since this Court in Synthetics (7J) (supra) held that the State lost the
competence to enact a legislation on potable alcohol because IDRA occupies
the field and that it did not have the competence to enact a law on non-potable
alcohol, it traced regulations relating to alcohol to Entry 6 of List II which deals
with “public health”. Viewing the consumption of potable alcohol as a public
health concern on a reading of Article 47 along with Entry 6 of List II, this
Court held that the State has the competence to deal with (a) and (b) above.
In view of our holding that : (a) the expression ‘intoxicating liquor’ in Entry 8 is
not limited to alcoholic beverages; and (b) Entry 52 of List II cannot occupy
the field covered by Entry 8 of List II, the observations in Synthetics (7J)
(supra) by which alcohol was only traced to the entry on public health is
erroneous. It cannot be denied that there is a degree of overlap between Entry
8 and Entry 6 of List II. However, Entry 8 of List II cannot be rendered
redundant for all purposes by a declaration by parliamentary law under Entry
52 of List I. Such as interpretation, as held above, would completely tilt the
federal balance in the favour of Parliament.
124. Paragraph 86(d) must be read along with paragraph 88 extracted in the earlier
part of the judgment. The Bench only placed reliance on the decision in Indian
Mica (supra) to arrive at this conclusion. In paragraph 3 of Indian Mica
(supra), the Constitution Bench held as follows:
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“Denatured spirit though an alcoholic liquor is not fit
for human consumption. The power to levy duty on
the same was and is given to the Central Legislature.
But the same being intoxicating liquor, the
Provincial Legislature under the 1935 Act and at
present the State Legislature has power to levy fee.
The power of any Legislature to levy fee is
conditioned by the fact that it must be by and large a
quid pro quo for the services rendered.”
(emphasis supplied)
125. The conclusion in Indian Mica (supra) that the State Legislature has the
competence to levy fees on denatured alcohol (which this Court in Synthetics
(7J) (supra) interchangeably uses with industrial alcohol) is premised on the
wide interpretation of the phrase intoxicating liquor in Entry 8 of List II to
include denatured alcohol. However, this Court in Synthetics (7J) (supra)
expressly rejected this interpretation. The State Legislature would have the
competence to levy fees in terms of Entry 66 of List II in respect of any of the
matters in the List. Thus, the conclusion in paragraph 86(d) creates an
inherent inconsistency within the judgment. We have overruled the
interpretation in Synthetics (7J) (supra) on the scope of Entry 8 and the
interaction between Entry 8 and Entry 52 of List. The phrase ‘intoxicating
liquor’ in Entry 8 includes denatured alcohol. Thus, the State will have the
competence to levy fees with respect to denatured alcohol, but for the reasons
in this judgment.
126. Reference may be made to judgments of this Court interpreting Synthetics
(7J) which are summarised in Section A(iii) of this judgment. This Court
interpreted Synthetics (7J) (supra) in the following manner:
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a. The State has the competence to legislate upon industrial alcohol as a
product of the controlled industry under Entry 33 of List III 198;
b. The State has the competence to legislate upon the process of
producing denatured spirit but not the product of denatured spirit
because the process is related to preventing the diversion of non-potable
liquor to potable liquor; 199
c. The State does not have the competence to legislate upon rectified
spirit 200; and
d. The State has the competence to legislate upon rectified spirit that is
used for the purpose of preparing potable alcohol201.
127. Before we proceed to analyse the correctness of these observations based
on the law that we have laid down in this judgment, it is necessary to expound
upon how this Court in Bihar Distillery (supra) drew a purpose based
demarcation of the legislative fields. The heart of the reasoning of the Court
is reproduced below:
“23. … Take a case where two industries ‘A’ and ‘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 IMFLs from out of it or to supply it to
others for the said purpose. According
198
Shri Bileshwar Khand Udyog Khedut Sahakari Mandali (supra)
199
See VAM Organic(I) (supra) and VAM Organic (II) (supra)
200
Deccan Sugar (supra)
201
Bihar Distillery (supra)
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to Synthetics [(1990) 1 SCC 109 : 1989 Supp (1)
SCR 623] , ‘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 IMFLs.
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, bulk 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. … 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.”
(emphasis supplied)
128. This Court in Bihar Distillery (supra) held that where rectified spirit is
manufactured only for the purpose of converting it into potable alcohol, it
cannot be termed ‘industrial alcohol’. It was of the opinion that it was ill-
conceived to allow for a legal structure where the States would step in only
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PART E
after alcohol was made potable as this would either result in a lacuna in
regulation or permit the Union to regulate a field which it was not empowered
to in terms of the Seventh Schedule. The three-Judge Bench held that the line
of demarcation should be drawn at the stage of clearance or removal of
rectified spirit. Put differently, the Bench held that the purpose for which the
rectified spirit was manufactured would determine whether the Union or the
States would tax and control it. It elaborated that:
a. Industries which manufactured rectified spirit exclusively for supply to
industries other than those which manufactured potable liquor would be
under the total and exclusive control of the Union including for the
purpose of levying excise duty. This extended to denatured alcohol as
well. The power of the States with respect to this category was limited to
ensuring that such alcohol was not illegally diverted to create potable
alcohol. The States could levy regulatory fees to defray the costs of the
staff deployed for this purpose;
b. Industries which manufactured rectified spirit exclusively for the purpose
of manufacturing potable alcohol would be under the total and exclusive
control of the States in all respects and at all stages including levying
excise duty; and
c. The power to permit the establishment of industries which manufactured
rectified spirit for both the purposes delineated above as well as the
regulation of such industries would be exclusively with the Union. The
Union could levy excise duty on rectified spirit which was cleared or
Page 111 of 123
PART E
removed for supply to industries and the States could levy excise duty
on rectified spirit which was cleared or removed for manufacturing
potable alcohol. The removal or clearance of alcohol would be under the
joint supervision of the Union and the States to ensure that excise duty
was not evaded.
129. In Bihar Distillery (supra), the issue before this Court was whether the State
has the competence to regulate raw material (“rectified spirit”) for the
preparation of “intoxicating liquor” which was interpreted to only mean potable
liquor. Justice Jeevan Reddy, writing for the three-Judge Bench, saw it fit to
draw a purpose based delineation because rectified spirit could be used to
prepare both potable alcohol and other products. The shortcoming of this
reasoning is evident in the manner in which the Bench deals with composite
industries, that is, industries which manufacture both rectified spirit for the
purpose of potable alcohol and the production of other products. The
regulation of such composite industries was held to be with the Union though
there was no constitutional basis for such a division. This Bench, having
expounded on the meaning of “intoxicating liquor” to include variants of
alcohol which are prone to be misused, the interpretations of Synthetics (7J)
summarised in paragraph 126 of this judgment are overruled. The
classification of alcohol into potable and non-potable (or industrial alcohol) is
oversimplistic. Alcohol (such as ENA or rectified spirit) which is used to
prepare potable alcohol is also used to prepare other products of the
pharmaceutical industry. An interpretation that ENA or rectified spirit which is
used in the preparation of potable liquor is ‘industrial alcohol’ and is thus
Page 112 of 123
PART E
outside the scope of Entry 8 limits the field covered by the Entry even if
‘intoxicating liquor’ is interpreted to only mean potable liquor. Further, we also
see no merit in the classification between the process of making denatured
spirit and the product of denatured spirit since we have held that the
expression intoxicating liquor includes denatured spirit.
vi. The impact of the decision on Item 26 of the First Schedule of IDRA
130. The Law Commission of India in its 158th Report on the amendment of the
IDRA, released in 1998 noted that the decision in Synthetics (7J) (supra)
created “several practical problems” and that “there is no such thing as
industrial alcohol”. The Law Commission recommended that Item 26 of the
IDRA which read “Fermentation industries” be substituted to read
“Fermentation industries but not including alcohol”. Item 26 was substituted
in 2016 to read “Fermentation industries (other than potable alcohol)”. 202
While the Law Commission recommended removing alcohol as a whole from
the scope of the IDRA, Parliament by the 2016 amendment only removed
potable alcohol from the scope of the enactment. The Statement of Objects
and Reasons indicates that the amendment to the IDRA was to harmonise
the Act with the decision of this Court in Bihar Distillery (supra). The relevant
portion of the Statement of Objects and Reasons is reproduced below:
“The Supreme Court of India, in the case of Bihar
Distillery v. Union of India (AIR 1997 SC 1208), has
held that in the interest of proper delineation of the
spheres of the Union and the States, the line of
demarcation should be drawn at the stage of
clearance or removal of the rectified spirit. Where the
202
See the Industries (Development and Regulation) Amendment Act 2016.
Page 113 of 123
PART E
removal or clearance is for industrial purposes (other
than the manufacture of potable liquor), the levy of
duties of excise and all other control shall be with the
Union and where the removal or clearance is for
obtaining or manufacturing potable liquors, the levy
of duties of excise and all other control shall be with
the States.
In the backdrop of the above judgment of the
Supreme Court, the Law Commission of India had
recommended in its 158th Report that the Heading
26 of the First Schedule to the Act be substituted as
“Fermentation Industries but not including Alcohol”.
The recommendation of the Law Commission of
India was examined in depth by the Government. If
the subject “Alcohol” is taken out of the First
Schedule to the Act, both industrial alcohol and
potable alcohol would come under the purview
of the State Government which is not in
consonance with the judgment of the Supreme
Court. Moreover, the effect of implementation of the
recommendation of the Law Commission would be
that the subject “Alcohol” which covers both
industrial alcohol and potable alcohol would no
longer be a Central subject.”
(emphasis supplied)
131. The Statement of Objects and Reasons indicates that the recommendation of
the Law Commission was not accepted because the effect of accepting the
recommendation would be that both ‘industrial alcohol’ and potable alcohol
would be in the domain of the States, and that this would be contrary to Bihar
Distillery (supra). Hence, the IDRA was amended to remove only potable
alcohol from Item 26 of IDRA.
132. We have held above that Parliament under Entry 52 of List I does not have
the legislative competence to enact a law taking control of the industry of
intoxicating liquor. The State Legislatures will have control over the industry
of ‘intoxicating liquor’. Parliament could not have taken control of the field
covered by Entry 8 since we have interpreted intoxicating liquor to include
Page 114 of 123
PART E
alcohol other than potable alcohol as well. Therefore, Item 26 of the First
Schedule to the IDRA must be read as excluding the industry of “intoxicating
liquor”, as interpreted in this judgment.
vii. The (ir)relevance of the decision in Tika Ramji to the dispute
133. In Tika Ramji (supra), sugarcane farmers instituted proceedings under Article
32 of the Constitution challenging the constitutional validity of the Uttar
Pradesh Sugarcane (Regulation of Supply and Purchase) Act 1953203 and
two notifications issued by the State government under the Act. The
constitutional validity of the UP Sugarcane Act was challenged on the ground
that the State Legislature did not have the competence because Item 8 of the
Schedule to the IDRA notified ‘sugar’ as one of the controlled industries, and
that the legislation regulating sugarcane was in pith and substance related to
‘sugar’. The Constitution Bench, inter alia, held that:
a. Industry in the wide sense of the term comprises of three different
aspects: (i) raw materials which are an integral part of the industrial
process; (ii) the process of manufacture or production; and (iii) the
distribution of the products of the entries204;
b. The Seventh Schedule creates a demarcation based on the above three
stages. Entry 27 of List II deals with the production, supply and
distribution of goods subject to the provisions of Entry 33 of List III. The
term ‘goods’ is defined by Article 366(12) of the Constitution and
203
“UP Sugarcane Act”.
204
Tika Ramji (supra) [24]
Page 115 of 123
PART E
includes materials, commodities and articles. ‘Materials’ includes raw
materials. Thus, the raw materials for industries would be covered by
Entry 27 of List II. The products would also fall under Entry 27 of List II,
except in the case of a controlled industry in which case they would be
covered by Entry 33 of List III. Entry 24 of List II would deal with the
process of manufacture or production, unless it is a controlled industry
under Entry 52 of List I 205. Thus, the phrase ‘industry’ in Entry 24 of List
II and Entry 52 of List I takes the narrow meaning of process of
production and manufacture;
c. Section 18G of the IDRA enables the Union Government to regulate
supply and distribution, and trade and commerce of certain ‘articles’. It
does not extend to the production of articles. Raw materials are essential
ingredients for manufacture or production but they are not of the same
nature or description as the articles produced by the process of
manufacture. The articles or class of articles relatable to the scheduled
industry could only comprise of finished products of a cognate character.
Raw materials, not being finished products, are not articles which are
relatable to the scheduled industry covered by Section 18G 206;
d. Sugarcane is a raw material for the production of sugar. Consequently,
it is not an article relatable to the sugar industry and does not fall within
the scope of Section 18G. The IDRA did not affect the legislative powers
205
ibid
206
Tika Ramji (supra) 32
Page 116 of 123
PART E
of the State Legislature with respect to sugarcane. Therefore, the UP
Sugarcane Act was not repugnant to the IDRA 207; and
e. Even if it were assumed that sugarcane was relatable to the sugar
industry under Section 18G, the Central Government had not issued a
notified order, as required by the provision. The mere possibility that a
notified order may be issued could not lead to repugnancy. Such an
order was an essential prerequisite for repugnancy to arise 208.
134. The decision in Tika Ramji (supra) was relied upon by this Court in Calcutta
Gas (supra), Kannan Devan Hills Produce v. State of Kerala 209, Ganga
Sugar Corporation v. State of UP 210, B Viswanathiah & Co. v. State of
Karnataka211 and the majority in ITC (supra) on the aspect of the meaning of
industry covered by Entry 24 of List II. The dissenting opinion of Justice
Pattanaik for himself and Justice Bharucha in ITC (supra) doubted the
correctness of Tika Ramji (supra) on that aspect.
135. The Union of India submitted that the inclusion of ‘raw materials’ in Entry 27
of List II (and their consequential exclusion from the definition of ‘industry’ in
Entry 24 of List II and Entry 52 of List I) in Tika Ramji (supra) must be
overruled. It was submitted that ‘industry’ as it features in the legislative lists
includes raw materials as well. The learned Solicitor General submitted that
if the restrictive meaning in Tika Ramji (supra) is overruled, then the State
207
id
208
id
209
(1972) 2 SCC 218
210
(1980) 1 SCC 223
211
(1991) 3 SCC 258
Page 117 of 123
PART E
will not have competence to legislate on ENA used for the preparation of
potable alcohol under Entry 8.
136. We have in the preceding section held that the industry of intoxicating liquor
is covered by Entry 8 and not Entry 52. Thus, even if a broad meaning is given
to the word ‘industry’ in Entry 52, it will not impact the decision in this case
because Entry 8 is the specific entry which applies to the industry of
intoxicating liquor.
137. The meaning of the phrase ‘industry’ in Entry 52 will only impact this decision
if (a) Entry 52 of List I includes raw materials necessary for the industry; and
(b) Entry 8 of List II includes the process of manufacture but does not include
the stage anterior to it (that is, raw materials). If an expansive meaning is
given to the word ‘industry’, the raw materials to an industry will be covered
by Entry 24 of List II and Entry 52 of List I (if it is a controlled industry). It will
not be covered by Entry 27 of List II. If Entry 8 of List II does not include raw
material but only the process to manufacture and final product, it is only then
that the competence to enact laws on the raw material for the industry (in this
case, ENA) will lie with Parliament.
Page 118 of 123
PART E
138. We are of the opinion that the holding in Tika Ramji (supra) is not relevant to
the dispute for the following reasons:
a. We have interpreted the phrase ‘intoxicating liquor’ in Entry 8 to include
ENA since it could be noxiously used; and
b. Notwithstanding the above, if the ground for overruling the holding in
Tika Ramji (supra) is that manufacture/production cannot be
disconnected from raw materials, it would equally apply to the industry
of intoxicating liquor covered by Entry 8 of List II. In Section C (iii)(a) of
this judgment, we have concluded that the words ‘that is to say’ are
illustrative. They are not exhaustive of the contents of the Entry. Thus,
Entry 8 cannot be interpreted to exclude raw materials used for the
production of intoxicating liquor merely because the Entry does not
expressly provide for them. On an application of the principle that entries
ought to be interpreted widely, the raw materials for the production and
manufacture of intoxicating liquor, as interpreted in this judgment will be
covered by Entry 8.
viii. Section 18G of IDRA and Entry 33 of List III
139. To recall, this Court in Synthetics (7J) (supra) held that the State cannot
regulate ‘industrial alcohol’ as a product of the controlled industry because
the Union has occupied the field by Section 18G of IDRA. 212 The questions
referred by the three-Judge Bench in Lalta Prasad (supra) all relate to the
212
Synthetics (7J) [85]
Page 119 of 123
PART F
issue of whether Section 18G of the IDRA occupies the field in Entry 33 of
List III or whether the field is occupied only when an order is notified under
Section 18G. There is no necessity to determine the correctness of this
observation in this reference since the Legislature of the State will have the
competence to regulate denatured alcohol in view of our interpretation of the
expression ‘intoxicating liquor’ in Entry 8 of List II.
F. Conclusion
140. In view of the discussion above, the following conclusions emerge:
a. Entry 8 of List II of the Seventh Schedule to the Constitution is both an
industry-based entry and a product-based entry. The words that follow
the expression “that is to say” in the Entry are not exhaustive of its
contents. It includes the regulation of everything from the raw materials
to the consumption of ‘intoxicating liquor’;
b. Parliament cannot occupy the field of the entire industry merely by
issuing a declaration under Entry 52 of List I. The State Legislature’s
competence under Entry 24 of List II is denuded only to the extent of the
field covered by the law of Parliament under Entry 52 of List I;
c. Parliament does not have the legislative competence to enact a law
taking control of the industry of intoxicating liquor covered by Entry 8 of
List II in exercise of the power under Article 246 read with Entry 52 of
List I;
Page 120 of 123
PART F
d. The judgments of the Bombay High Court in FN Balsara v. State of
Bombay (supra), this Court in FN Balsara (supra) and Southern
Pharmaceuticals (supra) did not limit the meaning of the expression
‘intoxicating liquor’ to its popular meaning, that is, alcoholic beverages
that produce intoxication. All the three judgments interpreted the
expression to cover alcohol that could be noxiously used to the detriment
of health;
e. The expression ‘intoxicating liquor’ in Entry 8 has not acquired a
legislative meaning on an application of the test laid down in Ganon
Dunkerley (supra);
f. The study of the evolution of the legislative entries on alcohol indicates
that the use of the expressions “intoxicating liquor” and “alcoholic liquor
for human consumption” in the Seventh Schedule to the Constitution
was a matter well-thought of. It also indicates that the members of the
Constituent Assembly were aware of use of the variants of alcohol as a
raw material in the production of multiple products;
g. Entry 8 of List II is based on public interest. It seeks to enhance the
scope of the entry beyond potable alcohol. This is inferable from the use
of the phrase ‘intoxicating’ and other accompanying words in the Entry.
Alcohol is inherently a noxious substance that is prone to misuse
affecting public health at large. Entry 8 covers alcohol that could be used
noxiously to the detriment of public health. This includes alcohol such
as rectified spirit, ENA and denatured spirit which are used as raw
Page 121 of 123
PART F
materials in the production of potable alcohol and other products.
However, it does not include the final product (such as a hand sanitiser)
that contains alcohol since such an interpretation will substantially
diminish the scope of other legislative entries;
h. The judgment in Synthetics (7J) (supra) is overruled in terms of this
judgment;
i. Item 26 of the First Schedule to the IDRA must be read as excluding the
industry of “intoxicating liquor”, as interpreted in this judgment;
j. The correctness of the judgment in Tika Ramji (supra) on the
interpretation of word ‘industry’ as it occurs in the legislative entries does
not fall for determination in this reference; and
k. The issue of whether Section 18G of the IDRA covers the field under
Entry 33 of List III does not arise for adjudication in view of the finding
that denatured alcohol is covered by Entry 8 of List II.
141. The reference is answered in the above terms.
Page 122 of 123
PART F
142. The Registry is directed to obtain administrative instructions from the Chief
Justice for placing the matters before an appropriate Bench.
..….…….……………………………………CJI
[Dr Dhananjaya Y Chandrachud]
..….…….………………………………………J
[Hrishikesh Roy]
..….…….………………………………………J
[Abhay S Oka]
…….……………………………………………J
[J B Pardiwala]
…….……………………………………………J
[Manoj Misra]
…….……………………………………………J
[Ujjal Bhuyan]
…….……………………………………………J
[Satish Chandra Sharma]
…….……………………………………………J
[Augustine George Masih]
New Delhi;
October 23, 2024
Page 123 of 123
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.151 OF 2007
STATE OF U.P. & OTHERS …APPELLANT(S)
VERSUS
M/s. LALTA PRASAD VAISH AND SONS …RESPONDENT(S)
WITH
CIVIL APPEAL NO.152 OF 2007
CIVIL APPEAL NO.153 OF 2007
CIVIL APPEAL NO.154 OF 2007
CIVIL APPEAL NO.580 OF 2008
CIVIL APPEAL NO.610 OF 2008
CIVIL APPEAL NO.671 OF 2008
CIVIL APPEAL NO.672 OF 2008
CIVIL APPEAL NO.688 OF 2008
CIVIL APPEAL NO.750 OF 2008
CIVIL APPEAL NO.5093 OF 2011
CIVIL APPEAL NO.6768 OF 2014
Civil Appeal No.151 of 2007 Etc. Page 1 of 241
CIVIL APPEAL NO.2084 OF 2020
CIVIL APPEAL NO.4987 OF 2021
SPECIAL LEAVE PETITION (C) NO.16505 OF 2004
SPECIAL LEAVE PETITION (C) NO.19275 OF 2004
SPECIAL LEAVE PETITION (C) NO.26110 OF 2004
SPECIAL LEAVE PETITION (C) NO.26111 OF 2004
SPECIAL LEAVE PETITION (C) NO.20204 OF 2012
SPECIAL LEAVE PETITION (C) NO.20519 OF 2014
SPECIAL LEAVE PETITION (C) NO.25447 OF 2014
SPECIAL LEAVE PETITION (C) NO.3160 OF 2015
SPECIAL LEAVE PETITION (C) NO.4057 OF 2015
SPECIAL LEAVE PETITION (CIVIL) ____CC NO.7999 OF 2017
SPECIAL LEAVE PETITION (C) NO.27241 OF 2019
SPECIAL LEAVE PETITION (C) DIARY NO.41507 OF 2019
SPECIAL LEAVE PETITION (C) NO.18686 OF 2022
SPECIAL LEAVE PETITION (C) DIARY NO.7447 OF 2023
SPECIAL LEAVE PETITION (C) NO.18582 OF 2023
Civil Appeal No.151 of 2007 Etc. Page 2 of 241
ORDER ON REFERENCE
NAGARATHNA, J.
Table of Contents
Page
S. No. Particulars
No.
1. Opening Paragraphs 5
2. Genesis of the controversy 6
3. Conclusions arrived at by the learned Chief Justice 9
4. Submissions 12
5. Relevant Constitutional Framework 18
Interpretation of Legislative Entries 22
a. Prafulla Kumar Mukherjee 24
b. FN Balsara 24
6. c. Atiqa Begum 24
d. Calcutta Gas Company 25
e. RMDC 26
f. MPV Sundararamier 27
7. Scheme of IDRA 30
Article 47: Directive Principle of State Policy 37
a. Cooverjee B. Bharucha 38
b. Sristikar Dowerah 39
c. FN Balsara 40
d. Nagendra Nath 43
8.
e. Amar Chandra Chakraborty 43
f. Harinarayan Jaiswal 43
g. Nashirwar 44
h. Har Shankar 44
i. Khoday Distilleries 48
Survey of Judicial Precedents 51
a. Synthetics and Chemicals (7J) 51
b. Synthetics and Chemicals (2J) 65
9.
c. Bileshwar Khand Udyog 69
d. Gujchem Distillers 70
e. Modi Distillery 71
Civil Appeal No.151 of 2007 Etc. Page 3 of 241
f. Shree Krishna Gyanoday Sugar Ltd. 73
g. Bihar Distillery 76
h. McDowell 90
i. Vam Organic I 92
j. Haryana Brewery Ltd. 96
k. Industrial Corporation (P) Ltd. 98
l. Vam Organic II 100
Analysis of Judicial Dicta 103
a. Indian Mica 103
b. Southern Pharmaceuticals 104
c. Synthetics and Chemicals (7J) 105
d. Synthetics and Chemicals (2J) 107
10.
e. Bileshwar Khand Udyog 109
f. Shree Krishna Gyanoday Sugar Ltd 110
g. Bihar Distillery 111
h. Vam Organic I 113
i. Vam Organic II 114
11. Further Analysis 115
12. Meaning of “intoxicating liquors” 119
13. A Historical Perspective 122
14. Constituent Assembly Debates 124
Analysis of relevant Entries in the three Lists 138
a. Ishwari Khetan 139
b. Meaning of “subject to” 147
c. Hingir Rampur 148
15.
d. Shri Krishna 148
e. South India Corporation 149
f. Ashok Leyland Ltd. 150
g. Calcutta Gas Company 152
16. Entry 33(a) – List III vs. Entry 52 – List I: Observations in 172
Synthetics and Chemicals (7J)
17. Article 254, Repugnancy and Doctrine of Occupied Field 183
18. Mineral Area and Development Authority 195
19. Mar Appraem Kuri Company 204
20. Importance of “Industrial Alcohol” to the Indian Economy 213
21. Conclusion on interplay of legislative Entries 221
22. Effect of overruling Synthetics and Chemicals (7J) 224
23. My answers to the questions formulated 231
24. My answers to the conclusions of learned Chief Justice 235
Civil Appeal No.151 of 2007 Etc. Page 4 of 241
I have perused the comprehensive and erudite opinion
authored by Hon’ble the Chief Justice of India Dr. Dhananjaya
Y. Chandrachud on the questions referred to this nine-Judge
Bench. I respectfully dissent on certain aspects of the said
opinion and express my reasons therefor.
1.1 The sum and substance of all the questions referred to this
Bench could be crystallised on the short point for consideration,
namely, whether the expression “intoxicating liquors” in Entry 8
-List II of the Seventh Schedule of the Constitution of India
includes within its scope and ambit “industrial alcohol” and
consequently, whether a State Legislature has the competence to
legislate on “industrial alcohol”. My short answer is that there is
a lack of legislative competence in the State Legislature when
viewed from the constitutional framework and statutory
framework of the Industries (Development and Regulation) Act,
1951 (for short, “IDRA”) passed by the Parliament on the strength
of Entry 52 – List I of the Seventh Schedule of the Constitution
of India and having regard to Section 2 of the said Act read with
its various provisions and the First Schedule thereto,
particularly, Item 26 which deals with “Fermentation Industries”
Civil Appeal No.151 of 2007 Etc. Page 5 of 241
(other than potable alcohol). However, the discussion on scope
and ambit of Entry 33(a) – List III of the Seventh Schedule of the
Constitution is distinct and shall be discussed later. Therefore,
Synthetics and Chemicals Ltd. vs. State of Uttar Pradesh,
AIR 1990 SC 1927 (“Synthetics and Chemicals (7J)”), has
been correctly decided by the seven-Judge Bench of this Court.
On the aspect of Section 18G of the IDRA occupying the field and
consequently, whether the State Legislatures are denuded of
their powers on the content of the subject matter of the said
Section in the context of Entry 33(a) – List III as per first part of
Article 254(1) shall be adverted to later. I propose to discuss the
reasons for aforesaid view.
1.2 Since the Entries under discussion are in their respective
Lists of the “Seventh Schedule of the Constitution”, it would be
unnecessary to refer to them as being part of “Seventh Schedule
of the Constitution” in the following discussion.
Genesis of the controversy:
2. The genesis of this present controversy insofar as the
reference to the nine-Judge Bench is concerned, emanates from
Civil Appeal No.151 of 2007 Etc. Page 6 of 241
the judgment of the seven-Judge Bench of this Court in
Synthetics and Chemicals (7J). The said judgment authored
by Sabyasachi Mukharji, J. (as His Lordship then was) held that
the scope of the expression “intoxicating liquors” in Entry 8 – List
II did not extend to “industrial alcohol” and regulation of the
same by State Legislature is impermissible in law having regard
to the constitutional framework, particularly the relevant Entries
of Lists I and II of the Seventh Schedule to the Constitution of
India. The said dictum of the seven-Judge Bench was doubted
by a three-Judge Bench of this Court in State of UP vs. M/s
Lalta Prasad Vaish vide order dated 25.10.2007 and the
following questions were formulated for consideration by a larger
Bench:
“Q. 1. Does Section 2 of the Industries (Development and
Regulation) Act, 1951, have any impact on the field
covered by Section 18-G of the said Act or Entry 33 of
List III of the Seventh Schedule of the Constitution?
Q. 2. Does Section 18-G of the aforesaid Act fall under
Entry 52 of List I of the Seventh Schedule of the
Constitution, or is it covered by Entry 33 of List III
thereof?
Q. 3. In the absence of any notified order by the Central
Government under Section 18-G of the above Act, is the
power of the State to legislate in respect of matters
enumerated in Entry 33 of List III ousted?
Civil Appeal No.151 of 2007 Etc. Page 7 of 241
Q. 4. Does the mere enactment of Section 18-G of the
above Act, give rise to a presumption that it was the
intention of the Central Government to cover the entire
field in respect of Entry 33 of List III so as to oust the
States’ competence to legislate in respect of matters
relating thereto?
Q. 5. Does the mere presence of Section 18-G of the
above Act, oust the State’s power to legislate in regard to
matters falling under Entry 33(a) of List III?
Q. 6. Does the interpretation given in Synthetics and
Chemicals case, (1990) 1 SCC 109 in respect of
Section 18-G of the Industries (Development and
Regulation) Act, 1951, correctly state the law regarding
the States’ power to regulate industrial alcohol as a
product of the scheduled industry under Entry 33 of List
III of the Seventh Schedule of the Constitution in view of
Clause (a) thereof?”2.1 A similar view was expressed by a five-Judge Bench in very
same case wherein this Court was of the view that the matter has
to be considered by a Bench of nine-Judges.
2.2 In view of the nature of questions raised by the three-Judge
Bench as well as the five-Judge Bench of this Court, the
correctness or otherwise of judgment of this Court in Synthetics
and Chemicals (7J) is being considered by this nine-Judge
Bench.
Civil Appeal No.151 of 2007 Etc. Page 8 of 241
Conclusions arrived at by the learned Chief Justice:
3. His Lordship, the Chief Justice has overruled the judgment
in Synthetics and Chemicals (7J) and has arrived at the
following conclusions:
“In view of the discussion above, the following
conclusions emerge:
a. Entry 8 of list II of the Seventh Schedule to the
Constitution is both an industry-based entry and a
product-based entry. The words that follow the
expression “that is to say” in the Entry are not
exhaustive of its contents. It includes the regulation
of everything from the raw materials to the
consumption of ‘intoxicating liquor’;
b. Parliament cannot occupy the field of the entire
industry merely by issuing a declaration under
Entry 52 of List I. The State Legislature’s
competence under Entry 24 of List II is denuded only
to the extent of the field covered by the law of
Parliament under Entry 52 of List I;
c. Parliament does not have the legislative competence
to enact a law taking control of the industry of
intoxicating liquor covered by Entry 8 of List II in
exercise of the power under Article 246 read with
Entry 52 of List I;
d. The judgments of the Bombay High Court in FN
Balsara v. State of Bombay (supra), this Court in
FN Balsara (supra) and Southern Pharmaceuticals
(supra) did not limit the meaning of the expression
‘intoxicating liquor’ to its popular meaning, that is,
alcoholic beverages that produce intoxication. All
the three judgments interpreted the expression to
cover alcohol that could be noxiously used to the
detriment of health;
Civil Appeal No.151 of 2007 Etc. Page 9 of 241
e. The expression ‘intoxicating liquor’ in Entry 8 has
not acquired a legislative meaning on an application
of the test laid down in Ganon Dunkerley (supra);
f. The study of the evolution of the legislative entries
on alcohol indicates that the use of the expressions
“intoxicating liquor” and “alcoholic liquor for human
consumption” in the Seventh Schedule was a matter
well-thought of. It also indicates that the members
of the Constituent Assembly were aware of use of the
variants of alcohol as a raw material in the
production of multiple products;
g. Entry 8 of List II is based on public interest. It seeks
to enhance the scope of the entry beyond potable
alcohol. This is inferable from the use of the phrase
‘intoxicating’ and other accompanying words in the
Entry. Alcohol is inherently a noxious substance
that is prone to misuse affecting public health at
large. Entry 8 covers alcohol that could be used
noxiously to the detriment of public health. This
includes alcohol such as rectified spirit, ENA and
denatured spirit which are used as raw materials in
the production of potable alcohol and other
products. However, it does not include the final
product (such as a hand sanitiser) that contains
alcohol since such an interpretation will
substantially diminish the scope of multiple other
legislative entries;
h. The judgment in Synthetics (7J) (supra) is
overruled in terms of this judgment;
i. Item 26 of the First Schedule to the IDRA must be
read as excluding the industry “intoxicating liquor”,
as interpreted in this judgement;
j. The correctness of the judgment in Tika Ramji
(supra) on the interpretation of word ‘industry’ as it
occurs in the Legislative entries does not fall for
determination in this reference; and
Civil Appeal No.151 of 2007 Etc. Page 10 of 241
k. The issue of whether Section 18G of the IDRA covers
the field under Entry 33 of List III does not arise for
adjudication in view of the finding that denatured
alcohol is covered by Entry 8 of List II.”
3.1 While coming to the aforesaid conclusions, His Lordship,
the Chief Justice of India has held that the entire industry of
“intoxicating liquors” including raw materials is covered by Entry
8 – List II and is completely out of Entry 52 – List I; that the scope
and ambit of Entry 8 – List II covers both potable and non-potable
alcohol and therefore, only State Legislatures have the power to
regulate the subject. I respectfully disagree.
3.2 While coming to the aforesaid conclusions, significant
judgments of this Court in State of Bombay vs. FN Balsara,
AIR 1951 SC 318 (“FN Balsara”); Ch. Tika Ramji vs. State of
Uttar Pradesh, AIR 1956 SC 676 (“Tika Ramji”); Calcutta
Gas Company (Proprietary) Ltd. vs. State of West Bengal,
AIR 1962 SC 1044 (“Calcutta Gas Company”); Indian Mica
and Micanite Industries vs. State of Bihar, (1971) 2 SCC 236
(“Indian Mica”); Ishwari Khetan Sugar Mills (P) Ltd. vs. State
of Uttar Pradesh, AIR 1980 SC 1955 (“Ishwari Khetan”);
State of AP vs. McDowell & Co., (1996) 3 SCC 709
Civil Appeal No.151 of 2007 Etc. Page 11 of 241
(“McDowell”); Bihar Distillery vs. Union of India, (1997) 2
SCC 727 (“Bihar Distillery”); Vam Organic Chemicals Ltd.
vs. State of U.P., (1997) 2 SCC 715, (“Vam Organic I”); and
State of UP vs. Vam Organic Chemicals Ltd., (2004) 1 SCC
225 (“Vam Organic II”), amongst others, have been discussed.
Submissions:
4. As the learned Chief Justice has recorded the submissions
of the respective parties in detail, I need not be repetitive except
highlighting the submissions of the learned senior counsel Sri
Rakesh Dwivedi, Sri Datar and Sri Jaideep Gupta and other
counsel for the appellants. The main contention of the appellants
is that the States have jurisdiction over “industrial alcohol” and
therefore the judgment of this Court in Synthetics and
Chemicals (7J) is incorrect. The expression “intoxicating
liquors” in Entry 8 – List II of the Seventh Schedule of the
Constitution cannot be restricted to alcoholic liquors for human
consumption by a deduction from a reading of Entry 84 – List I
with Entry 51 – List II. In other words, “intoxicating liquors”
cannot be equated with only “alcoholic liquors for human
consumption”. On the other hand, it is contended that the
Civil Appeal No.151 of 2007 Etc. Page 12 of 241
expression “intoxicating liquors” has attained a specific meaningover the passage of time which is more expansive than “alcoholic
liquors for human consumption”.
4.1 The further submission was that only the production and
manufacture of “industrial alcohol” would be governed by the
Union List even if the requirement of a declaration under Section
2 of the IDRA read with Item 26 of the First Schedule thereto is
as per Entry 52 – List I. However, when it comes to Entry 33 –
List III, there is need for a notified order to claim exclusive
jurisdiction on a product of a scheduled industry. If no such
order has been issued, the legislative powers of the State would
remain exclusive. It was further submitted that alcoholic liquors
for human consumption means it is capable of being consumed
by humans and it would fall under Entry 51 – List II, while
denatured alcohol such as ethyl alcohol or rectified spirit which
usually undergoes denaturation for the purposes of their use in
industries would fall under Entry 84 – List I. That everything,
except denatured spirit is alcohol for human consumption
because it has the potential to be consumed by humans. That
Extra Neutral Alcohol (‘ENA’, for short) and rectified spirit may
Civil Appeal No.151 of 2007 Etc. Page 13 of 241
therefore be understood to be for human consumption andceases to be such only upon undergoing denaturation. But
according to the judgment in Synthetics and Chemicals (7J),
the States do not have the power to levy tax on ENA despite being
fit for human consumption. This position of law in the aforesaid
decision has restricted the competence of the States to levy tax
under Entry 51 – List II. That pursuant to the aforesaid decision,
the Law Commission in its 158th Report suggested an
amendment to the IDRA by which Item 26 in the First Schedule
has been amended to mean that “Fermentation Industries”
would not include “potable alcohol” with retrospective effect. It
was contended that this amendment does not in any way clear
the confusion created in the aforesaid case and hence,
Synthetics and Chemicals (7J) may be overruled. It was also
contended that in Tika Ramji, this Court has devised a three-
fold classification as pre-production, production and post-
production and it was only in the second category i.e. production
which would be covered by the word “industry”.
4.2 Taking a different stance, Sri V. Giri submitted that
denatured alcohol is excluded from the scope of the term
Civil Appeal No.151 of 2007 Etc. Page 14 of 241
“intoxicating liquors” in Entry 8 – List II and is covered under
Entry 24 – List II. Further, unless a notified order under Section
18G of the IDRA is issued, the Parliament cannot occupy the field
under Entry 33 – List III merely on the strength of the said
provision being brought on the statute book.
4.3 On the other hand, Sri R. Venkataramani, learned Attorney
General, leading the arguments for the Union of India and other
respondents contended that Entry 52 – List I and Entry 33 – List
III are interrelated as they touch upon matters relating to a
scheduled industry under the provisions of the IDRA, whose
control is with the Union. It was contended that Entry 52 – List
I is provided in order to ensure a uniform control and
development of an industry throughout the length and breadth
of the country. This is not only in the interest of the scheduled
industry but also to achieve equitable distribution of the
products of such industry and as an economic measure. As a
result, in respect of a scheduled industry, the powers of the State
under Entries 26 and 27 – List II are denuded. Also, if the field is
occupied by the Parliament (Union) and the States are denuded
of their powers under Entry 33 – List III. Therefore, the judgment
Civil Appeal No.151 of 2007 Etc. Page 15 of 241
in Synthetics and Chemicals (7J) would not call for a
reconsideration as it was correctly decided. It was further
contended that all liquids containing alcohol would fall under
two categories, namely, those meant for human consumption
(potable alcohol) and non-potable alcohol. Entry 8 – List II deals
with only potable alcohol meant for human consumption as a
beverage. Thus, non-potable alcohol is outside the scope of Entry
8 – List II. The amendment to Item 26 of First Schedule of IDRA
has clarified this position. Further, the use of the expression
“that is to say” in Entry 8 – List II refers to the various activities
concerning potable alcohol and does not refer to any other class
of liquor.
4.4 Learned Solicitor General of India submitted that the
controversy in this case must be tread carefully as it would have
a bearing on other legislation. That having regard to national
interest, there is a requirement for a uniform development
throughout the country in respect of the products of an industry
that are sought to be equally distributed, and, therefore, the
control of such industries is taken over by the Union exercising
powers in relation to Entry 52 – List I. That the IDRA is an
Civil Appeal No.151 of 2007 Etc. Page 16 of 241
instance of such legislation. It was contended that the judgment
in Tika Ramji insofar as it held that there must be a notified
order in force pursuant to Section 18G for the doctrine of
repugnancy to apply is not correct and in Synthetics and
Chemicals (7J), the judgment in Tika Ramji was rightly not
considered. The expression “intoxicating liquors” in Entry 8- List
II means a beverage which has the effect of intoxication upon
consumption. In Synthetics and Chemicals (7J), this Court
held that “intoxicating liquors” is “alcoholic liquors fit for human
consumption”. Other learned counsel for the respondents have
adopted the above arguments.
5. On enumerating the questions for opinion of this nine-
Judge Bench, the following issues have been crystallised for
consideration in paragraph 42 of the judgment of the learned
Chief Justice of India which read as under:
“42. With the above preliminary observations, we have
formulated the following issues:
a. Whether Entry 52 of List I of the Seventh Schedule
to the Constitution overrides Entry 8 of List II;
b. Whether the expression ‘intoxicating liquors’ in
Entry 8 of List II of the Seventh Schedule to the
Constitution includes alcohol other than potable
alcohol; andCivil Appeal No.151 of 2007 Etc. Page 17 of 241
c. Whether a notified order under Section 18G of the
IDRA is necessary for Parliament to occupy the field
under Entry 33 of List III of the Seventh Schedule to
the Constitution.”Relevant Constitutional Framework:
6. Article 265 of the Constitution mandates that no tax shall
be levied or collected except by authority of law. Article 366 is a
definition clause and it states that in the Constitution, unless
the context otherwise requires, the expressions mentioned
therein have the meanings thereby respectively assigned to them.
For the purpose of this case, Article 366(12) and (28) are relevant
and the same read as under:
“Article 366. Definitions.- In this Constitution, unless
the context otherwise requires, the following expressions
have the meanings hereby respectively assigned to them,
that is to say –
xxx
(12) “goods” includes all materials, commodities and
articles;
xxx
(28) “taxation” includes the imposition of any tax or
impost, whether general or local or special and “tax”
shall be construed accordingly;”The aforesaid definition of ‘taxation’ is not exhaustive but
inclusive in nature to include not only any tax in the usual
Civil Appeal No.151 of 2007 Etc. Page 18 of 241
understanding of the said expression or tax stricto senso but alsoany levy akin to a tax. There can be no cavil to the proposition
that before any tax or impost could be levied or collected, it must
have the authority of law vide Article 265 including legislative
competence.
6.1 Article 246 of the Constitution deals with distribution of
legislative powers between the Parliament and State Legislature,
while Article 254 speaks of inconsistency between the laws made
by Parliament and laws made by the Legislatures of States. They
read as under:
“246. Subject-matter of laws made by Parliament and
by the Legislatures of States.—(1) Notwithstanding
anything in clauses (2) and (3), Parliament has exclusive
power to make laws with respect to any of the matters
enumerated in List 1 in the Seventh Schedule (in this
Constitution referred to as the “Union List”).
(2) Notwithstanding anything in clause (3), Parliament
and subject to clause (1), the Legislature of any State
also, have power to make laws with respect to any of the
matters enumerated in List III in the Seventh Schedule
(in this Constitution referred to as the “Concurrent
List”).
(3) Subject to clauses (1) and (2), the Legislature of any
State has exclusive power to make laws for such State
or any part thereof with respect to any of the matters
enumerated in List II in the Seventh Schedule (in this
Constitution referred to as the ‘State List’).Civil Appeal No.151 of 2007 Etc. Page 19 of 241
(4) Parliament has power to make laws with respect to
any matter for any part of the territory of India not
included in a State notwithstanding that such matter is
a matter enumerated in the State List.
xxx
254. Inconsistency between laws made by
Parliament and laws made by the Legislatures of
States.—(1) If any provision of a law made by the
Legislature of a State is repugnant to any provision of a
law made by Parliament which Parliament is competent
to enact, or to any provision of an existing law with
respect to one of the matters enumerated in the
Concurrent List, then, subject to the provisions of clause
(2), the law made by Parliament, whether passed before
or after the law made by the Legislature of such State,
or, as the case may be, the existing law, shall prevail and
the law made by the Legislature of the State shall, to the
extent of the repugnancy, be void.
(2) Where a law made by the Legislature of a State with
respect to one of the matters enumerated in the
Concurrent List contains any provision repugnant to the
provisions of an earlier law made by Parliament or an
existing law with respect to that matter, then, the law so
made by the Legislature of such State shall, if it has been
reserved for the consideration of the President and has
received his assent, prevail in that State:
Provided that nothing in this clause shall prevent
Parliament from enacting at any time any law with
respect to the same matter including a law adding to,
amending, varying or repealing the law so made by the
Legislature of the State.”6.2 With regard to the allocation of subjects under the three
Lists, namely, List I – Union List; List II – State List and List III –
Concurrent List, it may be useful to refer to the Devolution Rules
Civil Appeal No.151 of 2007 Etc. Page 20 of 241
drawn under the Government of India Act, 1919 and the
Government of India Act, 1935 which are the precursors to the
distribution of legislative powers between the Union and the
States under the Seventh Schedule of the Constitution of India.
Some of the salient aspects concerning the distribution of the
legislative powers between Parliament and State Legislature as
per the three Lists in the backdrop of the provisions could be
alluded to.
6.3 Article 246 of the Constitution deals with the distribution
of legislative powers between the Union and the States. The said
Article has to be read along with the three Lists, namely, the
Union List, the State List and the Concurrent List. The taxing
powers of the Union as well as the States are also demarcated as
separate Entries in the Union List as well as the State List i.e.
List I and List II respectively. The Entries in the Lists are fields
of legislative powers conferred under Article 246 of the
Constitution. In other words, the Entries define the areas of
legislative competence of the Union and the State Legislature.
(vide: State of Karnataka vs. State of Meghalaya, (2023) 4
SCC 416 para 56), (“State of Karnataka”).
Civil Appeal No.151 of 2007 Etc. Page 21 of 241
Interpretation of Legislative Entries:
6.4 On the aspect of interpretation of legislative Entries in the
three Lists, the following principles are apposite as discussed in
State of Karnataka:
(i) The power to legislate, which is dealt with under Article 246
has to be read in conjunction with the Entries in the three
Lists which define the respective areas of legislative
competence of the Union and State Legislatures. While
interpreting these Entries, they should not be viewed in a
narrow or myopic manner but by giving the widest scope to
their meaning, particularly, when the vires of a provision of
a statute is assailed. In such circumstances, a liberal
construction must be given to the Entry by looking at the
substance of the legislation and not its mere form. However,
while interpreting the Entries in the case of an apparent
conflict, every attempt must be made by the Court to
harmonise or reconcile them. Where there is an apparent
overlapping between two Entries, the doctrine of pith and
substance is applied to find out the true character of the
enactment and the Entry within which it would fall. The
Civil Appeal No.151 of 2007 Etc. Page 22 of 241
doctrine of pith and substance, in short, means, if anenactment substantially falls within the powers expressly
conferred by the Constitution upon the Legislature which
enacted it, the same cannot be held to be invalid merely
because it incidentally encroaches on matters assigned to
another Legislature. Also, in a situation where there is
overlapping, the doctrine has to be applied to determine to
which Entry, a piece of legislation could be related to. In
order to examine the true character of an enactment or a
provision thereof, due regard must be had to the enactment
as a whole and to its scope and object. It is said that the
question of invasion into another legislative territory has to
be determined by substance and not by degree.
(ii) In case of any conflict between Entries in List I and List II,
the power of Parliament to legislate under List I will
supersede when, on an interpretation, the two powers
cannot be reconciled. But if a legislation in pith and
substance squarely falls within any of the Entries of List II,
the State Legislature’s competence cannot be questioned on
the ground that the field is covered by the Union list or the
Civil Appeal No.151 of 2007 Etc. Page 23 of 241
Concurrent list vide Prafulla Kumar Mukherjee vs. Bankof Commerce Limited, Khulna, AIR 1947 P.C. 60
(“Prafulla Kumar Mukherjee”). According to the pith and
substance doctrine, if a law is, in its pith and substance
within the competence of the Legislature which has made
it, it will not be invalid because it incidentally touches upon
the subject lying within the competence of another
Legislature vide FN Balsara.
(iii) Once the legislation is found to be ‘with respect to’ the
legislative Entry in question, unless there are other
constitutional prohibitions, the power would be unfettered.
It would also extend to all ancillary and subsidiary matters
which can fairly and reasonably be said to be
comprehended in that topic or category of legislation vide
United Provinces vs. Atiqa Begum, AIR 1941 FC 16
(“Atiqa Begum”).
(iv) Another important aspect while construing the Entries in
the respective Lists is that every attempt should be made to
harmonise the contents of the Entries so that interpretation
of one Entry should not render the entire content of another
Civil Appeal No.151 of 2007 Etc. Page 24 of 241
Entry nugatory vide Calcutta Gas Company. This is
especially so when some of the Entries in a different List or
in the same List may overlap or may appear to be in direct
conflict with each other. In such a situation, a duty is cast
on the Court to reconcile the Entries and bring about a
harmonious construction. Thus, an effort must be made to
give effect to both Entries and thereby arrive at a
reconciliation or harmonious construction of the same.
(v) In short, the Entries in the different Lists should be read
together without giving a narrow meaning to any of them.
The powers of the Union and the State Legislature are
expressed in precise and definite terms. Hence, there can
be no broader interpretation given to one Entry than to the
other. Even where an Entry is worded in wide terms, it
cannot be so interpreted as to negate or override another
Entry or make another Entry meaningless. In case of an
apparent conflict between different Entries, it is the duty of
the Court to reconcile them in the first instance.
(vi) Further, where one Entry is made “subject to” another
Entry, all that it means is that out of the scope of the former
Civil Appeal No.151 of 2007 Etc. Page 25 of 241
Entry, a field of legislation covered by the latter Entry has
been reserved to be specially dealt with by the appropriate
Legislature.
(vii) Also, when one Entry is general and another is specific,
normally, the latter will exclude the former on a subject of
legislation.
6.5 The sequitur to the aforesaid discussion is that if the
Legislature passes a law which is beyond its legislative
competence, it is a nullity ab-initio. The Legislation is rendered
null and void for want of jurisdiction or legislative competence
vide RMDC vs Union of India, AIR 1957 SC 628 (“RMDC”).
6.6 On a close perusal of the Entries in the three Lists, it is
discerned that the Constitution has divided the topics of
legislation into the following three broad categories:
(i) Entries enabling laws to be made;
(ii) Entries enabling taxes to be imposed; and
(iii) Entries enabling fees and stamp duties to be collected.
6.7 Thus, the Entries on levy of taxes are specifically
mentioned. Therefore, as such, there cannot be a conflict of
Civil Appeal No.151 of 2007 Etc. Page 26 of 241
taxation power of the Union and the State. In substance, the
taxing power can be derived only from a specific taxing Entry in
an appropriate List. Such a power has to be determined by the
nature of the tax and not the measure or machinery set up by
the statute. In this context, reliance could be placed on MPV
Sundararamier vs. State of Andhra Pradesh, AIR 1958 SC
468 (“MPV Sundararamier”), wherein at paragraph 51 it was
observed as under:
“51. In List I Entries 1 to 81 mention the several matters
over which Parliament has authority to legislate. Entries
82 to 92 enumerate the taxes which could be imposed
by a law of Parliament. An examination of these two
groups of entries shows that while the main subject of
legislation figures in the first group, a tax in relation
thereto is separately mentioned in the second. Thus,
Entry 22 in List I is “Railways”, and Entry 89 is
“Terminal taxes on goods or passengers, carried by
railway, sea or air; taxes on railway fares and freights”.
If Entry 22 is to be construed as involving taxes to be
imposed, then Entry 89 would be superfluous. Entry 41
mentions “Trade and commerce with foreign countries;
import and export across customs frontiers”. If these
expressions are to be interpreted as including duties to
be levied in respect of that trade and commerce, then
Entry 83 which is “Duties of customs including export
duties” would be wholly redundant. Entries 43 and 44
relate to incorporation, regulation and winding up of
corporations. Entry 85 provides separately for
corporation tax. Turning to List II, Entries 1 to 44 form
one group mentioning the subjects on which the States
could legislate. Entries 45 to 63 in that List form another
Civil Appeal No.151 of 2007 Etc. Page 27 of 241
group, and they deal with taxes. Entry 18, for example,
is “Land” and Entry 45 is “Land revenue”. Entry 23 is
“Regulation of mines” and Entry 50 is “Taxes on mineral
rights”. The above analysis—and it is not exhaustive of
the entries in the Lists—leads to the inference that
taxation is not intended to be comprised in the main
subject in which it might on an extended construction
be regarded as included, but is treated as a distinct
matter for purposes of legislative competence. And this
distinction is also manifest in the language of Article 248
clauses (1) and (2) and of Entry 97 in List I of the
Constitution. Construing Entry 42 in the light of the
above scheme, it is difficult to resist the conclusion that
the power of Parliament to legislate on inter-State trade
and commerce under Entry 42 does not include a power
to impose a tax on sales in the course of such trade and
commerce.”
6.8 What falls for interpretation in these cases is the content,
interplay and meaning of Entries 52 and 84 – List I, Entries 8,
24, 26, 27, 51 – List II and Entry 33 – List III. The aforesaid
Entries read as under:
“List – I
52. Industries, the control of which by the Union is
declared by Parliament by law to be expedient in the
public interest.
xxx
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,
Civil Appeal No.151 of 2007 Etc. Page 28 of 241
but including medicinal and toilet preparations
containing alcohol or any substance included in sub-
paragraph (b) of this entry.
List – II
8. Intoxicating liquors, that is to say, the production,
manufacture, possession, transport, purchase and sale
of intoxicating liquors.
xxx
24. Industries subject to the provisions of Entries 7 and
52 of List I.
xxx
26. Trade and commerce within the State subject to the
provisions of entry 33 of List III.
27. Production, supply and distribution of goods subject
to the provisions of entry 33 of List III.
xxx
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.
List – III
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
Civil Appeal No.151 of 2007 Etc. Page 29 of 241
interest, and imported goods of the same kind as
such products;
(b) foodstuffs, including edible oilseeds and oils;
(c) cattle fodder, including oilcakes and other
concentrates;
(d) raw cotton, whether ginned or unginned, and cotton
seed; and
(e) raw jute.”
For a better understanding of the discussion to follow, it
would be relevant to refer to the scheme of the IDRA.
Scheme of IDRA:
7. The Preamble of the IDRA states that it is an Act to provide
for the development and regulation of certain industries. Section
2 declares that it is expedient in the public interest that the
Union should take under its control the industries specified in
the First Schedule to the said Act. Hence, the question would be,
whether, the Parliament by law has declared it expedient in
public interest that the Union should take control of certain
industries. Section 2 of the IDRA, for immediate reference, reads
as under:
“2. Declaration as to expediency of control by the
Union.- It is hereby declared that it is expedient in the
public interest that the Union should take under its
control the industries specified in the First Schedule.”Civil Appeal No.151 of 2007 Etc. Page 30 of 241
In the First Schedule to the said Act, Item 26 reads as under:
“26. Fermentation Industries:
(1) Alcohol.
(2) Other products of fermentation industries.”
Item 26 of the First Schedule to the Act was amended on
14.05.2016 by Act 27 of 2016 with retrospective effect from
08.05.1952 and it reads as under:
“26. Fermentation Industries (Other than Potable
Alcohol):
(1) Alcohol.
(2) Other products of fermentation industries.”
7.1 Section 3 of the IDRA is the definition clause and the
relevant definitions read as under:
“3. Definitions. – In this Act, unless the context
otherwise requires,-
xxx
(d) “industrial undertaking” means any undertaking
pertaining to a scheduled industry carried on in one or
more factories by any person or authority including
Government;
(dd) “new article”, in relation to an industrial
undertaking which is registered or in respect of which a
licence or permission has been issued under this Act,
means—
(a) any article which falls under an item in the First
Schedule other than the item under which articles
ordinarily manufactured or produced in theCivil Appeal No.151 of 2007 Etc. Page 31 of 241
industrial undertaking at the date of registration or
issue of the licence or permission, as the case may
be, fall;
(b) any article which bears a mark as defined in the
Trade Marks Act, 1940 (5 of 1940), or which is the
subject of a patent, if at the date of registration or
issue of the licence or permission, as the case may
be, the industrial undertaking was not
manufacturing or producing such article bearing
that mark or which is the subject of that patent;
(e) “notified order” means an order notified in the
Official Gazette;
xxx
(g) “prescribed” means prescribed by rules made under
this Act;
(h) “Schedule” means a Schedule to this Act;
(i) “scheduled industry” means any of the industries
specified in the First Schedule;
xxx
(k) words and expressions used herein but not defined in
this Act and defined in the Companies Act, 1956 (1 of
1956), have the meanings respectively assigned to them
in that Act.”7.2 Chapter II of the Act deals with the Central Advisory
Council and Development Councils while Chapter III speaks of
regulation of scheduled industries. The headings of Sections 10
to 18 are noted within Chapter III. The said provisions deal with,
inter alia, registration of existing industries, issuance of licence
for producing or manufacturing of new articles, conducting
Civil Appeal No.151 of 2007 Etc. Page 32 of 241
investigation to be made into scheduled industries. Chapter IIIAspeaks of direct management or control of industrial
undertakings by Central Government in certain cases while
Chapter IIIAA speaks of management or control of industrial
undertakings owned by companies in liquidation. Chapter IIIAB
deals with the power to provide relief to certain industrial
undertakings while Chapter IIIAC speaks of liquidation or
reconstruction of companies. Chapter IIIB deals with control of
supply, distribution, price, etc., of certain articles was inserted
by Act 26 of 1953.
7.3 Section 18G which is in the said Chapter is relevant for the
purpose of this case, reads as under:
“18G. Power to control supply, distribution, price,
etc., of certain articles.—(1) The Central Government,
so far as it appears to it to be necessary or expedient for
securing the equitable distribution and availability at
fair prices or any article or class of articles relatable to
any scheduled industry, may, notwithstanding anything
contained in any other provisions of this Act, by notified
order, provide of regulating the supply and distribution
thereof and trade and commerce therein.
(2) Without prejudice to the generality of the powers
conferred by sub-section (1), a notified order made
thereunder may provide—
(a) for controlling the prices at which any such article
or class thereof may be bought or sold;
Civil Appeal No.151 of 2007 Etc. Page 33 of 241
(b) for regulating by licences, permits or otherwise the
distribution, transport, disposal, acquisition,
possession, use or consumption of any such article
or class thereof;
(c) for prohibiting the withholding from sale of any such
article or class thereof ordinarily kept for sale;
(d) for requiring any person manufacturing, producing
or holding in stock any such article or class thereof
to sell the whole or part of the articles so
manufactured or produced during a specified period
or to sell the whole or a part of the articles so held
in stock to such person or class of persons and in
such circumstances as may be specified in the
order;
(e) for regulating or prohibiting any class of commercial
or financial transactions relating to such article or
class thereof which in the opinion of the authority
making the order are, or if unregulated are likely to
be, detrimental to public interest;
(f) for requiring persons engaged in the distribution
and trade and commerce in any such article or class
thereof to mark the articles exposed or intended for
sale with the sale price or to exhibit at some easily
accessible place on the premises the price-lists of
articles held for sale and also to similarly exhibit on
the first day of every month, or at such other time
as may be prescribed, a statement of the total
quantities of any such articles in stock;
(g) for collecting any information or statistics with a
view to regulating or prohibiting any of the aforesaid
matters; and
(h) for any incidental or supplementary matters,
including, in particular, the grant or issue of
licences, permits or other documents and the
charging of fees therefor.
Civil Appeal No.151 of 2007 Etc. Page 34 of 241
(3) Where, in pursuance of any order made with
reference to clause (d) of sub-section (2), any person sells
any article, there shall be paid to him the price therefor—
(a) where the price can consistently with the controlled
price, if any, be fixed by agreement, the price so
agreed upon;
(b) where no such agreement can be reached, the price
calculated with reference to the controlled price, if
any, fixed under this section;
(c) where neither clause (a) nor clause (b) applies, the
price calculated at the market rate prevailing in the
locality at the date of sale.
(4) No order made in exercise of any power conferred by
this section shall be called in question in any court.
(5) Where an order purports to have been made and
signed by an authority in exercise of any power conferred
by this section, a court shall, within the meaning of the
Indian Evidence Act, 1872 (1 of 1872), presume that
such order was so made by that authority.
Explanation.— In this section, the expression “article or
class of articles” relatable to any scheduled industry
includes any article or class of articles imported into
India which is of the same nature or description as the
article or class of articles manufactured or produced in
the scheduled industry.”
7.4 The reason as to why Section 18G was inserted to the IDRA
must be noted. In paragraph 3 of the Statement of Objects and
Reasons, it has been stated as under:
“At present, the power to control prices and distribution
of various goods under this Act is confined to industrial
undertakings registered or licensed under the Act. In all
other cases, it is necessary to have recourse to powersCivil Appeal No.151 of 2007 Etc. Page 35 of 241
derived from the Essential Supplies (Temporary Powers)
Act, 1946 and the Supply and Prices of Goods Act, 1950.
Both these enactments have a limited period of life. It is
proposed to add a chapter taking power to control the
distribution and price of goods produced in scheduled
industries and of similar goods even, though they may
be of imported origin.”The aforesaid reflects that the IDRA has brought under
Central control the development and regulation of a number of
important industries, the activities of which affect the country as
a whole and the development of which must be governed by
economic factors of all-India import.
Similarly, in the Statement of Objects and Reasons of
Amendment Act 72 of 1971, it has been stated as under:
“The industries included in the First Schedule to the
Industries (Development and Regulation) Act, 1951 are
those the control of which by the Union has been
considered to be expedient in the public interest. The
proper development of these industries is vital to the
economic development of the country. These industries
not only substantially contribute to the Gross National
Product of the country, but also afford gainful
employment to millions of people.”7.5 Section 29E was inserted with effect from 14.05.2016 by
Act 27 of 2016. As already noted, Item 26 of the First Schedule
deals with “Fermentation Industries” and after amendment by
Civil Appeal No.151 of 2007 Etc. Page 36 of 241
Act 27 of 2016 with retrospective effect from 08.05.1952,“Fermentation Industries” have been clarified as “other than
potable alcohol”. Therefore, alcohol and other products of
“Fermentation Industries” would refer to products which are
“other than potable alcohol”.
Article 47: Directive Principle of State Policy:
8. Since we are trying to ascertain the true meaning of
“intoxicating liquors” in Entry 8 – List II, Article 47 of the
Constitution of India, which is a Directive Principle of the State
Policy, is relevant as the said Article deals, inter alia, with
intoxicating drinks. The same reads as under:
“47. Duty of the State to raise the level of nutrition
and the standard of living and to improve public
health
The State shall regard the raising of the level of nutrition
and the standard of living of its people and the
improvement of public health as among its primary
duties and, in particular, the State shall endeavour to
bring about prohibition of the consumption except for
medicinal purposes of intoxicating drinks and of drugs
which are injurious to health.”What is significant are the words “the State shall endeavour
to bring about prohibition of the consumption, except for
medicinal purposes of intoxicating drinks which are injurious to
Civil Appeal No.151 of 2007 Etc. Page 37 of 241
health”. It is on the basis of the said Directive Principle thatseveral prohibition and excise laws have been enacted in several
States as a constitutional goal to improve the health of the people
of India in the context of prevention and prohibition of
consumption of “intoxicating liquors”. The manufacture, export,
import, transport or sale of “intoxicating liquors” is prohibited
except in accordance with a licence, permit or pass granted in
that behalf. The State legislations confer power on State
Governments in matters concerning liquor licensing and also
with regard to imposition of excise duty.
8.1 The following decisions of this Court could be considered at
this stage as they are of relevance to the controversy under
consideration:
a) In Cooverjee B. Bharucha vs. Excise Commissioner and
the Chief Commissioner, Ajmer, AIR 1954 SC 220
(“Cooverjee B. Bharucha”), the right of a citizen to carry on
trade and business in liquor under Article 19(1)(g) of the
Constitution was considered. The impact of liquor on a
person who consumes it as well as on the society was
discussed. With reference to an American decision in
Civil Appeal No.151 of 2007 Etc. Page 38 of 241
Crowley vs. Christensen, (1890) 34 Law Ed. 620(“Crowley”) at p. 623, it was observed that when liquor is
consumed, first of all it affects the person who consumes it,
and subsequently, it affects those who are immediately
connected and dependent upon him. Hence, there is a need
to regulate the business of manufacture and trade in liquor.
It was observed that no citizen has an inherent right to sell
“intoxicating liquors” in retail. This is because the business
of liquor is attended with danger to the community. It can,
therefore, be entirely prohibited or regulated as per the
discretion of the Government and the Authority concerned.
It was held that Regulation could also be in the form of
issuance of licences to eligible persons under a particular
legislation. The provisions of regulation of liquor, which
permit certain eligible persons to carry on the trade to the
exclusion of the general public and thereby possibly create a
monopoly, is also permissible in law.
b) In State of Assam vs. Sristikar Dowerah, AIR 1957 SC
414 (“Sristikar Dowerah”), it was observed as under:
Civil Appeal No.151 of 2007 Etc. Page 39 of 241
“no person has any absolute right to sell liquor and
that the purpose of the Act and the rules is to control
and restrict the consumption of intoxicating liquors,
such control and restriction being obviously
necessary for the preservation of public health and
morals, and to raise revenue.”The above observation is in line with Article 47 of the
Constitution of India which is a Directive Principle.
c) The constitutional validity of the Bombay Prohibition Act,
1949 was challenged in FN Balsara. One of the arguments
raised was that the said Act could be justified under Entry I
-List II which relates to public order. This was by placing
reliance on a tendency in Europe and America with regard to
alcoholism as a menace to public order. However, the said
submission was not pursued further before this Court as
there were other express provisions under the pertinent
Entry which dealt with “intoxicating liquors”. The short
question considered was whether the Bombay Prohibition
Act, 1949 in pith and substance was a law relating to
possession and sale, etc. of “intoxicating liquors” or whether
it related to import and export of “intoxicating liquors”.
Dealing with the validity of the aforesaid Act, this Court
Civil Appeal No.151 of 2007 Etc. Page 40 of 241
noted the word “liquor” ordinarily means “a strong drink as
opposed to soft drink” but it must in any event be a beverage
which is ordinarily drunk as noted by the Bombay High
Court. The High Court further noted that although the State
Legislature may prevent the consumption of non-
intoxicating beverages and also prevent the use as drinks of
alcoholic liquids which are not normally consumed as
drinks, it cannot prevent the legitimate use of alcoholic
preparations which are not beverages nor the use of
medicinal and toilet preparations containing alcohol. This
view was challenged before this Court. Noting the several
meanings of “liquor” from the Oxford English Dictionary, it
was observed that as a general meaning it is a liquid but as
a special meaning it means a drink or beverage produced by
fermentation or distillation. It was observed that this is the
popular and most widely accepted meaning and the basic
idea of beverage prominently ran through the main
provisions of the various Acts of this country as well as
America and England, relating to “intoxicating liquor”.
Reference was made to the definition of “intoxicating liquors”
Civil Appeal No.151 of 2007 Etc. Page 41 of 241
in various overseas jurisdiction and also Bombay Abkari Act,
1878 as well as other provincial Acts such as the Punjab
Excise Act, 1914; the UP Excise Act, 1910; Madras Abkari
Act, 1886, etc. It was observed that the framers of the
Government of India Act, 1935 could not have been entirely
ignorant of the acceptance in which the word “liquor” covers
not only those alcoholic liquids which are generally used for
beverage purposes and produce intoxication, but also all
liquids containing alcohol. It may be that the latter meaning
is not the meaning which is attributed to the word “liquor”
in common parlance especially when that word is prefixed by
the qualifying word “intoxicating”, but in my opinion having
regard to the numerous statutory definitions of that word,
such a meaning could not have been intended to be excluded
from the scope of the term “intoxicating liquor” as used in
Entry 31 – List II. Consequently, on analysing the provisions
of the impugned Act, it was observed that only those
provisions which affected the possession, selling and
consumption of any medicinal and toilet preparations and
commendation of any intoxicant or hemp were invalid.
Civil Appeal No.151 of 2007 Etc. Page 42 of 241
d) In Nagendra Nath vs. Commissioner of Hills Division,
AIR 1958 SC 398 (“Nagendra Nath”), it was reiterated that
there is no inherent right in a citizen to sell liquor and that
the control and restriction over the consumption of
“intoxicating liquors” was necessary for the preservation of
public health and morals and to raise revenue.
e) The question, whether Section 43 of the Bengal Excise Act,
1909, under which the licence of a liquor contractor was
withdrawn, violated Articles 14 and 19 of the Constitution of
India was considered in Amar Chandra Chakraborty vs.
Collector of Excise, Government of Tripura, AIR 1972 SC
1863 (“Amar Chandra Chakraborty”). It was observed
that in view of the injurious effect of excessive consumption
of liquor on health, the trade or business must be treated as
a class by itself and it cannot be treated on par with other
trades while testing the matter from the angle of Article 14
of the Constitution.
f) In State of Orissa vs. Harinarayan Jaiswal, AIR 1972
SC 1816 (“Harinarayan Jaiswal”), it was observed that
one of the important purposes of selling the exclusive right
Civil Appeal No.151 of 2007 Etc. Page 43 of 241
to vend liquor was to raise revenue and since the
Government had the power to sell exclusive privileges, there
was no basis for contending that the owner of the privileges
could not decline to accept the highest bid if it thought that
the price offered was inadequate.
g) Similarly, in Nashirwar vs. State of Madhya Pradesh, AIR
1975 SC 360 (“Nashirwar”), it was observed that there was
no fundamental right of citizens to carry on trade or to do
business in liquor. It was observed in the said case as under:
“There are three principal reasons to hold that there
is no fundamental right of citizens to carry on trade
or to do business in liquor. First, there is the police
power of the State to enforce public morality to
prohibit trades in noxious or dangerous goods.
Second, there is power of the State to enforce an
absolute prohibition of manufacture or sale of
intoxicating liquor. Article 47 states that the State
shall endeavour to bring about prohibition of the
consumption except for medicinal purposes of
intoxicating drinks and of drugs which are injurious
to health. Third, the history of excise law shows that
the State has the exclusive right or privilege of
manufacture or sale of liquor.”
h) In Har Shankar vs. The Deputy Excise and Taxation
Commissioner, AIR 1975 SC 1121 (“Har Shankar”), this
Court, speaking through Y.V. Chandrachud, C.J, observed
Civil Appeal No.151 of 2007 Etc. Page 44 of 241
that the State has the power to prohibit trades which areinjurious to the health and welfare of the public, that
elimination and exclusion from business is inherent in the
nature of liquor business as no person has an absolute right
to deal in liquor. Also, all forms of dealings in liquor have,
due to their inherent nature, been treated as a class by
themselves by all civilized communities. Therefore, the
contention that the persons who carry on trade or business
in liquor have an unrestricted fundamental right as such
was rejected. Thus, it was observed that while a citizen has
a right to do business in liquor, the State can make law
imposing reasonable restrictions on the said right in public
interest.
Summarising the aforesaid judgments in Har Shankar,
it was observed that there is no fundamental right to carry
out trade or business in intoxicants. The State, under its
regulatory powers, has the right to prohibit absolutely every
form of activity in relation to intoxicants, its manufacture,
storage, export, import, sale and possession. In all their
manifestations, these rights are vested in the State and
Civil Appeal No.151 of 2007 Etc. Page 45 of 241
indeed without such vesting there can be no effective
regulation of various forms of activities in relation to
intoxicants. Therefore, the States’ right to regulate activities
in relation to intoxicants to the extent of prohibiting would
imply that even when permission to deal with intoxicants is
granted, the same can be regulated. This is because the
rights in regard to intoxicants belong to the State and it is
open to the Government to part with those rights for a
consideration. The power of the Government to charge a
price for parting with its rights and not the mode of fixing
that price is what constitutes the essence of the matter. It
was also held that neither does the label affixed to the price
determine the true nature of the charge levied by the
Government nor its right to levy the same. By use of the
expression “licence fee” or “fixed fee”, what is meant is the
price or consideration which the Government charges to the
licencees for parting with its privileges and granting them the
licences. That the object of imposing licence fee is for the
purpose of regulation so that the number of persons who
wish to engage in liquor trade are kept under check and
Civil Appeal No.151 of 2007 Etc. Page 46 of 241
within reasonable limits. It was also observed that the
Government can, on its own, trade in its own rights or
privileges and can deal with liquor or grant leases of its rights
and issue requisite permits or licences or passes on payment
of such fees as may be prescribed. Ultimately, it was
observed that the amount payable by the licencees on the
basis of the bids offered by them in auctions is neither a fee
in the technical sense, nor a tax, but is in the nature of the
price of a privilege. It was also held that the State has the
power to grant liquor licences on payment of such fees as the
consideration for parting with the privileges that the State
has. That the payment demanded is in the form of excise
revenue, which could be in the form of any payment, duty,
fee, tax or fine ordered under the provisions of a particular
enactment or Rules made thereunder relating to liquor or
intoxicating drugs but would not include a fine imposed by
a Court of law. That such an imposition could be recovered
in the manner authorised by law. Consequently, in Har
Shankar, this Court repelled the contention of the retailed
Civil Appeal No.151 of 2007 Etc. Page 47 of 241
vendors of country liquor holding licences for the sale of
liquor in specified vends.
i) In Khoday Distilleries Ltd. vs. State of Karnataka,
(1995) 1 SCC 574 (“Khoday Distilleries”), the Constitution
Bench of this Court summarised the law on the subject
relating to right to carry on trade or business in “potable
liquor” as under:
“(a) The rights protected by Article 19(1) are not
absolute but qualified. The qualifications are stated
in clauses (2) to (6) of Article 19. The fundamental
rights guaranteed in Article 19(1)(a) to (g) are,
therefore, to be read along with the said
qualifications. Even the rights guaranteed under the
Constitutions of the other civilized countries are not
absolute but are read subject to the implied
limitations on them. Those implied limitations are
made explicit by clauses (2) to (6) of Article 19 of our
Constitution.
(b) The right to practise any profession or to carry on
any occupation, trade or business does not extend
to practising a profession or carrying on an
occupation, trade or business which is inherently
vicious and pernicious, and is condemned by all
civilised societies. It does not entitle citizens to carry
on trade or business in activities which are immoral
and criminal and in articles or goods which are
obnoxious and injurious to health, safety and
welfare of the general public, i.e., res extra
commercium, (outside commerce). There cannot be
business in crime.
Civil Appeal No.151 of 2007 Etc. Page 48 of 241
(c) Potable liquor as a beverage is an intoxicating
and depressant drink which is dangerous and
injurious to health and is, therefore, an article which
is res extra commercium being inherently harmful. A
citizen has, therefore, no fundamental right to do
trade or business in liquor. Hence the trade or
business in liquor can be completely prohibited.
(d) Article 47 of the Constitution considers
intoxicating drinks and drugs as injurious to health
and impeding the raising of level of nutrition and the
standard of living of the people and improvement of
the public health. It, therefore, ordains the State to
bring about prohibition of the consumption of
intoxicating drinks which obviously include liquor,
except for medicinal purposes. Article 47 is one of
the directive principles which is fundamental in the
governance of the country. The State has, therefore,
the power to completely prohibit the manufacture,
sale, possession, distribution and consumption of
potable liquor as a beverage, both because it is
inherently a dangerous article of consumption and
also because of the directive principle contained in
Article 47, except when it is used and consumed for
medicinal purposes.
(e) For the same reason, the State can create a
monopoly either in itself or in the agency created by
it for the manufacture, possession, sale and
distribution of the liquor as a beverage and also sell
the licences to the citizens for the said purpose by
charging fees. This can be done under Article 19(6)
or even otherwise.
(f) For the same reason, again, the State can impose
limitations and restrictions on the trade or business
in potable liquor as a beverage which restrictions are
in nature different from those imposed on the trade
or business in legitimate activities and goods and
articles which are res commercium. The restrictions
and limitations on the trade or business in potableCivil Appeal No.151 of 2007 Etc. Page 49 of 241
liquor can again be both under Article 19(6) or
otherwise. The restrictions and limitations can
extend to the State carrying on the trade or business
itself to the exclusion of and elimination of others
and/or to preserving to itself the right to sell licences
to do trade or business in the same, to others.
(g) When the State permits trade or business in the
potable liquor with or without limitation, the citizen
has the right to carry on trade or business subject
to the limitations, if any, and the State cannot make
discrimination between the citizens who are
qualified to carry on the trade or business.
(h) The State can adopt any mode of selling the
licences for trade or business with a view to
maximise its revenue so long as the method adopted
is not discriminatory.
(i) The State can carry on trade or business in
potable liquor notwithstanding that it is an
intoxicating drink and Article 47 enjoins it to
prohibit its consumption. When the State carries on
such business, it does so to restrict and regulate
production, supply and consumption of liquor which
is also an aspect of reasonable restriction in the
interest of general public. The State cannot on that
account be said to be carrying on an illegitimate
business.
(j) The mere fact that the State levies taxes or fees on
the production, sale and income derived from
potable liquor whether the production, sale or
income is legitimate or illegitimate, does not make
the State a party to the said activities. The power of
the State to raise revenue by levying taxes and fees
should not be confused with the power of the State
to prohibit or regulate the trade or business in
question. The State exercises its two different
powers on such occasions. Hence the mere fact that
the State levies taxes and fees on trade or businessCivil Appeal No.151 of 2007 Etc. Page 50 of 241
in liquor or income derived from it, does not make
the right to carry on trade or business in liquor a
fundamental right, or even a legal right when such
trade or business is completely prohibited.
(k) The State cannot prohibit trade or business in
medicinal and toilet preparations containing liquor
or alcohol. The State can, however, under Article
19(6) place reasonable restrictions on the right to
trade or business in the same in the interests of
general public.
(l) Likewise, the State cannot prohibit trade or
business in industrial alcohol which is not used as
a beverage but used legitimately for industrial
purposes. The State, however, can place reasonable
restrictions on the said trade or business in the
interests of the general public under Article 19(6) of
the Constitution.
(m) The restrictions placed on the trade or business
in industrial alcohol or in medicinal and toilet
preparations containing liquor or alcohol may also
be for the purposes of preventing their abuse or
diversion for use as or in beverage.”
(underlining by me)Survey of Judicial Precedents:
Synthetics and Chemicals (7J):
9. Since the main controversy in this case turns on the
correctness of the decision in Synthetics and Chemicals (7J),
it is necessary to advert to the same in some detail.
Civil Appeal No.151 of 2007 Etc. Page 51 of 241
9.1 In the said case, the main contour of the controversy was
whether vend fee in respect of “industrial alcohol” under different
legislations and rules in different States was valid. In this
context, the following three questions were considered:
“(i) whether the power to levy excise duty in case of
industrial alcohol was with the State Legislature or the
Central Legislature?
(ii) what is the scope and ambit of Entry 8 of List II of
the Seventh Schedule of the Constitution?
(iii) whether, the State Government has exclusive right
or privilege of manufacturing, selling, distributing, etc. of
alcohols including industrial alcohol. In this connection,
the extent, scope and ambit of such right or privilege has
also to be examined.”9.1.1 In this background, the expressions “intoxicating
liquors” and “alcoholic liquors for human consumption” were
considered and also Article 47 of the Constitution which deals
with the State’s duty regarding the improvement of public health
and to bring about prohibition of the consumption except for
medicinal purposes of intoxicating drinks and of drugs which are
injurious to health. Reference was also made to Entry 52 – List I
which deals with industries, the control of which by the Union is
declared by Parliament by law to be expedient in public interest.
Civil Appeal No.151 of 2007 Etc. Page 52 of 241
9.1.2 It was the contention of the petitioners therein that the
IDRA was enacted with a view to developing and controlling
various important industries. Section 2 of the IDRA declares that
it is expedient in the public interest that Union should take
under its control the industries specified in the First Schedule.
9.1.3 The said case did not concern primarily with potable
alcohol for the purpose of human consumption but with ethyl
alcohol (rectified spirit) as an industrial raw material for
manufacture of downstream products. This Court concerned
itself with the taxing power of the States to impose and levy
excise duty on “industrial alcohol” and/or imposts such as vend
fees. “Power Alcohol” was defined as ethyl alcohol containing not
less than 95.5 per cent volume of ethanol measured at 60°F,
corresponding to 74.4 over proof strength. That rectified spirit
was ethyl alcohol or ethanol with 96 per cent alcohol. On
dehydration, ethyl alcohol with 99.5 per cent volume of ethanol
is produced.
9.1.4 This Court noted that on 08.05.1952, the Parliament
enforced the IDRA which contains, inter alia, Section 18G which
Civil Appeal No.151 of 2007 Etc. Page 53 of 241
was inserted w.e.f. 01.10.1953, whereby the Central Government
was empowered for securing equitable distribution and
availability at fair prices of any article or class of articles relatable
to any scheduled industry to provide for regulating the supply
and distribution thereof, and trade and commerce therein by a
notified order. The notified order was also to provide for
controlling the prices at which such article or class of articles
could be bought or sold. The said Act was amended in 1956. Item
26 was inserted in the First Schedule to the said Act and
empowered the Central Government to control the “Fermentation
Industries” including alcohol industries.
Under the UP Licences for the Possession of Denatured Spirit
and Specially Denatured Spirit Rules, 1976, special licence for
possession of denatured spirit for industrial purposes was
required. “Special denatured spirit” was defined as spirit
rendered “unfit for human consumption”. As per the Rules,
licences for possession of denatured spirit including specially
denatured spirit for industrial purposes were to be of three kinds
– (i) Form FL 39; (ii) Form FL 40; and (iii) Form FL 41.
Civil Appeal No.151 of 2007 Etc. Page 54 of 241
9.1.5 In that background, it was submitted on behalf of the
Union of India that the legislative competence of the State
enactments in various States will have to be determined with
reference to following Entries in List I – 7, 52, 59, 84, 96, 97 and
Entries in List II – 8, 24, 26, 27, 51, 52, 54, 56, 62 and Entries
in List III – 19 and 33. That there is a dichotomy between Entry
84 – List I and Entry 51 – List II but this would not control the
interpretation of other Entries. It was urged that there was no
such dichotomy as regards Entry 8 – List II as it is not subject to
Entry 52 – List I as the subject matters of these two Entries are
different. That Entry 52 – List I deals with industries while Entry
8 – List II deals with “intoxicating liquors”. The power to levy
taxes is to be read from the Entry relating to taxes and not from
the general Entry. That industry is a topic of legislation left to the
Parliament and to the State. Identifying of Entries is by reference
to a declaration under Entry 7 – List I and Entry 52 – List I. The
aspect of legislation with regard to subject matter of Entries is
the topic “industry”. On the other hand, the subject matter of
legislation under Entry 8 – List II is the topic “intoxicating
Civil Appeal No.151 of 2007 Etc. Page 55 of 241
liquors”. Therefore, according to the Union of India, there was no
conflict.
9.1.6 In view of the above submission on behalf of the Union
of India, the only question which was to be determined was,
whether, “intoxicating liquors” in Entry 8 – List II is confined to
potable liquor or includes all liquors. That the State Legislature
had no power to levy excise duty on “industrial alcohol” as the
latter is “not fit for human consumption” and the State
Legislature will have power to levy fee in respect of all alcohol
(see Entry 66 read with Entry 6 – List II). The State Legislature
has power to legislate on the topic “intoxicating liquors” under
Entry 8 – List II. It being a general Entry, will not comprehend a
power of taxation but will comprehend a power to levy fee read
with Entry 66 – List II.
9.1.7 According to the Union of India, with regard to industries
the control of which by the Union is declared by Parliament by
law to be expedient in public interest, Parliament will have
exclusive legislative competence vide Entry 52 – List I. This power
includes the power to declare by Parliament that control by the
Civil Appeal No.151 of 2007 Etc. Page 56 of 241
Union of industries relating to all types of alcohol is expedient in
public interest. Once Parliament makes such a declaration, the
State Legislature will be denuded of its power under Entry 24 –
List II on the aspect “industry” with respect to all subject matters.
9.1.8 It was also contended that the power to collect the lump
sum amount by way of auction by any right or otherwise
conferring the right to sell alcohol is neither a power to levy tax
nor a power to levy fee but it will fall within the legislative
competence of the State Legislature under Entry 8 – List II. But
this power will extend only to alcohol for human consumption.
Also, there can be a complete prohibition with regard to
manufacture and sale of alcohol fit for human consumption
because there is no fundamental right to carry on business in
alcohol even for human consumption (see Article 47 of the
Constitution and other judgments already discussed). The State
can, therefore, collect an amount called vend fee, shop rent etc.
for conferring on a citizen the right to manufacture and sell
alcoholic liquors if it is fit for human consumption. This power
cannot extend to “industrial alcohol” or “alcohol contained in the
medicinal or toilet preparations”. According to the Union of India,
Civil Appeal No.151 of 2007 Etc. Page 57 of 241
there was no power to levy such rent or fee with regard to
“industrial alcohol” because (a) “industrial alcohol” and
“alcoholic liquors for medicinal and toilet preparations” cannot
be completely prohibited; (b) as there is a right to carry on
business in “industrial alcohol”, any prohibition on manufacture
of “industrial alcohol”, would be violative of Article 19(1)(g) of the
Constitution. Therefore, in the absence of a power to completely
prohibit, there will be no power to collect sums for conferring
rights to manufacture or sell except the levy of taxes and fees.
9.1.9 On behalf of the State of UP, it was submitted that in
order to appreciate the controversy, it was necessary to realise
that the real problem arises from the fact that the denaturants
can be converted into renaturants through an illicit process.
Therefore, they supported the levy. It was submitted that the
vend fee on denatured alcohol or denatured spirit or what is
known as “industrial alcohol” has been challenged on mainly two
grounds, namely, (a) States lack legislative competence, and (b)
after the enactment of the IDRA, the States’ power is completely
lost.
Civil Appeal No.151 of 2007 Etc. Page 58 of 241
9.1.10 The contention of the State was that there is no
dichotomy between ethyl alcohol to be used for beverages and to
be used for “industrial purposes”. The levy, in any case, was on
manufacture of ethyl alcohol and not on its use. The levy was
stipulated jointly or severally both under Entries 8 and 51 – List
II; Entry 33 – List III, and as per police powers, regulatory and
other incidental charges were collected. That levy was a
regulatory power under Articles 19(6) and 19(6)(ii) of the
Constitution.
9.1.11 According to the State, Parliament has no power to
legislate on “industrial alcohol”, since “industrial alcohol” was
also “alcoholic liquors for human consumption”. It was
contended that Entry 84 – List I expressly excludes alcoholic
liquors for human consumption and therefore, the residuary
Entry 97 – List I will not operate as against its own legislative
interest. The aforesaid submissions were made on the
assumption that “industrial liquor” or “ethyl alcohol” is fit for
human consumption.
Civil Appeal No.151 of 2007 Etc. Page 59 of 241
9.1.12 This Court stated that the expression must be
understood in its common and normal sense. “Industrial alcohol”
as it is, is incapable of being consumed by a normal human
being. The expression ‘consumption’ must also be understood in
the sense of direct physical intake by human beings in this
context. That utilisation in some form or the other is
consumption for the benefit of human beings if “industrial
alcohol” is utilised for production of rubber tyres, etc. It was held
that the utilisation of those tyres in the vehicles used by human
beings cannot, in the context in which the expression has been
used in the Constitution, be understood to mean that alcohol has
been for human consumption.
9.1.13 This Court observed that when the framers of the
Constitution used the expression “alcoholic liquors for human
consumption”, they meant and still the expression means, that
“liquor which as it is consumable in the sense capable of being
taken by human beings as such as a beverage or a drink” and
Entry 84 – List I must be understood in that sense. It was
contended that denatured spirit could also be by appropriate
cultivation or application or admixture with water etc.,
Civil Appeal No.151 of 2007 Etc. Page 60 of 241
transformed into ‘alcoholic liquors for human consumption’ and
as such, transformation would not entail any process of
manufacture as such. There is no organic or fundamental change
in this transformation. However, this aspect was not examined,
the reason being that the Constitutional provisions specially
dealing with the delimitation of powers in a federal polity must
be understood in a broad commonsense point of view as
understood by common people for whom the Constitution is
made. Alcoholic or “intoxicating liquors” must be understood as
these are, not what these are capable of or able to become.
Consequently, in paragraph 86 it was concluded as follows:
“86. 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 beCivil Appeal No.151 of 2007 Etc. Page 61 of 241
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 fees
based on quid pro quo. See in this
connection, the observations of Indian
Mica case [(1971) 2 SCC 236 : 1971
Supp SCR 319 : AIR 1971 SC 1182].”9.1.14 Oza, J. gave a concurring separate opinion wherein he
considered the question relating to validity of the levies made by
the States on alcohol which is utilised by the industries for
manufacturing the products where alcohol is a raw material.
Some of these industries themselves (i) manufacture alcohol as
they have their own distilleries and from their distilleries through
pipelines it goes to their industrial units where this is used as a
raw material (ii) whereas some are industries which purchase
alcohol or denatured spirit on being allotted by the Government.
9.1.15 On a comparison of the language of Entry 84 – List I
and Entry 51 – List II, it was observed by Oza, J. that the powers
of taxation on alcoholic liquors have been based on the way in
which they are used, as admittedly alcoholic liquors is a very
Civil Appeal No.151 of 2007 Etc. Page 62 of 241
wide term and may include variety of types of alcoholic liquors
but the Constitution-makers distributed them into two heads:
(a) for human consumption
(b) other than for human consumption
9.1.16 Alcoholic liquors which are for human consumption
were put in Entry 51 – List II authorising the State Legislature to
levy tax on them whereas alcoholic liquors other than for human
consumption have been left to the Central Legislature under
Entry 84 – List I for levy of duty of excise. This scheme of the
Entries in two Lists clearly indicates the line of demarcation for
purposes of taxation of alcoholic liquors. What has been
excluded in Entry 84 has specifically been put within the
authority of the State for purposes of taxation.
9.1.17 Speaking about Entry 8 – List II, it was observed that
this Entry talks about “intoxicating liquors” and further it refers
to production, manufacture, possession, transport, purchase
and sale of “intoxicating liquors”. From the scheme of Entries in
the three Lists, it is clear that taxing Entries have been
specifically enacted conferring powers of taxation whereas other
Civil Appeal No.151 of 2007 Etc. Page 63 of 241
Entries pertain to the authority of the Legislature to enact laws
for purposes of regulation. That the declaration is made by the
Parliament and this industry, i.e., industry based on
fermentation and alcohol has been declared to be an industry
under the IDRA and, therefore, is directly under the control of
the Centre, and in respect of regulation the authority of the State
Legislature in Entry 8 – List II could only be subject to the IDRA
or Rules made thereunder by the Centre.
9.1.18 It was observed that high concentration of ethyl
alcohol which is a product of distillation after fermentation is
extracted in various concentrations and can also be extracted in
a very high concentration above 90 per cent which is generally
termed as rectified spirit. It is used as raw material for various
industries. It is often supplied after being mixed with methylated
alcohol or being denatured by other processes only to safeguard
against its use for conversion into alcoholic beverages for human
consumption. Ethyl alcohol is diluted by water and its
percentage is brought to 40 or 45 or below then it becomes fit for
human consumption.
Civil Appeal No.151 of 2007 Etc. Page 64 of 241
9.1.19 The contention of the States was that various duties
for purposes of regulation were imposed to prevent the
conversion of rectified spirit or methylated alcohol to be diverted
from industrial to potable use. In other words, the contention
was that these levies had been imposed in order to prevent the
conversion of alcoholic liquors which are not fit for human
consumption to those which are fit for human consumption.
Therefore, the levies could be justified as regulatory fees.
9.1.20 The said contention was repelled and it was concluded
that Entry 8 – List II could not be invoked to justify the levy by
the State in respect of alcoholic liquors which are not made for
human consumption. Thus, the Court held that alcoholic liquors
which are made for human consumption would not include
alcoholic liquors not made for human consumption or “industrial
alcohol”.
Synthetics and Chemicals (2J):
9.2 In State of U.P. vs. Synthetics and Chemicals Ltd.,
(1991) 4 SCC 139 (“Synthetics and Chemicals (2J)”), a two-
Judge Bench of this Court (speaking through Sahai J. who also
Civil Appeal No.151 of 2007 Etc. Page 65 of 241
wrote the concurring judgment along with Thommen, J.)
observed that the High Court relied upon the observations in
paragraph 86 of the judgment of the Constitution Bench in
Synthetics and Chemicals (7J), namely, “sales tax cannot be
charged on “industrial alcohol” and, therefore, held that due to
operation of the Ethyl Alcohol (Price Control) Orders, sales tax
cannot be charged by the State on “industrial alcohol” and struck
down the levy.
9.2.1 In Synthetics and Chemicals (2J), it was categorically
argued by the learned Advocate General appearing for the State
of Uttar Pradesh that the reference to “sales tax” in the judgment
of this Court between the same parties (before seven-Judge
Bench) was accidental and did not arise from the judgment. This
was because the levy of sales tax was not in question at any stage
of the arguments nor was the question considered as it was not
in issue. In fact, the question which arose for consideration in
the earlier litigation was in regard to the validity of “vend fee and
other fees” charged by the States. This Court held that vend fee
or transport fee and similar fees, unless supported by quid pro
quo, interfered with the control exercised by the Central
Civil Appeal No.151 of 2007 Etc. Page 66 of 241
Government under IDRA and the various orders made
thereunder with respect to prices, licences, permits, distribution,
transport, disposal, acquisition, possession, use, consumption,
etc., of articles related to a controlled industry, “industrial
alcohol” being one of them. The casual reference to sales tax in
the concluding portion of the judgment was accidental and per
incuriam was the submission.
9.2.2 While considering the said plea, this Court observed that,
the only question which had to be determined between the same
parties in Synthetics and Chemicals (7J) was, “whether
“intoxicating liquors” in Entry 8 – List II was confined to potable
liquor or includes all liquors.” Answering this question, this
Court categorically held that “intoxicating liquors” within the
meaning of Entry 8 – List II was confined to “potable liquor” and
did not include “industrial liquor”.
9.2.3 Therefore, the only question that was considered by the
seven-Judge Bench of this Court was whether the State could
levy “excise duty” or “vend fee” or “transport fee” and the like by
recourse to Entry 51 or 8 – List II in respect of “industrial
Civil Appeal No.151 of 2007 Etc. Page 67 of 241
alcohol”. This Court by a detailed discussion in the seven-Judge
Bench decision had observed that the impugned statutory
provisions purportedly levying fees or enforcing restrictions in
respect of “industrial alcohol” were impermissible in view of the
control assumed by the Central Government in exercise of its
power under Section 18G of the IDRA in respect of a declared
industry falling under Entry 52 – List I, read with Entry 33 – List
III.
9.2.4 In this decision, it was observed that the aforesaid
decision of this Court was not an authority for the proposition
canvassed by the assessee in challenging the provision. This
Court could not have intended to say that the Price Control
Orders made by the Central Government under the IDRA
imposed a fetter on the legislative power of the State under Entry
54 – List II to levy taxes on the sale or purchase of goods. The
reference to sales tax in paragraph 86 of that judgment was
merely accidental or per incuriam and therefore, had no effect.
9.2.5 In the earlier litigation of Synthetics and Chemicals
(7J), the question was whether the State Legislature could levy
Civil Appeal No.151 of 2007 Etc. Page 68 of 241
vend fee or excise duty on “industrial alcohol”. The seven-Judge
Bench answered in the negative as “industrial alcohol” being
unfit for human consumption, the State Legislature was
incompetent to levy any duty of excise either under Entry 51 or
Entry 8 – List II of the Seventh Schedule.
The judgment of this Court in Synthetics and Chemicals
(7J) has been considered in later decisions and they could be
adverted to at this stage itself.
Bileshwar Khand Udyog:
9.3 In Shri Bileshwar Khand Udyog Khedut Sahakari
Mandali Ltd. vs. State of Gujarat, (1992) 2 SCC 42
(“Bileshwar Khand Udyog”), it was observed that Synthetics
and Chemicals (7J) finally brought down the curtain in respect
of “industrial alcohol” by taking it out of the purview of both
Entry 8 and Entry 51 – List II and the competency of the State to
frame any legislation to levy any tax or duty was excluded. But
by that a provision enacted by the State for supervision which is
squarely covered under Entry 33 – List III which deals with
production, supply and distribution which includes regulation
cannot be assailed. It was further observed as under:
Civil Appeal No.151 of 2007 Etc. Page 69 of 241
“ 4. …The Bench in Synthetic & Chemical’s case made it
clear that even though the power to levy tax or duty on
industrial alcohol vested in the Central Government the
State was still left with power to lay down regulations to
ensure that non-potable alcohol, that is, industrial
alcohol, was not diverted and misused as substitute for
potable alcohol. … In paragraph 88 of the decision it was
observed that in respect of industrial alcohol the States,
were not authorised to impose the impost as they have
purported to do in that case but that did not effect any
imposition of fee where there were circumstance, to
establish that there was quid pro quo for the fee nor it
will affect any regulatory measure.”9.4 It was further observed that the principle of occupied field
precluded States from trenching on any power which was already
covered by a Central legislation. But in absence of any provision
in IDRA touching upon regulation or ensuring that “industrial
alcohol” was not diverted the State was competent to legislate on
it under Entry 33 – List III.
Gujchem Distillers:
9.5 In Gujchem Distillers India Ltd. vs. State of Gujarat,
(1992) 2 SCC 399 (“Gujchem Distillers”), the judgment in
Synthetics and Chemicals (7J) was followed and the fee of 7
paise per litre was held to be a regulatory measure, namely, for
denaturation of spirit and supervision of the said process.
Civil Appeal No.151 of 2007 Etc. Page 70 of 241
Modi Distillery:
9.6 In State of UP vs. Modi Distillery, (1995) 5 SCC 753
(“Modi Distillery”), the facts were that the Allahabad High Court
had allowed the writ petitions filed by the respondents therein
who are manufacturers of Indian-made foreign liquor and
quashed the orders impugned demanding excise duty from them.
Referring to the provisions of the UP Excise Act, 1910 and the
definitions therein on the different types of liquor, this Court
speaking through Bharucha, J. (as he then was) observed in
paragraphs 9, 10 and 11 as under:
“9. It is convenient now to note the judgment of a Bench
of seven learned Judges of this Court in Synthetics and
Chemicals Ltd. v. State of U.P. [(1990) 1 SCC 109]
This Court stated that it had no doubt that the framers
of the Constitution, when they used the expression
“alcoholic liquors for human consumption”, meant, and
the expression still means, that liquor which, as it is, is
consumable in the sense that it is capable of being taken
by human beings as such as a beverage or drink.
Alcoholic or intoxicating liquors had to be understood as
they were, not what they were capable of or able to
become. Entry 51 of List II was the counterpart of Entry
84 of List I. It authorised the State to impose duties of
excise on alcoholic liquors for human consumption
manufactured or produced in the State. It was clear that
all duties of excise save and except the items specifically
excepted in Entry 84 of List I were generally within the
taxing power of the Central Legislature. The State
Legislature had limited power to impose excise duties.Civil Appeal No.151 of 2007 Etc. Page 71 of 241
That power was circumscribed under Entry 51 of List II.
It had to be borne in mind that, by common standards,
ethyl alcohol (which had 95 per cent strength) was an
industrial alcohol and was not fit for human
consumption. The ISI specifications had divided ethyl
alcohol (as known in the trade) into several kinds of
alcohol. Beverages and industrial alcohols were clearly
and differently treated. Rectified spirit for industrial
purposes was defined as spirit purified by distillation
having a strength not less than 95 per cent by volume of
ethyl alcohol. Dictionaries and technical books showed
that rectified spirit (95 per cent) was an industrial
alcohol and not potable as such. It appeared, therefore,
that industrial alcohol, which was ethyl alcohol (95 per
cent), by itself was not only non-potable but was highly
toxic. The range of potable alcohol varied from country
spirit to whisky and the ethyl alcohol content thereof
varied between 19 to about 43 per cent, according to the
ISI specifications. In other words, ethyl alcohol (95 per
cent) was not an alcoholic liquor for human
consumption but could be used as a raw material or
input, after processing and substantial dilution, in the
production of whisky, gin, country liquor, etc. In the
light of experience and development, it was necessary to
state that “intoxicating liquor” meant only that liquor
which was consumable by human beings as it was.
10. What the State seeks to levy excise duty upon in the
Group ‘B’ cases is the wastage of liquor after distillation,
but before dilution; and, in the Group ‘D’ cases, the
pipeline loss of liquor during the process of
manufacture, before dilution. It is clear, therefore, that
what the State seeks to levy excise duty upon is not
alcoholic liquor for human consumption but the raw
material or input still in process of being rendered fit for
consumption by human beings. The State is not
empowered to levy excise duty on the raw material or
input that is in the process of being made into alcoholic
liquor for human consumption.
Civil Appeal No.151 of 2007 Etc. Page 72 of 241
11. That the measure of excise duty upon alcoholic
liquor for human consumption is the alcoholic strength
thereof does not make any difference in this behalf. It is
only the alcoholic strength of the final product which is
relevant.”
In paragraph 14, it was further observed as under:
14. … The demand for excise duty is not a regulatory
measure. The power of the State to levy excise duty
cannot be expanded with reference to its power to
regulate manufacture. We are not required to and do not
express any opinion in regard to the power of the State
to regulate the manufacture of alcoholic liquors for
human consumption.
9.6.1 Consequently, the appeals were allowed with regard to
levy of excise duty upon wastage of Indian-made foreign liquor
exported outside the State of Uttar Pradesh. Rest of the appeals
were dismissed.
Shree Krishna Gyanoday Sugar Ltd.:
9.7 In Shree Krishna Gyanoday Sugar Ltd. vs. State of
Bihar, (1996) 10 SCC 11, (“Shree Krishna Gyanoday Sugar
Ltd.”), the question was whether Rule 9 of the Bihar & Orissa
Excise Rules, 1990, framed under the Bihar and Orissa Excise
Act, 1915, was ultra vires the said Act. In the alternative, the
question was whether the said Rule covered the appellants’
Civil Appeal No.151 of 2007 Etc. Page 73 of 241
distilleries which were manufacturing not only denatured spiritbut also potable liquor.
9.7.1 It was contended that the distilleries of the appellants
therein were having composite licences to manufacture not only
denatured spirit and other spirits for industrial use but were also
manufacturing potable spirit or country liquor and that for these
distilleries the State had no power or jurisdiction to invoke Rule
9 of the Rules. The High Court repelled the contention of the
appellants therein. It was held that Rule 9 was not ultra vires
the provisions of the aforesaid Act. It was cautioned that if a
distillery which manufactures denatured spirit attempts to alter
any denatured spirit with the intention that such spirit may be
used for human consumption, whether as a beverage or
internally as a medicine, it would be committing an offence which
is punishable under Section 49 of the aforesaid Act. Therefore, it
was permissible for the Excise Authorities under the Act to
supervise the working of such distilleries so that they may not
commit such offences and to oversee their manufacturing
activities. This was because the denatured spirit, if illegally
altered and made fit for human consumption, would have a
Civil Appeal No.151 of 2007 Etc. Page 74 of 241
devastating effect on the health of consumers and may evenresult in fatal consequences or loss of vision and other pernicious
physical handicaps. Therefore, supervision was provided at the
cost of distilleries and the licencees of the distilleries will have to
bear the cost of maintenance of such supervision. The same
would squarely fall within the regulatory powers for framing
Rules with a view to see that the provisions of the aforesaid Act
are not stifled or tinkered with by such licencee distilleries.
9.7.2 It was observed that the expression “commercial” would
fall in the same category as denatured spirit, meaning thereby
those spirits which are not fit for human consumption. They
would not cover potable spirits even assuming that they are
commercial spirits. That, the expression “other commercial
spirits” as contemplated by the Rule are those spirits which are
unfit for human consumption and they do not cover potable
liquor which cannot fall in line with denatured spirit. Thus, it
was observed that the expression “or any other commercial
spirit” must mean those spirits which fall in the category of
spirits unfit for human consumption like denatured spirits which
are used for “industrial purposes” or any other purpose other
Civil Appeal No.151 of 2007 Etc. Page 75 of 241
than for human consumption. It was held that Rule 9 of theaforesaid Rule would apply to only those distilleries which were
licenced solely and wholly for the purpose of manufacturing
either denatured spirit or any other commercial spirit unfit for
human consumption but would not include those distilleries
which are licenced for manufacturing along with denatured spirit
or other industrial spirits unfit for human consumption, also
potable liquor which is fit for human consumption. Hence, it was
observed that the appellant therein, who had composite and
multiple licences to manufacture potable liquor, was outside the
sweep of second part of Rule 9 of the aforesaid Rules. That to
such distilleries the first part of the Rule may apply wherein the
State will have to bear the cost of providing supervisors and
establishments for that purpose but the cost of such
establishment cannot be foisted on such distilleries.
Bihar Distillery:
9.8 In Bihar Distillery, narrating the history with regard to the
legislations on rectified spirit and in the context of the IDRA, and
the incorporation of Item 26 in the First Schedule of the said Act
which deals with “Fermentation Industries”: (i) Alcohol, (ii) other
Civil Appeal No.151 of 2007 Etc. Page 76 of 241
products of “Fermentation Industries”, this Court, speakingthrough Jeevan Reddy, J., noted that the decision in Synthetics
and Chemicals (7J) called for demarcation of the spheres of the
Union and the States, particularly in the matter of alcoholic
liquors.
9.8.1 This Court observed that insofar as “intoxicating
liquors”/potable liquors are concerned, it is the exclusive
province of the States. But for manufacturing “intoxicating
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). Alcohol can however be used for industrial purposes
even without denaturing it. To say that the States step in only
when alcohol becomes potable and not before it, creates a doubt
and enough room for abuse apart from difficulties of supervision
and regulation, such as, in the matter of licensing such
industries — whether the Centre alone or the States or both
should do it. Therefore, notices were issued to all the State
Civil Appeal No.151 of 2007 Etc. Page 77 of 241
Governments as well as Union of India and the interplay betweenthe Entries of Lists I, II and III which are under consideration
here and which are extracted above, were discussed.
9.8.2 It was opined that Entry 51 – List II and Entry 84 – List I
complement each other inasmuch as both provide for duties of
excise. However, Entry 51 – List II empowers the State to levy
duties of excise on alcoholic liquors for human consumption,
which is expressly excluded from Entry 84 – List I. Therefore,
alcoholic liquors may be used for several purposes, one of which
is meant for human consumption. It was further observed that
Entry 8 – List II does not use the expression “alcoholic liquors for
human consumption” but employs the expression “intoxicating
liquors” and significantly, the words “for human consumption” is
conspicuous by its absence. According to Jeevan Reddy, J., this
is for the obvious reason that the very word “intoxicating”
signifies “for human consumption”. Thus, Entry 8 – List II
emphasizes all aspects of “intoxicating liquors” within the State’s
sphere, i.e., to say production, manufacture, possession,
transport, purchase and sale of “intoxicating liquors”. In this
context, Entry 6 – List II was relied upon to observe that the said
Civil Appeal No.151 of 2007 Etc. Page 78 of 241
Entry, which, inter alia, deals with “public health”, has a closenexus to prohibiting or regulating consumption of “intoxicating
liquors”.
9.8.3 It was next opined that clause (a) in Entry 33 – List III is
also significant. That though the 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 – List I, yet the “trade
and commerce in, and the production, supply and distribution
of the products of such industry” is placed in the Concurrent
List. According to Jeevan Reddy, J., this would mean that it
could be regulated by both by the Union as well as by the States,
subject, of course, to Article 254 of the Constitution.
9.8.4 It was observed that insofar as the field is not occupied
by the laws made by the Union, the States are free to legislate. It
was further observed that Entry 24 – List II is in the nature of a
general Entry. It deals with industries but is made expressly
subject to Entries 7 and 52 – List I. That by making a declaration
in terms of Entry 52 – List I in Section 2 of the IDRA, the Union
has taken control of the several industries mentioned in the
Civil Appeal No.151 of 2007 Etc. Page 79 of 241
Schedule to the Act. As a result, the States have been denudedof their power to legislate with respect to those industries on that
account. It was further observed that a three-Judge Bench in
McDowell had held that Entry 52 overrides only Entry 24 – List
II and no other Entry in List II. That Entry 8 – List II is not
overborne in any manner by Entry 52 – List I, which means that
so far as “intoxicating liquors” are concerned, they are within the
exclusive sphere of the States.
9.8.5 Referring to the judgment of Sabyasachi Mukharji, J. (
as he then was) in Synthetics and Chemicals (7J), particularly
paragraph 85, it was observed that the expression “both potable
and” is an accidental error as the judgment in its earlier
paragraphs had stated that so far as potable alcohol is
concerned, they are governed by Entry 8 – List II and are within
the exclusive domain of the States. The said judgment did not
intend to convey that the industries engaged in the manufacture
or production of potable liquors have been controlled by the
Union by virtue of Item 26 of the First Schedule to the IDRA. So
far as potable liquors are concerned, their manufacture,
production, possession, transport, purchase and sale are within
Civil Appeal No.151 of 2007 Etc. Page 80 of 241
the exclusive domain of the States and the Union of India has nosay in the matter.
9.8.6 In this case, the Court further noted the contentions
urged on behalf of the State to the effect that rectified spirit is
“intoxicating liquors” within the meaning of Entry 8 – List II and
hence outside the purview of Entry 24 – List II, which would in
turn mean that the Union cannot take over its control by making
a declaration in terms of Entry 52 – List I. Further Item 26 of the
Schedule to the IDRA is ineffective and invalid insofar as it seeks
to regulate the production and manufacture, etc. of rectified
spirit. The State submitted that the decision to the contrary in
Synthetics and Chemicals (7J) is not correct and requires
reconsideration.
9.8.7. The State next contended that Entry 51 – List II and Entry
84 – List I speak of “alcoholic liquors for human consumption”
and not “alcoholic liquors “fit” for human consumption”. That
the judgment in Synthetics and Chemicals (7J), read the word
“fit” in the Entries and thus curtailed the legislative power of the
States. It was further contended that rectified spirit is really and
Civil Appeal No.151 of 2007 Etc. Page 81 of 241
essentially “intoxicating liquors” and by the process of “reductionof liquor” by adding water and spices (optional) does not cease it
to be “intoxicating liquors”. In the State of U.P., bulk of the
rectified spirit is used for the purpose of obtaining country liquor
or IMFLs and a small quantity is used for industrial purposes.
Therefore, the expression “intoxicating liquors” must include
rectified spirit. It was further submitted that during the course
of manufacture of rectified spirit, potable liquor comes into
existence and the main raw material for rectified spirit is
molasses.
9.8.8 However, on behalf of the distilleries, it was contended
that there is no good reason for doubting the correctness of the
decision in Synthetics and Chemicals (7J) or for referring the
issue to a larger Constitution Bench of nine or more Judges. This
was because if the States’ submission were to be accepted, then
Item 26 in the Schedule to the IDRA would become superfluous
and meaningless. Therefore, this Court in Synthetics and
Chemicals (7J) speaking through Sabyasachi Mukharji, J., drew
a line between the respective spheres of the Union and the
States. It was also contended that despite the insertion of Item
Civil Appeal No.151 of 2007 Etc. Page 82 of 241
26 in the IDRA, the State was not totally denuded of any power
to make a law with respect to rectified spirit or for that matter
“industrial alcohol”. In this regard, Entry 33 – List III and Section
18G read with other provisions of the IDRA were considered and
by placing reliance on Tika Ramji, it was observed that “the
possibility of an order under Section 18G being issued by the
Central Government would not be enough. The existence of such
an order would be the essential prerequisite before any
repugnancy could ever arise”.
9.8.9 On a conspectus consideration, this Court held that the
decision in Synthetics and Chemicals (7J), did not deal with
the aspects which arose for consideration in this case 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
Indian Made Foreign Liquor (“IMFL”). When the 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 to
health. By saying “toxic”, it did not mean that it cannot be
Civil Appeal No.151 of 2007 Etc. Page 83 of 241
utilised for potable purposes either by diluting it or by blending
it with other items. The Court in Bihar Distillery noted that 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 basic substance from which
IMFL are made. Denatured rectified spirit, of course, is wholly
and exclusively “industrial alcohol”. It was observed that this
basic factual premise which was not and could not be denied by
any one raised certain aspects for consideration therein which
were not raised or considered in Synthetics and Chemicals
(7J).
9.8.10 It was noted that Synthetics and Chemicals (7J) did
not deal with rectified spirit which could be converted into
potable alcohol and was merely concerned with “industrial
alcohol” which could not be so converted, i.e., denatured rectified
spirit. A distinction was drawn between industries engaged in
manufacturing rectified spirit meant exclusively for supply to
industries (industries other than those engaged in obtaining or
manufacturing of potable liquor), whether after denaturing it or
without denaturing it, and industries engaged in manufacturing
Civil Appeal No.151 of 2007 Etc. Page 84 of 241
rectified spirit exclusively for the purpose of obtaining or
manufacturing potable liquor. In the first case, the industry was
to be under “the total and exclusive control of the Union and be
governed by the IDRA and the rules and regulations made
thereunder”. As far as the second case is concerned, it was noted
that “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”.
9.8.11 It was thus noted that Synthetics and Chemicals
(7J) was mainly concerned with “industrial alcohol”, i.e.,
denatured rectified spirit. This Court raised several questions
with regard to the supervision of the manufacture of country
liquor or IMFL, which is not the concern of the Union but the
bulk of the rectified spirit produced in many States is meant for
and is utilised for obtaining or manufacturing potable liquors.
The question was then at what stage, would the State intervene
in the process of manufacture of potable liquor – whether until
the stage of potable liquor is reached, or whether there has to be
supervision even at a stage prior thereto by the States. This
Court took into consideration the fact that under Entry 33(a) –
Civil Appeal No.151 of 2007 Etc. Page 85 of 241
List III, the States do have the power to legislate on this field,
provided the field is not occupied by any law made by the Union.
Further, 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, it was noted that there has to be a clear
line of demarcation drawn at the stage of clearance or removal of
rectified spirit. In the matter of the levies, when the removal or
clearance is for industrial purpose, the levy of duties of excise
and all other control is with the Union but when the
removal/clearance is for obtaining or manufacturing potable
liquors, the levy of duties and all other control is with the States.
It was observed that there is a need for joint control and
supervision of the process of manufacture of rectified spirit and
its use and disposal. Hence, certain observations were made by
way of elaboration by taking into consideration the nature of the
product and its use, namely supply for industries or “industrial
alcohol” or use for potable purposes and the circumstances of
misuse of rectified spirit (for industrial purposes) by diverting it
for potable purposes, which are as under:
Civil Appeal No.151 of 2007 Etc. Page 86 of 241
(1) (a) 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 IDR 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.
(b) 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, is 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 to post their staff in the
distilleries and levy reasonable regulatory fees to
defray the cost of such staff.
(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 ofCivil Appeal No.151 of 2007 Etc. Page 87 of 241
excise duties and all other control shall be that of
the States.
(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:
(a) 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 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;
b) the duties of excise on rectified spirit
cleared/removed for the purposes of obtaining or
manufacturing potable liquors shall be levied by the
State Government concerned. 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 State concerned to ensure
evasion of excise duties on rectified spirit
removed/cleared from the distillery.
c) 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.
Civil Appeal No.151 of 2007 Etc. Page 88 of 241
d) 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 State excise enactment concerned 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 and necessary that the Union
Government makes necessary rules/regulations
under the IDR 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.
(5) 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.
(6) The power to permit the establishment of any
industry engaged in the manufacture of potable
liquors including IMFLs, 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 intoxicating liquors is equally
that of the States.
9.8.12 The aforesaid decision in Bihar Distillery was
doubted in Deccan Sugar and Abkari Co. Ltd. vs.
Commissioner of Excise, (1998) 3 SCC 272 (“Deccan Sugar
Civil Appeal No.151 of 2007 Etc. Page 89 of 241
and Abkari Co. Ltd.”), and the appeals were referred to a larger
Bench which followed Synthetics and Chemicals (7J) and Modi
Distillery without expressly overruling the decision in Bihar
Distillery. Opining that Synthetics and Chemicals (7J)
continued to hold the field, it was noted that the State’s power
was limited to regulation of non-potable alcohol for the limited
purpose of preventing its use as alcoholic liquors. Ultimately,
the appeal filed by the state was dismissed as the levies could
not be treated as a regulatory measure.
McDowell:
9.9 In McDowell, the State of Andhra Pradesh had prohibited
the manufacture of liquor by an amendment in the Andhra
Pradesh Prohibition Act, 1995. The appellants therein who were
manufactures of “intoxicating liquors” challenged the
constitutional validity of the Act by which the Prohibition Act was
amended to include Section 7-A by which the manufacture of
liquor came to be prohibited. This was owing to the lack of
legislative competence in view of Item 26 in the First Schedule of
the IDRA, which according to the writ petitioners therein, vested
the control of alcohol industries exclusively in the Union and
Civil Appeal No.151 of 2007 Etc. Page 90 of 241
denuded the State Legislature of its power to licence or regulatethe manufacture of liquor. This argument was further based on
the fact that “Fermentation Industries” were included in the
Schedule of the IDRA and hence the State was denuded of its
power to licence and regulate manufacture of liquor which
industry and its product were within the exclusive province of
the Union and hence the State lost its competence to grant,
refuse or renew the licences The position of law was reiterated as
under: –
“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 IDR 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 Seventh Schedule to
the Constitution read with Article 47 thereof.”
The Civil Appeals were dismissed by this Court.
Civil Appeal No.151 of 2007 Etc. Page 91 of 241
Vam Organic I:
9.10 In Vam Organic I, the Notification dated 18.05.1990
issued by the Excise Commissioner, Uttar Pradesh, was assailed
before the High Court and the writ petition was dismissed. By
the said Notification, certain amendments were made to the
Rules published vide Notification dated 26.09.1910. Section 41
of the UP Excise Act, 1910 gave power to the Excise
Commissioner to make Rules, inter alia, for regulating the
manufacture, supply, storage or sale of any intoxicant. The
earlier Rule 2 was substituted by a new Rule 2 titled
“Denaturation of Spirit”. The amended Rule provided for a new
licence for denaturation of spirit in a prescribed form to be issued
by the Collector to all distilleries situated within his district
holding licence PD-1 or PD-2 and persons holding licences FL-
16, FL-39, FL-40 and FL-41 to denature the spirit. A licence fee
for denaturation of spirit at the rate of 7 paise per litre was levied
in advance. The appellants in this case who were manufacturers
of vinyl acetate monomer (a basic organic chemical for which
“industrial alcohol” was the main feed stock being produced in
the distillery) contended that the entire “industrial alcohol”
Civil Appeal No.151 of 2007 Etc. Page 92 of 241
produced was denatured as per the method approved by the
State Excise Authorities and was being used in their factory for
manufacturing vinyl acetate monomer. The appellants held
licences in the form of FL-39 to enable them to use the “industrial
alcohol” as the main raw material for their product. The
notification was challenged on two grounds: firstly, that the State
of Uttar Pradesh has no power to legislate in respect of “industrial
alcohol” or to levy taxes in respect thereof. Secondly, that the levy
being not based on quid pro quo was otherwise bad.
9.10.1 In this case, before considering the legal contentions,
this Court highlighted the difference between “industrial
alcohol”, denatured spirit and potable liquor. Ethyl alcohol was
noted to be rectified spirit of 95% v/v in strength. Rectified spirit
was highly toxic and unfit for human consumption. However,
rectified spirit diluted with water was noted to be country liquor.
Rectified spirit, as it was, can be used for manufacture of various
other products like chemicals, etc. Rectified spirit, produced for
industrial use was required by a Notification issued under the
Act to be denatured in order to prevent the spirit from being
directed to human consumption. Rectified spirit was denatured
Civil Appeal No.151 of 2007 Etc. Page 93 of 241
by adding denaturants which made the spirit unpalatable and
nauseating. As such rectified spirit could be converted to potable
liquor but once denatured it could be used only as “industrial
alcohol”.
9.10.2 It was observed that in Synthetics and Chemicals
(7J) the question of legislative competence of the State to impose
tax or levy on “industrial alcohol” was ruled in the negative, so
far as ethyl alcohol/rectified spirit is concerned. Further, even if
the State had the regulatory power to prevent misuse of
“industrial alcohol” for potable purposes, such power did not
include power to levy any impost. It was further observed that
denaturation is a statutory duty imposed by a notification under
the U.P. Excise Act and as no service by the State was being
provided for the same, no fee could be charged and even if the
State had to incur any expenses for enforcement of the
requirement of denaturation, there is no quid pro quo between
the expenses incurred and the fees charged. This Court noted
that the term “industrial alcohol” is not used in any of the Lists
and whether alcoholic liquors other than “alcoholic liquors for
human consumption” or “intoxicating liquors” was a State
Civil Appeal No.151 of 2007 Etc. Page 94 of 241
subject or a Union subject should be the real controversy. It was
with a view to describing that particular kind of liquor the term
“industrial alcohol” is used. It was observed that after an
analysis of all the provisions of law giving the Union Parliament
and the State Legislature jurisdiction to legislate on alcohol, this
Court in Synthetics and Chemicals (7J) held that the
impugned notifications therein, imposing certain fees as vend fee
or transport fee, etc. were within the legislative competence of
the State. That this Court was fully aware of the fact that rectified
spirit was the ingredient for “intoxicating liquors” or alcoholic
liquors 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”.
In fact, in the judgment in Synthetics and Chemicals (7J), the
Court has enumerated the various areas relating to “industrial
alcohol” in which the State could still legislate or make rules. In
that regard paragraph 86 of the judgment in Synthetics and
Chemicals (7J) was quoted. Of course, the same has been
explained in Synthetics and Chemicals (2J), discussed above.
Civil Appeal No.151 of 2007 Etc. Page 95 of 241
This Court observed in this case that denaturation of spirit
meant for industrial use is meant to prevent misuse of non-
potable alcohol for human consumption and as such was
specifically mentioned by the Court to be within the legislative
competence of the State. This Court observed in para 14 as
under:
“14. 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. In this view, denaturation of
spirit is not only an obligation on the States but also
within the competence of the States to enforce.”Haryana Brewery Ltd.:
9.11 In Government of Haryana vs. Haryana Brewery Ltd.,
(2002) 4 SCC 547 (“Haryana Brewery Ltd.”), the controversy
related to levy of excise duty on beer brewed by the respondent
therein. Rule 35 of the Punjab Brewery Rules, 1956 and Section
32 of the Punjab Excise Act, 1914 were considered. It was
observed by this Court that the said Rule was only an enabling
provision which would help the Excise Authorities in calculating
Civil Appeal No.151 of 2007 Etc. Page 96 of 241
what would be the quantity of beer manufactured and fit forhuman consumption on which excise duty could be imposed.
The said Rule was declared valid and it did not require any
reading down as had been done by the High Court. It was
observed that the tax was on the end product and not on the raw
material. Rule 35 indicated that in order to determine what was
the quantity of beer manufactured which was fit for human
consumption, after all the processes were completed, one had to
see what was the quantity of raw materials which were utilised
for the manufacture of beer and then allowance for wastage of
seven per cent had to be made and thereafter the quantity of beer
manufactured was determined. That the figure taken for the
purpose of calculating the excise duty was only on the end
product, namely the beer produced, and not the quantity of the
raw material used in manufacture of beer, during which loss of
some quantity as wastage would have occurred and there could
not be a deduction of any sum or proportion as wastage from the
quantity of end product in order to arrive at that quantity. In
such a case, the question of determining any allowance of seven
per cent for wastage did not arise. Therefore, the Excise
Civil Appeal No.151 of 2007 Etc. Page 97 of 241
Authorities could levy excise duty only on the beer after it had
been manufactured and the levy was on the quantity
manufactured. How this quantity had to be arrived was to be
determined according to Section 32 read with Rule 35 of the
aforementioned Act and Rules. Hence, Rule 35 was sustained as
valid and it did not require any reading down.
Industrial Corporation (P) Ltd.:
9.12 In the State of Bihar vs. Industrial Corporation (P)
Ltd., (2003) 11 SCC 465 (“Industrial Corporation (P) Ltd.”),
the respondent companies were engaged in the manufacture of
rectified spirit from molasses allotted to them by the Controller
of Molasses in terms of the Bihar Molasses (Control) Act, 1947
and they had been granted licences under various provisions of
the Bihar and Orissa Excise Act, 1915. It was found that certain
quantity of rectified spirit had to be produced but instead there
was a shortfall and therefore, notice was issued and penalty was
imposed on the premise that the respondents therein had
diverted the molasses towards manufacturing either country
liquor or liquor which was fit for human consumption. Assailing
the same, writ petitions were filed before the High Court which
Civil Appeal No.151 of 2007 Etc. Page 98 of 241
had allowed the said writ petitions. Therefore, the State hadappealed before this Court.
9.13 This Court noted that molasses is a by-product of sugar
and mainly used as raw material for manufacture of spirit,
including alcohol for human consumption. The respondents in
the said case were engaged in the manufacture of rectified spirit
from molasses and penalty was imposed owing to a loss of
revenue by reason of loss of wastage of molasses while carrying
on manufacture of such rectified spirit. One of the contentions
raised was that the State has power to impose duty only on the
spirit which is for human consumption and the respondents
therein had not carried out any activities in relation to
manufacture of potable liquor from the molasses. It was observed
that the judgment in Modi Distillery applied to the said case
and therefore, no penal duty could be imposed on rectified spirit.
Reliance placed on Bihar Distillery was not gone into inasmuch
as it was observed that it was unnecessary to go into the question
of the correctness of the observations made in Bihar Distillery.
However, the observations of the High Court therein were that in
view of the judgment of this Court in Synthetics and Chemicals
Civil Appeal No.151 of 2007 Etc. Page 99 of 241
(7J), the State had no legislative competence even in relation to
potable liquor, (which is fit for human consumption), was not
correct.
Vam Organic II:
9.14 In Vam Organic II, a notification dated 13.01.1990
whereby licence fee of 15 paise per litre was sought to be imposed
on the quantity of specially denatured spirit (STS) obtained from
distilleries in the State of Uttar Pradesh under Rule 3(a) of the
UP Licences for the Possession of Denatured Spirit and Specially
Denatured Spirit Rules, 1976 was assailed before the Allahabad
High Court. The writ petitions were allowed, and the State had
filed appeals before this Court. Section 3 (13) of the UP Excise
Act, 1910 (for short, “1910 Act”) had defined the word
“intoxicant” as meaning “any liquor or intoxicating drug”. The
word “liquor” in turn was defined in Section 3(11) as meaning
“intoxicating liquors and includes spirits of wine, spirit, wine,
tari, pachwai, beer and all liquid consisting of or containing
alcohol, also any substance which the State Government may by
notification declare to be liquor for the purposes of the Act.” In
paragraph 6 of the judgment, it was observed that “industrial
Civil Appeal No.151 of 2007 Etc. Page 100 of 241
alcohol” is not liquor nor is it potable as such. However, it maybe utilized to produce a kind of liquor if it is denatured.
“Denatured” in Section 3(9) of the Act was defined to mean
“rendered unfit for human consumption in such manner as may
be prescribed by the State Government by notification in this
behalf”. Thus, the State Act equated “industrial alcohol” to non-
potable alcohol and not fit for human consumption. To ensure
the denaturation of “industrial alcohol” under Section 41 of the
1910 Act, Rules were made in the year 1976. It was contended
by the appellant State that the word “industry” has been
construed by the Constitution Bench of this Court in ITC Ltd.
vs. Agricultural Produce Market Committee, (2002) 9 SCC
232 (“ITC Ltd.”) to mean only manufacture and production.
Therefore, the State was competent under Entry 33 – List III to
regulate the products of an industry which was declared to be a
controlled industry under Entry 52 – List I. Since there was no
Central legislation occupying the field, the State law must be held
to be valid.
9.14.1 Referring to Synthetics and Chemicals (7J), it was
observed that since the coming into force of the IDRA on
Civil Appeal No.151 of 2007 Etc. Page 101 of 241
08.05.1952, the State Legislatures are constitutionally
incompetent to levy tax on “industrial alcohol”. This principle
was reiterated in Modi Distillery wherein it was held that the
State’s power to levy excise duty was limited to alcoholic liquors
for human consumption which means, that liquor which, as it
is, is consumable in the sense that it is capable of being taken
by human beings as such as a beverage or drink. Therefore, even
if ethyl alcohol (95 per cent) could be used as a raw material or
input, after processing and substantial dilution, in the
production of whisky, gin, country liquor etc. nevertheless, it was
not “intoxicating liquors” which expression meant only that
liquor which was consumable by human beings as it was.
Therefore, the State could not legislate on “industrial alcohol”
despite the fact that such “industrial alcohol” has the potential
to be used to manufacture alcoholic liquors for human
consumption.
9.14.2 Ultimately, in paragraph 43 of the judgment, it was
pithily observed as under:
“43. Considering the various authorities cited, we are of
the view that the State Government is competent to levy
fee for the purpose of ensuring that industrial alcohol isCivil Appeal No.151 of 2007 Etc. Page 102 of 241
not surreptitiously converted into potable alcohol so that
the State is deprived of revenue on the sale of such
potable alcohol and the public is protected from
consuming such illicit liquor. But this power stops with
the denaturation of the industrial alcohol. Denatured
spirit has been held in Vam Organics I to be outside the
seisin of the State Legislature. Assuming that denatured
spirit may by whatever process be renatured (a
proposition which is seriously disputed by the
respondents) and then converted into potable liquor,
this would not give the State the power to regulate it.
Even according to the demarcation of the fields of
legislative competence as envisaged in Bihar Distillery
industrial alcohol for industrial purposes falls within the
exclusive control of the Union and according to Bihar
Distillery “denatured rectified spirit, of course, is wholly
and exclusively industrial alcohol” (SCC p. 742, para
23).”
Analysis of Judicial Dicta:
10. I shall now analyse the judgments of this Court on the
points in controversy.
10.1 In Indian Mica, the question which came up was whether
the fee levied under Rule 111 of the Bihar and Orissa Excise
Rules framed under Section 90 of the Bihar and Orissa Excise
Act, 1915 on denatured spirit used and possessed by the
appellants therein had sufficient quid pro quo for the levy. This
Court struck down the levy as being unjustified and excessive as
Civil Appeal No.151 of 2007 Etc. Page 103 of 241
there was no co-relationship between the levy and the services
rendered.
10.2 In Southern Pharmaceuticals and Chemicals vs.
State of Kerala, AIR 1981 SC 1863 (“Southern
Pharmaceuticals”), being aggrieved by the dismissal of their
writ petitions and upholding the constitutional validity of Section
12-A and other sections of the Kerala Abkari Act, and Rules 13
and 16 of the Kerala Rectified Spirit Rules, 1972, the
manufacturers of medicinal and toilet preparations containing
alcohol had filed the appeal before this Court questioning the
legislative competence of State to enact a law relating to
medicinal and toilet preparations containing alcohol under Entry
8 – List II. Repelling the said contention in light of the scheme of
legislation and its history, it was observed that impugned Act was
relatable to Entry 8 – List II. Reference was also made to the
judgment of this Court in FN Balsara and it was held that the
main purpose of the impugned Act was to consolidate the law
relating to manufacture, sale and possession of “intoxicating
liquors” which squarely fell under Entry 8 – List II, while the main
object of the Central Act was to provide for the levy and collection
Civil Appeal No.151 of 2007 Etc. Page 104 of 241
of duties of excise on medicinal and toilet preparations
containing alcohol falling under Entry 84 – List I. According to
this Court when the framework of the two enactments was
examined, it was apparent that the Central and the State
legislations operated in two different and distinct fields. It was
held that 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.
10.3 In Synthetics and Chemicals (7J), the question for
consideration was whether different legislations and rules in
respect of “industrial alcohol” enacted by the States were valid.
In my view, this Court was clear about the concept of “industrial
alcohol” and “intoxicating liquors” and therefore, the State
Legislatures’ competence to levy excise duty on “industrial
alcohol” was considered as the seminal issue. In that context,
the scope and ambit of Entry 8 – List II was also considered. It is
in the context of the taxing power of the States, i.e., to levy excise
Civil Appeal No.151 of 2007 Etc. Page 105 of 241
duty on “industrial alcohol” and/or impost(s) such as vend fees
which was the point of controversy.
In the above backdrop, the question was crystallised to
whether the expression “intoxicating liquors” in Entry 8 – List II
is confined to potable liquor or includes all liquors. It was
observed that the expression “alcoholic liquors for human
consumption” used by the framers of the Constitution in Entry
51 – List II and Entry 84 – List I meant that liquor which is
consumed by human beings directly as a beverage or as a drink.
It was observed that alcoholic liquor or “intoxicating liquors”
must be understood as common people would understand it and
not what certain alcoholic products are capable of being
transformed or converted into. That when excise duty was being
levied under Entry 84 – List I, it did not include alcoholic liquors
for human consumption but included denatured spirit which is
“industrial alcohol”. It was observed that merely because the
denatured spirit could be treated with water and transformed
into alcoholic liquors into human consumption which did not
involve a process of manufacture, the States would not have the
Civil Appeal No.151 of 2007 Etc. Page 106 of 241
legislative competence to levy excise duty under Entry 51 – List
II.
10.4 Subsequently, in Synthetics and Chemicals (2J), it was
clarified that the question which arose for consideration before
the seven-Judge Bench was with regard to the validity of “vend
fee and other fees” charged by the States. The two-Judge Bench
clarified that the seven-Judge Bench had answered the question
whether, “intoxicating liquors” in Entry 8 – List II was confined to
only potable liquor or other liquors also and it was held that it
included only potable liquor and not “industrial alcohol”.
However, it was clarified that the State has the power to levy taxes
on sale or purchase of goods under Entry 54 – List II and therefore
paragraph 86 of the seven-Judge Bench in Synthetics and
Chemicals (7J) was clarified in those terms. It was observed that
in paragraph 86 by an accident (due to an inadvertence) the
prohibition of sales tax being levied by the States on the
“industrial alcohol” was adverted to without there being a
discussion on that aspect of the matter and, therefore, to that
extent the dictum of the seven-Judge Bench in Synthetics and
Chemicals (7J) was per incuriam. It was further clarified that the
Civil Appeal No.151 of 2007 Etc. Page 107 of 241
seven-Judge Bench was only concerned with the question
whether the State Legislature could levy vend fee or excise duty
on “industrial alcohol” and that the said question was answered
in the negative by holding that “industrial alcohol” being unfit for
human consumption, the State Legislature was incompetent to
levy any duty of excise under Entry 51 – List II.
10.5 In the above context, it was also observed that alcohol can
be divided into two categories, namely, potable and non-potable
alcohol. That alcohol which is potable is “intoxicating liquors” for
human consumption directly as a beverage and comes within the
scope and ambit of Entry 8 – List II and the State Legislature has
the power to regulate such “intoxicating liquors” by making
relevant laws. However, non-potable liquor or “industrial
alcohol” as it is popularly called, can be diluted and consumed
as a beverage, and the State has an obligation and powers to
regulate and ensure that there is no such abuse having regard to
Article 47 of the Constitution being a Directive Principle of State
Policy. Hence, under Entry 8 – List II, the State can make laws
for prevention of production, possession, sale etc. of non-potable
alcohol as “intoxicating liquors”. Such regulation would be intra
Civil Appeal No.151 of 2007 Etc. Page 108 of 241
vires Entry 8 – List II and would not be in conflict with any other
Entry in List I, II or List III. This would also be in line with Article
47 of the Constitution.
10.6 The aforesaid view was affirmed in Bileshwar Khand
Udyog by holding that clarity was brought about in respect of
“industrial alcohol” in Synthetics and Chemicals (7J) and the
competency of the State to frame any legislation to levy any tax
or duty on “industrial alcohol” was excluded. However, under
Entry 33 – List III, there was power vested in the State insofar as
“industrial alcohol” was concerned as the said product was a
product of a scheduled industry, namely, Item 26 of the First
Schedule of the IDRA which was enacted pursuant to Entry 52 –
List I. This is subject to the intention of the Parliament to occupy
the field as per the provisions of the IDRA, in particular, under
Section 18G of the said Act. Gujchem Distillers also followed the
aforesaid judgment. Khoday Distilleries also emphasised the
fact that the State has the power to completely prohibit the
manufacture, sale, possession, distribution and consumption of
potable liquor as a beverage but the State cannot prohibit trade
and business in medicinal and toilet preparations containing
Civil Appeal No.151 of 2007 Etc. Page 109 of 241
liquor or alcohol. In the same way, the State cannot prohibit
trade or business in “industrial alcohol” which is not used as a
beverage but used legitimately for industrial purposes. It was
held that restrictions imposed by the States on trade or business
in “industrial alcohol” or in medicinal and toilet preparations
containing liquor or alcohol could be for the purpose of
preventing their abuse or diversion for use as or in beverages.
10.7 In Shree Krishna Gyanoday Sugar Ltd. it was
categorically observed that the excise authorities under the
concerned State Act could supervise the working of the distilleries
which had composite licences to manufacture not only denatured
spirit and other spirits for industrial use but also potable spirit
or country liquor in order to prevent alteration of denatured spirit
and make it fit for human consumption. Therefore, at the
distilleries of the licencees, supervision had to be provided as it
was a regulatory measure. In this context also, it was clarified
that the denatured spirit is a spirit which is not fit for human
consumption and non-potable, and was also called as “other
commercial spirits” under the rules in question, as they are used
for industrial purposes or any other purpose other than human
Civil Appeal No.151 of 2007 Etc. Page 110 of 241
consumption as a beverage. This was opposed to potable liquor
which is fit for human consumption. It was finally observed that
in respect of such distilleries having composite licencees, the
State will have to provide the cost of supervisors and the same
could not be foisted on such distilleries.
10.8 Jeevan Reddy, J., in Bihar Distillery, also held that
insofar as “intoxicating liquors or potable liquors” are concerned,
they fall in the exclusive province of the State. However, alcohol
can be used for the industrial purposes even without denaturing
it. Significantly, it was held that Entry 8 – List II uses the
expression “intoxicating liquors” which signifies “liquor for
human consumption”. The absence of the words “for human
consumption” in Entry 8 – List II is irrelevant as the word
“intoxicating” signifies human consumption, i.e., as a beverage
and all aspects of its production, manufacture, possession,
transport, sale and purchase of “intoxicating liquors” are covered
under the said Entry. Also the accidental error in para 85 of the
Synthetics and Chemicals (7J) was explained to say that all
potable liquor shall be governed by Entry 8 – List II which is
within the exclusive domain of the State. Further, Entry 8 – List
Civil Appeal No.151 of 2007 Etc. Page 111 of 241
II is outside the purview of Entry 24 – List II and the Union cannot
take control of “intoxicating liquors” by making a declaration in
terms of Entry 52 – List I. It was further observed that
Synthetics and Chemicals (7J) mainly dealt with “industrial
alcohol”, i.e., denatured rectified spirit.
10.9 In Bihar Distillery, this Court further observed that the
States have the power to legislate under Entry 33(a) – List III
provided the field is not occupied by the Union. That there was
a clear line of demarcation at the stage of removal or clearance of
the product, i.e., if the clearance is for “industrial” purpose, the
duties of excise and all other control is with the Union but if the
removal or clearance is for obtaining or manufacturing “potable
liquor”, the levy of duty and other control is with the State. It
was observed that there was a need for joint control and
supervision of the process of manufacture of rectified liquor and
its use and disposal for ensuring that “industrial alcohol” was not
misused by diverting it for potable purpose and consequently
certain concrete observations were made in the said judgment
which is of a binding nature.
Civil Appeal No.151 of 2007 Etc. Page 112 of 241
10.10 The challenge to the notification issued by the excise
commissioner, Uttar Pradesh dated 18.05.1990 was a subject
matter of controversy in Vam Organic I, in the context of
legislative competence of the State of Uttar Pradesh to impose tax
or levy on “industrial alcohol”, ethyl alcohol and rectified spirit.
It was observed that the expression “industrial alcohol” is not
used in any of the three Lists of the Seventh Schedule of the
Constitution. Referring to Synthetics and Chemicals (7J), this
Court observed that the judgment in the aforesaid case proceeded
to consider that rectified spirit was the ingredient for
“intoxicating liquors” or alcoholic liquors for human
consumption. The same was referred to as “industrial alcohol” in
respect of which the State has no power whatsoever under
Entries 8 and 51 – List II, while the States have the exclusive
competence to legislate on “intoxicating liquors” or “alcoholic
liquors for human consumption” but if any alcoholic preparation
is diverted for human consumption, the States would have the
power to legislate under Entry 8 – List II.
Civil Appeal No.151 of 2007 Etc. Page 113 of 241
10.11 Again, Jeevan Reddy, J. speaking for the Court in Bihar
Distillery noted that in Synthetics and Chemicals (7J) a
distinction was drawn between rectified spirit meant exclusively
for industries (“industrial alcohol”) and rectified spirit exclusively
used for obtaining potable alcohol. The said judgment did not
deal with rectified spirit which could be converted to potable
alcohol as such. That insofar as the first category was concerned,
it was under the exclusive control of the Union and the second
category was under the control of the State at all stages including
the establishment of the distillery.
10.12 In Vam Organic II, the history of the legislations on
“intoxicating liquors” as well the earlier judgments of this Court
were considered and it was observed that the State Legislatures
are constitutionally not competent to levy tax on “industrial
alcohol” since the coming into force of the IDRA on 08.05.1952.
It was opined that Synthetics and Chemicals (7J) continued to
hold the field and therefore, the States’ power was limited to
regulation of non-potable alcohol for the limited purpose of
preventing its use as alcoholic liquors.
Civil Appeal No.151 of 2007 Etc. Page 114 of 241
Further Analysis:
11. The survey of the aforesaid decisions of this Court and their
analysis clearly indicate the golden thread of continuity in all of
them, i.e., this Court has been clear on what is meant by the
expression “industrial alcohol” as simplified to refer to all alcohol
which is “not fit for human consumption as a beverage or non-
potable alcohol”. By contrast, the use of the expression “potable
alcohol” refers to “intoxicating liquors” used for human
consumption as a beverage or as a drink. However, in paragraph
85 of Synthetics and Chemicals (7J) the expression “both
potable and” is an inadvertent insertion inasmuch as there was
no reason to state that licences to manufacture potable alcohol
was vested in the Central Government. Therefore, to that extent
the judgment in Synthetics and Chemicals (7J) calls for a
clarification. Apart from that the following points would emerge
from paragraph 85:
(i) That, on insertion of Item 26 of the First Schedule to IDRA,
the control of “Fermentation Industries” has vested
exclusively in the Union.
Civil Appeal No.151 of 2007 Etc. Page 115 of 241
(ii) Therefore, even the States cannot themselves manufacture
“industrial alcohol” without the permission of the Central
Government.
(iii) “Industrial alcohol” cannot be amenable to States’ claim to
possession of exclusive privilege and the States can neither
rely on Entry 8 – List II nor Entry 33 – List III as a basis for
such claim.
(iv) The States cannot claim that under Entry 33 – List III, it can
regulate “industrial alcohol” as a product of the scheduled
industry as the Union under Section 18G of the IDRA has
evinced a clear intention to occupy the whole field. The
doctrine of occupied field under Article 254 has been applied
in the said case which shall be adverted to later.
(v) Any exercise of power by the States under Entry 8 – List II is
not an exercise of power under Entry 33 – List III.
11.1 The aforesaid judgments state that insofar as “intoxicating
liquors” or potable liquors are concerned, Entry 8 – List II is the
regulatory Entry while Entry 51 – List II is the taxation Entry
which provides for imposition of excise duty on potable liquor also
Civil Appeal No.151 of 2007 Etc. Page 116 of 241
called alcoholic liquors for human consumption. Conversely,
insofar as “industrial alcohol” is concerned, the control of the said
industry is vested with the Union owing to Section 2 of the IDRA
read with the other provisions of the said Act, which enactment
has been made by virtue of Entry 52 – List I. That the Union has
taken under its control “Fermentation Industries” as per Item 26
of the First Schedule to the IDRA which has been enacted by the
Parliament in relation to Entry 52 – List I excluding “intoxicating
liquors”. “Fermentation Industries” relates to various products
manufactured, processed, etc. as a result of fermentation
process. Such products of fermentation are broadly classified as
“industrial alcohol” (non-potable alcohol) and “intoxicating
liquors” (potable alcohol). This classification is for the purpose of
identifying the nature of the product, its use in the industry and
consequently, dividing the subject of the legislation between the
Parliament and the State Legislature.
11.2 The aforesaid decisions also indicate that merely because
“industrial alcohol” or non-potable alcohol such as rectified spirit
can be converted into “intoxicating liquors” or alcohol fit for
human consumption as a beverage (potable alcohol), that would
Civil Appeal No.151 of 2007 Etc. Page 117 of 241
not empower the State Legislature to tax or impose any levy on
such “industrial alcohol”. However, since the expression
“intoxicating liquors” in Entry 8 – List II deals specifically with
alcohol used as a beverage and meant for human consumption,
it would be within the scope and ambit of the said Entry for the
State Legislature to regulate any abuse or conversion of
“industrial alcohol” as a beverage, which is, in fact, harmful when
consumed. Therefore, having regard to Article 47 of the
Constitution, a State Legislature can even prohibit manufacture
of “intoxicating liquors” in a State as one of the objects of which
would be to negate the conversion or abuse of “industrial alcohol”
as alcohol fit for human consumption.
11.3 The judgment of this Court in Synthetics and Chemicals
(7J), was also clear about the controversy before it, namely, the
competence of the Uttar Pradesh State Legislature to impose
vend-fee on “industrial alcohol” when the same is a product of
“Fermentation Industries” and, therefore, under the control of the
Union.
Civil Appeal No.151 of 2007 Etc. Page 118 of 241
11.4 However, the sum and substance of the controversy has to
be answered by this Court on the premise that, despite there
being clarity in the minds of the authorities under the States as
well as the Centre, repeated imposition of imposts in the form of
tax or excise duties etc., have brought several cases before this
Court for adjudication. Ultimately, those who are in the business
of “industrial alcohol” or “intoxicating liquors”, namely, non-
potable and potable liquor respectively are clear about the nature
of their business and the products that they are dealing with.
Hence, I feel that it is incumbent for this Court to enhance the
clarity and not create a further legal regime which would cause
confusion and legal uncertainty in the economy.
Meaning of “intoxicating liquors”:
12. Before embarking on an enquiry in this Reference to
understand the scope of the expression “intoxicating liquors” as
it appears in Entry 8 – List II, it would be useful to highlight that
this Court has relied on pre-constitutional legislations and the
Constitution of India while interpreting the scope of the
expression “intoxicating liquors”.
Civil Appeal No.151 of 2007 Etc. Page 119 of 241
12.1 At the outset, I may refer to Cooley’s “Constitutional
Limitations” [2nd ed. Boston : Little, Brown & Company, p.58],
wherein it is explained as follows:
“In interpreting clauses we must presume that words
have been employed in their natural and ordinary
meaning. Says Marshall, Ch. J.: “The framers of the
Constitution, and the people who adopted it, must be
understood to have employed words in their natural
sense, and to have understood what they meant.” This
is but saying that no forced or unnatural construction is
to be put upon their language; and it seems so obvious
a truism that one expects to see it universally accepted
without question; but the attempt is so often made by
interested subtlety and ingenious refinement to induce
the courts to force from these instruments a meaning
which their framers never held, that it frequently
becomes necessary to re-declare this fundamental
maxim.”
(underlining by me)Therefore, one task before this Court is to ascertain to what
extent “intoxicating liquors” had acquired a natural and ordinary
meaning at the time of the Constitution coming into force.
12.2 I may note another cardinal rule of interpretation
explained by Sir Maurice Gwyer C.J., of the Federal Court of
India in In Re: the Central Provinces and Berar Act No. XIV
Civil Appeal No.151 of 2007 Etc. Page 120 of 241
of 1938, 1939 1 FCR 80, while discussing the principles ofinterpretation of a constitutional provision as under:
“I conceive that a broad and liberal spirit should inspire
those whose duty it is to interpret it; but I do not imply
by this that they are free to stretch or pervert the
language of the enactment in the interests of any legal
or constitutional theory, or even for the purpose of
supplying omissions or of correcting supposed errors. A
Federal Court will not strengthen, but only derogate
from, its position, if it seeks to do anything but declare
the law; but it may rightly reflect that a Constitution of
a Government is a living and organic thing, which of all
instruments has the greatest claim to be construed ut
res magis valeat quam pereat.”
12.3 The learned Chief Justice Dr. Chandrachud, in his
opinion has conducted an extensive inquiry into identification of
legislative meaning of the phrase and its legislative history, but
found that no conclusive answer can be reached on the legal
import of “intoxicating liquors”. With due respect, I view that
such an enquiry needs to give due primacy to the ordinary and
natural meaning of words and also test their connotations in
colloquial use by the Constitution makers so as to give it a
constitutional flavour.
Civil Appeal No.151 of 2007 Etc. Page 121 of 241
A Historical Perspective:
12.4 A historical enquiry would show that “intoxicating liquors”
was first used in Entry 31 – List II in the Government of India
Act, 1935. This was a departure from the legislative head in
Devolution Rules framed under the Government of India Act,
1919 insofar as the Entry therein was “alcoholic liquor”. The
revisions in List II of Government of India Act, 1935 were partly
the product of a Joint Select Committee chaired by Lord
Linlithgow. Later, the word “liquors” was also qualified by the
word “intoxicating”.
12.5 I may briefly refer to the following remarks of Brewer, J.
in South Carolina vs. United States, (1905) 199 US 437
(“South Carolina”):
“To determine the extent of the grants of power, we must,
therefore, place ourselves in the position of the men who
framed and adopted the Constitution, and inquire what
they must have understood to be the meaning and scope
of those grants.”
12.6 In this backdrop, it is useful to draw sustenance from
certain contemporaneous legislations and Hansard records that
go to show that the phrase “intoxicating liquors” was used in the
context of consumption. On 30.04.1889, the House of Commons
Civil Appeal No.151 of 2007 Etc. Page 122 of 241
on a motion moved by Mr. S. Smith to discuss how the fiscal
system of the Government of India led to the establishment of
spirit distilleries, liquor and opium shops in a large number of
places where till recently (from the date of question) they never
existed had several references to “intoxicating liquors”
exclusively in the context of consumption. On 29.06.1904, Mr.
Herbert Roberts, a person interested in temperance asked the
Secretary of State for India whether he was aware that the
number of ‘shops open for the sale of “intoxicating liquors” and
drugs in India rose from 97,910 in 1901–02 to 99,497 in 1902–
03’ and whether he was in a position to explain the reasons for
this increase in the number of shops opened and the consequent
increase in consumption. Most interestingly, on 13.07.1937, in
a sitting of the House of Lords, Lord Clwyd (formerly Mr. Herbert
Roberts) asked the Secretary of State for India the following
question:
“To ask His Majesty’s Government what was the amount
in pounds sterling of the net Excise revenue of India for
the years 1933–1934, 1934–1935 and 1935–1936
respectively; what was the recorded consumption of
country spirits in 1935–1936 in Bengal, Madras,
Bombay, Sind, Bihar and Orissa, the United Provinces,
the Punjab, the North-West Frontier Province, theCivil Appeal No.151 of 2007 Etc. Page 123 of 241
Central Provinces and Berar, Assam and Burma
respectively; what was the number of shops licensed
for the sale of intoxicating liquor, the net amount of
Excise revenue, and the cost of Excise administration in
each Province in 1930–1931 and 1935–1936; and what
was the percentage of Excise revenue compared with the
total revenue accruing to the Provincial Governments in
each case for the year 1935–1936.”12.7 This enquiry reflects that “intoxicating liquors” has not
only been a term of common parlance but was also used in
administration for assessment and regulation of consumption of
spirits in provinces in pre-independence India from the point of
view of collection of revenue.
Constituent Assembly Debates:
12.8 I might also take persuasive strength from the use of the
expression “intoxicating liquors” in Constituent Assembly
Debates in the context of Article 47. Sri B.G. Kher speaking on
the ruin caused by the consumption of alcohol noted the use of
“intoxicating liquors” and drugs as a vice.
12.9 The aforesaid discussion points to the fact that there was
a consumption-oriented meaning attached to “intoxicating
liquors” that was used for legal and administrative purposes. To
Civil Appeal No.151 of 2007 Etc. Page 124 of 241
ascertain the breadth of the phrase “intoxicating liquors” as itwas used by the draftsmen of the Constitution and the
Government of India Act, 1935 one cannot be bound by only the
definitions provided in legislative enactments, or lack thereof.
12.10 The Constitution of India clearly employs three distinct
expressions relevant to the present controversy:
(a) Entry 51 – List II refers to duties on ‘alcoholic liquors for
human consumption’;
(b) Article 47 uses the words “consumption of ‘intoxicating
drinks’”; and
(c) Entry 8 – List II uses the words in question – “intoxicating
liquors”
12.11 I may observe that the expression “alcoholic liquors for
human consumption” as it appears in Entry 51 – List II and
intoxicating drinks as it appears in Article 47 have been
categorically used in the context of human consumption as a
beverage, as rightly observed by the learned Chief Justice in his
opinion. Herein, I might note that appellants have sought to
contend that the expression “intoxicating liquors” as it appears
Civil Appeal No.151 of 2007 Etc. Page 125 of 241
in Entry 8 – List II has no explicit neighboring context whichwould indicate that it is restricted to mean only potable liquor.
12.12 The first interpretive question therefore is, whether
the absence of the context of consumption expands “intoxicating
liquors” to also include “industrial alcohol”. In my opinion, the
words “intoxicating liquors” itself explains that Entry 8 – List II
does not seek to travel beyond “intoxicating liquors” meant for
human consumption i.e., potable alcohol. This was also the view
of Jeevan Reddy, J. in Bihar Distillery.
12.13 Another distinguishing consideration is the use of
“intoxicating” as an adjective to liquor i.e., as a qualifier whereas
elsewhere in the Constitution the word “alcoholic” accompanies
the word liquor. Learned Chief Justice has carefully found
following three inferences which are summarized as under:
a) Ingredient vs. Effect: “Alcoholic liquor” defines the scope of
the provision based on the ingredient, that is, alcohol
whereas “intoxicating liquors” defines the scope based on
effect i.e. intoxication. Therefore, liquor which is not
Civil Appeal No.151 of 2007 Etc. Page 126 of 241
colloquially considered alcoholic liquor may be covered by thephrase “intoxicating liquors”.
b) Broader intent: ‘Intoxicate’ means either the ability of
someone to lose control of their behavior or poison. Thus, the
purpose of substituting the adjective which indicates the
impact with the ingredient seems to have enhanced the scope
of the Entry to cover all liquor which has an impact on health;
and
c) Public interest purpose: There is a discernible public
interest in covering the entire stage from production to sale
of “intoxicating liquors”. Additionally, Entry 31 – List II in the
Government of India Act, 1935 also regulated narcotic drugs
and opium along with “intoxicating liquors”. However,
references to them were deleted to prevent overlapping with
entries in the Concurrent List. In substance, the inference
that is drawn is that all – alcohol, narcotic drugs and opium
– are products which can be noxiously used because they are
also used as raw materials in the production of other
products.
Civil Appeal No.151 of 2007 Etc. Page 127 of 241
12.14 What prima facie appears is that the “intoxication”
effect is a sine qua non for the legislative competence of States on
any liquors potentially coming within the scope of Entry 8 – List
II. In the absence of an “intoxicating” effect from liquors, a State
Legislature cannot legislate on the subject. However, in my view,
what is required to be seen is the nature of the product which
leads to such an intoxicating effect upon human consumption of
the same. Here, the expression consumption must be explained.
It is not all kinds of human consumption, direct or indirect,
which is the determining factor. It is only direct consumption i.e.
as an ingestion by the act of drinking as a beverage or a drink.
An indirect consumption by use of alcoholic liquors as a raw
material for any other product, industrial, medicinal or a toilet
item cannot be included as part of Entry 8 – List II. Secondly,
merely because there can be a potential misuse of “industrial
alcohol”, for example, by converting rectified spirit (“industrial
alcohol”) as a beverage which has an intoxicating effect, Entry 8
– List II cannot be stretched to include such “industrial alcohol”.
The prevention of abuse of “industrial alcohol” as a beverage is
also covered under Entry 8 – List II. Thus, what is carved out of
Civil Appeal No.151 of 2007 Etc. Page 128 of 241
“Fermentation Industries” in Entry 24 – List II is only
“intoxicating liquors” used as beverage and thus, for direct
human consumption the said subject is placed in Entry 8 – List
II. This would imply that the rest of “Fermentation Industries”
would be within the scope and ambit of Entry 24 – List II which
is subject to Entry 52 – List I and is a scheduled industry as per
Section 2 read with Item 26 of First Schedule of IDRA.
12.15 One must also be cognizant of the fact that Entry 8 –
List II concerns itself with “intoxicating liquors” even from a
historical perspective. Constitutional framers were not engaged
in a theoretical task of demarcating legislative fields but in their
utmost wisdom and pragmatism distributed legislate fields
between Parliament and State Legislatures that would continue
to determine the governance of the nation. One must note that a
construction of Entry 8 – List II should not potentially give the
States the legislative competence to legislate on “industrial
alcohol” which is a scheduled industry under IDRA. That Entry
8 – List II which deals with “intoxicating liquors” cannot also
subsume industries for manufacture of “industrial alcohol”, etc.
Civil Appeal No.151 of 2007 Etc. Page 129 of 241
12.16 Therefore, in deciding on “intoxicating liquors”, the
contours of interpretation must be concerned only with the very
nature of the product of “intoxicating liquors” rather than the
entire industry concerning alcohol. Entry 8 – List II provides the
legislative competence to States to regulate production,
manufacture, possession, transport, purchase and sale of only
“intoxicating liquors”. It must follow from this that what is being
produced or manufactured or possessed or transported or
purchased or sold must actually be “intoxicating liquors” and not
any other alcoholic product.
12.17 Halsbury’s Laws of England (Fourth Edition), Volume
26 defines the meaning of “intoxicating liquors” as discussed in
the context of the distinction between wholesale and retail trade.
It is stated that “Dealing wholesale” means “the sale at any one
time to any one person of not less than two gallons or one case
of spirits, wine or made-wine, or not less than four and a half
gallons or two cases of beer”. “Selling by retail” means “the sale
at any one time to any one person of not more than two gallons
or one case of spirits, wine or made-wine or not more than four
Civil Appeal No.151 of 2007 Etc. Page 130 of 241
and a half gallons or two cases of beer or cider”. The following
definitions are apposite:
(i) “Spirits” is defined to mean spirits of any description and
includes all liquors mixed with spirits and all mixtures,
compounds and preparations made with spirits, but does
not include methylated spirits : Customs and Excise Act,
1952.
(ii) “Wine” means liquor obtained from the alcoholic
fermentation of fresh grapes or the must of fresh grapes,
whether or not it is fortified with spirits or flavoured with
aromatic extracts.
(iii) “Made-wine” means any liquor obtained from the alcoholic
fermentation of any substance or by mixing a liquor so
obtained or derived from a liquor so obtained with any other
liquor or substance, but does not include wine, beer, black
beer, spirits or cider. This definition replaced an earlier one
in different terms of “British wine”.
(iv) The definition of “beer” includes ale, porter, stout and any
other description of beer and any other liquor which is made
or sold as a description of beer or as a substitute for beer
Civil Appeal No.151 of 2007 Etc. Page 131 of 241
which on analysis of a sample at any time is found to be of astrength exceeding two degrees of proof, but does not include
liquor made elsewhere than upon the licenced premises of a
brewer for sale which on analysis of a sample at any time is
found to be of an original gravity not exceeding 1,016
degrees and to be of a strength not exceeding two degrees of
proof : Customs and Excise Act, 1952.
(v) “Intoxicating liquors” means spirits, wine, beer, cider and
any fermented, distilled or spiritous liquor but (apart from
cider) does not include any liquor for the sale of which by
wholesale no excise licence is required : Licensing Act, 1964.
(vi) “Cider” means cider or perry of a strength less than 8.7 per
cent of alcohol by volume at 20 degrees Centigrade obtained
from the fermentation of apple or pear juice without the
addition at any time of any alcoholic liquor or liquor or
substance which communicates colour or flavour other than
such as the Commissioner of Customs and Excise may allow
as appearing to them to be necessary to make cider or perry
: Customs and Excise Act, 1952.
Civil Appeal No.151 of 2007 Etc. Page 132 of 241
(vii) “Intoxicating liquors other than spirits” includes beer, wine,
made-wine and cider.
12.18 It may also be useful to outline some undisputed
elements of “industrial alcohol”. It is an undisputed position that
“industrial alcohol” is not meant to be consumed as a human
beverage. In other words, it is not produced or manufactured to
be meant for direct human consumption as a beverage. However,
only when misused, as an intoxicating substance after some
treatment, howsoever limited, “industrial alcohol” certainly could
cause the “intoxicating” effect on direct human consumption.
12.19 Two distinguished interpretations have been
contended before us. In effect, the respondents contend that
“intoxicating liquors” must be so constructed that it includes
only “liquors which are meant to intoxicate” as is. Per contra, the
appellants contend that it is a cardinal rule of interpretation that
legislative Entries be given the widest possible construction and
therefore Entry 8 – List II should be read as “liquors which can
intoxicate even when mischievously used”. The effect of the
appellants’ construction is that Entry 8 – List II will give States
Civil Appeal No.151 of 2007 Etc. Page 133 of 241
the legislative field on “industrial alcohol”, which by design is not
sought to be intoxicating but rather could intoxicate because of
its misuse.
12.20 Before proceeding further, I may first note a notable
feature of the phraseology of Entry 8 – List II of the Constitution
of India and Entry 40 – List II, as Entry 8 appeared in the Draft
Constitution. Neither in the Constitution nor in the Draft
Constitution was there any other Entry in List II that used an
adjective as a qualifier. Whether use of the word “intoxicating”
enlarges or limits the scope of “liquors” is something that needs
to be answered. Herein, “intoxicating” is an adjective that is
adjoined to “liquors” and explains an effect that is caused. In this
regard, learned Solicitor General contended that “intoxicating”
has been used to expand beyond the limits of “alcoholic liquors”
because States have an interest in regulating other “intoxicating
liquors” such as bhang. It needs no labour that an “intoxicating”
effect can be said to be caused only upon actual consumption by
human beings. Unlike potable alcohol, “industrial alcohol” by its
design, intent and purpose is neither sought to be consumed and
cause an intoxicating effect nor is it produced keeping in mind
Civil Appeal No.151 of 2007 Etc. Page 134 of 241
its intoxicating effect on human beings. If we were to read
“industrial alcohol” as “intoxicating liquors” which even though
by design is neither supposed to be consumed nor have an effect
on health but has the constituents that could be “intoxicating”
when misused, it would enable a cumbersome interpretational
plane.
12.21 It is useful to allude to the sine qua non of Entry 8 –
List II i.e. the intoxicating effect. In my view, the sine qua non of
Entry 8 – List II i.e. the “intoxicating” effect of liquor has to be
read as (i) an effect, and (ii) an intended effect of the industry and
its products. One might argue that even “industrial alcohol” due
to its very constituents could cause an intoxicating effect, when
mischievously consumed, albeit with dire consequences.
However, such an argument ignores that the fundamental nature
of “industrial alcohol” is that it is non-potable i.e. when put to its
actual use, neither is it intended to be consumed by human
beings as a beverage nor, as a corollary, is sought to cause an
“intoxicating” effect on human beings. “Industrial alcohol” can be
said to cause an “intoxicating” effect only when it is
mischievously directed away from its actual purpose and use and
Civil Appeal No.151 of 2007 Etc. Page 135 of 241
towards human consumption. To accept such a rationale for
interpreting Entry 8 – List II would lead to an anomalous
situation wherein the marginal mischievous use of “industrial
alcohol” would bring in the whole industry of “industrial alcohol”
to Entry 8 – List II and take it out of Entry 24 – List II viz.
“industrial alcohol” which is not always meant to intoxicate a
human being but could only sometimes when used
mischievously or abused would wholly become a legislative field
for States to legislate. It is to avoid such an abuse that States
have the powers to prevent by suitable legislative and
administrative measures, as has been held in the aforesaid
decisions of this Court.
12.22 Viewed from another perspective, the exception
(mischievous use) cannot lead to governing of the norm (original
intended use) through such construction of Entry 8 – List II. Put
into practice, this would translate into legislative regulation of
production, manufacture, possession, transport, purchase and
sale of the entire industry and product of “industrial alcohol”
only because of its possible misuse or mischievous use. This
reading would be tantamount to attaching to the constitutional
Civil Appeal No.151 of 2007 Etc. Page 136 of 241
intent an absurdity i.e. the part governing the whole or in other
words, bringing within the ambit of Entry 8 – List II something
which is an exception as a main aspect of the Entry. A careful
revisit pertinent at this point would be to paragraph 86 of
Synthetics and Chemicals (7J), wherein it was held that States
continue to have legislative competence to ensure that non-
potable alcohol is not misdirected to potable alcohol. That is
different from saying that States have the right to regulate
“industrial alcohol” or non-potable alcohol. A power to legislate
as to the principal matter specifically mentioned in the Entry also
includes within its expanse, legislation touching incidental and
ancillary matters. However, ancillary matters by a backdoor
cannot be included within the Entry, beyond what is covered as
the principal. Herein, the ancillary matter being prevention of
mischievous use of “industrial alcohol” would be within Entry 8
– List II but “industrial alcohol” as such would not be included.
Hence, the analysis of the relevant Entries in the three Lists
must be in the backdrop of the aforesaid discussion.
Civil Appeal No.151 of 2007 Etc. Page 137 of 241
Analysis of relevant Entries in the three Lists:
13. While analysing Entry 52 – List I which deals with
industries, the control of which by the Union is declared by
Parliament by law to be expedient in public interest, it would be
useful to refer to Entries 7 and 54 – List I. What is common in all
these three Entries is that there is a declaration made by the
Parliament. Entries 7, 52 and 54 – List I read as under:
“7. Industries declared by Parliament by law to be
necessary for the purpose of defence or for the
prosecution of war.
xxx
52. Industries, the control of which by the Union is
declared by Parliament by law to be expedient in the
public interest.
xxx
54. Regulation of mines and mineral development to the
extent to which such regulation and development under
the control of the Union is declared by Parliament by law
to be expedient in the public interest.”
13.1 What is common between Entry 52 – List I and Entry 54
– List I is the fact that control of industries or regulation and
development of mines and mineral development respectively is to
the degree or extent under the control of the Union which is
expressed by a declaration made by Parliament by law to be
Civil Appeal No.151 of 2007 Etc. Page 138 of 241
expedient in the public interest. Thus, under Entry 52 – List I,
the intent to control an industry: (i) by the Union; (ii) by a
declaration by Parliament by law; and (iii) which law is expedient
in the public interest are the key phrases to be taken note of.
Thus, if there is a declaration by Parliament by law (such as
IDRA) to control any of the industries by the Union, such as
“Fermentation Industries” which is expedient in the public
interest then, to the extent of such control, the industries would
be covered under Entry 52 – List I. This is also evident on a
reading of Entry 24 – List II which also deals with the field of
legislation being “industries” subject to the provision of Entries
7 and 52 – List I. As already noted above, Entry 7 – List I pertains
to industries declared by Parliament by law to be necessary for
the purpose of defence or for the prosecution of war. Entry 52 –
List I deals with “industries”, the control of which by the Union
is declared by Parliament by law to be expedient in the public
interest.
13.2 In Ishwari Khetan, the facts were that the Governor of
Uttar Pradesh promulgated an Ordinance on 03.07.1972, styled
as U.P. Sugar Undertaking (Acquisition) Ordinance, 1971, with a
Civil Appeal No.151 of 2007 Etc. Page 139 of 241
view to transferring and vesting sugar undertakings set out in
the Schedule to the Ordinance in the U.P. State Sugar
Corporation Limited, a Government Company within the
meaning of Section 617 of the Companies Act, 1956.
Subsequently, the Ordinance was repealed and replaced by an
Act. The Schedule to the Act enumerated twelve sugar
undertakings which stood transferred to and vested in the
Corporation w.e.f. 03.07.1971, the date on which the Ordinance
was issued. Writ Petitions were filed before the Allahabad High
Court challenging the constitutional validity of the Ordinance as
well as the Act on various grounds. The Division Bench of the
High Court had repelled the contentions advanced on behalf of
the petitioners therein and upheld the constitutional validity of
the Act. Before this Court, the main thrust of the attack was that
the U.P. Legislature lacked legislative competence to enact the
impugned Act. This was because under Entry 52 – List I the
Parliament had made the requisite declaration in Section 2 of the
IDRA and in view of Item 25 of the First Schedule to the Act i.e.
sugar, being a declared industry therein, that industry was
excluded from Entry 24 – List II. Hence U.P. State Legislature was
Civil Appeal No.151 of 2007 Etc. Page 140 of 241
denuded of all legislative power to legislate in respect of sugar
industry and the impugned legislation was void on account of
legislative incompetence.
13.2.1 D.A. Desai, J. for himself and on behalf of V.R.
Krishna Iyer and S. Murtaza Fazal Ali, JJ. wrote for the majority.
This Court analysed the relevant Entries keeping in view the
legislative perspective and historical background through which
Entries 7 and 52 – List I, Entry 24 – List II and Entry 33 – List III,
inter alia, had passed through. Considering Entry 52 – List I and
Entry 24 – List II, it was observed that “industry” as a head of
legislation is to be found in Entry 24 – List II with the limitation
that it is subject to Entries 7 and 52 – List I. The difference in the
language in which Entries 7 and 52 – List I is couched has a
bearing on the interpretation of Entry 52 – List I. The subject
“industry” being enumerated in List II, the State Legislature has
power to legislate in respect to it and keeping aside the words
“subject to the provision of Entries 7 and 52 of List I”, the State
Legislature alone can legislate in respect of the legislative head
“industry”. Ipso facto Parliament would have no power to legislate
in respect of industry as a legislative head. Under Entry 52 – List
Civil Appeal No.151 of 2007 Etc. Page 141 of 241
I, unless and until a declaration is made by Parliament by law to
assume control over specified industries, the embargo on the
power of Parliament to legislate in respect of industry would not
be lifted. The declaration has to be made by Parliament by law to
assume control over specified industry in public interest. Thus,
the extent of control would be known by the declaration so made
by law. This would necessarily depend upon the legislation
enacted spelling out the degree of control assumed which is a
pre-requisite for assuming control over a specified industry. As a
result to that extent, the State Legislature would be denuded of
its powers to legislate under Entry 24 – List II. It was contended
that the industry in respect of which control is assumed for the
purpose of their development and regulation have been set out
in the First Schedule and in the manner provided in the statute
i.e. IDRA which also provides the limit of control to the extent
mentioned in the said Act. It was contended that Section 2 has
to be read along with the Act and not read de hors the Act. This
would mean the provision of the Act would make the control
concrete and specific and the manner in which exercise has to
be laid down and not some abstract control. Thus, the control
Civil Appeal No.151 of 2007 Etc. Page 142 of 241
has to be concrete and the mode and method of its exercise must
be regulated by law. That under the IDRA, Sections 3 to 30 set
out various modes and methodology, power and procedure to
effectuate the control which the Union acquired by virtue of the
declaration contained in Section 2 of the IDRA. On these
contentions, it was observed that absence of the words “to the
extent herein provided” in Section 2 of the IDRA would not lead
to the conclusion that the control assumed was to be something
in abstract, total and unfettered and not as per the provisions of
the IDRA. It was thus held that to the extent Union acquired
control by virtue of declaration in Section 2 of the IDRA as
amended from time to time, the power of the State Legislature
under Entry 24 – List II to enact any legislation in respect of
declared industry so as to encroach upon the field of control
occupied by IDRA would be taken away.
13.2.2 In this regard, reliance was placed on Baijnath Kedia
vs. State of Bihar, AIR 1970 SC 1436 (“Baijnath Kedia”).
Thus to the extent the provision of the IDRA occupies the field,
the State Legislature stands denuded of its power to legislate in
respect of such declared industry. Examining the provision of the
Civil Appeal No.151 of 2007 Etc. Page 143 of 241
IDRA, it was held that in pith and substance, the impugned Act
was one for acquisition of scheduled undertakings to the
corporation, which would in no way come in conflict with any of
the provision of the IDRA or would not trench upon any control
exercise by the Union under the various provisions of the IDRA.
That the IDRA is not concerned with the ownership of industrial
undertaking in declared industry except the control over the
management of the undertaking by the owner. Thus the
legislative power of the State under Entry 24 – List II is eroded
only to the extent control is assumed by the Union pursuant to
a declaration made by the Parliament in respect of a declared
industry as spelt out by the legislative enactment and the field
occupied by such enactment is the measure of erosion. Subject
to such erosion, on the remainder the State Legislature will have
power to legislate in respect of a declared industry without in any
way trenching upon the occupied field. It was held that State
Legislature which is otherwise competent to deal with industry
under Entry 24 – List II can deal with that industry in exercise
of other powers enabling it to legislate under different heads set
out in Lists II and III and this power cannot be denied to a State.
Civil Appeal No.151 of 2007 Etc. Page 144 of 241
The second limb of the submission therein is not related to the
present controversy and need not be adverted to. It was finally
observed that the impugned Act was not intended to take over
management or control of any industrial undertaking by the
State Government as in pith and substance, it was enacted to
acquire the scheduled undertakings in terms of Entry 42 – List
III.
13.2.3 In Ishwari Khetan, Pathak, J. (as he then was) for
himself and for Koshal, J. (minority view) observed that while
they broadly agreed with the final conclusion, on several points,
reached by Desai, J. in his judgment, they preferred to refrain
from expressing any opinion on the question whether the
declaration made by Parliament in Section 2 of the IDRA in
respect of the industries specified in the First Schedule to that
Act can be regarded as limited to removing from the scope of
Entry 24 – List II only so much of the legislative field as is covered
by the subject matter and content of that Act or it can be
regarded as effecting the removal from that Entry of the entire
legislative field embracing all matters pertaining to the industries
specified in the declaration. It was further opined that the
Civil Appeal No.151 of 2007 Etc. Page 145 of 241
observations made by this Court in Hingir-Rampur Coal Co.,
Ltd. vs. The State of Orissa, AIR 1961 SC 459 (“Hingir-
Rampur”); State of Orissa vs. M.A. Tulloch and Co., AIR 1964
SC 1284 (“M.A. Tulloch”); Baijnath Kedia vs. State of Bihar,
AIR 1970 SC 1436 (“Baijnath Kedia”); and State of Haryana.
vs. Chanan Mal, AIR 1976 SC 1654 (“Chanan Mal”), would
not be of assistance in this behalf. In each of those cases, the
declaration made by Parliament in the concerned enactment
limited the control of the regulation of the mines and the
development of minerals to the extent provided in the enactment.
Whether the terms in which the declaration has been made in
Section 2 of the IDRA, a declaration not expressly limiting control
of the specific industries to the extent provided by the Act, can
be construed as being so limited was a matter which, they
thought, should be dealt with in some more appropriate case.
That the range of considerations encompassed within the field of
enquiry to which the point was amenable had not been
sufficiently covered before the Court. “This was for the good
reason and, hence, the provocation was limited.” Therefore, the
controversy could be adequately answered on the ground that
Civil Appeal No.151 of 2007 Etc. Page 146 of 241
the legislation impugned therein fell within Entry 42 – List III and
would not be related to Entry 52 – List I or Entry 24 – List II.
13.2.4 Therefore, there was a reluctance to enter upon an
examination of the mutually competing claims of Entry 52 – List
I and Entry 24 – List II — Entries which deal with “industries”.
Consequently, the appeals were dismissed.
13.3 When the expression “subject to” is used in an Entry in
List II it would imply that the said Entry is subordinate to the
respective Entries in List I and has to be read along with the
relevant Entry in List I. Thus, on a conjoint reading of Entry 24
– List II with Entry 52 – List I, it is apparent that Entry 24 – List
II is subject to Entry 52 – List I. The expression “subject to” in
the Entries in List II has been a subject matter of interpretation
in several decisions and is of legal import.
13.3.1 As per Black’s Law Dictionary, 5th Edition, Pg.1278,
“subject to” means “liable, subordinate, subservient, inferior,
obedient to, governed or affected by.”
13.3.2 The relevant judgments of this Court on the point are
discussed as under:
Civil Appeal No.151 of 2007 Etc. Page 147 of 241
a) In Hingir Rampur Coal Company vs. State of Orissa,
(1961) 2 SCR 537 (“Hingir Rampur”), while interpreting
the import of the expression “subject to” in Entry 23 – List II
and the interplay of that Entry with Entry 54 – List I, this
Court observed as undisputed the position in law that, once
a Central Act containing a declaration by Parliament
covering the field is passed as required by Entry 54 – List I,
the State Legislature had no legislative competence to enact
a legislation on the subject that has already been occupied
by a Central legislation – not for reason of repugnancy but
rather competence at the very inception.
b) In Gujarat University vs. Shri Krishna Ranganath
Mudholkar, AIR 1963 SC 703 (“Shri Krishna”), this Court
was tasked with interpreting Entry 11 – List II, which,
although stands omitted now, earlier read as ‘Education
including universities, subject to the provisions of Entries 63,
64, 65 and 66 of List I and Entry 25 of List III’. Therein, it
was held that use of the expression “subject to” in Entry 11
– List II clearly indicated that legislation in respect of
excluded matters cannot be made by the State Legislature.
Civil Appeal No.151 of 2007 Etc. Page 148 of 241
By the Constitution (Forty-Second Amendment), 1976, Entry
11 – List II was omitted, as noted above, and Entry 25 – List
III was substituted as, ‘Education, including technical
education, medical education and universities, subject to the
provisions of Entries 63, 64, 65 and 66 of List I; vocational
and technical training of labour.’ In this context, this Court
in Baharul Islam vs. The Indian Medical Association,
2023 SCC OnLine SC 79 (“Baharul Islam”), while referring
to Modern Dental College & Research Centre vs. State of
Madhya Pradesh, (2016) 7 SCC 353 (“Modern Dental
College”), explained that where one Entry is made ‘subject
to’ another Entry, it means that out of the scope of the former
Entry a field of legislation covered by the latter Entry has
been reserved to be specially dealt with by the appropriate
Legislature.
c) Similarly, while interpreting the significance of a
constitutional provision being subject to another in The
South India Corporation (P) Ltd. vs. The Secretary,
Board of Revenue Trivandrum, AIR 1964 SC 207 (“South
India Corporation”), this Court observed that the
Civil Appeal No.151 of 2007 Etc. Page 149 of 241
expression “subject to” conveys the idea of a provision
yielding place to another provision or other provisions to
which it is made subject.
d) Helpful reference may also be made to the import of “subject
to” in legislative uses. In Ashok Leyland Ltd. vs. State of
Tamil Nadu, (2004) 3 SCC 1, (“Ashok Leyland Ltd.”) this
Court held that “subject to” is an expression whereby a
limitation is expressed.
13.4 Having noted as above, it is also crucial to examine the
interplay between Entry 52 – List I, Entry 24 – List II and Entry
8 – List II. Entry 24 – List I is a regulatory Entry which provides
State Legislatures with the competence to legislate on
“industries” subject to Entry 7 – List I and Entry 52 – List I. In
effect, Entry 52 – List I enables the Union to take an industry out
of the legislative competence of States and bring it within Entry
52 – List I. In the instant cases, the primary question is whether
there is any overlap between Entry 52 – List I and Entry 8 – List
II. In other words, is there any conflict between the exclusive
competence of State Legislatures under Entry 8 – List II and the
Civil Appeal No.151 of 2007 Etc. Page 150 of 241
regulation of industries the control of which by the Union is
declared by Parliament by law to be expedient in the public
interest under Entry 52 – List I?
13.4.1 It is a settled law that the meaning of “industries” in
Entry 52 – List I and Entry 24 – List II is coextensive. Therefore,
what is out of Entry 24 – List II will also not be within Entry 52
– List I. In that context, it has been contended before us that
Entry 8 – List II is a unique Entry as it is not limited to only the
product of “intoxicating liquors” but also takes within its sweep
the “industry” of “intoxicating liquors”. It was also submitted that
Entry 8 – List II unlike Entry 24 – List II is not subject to Entries
in List – I and therefore the industry of “intoxicating liquors” is
the exclusive domain of State Legislatures. The import of such a
position is that if Entry 8 – List II is held to be both an industry-
based and product-based Entry, the Entry would empower
States to legislate on both the product of “intoxicating liquors”
and production of the product as well. Furthermore, as Entry 8
– List II is not subject to Entry 52 – List I, the industry of
“intoxicating liquors” will be out of Entry 24 – List II, and
therefore, coextensively under Entry 52 – List I the Union would
Civil Appeal No.151 of 2007 Etc. Page 151 of 241
not have the legislative competence to legislate on what lies
exclusively within Entry 8 – List II.
13.4.2 Learned Chief Justice Dr. Chandrachud in his
proposed judgment has observed that the Seventh Schedule
differentiates between the industry and product of industry and,
even further, Entry 8 – List II is special because such a
distinction made in the general Entries is not adopted in Entry 8
– List II. As rightly pointed out, it is the potential overlap between
Entry 52 – List I and Entry 8 – List II which must be resolved
herein.
13.4.3 In this regard, reference to the dictum of this Court
in Calcutta Gas Company is apposite, wherein the
interpretation between Entries 24 and 25 – List II in relation to
Entry 52 – List I was considered. It was observed that Entry 24 –
List II in its widest amplitude takes in all industries, including
that of “gas and gas-works”. So does Entry 25 – List II which
comprehends gas industry. There is, therefore, an apparent
conflict between the two Entries and they overlap with each
other. It was observed that in such a contingency the doctrine of
Civil Appeal No.151 of 2007 Etc. Page 152 of 241
harmonious construction must be invoked. While Entry 24 – List
II covers a very wide field, that is, the field of entire industry being
within the legislative competence of the State, Entry 25 – List II
dealing with “gas and gas-works”, can be confined to a specific
industry, that is, the “gas industry”. This was possibly because
only one or two States are concerned with “gas industry” and it
was not considered to be of an all-India importance and
therefore, was carved out of Entry 24 – List II and given a
separate Entry as Entry 25 – List II, as otherwise if a declaration
by law was made by Parliament within the meaning of Entry 7 or
Entry 52 – List I, gas and “gas industries” would be taken out of
the legislative power of States. Therefore, by the doctrine of
harmonious construction, “gas and gas works” were found to be
within the exclusive field allotted to the States and outside the
legislative field of Parliament. It was further observed that the
expression “industry” in Entry 52 – List I bears the same meaning
as that in Entry 24 – List II, with the result that the said
expression in Entry 52 – List I also does not take in the industry
of “gas and gas works”. If so, it followed that the IDRA, in so far
Civil Appeal No.151 of 2007 Etc. Page 153 of 241
as it purported to deal with the “gas industry” is beyond the
legislative competence of Parliament.
13.4.4 Keeping the aforesaid dictum in mind, it must be
observed that Entry 8 – List II being a special Entry prevails over
the general Entry 24 – List II. Therefore, while Entry 52 – List
and Entry 8 – List II overlap on the aspect of “industry” of
“intoxicating liquors”, Entry 52 – List I cannot takeover the
“industry” of “intoxicating liquors”.
13.5 Therefore, the next question is whether Entry 8 – List II
which deals with “intoxicating liquors”, that is to say, the
production, manufacture, possession, transport, purchase and
sale of “intoxicating liquors” is restricted to only alcoholic liquors
for human consumption i.e., potable alcohol or it would also
extend to non-potable alcohol or “industrial alcohol”. In other
words, if “industrial alcohol” is read within the meaning of Entry
24 – List II then, whether, on account of the declaration made by
the Parliament in Section 2 of the IDRA in terms of Entry 52 –
List I it would be excluded from Entry 24 – List II and included
under Entry 52 – List I as per the provisions of the IDRA. In other
Civil Appeal No.151 of 2007 Etc. Page 154 of 241
words, the question is whether Entry 8 – List II which deals with
“intoxicating liquors” would take within its scope and ambit
“industrial alcohol”?
One of the ways of answering these questions would be to
compare Entry 84 – List I as it stood prior to 16.09.2016 with
Entry 51 – List II although both are taxation Entries. Entry 84 –
List I dealt with 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. Entry 51 – List II talks of duties
of excise on the 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, namely, –
(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. Both are
taxation entries.
Civil Appeal No.151 of 2007 Etc. Page 155 of 241
13.6 On a comparative reading of the said two Entries, what is
evident is that excise duty on goods manufactured as per Entry
84 – List I excludes duty of excise on alcoholic liquors for human
consumption. This is subject to the further exception that, if, any
medicinal and toilet preparations containing alcohol or any
substance included in sub-paragraph (b) of the said Entry,
namely, opium, Indian hemp and other narcotic drugs and
narcotics, then, the excise duty is leviable as per Entry 84 – List
I by the Union or Central Government. Conversely, under Entry
51 – List II, goods manufactured or produced in the State would
be subject to excise duty such as on – a) alcoholic liquors for
human consumption; b) opium, Indian hemp and other narcotic
drugs and narcotics, but does not include medicinal and toilet
preparations containing alcohol or any substance included in
sub-paragraph (b) of the said Entry. In other words, alcoholic
liquors not meant for human consumption and medicinal and
toilet preparations containing alcohol or any substance such as
opium, Indian hemp and other narcotic drugs and narcotics
would be subject to excise duty leviable under Entry 84 – List I
by the Central Government. Insofar as alcoholic liquors for
Civil Appeal No.151 of 2007 Etc. Page 156 of 241
human consumption is concerned, the States have the power to
levy excise duty.
13.7 Therefore, in my view, the framers of the Constitution
bifurcated alcoholic liquors for human consumption as distinct
from alcohol used for medicinal and toilet preparations or any
other liquor including “industrial liquor” on which excise duty is
leviable under Entry 84 – List I. What is the purpose of excluding
levy of excise duty under Entry 84 – List I on alcoholic liquors for
human consumption and including the same under Entry 51 –
List II and thereby giving the powers to the State Legislature to
levy excise duty on such alcoholic liquors? The intent of the
framers of the Constitution was to categorize alcoholic liquors
into following two categories and accordingly divide the
legislative powers between Parliament and State Legislature:
(a) alcoholic liquors for human consumption (potable
alcoholic liquors); and
(b) alcoholic liquors not for human consumption such as
“industrial alcohol” (non-potable alcoholic liquors).
Civil Appeal No.151 of 2007 Etc. Page 157 of 241
At this stage itself, it is made clear that if alcoholic liquor,
which is manufactured for the purpose of using the same as a
raw material in the manufacture or production of any other
“industrial product” and is subject to a process, would not come
within the scope and ambit of “alcoholic liquors for human
consumption”. As noted, the said product is also known as
“industrial alcohol”. Such “alcoholic liquors” or “industrial
alcohol” are not used directly for human consumption as a
beverage. On the other hand, it would be an abuse of such
“industrial alcohol”, if consumed as a beverage. Merely because
it can be subjected to a process and mischievous human
consumption is possible, does that make “industrial alcohol”
“alcoholic liquors for human consumption” within the meaning
of Entry 84 – List I and Entry 51 – List II and also “intoxicating
liquors” within the scope and ambit of Entry 8 – List II?
13.8 A person or an entity which is not engaged in the
manufacture of alcoholic liquors for human consumption as a
beverage is not authorised to manufacture “industrial alcohol”
and subject it to a process and sell it as alcoholic liquors for
human consumption. The same is prohibited and has to be dealt
Civil Appeal No.151 of 2007 Etc. Page 158 of 241
with having regard to the scope and ambit of Entry 8 – List II. On
the other hand, it is only “intoxicating liquors” which is directly
for human consumption as a beverage and the production,
manufacture, possession, transport, purchase and sale of such
“intoxicating liquors”, as per Entry 8 – List II, which is within the
competence of State Legislature i.e. for the purpose of regulation
of such “intoxicating liquors” which would also entail levy of an
excise duty on such “intoxicating liquors” as per Entry 51 – List
II as alcoholic liquor for human consumption. Therefore, on
“intoxicating liquors” which is alcoholic liquors directly for
human consumption as a beverage, excise duty is levied by the
State Legislature and regulated under Entry 8 – List II. Also,
under Entry 84 – List I, the Parliament has no power to levy any
such excise duty on such “intoxicating liquors” meant for human
consumption as a beverage as it is an expressly excluded item.
In other words, alcoholic liquors for human consumption is thus
directly relatable to “intoxicating liquors” and the expression
“intoxicating liquors” in Entry 8 – List II means alcoholic liquors
directly for human consumption as a beverage. Thus, no other
alcoholic liquors can be regulated as per Entry 8 – List II except
Civil Appeal No.151 of 2007 Etc. Page 159 of 241
to ensure that there is no abuse/misuse of “industrial alcohol”
being treated for human consumption by subjecting it to a
particular process; nor can any excise duty be levied on such
liquor by the State Legislature.
Hence, any “intoxicating liquors” would mean alcoholic
liquors for human consumption which is produced,
manufactured, possessed, transported, purchased or sold and
can be regulated under Entry 8 – List II by the State Legislature
but alcoholic liquors which are not for human consumption as a
beverage would not come within the scope of the expression
“intoxicating liquors”, such as “industrial alcohol” which would
in turn be regulated by Entry 24 – List II which Entry is subject
to Entry 52 – List I and can be controlled by the Union
exclusively. Thus, “industrial alcohol” and medicinal and toilet
preparations which contain alcohol can be taxed as per Entry 84
– List I by the Central Government in the form of central excise
duty.
13.9 Merely because “industrial alcohol” by a process can be
converted to alcohol for human consumption as a beverage does
not entitle the State Legislature to tax or regulate “industrial
Civil Appeal No.151 of 2007 Etc. Page 160 of 241
alcohol”. On the other hand, the States as per Entry 8 – List II
have the power to regulate “intoxicating liquors” which is for
human consumption as a beverage and in that regard have the
power to prohibit “industrial alcohol” being converted to alcohol
for human consumption as a beverage. This is in order to protect
the health of citizens which is a Directive Principle of State Policy
under Article 47 of the Constitution and in order to prohibit
unauthorised use/misuse of “industrial alcohol” produced in the
State from being converted and sold as “intoxicating liquors”
meant for human consumption as a beverage.
13.10 This interpretation would become clearer on a reading
of Entry 33(a) – List III which deals with, inter alia, trade and
commerce in, and the production, supply and distribution of 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 also includes imported goods of the same
kind as such products. Therefore, if products of any industry
where the control of such industry by the Union has been
declared by Parliament by law to be expedient in public interest
are manufactured in India or imported into India, then as per
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Entry 33(a) – List III, on the production, supply and distribution
of and trade and commerce of such industrial products, the State
Legislature would not have any exclusive power to pass a law
under Entries 26 and 27 – List II as they are subject to Entry
33(a) – List III. In other words, in view of the passing of the IDRA,
under Entry 52 – List I and the inclusion of, inter alia, products
of “Fermentation Industries” such as “industrial alcohol” in Item
26 of the First Schedule of the IDRA, the State Legislatures would
be subject to the powers of the Parliament to pass a law in the
matter of production, supply, distribution, trade and commerce
of such industrial product.
13.11 Therefore, if the control of any industry has been
declared by Parliament by law to be expedient in the public
interest, then in such a case, in the matter of production, supply
and distribution of products of such industry, Entry 27 – List II
would be subject to Entry 33(a) – List III. Thus, the subject
production, supply and distribution of goods found in Entry 27
– List II as well as in Entry 33(a) – List III regarding any product
of an industry has a nexus with Entry 52 – List I.
Civil Appeal No.151 of 2007 Etc. Page 162 of 241
13.12 Further, Entry 24 – List II which deals with industries,
is itself subject to Entry 52 – List I. Therefore, if any industry is
mentioned in the First Schedule of the IDRA which is a legislation
passed by the Parliament by virtue of Entry 52 – List I, a reading
of the same conjointly with Entry 33(a) – List III would mean that
particular industry which has been mentioned in the First
Schedule of IDRA would be under the control of the Union.
However, as far as the products of such industry are concerned,
Entry 33(a) – List III deals with the aspect of production and
supply and distribution as well as trade and commerce. Thus, if
any particular industry is not mentioned or is deleted from the
First Schedule of IDRA, then automatically Entry 33(a) – List III
would not apply to such industrial products and the subject
would squarely fall within the scope and ambit of Entry 24 – List
II and Entry 27 – List II.
14. There is another way of looking at the Entries under
consideration. As already noted, Entry 24 – List II which deals
with the subject “industries”, enables legislative competence to
the State Legislature to enact laws on the said subject. Therefore,
at a first glance the subject “industries” is a State subject.
Civil Appeal No.151 of 2007 Etc. Page 163 of 241
However, Entry 24 – List II is subject to Entries 7 and 52 – List I
which have been discussed above. In particular, Entry 52 – List
I deals with “industries”, the control of which is taken over by the
Union by a declaration made by the Parliament by law as it is
expedient in public interest. In respect of “such industries”, as
covered within the scope and ambit of Entry 52 – List I, it would
imply that under Entry 33(a) – List III, insofar as the products of
any such industry are concerned where the control of such
industry by the Union is declared by the Parliament by law to be
expedient in public interest and import of goods of the same kind
as such products have to be read in consonance with the scheme
of the Entries. It would mean that if any legislation has been
made by the Parliament, such as the IDRA and an industry is
named in the First Schedule thereof such as “Fermentation
Industries” in the instant cases, the State Legislation would be
subject to the Parliamentary legislation. The said Entry is in the
Concurrent List and the Parliament as well as the State
Legislature have the competence to pass such laws. Then, the
question that would arise, is whether, there would be
Civil Appeal No.151 of 2007 Etc. Page 164 of 241
repugnancy between the laws made by Parliament and laws
made by a State Legislature and if so, how could it be resolved.
14.1 In this regard, Section 18G which is a part of Chapter IIIB
of the IDRA could be considered. The said Section states that the
Central Government, so far as it appears to be necessary or
expedient for securing the equitable distribution and availability
at fair prices of any article or class of articles relatable to any
scheduled industry, i.e. any of the industries specified in the
First Schedule of IDRA may, notwithstanding anything contained
in any other provision of the IDRA by notified order, provide for
regulating the supply and distribution thereof and trade and
commerce therein. This provision deals particularly with regard
to regulation of supply and distribution, trade and commerce of
any article relatable to scheduled industry. Sub-section (2) of
Section 18G states that without prejudice to the generality of the
powers conferred by sub-section (1) of Section 18G, a notified
order made may provide for various aspects. Sub-section (4) of
Section 18G states that no order made in exercise of any power
conferred by this section shall be called in question in any court.
Civil Appeal No.151 of 2007 Etc. Page 165 of 241
14.2 One of the contentions raised in this batch of cases is with
regard to whether the Central Government has to, in fact, issue
a notified order with regard to regulating the supply and
distribution and trade and commerce of any article or class of
articles relatable to any scheduled industry so as to indicate that
the State Legislature cannot pass any legislation under Entry
33(a) – List III. In my considered view, the fact that an industry
is a scheduled industry under the IDRA would imply that at any
time the Central Government is empowered to issue a notified
order providing for regulating the supply and distribution and
trade and commerce of the products of such a scheduled
industry. But in the absence of there being an issuance of a
notified order as such can the State Legislature be denuded of
their powers to pass any law under Entry 33(a) – List III?
14.3 Having regard to the emerging situation in the economy in
the matter of supply and distribution and trade and commerce
of any article or class of articles relatable to any scheduled
industry, the Central Government may issue a notified order for
the purpose of regulating the same so as to secure its equitable
Civil Appeal No.151 of 2007 Etc. Page 166 of 241
distribution and availability at fair prices of the products of such
industry.
14.4 A situation may suddenly arise making it necessary or
expedient to issue a notified order under Section 18G of the
IDRA. One cannot envisage the emerging circumstances in an
economy such as the Indian economy where the need for
issuance of such a notified order would arise. It could be for
instance to curb hoarding and black marketeering of a particular
article of a scheduled industry in order to stifle price rise. It could
be for ensuring a minimum or maximum price for any article
related to a scheduled industry which is a raw material or
ancillary input for a product/article of another scheduled or non-
scheduled industry. Sudden rise in prices of
commodities/articles relatable to any scheduled industry due to
natural disasters, floods, famines, financial emergency or other
such reasons could necessitate issuance of a notified order under
Section 18G of the IDRA. Of recent occurrence is the Covid-19
pandemic which would have necessitated issuance of notified
orders on certain articles related to scheduled industries. The
field of legislation must therefore be left open for the Central
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Government to act by issuance of a notified order as and when
thought necessary or expedient to secure and achieve the objects
stated in the said provision.
14.5 But, can it be held that in the absence of any such notified
order issued by the Central Government, the States could pass
laws under Entry 33(a) – List III? Would it lead to a legal
confusion and an overlapping and contradiction? This is because
if it is held that in the absence of there being a notified order
actually issued by the Central Government under Section 18G of
the IDRA, the States are empowered to pass laws under Entry
33(a) – List III and such laws are in fact made under the aforesaid
Entries by the States and the Central Government subsequently
decides to issue a notified order under Section 18G of the IDRA,
the question would be, what would be the fate of the laws made
by the States if they overlap with the notified order issued under
Section 18G of the IDRA? Obviously, the control of any industry
being taken over by the Union under the provisions of the IDRA
would imply that the Central Government is empowered to issue
a notified order in terms of Section 18G of the said Act as and
when it is necessary or expedient to secure the equitable
Civil Appeal No.151 of 2007 Etc. Page 168 of 241
distribution and availability at a fair price of any article related
to any scheduled industry. In such a case, the notified order
being issued under Section 18G of the IDRA, would have an
overriding effect on the States’ laws if any made under Entry
33(a) – List III in regard to trade and commerce, supply and
distribution of such articles or products of the scheduled
industry which are covered under the notified order and the
same would no longer be applicable wherever there is a conflict
in the laws.
14.6 A law made by the State Legislature under any Entry of
List III or Concurrent List is no doubt subject to Article 254 of
the Constitution. However, Entry 33(a) – List III is in a way
unique inasmuch as the said Entry would have to be read in the
context of Entry 52 – List I which relates to the IDRA which is
enacted by Parliament under the said Entry and therefore, inter
alia, to Section 18G of the IDRA. When Entry 52 – List I and any
law such as IDRA empowers the Union or Central Government
to take certain steps under the provisions of the said Act, it would
imply that the State Legislature is, per se, denuded of its powers
to make any law under Entry 33(a) – List III. Applying the above
Civil Appeal No.151 of 2007 Etc. Page 169 of 241
interpretation, when once the Central Government has the
powers under Section 18G of the IDRA in the matter of regulating
supply and distribution and trade and commerce of any article
of a scheduled industry so as to secure the equitable distribution
and availability at fair price, the field/contours as covered under
Section 18 of IDRA is occupied by the Parliament and,
consequently by the Central Government to issue a notified order
as and when the necessity arises.
14.7 The reason for holding so is because List III which is the
Concurrent List is governed by Article 254 of the Constitution
which deals with inconsistency between laws made by
Parliament and laws made by the Legislatures of the States. The
same is expressed as the doctrine of repugnancy. Clause (1) of
Article 254 states that –
(i) if any provision of a law made by the Legislature of a
State is repugnant to any provision of a law made by
Parliament which Parliament is competent to enact, or
(ii) to any provision of an existing law with respect to one of
the matters enumerated in the Concurrent List,
Civil Appeal No.151 of 2007 Etc. Page 170 of 241
then, subject to clause (2) thereof, the law made by
Parliament, whether passed before or after the law made
by the Legislature of such State, or, as the case may be,
the existing law, shall prevail and the law made by the
Legislature of the State shall, to the extent of the
repugnancy, be void.
Under Article 13(3)(a), law includes any ordinance, order,
bye-law, rule, regulation, notification, custom or usage having in
the territory of India the force of law.
14.8 Clause (2) of Article 254 is an exception to clause (1). It
states that where a law made by the Legislature of a State with
respect to one of the matters enumerated in the Concurrent List
contains any provision repugnant to the provisions of an earlier
law made by Parliament or an existing law with respect to that
matter, then, the law so made by the Legislature of such State
shall, if it has been reserved for the consideration of the President
and has received his assent, prevail in that State. The proviso
states that nothing in clause (2) of Article 254 would prevent
Parliament from enacting at any time any law with respect to the
Civil Appeal No.151 of 2007 Etc. Page 171 of 241
same matter including a law adding to, amending, varying or
repealing the law so made by the Legislature of the State.
14.9 What is of significance under the second portion of Article
254(1) is that the law has to be passed by the Parliament either
before or after the law made by the Legislature of such a State,
secondly, such a law must be with respect to one of the matters
enumerated in the Concurrent List. The above is a case of actual
repugnancy. There can also be a case of what can be called
potential repugnancy, which is also expressed as the doctrine of
occupied field which shall be discussed at this stage in the
context of the observations made in Synthetics and Chemicals
(7J).
Entry 33(a) – List III vs. Entry 52 – List I: Observations in
Synthetics and Chemicals (7J):
15. Article 246 of the Constitution deals with the division of
legislatives subjects between the Parliament and the Legislatures
of the States. Both sub-clauses (1) and (2) begin with a non-
obstante clause while sub-clause (3) begins with a “subject to”
clause. On a holistic reading of Article 246, it emerges that the
Parliament has exclusive power to make laws with respect to any
Civil Appeal No.151 of 2007 Etc. Page 172 of 241
of the matters enumerated in List I and it also has the power to
make laws with respect to any of the matters enumerated in List
III or the Concurrent List (vide clause (2) of Article 246). The non-
obstante clauses in clauses (1) and (2) of Article 246 in my view,
are significant inasmuch as they envisage parliamentary
supremacy over laws made by the State Legislature even in
respect of a subject enumerated in List II as clause (3) of Article
246 is subject to clauses (1) and (2) of Article 246. This is despite
the State Legislatures having exclusive competence over the
subjects mentioned in List II. However, the said position would
apply only when there is a conflict between a State Law and a
Union Law which is irreconcilable or cannot be interpreted
harmoniously.
15.1 The Parliament as well as the Legislature of any State have
also concurrent powers to make laws in respect of any of the
matters enumerated in List III. This is notwithstanding anything
in clause (3) of Article 246 but is subject to clause (1) thereof.
This would imply that any law made by the Legislature of a State
in List III or the Concurrent List is subject to a law made by
Parliament in List I. This also has a bearing on first part of the
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clause (1) of Article 254. Therefore, in my view, the doctrine of
parliamentary supremacy is writ large in Articles 246 and 254
both in the manner of arrangement of the subjects in the three
Lists as well as the extent to which the State Legislatures have
competence with regard to the subjects assigned to them
particularly in List III or the Concurrent List.
15.2 In this case, we have to consider Entry 33(a) – List III in
light of Entry 52 – List I and the observations made by this Court
in Synthetics and Chemicals (7J). Entry 33(a) – List III is in
the Concurrent List and it speaks of trade and commerce in, and
production, supply and distribution of 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 such products.
A dissection of this Entry would indicate that insofar as products
of any industry which is a scheduled industry in terms of a law
made by Parliament by virtue of Entry 52 – List I viz. where the
control of such scheduled industry has been assumed by the
Union (insofar as trade and commerce in, and production, supply
and distribution of the products of such industry), both the
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Union as well as the States have concurrent powers to enact
laws. It must be remembered that Entry 33(a) – List III is a field
of legislation and therefore, deals with the concurrent legislative
competence of both the Union as well as the State Legislature.
An enactment under such an Entry by the State is subject to the
application of the principle of repugnancy as envisaged in Article
254 of the Constitution discussed above.
15.3 One cannot lose sight of the fact that the IDRA has been
enacted by Parliament taking control of certain industries such
as the “Fermentation Industries”, which is the subject matter of
controversy in the present cases, on the strength of Entry 52 –
List I. The degree of control envisaged under the various
provisions of the IDRA have been detailed in the various
provisions of the said Act. Section 18G was inserted to IDRA
w.e.f. 01.10.1953. The said Section in the IDRA is also a
provision which has been inserted pursuant to Entry 52 – List I.
The said Section empowers the Central Government to issue a
notified order for securing the equitable distribution and
availability at fair prices of any article or class of articles relatable
to any scheduled industry. The expression “notified order” is
Civil Appeal No.151 of 2007 Etc. Page 175 of 241
defined in Section 3(e) of the IDRA to mean the issuance of a
notification in the official gazette.
15.4 It is necessary to note that Entry 33(a) – List III will apply
only when a law such as IDRA has been enacted pursuant to
Entry 52 – List I, which has enabled the Union to take control of
certain industries such as “Fermentation Industries”. While
Entry 33(a) – List III is a field of legislation which deals with trade
and commerce in, and the production, supply and distribution
of, inter alia, the products of the scheduled industry under IDRA,
Section 18G thereof deals with securing equitable distribution
and availability at fair prices of any article or class of articles
relatable to any scheduled industry. The Explanation to Section
18G states that the expression “article or class of articles”
relatable to any scheduled industry includes any article or class
of articles imported into India which is of the same nature or
description as the article or class of articles manufactured or
produced in the scheduled industry. An article manufactured or
produced in the scheduled industry is nothing but a product of
a scheduled industry. Therefore, the expression “the products of
any scheduled industry” comes within the scope and ambit of the
Civil Appeal No.151 of 2007 Etc. Page 176 of 241
expression “article or class of articles” relatable to any scheduled
industry. Thus, Section 18G which pertains to a scheduled
industry is also relatable to Entry 33(a) – List III though it is a
part of IDRA which is a Parliamentary law enacted on the basis
of Entry 52 – List I.
15.5 The question that would then arise is, whether, by the
mere insertion of Section 18G to the IDRA with effect from
01.10.1953, the State Legislatures have been denuded of their
legislative competence in the matter of regulation of supply and
distribution and trade and commerce of products of any
scheduled industry. The conundrum which has arisen in this
case is on account of the observation in paragraph 85 of
Synthetics and Chemicals (7J), which, inter alia, reads as
under:
“85. … The State cannot claim that under Entry 33 of
List III, it can regulate industrial alcohol as a product of
the scheduled industry, because the Union, under
Section 18-G of the IDR Act, has evinced clear intention
to occupy the whole field.…”The aforesaid observations mean that by the very insertion
of Section 18G to the IDRA, there is a denudation of the State’s
Civil Appeal No.151 of 2007 Etc. Page 177 of 241
legislative competence vis-à-vis Entry 33(a) – List III with respectto a product of a scheduled industry which in the instant cases
is the “Fermentation Industries”.
15.6 The aforesaid observation which has led to a reference to
this nine-Judge Bench has to be considered in light of Entry 52
– List I, Entry 33(a) – List III and Section 18G of the IDRA. As
already stated, it is pursuant to Entry 52 – List I that the IDRA
has been enacted by the Parliament declaring the taking of
control of industries mentioned in the First Schedule to the said
Act called a scheduled industry. Entry 33(a) – List III deals with
trade and commerce in, and production, supply and distribution
of 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 such products i.e. with reference to a scheduled
industry. The nexus between Entry 33(a) – List III and Entry 52
– List I is with regard to the Union taking control of certain
industries such as “Fermentation Industries” in the instant cases
by a declaration made by Parliament by law. Section 2 of the
IDRA has made such a declaration and hence, it is in respect of
Civil Appeal No.151 of 2007 Etc. Page 178 of 241
the products of any industry whose control has been taken bythe law i.e. IDRA, pursuant to Entry 52 – List I that Entry 33(a)
– List III gives the legislative competence to both the Parliament
as well as the State Legislatures.
15.7 As already noted, the IDRA is enacted by Parliament under
Entry 52 – List I taking control of, inter alia, “Fermentation
Industries” as noted in Item 26 of the First Schedule to the said
Act. Section 18G deals with any article or class of articles
relatable to any scheduled industry i.e. “Fermentation
Industries” in the instant cases. The Explanation to Section 18G
states that the expression “article or class of articles” relatable to
any scheduled industry i.e. “Fermentation Industries” herein
includes any article or class of articles imported into India which
is of the same nature or description as the article or class of
articles, manufactured or produced in the scheduled
industry. The explanation is inclusive and not an exhaustive
one. For immediate reference Item 26 of the First Schedule of the
IDRA pursuant to the 2016 amendment is extracted as under:
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“26. The fermentation industries (other than potable
alcohol):
(i) Alcohol
(ii) other products of fermentation industries.”
The said Item 26 was added w.e.f. 08.05.1952 even prior to
the insertion of Section 18G to the IDRA which is w.e.f.
01.10.1953. However, w.e.f. 14.05.2016, Item 26 has been
amended to clarify that “Fermentation Industries” refers to
industries others than potable alcohol. This is for the reason that
“intoxicating liquors” in Entry 8 – List II is equated to only potable
alcohol and rest of the industry of the “Fermentation Industries”
other than potable alcohol is a scheduled industry.
15.8 Once an industry is a scheduled industry under the
provisions of IDRA, in the context of Section 18G the Central
Government may notwithstanding anything contained in any
other provision of IDRA by a notified order provide for regulating
the supply and distribution thereof and trade and commerce
therein of a product of scheduled industry. A notified order may
also provide –
Civil Appeal No.151 of 2007 Etc. Page 180 of 241
(a) for the purpose of controlling the prices at which any
such article or class of articles may be bought or sold
for;
(b) for regulating the licences, permits or otherwise the
distribution, transport, disposal, acquisition,
possession, use or consumption of any such article or
class thereof;
(c) for prohibiting the withholding from sale of any such
article or class thereof ordinarily kept for sale;
(d) for requiring any person manufacturing, producing or
holding in stock any such article or class thereof to sell
the whole or part of the articles so manufactured or
produced during a specified period or to sell the whole
or a part of the articles so held in stock to such person
or class of persons in such circumstances as may be
specified in the order;
(e) for regulating or prohibiting any class of commercial or
financial transactions relating to such article or class
thereof which in the opinion of the authority making the
Civil Appeal No.151 of 2007 Etc. Page 181 of 241
order are, or if unregulated are likely to be, detrimental
to public interest;
(f) for requiring persons engaged in the distribution and
trade and commerce in any such article or class thereof
to mark the articles exposed or intended for sale with the
sale price or to exhibit at some easily accessible place on
the premises the price-lists of articles held for sale and
also to similarly exhibit on the first day of every month,
or at such other time as may be prescribed, a statement
of the total quantities of any such articles in stock;
(g) for collecting any information or statistics with a view to
regulating or prohibiting any of the aforesaid matters;
and
(h) for any incidental or supplementary matters, including,
in particular, the grant or issue of licences, permits or
other documents and the charging of fees therefor.
15.9 Sub-section (4) of Section 18G provides that no order
made in exercise of any power conferred under Section 18G shall
be called in question in any court. Thus, a notified order may be
issued by the Central Government bearing in mind the situations
Civil Appeal No.151 of 2007 Etc. Page 182 of 241
and conditions which may arise in the Indian economy
pertaining to a particular scheduled industry.
Article 254, Repugnancy and Doctrine of Occupied Field:
16. There is also a further angle to the matter in the context of
concurrent powers of Parliament and State Legislatures vis-à-vis
Entry 33(a) – List III and Article 254 of the Constitution. Nicholas
in his Australian Constitution, 2nd Edition, page 303, refers to
three tests of inconsistency or repugnancy:
(i) There may inconsistency in the actual terms of the
competing statutes;
(ii) Though there may be no direct conflict, a State law may
be inoperative because the commonwealth law; or
commonwealth court is intended to be a complete
exhaustive Code; and
(iii) Even in the absence of intention, a conflict may arise
when both State and commonwealth seek to exercise
their powers over the same subject matter.”
16.1 In Tika Ramji, this Court accepted the above three rules
evolved by Nicholas, among others, as a useful guide to test the
Civil Appeal No.151 of 2007 Etc. Page 183 of 241
question of repugnancy. The same was also quoted by this Courtin M/s. Hoechst Pharmaceuticals Ltd. vs. State of Bihar, AIR
1983 SC 1019 (“Hoechst Pharmaceuticals Ltd.”). In the said
case, it was observed that the question of repugnancy between a
law made by Parliament and a law made by the State Legislature
arises only in case both the legislations occupy the same field
with respect to one of the matters enumerated in the Concurrent
List and there is direct conflict between the two laws. It is only
when both these requirements are fulfilled that the State law will,
to the extent of repugnancy, become void. Article 254(1) has no
application to cases of repugnancy due to overlapping found
between List II on the one hand and Lists I and III on the other.
If such overlapping exists in any particular case, the State law
would be ultra vires because of non-obstante clause in Article
246(1) read with the opening words “subject” in Article 246(3).
In such a case, the State law will fail not because of repugnance
to the Union law but due to want of legislative competence.
Thus, the question of repugnancy arises only when both the
Legislatures are competent to legislate in the same field, that is,
with respect to one of the matters mentioned in the Concurrent
Civil Appeal No.151 of 2007 Etc. Page 184 of 241
List. Hence, Article 254(1) cannot apply unless both the Union
and the State laws relate to a subject specified in the Concurrent
List and they occupy the same field.
16.2 Thus, Article 254 of the Constitution applies the doctrine
of repugnancy in the context of the legislative subjects which are
enumerated in List III or the Concurrent List. While applying the
principles of repugnancy under Article 254, a sine qua non is to
identify the conflict between the laws made by the Parliament
and the laws made by the State Legislature. The conflict between
the said laws is the basis for the application of Article 254. The
conflict could be direct when both the laws cannot operate
together or it could be indirect when the State law entrenches
upon a Parliamentary or Central law. But when laws made by
the Parliament or the State Legislature can be implemented
without there being any conflict, the principle of repugnancy
would not apply inasmuch as there would be no contrary results
owing to the applicability of both sets of laws. In other words,
there cannot be a situation where obeying the State laws would
result in disobeying the Parliamentary laws. Thus, when laws are
made under an Entry in List III or the Concurrent List by both
Civil Appeal No.151 of 2007 Etc. Page 185 of 241
the Parliament as well as by the State Legislature, the Court
must first ascertain whether the two sets of laws can operate
harmoniously, if not, whether harmonious interpretation could
be given to the said laws so as to avoid a conflict between the
two. It is only when there is a conflict between the two sets of
laws inasmuch as the State laws would be abridging the
Parliamentary law, in such a case, the doctrine of Parliamentary
supremacy would apply i.e. when a harmonious interpretation is
not possible. Even if the two laws overlap, if they are
complimentary to each other, in such a case, there would be no
application of the principle of Parliamentary supremacy. Thus,
when there is absolute inconsistency between the two sets of
laws, and they are not reconcilable then, the principle of
Parliamentary supremacy would apply in the context of
repugnancy.
16.3 The next question that would arise is, whether, the
principle of repugnancy in Article 254 of the Constitution could
have a wider ramification inasmuch as even in the absence of
there being two sets of laws which have been made by the
Parliament and by the State Legislature but owing to the nature
Civil Appeal No.151 of 2007 Etc. Page 186 of 241
of the law that the Parliament has made, the State Legislature is
incompetent in making a law on the same subject. In other
words, whether a law enacted by the Parliament can prevent a
law being made by the State Legislature on the same subject on
the premise that the field has been occupied by the
Parliamentary law. This is expressed in what is known as the
doctrine of occupied field. By this, it would mean that the law
enacted by the Parliament has occupied the field in its entirety
and consequently, the States have no legislative competence to
make a law on the very same aspect. In other words, if a law is
made by the Parliament, does it occupy the entire field so as to
reduce or negate the legislative competence of the State
Legislature to make a similar law? How does one determine
whether the legislative field has been occupied? Firstly, there
must be a Parliamentary law in place with an intention to occupy
the field. Secondly, the contours of the field must be determined.
Consequently, the State Legislature would be prevented from
making the law in terms of what has been determined by the
Parliament to occupy the field. Thus, the intention to occupy the
field must be explicit and clear and discernible with the result
Civil Appeal No.151 of 2007 Etc. Page 187 of 241
that the State Legislature would have a reduced field or the
legislative competence would be one of total prohibition to make
a similar law. For instance, whether the Parliamentary law
intends to put in place a complete and exhaustive regulatory
scheme, as a result of which the State Legislature is denuded of
its powers to make any State regulation in the field as a whole.
This intention would have to be discerned on a reading of the
statute as a whole and the particular provisions which should
emanate such an intention. Thus, there must be a clear intention
to occupy the field by a Parliamentary legislation. Further, the
extent of the field sought to be occupied must be clearly
demarcated. In other words, whether the Parliament has evinced
to exclude the State Legislature from making a law on a similar
subject by virtue of an Entry in List III?
16.4 In order to answer this question, the provisions of the Act
made by the Parliament have to be examined threadbare in order
to ascertain a clear intention of the Parliament to occupy the field
so as to negate the Legislature of the States to have the
competence to make a similar law. Thus, while a direct conflict
of a Parliamentary law and a State law could be resolved on the
Civil Appeal No.151 of 2007 Etc. Page 188 of 241
touchstone of a harmonious interpretation of the two laws (vide
second part of article 254(1)), a potential conflict between a
Parliamentary law which has been enacted and a potential or
future law by a State Legislature is avoided on the touchstone of
the doctrine of occupied field.
16.5 While applying the occupied field doctrine, Courts must
delicately balance the legislative competence of the Parliament
and the State Legislatures in making laws on a particular subject
under the Concurrent List and apply the doctrine of occupied
field only having regard to the intention of the Parliament to
occupy the field and the Parliament defining the contours of the
field sought to be occupied by a comparative and coherent
reading of the other Entries in List I and List II, having bearing
on the concerned Entry in List III of the Constitution. Such
balancing need to be done by Courts in order to ascertain
whether despite legislative competence being provided to the
State Legislatures under a particular Entry in the Concurrent
List but owing to what has been stated in any law made under
Entry in List I (Union List) having a bearing on an Entry in the
Concurrent List being made subject to any Entry in the Union
Civil Appeal No.151 of 2007 Etc. Page 189 of 241
List, would result in the State Legislatures being denuded of
legislative competence to make laws on a similar subject under
an Entry in List III such as Entry 33(a) – List III which is under
consideration.
16.6 The application of the doctrine of occupied field is a
technique adopted by the constitutional courts in order to ensure
that there is no potential conflict that could arise between the
State laws and the existing Parliamentary law having regard to
the nature of the legislative powers, their importance in the
socio-economic sphere of governance in the country and such
other considerations.
16.7 Applying the aforesaid principles to the cases at hand, the
question is whether by virtue of insertion of Section 18G to the
IDRA, the legislative competence of the State Legislatures under
Entry 33(a) – List III vis-à-vis products of the scheduled industry
namely, “Fermentation Industries” would be governed within the
scope and ambit of Section 18G of the IDRA and consequently,
the State Legislatures would have no competence to make a law
in regard to the products of a scheduled industry in respect of
Civil Appeal No.151 of 2007 Etc. Page 190 of 241
which Section 18G applies. This is by bearing in mind the twin
tests referred to above namely, the intention of the Parliament to
occupy the field and the demarcation of the areas in which the
field is sought to be occupied. In other words, in the instant case,
whether Item 26 which speaks of “Fermentation Industries” to
include “industrial alcohol” or non-potable alcohol as a product
of such industry which has been taken control of by the Union
under the provisions of IDRA (and which is excluded from the
scope and ambit of Entry 8 – List II), falls within the scope and
ambit of a scheduled industry, and thereby Section 18G would
apply the aspects referred to above.
16.8 The answer is in the affirmative for the following reasons:
firstly, insofar as the potable or “intoxicating liquors” is
concerned, the legislative field is exclusively with the State
Legislature. However, in respect of the scheduled industry which
is “Fermentation Industries” (which does not take within its
scope and ambit potable alcohol) vide Item 26 of the First
Schedule, all other types of alcohol including “industrial alcohol”
can be regulated only by the Parliamentary law and the Central
Government. Any other interpretation would imply that even in
Civil Appeal No.151 of 2007 Etc. Page 191 of 241
the face of Section 18G being incorporated into the IDRA and inthe absence of any notified order being issued, the States
Legislatures and the State Governments would have the
legislative competence to make laws on what is the subject
matter of Section 18G of IDRA under Entry 33(a) – List III. Then,
each State could make its own law on the said subject matter
covered under Section 18G of IDRA pertaining to a scheduled
industry. If in respect of the products of a scheduled industry,
the States make laws and there are a variety of laws made by the
individual States which are in force in respect of the subject
under Section 18G of IDRA then when a notified order is issued,
the Central Government’s notified order would apply if there is a
direct conflict between the State laws or legal regime in place and
the notified order that is issued. This would result in a legal
quagmire vis-à-vis a scheduled industry. It cannot then be said
that it is necessary to ascertain whether there is a direct conflict
between the State law and the notified order made by the Central
Government at every instance such an order is issued and if
there is such a direct conflict then, the Parliamentary law would
apply on the strength of Article 254 of the Constitution. Such a
Civil Appeal No.151 of 2007 Etc. Page 192 of 241
legal confusion and conundrum would not be conducive to ascheduled industry such as “Fermentation Industries” dealing
with “industrial alcohol” which is a commodity of critical and
significant importance in the Indian economy.
16.9 Sub-section (4) of Section 18G also states that no order in
exercise of power conferred by the Section shall be called in
question in any court. Thus, the question of repugnancy between
an existing State law and the notified order of the Central
Government cannot be raised before a court of law. Then,
whether both the State law as well as the notified order can be
simultaneously obeyed. If not, what would be the remedy. Sub-
section (4) of Section 18G also indicates that the Parliament has
intended to occupy the field as demarcated under Section 18G.
Such an interpretation has to be given in order to avoid a legal
uncertainty and quandary in the economy in the context of
Section 18G of the IDRA.
16.10 Thus, the question, whether, under Entry 33(a) – List III,
the States have been denuded of their powers by virtue of
insertion of Section 18G to the IDRA, i.e., Section 18G having
Civil Appeal No.151 of 2007 Etc. Page 193 of 241
occupied the field to the extent of control as above mentioned
and the States would not have the competence to pass any law
relating to Entry 33(a) – List III, in my view, has to be answered
in the affirmative. This is because Section 18G has been inserted
by Parliament to the IDRA which is an enactment made pursuant
to Entry 52 – List I. Entry 52 – List I speaks of the Union by
declaration made by Parliament by law taking control of such
scheduled industry (Section 2 of the IDRA) such as the
“Fermentation Industries” herein. The industries which are
controlled of by the Union are specified in the First Schedule to
the IDRA. “Fermentation Industries” is a scheduled industry.
Therefore, the Union has taken control of “Fermentation
Industries”. For the sake of clarification, in the year 2016 an
amendment was made to expressly exclude potable alcohol from
“Fermentation Industries” and it includes only non-potable
alcohol such as “industrial alcohol”. The detailed discussion
made above is in regard to only “industrial alcohol” being non-
potable alcohol. “Intoxicating liquors” being potable alcohol is not
within the scheduled industry. Therefore, the said products of
“Fermentation Industries” which have been taken control of by
Civil Appeal No.151 of 2007 Etc. Page 194 of 241
the Union by virtue of insertion of the Section 18G of the IDRA
would come within the scope and ambit of the said Section.
16.11 In this context, by way of analogy, it would be of
relevance to refer to my dissenting opinion dated 25.07.2024 in
Mineral Area Development Authority Etc. vs. M/s. Steel
Authority of India & Others (Civil Appeal Nos.4056-4064 of
1999) (“Mineral Area Development Authority”) wherein the
interpretation of Entry 50 – List II vis-à-vis Entry 54 – List I came
up for consideration and it was observed by me that even a
taxation Entry i.e. Entry 50 – List II was subject to the limitation
imposed by Parliament by law relating to mineral development in
terms of the Entry 54 – List I. Thus, the doctrine of parliamentary
supremacy in the context of an Entry in List II (State List) with
an Entry in List I (Union List) was considered. For immediate
reference the following passage from said opinion could be
extracted:
“8.6 However, what is pertinent to be considered in
this case is, Entry 50 – List II in juxtaposition with Entry
54 – List I. As already noted, Entry 50 – List II is a
taxation Entry which empowers a State Legislature to
impose tax on mineral rights. However, this power of the
State Government is not an absolute power inasmuch as
Entry 50 – List II itself states that the power of the StateCivil Appeal No.151 of 2007 Etc. Page 195 of 241
Legislature to impose tax on mineral right is “subject to
any limitations imposed by Parliament by law relating to
mineral development”. In other words, if there is any
limitation imposed by the Parliament by law relating to
mineral development then that would have an impact on
the legislative competence of the State Legislature to
impose a tax on mineral rights. The key expressions of
Entry 50 – List II are “taxes on mineral rights” and
“subject to any limitations imposed by the Parliament by
any law on mineral development”. Thus, the Parliament
can impose any limitation on the State’s right to impose
a tax on mineral rights by way of a law relating to
mineral development. Thus, while Entry 50 – List II
speaks of taxes on mineral rights and is a taxation Entry
empowering States to impose taxes on mineral rights,
the same is not unbridled or absolute but is subject to
any limitation to be imposed by Parliament by law
relating to mineral development. In other words, if
Parliament intends to regulate mineral development in
the country, it can do so by a law made as per Entry 54
– List I and to that extent the taxation Entry in Entry 50
– List II could be limited and the State’s right to impose
a tax on mineral rights by a law would be affected. Thus,
a taxation Entry in Entry 50 – List II can be affected by
Entry 54 – List I in the interest of mineral development
by Parliament imposing a limitation on the State’s right
to tax mineral rights. In other words, if the Union has by
a law taken control of, inter alia, mineral development
with the Parliament passing a law, then the State’s
power to impose any tax on mineral rights would, to that
extent, be denuded, if the Parliamentary or Central law
creates a limitation to impose such a tax, if it relates to
mineral development. It is in the above backdrop that
the controversy must be considered.
8.7 Exercise of mineral rights have to be consistent
with mineral development in the country, which would
embrace, inter alia, uniformity in mineral development
throughout the country having regard to several factors
which would otherwise come in the way of suchCivil Appeal No.151 of 2007 Etc. Page 196 of 241
development. Hence, the framers of the Constitution
introduced Entry 50 – List I enabling a limitation being
imposed on Entry 50 – List II although that is a taxation
Entry giving powers to the States to impose taxes on
mineral rights. It is subject to any limitation imposed by
Parliament under Entry 54 – List I.
8.8 The golden thread which runs through Entry 54
– List I and Entry 23 – List II is that the Entries deal with
regulation of mines and mineral development. Thus, any
aspect of regulation of mines and mineral development
taken under the control of the Union by a declaration
made by the Parliament by a law, denudes the State
Legislature of its legislative competence to pass any law
to that extent. If a Parliamentary law such as MMDR Act,
1957 is enacted and deals with certain aspects of
mineral development, to that extent the State Legislature
would be denuded of its competence to pass any law on
the said aspect. The legislative competence vested with
the State Legislature is, therefore, not an absolute one
but is subject to a Parliamentary law enacted as per
Entry 54 – List I dealing with mineral development.
In the circumstance, the aforesaid observations made in
Synthetics and Chemicals (7J) are in consonance with the
constitutional framework of Article 246 read with the Entries in
Lists I and III and the doctrine of occupied field applies in the
context of Section 18G of IDRA enacted under Entry 52 – List I
and Entry 33(a) – List III.
17. One of the contentions raised was that so long as the
notified order has not been issued by the Central Government
Civil Appeal No.151 of 2007 Etc. Page 197 of 241
which triggers the exercise of powers under Section 18G of the
IDRA, the States would have the legislative competence to pass
laws under Entry 33(a) – List III. In my view, the issuance of a
notified order under Section 18G is only a ministerial act to be
performed and to be complied with by the Central Government
by a publication in the official gazette. The object of publication
of a notified order in the official gazette is to inform the world at
large about the contents of the said order. This could happen at
any point of time having regard to the situations and conditions
which emerge in the Indian economy with regard to a product of
a scheduled industry which is also described as an article or
class of articles relatable to any scheduled industry under
Section 18G of IDRA. Thus, when the field is occupied by Section
18G of the IDRA which is an enactment made pursuant to Entry
52 – List I and the State Legislatures are denuded of legislative
competence for passing any law under Entry 33(a) – List III in
respect of a product of a scheduled industry which is read within
the definition of article or class of articles relatable to any
scheduled industry as per the Explanation to Section 18G, the
issuance of a notified order pales into insignificance in the
Civil Appeal No.151 of 2007 Etc. Page 198 of 241
context of repugnancy. The issuance of a notified order has
relevance only for the purpose of intimation of action being taken
on any particular article or class of article of a scheduled
industry by the Central Government in an occupied field.
17.1 As far as the controversy whether “Fermentation
Industries” being under the control of the Union could enable the
State Legislature to pass a law by virtue of Entry 33 (a) – List III
of the Constitution, in the context of a product of “Fermentation
Industries” and in the context of Section 18G of the IDRA, there
has been a cleavage of opinion of this Court in the aforesaid
judgments. While in Synthetics and Chemicals (7J), it was held
that mere insertion of Section 18G into the statute of the IDRA,
would imply that the field has been occupied by the Union and,
therefore, the State has no jurisdiction to exercise its powers
under the said Entry and therefore, has been denuded of all its
powers, the subsequent decisions in Bihar Distillery etc., have
opined that the said position may not be correct. In other words,
unless action is taken under Section 18G of the IDRA by the
actual issuance of a notified order and if such a notified order is
repugnant to an existing State legislation or action being initiated
Civil Appeal No.151 of 2007 Etc. Page 199 of 241
thereto, the question of repugnancy would arise. The judgment
of this Court in Tika Ramji has been referred to and how far the
said judgment would have an application in the present
controversy is a matter to be analysed.
17.2 In Tika Ramji, the vires of the Uttar Pradesh Sugarcane
(Regulation of Supply and Purchase) Act, 1953 (hereinafter
referred to as “UP Act”) was assailed by the petitioners therein. It
was contented that the State of Uttar Pradesh had no power to
enact the said Act as the same was with respect to the subject of
industries, the control of which by the Union was declared by
Parliament by law to be expedient in the public interest within
the meaning of Entry 52 – List I and was, therefore, within the
exclusive province of Parliament. It was further contended that
the Act was ultra vires the powers of the State Legislature and
was a colorable exercise of legislative power by the State. It was
further contended that it was repugnant to the IDRA and the
Essential Commodities Act, 1955 (Act 10 of 1955) also a Central
Act. That in the event of this Court were to hold that the
impugned Act was within the legislative competence of the State
Legislature, it was void by reason of such repugnancy. It was also
Civil Appeal No.151 of 2007 Etc. Page 200 of 241
contended that the impugned Act stood repealed to the extent
that it had been repealed by Section 16 of Act 10 of 1955 and by
clause (7) of the Sugarcane (Control) Order, 1955, made in
exercise of the powers conferred by Section 3 of Act 10 of 1955
(a Central Act).
17.3 It was observed that even if it was assumed that sugarcane
was an article or class of articles relatable to the sugar industry
within the meaning of Section 18G of the IDRA, since no order
was issued by the Central Government in exercise of the powers
vested in it under that section, no question of repugnancy could
ever arise because repugnancy must exist in fact and not depend
merely on a possibility. The possibility of an order under Section
18G being issued by the Central Government would not be
enough. The existence of such an order would be an essential
prerequisite before any repugnancy could ever arise.
17.4 Without going into the other aspects of the case, in my
view, this Court was not right in holding that since no order was
issued by the Central Government under Section 18G of the
IDRA, the legislative field was open to both the Central as well as
Civil Appeal No.151 of 2007 Etc. Page 201 of 241
the State Governments to take action. That portion of the
judgment in Tika Ramji in my view is not correct.
17.5 The judgments of this Court including that of the
Constitution Bench in Tika Ramji; Indian Aluminium
company Limited vs. Karnataka Electricity Board, (1992) 3
SCC 580 (“Indian Aluminium company”); Shree Krishna
Gyanoday Sugar Ltd.; Belsund Sugar Co. Ltd. vs. State of
Bihar, (1999) 9 SCC 620 (“Belsund Sugar Co. Ltd.”) and SIEL
Ltd. vs. Union of India, (1998) 7 SCC 26 (“SIEL Ltd.”) have
lost sight of the fact that when a notified order is issued under
Section 18G of the IDRA it is pursuant to a Central enactment
made by virtue of Entry 52 – List I and it is not an exercise of
power under Entry 33(a) – List III. When once Section 18G has
been inserted to the IDRA in respect of a scheduled industry, the
control being taken over by the Union in respect of the very same
scheduled industry, legislative competence cannot remain with
the State Legislature also under Entry 33(a) – List III in respect
of the aspects or field covered under Section 18G of IDRA which
is a Parliamentary enactment.
Civil Appeal No.151 of 2007 Etc. Page 202 of 241
18. There is another angle to the matter. Article 254 in the
normal course would apply when there is a direct conflict
between the laws made by the Parliament and the State
Legislature under an Entry in the Concurrent List. But in the
instant case, it can also be held that the conflict is not between
a law or an action taken by the Parliament or the Central
Government under Entry 33(a) – List III versus a State law that
could be made or action taken under the very same Entry. Here,
the conflict arises between action that could be taken by the
Central Government under Section 18G of IDRA made by virtue
of Entry 52 – List I as opposed to a State law or action which
could be made under Entry 33(a) – List III. In such case, the
doctrine of repugnancy would arise as per the first part of Article
254(1) between Entry 52 – List I and Entry 33(a) – List III and not
in respect of the second part of Article 254(1). Thus, when the
Central Government seeks to exercise power in respect of a
scheduled industry under Section 18G of the IDRA it is pursuant
to the said Act being made under Entry 52 – List I. Hence, any
action to be taken by the Central Government under Section 18G
Civil Appeal No.151 of 2007 Etc. Page 203 of 241
is not really an action that would be taken under Entry 33(a) –
List III.
18.1 On this aspect, reference must be made to judgment of
this Court in State of Kerala vs. Mar Appraem Kuri Company
Limited, (2012) 7 SCC 106 (“Mar Appraem Kuri Company”).
The Constitution Bench of this Court speaking through Kapadia,
C.J., considered the question – when does repugnancy arise in
the context of whether Kerala Chitties Act 23 of 1975 becoming
repugnant to the (Central) Chit Funds Act 40 of 1982 under
Article 254(1) upon making of the Central Act (i.e. 19.08.1982
when the President gave his assent) or whether the Kerala
Chitties Act 23 of 1975 would become repugnant to the Central
Act as and when the notification under Section 1(3) of the Central
Act bringing the Central Act into force in the State of Kerala is
issued. In other words, the question raised was whether making
of the law or its commencement brings about repugnancy or
inconsistency as envisaged in Article 254(1) of the Constitution.
In this context, reference was made to Deep Chand vs. State of
UP, AIR 1959 SC 648 (“Deep Chand”) and it was observed as
under:
Civil Appeal No.151 of 2007 Etc. Page 204 of 241
“30. That, in Deep Chand v. State of U.P., three
principles were laid down as indicative of repugnancy
between a State law and a Central law, which have to be
borne in mind by the State Legislature whenever it seeks
to enact a law under any entry in the Concurrent List.
Thus, where there is a Central law which intends to
override a State law or where there is a Central law
intending to occupy the field hitherto occupied by the
State law or where the Central law collides with the State
law in actual terms, then the State Legislature would
have to take into account the possibility of repugnancy
within the meaning of Article 254 of the Constitution. In
this connection, it was submitted that Tests 1 and 2
enumerated in Deep Chand do not require the Central
law to be actually brought into force for repugnancy
between two competing legislations to arise in the
context of Article 254 of the Constitution.”18.2 In paragraph 40, it was observed that the expression
“subject to” in clauses (2) and (3) of Article 246 denotes
supremacy of Parliament and the same is extracted as under:
“40. However, the principle of federal supremacy in
Article 246(1) cannot be resorted to unless there is an
“irreconcilable” conflict between the entries in the Union
and State Lists. The said conflict has to be a “real”
conflict. The non obstante clause in Article 246(1)
operates only if reconciliation is impossible. As stated,
the parliamentary legislation has supremacy as provided
in Articles 246(1) and (2). This is of relevance when the
field of legislation is in the Concurrent List. The Union
and the State Legislatures have concurrent power with
respect to the subjects enumerated in List III. [See Article
246(2).] Hence, the State Legislature has full power toCivil Appeal No.151 of 2007 Etc. Page 205 of 241
legislate regarding subjects in the Concurrent List,
subject to Article 254(2) i.e. provided the provisions of
the State Act do not come in conflict with those of the
Central Act on the subject. [See Amalgamated
Electricity Co. (Belgaum) Ltd. v. Municipal
Committee, Ajmer [AIR 1969 SC 227 : (1969) 1 SCR
430] .] Thus, the expression “subject to” in clauses (2)
and (3) of Article 246 denotes supremacy of Parliament.”18.3 In paragraph 43, it was observed as under:
“43. Our Constitution gives supremacy to Parliament in
the matter of making of the laws or legislating with
respect to matters delineated in the three Lists. The
principle of supremacy of Parliament, the distribution of
legislative powers, the principle of exhaustive
enumeration of matters in the three Lists are all to be
seen in the context of making of laws and not in the
context of commencement of the laws.”18.4 Dealing with the question of repugnancy and the ways in
which it would arise between Parliamentary legislation and
States’ legislation, it was observed in paragraph 47 as under:
“47. The question of repugnancy between parliamentary
legislation and State legislation arises in two ways. First,
where the legislations, though enacted with respect to
matters in their allotted spheres, overlap and conflict.
Second, where the two legislations are with respect to
matters in the Concurrent List and there is a conflict. In
both the situations, the parliamentary legislation will
predominate, in the first, by virtue of non obstante
clause in Article 246(1); in the second, by reason of
Article 254(1).”Civil Appeal No.151 of 2007 Etc. Page 206 of 241
18.5 Ultimately, in paragraph 61, it was stated as under:
“61. The entire above discussion on Articles 245, 246,
250, 251 is only to indicate that the word “made” has to
be read in the context of the law-making process and, if
so read, it is clear that to test repugnancy one has to go
by the making of law and not by its commencement.”18.6 On the facts of the said case, this Court held that on the
enactment of the (Central) Chit Funds Act, 1982 on 19.08.1982,
intending to occupy the entire field of chits under Entry 7 – List
III, the State Legislature was denuded of its power to enact the
Kerala Finance Act 7 of 2002.
18.7 Thus, when the State of Kerala intended to amend the
State Act in 2002, it was bound to keep in mind the fact that
there is already a Central law on the same subject made by
Parliament in 1982, though not in force in Kerala, whereunder
there is a pro tanto repeal of the State Act. Therefore, the State
Legislature ought to have followed the procedure in Article 254(2)
and ought to have obtained the assent of the President.
18.8 Ultimately, in paragraph 78, issue was summed up as
under:
“78. To sum up, Articles 246(1), (2) and 254(1) provide
that to the extent to which a State law is in conflict withCivil Appeal No.151 of 2007 Etc. Page 207 of 241
or repugnant to the Central law, which Parliament is
competent to make, the Central law shall prevail and the
State law shall be void to the extent of its repugnancy.
This general rule of repugnancy is subject to Article
254(2) which inter alia provides that if a law made by a
State Legislature in respect of matters in the Concurrent
List is reserved for consideration by the President and
receives his/her assent, then the State law shall prevail
in that State over an existing law or a law made by
Parliament, notwithstanding its repugnancy.”
19. Further reference could also be made to the Food Safety
and Standards Act, 2006 (“FSSA, 2006”) which has been enacted
pursuant to Entry 52 – List I where the Parliament by a
declaration made under Section 2 of the said Act has declared
that it is expedient in the public interest that the Union should
take under its control the food industry. Consequently, clause
(b) of Entry 33 – List III which speaks of food stuffs, including
edible oils seeds, and oils would be impacted on account of the
FSSA, 2006 and the declaration made therein pursuant to Entry
52 – List I to the extent of the control under the said Act.
20. The reason for the aforesaid view would have to be also
considered from the point of view of the fact that when an
“industry” is taken control of by the Union by specifying it in the
Civil Appeal No.151 of 2007 Etc. Page 208 of 241
First Schedule of the IDRA, it becomes a scheduled industry and
to the extent of control envisaged as per the Schedule and as per
the provisions of IDRA. It is only those industries which are
critical and of vital significance to the Indian economy which are
taken control of by the Union and one such industry is
“Fermentation Industries”, which inter alia comprises of
“industrial alcohol” both as a product and as a raw material for
other industries.
21. Conversely, if any industry is not a scheduled industry
and does not come within the scope and ambit of First Schedule
of the IDRA, in such an event, not only Entry 24 – List II but also
Entries 26 and 27 – List II would fully operate. Then, Entries 26
and 27 – List II would not be subject to the restriction under
Entry 33(a) – List III nor to Entry 52 – List I. The States would
have the liberty to pass laws with regard to trade and commerce,
production supply and distribution of goods of any industry
under Entries 26 and/or 27 – List II without there being any
restriction in terms of Entry 33(a) – List III. In other words,
insofar as a non-scheduled industry is concerned, Entry 33(a) –
List III would not at all apply and Entries 26 and/or 27 – List II
Civil Appeal No.151 of 2007 Etc. Page 209 of 241
would apply in the matter of production, supply and distribution
of goods or trade and commerce of the products of any industry
or any other specific Entry in List II, as the case may be.
22. In the above context, the intention of the Constitution
makers in the matter of division of legislative subjects between
the Parliament and the States have to be clearly understood. In
order to achieve consistency of dividing the subjects of legislation
not only within the particular Lists, namely, the Union List, State
List and Concurrent List but also, inter se, between the three
Lists so as to have a clarity in the matter of the Parliament or the
State Legislature having competence to make laws, the
prescription under Article 246 and the mandate thereof would
give a clue regarding interpretation of the Entries in the three
Lists. To reiterate, Articles 246 (1) and (2) of the Constitution
begins with a non-obstante clause and Article 24(3) begins with
a “subject to” clause. On a conspectus reading of aforesaid
clauses of Article 246, it is evident that the Legislature of a State
has the power to make laws with respect to any matter
enumerated in List III, i.e., Concurrent List, subject to List I
which deals with Parliament’s exclusive powers to make laws in
Civil Appeal No.151 of 2007 Etc. Page 210 of 241
respect of any matter enumerated in List I. Therefore, a subject
placed in List III, i.e., the Concurrent List can also be subject to
the exclusive power of Parliament to make laws with respect to
any matter enumerated in List I (vide first part of Article 254(1)).
Thus, the intention of the Constitution makers was to preserve
parliamentary supremacy while at the same time maintaining a
federal balance in the matter of distribution of the fields of
legislation vis-à-vis various Entries in the three Lists. This is also
evident on a reading of Article 246(3) which deals with the
exclusive powers to make laws by State Legislatures in respect of
matters enumerated in List II being subject to clauses (1) and (2)
of Article 246, i.e., subject to the Union List and the Concurrent
List is in a case of conflict of laws which is irreconcilable.
23. Any other view would result in a situation wherein the
State Legislatures on the strength of Entry 33(a) – List III would
have their own legislations on the premise that there is no
notified order issued by the Central Government in respect of the
scheduled industry under Section 18G of the IDRA, and if
subsequently in respect of a product of a scheduled industry, the
Central Government is to issue a notification under Section 18G
Civil Appeal No.151 of 2007 Etc. Page 211 of 241
of the IDRA, the laws that are in operation in the various States
would become repugnant if there is a direct conflict between the
said State laws with the notified order issued by the Central
Government under Section 18G of the IDRA. This would result
in a legal quagmire and uncertainty leading to confusion.
Therefore, for this reason also States cannot have legislative
competence to pass laws or take any action in respect of any
product of a scheduled industry from the moment Section 18G
has been inserted to the IDRA which has been enacted pursuant
to Entry 52 – List I. As a result, time of insertion of Section 18G
to the IDRA, the intention of the Union is to occupy the field
insofar as an article or articles of scheduled industry is
concerned which will also include a product of a scheduled
industry. Consequently, the States are denuded of their powers
to pass any law insofar as the said subject-matter is concerned.
24. In State of W.B. vs. Union of India, AIR 1963 SC 1241
(“State of W.B.”), this Court on a comparative analysis of List I
in Seventh Schedule to the Constitution with the Seventh
Schedule to the 1935 Act noted that the powers of the Union have
been enlarged particularly in the field of economic unity and that
Civil Appeal No.151 of 2007 Etc. Page 212 of 241
this was done as it was felt that there should be centralised
control and administration in certain fields of common interest if
rapid economic and industrial progress had to be achieved by the
nation. Reference in this regard was also made, inter alia, to the
transfer of new Entry 33 – List III in the Constitution from List II
of the 1935 Act. It was observed that the result of ensuring such
economic unity was a departure from any traditional pattern of
federation and a conscious decision for the common good.
Furthermore, in identifying deviations from traditional features
of federations, this Court noted a notable feature that is true of
the Indian constitutional framework:
“26. … (c) Distribution of powers between the Union and
the regional units each in its sphere coordinate and
independent of the other. The basis of such distribution
of power is that in matters of national importance in
which a uniform policy is desirable in the interest of the
units, authority is entrusted to the Union, and matters
of local concern remain with the States. …”Importance of “Industrial Alcohol” to the Indian Economy:
25. It is necessary to note the importance of “industrial
alcohol” in the Indian economy. “Industrial alcohol” is important
to the Indian economy for it is used in at least two sectors: i) as
Civil Appeal No.151 of 2007 Etc. Page 213 of 241
a key feedstock for production of various chemicals in the
chemicals industry; and ii) as liquid fuel to be blended with
petrol.
25.1 As regards the chemical industry, the XIIth five-year plan
(2012-2017) of the Planning Commission (“PC Report”) notes that
“alcohol-based chemical industry occupies an important place in
the Indian chemical industry and is a key contributor to the
growth of the sector”. It also notes that several alcohol-based
chemicals are made using “industrial alcohol” and are used as
building blocks for various downstream industries such as
“synthetic fibres and synthetic yarn, drugs and pharmaceuticals,
agrochemicals, personal care products, dyestuffs, pigments,
flavours & fragrances etc.” Further, the PC Report notes that
alcohol based chemical industry “contributes to green chemistry”
as chemicals are manufactured using ethanol instead of being
manufactured through the petro-chemical route. It also notes
that they contribute to foreign exchange reserves.
25.2 As regards blending of ethanol with petrol, the
contribution of Ethanol Blended with Petrol (EBP) programme of
Civil Appeal No.151 of 2007 Etc. Page 214 of 241
the Government of India appears significant. In this programme,
fuel-grade ethanol is blended with petrol and is sold by Oil
Marketing Companies (OMCs) for use as a fuel in automobiles.
In response to an Unstarred Question No.2764 answered on 20th
December, 2023, the Minister of State for Ministry of Consumer
Affairs, Food & Public Distribution had answered that:
i) The Government of India has been implementing EBP
programme and has fixed the target of 20% blending of
ethanol with petrol by 2025;
ii) The supply of ethanol to OMCs has increased by more than
13 times from 38 crore litres in ESY 2013-13 to 502 crore
litres in ESY 2022-23;
iii) To achieve the target of 20% blending by 2025, about 1016
crore litres of ethanol would be required and for this, about
1700 crore litres of ethanol producing capacity is required.
25.3 Further, a report of the Ministry of Petroleum and
Natural Gas, Government of India titled “Ethanol Growth Story”
suggests that the EBP programme has at least three benefits:
first, it raises income of farmers which is evident from the
observation that OMCs have paid sugar mills nearly Rs.81,796
Civil Appeal No.151 of 2007 Etc. Page 215 of 241
crore for ethanol supplies up to 2022. Second, it reduces importbills and improves India’s energy security. The report suggests
that the cumulative foreign exchange impact is estimated to be
over Rs.53,894 crore between 2014 and 2022. Third, it lowers
CO2 emissions and promotes a cleaner environment. The report
estimates that Greenhouse gas emissions were reduced by 318.2
lac tonnes due to the EBP programme between 2014 and 2022.
26. Thus, insofar as “Fermentation Industries” (other than
potable alcohol) is concerned, both alcohol and other products of
“Fermentation Industries” being a scheduled industry under the
IDRA passed under Entry 52 – List I it would clearly be within
the scope of Union legislation. It is clarified that as far as the
concept of “intoxicating liquors” versus “industrial alcohol” is
concerned, it is clear that Entry 33(a) – List III does not deal with
“intoxicating liquors” which is a State subject under Entry 8 –
List II. “Fermentation Industries” is a controlled industry and is
a scheduled industry under the IDRA. It has been clarified by the
2016 Amendment that Item 26 dealing with “Fermentation
Industries” does not include potable alcohol. Therefore, insofar
as “intoxicating liquors” which is “potable liquors” is concerned,
Civil Appeal No.151 of 2007 Etc. Page 216 of 241
only the State Legislatures have the legal competence to enact
laws concerning the said subject. Therefore, other types of liquor
(i.e. excluding “intoxicating liquors”) comes within the
nomenclature of “Fermentation Industries” which is a scheduled
industry under IDRA.
27. Since qua State Legislatures, Article 246(2) is also subject
to Article 246(1), the legislation which could have been made
under List III (Concurrent List) can also be subject to legislation
made under Entry 52 – List I. This is expressly so having regard
to Entry 33(a) – List III as any law regarding trade and commerce
in, and the production, supply and distribution of 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 such products,
would be subject to a law made as per Entry 52 – List I i.e., IDRA.
This is because a Parliamentary law which is made by virtue of
an Entry under List I has supremacy over any other law in List
II or List III when they are irreconcilable or when the doctrine of
occupied field applies respectively.
Civil Appeal No.151 of 2007 Etc. Page 217 of 241
28. In Mineral Area Development Authority, I have voiced
similar concerns as in the present case in the following words:
“36.3 The Government of India Act, 1935 was the first
comprehensive blueprint for legislative division of power
in India between federal, provincial and concurrent
spheres which resolved residuary powers to rest with the
Federal Government. Though there are apparent
similarities between the Government of India Act, 1935
and the Indian Constitution, yet factors, such as,
regulation of economic competition and the development
of twentieth century welfare States guided the
constitutional blueprint for a model of federalism in
which provincial initiative should not preclude national
coordination, particularly, in the fields of socio-economic
spheres.
36.4 According to Tillin, “in the case of India,
political economy considerations intersect with the
accommodation of diversity in shaping the resulting
forms of federalism”. The question of a desirable balance
between Central and the State Governments has to be
viewed in the context of the country continuing to
confront the need to promote economic growth while
upholding and expanding social rights.
Sarkaria Commission Report on Centre-State
Relations:
37. Resolved to study and reform the existing
arrangements between the Union and the States in an
evolving socio-economic scenario, the Ministry of Home
Affairs vide Order dated 09.06.1983 constituted a
Commission under the Chairmanship of Justice R.S.
Sarkaria with Shri B. Sivaraman and Dr. S.R. Sen
having due regard to the framework of the Constitution.
At this stage, reference to Section 5, Chapter II –
Legislative Relations of the Report of the Sarkaria
Commission (“Sarkaria Commission Report”) may be of
assistance:
Civil Appeal No.151 of 2007 Etc. Page 218 of 241
“2.5.21 In every Constitutional system having
two levels of government with demarcated
jurisdiction, contents respecting power are
inevitable. A law passed by a State legislature on
a matter assigned to it under the Constitution
though otherwise valid, may impinge upon the
competence of the Union or vice versa.
Simultaneous operation side-by-side of two
inconsistent laws, each of equal validity, will be
an absurdity. The rule of Federal Supremacy is a
technique to avoid such absurdity, resolve
conflicts and ensure harmony between the Union
and State laws. This principle, therefore, is
indispensable for the successful functioning of
any federal or quasi-federal Constitution. It is
indeed the kingpin of the federal; system. “Draw
it out, the entire system falls to pieces”
2.5.22 If the principles of Union Supremacy are
excluded from Articles 246 and 254, it is not
difficult to imagine its deleterious results. There
will be every possibility of our two-tier political
system being stultified by internecine strife, legal
chaos and confusion caused by a host of
conflicting laws, much to the bewilderment of the
common citizen. Integrated legislative policy and
uniformity on basic issues of common Union-
State concern will be stymied. The federal
principle of unity in diversity will be very much a
casualty. The extreme proposal that the power of
Parliament to legislate on a Concurrent topic
should be subject to the prior concurrence of the
States, would, in effect, invert the principle of
Union Supremacy and convert it into one of State
Supremacy in the Concurrent sphere. The very
object of putting certain matters in the Concurrent
List is to enable the Union Legislature to ensure
uniformity in laws on their main aspects
throughout the country. The proposal in question
will, in effect, frustrate that object. The State
Civil Appeal No.151 of 2007 Etc. Page 219 of 241
Legislatures because of their territorially limited
jurisdictions, are inherently incapable of
ensuring such uniformity. It is only the Union,
whose legislative jurisdiction extends throughout
the territory of India, which can perform this pre-
eminent role. The argument that the States
should have legislative paramountcy over the
Union is basically unsound. It involves a negation
of the elementary truth that the ‘whole’ is greater
than the ‘part’.”
(emphasis supplied)
As the paragraphs extracted above elucidate, the
Commission was of the firm view that the principles of
Union Supremacy cannot be undermined from Articles
246 and 254. While the immediate paragraph is
concerned with legislative actions taken under the List
III – Concurrent List, they provide us a beneficial lens to
both the importance of Union supremacy in matters that
demand national uniformity and the Commission’s
following discussion on “Mines and Minerals” in Chapter
XIII.”
29. Constitutional law is mainly concerned with the basic
features or the framework of distribution of powers between the
different organs of the State; between the Union and its units
and between the State and the citizens. But there is something
in a Constitution that is even more primordial than the structure
and the features. These are the ideals on which the founding
parents, in their wisdom and sagacity, built the entire edifice of
the Constitution itself. It is all important that this edifice is not
Civil Appeal No.151 of 2007 Etc. Page 220 of 241
dislodged while attempting to dynamically interpret the
Constitution. These Constitutional ideals are irreducible and
underpin the survival and success of constitutional order and a
concordial society. Federalism is one such ideal where the
Constitution defines a federal structure with a unitary spirit in
Article 246 read with the three Lists of the Seventh Schedule of
the Constitution.
Conclusions on interplay of legislative Entries:
30. In view of the aforesaid discussion, my conclusions on the
interplay of the legislative Entries under consideration are as
under:
I. The field of legislation comprised in Entry 8 – List II is
carved out of Entry 24 – List II.
Thus, the subject relating to “intoxicating liquors”, that
is to say, the production, manufacture, possession,
transport, purchase and sale of “intoxicating liquors”
being a specific subject is taken out of the general subject
of “industries” under Entry 24 – List II.
II. As a result, Entry 52 – List I or any law made under that
Entry by the Parliament cannot intrude or trench upon
Civil Appeal No.151 of 2007 Etc. Page 221 of 241
any law made by the State Legislatures under Entry 8 –List II.
Thus, the Parliament cannot take under its control the
subject pertaining to “intoxicating liquors” under any
law, such as, IDRA made under Entry 52 – List I.
Therefore, the subject “intoxicating liquors” falls
exclusively within the domain of the State Legislatures
which also have the obligation to prevent “industrial
alcohol” being converted into “intoxicating liquors” as an
abuse and, therefore, pass legislations or take State
action in that regard having regard to Article 47 of the
Constitution of India.
III. Entry 33(a) – List III (Concurrent List) and any law made
or to be made by the State Legislatures under the said
Entry is subject to Parliamentary law made either under
Entry 52 – List I or under Entry 33(a) – List III in terms
of the first part and second part of Article 254(1)
respectively.
Thus, if any law has been made by the Parliament by
virtue of Entry 52 – List I, such as, the IDRA and there is
Civil Appeal No.151 of 2007 Etc. Page 222 of 241
an intention to occupy the field, the State law would besubject to the doctrine of occupied field. Thus, Section
18G of the IDRA which has been made by virtue of Entry
52 – List I thereof would prevail on the basis of the
aforesaid doctrine. Consequently, it is held that issuance
of a notified order under Section 18G of the IDRA is
neither a sine qua non nor is it a condition precedent for
the State Legislatures to restrain exercise of powers
under Entry 33(a) – List III. In other words, the mere
insertion of Section 18G to the IDRA implies that the
Parliament has intended to occupy the field demarcated
under the aforesaid provision. Also, a notified order
when issued by the Central Government under Section
18G of the IDRA cannot be questioned in any Court of
law. This also indicates that the doctrine of occupied field
applies to the said Section vis-à-vis a scheduled industry
under the IDRA.
IV. If the Parliament has made a law under Entry 52 – List I
and intends to occupy the whole field then the State
Legislatures are denuded of their powers and therefore,
Civil Appeal No.151 of 2007 Etc. Page 223 of 241
they would lack legislative competence to enact a law
under Entry 33(a) – List III.
In the context of “industrial alcohol” and in terms of Item
26 of the First Schedule of the IDRA i.e. “Fermentation
Industries”, it is only the Central Government which has
the powers to act under Section 18G of the said Act. So
long as an industry is a scheduled industry under the
IDRA and Section 18G of the said Act remains on the
statute book, the State Legislatures are denuded of their
powers to pass a legislation or to take any action in
respect of the products of a scheduled industry under
Entry 33(a) – List III.
Effect of overruling Synthetics and Chemicals (7J):
31. The judgment of this Court in Synthetics and Chemicals
(7J) has held the field since 1989 for three and a half decades.
The doubts which have arisen regarding the said judgment
subsequently have led to the reference to a larger Bench. On re-
considering the judgment in Synthetics and Chemicals (7J) in
light of the arguments advanced before this nine-Judge bench
and in the backdrop of the constitutional Entries in the three
Civil Appeal No.151 of 2007 Etc. Page 224 of 241
Lists, I find that except for a clarification and deletion of the
words “both potable and” in paragraph 84 of AIR version of the
Report, the said judgment would not call for any intervention.
The reasons for saying so can be stated as under:
Firstly, the judgment has held the field for three
and a half decades on certain concrete ideas pertaining
to liquors as part of “Fermentation Industries”, which is
a scheduled industry, and that part which is excluded
from the aforesaid scheduled industry. This is based on
the interplay of Entries in Lists I and II.
The judgment in Synthetics and Chemicals (7J)
has crystallised the concepts of “intoxicating liquors”
and “industrial alcohol” which are clearly distinguished
in legislations of the State and in administration or
governance for several decades on the basis of
constitutional demarcation of legislative entries.
Consequently, it held that “Fermentation Industries” is
a controlled industry and I have now clarified that it does
Civil Appeal No.151 of 2007 Etc. Page 225 of 241
not take within its ambit “intoxicating liquors” or potablealcohol.
The judgment in Synthetics and Chemicals (7J)
correctly held on a conspectus reading of Entry 8 – List
II, Entry 6 – List II and Article 47 that State Legislatures
have the competence to ensure that “industrial alcohol”
or non-potable alcohol is not diverted and misused as a
substitute for potable alcohol.
Secondly, the judgment has correctly considered
the significance of insertion of Section 18G to the IDRA
which is a Parliamentary Law made under Entry 52 –
List I and the consequences that follow in light of the
doctrine of occupied field in the context of “Fermentation
Industries”, a scheduled industry, by bearing in mind
the first part of Article 254(1) of the Constitution.
Thirdly, the reasons assigned in Synthetics and
Chemicals (7J) for invoking the doctrine of occupied
field in the context of “Fermentation Industries” and in
the context of Section 18G of the IDRA would equally
Civil Appeal No.151 of 2007 Etc. Page 226 of 241
apply to all other scheduled industries under the saidAct. Any interference with the said legal position would
have a cascading effect on other scheduled industries
thereby giving legislative competence in respect of all
scheduled industries to the States under Entry 33(a) –
List III. This would result in multiple States as well as
the Union having powers to make laws which would lead
to the scheduled industries under IDRA pale into
insignificance. This would defeat the purpose of Entry
52 – List I and the laws made thereunder; such as IDRA.
Fourthly, the critical importance of scheduled
industries in the Indian economy must not be lost sight
of. The object and purpose of Entry 52 – List I and
passing of laws on the strength of the said Entry by the
Parliament taking over control of certain industries by a
declaration made by law as expedient in the public
interest, is a factor which cannot be lost sight of while
answering the reference made to this Bench in the form
of various questions raised. This aspect has been borne
Civil Appeal No.151 of 2007 Etc. Page 227 of 241
in mind in Synthetics and Chemicals (7J) while
deciding the issues raised therein.
Fifthly, if the judgment in Synthetics and
Chemicals (7J) is overruled then all State legislatures
can also make laws under Entry 33(a) – List III in respect
of scheduled industries. This would result in IDRA made
under Entry 52 – List I and Entry 52 – List I itself losing
significance as the object and purpose of taking control
of certain industries by insertion of the said industries
as scheduled industries under the said Act would be
defeated.
Sixthly, if industries of critical importance to the
Indian economy which are scheduled industries under
the IDRA which are under the control of the Union by a
declaration made by Parliament by law are allowed to be
legislated upon by the State legislatures, the whole
object of taking control of such industries by the Union
for ensuring uniformity in their development and for
ensuring the object and purpose of the IDRA would be
Civil Appeal No.151 of 2007 Etc. Page 228 of 241
defeated. This would result in a haphazard development
of such scheduled industries in the country. For
instance, if “industrial alcohol” is read as coming within
the scope and ambit of Entry 8 – List II then it would be
excluded from the scheduled industry. Such a state of
affairs would not be conducive to the economy as the
scheduled industries such as “Fermentation Industries”,
minus potable alcohol play a significant role in the
Indian economy.
Seventhly, the interpretation of the constitutional
Entries and the provisions of the Constitution must be
so made bearing in mind the intentions of the framers of
the Constitution and the nature and structure of the
Indian economy and the need for a uniform development
throughout the country of certain industries which have
been taken control of by the Union. This approach has
been adopted in Synthetics and Chemicals (7J).
Eighthly, the principle of federal balance must yield
to the doctrine of Parliamentary supremacy in certain
Civil Appeal No.151 of 2007 Etc. Page 229 of 241
areas such as when laws are made under Entry 52 or
Entry 54 or Entry 7 – List I such as in the present cases.
This is because of the unique manner in which Article
246 of the Constitution is worded and the division of
legislative subjects between the Parliament and the State
legislatures, having regard to the unique federal
structure in India with the balance tipping in favour of
the Union in certain niche areas of legislation and
governance.
Ninthly, the Amendment Act, 2016 has brought
much needed clarity on the issue and is the correct
position of law compatible with the scheme of legislative
competence as under our Constitution. I have already
held that merely because “industrial alcohol” can be
easily manufactured into or misused to become
“intoxicating liquors” would not grant States the
competence to wholly regulate “industrial alcohol”. State
legislatures only have legislative competence over what
is “intoxicating liquors” as a beverage. Therefore, the
judgment in Synthetics and Chemicals (7J) is good law
Civil Appeal No.151 of 2007 Etc. Page 230 of 241
and was most correct in postulating that State
legislatures will only have the competence to prevent
misuse in interest of public health.
For the aforesaid reasons, I am of the view that although
the judgment in Synthetics and Chemicals (7J) calls for only a
clarification, it does not require any overruling.
My answers to the questions formulated:
32. Consequently, the questions formulated are accordingly
answered as under:
Ques.1. Does Section 2 of the Industries (Development and
Regulation) Act, 1951, have any impact on the field
covered by Section 18G of the said Act or Entry 33(a) of
List III of the Seventh Schedule of the Constitution?
Ans.: Entry 33(a) – List III has to be read in the context of Entry
52 – List I. IDRA is relatable to Entry 52 – List I. Section
2 of the IDRA has a nexus and is connected with Section
18G of the said Act. Therefore, Entry 33(a) – List III is
impacted by Section 2 read with Section 18G of the IDRA.
Civil Appeal No.151 of 2007 Etc. Page 231 of 241
Ques. 2. Does Section 18G of the aforesaid Act fall under Entry
52 of List I of the Seventh Schedule of the Constitution,
or is it covered by Entry 33(a) of List III thereof?
Ans.: Section 18G of the IDRA is directly relatable to Entry 52
– List I which has to be read in the context of Section 2
of IDRA. The doctrine of occupied field applies and the
legislative field under Entry 33(a) – List III is covered by
the said provision on the basis of doctrine of occupied
field under first part of Article 254 of the Constitution.
Ques.3. In the absence of any notified order by the Central
Government under Section 18G of the above Act, is the
power of the State to legislate in respect of matters
enumerated in Entry 33 of List III ousted?
Ans.: Yes, even in the absence of any notified order by the
Central Government under Section 18G of the IDRA, the
power of the States to legislate in respect of matters
enumerated in Entry 33(a) – List III is ousted on the basis
of the doctrine of occupied field as aforestated.
Civil Appeal No.151 of 2007 Etc. Page 232 of 241
On this aspect, the judgment of this Court in
Synthetics and Chemicals (7J) is correct.
Ques.4. Does the mere enactment of Section 18G of the above
Act, give rise to a presumption that it was the intention
of the Central Government to cover the entire field in
respect of Entry 33(a) – List III so as to oust the States’
competence to legislate in respect of matters relating
thereto?
Ans.: Yes, the mere enactment of section 18G of the IDRA gives
rise to a presumption that it was the intention of the
Parliament and Central Government to cover the entire
field in respect of Entry 33(a) – List III so as to oust the
States’ competence to legislate in respect of matters
relating thereto.
Answer given to question (3) above is reiterated here.
Ques.5. Does the mere presence of Section 18G of the above Act,
oust the State’s power to legislate in regard to matters
falling under Entry 33(a) of List III?
Civil Appeal No.151 of 2007 Etc. Page 233 of 241
Ans.: Yes, the mere presence of Section 18G of the IDRA would
oust the State’s power to legislate in regard to matters
falling under Entry 33(a) – List III. The doctrine of
occupied field applies.
Ques.6. Does the interpretation given in Synthetics and
Chemicals case, (1990) 1 SCC 109 in respect of Section
18G of the Industries (Development and Regulation) Act,
1951, correctly state the law regarding the States’ power
to regulate “industrial alcohol” as a product of the
scheduled industry under Entry 33(a) of List III of the
Seventh Schedule of the Constitution in view of Clause
(a) thereof?
Ans. : Yes, the interpretation given in Synthetics and
Chemicals case, (1990) 1 SCC 109 in respect of Section
18G of the IDRA correctly states the law. Even with
regard to “industrial alcohol” as a product which falls
within “Fermentation Industries” in respect of which the
Union has assumed control, in the absence of a notified
order, the competence of the State to act under Entry 33
– List III is denuded.
Civil Appeal No.151 of 2007 Etc. Page 234 of 241
My answers to the conclusions of learned Chief Justice:
33. His Lordship, the Chief Justice of India has overruled the
judgment in Synthetics and Chemicals (7J) and has come to
the following conclusions and my answers to the same are in a
tabular form as under:
Point(s) Conclusions arrived at by My Conclusions
Hon’ble the CJI
a. Entry 8 of List II of the In my view, Entry 8 –
Seventh Schedule to the List II deals with
Constitution is both an “intoxicating liquors”.
industry-based entry and The misuse, diversion or
a product-based entry. abuse of “industrial
The words that follow the alcohol” as “intoxicating
expression “that is to say” liquors” can also be
in the Entry are not controlled and
exhaustive of its contents. prevented under Entry 8
It includes the regulation – List II by the State
of everything from the raw Legislatures having
materials to the regard to Article 47 of
consumption of the Constitution. It is
‘intoxicating liquor’; also made clear that the
IDRA which has been
enacted by the
Parliament by virtue of
Entry 52 – List I has
taken control of
“Fermentation
Industries” as a
scheduled industry.
Such “Fermentation Industries” would exclude “intoxicating liquors”. Civil Appeal No.151 of 2007 Etc. Page 235 of 241 b. Parliament cannot occupy Parliament can occupy the field of the entire the field of the entire industry merely by industry by merely issuing a declaration issuing a declaration under Entry 52 of List I. under Entry 52 – List I The State Legislature’s and the State competence under Entry Legislature’s 24 of List II is denuded competence under Entry only to the extent of the 24 – List II is denuded to field covered by the law of the field of the entire Parliament under Entry industry and specifically 52 of List I; to the extent of the field covered by the law of Parliament under Entry 52 – List I. c. Parliament does not have the legislative competence I agree. to enact a law taking control of the industry of intoxicating liquor covered by Entry 8 of List II in exercise of the power under Article 246 read with Entry 52 of List I; d. The judgments of the The context of the Bombay High Court in FN controversy must be Balsara v. State of borne in mind in the said Bombay (supra), this cases. The aforesaid Court in FN Balsara decisions in substance (supra) and Southern limited the meaning of Pharmaceuticals (supra) the expression did not limit the meaning “intoxicating liquors” to of the expression its popular meaning i.e. ‘intoxicating liquor’ to its “alcoholic beverages” popular meaning, that is, that produce alcoholic beverages that intoxication. Therefore, produce intoxication. All in the context of the three judgments prohibition of interpreted the expression “intoxicating liquor” as a Civil Appeal No.151 of 2007 Etc. Page 236 of 241
to cover alcohol that could beverage, there could
be noxiously used to the not have been
detriment of health; prohibition of
production of alcohol
used for medicinal and
toilet preparation as well
as “industrial alcohol” or
non-potable alcohol.
e. The expression The expression
‘intoxicating liquor’ in “intoxicating liquor” in
Entry 8 has not acquired Entry 8 has acquired a
a legislative meaning on legislative and judicial
an application of the test meaning over the
laid down in Ganon decades as per the
Dunkerley (supra); discussion above.
f. The study of the evolution The members of the
of the legislative entries on Constituent Assembly
alcohol indicates that the were clear in what they
use of the expressions envisaged within the
“intoxicating liquor” and scope and ambit of the
“alcoholic liquor for expression “intoxicating
human consumption” in liquors” in Entry 8 – List
the Seventh Schedule was II. This is also evident
a matter well-thought of. from Item 26 of the First
It also indicates that the Schedule of the IDRA.
members of the “Intoxicating liquors” is
Constituent Assembly only a segment of the
were aware of use of the “Fermentation
variants of alcohol as a Industries”, namely,
raw material in the potable alcohol. There
production of multiple was no intention on the
products; part of the members of
the Constituent
Assembly to read within
the expression
“intoxicating liquors”
non-potable or
“industrial alcohol”.
Further, in order to have
Civil Appeal No.151 of 2007 Etc. Page 237 of 241
a consistency between
what was envisaged
under Entry 84 – List I
and Entry 51 – List II in
the context of alcoholic
liquors for human
consumption, the taxing
Entry in List II which is
within the legislative
competence of the
States follows the
regulatory Entry in
Entry 8 – List II.
Therefore, the use of the
expression “industrial
alcohol” or non-potable
alcohol in Synthetics
and Chemicals (7J) was
only to crystallise all
variants of alcohol which
were non-potable and to
distinguish the same
from potable alcohol
meant only for human
consumption as a
beverage.
g. Entry 8 of List II is based The entire controversy
on public interest. It seeks cannot be viewed from
to enhance the scope of the point of view of
the entry beyond potable alcohol being used as a
alcohol. This is inferable raw material and final
from the use of the phrase product such as hand
‘intoxicating’ and other sanitizer containing
accompanying words in alcohol. The potential
the Entry. Alcohol is misuse of alcohol cannot
inherently a noxious be the basis for
substance that is prone to interpreting an Entry
misuse affecting public such as Entry 8 – List II.
health at large. Entry 8 Ultimately, the Civil Appeal No.151 of 2007 Etc. Page 238 of 241 covers alcohol that could “Fermentation be used noxiously to the Industries” have to be detriment of public borne in mind which health. This includes takes within its canvas alcohol such as rectified only non-potable spirit, ENA and denatured /“industrial alcohol”. spirit which are used as The aspect of public raw materials in the health having a production of potable corelation to Entry 8 – alcohol and other List II dealing with products. However, it does “intoxicating liquor” and not include the final the misuse of alcohol product (such as a hand cannot be a guide while sanitiser) that contains interpreting the content alcohol since such an of the said Entry and interpretation will therefore, its scope and substantially diminish the ambit being amplified scope of multiple other beyond what it really legislative entries; envisages as a field of legislation for the States to legislate upon. h. The judgment in The judgment in Synthetics (7J) (supra) is Synthetics and overruled in terms of this Chemicals (7J) need not judgment; be overruled in relation to Section 18G of the IDRA and it continues to be good law in the context of what is comprised in the expression “industrial alcohol” and “intoxicating liquors” except what has been clarified above in Entry 8 – List II. i. Item 26 of the First Item 26 of the First Schedule to the IDRA Schedule of the IDRA must be read as excluding must be read excluding Civil Appeal No.151 of 2007 Etc. Page 239 of 241
the industry “intoxicating only what is contained in
liquor”, as interpreted in the expression
this judgement; “intoxicating liquors” as
interpreted above in
Entry 8 – List II.
j. The correctness of the In my opinion, Tika
judgment in Tika Ramji Ramji is held to be not
(supra) on the good law insofar as the
interpretation of word requirement of issuance
‘industry’ as it occurs in of a notified order as a
the Legislative entries condition precedent for
does not fall for the field to be occupied,
determination in this has been mandated
reference; and therein.
k. The issue of whether Denatured alcohol
Section 18G of the IDRA belongs to the family of
covers the field under “industrial alcohol” and
Entry 33(a) of List III does therefore, Section 18G
not arise for adjudication of the IDRA has a bearing
in view of the finding that on the said product.
denatured alcohol is Section 18G occupies
covered by Entry 8 of List the field under Entry
II.” 33(a) – List III and,
thereby, only Parliament
is competent to legislate
on all articles or class of
articles related to a
scheduled industry i.e.
“Fermentation
Industries”.
34. Reference is answered in the above terms.
35. The Registry to place the matters before Hon’ble the Chief
Justice of India for seeking orders for being listed before the
appropriate Bench.
Civil Appeal No.151 of 2007 Etc. Page 240 of 241
36. I must place on record my sincere appreciation to the
learned Attorney General, learned Solicitor General and their
teams, learned senior counsel appearing for the respective
parties, learned instructing counsel and learned counsel for the
respective parties for their valuable assistance to this Bench.
………………………………J.
(B.V. NAGARATHNA)
New Delhi;
October 23, 2024.
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