SYNTHETICS & CHEMICALS LTD. ETC. A v. STATE OF U.P. AND ORS. OCTOBER 25, 1989 [E.S. VENKATARAMIAH, CJ., SABYASACHI MUKHARJI, B RANGANATH MISRA, G.L. OZA, B.C. RAY, K.N. SINGH AND S. NATARAJAN, JJ.] CONSTITUTION OF INDIA, l<J50: Articles I9{1)(g), 2I, 32, 47, 245, 246, 265, 277, Seventh Schedule, List I Entries], 52, 5Y, /54 96; 97, List II Entries 8, 24, 26, 27, 51, 52, 56 and List III Entries 19 and C 13-Vend Fees and imposts levied under various State Acts-Constitu- tional validity of.
Preamble-Sovereignty-Conception and meaning of. Articles 19( l)(g) and 265-Arbitrary and excessive imposts by D State-Whether a great disincentive for development of industries rendering units unviable and sick. Articles 19( l)(g), 21, 47 and 265-Right to trade in goods obno- xious and injurious to health and dangerous to life-Whether State can claim privilege of-Whether violates fundamental rights.
E Article 141-Precedent-When can be deviated. Article 245, 246 and 265 and Part JV-Levy/fee in furtherance of directive principles-Whether empowers imposition, if otherwise ultra vires Constitution or laws. F Article 265-Fee-Whether iustified if imposed for regulation of any activity-Where the revenue earned is substanual. Article 277-Pre-Constitutional levy-Saving proviswn for-· Whether ceases to be effective on amendment or addition to the levy G after commencement of Constitution-Doctrine of privilege-Whether .. vests in any of the functionaries of State-Whether State can claim· privilege for trading in goods obnoxious and injurious to health- Whether violative of Articles 21 and 47.
Police Power of State: Whether recognised as independent power- H 623 A B 0 624 SUPREME COURT REPORTS (1989] Supp. 1 S:C.R. Whether same as sovereign power-Whether tax or levy justified on the theory ofpolice power alone. Andhra Pradesh Excise Act, 1968/Andhra Pradesh Distillery Rules, 1970/Bombay Prohibition Act, 1949: Section 49/Bombay Rectified . Spirit (Transport in Bond) Rules 1951/Tamil Nadu Prohibition Act, 19J7: Levy of vend fee or duty in respect of industrial alcohol-Legality of.
U.P. Excise Act. 1910/U.P. Excise Rules, 1972: Sections 24A, 24$ and 40/Rule 17(2)-Right of State to levy vend fee or duties in respect of industrial alcohol-Legality of. industries (Development and Regulation) Act, 1951: Sections 2 and 18G-Powers of State to legislate in respect of alcohol. Statutory Interpretation: Constitution-Entries in legislative lists -Exclusionary clause-To be strictly and narrowly construed-Rulf of harmonious construction of-Reiterated.
D Words and Phrases: 'Human consumption':.__'lntoxicating liquor' -'Rectified spirit' -Meaning of Writ Petitions/Civil appeals challenging the notification dated 31st May, 1979 which substituted a new rule 17(2) of U.P. Excise Rules and provided for a vend fee, the amendment to section 49 of the Bombay E Prohibition Act, 1949 treating exclusive privilege for State in liquor trade and imposing a transport fee, the Bombay Prohibition Act, 1949 as amended from time to time along with ordinance No. 15of1981 amend- ing the Bombay Prohibition Act, 1949 and Section 49 added by reason of which the State was granted exclusive privilege of importing, export- ing, transporting, manufacturing, bottling, selling, buying, processing F . or using any intoxicant; and seeking a declaration that alcohol plant of the petitioner-company was not covered by the A.P.
Excise Act, 1968, \A.P. DistiIIery Rules, 1970, and A.P. Rectified Spirit Rules, 1971 and that alcohol plant of the company was not a 'distillery' within the meaning of the said expression under the A.P. Distillery Rules and, therefore, the Distillery Rules had no application thereto and seeking an order to G restrain.from interfering with and/or regulating and controlling pro- duction, distribution, movement and supply of alcohol from the plant·of the company and the Tamil Nadn Prohibition Act, were filed in this Court.
H Review Petitions against the judgment and order of this Court dated 19th December, 1979 in State of U. P. etc. v. Synthetics. and Chemicals Ltd. and Ors. etc., (1980] 2 SCR 531 re-agitating challenge SYNIHETICS-CHEMICALS v. STA"l'E OF U:P: 6"25· to sections 24A and 248 of the U.P. Excise Act, 1910 as amended in 1972 A and 1976, declaring exclusive privilege of the Government for , manufacture and -sale of foreii:n liquor as defined, which included denatured spirit and industrial alcohol, were also filed.
The petitioners/appellants contenaea that the levies made by the B respondent States on alcohol, which was utilised as raw mater'ial by the industries for manufacturing the products were invalid. Some of th"8e industries' themselves manufactured alcohol as they bad their own dis- tillaries· and from where it passed through pipelines to their industtial units, where this was used as a raw material, whereas some purchased alcohol or denatured spirit on being allotted by the Government.
It was alleged that, iit addition to excise duty levied by the Central Govern- C ment, excise duty and various levies in various names like vend fee, transport fee and others numbering about eight levies were imposed by the State Government. It was also contended that the State Legislature . had no authority, in view ·of Entry 84 of List I read with Entry 51 of List II to impose such levies; this being alcohol which did not within the D ambit of alcoholic liquors for human consumption.
Ifis only tne cientre which had the authority to tax under Entry 84, and _that .t:ntry Sin List II only authorised the State Legislature to enact laws to regulate but did not empower it to impose any levy and the various levies-which had been imposed by the State Legislature on industrial alcohol and even methylated spirit could not be brought within the ambit of, regulatory E duties for purposes of regulation only, and, therefore, could not be justified under Entry 8 of List II, that doctrine of privilege and consideration for sale of privilege could be available to the State only in respect of alcohol or alcoholic liquors which were for huinan consumption. that by · merely widening the definition -of intoxicating ·liquors iit respective excise laws enacted by the States, the ambit-of-authority ,.of taxation F could not be enlarged by the State Legislature when in List II Entry 51 the words used were alcoholic liquors for human consumption.
It was further .contended that though the direction and commitment to improvemeotfil the standards oflivin2 contained in Article 47 of the Constitution must be kept in view, this improvement could be achieved primarily by industrialisa- tion involving increased production and employment and giving prio- G rity to the core sectors, that the Industries (Development & Regulation) Act. 1951 was enacted with a view to developing and controlling various important industries and that the petitioners/appellants were predominantly and primarily concerned with using ethyl alcohol (rectifiea spmt) as an ·industrial raw material 3nd this industrial alcohol is required as an input for further manufacture of downstream products.
H A B c D 626 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R. It was submitted on behalf of Union of India that the legislative competence of the State enactments in the various States would have to be determined by reference to Entries 7, 52, 59, 84, 96 and 97 of List I and Entries 8, 24, 26, 27, 51, 52, 54, 56, 62 of List II and Entries 19 and 33 of List m, that there was a dichotomy between Entry 84 of List I and Entry 52 of List II, but this would not control the interpretation of other entries and that there was no such dichotomy in Entry 8 of List II, that the power to levy taxes had to be read from entry relating to the taxes and not from general entry, that none of the taxing entries in List II was controlled by_ Entry 52 of List I, that State's privilege to completely prohibit or farm out liquor containing alcohol for consumption did not comprehend a similar right of the State with regard to other intoxicat- ing liquids containing alcohol and to so prohibit or collect fee for farm- ing out, would be unconstitutional under Article 19(l)(g) of the Con- stitution, that under Entry 51 of List II, State Legislature had no power to levy excise duty on industrial alcohol, as it was not fit for human consumption, and though the State could 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 for human consumption, this power did not extend to industrial alcohol or alcohol contained in the medicinal or toilet preparations; On behalf of the respondent States, it was contended that: E (a) Entry 52 of List I was an exceptional entry, which not only prescribed the field of legislation but also enabled and empowered the Parliament to make laws to the exclusion of the Stae and that, being exclusionary in nature unlike entries merely delineating fields of legisla- tion, this entry had to be strictly and, therefore, narrowly construed; F (b) whenever the Constitution intended the Parliament to assume legislative competence in respect of the entire field, a declaration of an "nqualified nature was provided for unlike qualified provision like Emry 52 of List I, (c) the words 'control' and 'regulation' were, at times, held to be G interchangeable or used synonymously, but their use in the various entries either singly or jointly, indicated that they were sought to convey a different sense and the word 'control' bad in the context, a narrower meaning, excluding details of regulatory nature by the State;
(d) comparing Entries 7, 23, 24, 27, 62, 64 and 67 of List I with H Entry 52, would demonstrate that under_entry_52, it was not the entire SYNTIIETICS CHEMICALS v.
STATE OF U.l'. 627 field which was sought to be covered but only the control of industries; A and that the absence of inclusion of qualifying words like 'the control of which' could not be brushed aside;
(e) in view of the declaration made in Section 2 of the !.D.R. Act, 1951 and the provisions made therein, the entire field was not occupied and the vend fee or other impost by the State legislatures were not B infringing in the field treaded by the Central Legislature; the Act did not preclude or edipse the legislative powers of the State; the Act also did not apply on its own terms to the levy; these operated on different tracks; (I) the Parliament had no power to legislate on industrial alcohol, C since industrial alcohol was also alcoholic liquor for human consump- tion and Entry 84 in List I expressly excluded this category and, there- fore, the resi!luary Entry 97 of List I would not operate as against its own legislative intent;
(g) the State had legislative competence to impose the levy since it D was, both on its language and in pith and substance, legislation falling under Entry 8.
List II, intoxicating liquor, and Entry 51 List II, alcoholic liquor for human consumption, and what was required was intoxicating liquor and/or alcoholic liquor for human consumption;
(h) that the State had exclusive right to deal in liquor, and this E power was reserved by and/or derived under, Article 19(6) and 19(6)(ii) of the Constitution, for parting which a charge was levied, and in a series of decisions it had been ruled that the charge was neither a fee nor a tax and was termed as privilege; · (i) there was no dichotomy between Ethyl Alcohol, to be used for F beverages and for industrial purposes, and in any case the levy was on manufacture of the Ethyl Alcohol, and the dichotomy attempted to be drawn in Entry 84 of List f 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 was not valid.
(j) the levy was consistent with wider interpretation of alcoholic liquor based on pre-existing legislative history;
(k) when two interpretations were possible, the choice must fall G on that interpretation which validated existing State legislations designed to raise revennes and rejection of the other interpretation H A B c D E F G H 628 SUPREME COURT REPORTS [1989] Supp. 1 :i.C.R. which was destructive of the scheme of distribution of powers; (I) the· words 'alcoholic liquor' in Lists I & II of the 7th Schedule to the Constitution must be interpretated so as to mean and take within its sweep alcohol as first obtained in the process of or as a product of fermen_tation industry at which stage, it was capable of being rendered potable, and the fact that it may be rendered unfit for human consump- tion, did not render the substance any less liable for taxation;
(m) imposition of a fee would be the most effective method of regulating intoxicating liquor other than alcohol and could be.,justified as the reasonable measure in regard to intoxicating liquor-as it.is the duty of the State, being a welfare State, to denature by incurring extra cost and effort; quid pro quo was not necessary and, even if it was necessary, the requirements were met; and the price fixation was ·a valid method in regulation of consumption;
(n) . under its police powers, the State had to regulate health, mor- ality, welfare of society and incidental pauperism and crime;
(o) in enacting a law with respect to intoxication liquor as part\of the legislative power, measures of social control and regulation of pri- vate· rights were permissible and as such may even amount to prohibition;
(p) it has been accepted by Courts all along that the 'police power' of the -·State enabled regulations to be made regarding manufacture, transport, possession and sale of intoxicating liquor; and such police power could be exercised as to impose reasonable restric· lions as to effectuate the power;
(q) trade in alCoholic drinks or intoxicating drinks, being obno- xious and injurious to health, a Citizen had no fund,amental right under Article t9(l)(g) of the Constitution and it is the privilege of the State alone and it can part with this privilege on receipt of a consideration;
(r) the levy was stipulated jointly or severally, both under· Entries s· of List II, Entry SI of List fl, Entry 33 of List III and what was de~cribed as police powers regulatory and other incidental charges, and the levy was justified, being a regulatory power under Article 19(~); and 19(6)(ii);
(s) the State -bad~-monopoly in alcohol trade llllll' Artiele JIC • SYNTHETICS CHEMICAI;S v.
STAJE·OF·U.P. 629 granted immunity to the challenge under Articles 13, 14 and 19 of the Constitution, and under Article 298, trading powetofthe State-must he" A recognised, coupled with century old monopoly of the State in alcohol; and (t) the vend fee was a pre-constitutional levy, and so saved Ul)der Article ,277 of the Constitution: it was not a law either under Article 246 B or Article 254 and was, therefore, outside the purview of the Central Act.
On; the questioll!i:
(i) whether the vend fee in respect of theindnst- rial alcohol under difterent legislations and i-ules in different States was . valid;
(ii) whether the power to levy excise duty in case of industrial alcohol was with the State legislature or the Central legislature;
(iii) C what was the scope and ambit of Entry 8 List II of the Seventh sched\11" of the Constituion; and (iv) whether, the State Government had ex~u sive right or privilege of manufacturing, selling, distributing, etc, of alcohols including Industrial alcohol, and what was the extent,· scope and ambit of such right of privilege, · D Allowing the Writ Petitions, Civil Appeals and Review Petitions, this Court, HELD: Majority: (E.S.
Venkataramiah, C.J.I, Sabyasachi- Mukharji, Ranganath Misra, B.C. Ray, K.N. Singh and S. Natarajan, JJ.) E Per Sabyasai:hi Mukharji, J. 1.1 The relevant provisions of the U.P Excise Act, 1910, A.P. Excise Act, 1968, Taniil-Nadu Act, and Bombay Prohibition Act, 1949 are uncostitutional insofar as these purport to levy a tax or charge F imposts upon industrial alcohol, namely, alcohol used and useable for industrial purposes. [6SOG~H) 1.2 Having regard to the principles of interpretation and the Constitutional provisions, In the light of the language used and, having considered the impost and the composition of industrial alcohol, and the G legislative practice of this__country, the imposts in question cannot be justified as State imposts. [680G-H) 1.3 The different provisions, In question are not merely regu- latory, but are much more than that.
These seek to levy imposition in their pith and substance. not as incidental or as mer-"ly disincentives, H A B c 630 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R. but as attempts to raise revenue tor States' purposes. There is no taxing provision permitting these in the lists in the field of industrial alcohol for the State to legislate. Furthermore, in view of the occupation of the field by the Industrial Development and Regulation Act, it was not possible to levy this impost.
Besides, in view of the language used in the specific provision the levy is not on the manufacture of alcohol as such. Tberetore, these levies cannot in essence be sustained as duty of excise. [681A-B] · 2.1 The meaning of the expressions used in the Constitution must be found from the language used. The words of the Constitution should be interpreted on the same principle of interpretation as one applies to an ordinary law but these very principles of interpretation compel one to take into account the nature and scope of the Act which requires interpretation. [672H, 673A] 2.2 A Constitution is the mechanism under which laws are to be made and not merely an Act which declares what the law is to be. l673BJ D 2.3 It is also well-settled that a Constitution must not be construed in any narrow or pedantic sense and that construction which is most beneficial to the widest possible amplitude of its power, most be adopted.
An excmsionary clause in any of the entries should be strictly and, there- fore, narrowly construed. No entry should, however, be so read as not to rob it of entire content. A broad and liberal spirit should, therefore, E inspire those whose dnty it is to interpret the Constitution, and the Courts are not free to stretch or to pervert the lang1iage of an enactment in the interest of any legal or constitutional theory.
Constitutional adjudication is not strengthened by such an attempt but it most seek to declare the law. It must not try to give meaning on the theory of what the law should be, but must so look upon a Constitution that it is a living F and organic thing and must adapt itself to the changing situations and pattern in which it has to be interpreted. Where division of powers and jurisdicti'on in a federal Constitution is the scheme, it is desirable to read the Constitution in harmonious way.
Further, 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 G to be looked into. [673B-E] 3.1 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 hy Article 246 and other Articles of the Constitution.
The three lists of the 7th Schedule to the Constitution are H legislative heads or fields of legislation. These demarcate the area over • SYNTIIETICS CHEMICALS v. STAIB OF U.P. 631 which the appropriate legislatures can operate. [673F] 3.2 It is also well-settled that widest amplitude should be given to the language of the three entries but some of these entries in different lists or in the same list may over-ride and sometimes may appear to be A in direct conflict, with each other, then and then comes the duty of the Court to find the true intent and purpose and to examine the particular B legislature in question.
Each general word should be held to extend to all anciliary or subsidiary matters which can fairly and reasonably be comprehended in it. [673F-GJ 3.3 In interpreting an entry it would not be reasonable to import any limitation by comparing or contrasting that entry with any other in_ C the same list. It has to be interpreted that. the Constitution must be interpreted as the ornanic document in the light of the• experience gathered. [673HJ - 3.4 In the Constitutional scheme of division of power under the legislative lists, there are separate entries pertaining to taxation and D other laws. [674AJ The relevant entries in the Seventh Schedule to the Constitution demarcate legislative fields and are closely linked and supplement one another. [674EJ E The Constitution of India like most other Constitutions is an organic document.
It should be interpreted in the light of the ex- perience. It has to be flexible and dynamic _so that it adapts itself to the changing conditions and accommodates itself in a pragmatic way to the goals of national development and the industrialisation of the count']'.,_ This Conrt should, therefore, endeavour to interpret the entries and the F powers in the Constitution in such a way that it helps to the attainment of undisputed national goals, as permitted by the Constitution.
I67 4C-D] M.P. V. Sundararamier & Co. v. State of A.P., [1958] SCR 1422 at pages 1480-82, relied on. The India Cement Ltd. etc. v. The State of Tamil Nadu etc.,_ [1990) 1 SCC 12 and Central Provinces and Berar Sales of Motor Spi'rit and Lubricants Taxation Act, 1938 [1939) FCR 18 at 37-38, referred to. G 4.1 The expression of a Constitution must he understood in it~ common and normal sense. Industrial alcohol as it is, is incapable of· H 632 SUPREME COURT REPORTS [1989] Supp. l S.G.R A being consumed by a normal human being.
The expression 'consump- tion' must also be understood in the sense of direct physical intake hy human beings in this context. No doubt, utilisation in some form or the other is consumption for the benefit of the human beings, if industrial alcohol is utilised for production of rubber, tyres used. But the utilisa- u tion of those tyres in the vehicle of man cannot in the context in which the expression has been used in the Constitution, be understood to mean that the alcohol has been used for human consumption. [665C-D] 4.2 The expression 'alcoholic liquor for human consumption' was m~ant and still means that liquor which, as it is, is consumable in the sense capable of being taken by human beings as such as beverage of C drinks.
Hence, the expression under Entry 84 List I must be understood in the light. [665E] D E F G H 4.3 Constitutional provisions specially dealing with delimitation of powers in a federal polity must be understood in a broad com- monsense 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 as also viewed at the relevant time of its intepreta- tion it is not possible to proceed otherwise.
Alcoholic or intoxicating liquors must be understood as these are, what these are capable of or able to become. [665G-H] 5.1 By common standards ethyl alcohol (which has 95%) is an industrial alcohol and is not fit for human consumption. The petitioners and the appellants were manufacturing ethyl alcohol (95%) (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% of volume by ethyl alcohol". Dictionaries and technical books would show that rectified spirit (95%) is an industrial alcohol and is not potable as such. Therefore, industrial alcohol which is ethyl alcohol (95%) 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. Therefore, ethyl alcohol (95%) is· not alcoholic liquors 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. [677D-GJ ". ..
SYNTHETICS CHEMICALS v. STATE OF U.P. 633 Delhi Cloth and General Mills Co. Ltd. v. The Excise Commis- A sioner, UP. Allahabad and Anr., Special Appeal No. 177 of 1970, decided on 29.3.1973, referred to. 6.1 Entry 8 of List I which contains the words "intoxicating li- quor" cannot sul'.l'ort a tax. The meaning_ of this expression has been rightly interpreted by the High Court in Balsara's case. Hence, the obser· B vations of this Court in Balsara's case require consideration. [677H, 675A-B] 6.2 In the light of the new experience and development, "into- xicating liquor" must mean liquor which is consUJllable by human being as it is.
When the word "liquor" was used by this Court, it did not have the awareness of full use of alcohol as industrial alcohol. It is C true that alcohol was used for industrial purposes then also, but the full potentiality of that user was not then comprehended or understood. With the passage of time_, meanin_gs do not change but new experience give new colour to the meaning. [675B-C] -- -- F.N. Balsara v.
Stare df Bombay, AIR 1951Born210 & 214, approved. State of Bombay & Anr. v. F.N. Balsara, [1951] 2 SCR 682; Har Shankar & Ors. etc. v.The Dy. Excise & Taxation Commissioner & Ors., [1975] 3 SCR 254; Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P) Ltd. v. Union of India, [1963] 3 SCR 9571; Mis Guruswamy D & Co. etc. v. Slate of Mysore & Ors., [1967] l SCR 548; State of ¥ysore E v.
S.D. Cawasji & Co. & Ors., [1971] 2 SCR 799; R.C. Jallv. Union of India, [1962] Suppl 3 S.C.R. 436; Om Prakash v. Giriraj Kishore, [1986] 1 SCR 149; Inspector of Taxes v. Australian Mutual Provident Society, [1959] 3 All England Law Report 245 and Commonwealth of Massachusetts Et Al v. USA, 92 Lawyers, Edition p. 968, referred to. 6.3 Article 47 of the Constitution imposes npon the State the duty to endeavour to bring about prohibition of the consumption except for medicinal pnrpose of intoxicating drinks and products which are inju- rious to health.
If the meaning of the expression "intoxicating liquor" F is taken in the wide sense adopted in Balsara's case, it would lead to.an anamolous result and would oblige the State to prohibit even such G industries as are licensed under the IDR Act but which manufacture industrial alcohol. This was never intended by the Constitution or judg- ments of this Court. Therefore, the decision in the Synthetics & Chemi- cals Ltd.'s case was not correct on this aspect. [679C-D] ··' State of U.P., etc._ v.
Synthetics & Chemicals Ltd. & Ors. etc., H A B c D E 634 SU)'REME COURT REPORTS ]1989] Supp. 1 S.C.R. [1986f2 SCR 531 and State of Bombay & Anr. v. F.N. Ba/sara, [1951) 11 SCR 682, overruled. · K.K. Narula v. State of J & K, [1967) 3 SCR SO, referred to.
7. The Indian Constitution does not recognise police power as such. But, the exercise of sovereign power, which gives the State suffi- cient authority to enact any law, subject to the limitations of the Constitution to discharge its functions must he recognised.
The Indian Constitution as a sovereign State has power to legislate on all branches except to the limitation as to the division of powers between the Centre and the States, and also subject to the fundamental rights guaranteed under the Constitution. The Indian State, between the Centre and the States, has sovereign power. The sovereign power is plenary and inhe- rent in every sovereign State to do all things wl)i~h promote the peace, morals, education and good order of the people.
Sovereignty is difficult to define. This power of sovereignty is, however, subject to Costitu- tional limitations. [666F-H) 8.1 In interpreting the provisions of the Constitution, one should go by the plain words used by the Constitution makers. Importing of expression like 'police power', which is a term of variable and indefinite connotation, can only make the task of interpretation more difficult. [671B] State of West Bengal v.
Subodh Copa/ & Ors., [1954] S SCR 587 at 601-604 and Kameshwar Prasad & Ors. v. The State of Bihar & Anr., [1962) 3 Suppl. SCR 369, referred to. 8.2 The power of the State to regulate, though not as emanation F of police power, but as an expression of the sovereign power of the State 'is recognised, but that power has its limitations. [671G] 8.3 Whether the States have the police power or not, they have the power to regulate the use of alcohol, and that power must include power to make provisions to prevent and/or check industrial alcohol, G being used as intoxicating or drinkable alcohol.
However, the question is whether, in the garb of regulations, a legislation which is in pith and substance, fee or levy which has no connection with the cost or expenses administering the regulation, could be imposed purely as regulatory measure. [671D-El · · H In the instant case, judged by the pith and substance of the legisla- • .• SYNTHETICS CHEMICALS v. STATE OF U.P. · 635 tion in question, these levies cannot be treated as part of regulafory measures. [671EJ A 9.1 The activity in potable liquor, which was regarded as a safe and exclusive right of the State earlier, caunot be justified under the police power of the State, i.e., the power to preserve public health, morals, etc.
This reasoning can never apply to industrial alcohol B manufactured by industries which are to be developed in the public interest, and which are being encouraged by the State. In such a situa- tion, it is essential to strike a balance, and while doing so, it is difficult to find any justification for any exclusive right of a State to deal with industrial alcohol. Restriction valid under <me circumstance may become invalid in changing Circumstances. (680C-Dt Nashville, Chattangooga & St.
Louis Railway v. Herbert S. Walters, 79 Lawyers' Edition 949; Leo Nebbia v. People of the State of New York, 78 Lawyers' Edn. 940 at p. 941 and Motor General Traders & Anr. etc. v. State of Andhra Pradesh & Ors. etc., [1984] 1 SCR594, c referred to. D 9.2 Arbitrary and excessive imposts under the so-called privilege of the States are a great disincentive for development of industries in the public interest and for industrial development in general and can render units unviable and sick.
It is essential that there should be uniformity in the industry so that these are free from the vagaries and E arbitrary and differential treatment meted out from StaJe to State and· even in the same State from time to time. [644C-D] 9 .3 Right to Ill or levy must be in accordance with the provisions of the Constitution. It is clear that all duties of excise, save and except the items specifically excepted in entry 84 of List I, are generally within F . the taxing power of the Central Legislature.
The State Legislature has · power, thou~ limited in imposing duties of excise. That power is circumscribed under Entry 51 of List II of the 7th Schedule to the Constitution. [666H, 667~, 674G] 10. In view of the subsequent amendments and additions to the G levies, the levies in question are not pre-Constitutional levies. l662EJ 11.1 After 1956 amendment to the Industries (Development and Regulation) Act, 1951 bringing alcohol industries (under fermentation industries)as item 26 of the First Schedule to the Act, the control of this industry has vested ex~lusively in the Union.
Thereafter, licences to H 636 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R. A manufacture both potable and non-potable alcohol is vested in the Central Government. Distilleries are manufacturing alcohol under the Central Li~~nces under IDR Act. No privilege for manufacture even if one existed, has,been transferred to the distilleries by the State. The State cannot itsili 111anufacture 'industrial alcohol without. the permis- sion of the Central Governinent.
The States cannot c!aim to pass a right .B which these do not possess. Nor can these States claim exclusive right to produce and manufacture industrial alcohol which are manufactured under the grant of licence from the Central Government. Industrial alcohol cannot upon coming Into existence under such grant be amen- able to States' claim of exclusive possession of privilege. The State can neither rely on Entry 8 of List II nor Entry 33 of list III as a basis for C such a cI3im.
It cannot claim that under Entry 33 of List III, it can ·regulate industrial alcohol as a product of the scheduled ,industry, because the Union, und_er section 18 G of the IDR Act, bas evinced clear intention to occupy the whole field. Even otherwise, sections like St\ction 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 D contrary, these purport to deal with the so-called transfer of privilege regarding manufacturing ·and sale. This power, admittedly, bas been exercised by the State purporting to act under Entry 8 of list II and not under.Entry 33 oflistIII. [681C-F] 11.'2 The position with regard to control of alcohol industry bas, E therefore, undergone material and significant change and the State is left with only powers to pass any legislation in the nature of prohibition of poiable llqu.or referable to Entry 6 of list II and regulating powers, lay down regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol, and charge excise duty on potable alcohol and sal~s tax under Entry .52 of list II; however, s_ales F 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; and in case State is render- ing any service, as distinct from its claim of so-called grant of privilege, it may charge fees baSed on quid pro quo. [681G-H, 682A-CJ G Indian Mica and Micanite Industries v.
State of Bihar, [1971] 2 sec 236, relied on. 12.1 On an analysis of the various Abkari Acts and Excise Acts, it is clear that various provinces/States reserve to themselves in their respective States the right to transfer exclusive or other privileges only H in respect of manufacture and sale of alcohol and not in respect of SYNTHETICS CHEMICALS v. STATE OF U.P. 637 possession and use. Not all but some of States have provided such reser- A vation in their favonr.
The price charged as a consideration for the grant of exclusive and other privileges was generally regarded as· an excise duty. In other words, excise duty and price for privileges were regarded as one and the same thing. So-called privilege was reserved by: the State mostly in respect of country liquor and not foreign liquor B which included denatured spirit. [682D-E] 12.2 On an analysis of various decisions and practice, it is clear that is respect of industrial alcohol the States are not authorised to impose the impost they have purported to do.
Hence, such impositions and impost must go as being invalid. However, this would not affect any impost so far as potable alcohol as commonly understood is concerned. C It will also not affect any impositions 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 also not affect any regulating measure as such. [682F-G] The provisions are, therefore, declared to be illegal and invalid prospectively.
The Respondent-States are restrained from enforcing the said levy any further but they will not be liable for any refund and the tax already collected and paid will not be refunded. (6838] D In respect of Tamil Nadu, no further realisations will be made in . E future by the State Government from the petitioners. Regarding past realisations, the application for that part of the direction should be placed before a Division Bench, for disposal upon notice both to the State and the Central Governments. [683F] Calcutta (;as Co. (Proprietary) Ltd. v.
The State of West Bengal F and Ors., (1962] Suppl. 3 SCR 1; Nashirwar etc. V: The State of M.P., (1975] 2 SCR 861; Sheopat Rai & Ors. v. State of U.P., (1972] All. L.J. 1000; Indian Mica & Micanite Industries Ltd. v. State of Bihar & Ors., [1971] Suppl. SCR 319; Town Municipal Committee, Amraoti v. Ramachandra Vasudeo Chimote & Anr., [1964] 6 SCR 947;, P.N. Kaushal etc. v. Union of India, [1979] 1 SCR 122; M/s Gurus- G wamy & Co. etc. v.
State of Mysore & Ors., [1967] I SCR 548; Coover- jee Ji. Bharucha v. The Excise Commissioner and the Chief Commis- sioner, Ajmer & Ors., (1954] SCR 873; Crowley v. Christensen, [1890]· 34 Lawyers' Edn. 620 and Southern Pharmaceuticals & Chemica/, Trichur & Ors. etc. v. State of Kera/a & Ors. etc., (1982] 1SCR519 at 537, referred to. H A B c D E F G H 638 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.
Per Oza, J. (Concurring) 13.1 The State Legislature had no authority to levy duty or tax on alcohol which is not for human consumption as that could only be levied by the Centre. [686GJ 13.2 A comparison of the language of Entries 84 of List I and 51 of List II clearly demonstrates that the powers of taxation on alcoholic liquors have been based on the way in which they are used.
Admittedly, alcoholic liquor is a very wide term and may include variety of types of alcohoJic liquors, but our Constitution makers have distributed them into heads, namely, (a) for human consumption, and (b) other than for human consumption. Alcoholic liquors which are for human consump- tion were put in Entry 51 List II authorising the State Legislature to levy tax on them wltereas alcohoilc Ilquors other than for human consumption have beeu left to the Central Legislature uuder Entry 84 for levy of duty of excise.
This scheme of these two entries in List I and II is clear enough to indicate 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. [685E-HJ 13.3 From the scheme of entries in the three lists, it is clear that taxing entries have been specifically enacted conferring powers of taxa- tion, whereas other entries pertain to the authority of the Legislature to enact laws for purposes of regulation.
If Entry 8 in List II is compared with Entry 51 it is clear that while Entry 51 authorises the State Legisla- ture to levy tax and duties on alcoholic liquors falling under this entry, Entry 8 confers authority on the State Legislature to enact laws for regulation. Similarly are Entries in List I. But since a declaration has been made by the Parliament under Entry 52, List I, declaring the industry based on fermentation and alcohol to be an industry under the Industrial (Development and Regulation) Act, 1951, and placing it directly under the control of the Centre, even in respect of regulation, the authority of the State Legislature in Entry 8, List II could only be subject to the Act or rules made by the Centre.
Therefore, in view of clear demarcation of authority under various items in the three Lists, Entry 8 List II could uot be invoked to justify the levies which have been imposed by the State in respect of alcoholic liquors which are not meant for human consumption. [686C-D, F-GJ The State, in exercise of powers under Entry 8 of List II and by appropriate law may, however, regulate and that regulation could be to SYNTHETICS CHEMICALS v.
STATE or U.P. 639 prevent the conversion of alcoholic liquors for industrial use to one for human consumption and for the purpose of regulation, the regulatorv fees only could be justified. In fact, the regulation should be the main purpose, the fee or earning out of it has to be incidental.- [690H, 691A] 14.l There is nothing like privilege vested