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TMI Blog1989 (10) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... se questions in greater detail as we are not here concerned with the trade in alcoholic liquors meant for human consumption and, therefore, in view of clear demarcation of authority under various items in the three Lists, entry 8 of List II could not be invoked to justify the levies which have been imposed by the States in respect of alcoholic liquors which are not meant for human consumption. - W.P. Nos. 7942 of 1981 - - - Dated:- 25-10-1989 - VENKATARAMIAH E.S., SABYASACHI MUKHARJI, RANGANATH MISRA, OZA G.L., RAY B.C. AND SINGH K.N. AND NATARAJAN S. JJ. W.P. Nos. 7942 of 1981, W.P. Nos. 2580 of 1982, C.A. Nos. 2449, C.A. Nos. 2450, C.A. Nos. 2451, C.A. Nos. 2452, C.A. Nos. 2453, C.A. Nos. 2454 of 1981, W.P. Nos. 3163, W.P. Nos. 3164 of 1981, W.P. Nos. 2423 of 1980, W.P. Nos. 4501 of 1978, W.P. Nos. 3700, W.P. Nos. 3701 of 1981, W.P. Nos. 4772 of 1985, W.P. Nos. 7357, W.P. Nos. 7358 of 1981, W.P. Nos. 67, W.P. Nos. 175, W.P. Nos. 6430, W.P. Nos. 6757, W.P. Nos. 6758, W.P. Nos. 6759, W.P. Nos. 6760, W.P. Nos. 6761, W.P. Nos. 6762, W.P. Nos. 6763, W.P. Nos. 6764, W.P. Nos. 6765, W.P. Nos. 6766, W.P. Nos. 6767, W.P. Nos. 6768, W.P. Nos. 6769, W.P. Nos. 6770, W.P. Nos. 6771, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AN, JJ., was delivered by SABYASACHI MUKHARJI, J. and G.L. OZA, J., delivered separate concurring judgment.] SABYASACHI MUKHARJI, J. -These writ petitions, civil appeals and review petitions relate to the right of the States to levy vend fee or duties in respect of industrial alcohol under different legislations in different States. We will first deal with Writ Petition No. 182 of 1980. In Writ Petition No. 182 of 1980 (Synthetics Chemicals Ltd. v. State of U.P. and others), we are concerned with the notification dated 31st May, 1979, substituting new rule 17(2) for old rule 17(2) and providing for a vend fee of Rs. 1.10 per bulk litre for all issues from distillery but in case of FL 39 Licensee (like the petitioner in this case), the vend fee would be so charged that the amount of this fee and purchase tax together does not exceed 25 paise per bulk litre. Then there are three review petitions, namely, Review Petitions Nos. 202 to 204 of 1980 (Synthetics Chemicals Ltd. v. State of U.P.) and Review Petition No. 17 of 1980 (Kesar Sugar Works Ltd. v. State of U.P.). These are directed against the judgment and order of this Court dated 19th December, 1979, in State of U.P. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition in C.A. Nos. 466 and 467 of 1980 which challenge the Tamil Nadu Prohibition Act. 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 question is: is the vend fee and impost leviable or extractable by the States under different Acts? The question mainly involved in all these matters is a common question of law but we will have to deal with diverse factual situations as well as the particular provisions of the various Acts. The questions with which we are mainly concerned are the following: (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 to 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. It is necessary to bear in mind that in the last four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublic interest that the Union should take under its control the industries specified in the First Schedule. The cases in this bunch are in respect of industries which are not concerned with potable alcohol for the purpose of human consumption. These are predominantly and primarily concerned with using ethyl alcohol (rectified spirit) as an industrial raw material. This industrial alcohol is required as an input for further manufacture of downstream products. For this purpose, some of the industries have their captive plants. Reference in this connection may be made and our attention was drawn to the report of the Alcohol Committee, 1956. This report indicates that: (a) industrial alcohol is an input and should be available, at reasonable price; (b) there should be uniform railway freight; (c) larger capacities of molasses, etc., should be available; and (d) uniform taxation policies are essential for the development of these industries. In order to appreciate the controversy in these matters, it is, therefore, necessary to keep these objectives in mind. In these matters, this Court is concerned with the taxing power of the States to impose and levy excise duty on industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Indian Councils Act, 1861, and the Indian Councils Act, 1909. The provisions of the Indian Councils Act, 1861, were initially applicable only to the Presidencies of Fort St. George and Bombay, but were later made applicable to other provinces by virtue of the Indian Councils Act, 1892 and 1909. Section 43 of the Indian Councils Act, 1861, enjoined that it shall, not be lawful for the Governor-in-Council of either of the Presidencies, except with the sanction of the Governor-General, previously communicated to him, to make regulations or take into consideration any law or regulation for any of the purposes mentioned therein and one of the purposes, inter alia, mentioned was, anything affecting the public debt of India or the customs duties, or any other tax or duty then in force and imposed by the authority of the Government of India for the general purposes of such Government. The Government of India Act, 1915, was amended from time to time with a view to consolidate and amend the enactments relating to the Government of India. The Governor-General-in-Council with the sanction of the Secretary of State-in-Council made Devolution Rules. Rule 3(1) thereof provided for distingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her narcotic drugs, but subject, as respects opium, to certain provisions. It also included entry 40 which was on duties of excise including, inter alia, all these items and alcoholic liquors, opium, Indian hemp and medicinal and toilet preparations containing alcohol. It was contended on behalf of M/s. Synthetic Chemicals Ltd. that the duties previously levied by the local Legislatures continued in force by virtue of section 143(2) of the Government of India Act, 1935, only if these were levied before 31st January, 1935, and that only these duties were to be so continued until provisions to the contrary were made by the Federal Legislature. The Constituent Assembly, which derived from the people all power and authority, was convened. On 15th August, 1947, the British Parliament passed the Indian Independence Act, 1947, making provisions for the setting up in India of two independent dominions. Under section 6(1) of the said Act, the Legislature of each of the new dominions was to have full powers to make laws for that dominion including laws having extra territorial operations. Under section 8(2) read with section 9 (1) of the Indian Independence Act, 1947, the Governor-Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes, inter alia, alcoholic liquors, the State was given power by entry 51 of List II to legislate. By entry 8 of List II, States were given power to legislate on liquors, that is to say production, manufacture, possession, transport, purchase and sale thereof. On or about 8th May, 1952, Parliament enacted the Industries (Development and Regulation) Act, 1951. Chapter III-B of the said Act contains section 18-G 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. Item 26 was as follows: "26. Fermentation Industries: (1) Alcohol (2) Other products of fermentation industries." The Government of India issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly modified. On or about 3rd November, 1972, the Government of U.P. issued a notification [being U.P. Excise (Third Amendment) Rules, 1972] substituting a new rule 17(2) which is now embodied in paragraph 680(2) of the U.P. Excise Manual at page 201. In the new rule, vend fee at Rs. 1.10 per bulk litre was imposed on denatured spirit without exempting industries engaged in the manufacture of synthetic rubber. Supplies to the hospitals of certain quantity and exports out of the State were exempted. In December, 1972, when a demand was raised for payment of the vend fee, it was asserted on behalf of M/s. Synthetic Chemicals Ltd. that they had to close down their factory, and filed Writ Petition No. 8069 of 1972 in the Allahabad High Court challenging the validity of the Notification dated 3rd November, 1972, whereby vend fee on denatured spirit was introduced for the first time. The Division Bench of the Allahabad High Court, vide judgment dated 24th March, 1973, struck down the said notification holding that the vend fee could not be justified either as a tax or fee or as excise duty. Relying on the decision of this Court in the case of Nashirwar v. State of M.P. [1975] 2 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Allahabad High Court certain wholesale dealers in denatured spirit filed writ petitions in the High Court of Allahabad claiming refund of vend fee already paid by them. These writ petitions were heard and allowed by the learned single Judge of the Allahabad High Court. Against the judgment of the single Judge, special appeals to a Division Bench were preferred by the State of U.P. and all were allowed on 6th October, 1978, relying upon sections 24A and 24B of the said Act. In 1976, the State Government issued the U.P. Licence for the Possession of Denatured Spirit and Special Denatured Spirit Rules, 1976, requiring a licence for possession of denatured spirit and specially denatured spirit for industrial purposes. "Special denatured spirit" was defined as "spirit rendered unfit for human consumption". Licences for possession of denatured spirit including specially denatured spirit for industrial purposes were to be of 3 kinds, according to the parties: (1) Form FL 39 for use in industries in which alcohol is destroyed or converted chemically in the process into other product and the product does not contain alcohol, such as ether, styrene, butadiene, acetone, Polythene, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the decision of this Court in State of Bombay v. F.N. Balsara [1951] SCR 682. This Court further held that the term "intoxicating liquor" is not confined to potable liquor alone but would include all liquors which contain alcohol. The term "liquor", according to the said decision, used in Abkari Acts not only covers alcoholic liquor which is generally used for beverage purposes and which produces intoxication but would also include liquids containing alcohols. It was further held that the power to regulate the notified industries is not exclusively within the jurisdiction of Parliament as entry 33 in the Concurrent List enables a law to be made regarding production, supply and distribution of products of notified industries. The exclusive power of the State to provide for manufacture, distribution, sale and possession of intoxicating liquors is vested in the State. The power of the State Government to levy a fee for parting with its exclusive right regarding intoxicating liquors has been recognised as could be seen from the various State Acts regulating the manufacture, sale, etc., of intoxicating liquors. It was further held that the term "foreign liquor" cannot be given a rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovember 27, 1974. There is no fundamental right to do 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.'' Though most of the cases dealt with the right of the State Government as regards auction of country liquor, in Balsara's case [1951] SCR 682, Nashirwar's case [1975] 2 SCR 861 and Har Shankar's case [1975] 3 SCR 254, this Court was concerned with the right of the State Government over foreign liquor. After considering all the decisions of five Constitutional Benches, Chandrachud, J., summed up the position at page 274 of the report in Har Shankar's case [1975] 3 SCR 254, as follows: "These unanimous decisions of five Constitution Benches uniformly emphasised after a careful consideration of the problem involved that the State has the power to prohibit trades which are injurious to the health and welfare of the public, that elimination and exclusion from business is inherent in the nature of liquor business, that no person has an absolute right to deal in liquor and that all forms of dealings in liquor h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the amendment, the definition of alcohol in section 2 was amended as follows: "(aaa) Alcohol means ethylalcohol not being alcoholic liquor for human consumption and includes rectified spirit, absolute alcohol." Notification was issued thereafter by the Government of U.P. in exercise of power under section 3(1) of the U.P. Sales of Motor Spirit and Diesel Oil Taxation Act, 1939. Several other notifications were issued. This Ordinance was struck down by the Division Bench and the Government was made liable to refund. Writ petition was filed by Synthetics Chemicals Ltd. Thereafter, no appeal was filed by the State Government. The other facts are not relevant for the present controversy. There was an application challenging the purchase tax. The State of U.P. filed an appeal against the judgment and order dated 24th March, 1973, of the Division Bench of the Allahabad High Court in Writ Petition No. 8069 of 1972 striking down the vend fee notification. The appeal was numbered as Civil Appeal No. 1130 of 1976. After the sales tax levy was struck down the Government proposed a purchase tax. Aggrieved by the aforesaid Act, writ petition was filed, and the hearing of the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntoxicant, hemp or toddy, and whenever under this Act or any licence, permit, pass, thereunder any fees are levied and collected for any licence, permit, pass, authorisation or other permission given to any person for any such purpose, such fees shall be deemed to include the rent or consideration for the grant of such right or privilege to that person by or on behalf of the State Government." The power was contained in the Bombay Prohibition Act, 1949, which was an Act to amend and consolidate the law relating to the promotion and enforcement of and carrying into effect the policy of prohibition and also the Abkari law in the State of Bombay. It may be mentioned that the Bombay Prohibition Act, 1949, was brought into force on 25th May, 1949. Then there was the Bombay Rectified Spirit (Transport-in-Bond) Rules, 1951, brought into force. On 23rd October, 1981, the amendment was made introducing section 49. The provision of the Andhra Pradesh Act was challenged by impugning the allotment of alcohol under the Andhra Pradesh Excise Act (No. 17 of 1968). The Andhra Pradesh Act received the assent of the President on 26th August, 1968. This was an Act to consolidate and amend the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect in entry 52 of List I is industry while that in entry 8 of List II is intoxicating liquor. Entry 8 is, therefore, to be read on its own terms. The power to levy taxes is to be read from the entry relating to taxes and not from the general entry. Exception is entry 50 of List II where tax on mineral rights is subject to any limitations imposed by Parliament relating to mineral development, and this power of Parliament is in general entry, i.e., entry 54 of List I. According to the Union of India, none of the taxing entries in List II is controlled by entry 52 of List I. Union of India stated that "industry" is a topic of legislation. Certain entries are left to Parliament and certain others are left to State Legislatures. Identifying of entries is by reference to a declaration under entry 7 of List I and entry 52 of List I. The aspect of legislation with regard to subject-matter of entries will be topic "industry". On the other hand, the subject-matter of legislation under entry 8 of List II will be topic "intoxicating liquors". Therefore, there is no conflict according to the Union of India. The only question which has to be determined is whether intoxicating liquor in en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Excise Tariff Act, 1985-tariff item No. 22.04. The said item reads: "Ethyl alcohol, of any grade (including such alcohol when denatured or otherwise treated), which either by itself or in admixture with any other substance, is suitable for being used as fuel for spark-ignition engines." It was stated that under article 277 of the Constitution, any taxes, duties, cesses or fees which immediately before the commencement of the Constitution, were being lawfully levied by the Government of any State or municipality or other local authority or body for the purpose of the State, municipality, district or other local area may, notwithstanding that these taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied for the same purposes until provisions to the contrary are made by Parliament by law. According to the Union of India, there was a similar provision in the Government of India Act, 1935 [See section 143(2)]. Reference was made to the decision in Town Municipal Committee, Amraoti v. Ramchandra Vasudeo Chimote [1964] 53 ITR 444 (SC); [1964] 6 SCR 947. Learned Attorney-General drew our attention to the fact that Parliament has exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, 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. See entry 52 of List I. This power includes the power to declare by Parliament that control by the 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 List II, entry 24 on the aspect "industry" with respect to all subject-matters. 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. But this power will extend only, according to learned Attorney-General, to alcohol for human consumption. He said that there can be 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. And that this power to completely prohibit exists in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IDR Act, 1951, the State's power is completely lost. 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. In any case, the levy is on manufacture, according to Mr. Yogeshwar Prasad and Mr. Trivedi, learned Additional Advocate- General of U.P., of the ethyl alcohol; use is different, and the collection at a later stage. The levy was stipulated jointly or severally both under entry 8 of List II, entry 51 of List II, entry 33 of List III and what is described as police powers regulatory and other incidental charges, according to them. It was submitted that levy was justified being a regulatory power under article 19(6), 19(6)(ii). It was further urged that State has a monopoly in alcohol trade: and that article 31C grants immunity to the challenge under articles 13, 14 and 19 of the Constitution. It was submitted that quid pro quo was not necessary and even if it was necessary, the requirements were met. Under article 298 trading powers of the State must be recognised, it was submitted, coupled with the century old monopoly of the State in alcohol. It was submitted that vend fee is a pre- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol is potable and used both for beverage and industrial purposes; and that it is at this stage of manufacture that the charge of levy is made. It has to be stated in view of the language used in the specific provisions the levy is not on the manufacture of alcohol as such, therefore, in our opinion, these levies cannot in essence be sustained as duties of excise. It was contended on behalf of the State that rectified alcohol is diverted to different warehouses for being used as beverages (country liquor, foreign liquor) and industrial liquor. It was submitted that this potable alcohol can be used for industrial purposes, but for public welfare, a lower levy is charged and to prevent its misuse denaturants are added and for denaturing in public interest, the State has to incur expenses, cost of denaturants, process and regulation, etc. However, this submission, by itself, does not help the controversy herein in essence. No attempt had been made on behalf of the State to indicate that the levy has any element of quid pro quo or certain element which can possibly have some correlation with the expenses incurred in those connection. It was submitted that ethyl alcohol is diluted to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy is both on its language and in pith and substance legislation falling under, according to the State of U.P., entry 8 of List II-intoxicating liquor, entry 51 of List II-alcoholic liquor for human consumption. Counsel for the State emphasised the significant omission of the expression "fit for". What is required is intoxicating liquor and/or alcoholic liquor for human consumption, according to counsel for the State of U.P. Entry 33, List III- 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. Under its police powers the State has to regulate health, morality, welfare of society and incidental pauperism and crime, it was submitted. It was further submitted by the State that the State has exclusive right to deal in liquor. This power according to the counsel for the State, is reserved by and/or derived under articles 19(6) and 19(6)(ii) of the Constitution. For parting with that right a charge is levied. It was emphasised that in a series of decisions, some o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion" and as such transformation would not entail any process of manufacture as such. There will not be any organic or fundamental change in this transformation, we were told. We are, however, unable to enter into this examination. 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. In terminology, as understood by the framers of the Constitution, and also as viewed at the relevant time of its interpretation, it is not possible to proceed otherwise, alcoholic or intoxicating liquors must be understood as these are, not what these are capable of or able to become. It is also not possible to accept the submission that vend fee in U.P. is a pre-Constitution imposition and would not be subject to article 245 of the Constitution. The present extent of imposition of vend fee is not a pre-Constitution imposition, as we noticed from the change of rate from time to time. On behalf of the State of Maharashtra Mr. Dholakia submitted that the first issue is whether entry 8 in List II of the Seventh Schedule of the Constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution. It was contended that the question, necessarily arises as to whether these regulations under the Bombay Prohibition Act, 1949, are intended as measures of revenue or as measures to advance the cause of prohibition. Mr. Dholakia invited us to the phrase "intoxicating liquor" which has been the subject-matter of interpretation by the Federal Court, this Court and the United States Supreme Court. It has been held that the expression is of widest import and must be given liberal interpretation. According to him, this Court in Balsara's case [1951] SCR 682, held that even toilet articles containing alcohol as such would be intoxicating liquors. Mr. Dholakia suggests that United States Supreme Court has expressly held that "denatured spirit" is intoxicating liquor because of necessity to prevent its misuse. It was further contended that the IDR Act was made by the Parliament and it is traceable to entry 52 of List I. This entry enables the Union Legislature to legislate in respect of an industry the control of which is declared by Parliament to be expedient in public interest. Entry 52, according to him, speaks of control of an industry in its establishment. Ordinarily, St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Dholakia, invites us to hold that denatured spirit is made by addition of malodorous or noxious substance to alcohol in order to make it unfit for human consumption. Denaturing is not done for making such alcohol fit for machine; it is done for the purpose of ensuring that such alcohol is avoided by would-be drinkers. Even so, lacking the easy availability of drinkable alcohol, those given to drinking would make an attempt to drink denatured spirit after distillation. Such process of distillation is what the bootleggers undertake. The process is a simple one, according to Mr. Dholakia. We need not detain ourselves in examining the process as suggested by him. He insisted that the dividing line between relative importance of prohibition and industry should be left to each individual State because the conditions in all States are not identical. He suggested that Gujarat attaches great importance to the cause of prohibition. There are historical and social factors responsible for this policy. According to Mr. Dholakia, the Government of that State is prepared to sacrifice revenue running into hundreds of crores of rupees but the same may not be true of a State like Punjab. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with article 254 of the Constitution of India. It was submitted that the dichotomy attempted to be drawn in entry 84 of List I of the Seventh Schedule to the Constitution, on the basis of the development of the concept of industrial alcohol and the inapplicability of the concept of potable liquor to the industry of alcohol is not valid. There is no question of fundamental right to trade in dangerous or hazardous alcohol. It was submitted that it is consistent with wider interpretation of alcoholic liquor based on pre-existing legislative history. It was further submitted that the test of potability of liquor is in no way rendered invalid in relation to industrial alcohol as it still permits, of conversion to potability by addition of flavours and dilution. When two interpretations are possible, it was submitted that the choice must fall on that interpretation which validates existing State legislations designed to raise revenues and rejection of the other interpretation which is destructive of the scheme of distribution of powers. According to him, the words "alcoholic liquor" in Lists I and II of the Seventh Schedule to the Constitution must be interpreted so as to mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... health. The American doctrine of police power is not perhaps applicable as such in India, but powers of the sovereignty to regulate as part of the powers of the competent Legislature to effectuate its aim are there. It is true that in State of West Bengal v. Subodh Gopal Bose [1954] SCR 587 at 601-604 and Kameshwar Prasad v. State of Bihar [1962] Supp 3 SCR 369, the concept of police power was accepted as such, but this doctrine was not accepted in India as an independent power but was recognised as part of the power of the State to legislate with respect to the matters enumerated in the State and Concurrent Lists, subject to Constitutional limitations. It was stated that the American jurisprudence of police power as distinguished from specific legislative power is not recognised in our Constitution and is, therefore, contrary to the scheme of the Constitution. In interpreting the provisions of our Constitution, we should go by the plain words used by the Constitution-makers and the importing of expression like "police power", which is a term of variable and indefinite connotation, can only make the task of interpretation more difficult. It was contended that in enacting a law wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructure of the substance described in common parlance as industrial alcohol or potable alcohol, or alcohol for human consumption. He referred us to organic chemistry and other books but, as mentioned before, the meanings must be found out in the conditions as these are. On behalf of State of U.P. Mr. Trivedi, learned Additional Advocate- General further submitted that entry 52 of List I is an exceptional entry. It not only prescribes the field of legislation but also enables and empowers the Parliament to make laws to the exclusion of the State. According to him, being exclusionary in nature unlike entries merely delineating fields of legislation, entry 52 has to be strictly and, therefore, narrowly construed. The other question that has to be judged, according to him, is that whenever the Constitution intended the Parliament to assume legislative competence in respect of the entire field, a declaration of an unqualified nature is provided for, unlike a qualified provision like entry 52 of List I. The words "control" and "regulation" are at times, held to be interchangeable or used synonymously, their use in the various entries either singly or jointly, indicates that they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attern in which it has to be interpreted. It has also to be borne in mind that where division of powers and jurisdiction in a federal Constitution is the scheme, it is desirable to read the Constitution in a harmonious way. It is also necessary that in deciding whether any particular enactment is within the purview of one Legislature or the other, it is the pith and substance of the legislation in question that has to be looked into. It is well-settled that the various entries in the three Lists of the Indian Constitution are not powers but fields of legislation. The power to legislate is given by article 246 and other articles of the Constitution. The three Lists of the Seventh Schedule to the Constitution are legislative heads or fields of legislation. These demarcate the area over which the appropriate Legislatures can operate. It is well-settled that widest amplitude should be given to the language of the entries in the three Lists but some of these entries in different Lists or in the same List may override and sometimes may appear to be in direct conflict with each other, then and then only comes the duty of the court to find the true intent and purpose and to examine the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st II is the counterpart of entry 84 of List I so far as the State List is concerned. It authorises the State to impose duties of excise on alcoholic liquors for human consumption and opium, etc., manufactured or produced in the State and the countervailing duties at the same or lower rates on similar goods produced or manufactured elsewhere in India. It is clear that all duties of excise save and except the items specifically excepted in entry 84 of List I are generally within the taxing power of the Central Legislature. The State Legislature has power, though limited it is, in imposing duties of excise. That power is circumscribed under entry 51 of List II of the Seventh Schedule to the Constitution. As we have noted hereinbefore, the correct principles of harmonious interpretation of legislative entries have been laid down in several cases. We have mentioned hereinbefore some of the decisions as noted in the decision of this Court in India Cement (Civil Appeal No. 62 of 1970 decided by Supreme Court). In M.P.V. Sundararamier Co. v. State of Andhra Pradesh [1958] 9 STC 298 at pages 341-343; [1958] SCR 1422 at pages 1480-82, this Court has laid down that- (i) legislative entri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld to be ultra vires entry 51 of List 11 of the Seventh Schedule to the Constitution. In State of Mysore v. S.D. Cawasji Co. [1971] 2 SCR 799, at pages 804, 805 and 806 of the report, this Court rejected the contention that under entry 8 of List II of the Seventh Schedule to the Constitution the State was competent to legislate for levy of cess in respect of "intoxicating liquor" that is to say, the production, manufacture, transport, purchase and sale of intoxicating liquors. Legislative power normally includes all incidental and subsidiary powers, but the power to tax is neither incidental nor subsidiary to the power to legislate on a matter or topic. Reference was made to M.P.V. Sundararamier's case [1958] 9 STC 298 (SC); [1958] SCR 1422. Entries in Lists I and II, dealing with certain specific topics, it was held, do not grant power to levy tax on transactions relating to those topics. Power to tax must be derived from a specific taxing entry. Tax could not, therefore, be levied, it was held on intoxicating liquors relying upon entry 8 of List II of the Seventh Schedule. It was further held that the taxing power in respect of alcoholic liquors for human consumption is, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pirit 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 raw material input after processing and substantial dilution in the production of whisky, gin, country liquor, etc. In many decisions, it was held that rectified spirit is not alcohol fit for human consumption. Reference may be made in this connection to Delhi Cloth and General Mills Co. Ltd. v. Excise Commissioner, U.P. Special Appeal No. 177 of 1970 decided on 29th March, 1973. In this connection, it is important to bear in mind the actual provision of entry 8 of List II. Entry 8 of List II cannot support a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic liquor not fit for human consumption, was within the legislative competence of Central Legislature. The impost by the State was held to be justifiable only if it was a fee thereby impliedly and clearly denying any consideration or price for any privilege. For the first time, in the Synthetics Chemicals Ltd.'s case [1980] 2 SCR 531, the concept of exclusive privilege was introduced into the area of industrial not alcohol fit for human consumption. Balsara's case [1951] SCR 682 dealt with the question of reasonable restriction on medicinal and toilet preparations. In fact, it can safely be said that it impliedly and sub silentio clearly held that medicinal and toilet preparations would not fall within the exclusive privilege of the State. If they did there was no question of striking down of section 12(c) and (d) and section 13(b) of the Bombay Prohibition Act, 1949, as unreasonable under article 19(1)(f) of the Constitution because total prohibition of the same would be permissible. In K.K. Narula's case [1967] 3 SCR 50, it was held that there was right to do business even in potable liquor. It is not necessary to say whether it is good law or not. But this must be held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power to preserve public health, morals, etc. This reasoning can never apply to industrial alcohol manufactured by industries which are to be developed in the public interest and which are being encouraged by the State. In a situation of this nature, it is essential to strike a balance and in striking the balance, it is difficult to find any justification for any theory of any exclusive right of a State to deal with industrial alcohol. Restriction valid under one circumstance may become invalid in changing circumstances. Reference may be made to the observations of Justice Brandeis in Nashville, Chattanooga St. Louis Railway v. Herbert S. Walters [1934] 79 L Ed 949. See also Leo Nebbia v. People of the State of New York [1933] 78 L Ed 940 at page 941. Similar is the effect of the approach of this Court in Motor General Traders v. State of Andhra Pradesh [1984] 1 SCR 594. It is not necessary for us here to say anything on the imposts on potable alcohol as commonly understood. These are justified by the Lists of our Legislature practised in this country-see the observations of Hidayatullah, J., as the Chief Justice then was, in Guruswami and Co. v. State of Mysore [1967] 1 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Even otherwise sections like section 24A and 24B of the U.P. Act do not constitute any regulation in respect of the industrial alcohol as product of the scheduled industry. On the contrary, these purport to deal with the so-called transfer of privilege regarding manufacturing and sale. This power, admittedly, has been exercised by the State purporting to act under entry 8 of List II and not under entry 33 of List III. 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 under e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal prospectively. In other words, the respondents-States are restrained from enforcing the said levy any further but the respondents will not be liable for any refund and the tax already collected and paid will not be refunded. We prospectively declare these imposts to be illegal and invalid, but do not affect any realisations already made. The writ petitions and the appeals are disposed of accordingly. The review petitions, accordingly, succeed though strictly no grounds as such have been made out but in the view we have taken, the decision in the Synthetics Chemicals Ltd.'s case [1980] 2 SCR 531, cannot be upheld. In the view we have taken also, it is not necessary to decide or to adjudicate if the levy is valid as to who would be liable, that is to say, the manufacturer or the producer or the dealer. With regard to Writ Petition No. 4051 of 1978 (Chemicals Plastics India Ltd. v. State of Tamil Nadu), certain orders were passed by this Court on 1st November, 1978, 1st September, 1986, 1st October, 1986 and 10th October, 1986. It is stated that the present demand of the Central Excise Department from 1st March, 1986, on alcohol manufactured by the company in their capt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors only authorises the State Legislature to enact laws to regulate but does not empower the State Legislature to impose any levy and the various levies which have been imposed by the State Legislature on industrial alcohol and even methylated spirit could not be brought within the ambit of regulatory duties for purposes of regulation only and, therefore, could not be justified under entry 8 of List II. It was also contended that the State ultimately falls back on the consideration for parting with the privilege to sell alcoholic liquors which has been the basis of series of decisions of this Court based on English and American decisions but according to the learned counsel for the petitioners this doctrine of privilege and consideration for sale of privilege also could be available to the State only in respect of alcohol or alcoholic liquors which are for human consumption. According to the learned counsel by merely widening the definition of intoxicating liquors in respective excise laws enacted by the States the ambit of authority of taxation could not be enlarged by the State Legislature when in List II, entry 51 the words used are alcoholic liquors for human consumption. Ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fically enacted conferring powers of taxation whereas other entries pertain to the authority of the Legislature to enact laws for purposes of regulation. If we compare entry 8 in List II with entry 51 it is clear that when entry 51 authorises the State Legislature to levy tax and duties on alcoholic liquors falling in entry 51, entry 8 confers authority on the State Legislature to enact laws for regulation. Similarly are entries in List I. As regards regulation or regulatory fees it was contended that entry 52 in List I empowers the Parliament to declare the industries which the Union proposes to control in public interest under (Industries Development and Regulation) Act. Entry 52 in List I reads as under: "52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest." Such a declaration is made by Parliament and this industry, i.e., industry based on fermentation and alcohol has been declared to be an industry under that Act and, therefore, is directly under the control of the Centre and, therefore, even in respect of regulation the authority of the State Legislature in entry 8 in List II, could only be subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other processes only to safeguard against its use for conversion into alcoholic beverages for human consumption. As it is well-known that when the ethyl alcohol is diluted by water and its percentage is brought to 40 or 45 or below then it becomes fit for human consumption and it was, therefore, argued that various duties for purposes of regulation are imposed by the State itself to prevent the conversion of rectified spirit or methylated alcohol to be diverted from industrial to potable use. The basis of the privilege doctrine appears to be that alcoholic drinks or intoxicating drinks are expected to be injurious to health and, therefore, the trade in these commodities is described as obnoxious and, therefore, a citizen has no fundamental right under article 19(1)(g) of the Constitution and, therefore, the trade in alcoholic drinks which is expected to be injurious to health and obnoxious is the privilege of the State alone and the State can part with this privilege on receipt of the consideration. This basis of the privilege doctrine has to be examined in the context of our Constitution especially article 21 and article 47. The concept of royal privilege has been derived hist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ife, which is duty bound to improve public health and for that purpose is expected to move towards prohibition to claim that it has the privilege of manufacture and sale of alcoholic beverages which are expected to be dangerous to human life and injurious to human health, transferring this privilege or selling this privilege on consideration to earn huge revenue without thinking that this trade in liquor ultimately results in degradation of human life even endangering human life and is nothing but moving contrary to the duty cast under articles 21 and 47 and the ideal of prohibition enshrined in article 47. In view of articles 21 and 47 with all respect to the learned Judges who so far accepted the privilege doctrine it is not possible to accept any privilege of the State having the right to trade in goods obnoxious and injurious to health. The other stand of the States to justify these levies is based on the doctrine of police powers. The doctrine of police powers enunciated in number of decisions of the American Courts and which has been the subject- matter of discussion by various authors in texts on jurisprudence as referred to in Indian context under our Constitution does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as the present cases are concerned which pertain to only alcoholic liquors which are not for human consumption, i.e., which are meant for industrial use, the only question will be as to whether the State could justify the respective levies under any of the entries in List II. The main theme of the argument on behalf of the States has been that they have imposed levies because the alcohol which is not for human consumption is a commodity which could be easily converted into alcoholic liquor for human consumption and, therefore, the levies have been imposed assuming that it is for human consumption or in other words the contention has been that these levies have been imposed in order to prevent the conversion of alcoholic liquors which are not for human consumption into those which are for human consumption. A contention, therefore, was suggested that these levies could be justified as regulatory fees although it was frankly conceded that although the revenue earned out of it is substantial and may not be justifiable as fees but have been imposed and it was therefore that the main theme on behalf of the respondents has been based on the doctrine of the privilege of the State t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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