Supreme Court: In a significant ruling, the 9-Judge Bench of the Court with a ratio of 8:1, on 23-10-2024, had held that States have the legislative power to regulate ‘intoxicating liquor’.
The majority of Dr. DY Chandrachud, CJ., Hrishikesh Roy, Abhay S. Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ., had held that Entry 8 of List II of the Seventh Schedule to the Constitution is both an industry-based entry and a product-based entry. The words that follow the expression “that is to say” in the Entry are not exhaustive of its contents. It includes the regulation of everything from the raw materials to the consumption of ‘intoxicating liquor’. The majority also overruled 7-Judge Bench ruling in Synthetics and Chemicals Ltd. v. State of U.P., (1990) 1 SCC 109.
B.V. Nagarathna, J., was the sole dissenting voice on several aspects of the majority decision. She held that:
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Entry 8 — List II deals with “intoxicating liquors”. The misuse, diversion or abuse of “industrial alcohol” as “intoxicating liquors” can also be controlled and prevented under Entry 8— List II by the State Legislatures having regard to Article 47 of the Constitution. She clarified that the IDRA which has been enacted by the Parliament by virtue of Entry 52 — List I has taken control of “Fermentation Industries” as a scheduled industry. Such “Fermentation Industries” would exclude “intoxicating liquors”.
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Parliament can occupy the field of the entire industry by merely issuing a declaration under Entry 52 — List I and the State Legislature’s competence under Entry 24 — List II is denuded to the field of the entire industry and specifically to the extent of the field covered by the law of Parliament under Entry 52 — List I.
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Nagarathna, J., agreed with the majority conclusion that Parliament does not have the legislative competence to enact a law taking control of the industry of intoxicating liquor covered by Entry 8 of List II in exercise of the power under Article 246 read with Entry 52 of List I.
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The judgment in Synthetics (supra) need not be overruled in relation to Section 18G of the IDRA and it continues to be good law in the context of what is comprised in the expression “industrial alcohol” and “intoxicating liquors” except what has been clarified in Entry 8 — List II.
Justice B.V. Nagarathna’s Assessment:
Perusing the facts and submissions in the matter and the majority opinion, Nagarathna, J., said that there is a lack of legislative competence in the State Legislature when viewed from the constitutional framework and statutory framework of the Industries (Development and Regulation) Act, 1951 (IDRA) passed by the Parliament on the strength of Entry 52 — List I of the Seventh Schedule of the Constitution; and having regard to Section 2 of IDRA read with its various provisions and the First Schedule thereto, particularly, Item 26 which deals with “Fermentation Industries” (other than potable alcohol).
Delving into the relevant Constitutional scheme, the dissenting Judge pointed out that Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. Furthermore, taxation defined in Article 366(28) is not exhaustive but inclusive in nature to include not only any tax in the usual understanding of the said expression or tax stricto senso but also any levy akin to a tax.
Article 246 of the Constitution deals with distribution of legislative powers between the Parliament and State Legislature, while Article 254 speaks of inconsistency between the laws made by Parliament and laws made by the Legislatures of States.
Vis-a-vis interpretation of legislative Entries, the dissenting Judge stated that the Entries in the different Lists should be read together without giving a narrow meaning to any of them. The powers of the Union and the State Legislature are expressed in precise and definite terms. Hence, there can be no broader interpretation given to one Entry than to the other. Even where an Entry is worded in wide terms, it cannot be so interpreted as to negate or override another Entry or make another Entry meaningless. In case of an apparent conflict between different Entries, it is the duty of the Court to reconcile them in the first instance.
The Entries on levy of taxes are specifically mentioned. Therefore, as such, there cannot be a conflict of taxation power of the Union and the State. In substance, the taxing power can be derived only from a specific taxing Entry in an appropriate List. Such a power has to be determined by the nature of the tax and not the measure or machinery set up by the statute.
Taking note of Article 47 which is a Directive Principle of the State Policy, Nagarathna, J., noted that the words “the State shall endeavour to bring about prohibition of the consumption, except for medicinal purposes of intoxicating drinks which are injurious to health”. It is on the basis of the said Directive Principle that several prohibition and excise laws have been enacted in several States as a constitutional goal to improve the health of the people of India in the context of prevention and prohibition of consumption of “intoxicating liquors”.
Considering the correctness of Synthetics (supra) judgment, she noted that the expressions “intoxicating liquors” and “alcoholic liquors for human consumption” were considered and also Article 47 of the Constitution which deals with the State’s duty regarding the improvement of public health and to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health. Reference was also made to Entry 52 — List I, which deals with industries, the control of which by the Union is declared by Parliament by law to be expedient in public interest. Furthermore, the said case did not concern primarily with potable alcohol for the purpose of human consumption but with ethyl alcohol (rectified spirit) as an industrial raw material for manufacture of downstream products. Synthetics (supra) was only concerned with the question whether the State Legislature could levy vend fee or excise duty on “industrial alcohol” and that the said question was answered in the negative by holding that “industrial alcohol” being unfit for human consumption, the State Legislature was incompetent to levy any excise duty under Entry 51 – List II.
Analysing the judicial dicta on previous cases on the controversy including Synthetics (supra) Nagarathna, J., pointed out that there is a golden thread of continuity in all of them, i.e., the Court has been clear on what is meant by the expression “industrial alcohol” as simplified to refer to all alcohol which is “not fit for human consumption as a beverage or nonpotable alcohol”. By contrast, the use of the expression “potable alcohol” refers to “intoxicating liquors” used for human consumption as a beverage or as a drink.
However, the dissenting Judge also pointed out that in paragraph 85 of Synthetics (supra) the expression “both potable and” is an inadvertent insertion inasmuch as there was no reason to state that licences to manufacture potable alcohol was vested in the Central Government. Therefore, to that extent the judgment in Synthetics (supra) called for a clarification.
It was further pointed out that past judgments on the issue also indicate that merely because “industrial alcohol” or non-potable alcohol such as rectified spirit can be converted into “intoxicating liquors” or alcohol fit for human consumption as a beverage (potable alcohol), that would not empower the State Legislature to tax or impose any levy on such “industrial alcohol”. However, since the expression “intoxicating liquors” in Entry 8 – List II deals specifically with alcohol used as a beverage and meant for human consumption, it would be within the scope and ambit of the said Entry for the State Legislature to regulate any abuse or conversion of “industrial alcohol” as a beverage, which is, in fact, harmful when consumed. Therefore, having regard to Article 47 of the Constitution, a State Legislature can even prohibit manufacture of “intoxicating liquors” in a State as one of the objects of which would be to negate the conversion or abuse of “industrial alcohol” as alcohol fit for human consumption.
Analysing the meaning of “intoxicating liquor”, it appears in Entry 8 — List II, the dissenting Judge stated that one task before the Court is to ascertain to what extent “intoxicating liquors” had acquired a natural and ordinary meaning at the time of the Constitution coming into force. She stated that inquiry into identification of legislative meaning of the phrase and its legislative history, needs to give due primacy to the ordinary and natural meaning of words and also test their connotations in colloquial use by the Constitution makers so as to give it a constitutional flavour.
It prima facie appears is that the “intoxication” effect is a sine qua non for the legislative competence of States on any liquors potentially coming within the scope of Entry 8 — List II. In the absence of an “intoxicating” effect from liquors, a State Legislature cannot legislate on the subject. The dissenting Judge opined that, what is required to be seen is the nature of the product which leads to such an intoxicating effect upon human consumption of the same. Here, the expression consumption must be explained. It is not all kinds of human consumption, direct or indirect, which is the determining factor. It is only direct consumption i.e. as an ingestion by the act of drinking as a beverage or a drink. An indirect consumption by use of alcoholic liquors as a raw material for any other product, industrial, medicinal or a toilet item cannot be included as part of Entry 8 — List II.
Furthermore, because “industrial alcohol” can be easily manufactured into or misused to become “intoxicating liquors” would not grant States the competence to wholly regulate “industrial alcohol”. State legislatures only have legislative competence over what is “intoxicating liquors” as a beverage. Entry 8 — List II cannot be stretched to include such “industrial alcohol”.
Therefore, in deciding on “intoxicating liquors”, the contours of interpretation must be concerned only with the very nature of the product of “intoxicating liquors” rather than the entire industry concerning alcohol. Entry 8 — List II provides the legislative competence to States to regulate production, manufacture, possession, transport, purchase and sale of only “intoxicating liquors”. It must follow from this that what is being produced or manufactured or possessed or transported or purchased or sold must actually be “intoxicating liquors” and not any other alcoholic product.
The dissenting Judge further opined that the doctrine of parliamentary supremacy is writ large in Articles 246 and 254 both in the manner of arrangement of the subjects in the three Lists as well as the extent to which the State Legislatures have competence with regard to the subjects assigned to them particularly in List III or the Concurrent List.
Nagarathna, J., held that Synthetics (supra) are in consonance with the constitutional framework of Article 246 read with the Entries in Lists I and III and the doctrine of occupied field applies in the context of Section 18G of IDRA enacted under Entry 52 — List I and Entry 33(a) — List III. Furthermore, Nagarathna, J., was of the view that Synthetics (supra) merely required clarification rather than overruling.
Insofar as “Fermentation Industries” (other than potable alcohol) is concerned, both alcohol and other products of “Fermentation Industries” being a scheduled industry under the IDRA passed under Entry 52 — List I it would clearly be within the scope of Union legislation. Nagarathna, J., clarified that as far as the concept of “intoxicating liquors” versus “industrial alcohol” is concerned, it is clear that Entry 33(a) — List III does not deal with “intoxicating liquors” which is a State subject under Entry 8 — List II. “Fermentation Industries” is a controlled industry and is a scheduled industry under the IDRA. It has been clarified by the2016 Amendment that Item 26 dealing with “Fermentation Industries” does not include potable alcohol.
Hence, insofar as “intoxicating liquors” which is “potable liquors” is concerned, only the State Legislatures have the legal competence to enact laws concerning the said subject. Therefore, other types of liquor (i.e. excluding “intoxicating liquors”) comes within the nomenclature of “Fermentation Industries” which is a scheduled industry under IDRA. The dissenting Judge further pointed out that the subject relating to “intoxicating liquors”, that is to say, the production, manufacture, possession, transport, purchase and sale of “intoxicating liquors” being a specific subject is taken out of the general subject of “industries” under Entry 24 — List II. As a result, Entry 52 — List I or any law made under that Entry by the Parliament cannot intrude or trench upon any law made by the State Legislatures under Entry 8 — List II. Thus, the Parliament cannot take under its control the subject pertaining to “intoxicating liquors” under any law, such as, IDRA made under Entry 52 — List I.
Other Major Conclusions by Justice Nagarathna:
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Nagarathna, J., stated that the context of the controversy must be borne in mind in the pas cases. The past decisions in substance limited the meaning of the expression “intoxicating liquors” to its popular meaning i.e. “alcoholic beverages” that produce intoxication. Therefore, in the context of prohibition of “intoxicating liquor” as a beverage, there could not have been prohibition of production of alcohol used for medicinal and toilet preparation as well as “industrial alcohol” or non-potable alcohol.
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The expression “intoxicating liquor” in Entry 8 has acquired a legislative and judicial meaning over the decades.
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The members of the Constituent Assembly were clear in what they envisaged within the scope and ambit of the expression “intoxicating liquors” in Entry 8 — List II. This is also evident from Item 26 of the First Schedule of the IDRA. “Intoxicating liquors” is only a segment of the “Fermentation Industries”, namely, potable alcohol. There was no intention on the part of the members of the Constituent Assembly to read within the expression “intoxicating liquors” non-potable or “industrial alcohol”. Further, to have a consistency between what was envisaged under Entry 84 — List I and Entry 51 — List II in the context of alcoholic liquors for human consumption, the taxing Entry in List II which is within the legislative competence of the States follows the regulatory Entry in Entry 8 — List II. Therefore, the use of the expression “industrial alcohol” or non-potable alcohol in Synthetics (supra) was only to crystallise all variants of alcohol which were non-potable and to distinguish the same from potable alcohol meant only for human consumption as a beverage.
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The entire controversy cannot be viewed from the point of view of alcohol being used as a raw material and final product such as hand sanitizer containing alcohol. The potential misuse of alcohol cannot be the basis for interpreting an Entry such as Entry 8 — List II. “Fermentation Industries” have to be borne in mind which takes within its canvas only non-potable/“industrial alcohol”. The aspect of public health having a correlation to Entry 8 — List II dealing with “intoxicating liquor” and the misuse of alcohol cannot be a guide while interpreting the content of the said Entry and therefore, its scope and ambit being amplified beyond what it really envisages as a field of legislation for the States to legislate upon.
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Item 26 of the First Schedule of the IDRA must be read excluding only what is contained in the expression “intoxicating liquors” as interpreted above in Entry 8 — List II.
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Denatured alcohol belongs to the family of “industrial alcohol” and therefore, Section 18G of the IDRA has a bearing on the said product. Section 18G occupies the field under Entry 33(a) — List III and, thereby, only Parliament is competent to legislate on all articles or class of articles related to a scheduled industry i.e. “Fermentation Industries”.
[State of UP v. Lalta Prasad Vaish, 2024 SCC OnLine SC 3029, decided on 23-10-2024]
Advocates who appeared in this case :
Appellants: Dinesh Dwivedi, Sr. Advocate; Arvind Datar, Sr. Advocate; Jaideep Gupta, Sr. Advocate; V. Giri, Sr Advocate; Balbir Singh, Sr. Advocate and Advocates Shadan Farasat and Dr. Vivek Sharma,
For Respondents: Mr Dhruv Agrawal, Senior counsel; Mr Abhimanyu Bhandari; Mr Omar Ahmad; Ms Tahira Karanjawala; Ms Sansriti Pathak; Mr Pawan Shree Agarwal; Mr S Nandakumar; and Mr Akash Bajaj, Counsel
Mr R Venkataramani, Attorney General for India for Union of India; Tushar Mehta, Solicitor General of India.
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