# STATE OF U.P. AND ANR v. M/S. SYNTHETICS AND CHEMICALS LTD. AND ANR

- **Citation:** [1991] 3 S.C.R. 64
- **Court:** Supreme Court of India
- **Decided:** 1991-07-18
- **Case number:** Civil Misc. W.P. No. 361of1976
- **Bench:** T. Kochu Thommen, R.M. Saha!
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-u-p-and-anr-v-m-s-synthetics-and-chemicals-ltd-and-anr-11119
- **Pages:** 32

## Headnote

Constitution of India, 1950-Article 141-Declaration of LawBinding effect of-Precedent-Principle and purpose of-Supreme
Court decision in ( 1990) 1 SCC 109-Effect and consequences of.
Constitution of India, 1950-Vl/th Schedule, List 11, Entry 54lndustrial alcohol-Whether State can levy tax on sale or purchase
thereof-Ceritral Government controlling price under Ethyl Alcohol
(Price Control) Orders-Effect and consequences of.
Industries (Development and Regulation) Act, 1951-Section
!BG-Ethyl Alcohol (Price Control) Orders-Enactment of by Central
Government-Whether restricts the powers of the State to levy tax on
industrial alcohol-United Provinces Sales of Motor Spirit, Diesel Oil and
Alcohol Taxation Act, 1939-Section 3( 1) as amended by the Uttar
Pradesh Sales of Motor Spirit, Diesel and Alcohol Taxation (Amendment) Act, 1976---Validity of.
The Uttar Pradesh Sales of Motor Spirit, Diesel Oil and Alcohol
Taxation (Amendment) Act, 1976 amended sub-section (I) of section 3
of the United Provinces Sales of Motor Spirit, Diesel Oil and Alcohol
Taxation Act, 1939 purporting to levy purchase tax on industrial
alcohol, which was challenged in a writ application before the High
F
Court by the respondents.
The respondents contended before the High Court that the State
Legislature was incompetent to levy tax with reference to Entry 54 of List
II in respect of industrial alcohol in so far as that article was the subject of
regulation by the Central Government in exercise of its power under
G
section ISG of the Industries (Development and Regulation) Act, 1951;
that the price of that article was regulated by the relevant Price Control
Orders made by the Central Government under the IDR Act and any
levy of sales tax or purchase tax by the State by recourse to Entry 54 of
List II would come into direct conflict with the law made by Parliament
and the control exercised by the Central Government under that law in
H
regard to an industry falling under Entry 52 of List I read with Entry 33
of List III.
64
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STATE OF U.P. v. SYNTHETICS AND CHEMICALS
65
Relying upon the decision of a Constitution Bench of this Court in
Synthetics and Chemicals Ltd. & Others v. State of U.P. & Others,
[1990] 1 sec 109 the respondents further contended that, in so far as
industrial alcohol was concerned, the State was incompetent to levy
sales tax, by reason of the operation of the Ethyl Alcohol (Price Control)
Orders made by the Central Government under section lSG of the !DR
Act.
The appellants-Opposite parties contended that the decisiod of
this Court in (1990) l SCC 109 did not deal with the question of levy of
tax falling under Entry 54 of List II and that the power of the State to
levy taxes on, the sale or purchase of goods was not the subject of
consideration in that decision.
The High Court allowing the writ petition and declaring the U .P.
Act 8 of 1976 to be null and void held that the levy of purchase tax on
industrial alcohol was, during the operation of the Price Control Orders
of the Central Government beyond the legislative competence of the
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State, against which the State filed the present Appeal.
D
The appellant submitted that the reference to sales t~x in the
judgment of this Court in (1990) l SCC 109, which the High Court in
the present case thought was binding upon it, was accidental and per
incurium and did not arise from the judgment; that the levy of sales tax
was not in question at any stage of the arguments, nor was the question
E
considered as it was not in issue; that the Court gave no reason whatever for abruptly stating that sales tax was not leviahle by the State by
reason of the Ethyl Alcohol (Price Control) Orders.
The respondents contended that the prices strictly controlled by
the Central Government in exercise of its power under the IDR Act; F
that the State Law cannot be allowed to disturb such prices; that any
attempt to raise the prices, despite the strict contml exercised by the
Central Government by mea

## Text

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STATE OF U.P. AND ANR.
v.
M/S. SYNTHETICS AND CHEMICALS LTD. AND ANR.
JULY 18, 1991
[T. KOCHU THOMMEN AND R.M. SAHA!, JJ.]
Constitution of India, 1950-Article 141-Declaration of LawBinding effect of-Precedent-Principle and purpose of-Supreme
Court decision in ( 1990) 1 SCC 109-Effect and consequences of.
Constitution of India, 1950-Vl/th Schedule, List 11, Entry 54lndustrial alcohol-Whether State can levy tax on sale or purchase
thereof-Ceritral Government controlling price under Ethyl Alcohol
(Price Control) Orders-Effect and consequences of.
Industries (Development and Regulation) Act, 1951-Section
!BG-Ethyl Alcohol (Price Control) Orders-Enactment of by Central
Government-Whether restricts the powers of the State to levy tax on
industrial alcohol-United Provinces Sales of Motor Spirit, Diesel Oil and
Alcohol Taxation Act, 1939-Section 3( 1) as amended by the Uttar
Pradesh Sales of Motor Spirit, Diesel and Alcohol Taxation (Amendment) Act, 1976---Validity of.
The Uttar Pradesh Sales of Motor Spirit, Diesel Oil and Alcohol
Taxation (Amendment) Act, 1976 amended sub-section (I) of section 3
of the United Provinces Sales of Motor Spirit, Diesel Oil and Alcohol
Taxation Act, 1939 purporting to levy purchase tax on industrial
alcohol, which was challenged in a writ application before the High
F
Court by the respondents.
The respondents contended before the High Court that the State
Legislature was incompetent to levy tax with reference to Entry 54 of List
II in respect of industrial alcohol in so far as that article was the subject of
regulation by the Central Government in exercise of its power under
G
section ISG of the Industries (Development and Regulation) Act, 1951;
that the price of that article was regulated by the relevant Price Control
Orders made by the Central Government under the IDR Act and any
levy of sales tax or purchase tax by the State by recourse to Entry 54 of
List II would come into direct conflict with the law made by Parliament
and the control exercised by the Central Government under that law in
H
regard to an industry falling under Entry 52 of List I read with Entry 33
of List III.
64
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STATE OF U.P. v. SYNTHETICS AND CHEMICALS
65
Relying upon the decision of a Constitution Bench of this Court in
Synthetics and Chemicals Ltd. & Others v. State of U.P. & Others,
[1990] 1 sec 109 the respondents further contended that, in so far as
industrial alcohol was concerned, the State was incompetent to levy
sales tax, by reason of the operation of the Ethyl Alcohol (Price Control)
Orders made by the Central Government under section lSG of the !DR
Act.
The appellants-Opposite parties contended that the decisiod of
this Court in (1990) l SCC 109 did not deal with the question of levy of
tax falling under Entry 54 of List II and that the power of the State to
levy taxes on, the sale or purchase of goods was not the subject of
consideration in that decision.
The High Court allowing the writ petition and declaring the U .P.
Act 8 of 1976 to be null and void held that the levy of purchase tax on
industrial alcohol was, during the operation of the Price Control Orders
of the Central Government beyond the legislative competence of the
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State, against which the State filed the present Appeal.
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The appellant submitted that the reference to sales t~x in the
judgment of this Court in (1990) l SCC 109, which the High Court in
the present case thought was binding upon it, was accidental and per
incurium and did not arise from the judgment; that the levy of sales tax
was not in question at any stage of the arguments, nor was the question
E
considered as it was not in issue; that the Court gave no reason whatever for abruptly stating that sales tax was not leviahle by the State by
reason of the Ethyl Alcohol (Price Control) Orders.
The respondents contended that the prices strictly controlled by
the Central Government in exercise of its power under the IDR Act; F
that the State Law cannot be allowed to disturb such prices; that any
attempt to raise the prices, despite the strict contml exercised by the
Central Government by means of statutory orders, was an invalid exercise of power.
On the question, whether or notthe power of the State to levy tax G
on the sale or purchase of goods falling under Entry 54 of List II will
comprehend industrial alcohol, allowing the appeal of the State, this
Court,
HELD: Per T. Kochu Thommen & R.M. Sahai, JJ.
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66
SUPREME CQlJB.T REPORTS
[1991] 3 S.C.R.
1.01. The High Court was clearly in error in striking down the
impugned provision in sub-section (l) of section 3 of the United Provinces Sales of Motor Spirit, Diesel Oil and Alcohol Taxation Act, 1939
as amended by the U.P. Act 8 of 1976, undoubtedly falls within the
legislative competence of the State being referrable to Entry 54 of List
II. [91A)
l.02. The decision of this Court in Synthetics (1990) l SCC 109 is
not an authority for the proposition canv~ssed by .the assessee. This
Court has not, and could not have, intended to say lhat the Price Control Orders made by the Central Government under the !DR Act
imposed a fetter on the legislative power of the State under Entry 54 of
List II to levy taxes on the sale or purchase of goods. The reference to
sales tax in paragraph 86 of that judgment was merely accidental or per
incuriam and has therefore, no effect on the impugned levy. So far as
industrial alcohol was concerned, the State was incompetent to levy
sales tax by reason of the operation of the Ethyl Alcohol (Price Control)
Orders made by the Central Government in exercise of its power under
section l8G of the !DR Act. [91A-C, 73E-F]
Per T. Kochu Thommen, J.
2.01. This Court in Synthetics & Chemicals Ltd. & Others v.
State of U.P. & Others, [1990] l SCC 109 was concerned with only one
E
question, and that was whether the States could levy excise duty or vend
fee or transport fee and the like by recourse to Entries 51 or 8 in List II
in respect of industrial alcohol and it did not deal with the taxing power
of the State under 54 of List II, although there is a reference to sales
tax. "The State may charge excise duty on potable alcohol and sales tax
under Entry 52 of List II". Entry 52 of List II is mentioned in connection
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with Excise duty and sales tax, but neither of them falls under Entry 52.
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Reference to Entry 51 of List II ought to have been made, if it was excise
duty that the Court had in mind. Entry 54 of List II would have been
referred to, and not Entry 52, if the Court had in mind sales tax. On the
other hand, Entry 52 had any application to the fees or charges in
question. [80B-F]
The abrupt observation of this Court in (1990) l SCC 109 was
without a preceding discussion, and inconsistent with the reasoning
adopted by thjs Court in earlier decisions from which no dissent was
expressed on the point. [SOG-H]
H
2.02. The question .in the instant case is whether or not the
STATE OF U. P. v. SYNTHETICS AND CHEMICALS
67
impugned legislation falls in pith and substance within Entry 54 of List
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II, and not whether the industry (Producing goods the sale of which is
leviable to tax under the impugned legislation) is controlled within the
ambit of Entry 52ofListlwasnotconsidered w (1990) 1SCC109. [87H-88B]
Synthetics and Chemicals Ltd. & Others v. State of U.P. 1 &
B
Others, [1990] I SCC 109, Distinguished.
State of Uttar Prades~ & Others v. M/s. Synthetics & Chemcials
Ltd. & Others, [1980] 2 SCC 441, overruled in (1990) I SCC 109,
Referred to.
Per R.M. Sahai, J. (Concurring)
2.03. A decision which is not express and is not founded on
reasons nor it proceeds on consideration of issue cannot be deemed to be
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a law declared to have a binding effect as is contemplated lly Article
141. Uniformity and consistency are core of judicial discipline. But that 0
which escapes in the judgment without any occasion is not ratio
decedendi. [93B-C]
2.04. Any declaration or conclusion arrived without application
of mind or preceded without any reason cannot be deemed to be declaration of law or authority of a general nature binding as a precedent. E
Restraint in dissenting or overruling is for sake of stability and
uniformity !Jut rigidity beyond reasonable limits is inimical to the
growth oflaw. [930-E]
2.05. Law declared is not that can be culled out but that which is
>
stated as law to be accepted and applied. A conclusion without refeF
rence to relevant provision of law is weaker t:ban even casual
observation. [93E-F]
2.06. In absence of any discussion or any argument the order was
founded on a mistake of fact, and, therefore, it could not be held to be
law declared. [94B-C]
2.07. The conclusion of law by the Constitution Bench in (1990) 1
,• tSCC 109 that no sales or purchase tax Could be levied on industrial
alcohol with utmost respect fell in both the exceptions, namely, rule of
sub-silentio. and being ill per incurii;m. to the binding authority of the
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pre.cedents. [94C-D]
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SUPREME COURT REPORTS
[ 1991] 3 S.C.R.
Young v. Bistol Aeroplane Ltd .. [1944] I KB 718; Jaisri Sahu v.
Rajdewan Dubey, [fl.162] 2 SCR 558; Lancaster Mo'tor Company
(London) Ltd. v. Bremith Ltd., [1941] IKB 675; Municipal Corporation ofDe/hi v. Gurrram Kaur, [i989] 1 SCC 101 and Shama Rao v.
State of Pondicherry, AIR 1967 SC 1680, Referred to.
Per T. Kochu Thommen. J.
3.0 I. The power of regulation and control is separate and distinct
from the power of taxation. Legislative exercise o.f regulation or contnil
referrable to Entry 52 of List I or Entry 8 of List II is distinct and
different from a taxing power attributable to Entry 54 of List II or Entry
92A or 92B of List I. The power to levy taxes on sale or purchase or
consignment is referrable to these Entries, and subject to the other
provisions of the Constitution, the taxing power of the State is not cut
down by the general legislative control vested in Parliament and referrable to the general topics of legislation. [86G-87H]
D
3.02. Any exercise of power by the State which transgresses upon
the power of Parliament or of the Central Govenment, as its delegate, is
to the extent of such transgression null and void. [SSC]
3.03. None of the entries in the Concurrent List deals with tax but
general subjects of legislation. No conflict can, therefore, arise between
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the taxing powers of the Union and the States. Parliament has the power
to legislate in respect of a 'controlled' industry falling under Entry 52 of
List I, and both Parliament and the States have the power to legislate in
respect of the trade and commer.ce in, and the production, supply and
distribution of, the products of a 'controlled' industry (Entry 33 of List
III). These are not taxing entries and do not, therefore, relate to taxes,
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but powers of regulation and 'Control. The power to control industry
being thus vested in Parliament (Entry 52 of List I) and the legislative
power in respect of trade and commerce in such industry being concurrently vested in the Union and the States (Entry 33 of List III) any
exercise of control by the State must be subject to the legislative power
of Parliam.ent. [84H-8SC]
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3.04. The taxing pow.er of the State on a matter falling within its
competence.under Entry 54 of List II, namely, sale or purchase of goods
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(other than newspapers) is, subject to the taxing power of Parliament
under Entry 92A of List I and other provisions of the Constitution,
plenary and unlimited, and untrammelled by the supervisory or
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regulatorv power of Parliament under Entry 52 of List I read with its
STATE OF U.P. v . .SYNTHETICS AND CHEMICALS
69
concurrent power under Entry 33 of List ill. This js the crucial distinction between the wide taxing power of the State under Entry 54 of List II
and its conditional or restricted taxing power, for e:<ample, over
mineral rights mentioned in Entry 50 of that List. [ 82E-G I
A
3.05. Similarly, the power of the State in respect of potable
alcohol (as distinguished from industrial alcohol) falling under Entry 8 B
of List II is significantly unfettered, unlike, for example; mines and
mineral development over which the regufatory power of the State .is
specifically stated. to be subject to the regulatory power of Parliament
(see Entry 23 of List II read with Entry 54 of List I). The legislative
competence of the State in respect of mines and minerals was held to be
denuded to the extent that the field was covered by section 9 of the C
Central Act, namely, Mines and Minerals (Regulations and Development Act), 1957. [82G-83A)
3.06. Unlike mines and minerals, alcohol stands on a different
footing, and is dealt with differently, dependent on whether it is potable
or not. What is significant is that legislation falling in pith and subsD
tance under Entry 8 or Entry SI of List II in relation to alcohoiic liquor
for human consumption (as distinguished from industrial alcohol)
whether for the purpose of levying vend fee or transport fee or excise
duty, strictly confined to such articles, is not subject to challenge on the
ground of legislative incompetence or repugnancy by reason of the
power vested in Parliament under Entry 52 or Entry 84 of List I or
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Entry 33 of List III. Incompetence or repugnancy arises only when
the impact of the legislation falls, not incidentally, but substantially
on industrial alcohol so as to transgress on a field occupied by
Parliament. [83A-C)
3.07. The matters concerning intoxicating liquors are included
F
within the legislative competence of the States. In respect of any such
matter, the States are competent to levy fees (Entry 66 of List II). Entry
51 of List II relating to excise duty on alcoholic liquors for human
consumption clearly refers to liquor for human consumption, the same
meaning ha~ been judicially ascribed in (1990) l sec 109 to 'intoxicating liquors' in Entry 8 of the same List, the legislative competence of the
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State in respect of 'intoxicating liquors' referred to in Entries 8 and 66
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of List II as a subject of legislation and fee respectively and the power of
the State to levy excise duty on "alcoholic liquors for human consumption" falling under- Entry 51 of the same List must necessarily l>e confined to potable alcohol, and cannot include industrial alcohol or medicinal and toilet preparations containing alcohol (see Entry 84 of List I).
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70
SUPREME COURT REPORTS
[1991] 3 S.C.R.
A
Any transgression by the _State on industrial alcohol will be invalid for
want of power by reason of the limitation of Entries 8 and SI of List II
(being confined to potable alcohol) and consequent transgression on
areas covered by Entries S2 and 84 of List I respectively relating to
declared industry and excise duty on industrial alcohol and medicinal
.,...
and toilet preparations containing alcohol, and also for repugnancy
B
arising from a clash with the centrally occupied field falling under
Entry 33 of List III. [SSE, 8SH-86D]
3.08. The power to tax under Entry S4 of List II being a specific
power, it cannot be cut down or in any manner fettered by the general
power of control exercised by Parliament, by legislation on a matter
).-
c falling under Entry S2 of List I relating to an industry, the control of
which by the Union is declared by Parliament by law to be expedient in
the public interest, read with Entry 33 of List III dealing with trade and
commerce in, and the production, supply abd distribution of the products of any snch controlled industry, and imported goods of the same
kind as such products, and other articles mentioned in Entry 33. [89F-H)
D
3.09. The impugned provision of the Uttar Pradesh Sales of
Motor Spirit, Diesel Oil and Alcohol Taxation (Amendment) Act, 1976
'
levying tax at the point of first purchase of alcohol in the State is
undoubtedly an impost falling in pith and substance under Entry S4 of
List II. In the absence of any fetter on the legislative power and in the
E absence of any valid challenge against the provision as a colourable
piece of legislation, the impugned legislative enactment remains
unimpeachable. [89H-90B]
3.10. The control exercised by the Central Government by virtue
of secttion ISG of the IDR Act is in a field far removed from the taxing
"
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power of the State under Entry S4 of List ll. So long as the impugned
legislation falls in pith and substance within the taxing field of the State,
the control of the Central Government in exercise of its power under the
IDR Act in respect of a controlled industry falling under Entry 52 of List
I cannot in any manner prevent the State from imposing taxes on the
sale or purchase of goods which are the products of such industry and
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which are referrable to Entry 33 of List III. The taxing power of the
State under Entry S4 of List II cannot be cut down by the general
legislative power of control of the Centre. [90B-D I
.. '
. 3.11. The levy of fee, whether called vend fee or transport fee or
duty or charge, whether levied by Rules purportedly made under the
l:I
Excise Act or the Prohibition Act or any other statute, otherwise than as
STATE OF U.P. '· SYNTHETICS AND CHEMICALS
7J
a proper levy falling in pith and substance under a taxing Entry, was
not valid, to the extent that it lacked quid pro quo and applied to
industrial alcohol. Any such fee or charge can he justified as a mode of
control falling in pith and substance under Entry 8 read with Entry 66
of List II only to the extent tha! it remains within the bounds of the
concerned subject matter, namely, 'intoxicating liquors', which must
necessarily exclnde industrial alcohol. [90D-F]
3.12. Taxes on sale or purchase are not governed, by the Price
Control Orders, made under the IDR Act, the purpose of which is to
prevent the seller from pricing his goods beyond the limit prescribed by
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the Orders. That is a fetter on the free play of demand and supply.
When supply is scarce, the prices are bound to rise and it is that vice
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which is controlled by fixing the maximum price. But that does not in
any manner curtail the power of the State to levy taxes on the sale or
·purchase of goods. It is no doubt true that the consumer of the article
must, hi addition to the price, pay purchase tax due in respect of them.
But that is by reason of a valid levy which is within the constitutional
power of every State, and is dehors the price, though often referrable to D
it. [90F-H]
State of Bombay & Anr. v. F.N. Balsara, [1951] SCR 682; India
Cement Ltd. & Ors. v. State of Tamil Nadu & Ors., [1990] 1 SCC 12;
M.P. V. Sundararamier & Co. v. The State of Andhra Pradesh & Anr.,I
[1958] SCR 1422 at 1479; M/s. R.M.D.C. (Mysore) Private Limited v.
E
The State of Mysore, [ 1962] 3 SCR 230; Ganga Sugar Corporation Ltd.
v. State of Uttar Pradesh & Others, [1980] 1 SCC 223: [1980] 1 SCR
769; Ch. Tika Ramji & Others etc. v. The State of Uttar Pradesh &
Ors., [1956] SCR 393; Kannan Devan Hills Produce Company Ltd. v.
The State of Kera/a & Another, [1973] 1 SCR 356 and Hoechst
Pharmaceuticals Ltd. & Anr. v. The State of Bihar & Others., [1983] 3
F
SCR 130: AIR 1983 S.C. 1019, referred to.
Per.R. M. Sahai, J. (Concurring)
3.l3 .. P!Jwer to tax is a sovereign power. In federal system of
governance it is exercised by distribution of power between the Union
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and the Siate.·.Both.are supreme in their sphere. That is brought out
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clearly by Article 246(1) and Article 246(3) of the Constitution. The
legislative field for levying tax by Union is set out in Entries 82 to 92 in
List I and·State in Entries 45 to 63 in List llofthe Vllth Schedule. There
.is no overlapping. Fields are clearly demarcated. Limitations and restrictions are also mentioned. Unlike general entries power to levy tax
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SUPREME COURT REPORTS
[ 1991] 3 S.C.R.
cannot be deducted from another Entry as anciUary exercise of power.
Since the Concurrent List does not contain any Entry relating to taxing'
power the concept of occupied field or repugnancy cannot arise. If there
is clash between exercise of power under List II and List I then the State
legislation may be invalid due to Article 246(1) But since there can be no·
clash or invalidity in relation to taxing power the question of invalidity
cannot arise. ]94G-95C]
3.14. Price fixation of ethyl alcohol is an exercise of power for
regulating distribution and supply of the general entry for regulating
distribution and supply is different from exercise of taxing power. The two
do not even remot~ly touch each other. Therefore if the price goes up in
exercise of taxing power the subject to its being arbitrary or confiscatory it could not be struck down as intruding in forbidden field. [95C-D I
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2722
(NT) of 1991.
D
From the Judgment and Order dated 12. 7 .1990 of the Allahabad
High Court in Civil Misc. W.P. No. 361of1976.
Umesh Chandra, Rakesh Srivastava, A.K. Srivastava and K.D.
Misra for the Appellants.
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M.H. Baig, P.S. Shroff, R. Sasiprabhu, S.S. Shroff, Suresh
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A. Shroff and Rajan Mahapatra for the Respondents.
The Judgment of the Court was delivered by
THOMMEN, J. Leave granted.
This appeal is brought by the State of Uttar Pradesh against the
judgment of the Allahabad High Court in Civil Miscellaneous Writ
Petition No. 361 of 1976. The High Court, allowing the writ petition,
declared the Uttar Pradesh Sales of Motor Spirit, Diesel Oil and
Alcohol Taxation {Amendment) Act, 1976 (Act No. 8 of 1976) to be
G
null and' void in so far as it purported to levy purchase tax on industrial
alcohol. By this Act, sub-section ( 1) of section 3 of the United Provinces Sales of Motor Spirit, Diesel Oil and Alcohol Taxation Act,
1939 was amended, so as to substitute the following clause:
"3( 1) There shall be levied with effect from May 2, 1914·
H
(a) ............................. '·' ., ..... •·•'•' ....... .
.
.
---;
STATE OF U.P. v. SYNTHETICS AND CHEMICALS [THOMMEN, J.J
73
(b) at the point of first purchase of alcohol in.the State,. a A
tax at the rate of 40 paise per litre for the first million litres
and at the rate of 20 paise per litre for the remainder,
payable by the Pt1rchaser, and which shall be collected and
paid in the prescribed manner to the State Government.
"
This levy was sought to be_ justified by the state, when challenged in
the writ proceeding, as a valid exercise of its legislative power on a
matter falling under Entry 54 of List II of the Seventh Schedule of the
Constitution. The writ petitioners, challenging the levy, contended
that the State Legislature was incompetent to levy tax with reference
to Entry 54 of List II in respect of industrial alcohol in so far as that C
article was the subject of regulation by the Central Government in
exercise of its power under section lSG of the Industries (Development and Regulation) Act, 1951 (Act No. 65 of 1951) (hereinafter
referred to as 'the IDR Act') and that the price of that article was
regulated by the relevant Price Control Orders made by the Central
Government under the said Act. Any levy of sales tax or purchase tax D
by the State by recourse to El)try 54 of List II, it was contended, would
come into direct conflict witti the law made by Parliament and the
control exercised by the Central Government under that law in regard
to an industry falling under Entry 52 of List I read with Entry 33 of List
Ill. The writ petitioners, relying upon the decision of a Constitution
Bench of this Court in Synthetics and Chemicals Ltd. & Others v. State
E
of U.P. & Others, [1990] 1 SCC 109, contended before the High Court
that, in so far as industrial alcohol was concerned, the State was
incompetent to levy sales tax by reason of the operation of the Ethyl
Alcohol (Price Control) Orders made by the Central Government in
exercise of its power under section lSG of the !DR Act.
The State contended before the High Court that the aforesaid
decision of this Court did not deal with any levy of ta)f falling under
Entry 54 of List II. The power of the State to levy taxes on the sale or
purchase of goods was not the subject of consideration in that decision. What was considered was the power of the State to collect vend
fee or transport fee or the like by recourse to Entry 8 or 51 of List II G
with reference to the production, manufacture, possession, transport,
purchase and sale of industrial alcohol during the operation of the !DR
Act and the rules made thereunder.
The High Court accepted the contention of the writ petitioners
and held that the impugned purchase tax, if allow_ed to be levied on
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SUPREME COURT REPORTS
[1991] 3 S.C.R.
industrial alcohol, wquld have the effect of raising its price beyond the
limit prescribed under the Price Control Orders made by the Central
Government in relation to industrial alcohol in exercise of its power
under the IDR Act. The High Court accordingly declared that the
impugned levy of purchase tax on industrial alcohol was, during the
operation of the Price Control Orders of the Central Government,
beyond the legislative competence of the State.
In Synthetics, [1990] 1 SCC 109 this Court held that vend fee,
transport fee and the like levied by Uttar Pradesh, Maharashtra and
certain other States by recourse to Entry 8 or Entry 51 of List II wer.e
null and void in so far as such impost came into direct conflict with the
exercise of power by the Centre for the control of supply, distribution,
price, etc. of industrial alcohol under section 18G of the !DR Act and
the rules or orders made thereunder. That case was apparently not
concerned with the exercise of legis!ative power with reference to
Entry 54 of List II which reads:
"Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A of List I".
Significantly, this Entry shows that, subject to Entry 92A of List I,
taxes on the sale or purchase of goods (other than newspapers) taking
place within the State are the exclusive preserve of the State. The only
restriction on this legislative power is what is stated in Article 286.
Nevertheless, in the concluding portion of the judgment, Sabyasachi
Mukharji, J. (as he then was) stated:
"The position with regard to the control of alcohol industry
has undergone material and significant change after the
amendment of 1956 fo'~he !DR Act. After the amendment,
the State is left with only the following powers to legislate
in respect of alcohol: (a) It may pass any legislation in the
nature of prohibition of potable liquor referable to Entry 6
of List II and regulating powers. (b) It may lay down regulations to ensure that non-potable alcohol is not diverted
and misused as a substitute for potable alcohol. (c) The
State may charge excise duty on potable alcohol and sales
tax under Entry 52 of List II. However, sales tax cannot be
charged on industrial alcohol in the present case, because
under the Ethyl Alcohol (Price Control) Orders, sales tax
cannot be charged by the State on industrial alcohol.
(d) However, in· case State is rendering any service, as
. ...,
STATE OF U.P. v. SYNTHETICS AND CHEMICALS [THOMMEN, J.)
75
distinct from its.claim of so-called. grant of privilege, it may
.
A
charge fees based on quid pro quo." ( 1990) lSCC 109, 158
(emphasis supplied)
So· stating, the earlier decision of this Coutt in State of Uttar
Pradesh & Others v. M/s. Synthetics & Chernicals Ltd. & Others,.
I 1980] 2 sec 441 so far as it related to industrial alcohol, was over13
ruled, but only prospectively, so as not to affect collecti6n uf taxes
already .made, Whiie invalidating the fees levied under various enactments challenged in Synthetics, ( 1990) 1 SCC 109 (including the trans-.
pDrt fe:e levied under the Bombay Prohibition Act, 1949 and the vend
fee· levied by the State of Uttar Pradesh in respect of industrial
alcohol) t6 the extent 'that such levies were unsupported by quid pro C
quo, this Court also held, as seen above, that sales tax could not be
charged on industrial alcohol because of the Ethyl Alcohol (Price Control) Orders.
Vend fee or transport fee was collected by various States purportedly in exercise of the power referrable to Entry 8 of List II. The O
fee was at times sought to be levied under the Excise Rules made
under the Excise Act and extended to potable alcohol and industrial
alcohol alike. Though the fee was collected supposedly in return for
service rendered, it was more often than not the price of licence to deal
in what is otherwise the exclusive privilege of the State.
No citizen has a fundamental right to deal in intoxicating liquors
and it is the right of the State to control production, manufacture, sale.
etc. of such liquors with a view to even prohibiting the trade. 1he term
'intoxicating liquors' was so widely interpreted in decisions like Synthetics (1980) 2 SCC 441 that,State interference by way of controlalbeit as vend fee or transport fee--of trade in non-potable alcohol was
F
challenged as a transgression on the area reserved for Parliament in
respect of a controlled industry (see Entry 52 List I) and as repugnant
to the control exercised by the Centre as regards the products of such a
controlled industry (see Entry 33 List III). The challenge was specially
on the ground that the levy of fees could not be justified except within
the bounds of Entry 8 of List II which is a subject of legislation limited G
to potable alcohol, but not a taxing Entry, and·of Entry 51 of List II
whjch relates to duties of excise on alcoholic liquors for human consumption, but excluding medicinal and toilet preparations containing
alcohol. The contention was that no fee or duty could be levied by the
States in respect of industrial alcohol. This contention was accepted by
this Court in Synthetics ( 1990) I SCC 109 as correct provided the levy
H
76
SUPREME COURT REPORTS
[1991] 3 S.C.R.
A
of fees in respect of industrial alcohol was unsupported by quid pro
quo. In other words, although Entry 66 of List II justified collection of
fees in respect of matters falling in that List, levy of an·y such fee, by
"f'-
reason of the limitation of the entries in that List concerning alcohol,
had to be confined to potable liquor and could not be extended to
industrial alcohol unless there was quid pro quo. This was the rationale
B
of the challenge in Synthetics ( 1990) 1 SCC 109 and the crux of the ratio
decidendi of that decision. It was never contended by the States that the
vend fee was a tax referrable to Entry 54 of List II or the transport fee
imposed by the Prohibition Act and the Rules was a levy under Entry
56 of List II. The Bombay Rectified Spirit (Transport in Bond) Second
).-
Amendment Rules, 1981 (made under the Bombay Prohibition Act,
c
1949) was challenged precisely for the reason that it was an invalid
collection of fee amounting to an impermissible interference with the
Central control of industrial alcohol. This Court; as seen above,
upheld the challenge in so far as industrial alcohol was concerned,
unless there was quid pro quo.
D
The Advocate General, appearing for the appellant-State of
U.P. (respondent in the High Court), submits that the reference to
J
sales tax in the judgment of this Court in Synthetics ( 1990) 1 SCC 109
which the High Omrt in the present case thought was binding upon it,
was accidental and did not arise from the judgment. The levy of sales
tax was not in question at any stage of the arguments. Nor was the
E
question considered as it was not in issue. The Court gave no reason
whatever for abruptly stating that sales tax was not leviable by the
State by reason of the Ethyl Alcohol (Price Control) Orders. The
question which arose for consideration was in regard to the validity of
vend fee and other fees charged by the States. The argument was that
f
such impost, to the extent that it fell on industrial alcohol, encroached
F
upon the legislative field reserved for Parliament in respect of a controlled industry coming under Entry 52 of List I (read with Entry 33 of
List III). Vend fee or transport fee and similar fees, unless supported
by quid pro quo, this Court held, interfered with the control exercised
by. the Central Government under the !DR Act, 1951 and the various
'
orders made thereunder with respect to prices, licences, permits, diso
G
tribution, transport, disposal, acquisition, possession, u~e. consump-
.,
.f
tion, etc., of articles related to a controlled industry, industrial alcohol
being one of them. But none of the observations in the judgment
warranted the abrupt conclusion, to which the Court came, that the
power to levy taxes on sale or purchase of goods referrable to Entry.54
of List II was curtailed by the control exercised by the Central GovernH ment under the !DR Act. The casual reference to sales tax in the
STATE OF U.P. v. SYNTHETICS AND CHEMICALS [THOMMEN, l.I
77
concluding portion of the judgment, the Advocate General points out. A
was accidental and per incurium.
Counsel for the respondents-writ petitioners, however, submits
_,,
that the prices are strictly controlled by the Central Government in
exercise of its power undeF the IDR Act. The State law cannot be
allowed io disturb such prices. Any attempt to raise the prices, despite B
the strict control exercise9 by the Central Government by means of
statutory orders, is an invalid exercise of power. Levy of sales or
purchase tax affects the price, for the incidents of tax fall on the
customer. The customer will have to pay the amount of tax levied at
the point of first purchase which would be in addition to the price
determined by the Central Government under the Price Control c
Orders. This is a transgression on the legislative control exercised by
Parliament and by the Central Government acting as its delegate.
The Government of U.P. charged fee under the U.P. Excise Act,
1910 (as amended in 1972 and 1976); the Government of Maharashtra
charged transport fee under the Bombay Rectified Spirit (Transport in D
Bond) Rules, 1951 made under the Bombay Prohibition Act, 1949,
'
and the Andhra Pradesh Government extended the Excise Act, 1968
and the Distillery Rules, 1970 and the Rectified Spirit Rules, 1971 to
all alcohol plants. The applicability of these Acts and the Rules, so far
as industrial alcohol was concerned, was challenged in Synthetics
( 1990) 1 sec 109 principally on the ground that the legislative power E
of the. State to levy excise duty under Entry 51 of List II did not extend
to industrial alcohol; and, in respect of that article no fee in the nature
of a regulation or control or licence could be charged by reference to
Entry 51 or 8 of List II which had no application to industrial alcohol,
and also by reason of the control exercised by Parliament and the
Central Government under the IDR Act, 1951 which is a law reF
ferrable to Entry 52 of List I and Entry 33 of List III. Dealing with that
contention, this Court states:
"The main question that falls for consideration in these
matters is whether the vend fee in respect of the industrial
alcohol under different legislations and rules in different
G
>
States is valid. The question is-is the vend fee an impost
...
leviable or extractable by the States under different Acts
......... The questions with which we are mainly concerned are the following:
(i) whether the power to levy excise duty in case of indust' fl
A
B
c
78
SUPREME COURT REPORTS
[19911 3 S.C.R.
rial alcohol was with the State legislature or the Central
legislature?
(ii) what is the scope and ambit of Entry 8 Lis( ll of the
Seventh Schedule of the Constitution'!
~
(iii) whether, the State Government has exclusive right or
privilege of manufacturing, selling, distributing, etc. of
alcohols including.industrial alcohol ..... , ... ". (Para 2).
This Court further says-
" ....... In these matters, this Court is concerned with the
taxing power of the States to impose and levy excise duty on
industrial alcohol and/or imposts as vend fees ....... ".
(Para4).
After elaborately discussing the increasing use of industrial
o
alcohol, as distinct from potable alcohol, this Court says:.
E
"The only question which h;is to be determined is whether
intoxicating liquor in Entry 8 in List II is confined to potable
liquor or includes all liquors ...... ". (Para 41).
(emphasis supplied)
Answering that question, which is characterised as the orily question.
this Court categorically states that intoxicating liquor within the mear: ·
ing of Entry 8 of List II is confined to potable liquor and does not
include industrial liquor.
F
Referring to the Constitutional obligations of the State, this
Court says:
G
H
"Article 47 of the Constitution imposes upon the State the
duty to endeavour to bring about prohibition of the consumption except for medicinal purpose of intoxicating
drinks and products which are injurious to health .... : .
Does Article 47 oblige the State to prohibit even such
industries as are licensed under the IDR Act but which
manufacture industrial alcohol ...... ? (Para 77).
In that view of the matter, it appears to us that the relevant
provisions of the U.P. Act, A.P. Act, Tamil Nadu Act,
\\
. -
l
STAIB OF U.P. v. SYNTHETICS AND CHEMICALS [THOMMEN, J.) /79 - ---......-.. ....
.
Bombay Prohibition Act, as mentioned hereinbefore; are
unconstitutional insofar as these pul-port to levy a taX or A
charge imposts upon industrial alcohol, namely, alcohol
_,,
used and usable for industrial purposes ...... (Para 82).
'
Furthermore, in view of the occupation of the field by the
IDR Act, it was not possible to levy this impost. (Para 84) ..
B
After the 1956 amendment to the IDR Act bringing alcohol
industries (under fermentation industries) as Item 26 of the
First Schedule to IDR Act, the control of this industry has
...
vested exclusively in the Union. Thereafter, licences to ·
manufacture both potable and non-potable· alcohol is c
vested in the Central Government. Distilleries are mitnufacturing 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. The State
cannot itself manufacture industrial alcohol without the
permission of the Central Govenment. The States cannot
D
claim to pass a right which they do not possess. Nor can the
\.
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
amenable to .States' claim of exclusive possession of priE
vilege. The State can neither rely on Entry 8 of List II nor
Entry 33 of List III as a basis for such a claim. The State
cannot calim that under Entry 33 of List III, it can regulate
)'
industrial alcohol as a product of the scheduled industry;
because the Union, under Section 18-0 of the IDR Act,
has evinced clear intention to occupy the whole field. Even
otherwise sections like Sections 24A and 24B of the U .P.
F
Act do not constitute any. regulation in respect of the
industrial alcohol as product of the scheduled industry. On
the contrary, these purport to deal with the so-called transfer· of privilege regarding manufacturing and sale. This
power, admittedly, has been exercised by the State purG
..
y
porting to act under Entry 8 of List II and not under Entry
33 of List III". (Para 85).
Summing up in paragraph 86 of the judgment, this Court stated what
we have already set out above .• However, for continuity, we will repeat
clause (c) of that paragraph:
H
_ _,
c
D
. ·suPREME COURT REPORTS
[1991] 3 S.C.R .
"(c) The State may charge excise duty on potable alcohql
and sales tax under Entry 52 of List II. However, sales ta.it
cannot be charged on industrial alcohol in the present case,
because under the-Etl:iyl Alcohol (Price Control).Orders, ·
sales iax cannot be charged. by the Sfate on .:fodustiial .
falcohol"
- ·
.
.
' .
.
.
We have extensively quoted from the judgment of the Constituiion Bench in Synthetics & ChemiCals Lid_. & Others v.