# BIHAR DISTILLERY AND ANR. + v. UNION OF INDIA AND ORS

- **Citation:** [1997] 1 S.C.R. 680
- **Court:** Supreme Court of India
- **Decided:** 1997-01-20
- **Bench:** B.P. Jeevan Reddy, Sujata V. Manohar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bihar-distillery-and-anr-v-union-of-india-and-ors-15232
- **Pages:** 24

## Headnote

Constitution of India, 1950 : Articles 246, 254 and Schedule VII List I
-,.
Entry 52, 84, List II Entry 6, 8, 24, 51 and List III Entry 33.
c
Alcohol-Rectified spirit--lndustries engaged in production, supply and
distlibution of-Respective spheres of control of Union and State Governments Scope of relevant legislative entries-Held: industlies engaged in the
manufacture of rectified spirit exclusively for obtaining or manufacturing
potable liquors shall be under total and exclusive control of State Govern-
•
ments from the moment it was cleared/removed for that purpose from the
•
D distille1y - those engaged in manufacture of rectified spirit exclusively for
_.,
supply to industries which were not engaged in obtaining or manufacturing of
potable liquor shall be under total and exclusive control of Union-But in
case of industries engaged in manufacture of rectified spirit for obtaining or
manufacturing potable liquor as well as supplying it to industries, excise duty
on rectified spirit, removed/cleared for the fonner purposes shall be levied by
E State Government concerned, while that for the latter shall be levied by the ·
Union-How ever, the power to permit establishment and regulation of
functioning of the distillery shall be exclusively vested in the Union-The
power to take necessary steps to ensure against misuse or diversion of rectified
spilit meant for industrial pwposes to potable purposes shall vest in the State
~
- Industries (Regulation and Development) Act, 1951-Bihar and Orissa
F Excise Ac~ 1915.
Words and Phrases:
''Alcoholic liquors for human consumption"-Meaning of--ln the context of Ent1y 84 List I of the Seventh Schedule of the Constitution of India,
G 1950.
"Intoxicating liquors''-Meaning of-In the context of Entry 8 List II of
)...
the Seventh Schedule to the Constitution of India, 1950.
.. -
The petitioner was a distillery licensed to manufacture industrial
H alcohol and was getting its licence renewed under the provisions of the
680
BIHAR DISTILLERYv. U.O.I.
681
> ;...
Bihar and Orissa Excise Act, 1915. The authorities of the State proposed A
to cancel the petitioner's license for certain reasons assigned by them. The
petitioner objected to it on the ground that the grant and cancellation of
licence in respect of a distillery manufacturing rectified spirit was within
the exclusive province of the Central Government and that the State
Government had no say in the matter. With this contention the petitioner B
. filed the present writ petition before this Court saying that it was licensed
to manufacture and manufactured only 'industrial alcohol' and no other
alcohol or liquors.
Disposing of the petition, this Court
c
HELD : 1.1. Entry 51 in List II and Entry 84 in List I of the Seventh
Schedule to the Constitution of India, 1950 compliment each other. The
relevant expression is "alcoholic liquors for human consumption" which is
included in Entry 84 in List I. The words employed denote that there may
be alcoholic liquors meant for human consumption as well as for other D
.,
..>
purposes. Entry 8 in List II employs the expression "intoxicating liquors"
which express.ion is, of course, not. qualified by words "for human consumption". Entry 8, it is necessary to emphasize, places all aspects of
intoxicating liquors within the State's sphere; production, manufacture,
possession, transport, purchase and sale of intoxicating liquors is placed
E
within the exclusive domain of the States. Entry 6, which inter alia speaks
of "public health", is relevant only for the reason that it furnishes a ground
for prohibiting consumption of intoxicating liquors. Regarding Entry 33
in List III, the language of clause (a) thereof is significant. Even though
-i
~·
control of certain industries may have been taken over by the Union by
virtue of a declaration made by Parliament in terms of Entry 52 in List I, F
yet the "trade, commerce in, and the production, supply and distribution
of the products" of such industry is placed in the

## Text

_Characters 0–39,742 of 60,043. This is a partial read: ask again with offset=39742 for what follows._

A
BIHAR DISTILLERY AND ANR.
+,;
v.
UNION OF INDIA AND ORS.
~
JANUARY 20, 1997
B
[B.P. JEEVAN REDDY AND SUJATA V. MANOHAR, JJ.]
Constitution of India, 1950 : Articles 246, 254 and Schedule VII List I
-,.
Entry 52, 84, List II Entry 6, 8, 24, 51 and List III Entry 33.
c
Alcohol-Rectified spirit--lndustries engaged in production, supply and
distlibution of-Respective spheres of control of Union and State Governments Scope of relevant legislative entries-Held: industlies engaged in the
manufacture of rectified spirit exclusively for obtaining or manufacturing
potable liquors shall be under total and exclusive control of State Govern-
•
ments from the moment it was cleared/removed for that purpose from the
•
D distille1y - those engaged in manufacture of rectified spirit exclusively for
_.,
supply to industries which were not engaged in obtaining or manufacturing of
potable liquor shall be under total and exclusive control of Union-But in
case of industries engaged in manufacture of rectified spirit for obtaining or
manufacturing potable liquor as well as supplying it to industries, excise duty
on rectified spirit, removed/cleared for the fonner purposes shall be levied by
E State Government concerned, while that for the latter shall be levied by the ·
Union-How ever, the power to permit establishment and regulation of
functioning of the distillery shall be exclusively vested in the Union-The
power to take necessary steps to ensure against misuse or diversion of rectified
spilit meant for industrial pwposes to potable purposes shall vest in the State
~
- Industries (Regulation and Development) Act, 1951-Bihar and Orissa
F Excise Ac~ 1915.
Words and Phrases:
''Alcoholic liquors for human consumption"-Meaning of--ln the context of Ent1y 84 List I of the Seventh Schedule of the Constitution of India,
G 1950.
"Intoxicating liquors''-Meaning of-In the context of Entry 8 List II of
)...
the Seventh Schedule to the Constitution of India, 1950.
.. -
The petitioner was a distillery licensed to manufacture industrial
H alcohol and was getting its licence renewed under the provisions of the
680
BIHAR DISTILLERYv. U.O.I.
681
> ;...
Bihar and Orissa Excise Act, 1915. The authorities of the State proposed A
to cancel the petitioner's license for certain reasons assigned by them. The
petitioner objected to it on the ground that the grant and cancellation of
licence in respect of a distillery manufacturing rectified spirit was within
the exclusive province of the Central Government and that the State
Government had no say in the matter. With this contention the petitioner B
. filed the present writ petition before this Court saying that it was licensed
to manufacture and manufactured only 'industrial alcohol' and no other
alcohol or liquors.
Disposing of the petition, this Court
c
HELD : 1.1. Entry 51 in List II and Entry 84 in List I of the Seventh
Schedule to the Constitution of India, 1950 compliment each other. The
relevant expression is "alcoholic liquors for human consumption" which is
included in Entry 84 in List I. The words employed denote that there may
be alcoholic liquors meant for human consumption as well as for other D
.,
..>
purposes. Entry 8 in List II employs the expression "intoxicating liquors"
which express.ion is, of course, not. qualified by words "for human consumption". Entry 8, it is necessary to emphasize, places all aspects of
intoxicating liquors within the State's sphere; production, manufacture,
possession, transport, purchase and sale of intoxicating liquors is placed
E
within the exclusive domain of the States. Entry 6, which inter alia speaks
of "public health", is relevant only for the reason that it furnishes a ground
for prohibiting consumption of intoxicating liquors. Regarding Entry 33
in List III, the language of clause (a) thereof is significant. Even though
-i
~·
control of certain industries may have been taken over by the Union by
virtue of a declaration made by Parliament in terms of Entry 52 in List I, F
yet the "trade, commerce in, and the production, supply and distribution
of the products" of such industry is placed in the concurrent field, which
in the present context means that though the control of alcohol industry
is taken over by the Union, trade, commerce in and the production, supply
and distribution of the products of alcohol industry can be regulated both
G
by the Union and the States subject, of course, to Article 254. It also means
that insofar as the field is not occupied by the laws made by Union, the
...
States are free to legislate. (691-C-H, 692-A-C] .
...
1.2. In the matter of industries mentioned in List II, Entry 24 in List
II is in the nature of general entry. It speaks of industries but is made H
682
SUPREME COURT REPORTS
[1997] 1 S.C.R.
A expressly subject to entries 7 and 52 in List I. By making a declara~ion in
terms of Entry 52 in List I in Section 2 of the Industries (Regulation and
Development) Act, 1951, the Parliament has taken control of the several
industries mentioned in the Schedule to the Act. The States have been
denuded of their power to legislate with respect to those industries on that·
B account. Entry 52 over-rides only Entry 24 in List II and no other Entry
in List II. In view of the express language of Entry 8 in List II so far as
potable liquors are concerned, their manufacture, production, possession,
transport, purchase and sale is within the exclusive domain of the States
and the Union of India has no say in the matter. [692-D, 693-C]
C
State of A.P. v. McDoweli, [1996] 3 SCC 709 and State of U.P. v.
Synthetics and Chemicals Ltd., [1991] 4 SCC 139, relied on.
2. The decision in Synthetics did not deal with the aspects, which are
arising for consideration herein, and that it was mainly concerned with
D industrial alcohol, i.e., denatured rectified spirit. While holding that rec·
tified spirit is industrial alcohol, it recognised at the same time that it
-<
could be utilised for obtaining country liquor (by diluting it) or for
manufacturing I.M.F.Ls. When the decision says that rectified spir.it with
95% alcohol content v/v is "toxic", what it meant was that if taken, as it is,
it is harmful and injurious to health. By saying "toxic" it did not mean that
E it cannot be utilised for potable purposes either by diluting it or by
blending it with other items. The undeniable fact is that rectified spirit is
both industrial alcohol as well as liquor, which can be converted into
country liquor just by adding water. It is also the basic substance from
which I.M.F.Ls. are made. (Denatured rectified spirit, of course, is wholly
F and exclusircly industrial alcohol). The line of demarcation can and
should be drawn at the stage of clearance/removal of the rectified spirit.
Where the removal for industrial purposes (other than the manufacture
of potable liquor), the levy of duties of excise and all other control shall
be of the Union but: where the removal/clearance is for obtaining or
manufacturing potable liquors, the levy of duties nf excise and all other
G control shall be that of the States. This calls for a joint control and
supervision of the process of manufacture of rectified spirit and its use
and disposal. [699·G·.ff, 700-A·B, 701-B·C]
-...
Synthetics and Chemicals Ltd. v. State of U.P., [1990] 1 SCC 109, held
H inapplicable.
....
.,
-~
--1
....
...
BIHAR DISTILLERY v. U.O.L
683
Tika Ramji v. State of U.P. [1956] SCR 393, relied on.
State of U.P. v. Synthetics and Chemicals Ltd. [1980] 2 SCR 531; Vam
Organic Chemicals Ltd. v. State of U.P., WP (C) No. 16782 of 1990 decided
on 9-9- 1991; Vam Organic Chemicals Ltd. v. State of U.P., [1997] Vol. II
SCC 715 and Corporation of Calcutta v. Liberty Cinema, [1965] 2 SCR 477,
referred to.
3. In view of the above, the following principles are laid down:
(1) So far as industries engaged in manufacturing rectified spirit
meant exclusively for supply to industries (industries other than those
engaged in obtaining or manufacture of potable liquors), whether after
denaturing it or without denaturing it, are concerned, they shall be under
the total and exclusive control of the Union and be governed by the l.D.R
Act and the rules and regulations made thereunder. Where the entire
rectified spirit is supplied for such industrial purposes, or to that extent it
is so supplied, as the case may be, the levy of excise duties and all other
control including establishment of distillery shall be that of the Union. The
power of the States in the case of such an industry is only to see and ensure
that rectified spirit, whether in the course of its manufacture or after its
manufacture is not diverted or misused for potable purposes. They can
make necessary regulations requiring the industry to submit periodical
statements of raw material and the finished product (rectified spirit) and
are entitled to verify their correctness. Far this purpose, the States will also
be entitled to post their staff in the distilleries and levy reasonable
regulatory fees to defray the cost of such staff. [701-D-F]
(2) So far as industries engaged in the manufacture of rectified spirit
exclusively for the purpose of obtaining or manufacturing potable liquors
- or supplying the same to the State Government or its nominees for the
said purpose- are concerned, they shall be under the total and exclusive
control of the States in all respects and at all stages including the es tablishment of the distillery. Where the entire rectified spirit produced is
supplied for potable purposes-or to the extent it is so supplied, as the case
may be - the levy of excise duties and all other control shall be that of the
States. According to the State Governments, most of the distilleries fall
under this category. [701-H, 702-A-B]
(3) So far as industries engaged in the manufacture of rectified spirit,
both for the purpose of (a) supplying it to industries (other than industries
A
B
c
D
E
F
G
,
H
/
684
SUPREME COURT REPORTS
[1997] 1 S.C.R.
A engaged in obtaining or manufacturing potable liquors/intoxicating li-
<1uors) and (b) for obtaining or manufacturing or supplying it to Government/persons for obtaining or manufacturing potable liquors are
concerned, the following is the position: the power to permit the establishment and regulation of the functioning of the distillery is concerned, it
B
shall be the exclusive domain of the Union. But so far as the levy of excise
duties is concerned, the duties on rectified spirit remove!lf cleared for supply to imlustries (other than industries engaged in obtaining or manufacturing potable liquors), shall be levied by the Union while the duties of excise
on. rectified spirit cleared/removed for the purposes of obtaining or
manufacturing potable liquors shall be levied by the concerned State
C Government. The disposal, i.e., clearance and removal of rectified spirit in
the case of such an industry shall be under the joint control of the Union
and the concerned State to ensure no evasion of excise duties on rectified
spirit removed/cleared from the distillery. It is obvious that in respect of
these industries too, the power of the States to take necessary steps to ensure
·D
against the misuse or di\'ersion of rectified spirit meant for industrial purposes (supply to industries other than those engaged in obtaining or
manufacturing potable liquors) to potable purposes, both during and after
the manufacture of rectified spirit, continues unaffected. Any rectified spirit
supplied, diverted or utilised for potable purposes, i.e., for obtaining or
manufacturing potable liquors shall be supplied to and/or utilised, as the
E case may be, in accordance with the concerned State Exdse enactment and
the rules and. regulations made thereunder. If the State is so advised, it is
equally competent to prohibit the use, diversion or supply of rectified spirit
for potable purposes. [702-C-G]
(4) Tt is advisable • nay, necessary • that the Union Government
F
makes necessary rules/regulations under the l.D.R. Act directing that no
rectified spirit shall be supplied to industries except after denaturing it
says lhose few industries (other than those industries which are engaged in
obtaining or manufacturing potable liquors) where denatured spirit cannot
b,e used for manufacturing llllrJ>oses. [702-H, 703-A]
G
(5) So far as rectified spirit meant for being supplied to or utilised
for potable purposes is concerned, it shall be under the exclusiv~ control
of the States from the moment it is cleared/removed for that purpose from
the distillery · apart from other powers referred to above. The power to
pel'mit. the establishment of any industry engaged in the manufacture of
H potable li11uors including I.M.F.Ls., beer, country liquor and other in·
-
.-
rBIHAR DISTILLERY v. U.O.I.
685
toxicating drink!) is exclusively vested in the States. The power to prohibit A
and/or regulate the manufacture, production, sale, transport or consumption of such intoxicating liquors is equally that of the States, as held in
McDowell. [703-B-C]
Shri Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. v. State of
Gujarat & Anr. [1992] 1 SCR 391; Gujchem Distilleries Ltd. v. State of B
Gujarat & Anr. [1992] 1 SCR 675 and State of A.P. v. McDowell & Co.,
. [1996] 3 sec 709, relied on.
CIVIL ORIGINAL JURISDICTION : Writ petition (C) No. 322 of
1996.
(Under Article 32 of the Constitution of India).
0
M.S. Usgaonkar, Additional Solicitor General, Harish N. Salve,
c
Shanti Bhushan, R. Santosh Hegde, M.S. Nargolkar, Rakesh Dwivedi,
Additional Advocate General, Bimal Kumar Sinha, Sarwa Mitter, KN. D
, __ >-
Pandey, Ms. Charu Nirwari, Ashok Mathur, G.M. Kawosa, K.K. Saha, D.
Krishnan, J.R. Das, S. Hegde, Dilip Sinha, M.C. Dhingra, Ms. Kamakshi
Singh Mehlwal, Arvind Kr. Shukla, B.B. Singh, P. Mahale, D.M. Nargolkar,
Shivaji M. Jadhav, V. Krishnamurthy, K. Ram Kumar, Y. Subba Rao, C.
Balasubramaniam, Ms. Asha Nair, G. Prakash, Ms. Beena Prakash, Ms. A. E
Subashini, A. Ranganadhan, B.S. Chahar, Ashok Mathur, P.N. Misra, T.
Sridharan, Ashok K. Srivastava, Ms. Sushma Suri, A.K. Goel, Ashish
Kumar and Sri Kamlendra Mishra for the appearing parties.
The Judgment of the Court was delivered by
\
F
B.P. JEEVAN REDDY, J. Until the commencement of the constitution and for a few years thereafter, rectified spirit was mainly used for
the purpose of manufacturing country liquor, Indian Made Foreign
Liquors [I.M.F.L.) and other intoxicating drinks. Its use for industrial
purposes was not significant. The rapid pace of industrialization from G
mid-fifties onwards brought into existence several industries, which
required rectified spirit as one of their raw materials, with the result the
_
____.
demand of rectified spirit for industrial purposes went up substantially
,.
and has been going up. Evidently, in recognition of this fact, did the
Union of India amend, in the year 1956, the Schedule to the Industries
[Regulation and Development] Act, 1951 including the alcohol industry H
1
686
SUPREME COURT REPORTS
(1997] 1 S.C.R.
A
therein.
B
c
Notwithstanding the aforesaid amendment of the Schedule to the
Industries [Regulation and Development] Act, 1951, the establishment
of a distillery, its working and the distribution and sale of the rectified
spirit produced by it continued to be regulated by the States as before,
under various enactments in force in those States. Similar was the
position in the State of Bihar where the first petitioner-distillery is
located. As a matter of fact, right up to the year 1991-92, it was getting
its license renewed under the provisions of the Bihar Excise Act. The
original license itself was granted under the Bihar Act. In or about the
year 1992, the authorities of the Bihar State proposed to cancel the
petitioner's license for certain reasons assigned by them. The petitioner
objected it on the ground that the grant and cancellation of license in
respect of a distillery manufacturing rectified spirit is the exclusive
provi_nce of the Government of India and that the State government had
D no say in the matter. With this contentipn has it approached this Court. /
-
It relies upon the seven-Judge Constitution Bench decision of this Court
-.<._ •
E
F
G
in Synthetics and Chemicals Limited v. State of Uttar Pradesh, (1990] 1
S.C.C. 109. The petitioner says that it was licensed to manufacture and
manufactures only 'industrial alcohol' and no other alcohols or liquors.
According to the division of legislative powers contained in the
seventh Schedule to the Constitution [relatable to Article 246], the power
to legislate on the subject of "industries" is assigned to the States. Entry 24
in List-II reads : "24. Industries subject to the provisions of Entries 7 and
52 of List-I".* Entries 7 and _52 in List-I, referred to in Entry 24 of List-II,
read thus :
"7. Industries declared by Parliament by law to be necessary for the
purpose of defence or for the prosecution of war.
52. Industries, the control of which by the Union is declared by
Parliament by law to be expedient in the public interest."
In the year 1951, the Parliament enacted the Industries (Development and Regulation) Act, 1951 (I.D.R. Act). Section 2 contains a decla-
>-
·~
Prior to C'.onstitution [Seventh Amendment] Act, 1956 only Entry 52 was referred to
H
in this Entry. By the said Amendment Act, Entry 7 was also added.
•
rBIHAR DISTILLERYv. U.O.l. [B.P. JEEV AN REDDY, J.]
687
ration in terms of Entry 52 of List-I. By virtue of this enactment, the ParliaA
men! took over the control of the industries specified in the first Schedule
denuding the States of that power. In the year 1956, the Schedule to the I.D.R.
Act was amended, as stated hereinbefore, including inter alia Item 26. Item
26 reads : "26. Fermentation Industries : (i) alcohol; (ii) other products of
fermentation industries". As a matter of fact, however, the several State B
enactments continued to regulate the establishment, functioning and disposal
of rectified spirit and other product~ of these distilleries even after 1956.
Nobody ever questioned it until an industry, Synthetics and Chemicals Limited
[Synthetics] did so by way of writ petitions filed in the Allahabad High Court
in or about the years 1975-78. Synthetics was a licensee for the wholesale vend C
of denatured spirit**. It questioned the levy of vend fe.e on denatured spirit
imposed by the State of Uttar Pradesh under the provisions of the Uttar
Pradesh Excise Act and the Rules made thereunder. It contended that the
power to levy excise duty or tax on denatured spirit vested exclusively in the
Parliament and that the State was totally incompetent to levy the same. The
High Court rejected the contention holding, that the expression "intoxicating D
liquors" occurring in Entry 8 of List-II of the Seventh Schedule to the
Constitution took in its fold denatured spirit as well and, therefore, the State
had exclusive privilege to deal in denatured spirit. The matter was carried to
this Court wherein It was contended that by virtue of Item 26 of the Schedule
to the I.D.R. Act, the Union has taken under its control the industries engaged E
in the manufacture of industrial alcohol and that the States have been denuded
of any power to deal with denatured spirit including the power to levy vend
fees. The contention was rejected by this Court (A.C. Gupta and P.S.
Kailasam, JJ.) as well, vide (1980) 2 S.C.R. 531. This Court referred inter
alia to the history of State Excise laws in this country and to the wide F
definition of 'liquor' in those enactments and observed that while enacting the
Government of India Act, 1935, the British Parliament must have been aware
of ·and must be deemed to have accepted the said wide definition [i.e.,
including non-potable liquors as well]. Synthetics was not satisfied with the
judgment. It filed a petition to review the same. Meanwhile, several other G
industrial units approached this Court by way of writ petitions raising conten-
..
Denatured spirit is rectified spirit. Denaturants are added to it to make it unfit for use
in manufacture of l.M.F.Ls., other intoxicating liquors or for diluting it to obtain
country liquor. Denaturing is not necessary for its use for industrial purposes. Indeed,
son1C industries cannot use denatured rectified spirit. But, by and large, rectified spirit
supplied to industries is denatured.
H
688
SUPREME COURT REPORTS
(1997] 1 S.C.R.
A tions similar to those rai>ed by Synthetics. The matter was referred to and
heard ultimately by a larger Constitution Bench of seven learned Judges whose
decision is reported in (1990) 1 S.C.C. 109. Sabyasachi Mukharj~ J. spoke for
himself, E.S. Venkataramiah, CJ., Ranganath Misra, B.C. Ray, KN. Singh and
S. Natarajan, JJ., while G.L. Oza, J. rendered a separate concurring opinion.
B This decision, reversing the deci~ion in [1980] 2 S.C.R. 531 and upholding the
contention of the writ petitioners, brought about a sea change in the thinking
on the subject. It held that the expression "intoxicating liquors" in Entry 8 of
List-II means and refers to only potable liquors and that the potability is
determined by the standards specified by I.S.I. (Indian Standards Institute),
C i.e., alcohol content not exceeding 43% v/v. Entry 51 of List-II was also
similarly held limited to potable liquors. The power of the States to legislate
in respect of liquors was held to be restricted to potable liquors alone. The
Court held further that "rectified spirit" (which expression was used interchangeably with the expression "ethyl alcohol" and "industrial alcohol") which is of
95% and above purity cannot be treated as a potable liquor and hence lies
D within the exclusive control of the Union by virtue of the l.D.R. Act. After
1956, the Court held, the power of the States is cammed to (1) making a law
prohibiting potable liquor and to regulate it, (2) laying down regulations to
ensure that non-potable alcohol is not diverted and mis-used for potable
purposes, (3) charging excise duty on potable alcohol and ( 4) to charge fees
E for rendering any service. (See para 86 at Page 158). The decision was
rendered on October 25, 1989.
F
G·
H
When the present writ petition came up for admission before a Bench
comprising one of us (B.P. Jeevan Reddy, J.) and K.S. Paripoornan, J., it was
thought necessary to give notice to all the State governments and to the Union
of India in view of the peculiar nature of the problem arising herein. The order
made by the Bench on May 9, 1996, insofar as is relevant, reads thus :
"The question arising herein is a thorny one. It is also arising
frequently. The decision of the larger Constitution Bench of this
Court in Synthetics & Chemicals Ltd. & Anr. v. State of U.P. & Ors.,
[1970) 1 SCC 109 calls for demarcation of the spheres of the Union
and the States particularly in the matter of alcoholic liquors. ·
Recently, this. Court has held in State of A.P. v. McDowell, JT
(1996) 3 SC 679 that so far as the intoxicating liquors/potable
liquors are concerned, it is the exclusive province of the States.
I
-"\
J. ,...
•
~
BIHAR DISTILLERYv. U.O.I. [B.P. JEEV AN REDDY, J.]
689
But for manufacturing intoxicating liquors, or for manufacturing A
.
~
industrial alcohol as the case may be, one must have to manufacture
or purchase alcohol. It is only thereafter that the alcohol is either
converted into industrial alcohol (by denaturing it) or into potable
liquors by reducing the strength of alcohol (which is normally of
95% purity or above). Indeed, alcohol can be used for industrial B
purposes even without denaturing it. Saying that States step in only
--"
when alcohol becomes potable and not before it leaves a large
~
enough room for abuse apart from difficulties of supervisi@n and
regulation. In the matter of licensing too, problems would arise, as
to who should licence such industry - whether the Center alone or
the States or both. Having regard to the importance of the question, c
we think that this is a proper case where notice should go to all the
States who will be heard on this question. The Union of India is
already a party to the writ petition."
Accordingly, notices have been issued to all the State governments. We D
_j·
( have directed notice to learned Attorney General as well. We have heard Sri
Bimal Kumar Sinha, learned counsel for the writ petitioner, Sri Shanti
Bhushan for the State of West Bengal, Sri Rakesh Dwivedi, Additional
Advocate General for the State of Uttar Pradesh for Uttar Pradesh and Bihar,
Sri Santosh Hegde for the State of Karnataka, Sri M.S. Nargolkar for the State
of Maharashtra, Sri V. Krishnamurthy for the State of Tamil Nadu, Sri K Ram E
Kumar for the State of Andhra Pradesh, Sri G. Prakash for the State ofKerala,
Ms. Subhashini for the State of Goa, Sri P.N. Misra for the State of Orissa
and Sri T. Sridharan for the State of Hirnachal Pradesh. Sri M.S. Usgaonkar,
learned Additional Solicitor General appeared for the Union of India. We
.{
also requested Sri Harish N. Salve, who was appearing in the connected matter F
(Special Leave Petition (C) No. 9863/96 - involving inter alia the question at
issue herein) to address us on the general question which he has agreed
gracefully to do.
Let us fir.st notice the relevant entries in the Seventh Schedule to the G
Constitution. Entry 6 in List-II deals with "Public Health and Sanitation;
Hospitals and Dispensaries". Entry 8 reads : "Intoxicating liquors, that is
.--;
to say, the production, manufacture, possession, transport, purchase and
sale of intoxicating liquors". Entry 24, which has already been referred to,
.reads: "24. Entries subject to the provisions of Entries 7 and 52 of List-I".
Entry 51, which is one of the taxing entries in List-II reads :
H
A
B
c
D
E
F
690
SUPREME COURT REPORTS
[1997] 1 S.C.R.
~'51. Duties of excise on the following goods manufactured or
produced in the State and countervailing duties at the same or
lower rates on similar goods manufactured or produced elsewhere
in India:-
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and narcotics,
but not includin1~ medicinal and toilet preparations containing
alcohol or any substance included in sub-paragraph (b) of this
entry."
The last entry in List-II, viz., Entry 66 speaks of "fees in respect of any of
the matters in this List, but not including fees taken in any court."
Entries 7, 52 and 84 in List-I which alone are relevant herein read
thus:
"7. Industries declared by Parliament by law to be necessary for
the purpose of defence or for the prosecution of war.
52. Industries, the control of which by the Union is declared by
Parliament by law to be expedient in the public interest.
84. Duties of excise on tobacco and other goods manufactured or
produced in India except-
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and narcotics,
but not including medicinal and toilet preparations containing
alcohol or any substance included in sub-paragraph (b) of this
entry."
G
Entry 33 in List-III (Concurrent List) may also be noticed. It reads:
"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
_....._ _,...,
) ·-
•
BIHARDISTILLERYv. U.O.I.(B.P.JEEVANREDDY,J.)
691
the public interest, and imported goods of the same kind as much A
products;
(b) foodstuffs, including edible oil seeds and oils;
(c) cattle fodder, including oilcakes and other concentrates;
B
( d) raw cotton, whether ginned or unginned, and cotton seed; and
( e) raw jute."
A reading of the above entries would immediately disclose that Entry
51 in List-II and Entry 84 in List-I compliment each other. Both provide C
for duties of excise but while the States are empowered to levy duties of
excise on (a) alcoholic liquors for human consumption and (b) opium,
Indian hemp and narcotics manufactured or produced in the State and
countervailing duties at the same or'lower rates on similar goods manufac-
.. tured or produced elsewhere in India (but excluding medicinal and toilet D
preparation containing alcohol or any substance included in sub-paragraph
(b) of this Entry), the Union is empowered to levy duties of excise on
tobacco and other goods manufactured or produced in India except (a)
alcoholic liquors for human consumption (b) opium, Indian hemp and
other narcotic including drugs and narcotics. Medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b)
which are excluded from Entry 51 in List-II are expressly included in this
Entry. For our purposes, the relevant expression is "alcoholic liquors for
human consumption" which is included in Entry 51 in List-II and excluded
from Entry 84 in List-I. The words employed denote that there may be
alcoholic liquors meant for human consumption as well as for other purposes. Now coming to Entry 8 in List-II, it does not use the expression
"alcoholic liquors for human consumption". It employs the expression
"intoxicating liquors" which expression is, of course, not qualified by words
E
F
"for human consumption". This is for the obvious reason that the very word
"intoxicating" signifies "for human consumption". Entry 8, it is necessary to G
emphasize, places all aspects of intoxicating liquors within the State's
sphere; production, manufacture, possession, transport, purchase and sale
of intoxicating liquors is placed within the exclusive domain of the States.
Entry 6, which inter alia speaks of "public health" is relevant only for the
reason that it furnishes a ground for prohibiting consumption of intoxicating liquors. Coming to Entry 33 in List-III, the language of clause (a) H
A
B
c
•
692
SUPREME COURT REPORTS
(1997) 1 S.C.R.
thereof is significant. Even though control of certain industries may have
been taken over by the Union by virtue of a declaration made by Parliament in terms of Entry 52 in List-I, yet the "trade, commerce in, and the
production, supply and distribution of the products" of such industry is
placed in the concurrent field, which in the present context means that
though the control of alcohol industry is taken over by the Union, trade
commerce in and the production, supply and distribution of the products
of alcohol industry can be regulated both by the Union and the States
subject, of course, to Article 254. It also means, as will be explained later,
that insofar as the field is not occupied by the laws made by Union, the
States are free to legislate.
In the matter of industries mentioned in List-II, Entry 24 in List-II
is in the nature of general entry. It speaks of industries but is made
expressly subject to Entries 7 and 52 of List-I. By· making a declaration in
terms of Entry 52 in List-I in Section 2 of the I.D.R. Act, the Parliament
D has taken control of the several industries mentioned in the Schedule to
the Act. The States have been denuded of their power to legislate with
respect to those industries on that account. It has, however, been held by
a three-Judge Bench of this Court in State of Andhra Pradesh v. McDowell
(1996) 3 SCC 709 that Entry 52 over-rides only Entry 24 in List-II and no
other Entry in List-II. It has been held that Entry 8 is not overridden or
E
over-borne in any manner by Entry 52 - which means that so far as
intoxicating liquors are concerned, they are within the exclusive sphere of
the States. We may pause at this stage and append a clarification which
has become necessary in the light of certain words occurring in Para 85 of
the judgment of Sabyasachi Mukharji, J. in Synthetics**. At the inception
p
of Para 85 of the said judgment, the following statement occurs :
G
..
H
"After the 1956 amendment to the IDR Act bringing alcohol
industries (under fermentation industries) as Item 26 of the Fjrst
Schedule to !DR Act the control of this industry has vested
exclusively in the Union. Thereafter, licences to manufacture both
potable and non-potable alcohol is vested in the Central Government. Distilleries are manufacturing alcohol under the central
licences under IDR Act. No privilege for manufacture even if one
existed, has been transferred to the distilleries by the State."
Whenever we refer to
11Synthetics" hereafter, it would tnean the judginent of the
seven-Judge Constitution Bench reported in [1990) 1 S.C.C. .109.
. .
......
BIHAR DISTILLERYv. U.O.I. [B.P. JEEV AN REDDY, J.]
693
It is obvious that the words "both potable and" occur here as .a result of A
some accidental or typographical error. The entire preceding discussion in the
judgment repeatedly affirms that so far as potable alcohols are concerned, they
are governed by Entry 8 and are within the exclusive domain of the States.
The aforesaid words cannot fit in with the said repeatedly affirmed reasoning.
We are, therefore, of the opinion that the said passage cannot be understood
a~ holding that even in respect of the industries engaged in the manufacture
or production of potable liquors, the control is vested in the Union by virtue
B
of Item 26 of the First Schedule to the I.D.R. Act. In view of the express
language of Entry 8 - as has been clearly explained in McDowell - so far as
potable liquors are concerned, their manufacture, production, possession,
transport, purchase and sale is within the exclusive domain of the States C
and the Union of India has no say in the matter. For a similar clarification
with respect to the power of the State to levy sales tax on industrial alcohol,
reference may be had to State of Uttar Pradesh v. Synthetics and Chemicals
Limited, [1991) 4 S.C.C. 139.
o~
The several State Governments, to whom notices have been given,
have responded. Some of them have filed very elaborate counters setting
out their case. The first and foremost contention urged on their behalf is
that rectified spirit is "intoxicating liquor" within the meaning of Entry 8 of
List-II. In other words, their contention, based upon the ratio in McDowell,
is that rectified spirit is "intoxicating liquor" within the meaning of Entry 8 E
of List-II and hence, outside the purview of Entry 24 of of List-II, which
in turn means that the Union cannot take over its control by making a
declaration in terms of Entry 52 of List-I and further that Item 26 of the
Schedule to the I.D.R. Act is ineffective and invalid insofar as it seeks to
. regulate the production, manufacture et al of rectified spirit. In support of F
their submission, they have relied upon the legislative history of the several
State enactments in India apart from a wealth of material including technical data. they submit that the decision to the contrary in Synthetics is not
correct and requires reconsideration. They have also assigned several
reasons why the holding in Synthetics insofar as the meaning of "intoxicating
liquor" is concerned should be held to be obiter. They submitted that in the G
interests of maintaining the balance between the Centre and the States and
to preserve the federal nature of our Constitution - which is one of its basic
features - the matter must be referred to a larger Bench to consider the
correctness of Synthetics. They submitted that the relevant words in Entry
51 of List-II and Entry 84 of List-I are "alcoholic liquors for human H
~
\
694
SUPREME COURTR.EPORTS
(1997] 1 S.C.R.
A
consumption" and not "alcoholic liquors fit for human consumption". They
.A
.~
complained with a good amount of emotion that the decision in Synthetics_
reads the word "fit" into the said entries and makes it a basis for curtailing
the legislative power of the States. There is no warrant for such addition,
they submitted. In addition to the above submissions, the following facts
are stated in the affidavit filed on behalf of the State of Uttar Pradesh: the
B
reduction process of converting rectified spirit into country liquor involves
mixing of water and stirring. By adding water, the alcoholic content is
reduced to 35% v/v to make it country liquor. Adding of spices is optional.
-"':""
Rule 45 of the Uttar Pradesh Excise Rules defines the expression "reduction of liquor". According to the definition, it means "tli.e reduction of
c
liquor from a higher to a lower strength by the addition.of water". Mere
mixing of water, it is submitted, makes rectified spirit country liquor. On
this basis too, it is submitted, rectified spirit is really and essentially an
intoxicating liquor and merely because water is required to be added to
make it country liquor, it does not cease to be intoxicating liquor. By way
D
of analogy, it is submitted that even the whiskies and brandies are not
ordinarily consumed as such but only after mixing water or soda, Addition
'-.,,
of water or soda, it is submitted, does not change the character of whisky
or brandy either. It is next submitted that bulk of rectified spirit manufactured in J.Jttar Pradesh is used for the purpose of obtaining country liquor
E
or I.M.F.Ls. Only a small quantity is used for industrial purposes. Having
•
regard to the predominant used to which rectified spirit is put, it is
submitted, it must be understood as intoxicating liquor. The adding of
denaturants is only with a viiew to ensure that the rectified spirit is not used
for potable purposes. Yet another submission put forward by the State of
F
Uttar Pradesh is that even during the course of manufacture of rectified
\..
spirit, potable liquor comes into existence. It is submitted that the main
...
raw material for rectified spirit is molasses. The process of manufacture is
elaborately set out, supported by technical literature. The samples taken
from certain distilleries by the Excise staff and the result of the analysis of
the said samples is also relied upon. It is submitted that the process of
G
manufacture of rectified spirit involves increasing the alcoholic content by
repeatedly processing it. The alcoholic content keeps on rising from stage
to stage. It is submitted that at several intermediary stages, the liquor can
be taken out and used for drinking purposes, whether as it is or after mixing
.,...
water, as the case may be. Sri ·Rakesh Dwivedi, learned Additional Advo-
;-.-~
H
cate General for the State of Uttar Pradesh, placed strong reliance upon
-
BIHAR DISTILLERYv. U.O.I. [B.P. JEEV AN REDDY, J.]
695
the reasoning and conclusions in the judgment of the Allahabad High A
Court in Vam Organic Chemicals Limited v. State of Uttar Pradesh, Writ
Petition (C) No. 16782 of 1990 dated September 9, 1991, which, it is
brought to our notice by written submissions, has since been affirmed by
this Court in Civil Appeal No. 230of1997 decided on January 21, 1997 by
a Bench consisting of the Hon'ble Chief Justice and Sen, J.
B
On the other hand, it is submitted by the learned counsel for the
petitioner and Sri Salve that there are no good and valid reasons for
doubting the correctness of the decision in Synthetics or for referring the
issue to a larger Constitution Bench of nine or more Judges. The acceptance of the States' submission would make Item 26 in the Schedule to the C
I.D .R. Act superfluous and meaningless. The decision in Sy11thetics, Sri
Salve submitted, has correctly drawn the dividing line between the respective spheres of the Union and the States and there is no good reason to
doubt its correctness. Learned counsel took us through the judgment of
Sabyasachi Mukharji, J. at considerable length to emphasise his submission D
-·;,
that what all is urged now was indeed urged before the larger Bench and
considered. The law laid down after an elaborate consideration of submissions made by several parties and several State governments cannot and
need not be reopened, urged Sri Salve.