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TMI Blog1997 (1) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... sit and removal of any intoxicant and prescribing the scale of fees or manner of fixing the fees payable for licence, permit or pass, including for the grant of any exclusive or other privilege under Sections 24 and 24A of the said Act. The earlier Rule 2 was substituted by a new Rule 2 entitled "Denaturation of Spirit". The amended rule provides for a new license 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. It further prescribed that the distilleries mentioned above and holding licence for denaturation of spirit shall be liable to pay a denaturation fee at the rate of 7 paise per litre in advance. The appellants Vam Organic Chemicals Limited are manufacturing vinyl acetate monomer, a basic organic chemical for which industrial alcohol is the main feed stock. The industrial alcohol is being produced in the distillery of the appellants and according to the appellants the entire industrial alcohol produced is denatured as per the method approved by the State Excise Authorities and is being us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the rectified spirit. After they are properly tested, the denaturants have to be separately stored under lock and key of the officer-in-charge of the distillery, and measured quantities are pumped into denaturation vats at the time of denaturation. The process of mixing goes on for several hours. The resultant mixture is denatured spirit or specially denatured spirit, as the case may be. After denaturing, it is again tested to find out whether it has been properly denatured or not. The Excise Department is obliged to, and does maintain laboratory for this purpose at the Head Quarters of the Excise Commissioner. There is a Chief Development Officer, assisted by four Assistant Alcohol Technologists and a large number of supporting staff apart from apparatus and other equipment. Denaturation takes place under the close supervision of the Excise Officials in accordance with the provisions of rule 785 of the U.P. Excise Manual, volume I." The first contention raised before the High Court was that rectified spirit being industrial alcohol as held by the Supreme Court in Synthetic and Chemicals Ltd. v. State of U.P. [(1990) 1 SCC 109] and being not fit for human consumption, the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulating trade in the noxious goods. The High Court finds the Entries 6 & 8 of List-II as providing the filed for legislation and consequent licensing for denaturation of spirit and Entry 51 as providing the scope for levy of duties. Coming to List-III, the relevant Entry is 33: "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 ginned or unginned, and cotton seed; and (e) raw jute." A similar Entry is 52 is List-I: "52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest." A declaration is made by Section 2 of the IDR Act that "it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule." Item 26 of the 1st Scheduled reads: "26. Fermentation Industries 1. Alcohol 2. Ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 of 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 regulation 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 charging of fees therefore." (Emphasis supplied) Thus, the power under Section 18G can be exercised only so far as is permitted by sub-section (1) viz., for securing the equitable distribution and availability at fair price of any article or class of articles relatable to any scheduled industry. To this extent the State Legislature cannot make any law. The High Court concludes that in other respects the field is still open to the State Legislature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood number of officers and employees are engaged in managing the laboratories besides the staff which is posted at the distilleries and so the rate of 7 paise per litre was in order. In these appeals the appellants reiterate that this Court by its 7-Judge Bench decision in Synthetic Chemicals (supra) has expressly ruled against legislative competence of the State so far as ethyl alcohol/rectified spirit is concerned. Further, they say that even if the State is left with regulatory power to prevent misuse of industrial alcohol for potable purposes, such power did not include power to levy any impost. Further, the appellants say that denaturation is a statutory duty imposed by a Notification under the U.P. Excise Act and no service by the State being provided for the same, no fee could be charged and in any case even if the State has 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. We may not that the term 'industrial alcohol' is not used in nay of the Lists in the Seventh Schedule of the Constitution. All the entries quoted in the earlier part of the judgment have to be read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge excise duty on potable alcohol and sales tax under entry 52 of list II. However, sales tax cannot be 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 India Mica's case (supra)." (1989) Supp.1. SCR 623 (681-682). Denaturation of spirit meant for industrial use is meant to prevent misuse of non-potable alcohol for human consumption and as such specifically mentioned by the Court to be within the legislative competence of the State. 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 Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were circumstances to establish that there was quid pro quo for the fee nor it will affect any regulatory measure. This completely demolishes the argument on behalf of appellant." The judgment was followed in a later case raising the same questions and challenging the validity of Section 58-A of the Bombay Prohibition Act, namely, Gujchem Distillers India Ltd. v. State of Gujarat and Anr. 1992. (1) S.C.R. 675. On a proper appreciation of the legal situation, the fee of 7 paise per litre has to be seen as a part of the regulatory measure, namely, denaturation of spirit and supervision of the said process. More recently by effect of interaction of entries 8 and 24 List II, entry 52 of List I of the Seventh Schedule and entry 26 of the First Schedule of the IDR Act came to be considered in the case of State of A.P. & Ors. etc. v. McDowell & Co. & Ors. etc. reported in JT 1996 (3) SC 679. The State of Andhra Pradesh prohibited the manufacture of liquor by an amendment in the Andhra Pradesh Prohibition Act, 1995. 'Liquor' in the Act was defined as under: "(7). 'Liquor' includes, - (a) spirit of wine, wine, beer and every liquid consisting of or containing alcohol including Indian li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Lists. As a matter of fact, the 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 8 in List II." It was reiterated in the later part of the judgment 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 I.D.R. Act must be read subject to Entry 8 - and for that matter, Entry 6 - in List-II.So read, the said item does not and cannot deal with manufacture, production of intoxicating liquors. All the petitioners before us are engaged in the manufacture of intoxicating liquors. The State Legislature is, therefore, perfectly competent to make a law prohibiting their manufacture and production - in addition to their sale, consumption, possession and transport - with reference to Entries 8 and 6 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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