State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

Digital Supreme Court Reports

to ‘intoxicating liquor’. However, it must be noted that the provision deals with both ‘alcoholic liquor’ and ‘intoxicating drugs’.

90Copy pinpoint90. The approach adopted in the 1935 Act differed from the 1919 Act. Entry 45 of List I of the Seventh Schedule to the 1935 Act stipulated the federal domain over duties of excise. It is reproduced below: “45. Duties of excise on tobacco and other goods manufactured or produced in India except — (a) alcoholic liquor for human consumption; (b) opium, Indian hand and other narcotic drugs and narcotics; non-narcotic drugs; (c) medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.”

91Copy pinpoint91. Alcoholic liquor for human consumption was among the three categories which was excluded from the ambit of legislative competence of the Federal legislature. Entries 31 and 40 of List II of the Seventh Schedule to the 1935 Act stipulated the Provincial legislative domain over intoxicating liquors and narcotics, and duties of excise respectively. They are reproduced below: “31. Intoxicating liquors and narcotic drugs, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors, opium and other narcotic drugs, but subject, as respects opium, to the provisions of List I and, as respects poisons and dangerous drugs, to the provisions of List III. …

40. Duties of excise on the following goods manufactured or produced in the Province 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; non-narcotic drugs; (c) medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.” (emphasis supplied)

p. 2017 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

92Copy pinpoint92. The three categories which were excluded from duties of excise on goods produced or manufactured in India (in Entry 45 of List I) were incorporated in Entry 40 of List II. Thus, duties of excise on alcoholic liquors for human consumption was a subject assigned to the Provinces. The following changes on the legislative scope on ‘alcoholic liquors’ were introduced in the 1935 Act: a. Taxation and regulation were placed in separate entries. Entry 40 of List II concerned duties of excise, inter alia, on ‘alcoholic liquors for human consumption.’ On the other hand, Entry 31 of List II covered the regulation of ‘intoxicating liquors’ and other substances; b. The Federal legislature could levy duties of excise on tobacco and other goods manufactured in India but not on alcoholic liquor for human consumption, medicinal and toilet preparations containing alcohol, and other specified goods; c. The Provincial legislatures could levy duties of excise on alcoholic liquor for human consumption, medicinal and toilet preparations containing alcohol, and other specified goods produced in the province; and d. Entry 31 of List II was a regulatory entry covering intoxicating liquors and narcotic drugs and the production, manufacture, possession, transport, purchase and sale of intoxicating liquors, opium and other narcotic drugs. Hence, the regulatory power in relation to intoxicating liquor lay with the Provincial legislatures and not the Federal legislature. Where Entry 16 of the Provincial List of the Devolution Rules as well as Entries 45 of List I and 40 of List II of the Seventh Schedule to the 1935 Act used the term ‘alcoholic liquors’, Entry 31 of List II used the expression ‘intoxicating liquors’. This term was first used in the 1935 Act.

93Copy pinpoint93. The Seventh Schedule to the Constitution also placed the regulatory powers and the taxing powers relating to alcohol in separate entries. Entry 8 of List II of the Seventh Schedule to the Constitution deals with ‘intoxicating liquors’. Entry 8 of List II of the Seventh Schedule to the Constitution varies from Entry 31 of List II of the 1935 Act in a significant manner. Entry 8 only deals with ‘intoxicating liquor’. It does not cover narcotic drugs and opium. Entry 31 conferred the Provincial Legislature, the competence to legislate with respect to

p. 2018 Copy page pinpoint

Digital Supreme Court Reports

narcotic drugs which included opium. It was subject to Entries in List I and List II which dealt with opium167 and ‘poison and dangerous drugs’.168 The Seventh Schedule to the Constitution placed opium in List I169 and List III,170 completely removing it from List II.

94Copy pinpoint94. Entry 84 of List I deals with duties of excise of goods except a few. The Entry read as follows before the Constitution (One Hundred and First Amendment) Act 2016: “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 including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.” (emphasis supplied)

95Copy pinpoint95. Entry 51 of List II deals with duties of excise, inter alia, on alcoholic liquor: “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 including medicinal and toilet preparations containing alcohol or any substance included in sub- paragraph (b) of this entry.” (emphasis supplied)

167 Government of India Act 1935, Entry 31 of List I 168 Government of India Act 1935, Entry 19 of List III 169 Constitution of India 1950, Entry 59 of List I 170 Constitution of India 1950, Entry 19 of List III

p. 2019 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

96Copy pinpoint96. The only change with respect to the legislative competence on duties of excise from the 1935 Act is that Parliament (and not the State Legislature as it was envisaged under the 1935 Act) has the competence to enact laws with respect to medicinal and toilet preparations containing alcohol or narcotic substances, opium and Indian hemp.171

97Copy pinpoint97. The Constituent Assembly Debates which the Union of India referred to ascertain the meaning of the phrase ‘intoxicating liquor’ are not of assistance. The phrases ‘alcoholic liquor for human consumption’ and ‘intoxicating liquor’ were used for the first time in the 1935 Act. Entry 16 of the Provincial List of the Devolution Rules dealt with ‘alcoholic liquor and intoxicating drugs’. The provision dealt both with regulatory power and excise power. It is necessary to trace the development between the 1909 Rules and the 1935 Act to understand the context of substituting the expression ‘alcoholic liquor’ with ‘intoxicating liquor’ in the regulatory entry but retaining it in the taxing entry.

98Copy pinpoint98. The 1935 Act was based on the White Paper (1931) on the proposals for Indian Constitutional Reform172 and the Report of the Joint Select Committee on Indian Constitutional Reform173 which was constituted to examine and report upon the proposals contained in the White Paper. The White Paper recommended the demarcation of regulatory and taxation powers relating to alcohol. However, both the entries used the words ‘alcoholic liquor’.174 The Report of the Joint Committee suggested the following two revisions to the entries

171 The reason for providing Parliament the power to enact laws with respect to the excise duty on medicinal and toilet preparations containing alcohol is reflected in the footnote to Entry 86 of List I in the Draft Constitution of India 1948 as follows: “The committee is of the opinion that duties of excise on medicinal and toilet preparation containing alcohol or any substance included in sub-paragraph (b) of this entry should be included in this entry as duties leviable by the Union, as it thinks that uniform rates of excise duty should be fixed in respect of these goods in all states for the sake of development of the pharmaceutical industry. The levy of different rates in different States is likely to lead to discrimination in favour of goods imported from foreign countries which would be detrimental to the interest of Indian manufacturers as was pointed out by the Drugs Enquiry Committee in their report in 1931.”; See Shiva Rao (Vol II) pg. 666 172 “White Paper”; See Command Paper 4268 173 “Joint Committee”; See Report of the Joint Select Committee on Indian Constitutional Reform 174 See Joint Committee on Indian Constitutional Reform (Volume 1 Part I) 369; “26. Control of production, manufacture, possession, transport, purchase and sale of alcoholic liquors, drugs and narcotics.”; “27. Imposition and regulation of duties of excise on alcoholic liquors, drugs and narcotics other than tobacco.”

p. 2020 Copy page pinpoint

Digital Supreme Court Reports

related to alcohol: (a) the relevant entry in the Federal List provided that the Union did not have the competence to levy excise duty on “potable alcoholic liquor”175 and the Provincial List conferred States the competence to levy excise duty on “potable alcoholic liquor”;176 and (b) the regulatory provision in List II dealt with the “production, manufacture, possession, transport, purchase and sale of liquors, opium and other drugs and narcotics not covered by item 19 of List III.”177

99Copy pinpoint99. Two revisions were further made to the entries as they appear in the Government of India Bill 1935 which were subsequently reflected in the Government of India Act 1935. The phrase ‘potable alcoholic liquor’ was substituted with the phrase ‘alcoholic liquor’ in the taxing entry and the phrase ‘liquor’ was substituted with the phrase ‘intoxicating liquor’ in the regulatory entry. The table below reflects the evolution of the Legislative entries relating to alcohol:

Enactment Taxing Entry Regulatory Entry Devolution Rules ‘alcoholic liquor’178 White Paper ‘alcoholic liquor’179 ‘alcoholic liquor’180 Joint Select Committee ‘potable alcoholic ‘liquor’182 on Indian Constitutional liquor’181 Reform

175 List I, Entry 49 of the Revised Lists; See Joint Committee on Indian Constitutional Reform (Volume 1 Part I) 152 “46. Duties of excise on the manufacture and production of tobacco and other articles except- (i) Potable alcoholic liquors; (ii) Toilet and medicinal preparations containing alcohol, Indian hemp, opium or other drugs or narcotics; (iii) Opium, Indian hemp, and other drugs and narcotics. 176 List II, Entry 19 of the Revised Lists; See Joint Committee on Indian Constitutional Reform (Volume 1 Part I) 155 “19. Duties of excise on the manufacture and production of – (i) Potable alcoholic liquors; (ii) Toilet and medicinal preparations containing alcohol, Indian hemp, opium or other drugs and narcotics; (iii) Opium, narcotics, hemp and other drugs. 177 List II, Entry 18 of the Revised Lists; See Joint Committee on Indian Constitutional Reform (Volume 1 Part I) 155 “18. Production, manufacture, possession, transport, purchase and sale of liquors, opium and other drugs and narcotics not covered by item 19 of List III.” 178 Devolution Rules; Entry 16 of the Provincial List 179 Command paper 4268; Entry 26 of List II: “26. Control of production, manufacture, possession, transport, purchase and sale of alcoholic liquors, drugs and narcotics.” 180 Command paper 4268; Entry 27 of List II: “27. Imposition and regulation of duties of excise on alcoholic liquors, drugs and narcotics other than tobacco.” 181 Report of the Joint Committee on Indian Constitutional Reform; Entry 49 of List I 182 Report of the Joint Committee on Indian Constitutional Reform; Entry 19 of List II

p. 2021 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

Government of India ‘alcoholic liquor ‘intoxicating Act 1935 for human liquor’184 consumption’183 Constitution of India ‘alcoholic liquor ‘intoxicating for human liquor’186 consumption’185

100Copy pinpoint100. Before we proceed to lay down our inferences upon a study of the evolution of legislative entries, we clarify that the issue before this Bench is squarely related to the interpretation of the expression ‘intoxicating liquor’. The meaning of the expression ‘alcoholic liquor for human consumption’ and whether it can be read as ‘alcoholic liquor fit for human consumption’ is not before this Bench.

101Copy pinpoint101. The Report of the Joint Committee does not explain why the expression ‘alcoholic liquor’ was substituted with the phrases ‘liquor’ in the regulatory entry and ‘potable alcoholic liquor’ in the taxing entry. While the Report explains the reasons for a few revisions from the White Paper, the entries relating to alcohol are not one of them.187 However, the paragraph extracted below provides some clarity: “241. It would extend this chapter to an unreasonable length if we were to set out in detail all the changes which a revision of the three Lists has involved. We are less willing to do so, because we recognise that the revised Lists themselves will require further expert scrutiny before they are finally submitted to Parliament as part of the legislative proposals of His Majesty’s Government. We think, however, that if the revised Lists are compared with the Lists in the White Paper, such changes as have been made, in addition to those already mentioned will, for the most part, be found to speak for themselves.” (emphasis supplied)

183 Government of India Act 1935; Entry 45 of list I 184 Government of India Act 1935; Entry 31 of list II 185 Constitution of India 1950; Entry 84 of List I 186 Constitution of India 1950; Entry 8 of List II 187 Joint Committee on Indian Constitutional Reform (Volume I Part I) 148-149.

p. 2022 Copy page pinpoint

Digital Supreme Court Reports

102Copy pinpoint102. While the revisions are not accompanied by any reasons, it is clear that the intention of the Joint Committee was to differentiate between the product covered by the regulatory entry and the taxing entry. It is also clear that the Committee was aware of the possibility of alcohol not being understood as just a final ‘consumable product’ but also as a raw material in the production of other products. The Report of the Joint Committee specifically conferred the States, competence over “toilet and medicinal preparations containing alcohol, Indian help, opium or other drugs and narcotics.”188 While the taxing entry recognised the distinction between liquor that is used as a beverage and is a product in itself by using the words ‘potable alcoholic liquors’, and other products that contain alcohol, the regulatory entry does not create that distinction. The regulatory entry only refers to ‘liquor’, which is a much larger all-encompassing phrase.

103Copy pinpoint103. We are unable to trace the discussions that led to a further revision in the 1935 Act, where the expression ‘potable liquor’ was substituted with ‘alcoholic liquor for human consumption’, and ‘liquor’ was substituted with the expression ‘intoxicating liquor’. However, it is clear that the use of the phrases as they appear in the relevant entries of the 1935 Act and the Constitution of India was a matter well-thought of.

104Copy pinpoint104. Another point that needs to be noted based upon a study of the evolution of legislative entries is that until the 1935 Act, the regulatory entry covered narcotic drugs and opium along with ‘alcoholic liquor’/‘liquor’/‘intoxicating liquor’. There are two possible interpretations of the expression “intoxicating liquor”, as it appeared in the 1935 Act, on an application of the principle of noscitur a sociss, that is, the principle by which the meaning of an ambiguous expression may be ascertained by reference to the meaning of the words associated with it.189 It could be interpreted to mean liquor that has an intoxicating effect upon consumption since narcotic drugs and opium also produce intoxication. The expression ‘intoxicating liquor’ could also mean the regulation of alcohol used in the production of other products since opium and narcotic drugs are also used as raw materials in the production of other products (like pain relivers)

188 Report of the Joint Committee on Indian Constitutional Reform; Entry 19(ii) of List II 189 See Rainbow Steels v. Sales Tax Commissioner, UP AIR 1981 SC 2010; State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610, 613; Rohit Pulp and Paper Mills Ltd v. Collector of Central Excise, AIR 1991 SC 754

p. 2023 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

105Copy pinpoint105. Mr TT Krishnamachari moved an amendment to delete references to narcotic drugs and opium in Entry 40 of List II of the Draft Constitution 1948 (which correspondes to Entry 31 of List II of the 1935 Act). The amendment was adopted by the Assembly. Mr Krishnamachari submitted that it was necessary to delete references to opium and narcotic drugs because they were covered by other entries in List I and List III: “This amendment is necessary because we have shifted poisons and drugs to the Concurrent List and opium happens to be in the Central List. This entry, therefore, will suffice for the purposes of State Governments.”190

106Copy pinpoint106. An analysis of the evolution of the legislative entries relating to alcohol does not provide an unambiguous interpretation. While the evolution of the entries does indicate that the drafters were aware of the distinction between potable alcohol and alcohol used as a raw material in the production of other products, there is no clear answer to whether ‘intoxicating liquor’ includes both. The evolution of the entries provides us with some context and background but not a conclusive answer. We now proceed to apply the third principle of interpretation, the workability or harmonious interpretation principle.

d. The harmonious interpretation

107Copy pinpoint107. The expression ‘intoxicating liquor’ can possibly be interpreted to mean the following: a. Alcohol which is used as a beverage for human consumption such as beer or gin, that is, potable liquor; b. If liquor means liquid, then Entry 8 of List II includes all liquids which contain alcohol; and c. Alcohol which is used as a raw material to prepare other products such as pharmaceutical products and cosmetic drugs. This could include denatured alcohol but also other types of alcohol that are used in the production of products without denaturing it.

108Copy pinpoint108. A preliminary observation needs to be made. It may be recalled that the State does not have the competence to levy excise duty with

190 Constituent Assembly Debates (2 September 1949) Volume IX

p. 2024 Copy page pinpoint

Digital Supreme Court Reports

respect to toilet and medical preparations containing alcohol. However, this cannot influence the interpretation of the phrase ‘intoxicating liquor’ in Entry 8 of List II. The Seventh Schedule demarcates the legislative competence on taxes and regulation. It is settled law that the Legislature cannot derive taxation powers from a general regulatory entry.191 Thus, the lack of competence to levy tax on products other than alcoholic beverage cannot influence the interpretation of the regulatory entry. They operate in separate spheres. We now proceed to interpret the phrase ‘intoxicating liquor’.

109Copy pinpoint109. The Oxford English Dictionary provides multiple meanings of the word ‘Liquor’. They include: (a) alcoholic drinks, especially spirits; (b) water used in brewing; (c) liquid that has been produced in or used for cooking; and (d) liquid from which a substance has been crystallized or extracted. Liquor thus broadly takes two meanings, of an alcoholic beverage or liquid. The word ‘intoxicate’ is defined to mean: (a) cause someone to lose control of their senses; (b) poison; and (c) excite or exhilarate.

110Copy pinpoint110. The dictionary meanings of the phrases ‘liquor’ and ‘intoxicate’ are variable. If liquor is interpreted to mean ‘liquid’ instead of an alcoholic beverage and intoxication a reference to alcohol, the Entry would cover all liquids that contain alcohol. However, if liquor is interpreted to mean alcoholic beverage, the Entry would only cover alcoholic beverages for human consumption which causes intoxication, that is, potable alcohol.

111Copy pinpoint111. Entry 51 of List II refers to duties of excise on, inter alia, “alcoholic liquors for human consumption”. Article 47 which is placed in the Part on the Directive Principles of State Policy stipulates that the State shall endeavour to bring prohibition of the consumption of intoxicating drinks and drugs injurious to health, except for medicinal purposes. The provision lists this as one of the aspects of the duty of the State to improve public health. The phrase liquor is also used in multiple places in the 6th Schedule to the Constitution. The 6th Schedule stipulates provisions on the administration of Tribal Areas in the States of Assam, Meghalaya, Tripura and Mizoram. Paragraphs 12, 12AA and 12B provide for the application of Acts of Parliament and of the Legislature of the State to the autonomous

191 MPV Sundararamier & Co. v. State of Andhra Pradesh (1958) 9 STC 298

p. 2025 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

districts and regions in the States of Assam, Tripura and Mizoram. The provisions stipulate that the enactments of the Legislature of the State “prohibiting or restricting the consumption of any non- distilled alcoholic liquor” would not apply to the autonomous Districts or autonomous regions.192 The expressions in the 6th Schedule will not be of aid to interpret Entry 8 because it refers to a legislation enacted by the State Legislature under Entry 8.

112Copy pinpoint112. Thus, the Constitution uses three distinct expressions relating to alcohol: “intoxicating liquor”, “alcoholic liquor for human consumption” and “intoxicating drinks”. The evolution of the entries in the legislative Lists indicate that it was a conscious decision to substitute ‘alcoholic liquor’ with ‘intoxicating liquor’ in the regulatory provision. It was also a conscious decision to use different phrases in the taxing entry and the regulatory entry. We do not think that it is necessary for us to lay down the contours of the different phrases used in the Constitution. That is a decision for another day and in another case. However, it is still possible to draw some inferences from the different uses. The expressions “alcoholic liquor for human consumption” and ‘intoxicating drink’ are used in the context of ‘consumption’. However, the provision relating to “intoxicating liquor” is not limited to its consumption. It stretches to its ‘production, manufacture, possession, transport, purchase and sale of intoxicating liquors’ and beyond. The second difference is the use of the expression ‘intoxicating’ instead of ‘alcoholic’ as the adjective to liquor. The following inferences can be drawn from the above differences: a. ‘Alcoholic liquor’ defines the scope of the provision based on the ingredient, that is, ‘alcohol’. In contrast, ‘intoxicating liquor’ defines the scope of the provision based on the effect, that is, intoxication. Thus, even liquor which colloquially or traditionally is not considered as alcoholic liquor may be covered by the phrase ‘intoxicating liquor’ if it produces the effect of intoxication; b. “Intoxicate” means the ability of someone to lose control of their behaviour. It could also mean poison. Thus, the purpose of substituting the adjective which indicates the ingredient (alcohol)

192 Unless the District Council by a public notification directs to give effect to the Act. The District Council may also direct that the Act shall have effect subject to ‘exceptions or modifications’; See Paragraphs 12, 12AA and 12B of the 6th Schedule.

p. 2026 Copy page pinpoint

Digital Supreme Court Reports

with the impact (intoxication) seems to be enhance the scope of the Entry to cover liquor which has an impact on health; and c. The public interest purpose of the provision is evident from the accompanying words in the provision which includes every stage from its production to consumption within the scope of the Entry. The public interest purpose of the provision is also evident from the evolution of the Entry. The relevant entry in the 1935 Act also regulated narcotic drugs and opium along with intoxicating liquor. References to narcotic drugs and opium were deleted to prevent its overlap with entries in the Concurrent list. As highlighted in the previous section, a common thread that runs through alcohol, narcotic drugs and opium is that they are products which can be noxiously used because they are also used as raw materials in the production of other products. It is clear from the above analysis that the meaning of the phrase ‘intoxicating liquor’ cannot be restricted to potable alcoholic liquor, that is, alcohol that is sold as a beverage.

113Copy pinpoint113. At this juncture, it is relevant to recall that all entries in the Seventh Schedule must be given a wide interpretation and Entry 8 of List II when interpreted widely covers everything from the raw materials required for the production to the consumption of ‘intoxicating liquor’. It must also be recalled that a few of the materials that are used to prepare potable alcohol (such as rectified spirit and ENA) are also used to prepare other pharmaceutical and cosmetic products. For example, ENA and rectified spirit are also used to prepare products such as varnish and hand sanitizer. Hand sanitizer is a pharmaceutical product which is covered by Entry 19 of List III of the Concurrent List which deals with “drugs”. Since all entries must be interpreted widely, Entry 19 will also include the production and manufacture of drugs and will thus cover the materials (ENA or rectified spirit) used for the preparation. Usually the entries cover the materials used for the purpose of producing the product covered by that Entry. However, alcohol is an inherently noxious substance that is prone to misuse affecting public health at large. The purpose of Entry 8 is to cover alcohol that could be used noxiously to the detriment of public health. The Entry covers all alcohol that could be ‘prone’ to noxious use. It also covers variants of alcohol that are not used for the preparation of potable alcohol but which could be misused to harm public health.

p. 2027 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

This interpretation is in consonance with the mischief sought to be covered by the Entry. Thus, while the entry covers ENA and rectified spirit which are used in the preparation of potable alcohol, it also covers variants of alcohol such as denatured alcohol which though are not used in the preparation of potable alcohol, are prone to be misused.

114Copy pinpoint114. It is not disputed that denatured alcohol is prepared by adding substances which are called denaturants to give the alcohol a foul smell and taste. The very purpose of denaturing ethanol to prepare denatured alcohol is to make it undrinkable. This Court in VAM Organic (II) (supra) held that the State can regulate the process of preparing denatured alcohol because it is done to ensure that the public is protected from consuming illicit liquor but not the product of denatured spirit even if it can be renatured and converted to potable liquor.193 The petitioners further sought to make a classification between Specially Denatured Alcohol and Completely Denatured Alcohol. It was argued that though Specially Denatured Alcohol is not fit for human consumption, it can be made potable by certain recovery processes while there is no such possibility in Completely Denatured Alcohol.194 It was argued that Entry 8 must at the least cover Specially Denatured Alcohol. The issue of whether denatured alcohol can be renatured to produce potable alcohol is immaterial for the purposes of delineating the field of Entry 8 of List II. As held above, Entry 8 does not only cover potable alcohol but alcohol which may be used noxiously also. Thus, the test to be adopted is not whether the alcohol could be converted and used for the preparation of alcoholic beverages but whether it could be mischievously used for its preparation or as a substitute.

115Copy pinpoint115. It was also argued by the petitioners that the phrase ‘intoxicating liquor’ must be interpreted to mean liquid containing alcohol. The consequence of this interpretation would be that it would include liquid products which may be covered by other entries, thereby, causing an overlap of the entries. For example, if interpreted in the above manner, the product of ‘hand sanitizer’ will be covered by both

193 “43. […] But this power stops with the denaturation of the industrial alcohol. Denatured spirit has been held in Vam Organic-I to be outside the seism of the State Legislature. Assuming that denatured spirit may by whatever process be renatured (a proposition which is seriously disputed by the respondents) and then converted into potable liquor, this would not give the State the power to regulate it.[…]” 194 See Alcohol Denaturants-Specification (Second Revision), ICS 71.100.80

p. 2028 Copy page pinpoint

Digital Supreme Court Reports

Entry 8 of List II (‘intoxicating liquor’) and Entry 19 of List III (‘drugs’). Since the Entry must be read widely, it will then cover everything relating to the production of the drug, substantially reducing the scope of Entry 19 because other products of the pharmaceutical and cosmetic industry will be covered by Entry 8. This interpretation will not be in consonance with the settled principle of interpretation that an interpretation that promotes the workability of provisions must be adopted. This interpretation of the phrase is also in consonance with the precedents that we have analysed in section E(iv)(a) of this judgment.

v. The correctness of the decision in Synthetics (7J)

116Copy pinpoint116. Having interpreted Entry 8 of List II, we now turn to the decision in Synthetics (7J) (supra). This Court in Synthetics (7J) (supra) did not undertake an independent analysis of the meaning of the phrase ‘intoxicating liquor’. Without any discussion, the seven-Judge Bench readily concluded that the interpretation of the Bombay High Court and not this Court in FN Balsara (supra) is the correct approach. The only reasoning that this Court offered was that when the Constitution Bench in FN Balsara (supra) interpreted the phrase, it was not aware of the full potentiality of industrial alcohol: “74. […] It appears that in the light of the new experience and development, it is necessary to state that “intoxicating liquor” must mean liquor which is consumable by human being as it is and as such when the word “liquor” was used by Fazl Ali J., they did not have the awareness of full use of alcohol as industrial alcohol. It is true that alcohol was used for industrial purposes then also, but the full potentiality of that user was not comprehended or understood. With the passage of time, meanings do not change but new experiences give new color to the meaning.”

117Copy pinpoint117. These observations are erroneous for the following reasons: a. The High Court in FN Balsara v. State of Bombay (supra) did not limit the meaning of ‘intoxicating liquor’ to its common parlance meaning, that is, potable alcoholic liquor. It also included alcoholic liquids which are not normally consumed as drinks. On appeal, the Constitution Bench held that a wider definition of intoxicating liquor is necessary to cover other

p. 2029 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

products which may be used as substitutes for intoxicating drinks. [See section E (iv)(a) of this judgment]. This Court held that the expression must be given a wide meaning precisely because it recognised the potentiality of the wide use of alcohol for industrial purposes and its consequent misuse; and b. The Constitution itself recognises the industrial use of alcohol. Entries 84 of List I (before the amendment in 2016) and 51 of List II specifically refer to medicinal and toilet preparations containing alcohol. Thus, the use of alcohol for industrial preparations was well within the knowledge of this Court in FN Balsara (supra).

118Copy pinpoint118. This Court in Synthetics (7J) (supra) did not determine the meaning of the expressions ‘intoxicating’ or ‘liquors’ or ‘intoxicating liquors’ independently. It did not compare the difference in the language used to describe alcohol or liquor in different provisions of the Constitution to understand the significance of the difference. Only Article 47 was referred to in the following terms: “77. 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. If the meaning of the expression “intoxicating liquor” is taken in the wide sense adopted in Balsara case, it would lead to an anomalous result. Does Article 47 oblige the State to prohibit even such industries as are licensed under the IDR Act but which manufacture industrial alcohol? This was never intended by the above judgements or the Constitution.”

119Copy pinpoint119. Although Article 47 was mentioned, the distinction between the purpose of a constitutional provision in Part IV and a legislative entry was not appreciated. This leads to an incorrect inference, namely, that holding Entry 8 of List II includes non-potable alcohol would amount to placing an obligation on the state to prohibit non-potable alcohol in terms of Article 47. There is no doubt that Article 47 refers only to intoxicating drinks which means potable alcohol. However, an analysis of the differences in the terminologies without appreciating that the reference in Article 47 is made in the context of consumption leads to an erroneous conclusion.

p. 2030 Copy page pinpoint

Digital Supreme Court Reports

120Copy pinpoint120. Further, in Synthetics (7J) (supra), this Court concluded that the impugned fees are in the nature of a tax. In that case, the only entries that this Court ought to have dealt with are Entries 84 of List I and Entry 51 of List II. Entry 8 deals with regulatory power and is not a taxing entry. It is a settled principle that a tax cannot be levied under a general entry.195

121Copy pinpoint121. In spite of holding that the fee charged was a tax and that the State Legislature does not have the competence to levy tax on industrial alcohol, the Bench proceeded to analyse the relationship between Entry 52 of List I196 and Entry 8 of List II in paragraph 84 of the judgment. The Bench noted that the “levy of impost” is not possible in view of the occupation of the field by IDRA and that in view of IDRA, the power to issue licences to manufacture both potable and non-potable alcohol is vested in the Central Government.197 These observations are erroneous for the following reasons: a. Under Entry 52 of List I, Parliament has the competence to enact laws with respect to certain industries, the control of which by the Union is necessary in public interest. It is a general entry. It does not confer any taxing power. Thus, Entry 52 of List I may only impact the entries in List II that deal with the regulatory aspect of industries as we have explained in the previous section of this judgment. It does not have any impact on taxing entries. Thus, the observation in paragraph 84 of Synthetics (7J) (supra) is overruled; and b. We have also held that Parliament in exercise of the power under Article 246 read with Entry 52 of List I cannot legislate with respect to the field covered by Entry 8 of List II. The observations in paragraph 85 of Synthetics (7J) (supra) that after the amendment to IDRA in 1956 bringing fermentation industries within the scope of the enactment, the Union has competence over both potable and non-potable alcohol is overruled. The law enacted in terms of Entry 52 of List I cannot render any entry of List II (including Entry 8) otiose. Thus, Parliament cannot take over the field covered by Entry 8.

195 See MPV Sundararamier & Co. v. State of AP, AIR 1958 SC 468 196 See Synthetics (7J) [84] 197 See Synthetics (7J) [85]

p. 2031 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

122Copy pinpoint122. In paragraph 86 of the judgment, this Court in Synthetics (7J) (supra) held that after the inclusion of the fermentation industry in the schedule to IDRA, the State only had legislative competence to: a. enact any legislation in the nature of prohibition of potable liquor referable to Entry 6 of List II and regulating powers; b. lay down regulation to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol; c. levy excise duty and sales tax on potable alcohol under Entry 52 of List II. However, the State cannot levy sales tax on industrial alcohol because “under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the State on industrial alcohol”; and d. in case the State is rendering any service, it may charge fees based on quid pro quo. Reliance was placed on observations in Indian Mica (supra).

123Copy pinpoint123. Since this Court in Synthetics (7J) (supra) held that the State lost the competence to enact a legislation on potable alcohol because IDRA occupies the field and that it did not have the competence to enact a law on non-potable alcohol, it traced regulations relating to alcohol to Entry 6 of List II which deals with “public health”. Viewing the consumption of potable alcohol as a public health concern on a reading of Article 47 along with Entry 6 of List II, this Court held that the State has the competence to deal with (a) and (b) above. In view of our holding that : (a) the expression ‘intoxicating liquor’ in Entry 8 is not limited to alcoholic beverages; and (b) Entry 52 of List II cannot occupy the field covered by Entry 8 of List II, the observations in Synthetics (7J) (supra) by which alcohol was only traced to the entry on public health is erroneous. It cannot be denied that there is a degree of overlap between Entry 8 and Entry 6 of List II. However, Entry 8 of List II cannot be rendered redundant for all purposes by a declaration by parliamentary law under Entry 52 of List I. Such as interpretation, as held above, would completely tilt the federal balance in the favour of Parliament.

124Copy pinpoint124. Paragraph 86(d) must be read along with paragraph 88 extracted in the earlier part of the judgment. The Bench only placed reliance on the decision in Indian Mica (supra) to arrive at this conclusion. In paragraph 3 of Indian Mica (supra), the Constitution Bench held as follows:

p. 2032 Copy page pinpoint

Digital Supreme Court Reports

“Denatured spirit though an alcoholic liquor is not fit for human consumption. The power to levy duty on the same was and is given to the Central Legislature. But the same being intoxicating liquor, the Provincial Legislature under the 1935 Act and at present the State Legislature has power to levy fee. The power of any Legislature to levy fee is conditioned by the fact that it must be by and large a quid pro quo for the services rendered.” (emphasis supplied)

125Copy pinpoint125. The conclusion in Indian Mica (supra) that the State Legislature has the competence to levy fees on denatured alcohol (which this Court in Synthetics (7J) (supra) interchangeably uses with industrial alcohol) is premised on the wide interpretation of the phrase intoxicating liquor in Entry 8 of List II to include denatured alcohol. However, this Court in Synthetics (7J) (supra) expressly rejected this interpretation. The State Legislature would have the competence to levy fees in terms of Entry 66 of List II in respect of any of the matters in the List. Thus, the conclusion in paragraph 86(d) creates an inherent inconsistency within the judgment. We have overruled the interpretation in Synthetics (7J) (supra) on the scope of Entry 8 and the interaction between Entry 8 and Entry 52 of List. The phrase ‘intoxicating liquor’ in Entry 8 includes denatured alcohol. Thus, the State will have the competence to levy fees with respect to denatured alcohol, but for the reasons in this judgment.

126Copy pinpoint126. Reference may be made to judgments of this Court interpreting Synthetics (7J) which are summarised in Section A(iii) of this judgment. This Court interpreted Synthetics (7J) (supra) in the following manner: a. The State has the competence to legislate upon industrial alcohol as a product of the controlled industry under Entry 33 of List III;198 b. The State has the competence to legislate upon the process of producing denatured spirit but not the product of denatured spirit because the process is related to preventing the diversion of non-potable liquor to potable liquor;199

198 Shri Bileshwar Khand Udyog Khedut Sahakari Mandali (supra) 199 See VAM Organic(I) (supra) and VAM Organic (II) (supra)

p. 2033 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

c. The State does not have the competence to legislate upon rectified spirit;200 and d. The State has the competence to legislate upon rectified spirit that is used for the purpose of preparing potable alcohol.201

127Copy pinpoint127. Before we proceed to analyse the correctness of these observations based on the law that we have laid down in this judgment, it is necessary to expound upon how this Court in Bihar Distillery (supra) drew a purpose based demarcation of the legislative fields. The heart of the reasoning of the Court is reproduced below: “23. … Take a case where two industries ‘A’ and ‘B’ come forward with proposals to manufacture rectified spirit; ‘A’ says that it proposes to manufacture rectified spirit and then denature it immediately and sell it as industrial alcohol while ‘B’ says that it will manufacture rectified spirit and utilise it entirely for obtaining country liquor (arrack or by whatever other name, it may be called) or for manufacturing IMFLs from out of it or to supply it to others for the said purpose. According to Synthetics [(1990) 1 SCC 109 : 1989 Supp (1) SCR 623] , ‘A’ is under the exclusive control of the Union and the only powers of the State are those as are enumerated in para 86 quoted above. But what about ‘B’? The rectified spirit manufactured by it is avowedly meant only for potable purposes. Can it yet be called “industrial alcohol”? Can it still be said that the State concerned has no power or authority to control and regulate industry ‘B’ and that the Union alone will control and regulate it until the potable liquors are manufactured? The Union is certainly not interested in or concerned with manufacture or process of manufacture of country liquor or IMFLs. Does this situation not leave a large enough room for abuse and misuse of rectified spirit? It should be remembered that according to many States before us, bulk of the rectified spirit produced in their respective States is meant for and is utilised for obtaining or manufacturing potable liquors. Can it be said

200 Deccan Sugar (supra) 201 Bihar Distillery (supra)

p. 2034 Copy page pinpoint

Digital Supreme Court Reports

even in such a situation that the State should fold its hands and wait and watch till the potable stage is reached. … It is these and many other situations which have to be taken into consideration and provided for in the interests of law, public health, public revenue and also in the interests of proper delineation of the spheres of the Union and the States. The line of demarcation can and should be drawn at the stage of clearance/removal of the rectified spirit. Where the removal/clearance is 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 of excise and all other 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.” (emphasis supplied)

128Copy pinpoint128. This Court in Bihar Distillery (supra) held that where rectified spirit is manufactured only for the purpose of converting it into potable alcohol, it cannot be termed ‘industrial alcohol’. It was of the opinion that it was ill-conceived to allow for a legal structure where the States would step in only after alcohol was made potable as this would either result in a lacuna in regulation or permit the Union to regulate a field which it was not empowered to in terms of the Seventh Schedule. The three-Judge Bench held that the line of demarcation should be drawn at the stage of clearance or removal of rectified spirit. Put differently, the Bench held that the purpose for which the rectified spirit was manufactured would determine whether the Union or the States would tax and control it. It elaborated that: a. Industries which manufactured rectified spirit exclusively for supply to industries other than those which manufactured potable liquor would be under the total and exclusive control of the Union including for the purpose of levying excise duty. This extended to denatured alcohol as well. The power of the States with respect to this category was limited to ensuring that such alcohol was not illegally diverted to create potable alcohol. The States could levy regulatory fees to defray the costs of the staff deployed for this purpose;

p. 2035 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

b. Industries which manufactured rectified spirit exclusively for the purpose of manufacturing potable alcohol would be under the total and exclusive control of the States in all respects and at all stages including levying excise duty; and c. The power to permit the establishment of industries which manufactured rectified spirit for both the purposes delineated above as well as the regulation of such industries would be exclusively with the Union. The Union could levy excise duty on rectified spirit which was cleared or removed for supply to industries and the States could levy excise duty on rectified spirit which was cleared or removed for manufacturing potable alcohol. The removal or clearance of alcohol would be under the joint supervision of the Union and the States to ensure that excise duty was not evaded.

129Copy pinpoint129. In Bihar Distillery (supra), the issue before this Court was whether the State has the competence to regulate raw material (“rectified spirit”) for the preparation of “intoxicating liquor” which was interpreted to only mean potable liquor. Justice Jeevan Reddy, writing for the three-Judge Bench, saw it fit to draw a purpose based delineation because rectified spirit could be used to prepare both potable alcohol and other products. The shortcoming of this reasoning is evident in the manner in which the Bench deals with composite industries, that is, industries which manufacture both rectified spirit for the purpose of potable alcohol and the production of other products. The regulation of such composite industries was held to be with the Union though there was no constitutional basis for such a division. This Bench, having expounded on the meaning of “intoxicating liquor” to include variants of alcohol which are prone to be misused, the interpretations of Synthetics (7J) summarised in paragraph 126 of this judgment are overruled. The classification of alcohol into potable and non-potable (or industrial alcohol) is oversimplistic. Alcohol (such as ENA or rectified spirit) which is used to prepare potable alcohol is also used to prepare other products of the pharmaceutical industry. An interpretation that ENA or rectified spirit which is used in the preparation of potable liquor is ‘industrial alcohol’ and is thus outside the scope of Entry 8 limits the field covered by the Entry even if ‘intoxicating liquor’ is interpreted to only mean potable liquor. Further, we also see no

p. 2036 Copy page pinpoint

Digital Supreme Court Reports

merit in the classification between the process of making denatured spirit and the product of denatured spirit since we have held that the expression intoxicating liquor includes denatured spirit.

vi. The impact of the decision on Item 26 of the First Schedule of IDRA

130Copy pinpoint130. The Law Commission of India in its 158th Report on the amendment of the IDRA, released in 1998 noted that the decision in Synthetics (7J) (supra) created “several practical problems” and that “there is no such thing as industrial alcohol ”. The Law Commission recommended that Item 26 of the IDRA which read “Fermentation industries” be substituted to read “Fermentation industries but not including alcohol”. Item 26 was substituted in 2016 to read “Fermentation industries (other than potable alcohol)”.202 While the Law Commission recommended removing alcohol as a whole from the scope of the IDRA, Parliament by the 2016 amendment only removed potable alcohol from the scope of the enactment. The Statement of Objects and Reasons indicates that the amendment to the IDRA was to harmonise the Act with the decision of this Court in Bihar Distillery (supra). The relevant portion of the Statement of Objects and Reasons is reproduced below: “The Supreme Court of India, in the case of Bihar Distillery v. Union of India (AIR 1997 SC 1208), has held that in the interest of proper delineation of the spheres of the Union and the States, the line of demarcation should be drawn at the stage of clearance or removal of the rectified spirit. Where the removal or clearance is for industrial purposes (other than the manufacture of potable liquor), the levy of duties of excise and all other control shall be with the Union and where the removal or clearance is for obtaining or manufacturing potable liquors, the levy of duties of excise and all other control shall be with the States. In the backdrop of the above judgment of the Supreme Court, the Law Commission of India had recommended in its 158th Report that the Heading 26 of the First Schedule to the Act be substituted as “Fermentation Industries but not including Alcohol”.

202 See the Industries (Development and Regulation) Amendment Act 2016.

p. 2037 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

The recommendation of the Law Commission of India was examined in depth by the Government. If the subject “Alcohol” is taken out of the First Schedule to the Act, both industrial alcohol and potable alcohol would come under the purview of the State Government which is not in consonance with the judgment of the Supreme Court. Moreover, the effect of implementation of the recommendation of the Law Commission would be that the subject “Alcohol” which covers both industrial alcohol and potable alcohol would no longer be a Central subject.” (emphasis supplied)

131Copy pinpoint131. The Statement of Objects and Reasons indicates that the recommendation of the Law Commission was not accepted because the effect of accepting the recommendation would be that both ‘industrial alcohol’ and potable alcohol would be in the domain of the States, and that this would be contrary to Bihar Distillery (supra). Hence, the IDRA was amended to remove only potable alcohol from Item 26 of IDRA.

132Copy pinpoint132. We have held above that Parliament under Entry 52 of List I does not have the legislative competence to enact a law taking control of the industry of intoxicating liquor. The State Legislatures will have control over the industry of ‘intoxicating liquor’. Parliament could not have taken control of the field covered by Entry 8 since we have interpreted intoxicating liquor to include alcohol other than potable alcohol as well. Therefore, Item 26 of the First Schedule to the IDRA must be read as excluding the industry of “intoxicating liquor”, as interpreted in this judgment.

vii. The (ir)relevance of the decision in Tika Ramji to the dispute

133Copy pinpoint133. In Tika Ramji (supra), sugarcane farmers instituted proceedings under Article 32 of the Constitution challenging the constitutional validity of the Uttar Pradesh Sugarcane (Regulation of Supply and Purchase) Act 1953203 and two notifications issued by the State government under the Act. The constitutional validity of the UP Sugarcane Act was challenged on the ground that the State Legislature did not have the competence because Item 8 of the

203 “UP Sugarcane Act”.

p. 2038 Copy page pinpoint

Digital Supreme Court Reports

Schedule to the IDRA notified ‘sugar’ as one of the controlled industries, and that the legislation regulating sugarcane was in pith and substance related to ‘sugar’. The Constitution Bench, inter alia, held that: a. Industry in the wide sense of the term comprises of three different aspects: (i) raw materials which are an integral part of the industrial process; (ii) the process of manufacture or production; and (iii) the distribution of the products of the entries;204 b. The Seventh Schedule creates a demarcation based on the above three stages. Entry 27 of List II deals with the production, supply and distribution of goods subject to the provisions of Entry 33 of List III. The term ‘goods’ is defined by Article 366(12) of the Constitution and includes materials, commodities and articles. ‘Materials’ includes raw materials. Thus, the raw materials for industries would be covered by Entry 27 of List II. The products would also fall under Entry 27 of List II, except in the case of a controlled industry in which case they would be covered by Entry 33 of List III. Entry 24 of List II would deal with the process of manufacture or production, unless it is a controlled industry under Entry 52 of List I.205 Thus, the phrase ‘industry’ in Entry 24 of List II and Entry 52 of List I takes the narrow meaning of process of production and manufacture; c. Section 18G of the IDRA enables the Union Government to regulate supply and distribution, and trade and commerce of certain ‘articles’. It does not extend to the production of articles. Raw materials are essential ingredients for manufacture or production but they are not of the same nature or description as the articles produced by the process of manufacture. The articles or class of articles relatable to the scheduled industry could only comprise of finished products of a cognate character. Raw materials, not being finished products, are not articles which are relatable to the scheduled industry covered by Section 18G;206

204 Tika Ramji (supra) [24] 205 ibid 206 Tika Ramji (supra) 32

p. 2039 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

d. Sugarcane is a raw material for the production of sugar. Consequently, it is not an article relatable to the sugar industry and does not fall within the scope of Section 18G. The IDRA did not affect the legislative powers of the State Legislature with respect to sugarcane. Therefore, the UP Sugarcane Act was not repugnant to the IDRA;207 and e. Even if it were assumed that sugarcane was relatable to the sugar industry under Section 18G, the Central Government had not issued a notified order, as required by the provision. The mere possibility that a notified order may be issued could not lead to repugnancy. Such an order was an essential prerequisite for repugnancy to arise.208

134Copy pinpoint134. The decision in Tika Ramji (supra) was relied upon by this Court in Calcutta Gas (supra), Kannan Devan Hills Produce v. State of Kerala, 209 Ganga Sugar Corporation v. State of UP, 210 B Viswanathiah & Co. v. State of Karnataka211 and the majority in ITC (supra) on the aspect of the meaning of industry covered by Entry 24 of List II. The dissenting opinion of Justice Pattanaik for himself and Justice Bharucha in ITC (supra) doubted the correctness of Tika Ramji (supra) on that aspect.

135Copy pinpoint135. The Union of India submitted that the inclusion of ‘raw materials’ in Entry 27 of List II (and their consequential exclusion from the definition of ‘industry’ in Entry 24 of List II and Entry 52 of List I) in Tika Ramji (supra) must be overruled. It was submitted that ‘industry’ as it features in the legislative lists includes raw materials as well. The learned Solicitor General submitted that if the restrictive meaning in Tika Ramji (supra) is overruled, then the State will not have competence to legislate on ENA used for the preparation of potable alcohol under Entry 8.

136Copy pinpoint136. We have in the preceding section held that the industry of intoxicating liquor is covered by Entry 8 and not Entry 52. Thus, even if a broad

207 id 208 id 209 [1973] 1 SCR 356 : (1972) 2 SCC 218 210 [1980] 1 SCR 769 : (1980) 1 SCC 223 211 [1991] 1 SCR 305 : (1991) 3 SCC 258

p. 2040 Copy page pinpoint

Digital Supreme Court Reports

meaning is given to the word ‘industry’ in Entry 52, it will not impact the decision in this case because Entry 8 is the specific entry which applies to the industry of intoxicating liquor.

137Copy pinpoint137. The meaning of the phrase ‘industry’ in Entry 52 will only impact this decision if (a) Entry 52 of List I includes raw materials necessary for the industry; and (b) Entry 8 of List II includes the process of manufacture but does not include the stage anterior to it (that is, raw materials). If an expansive meaning is given to the word ‘industry’, the raw materials to an industry will be covered by Entry 24 of List II and Entry 52 of List I (if it is a controlled industry). It will not be covered by Entry 27 of List II. If Entry 8 of List II does not include raw material but only the process to manufacture and final product, it is only then that the competence to enact laws on the raw material for the industry (in this case, ENA) will lie with Parliament.

138Copy pinpoint138. We are of the opinion that the holding in Tika Ramji (supra) is not relevant to the dispute for the following reasons: a. We have interpreted the phrase ‘intoxicating liquor’ in Entry 8 to include ENA since it could be noxiously used; and b. Notwithstanding the above, if the ground for overruling the holding in Tika Ramji (supra) is that manufacture/production cannot be disconnected from raw materials, it would equally apply to the industry of intoxicating liquor covered by Entry 8 of List II. In Section C (iii)(a) of this judgment, we have concluded that the words ‘that is to say’ are illustrative. They are not exhaustive of the contents of the Entry. Thus, Entry 8 cannot be interpreted to exclude raw materials used for the production of intoxicating liquor merely because the Entry does not expressly provide for them. On an application of the principle that entries ought to be interpreted widely, the raw materials for the production and manufacture of intoxicating liquor, as interpreted in this judgment will be covered by Entry 8.

viii. Section 18G of IDRA and Entry 33 of List III

139Copy pinpoint139. To recall, this Court in Synthetics (7J) (supra) held that the State cannot regulate ‘industrial alcohol’ as a product of the controlled

p. 2041 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

industry because the Union has occupied the field by Section 18G of IDRA.212 The questions referred by the three-Judge Bench in Lalta Prasad (supra) all relate to the issue of whether Section 18G of the IDRA occupies the field in Entry 33 of List III or whether the field is occupied only when an order is notified under Section 18G. There is no necessity to determine the correctness of this observation in this reference since the Legislature of the State will have the competence to regulate denatured alcohol in view of our interpretation of the expression ‘intoxicating liquor’ in Entry 8 of List II.

F. Conclusion

140Copy pinpoint140. In view of the discussion above, the following conclusions emerge: a. 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’; b. Parliament cannot occupy the field of the entire industry merely by issuing a declaration under Entry 52 of List I. The State Legislature’s competence under Entry 24 of List II is denuded only to the extent of the field covered by the law of Parliament under Entry 52 of List I; c. 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; d. The judgments of the Bombay High Court in FN Balsara v. State of Bombay (supra), this Court in FN Balsara (supra) and Southern Pharmaceuticals (supra) did not limit the meaning of the expression ‘intoxicating liquor’ to its popular meaning, that is, alcoholic beverages that produce intoxication. All the three judgments interpreted the expression to cover alcohol that could be noxiously used to the detriment of health;

212 Synthetics (7J) [85]

p. 2042 Copy page pinpoint

Digital Supreme Court Reports

e. The expression ‘intoxicating liquor’ in Entry 8 has not acquired a legislative meaning on an application of the test laid down in Ganon Dunkerley (supra); f. The study of the evolution of the legislative entries on alcohol indicates that the use of the expressions “intoxicating liquor” and “alcoholic liquor for human consumption” in the Seventh Schedule to the Constitution was a matter well-thought of. It also indicates that the members of the Constituent Assembly were aware of use of the variants of alcohol as a raw material in the production of multiple products; g. Entry 8 of List II is based on public interest. It seeks to enhance the scope of the entry beyond potable alcohol. This is inferable from the use of the phrase ‘intoxicating’ and other accompanying words in the Entry. Alcohol is inherently a noxious substance that is prone to misuse affecting public health at large. Entry 8 covers alcohol that could be used noxiously to the detriment of public health. This includes alcohol such as rectified spirit, ENA and denatured spirit which are used as raw materials in the production of potable alcohol and other products. However, it does not include the final product (such as a hand sanitiser) that contains alcohol since such an interpretation will substantially diminish the scope of other legislative entries; h. The judgment in Synthetics (7J) (supra) is overruled in terms of this judgment; i. Item 26 of the First Schedule to the IDRA must be read as excluding the industry of “intoxicating liquor”, as interpreted in this judgment; j. The correctness of the judgment in Tika Ramji (supra) on the interpretation of word ‘industry’ as it occurs in the legislative entries does not fall for determination in this reference; and k. The issue of whether Section 18G of the IDRA covers the field under Entry 33 of List III does not arise for adjudication in view of the finding that denatured alcohol is covered by Entry 8 of List II.

141Copy pinpoint141. The reference is answered in the above terms.

142Copy pinpoint142. The Registry is directed to obtain administrative instructions from the Chief Justice for placing the matters before an appropriate Bench.

p. 2043 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

ORDER ON REFERENCE

Nagarathna, J.

Table of Contents*

S. Particulars Page No. No.

1. Opening Paragraphs 5

2. Genesis of the controversy 6

3. Conclusions arrived at by the learned Chief Justice 9

4. Submissions 12

5. Relevant Constitutional Framework 18

6. Interpretation of Legislative Entries 22 a. Prafulla Kumar Mukherjee 24 b. FN Balsara 24 c. Atiqa Begum 24 d. Calcutta Gas Company 25 e. RMDC 26 f. MPV Sundararamier 27

7. Scheme of IDRA 30

8. Article 47: Directive Principle of State Policy 37 a. Cooverjee B. Bharucha 38 b. Sristikar Dowerah 39 c. FN Balsara 40 d. Nagendra Nath 43 e. Amar Chandra Chakraborty 43 f. Harinarayan Jaiswal 43 g. Nashirwar 44 h. Har Shankar 44 i. Khoday Distilleries 48

9. Survey of Judicial Precedents 51 a. Synthetics and Chemicals (7J) 51 b. Synthetics and Chemicals (2J) 65

* Ed. Note: Pagination as per the original Judgment.

p. 2044 Copy page pinpoint

Digital Supreme Court Reports

c. Bileshwar Khand Udyog 69 d. Gujchem Distillers 70 e. Modi Distillery 71 f. Shree Krishna Gyanoday Sugar Ltd. 73 g. Bihar Distillery 76 h. McDowell 90 i. Vam Organic I 92 j. Haryana Brewery Ltd. 96 k. Industrial Corporation (P) Ltd. 98 l. Vam Organic II 100

10. Analysis of Judicial Dicta 103 a. Indian Mica 103 b. Southern Pharmaceuticals 104 c. Synthetics and Chemicals (7J) 105 d. Synthetics and Chemicals (2J) 107 e. Bileshwar Khand Udyog 109 f. Shree Krishna Gyanoday Sugar Ltd 110 g. Bihar Distillery 111 h. Vam Organic I 113 i. Vam Organic II 114

11. Further Analysis 115

12. Meaning of “intoxicating liquors” 119

13. A Historical Perspective 122

14. Constituent Assembly Debates 124

15. Analysis of relevant Entries in the three Lists 138 a. Ishwari Khetan 139 b. Meaning of “subject to” 147 c. Hingir Rampur 148 d. Shri Krishna 148 e. South India Corporation 149 f. Ashok Leyland Ltd. 150 g. Calcutta Gas Company 152

p. 2045 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

16. Entry 33(a) – List III vs. Entry 52 - List I: Observations 172 in Synthetics and Chemicals (7J)

17. Article 254, Repugnancy and Doctrine of Occupied Field 183

18. Mineral Area and Development Authority 195

19. Mar Appraem Kuri Company 204

20. Importance of “Industrial Alcohol” to the Indian 213 Economy

21. Conclusion on interplay of legislative Entries 221

22. Effect of overruling Synthetics and Chemicals (7J) 224

23. My answers to the questions formulated 231

24. My answers to the conclusions of learned Chief Justice 235

I have perused the comprehensive and erudite opinion authored by Hon’ble the Chief Justice of India Dr. Dhananjaya Y. Chandrachud on the questions referred to this nine-Judge Bench. I respectfully dissent on certain aspects of the said opinion and express my reasons therefor. 1.1 The sum and substance of all the questions referred to this Bench could be crystallised on the short point for consideration, namely, whether the expression “intoxicating liquors” in Entry 8 -List II of the Seventh Schedule of the Constitution of India includes within its scope and ambit “industrial alcohol” and consequently, whether a State Legislature has the competence to legislate on “industrial alcohol”. My short answer is 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 (for short, “IDRA”) passed by the Parliament on the strength of Entry 52 – List I of the Seventh Schedule of the Constitution of India and having regard to Section 2 of the said Act read with its various provisions and the First Schedule thereto, particularly, Item 26 which deals with “Fermentation Industries” (other than potable alcohol). However, the discussion on scope and ambit of Entry 33(a) – List III of the Seventh Schedule of the Constitution is distinct and shall be discussed later. Therefore, Synthetics and Chemicals Ltd. vs. State of Uttar Pradesh,

p. 2046 Copy page pinpoint

Digital Supreme Court Reports

AIR 1990 SC 1927 (“Synthetics and Chemicals (7J)”), has been correctly decided by the seven-Judge Bench of this Court. On the aspect of Section 18G of the IDRA occupying the field and consequently, whether the State Legislatures are denuded of their powers on the content of the subject matter of the said Section in the context of Entry 33(a) – List III as per first part of Article 254(1) shall be adverted to later. I propose to discuss the reasons for aforesaid view. 1.2 Since the Entries under discussion are in their respective Lists of the “Seventh Schedule of the Constitution”, it would be unnecessary to refer to them as being part of “Seventh Schedule of the Constitution” in the following discussion.

Genesis of the controversy:

2. The genesis of this present controversy insofar as the reference to the nine-Judge Bench is concerned, emanates from the judgment of the seven-Judge Bench of this Court in Synthetics and Chemicals (7J). The said judgment authored by Sabyasachi Mukharji, J. (as His Lordship then was) held that the scope of the expression “intoxicating liquors” in Entry 8 – List II did not extend to “industrial alcohol” and regulation of the same by State Legislature is impermissible in law having regard to the constitutional framework, particularly the relevant Entries of Lists I and II of the Seventh Schedule to the Constitution of India. The said dictum of the seven-Judge Bench was doubted by a three-Judge Bench of this Court in State of UP vs. M/s Lalta Prasad Vaish vide order dated 25.10.2007 and the following questions were formulated for consideration by a larger Bench: “Q. 1. Does Section 2 of the Industries (Development and Regulation) Act, 1951, have any impact on the field covered by Section 18-G of the said Act or Entry 33 of List III of the Seventh Schedule of the Constitution? Q. 2. Does Section 18-G of the aforesaid Act fall under Entry 52 of List I of the Seventh Schedule of the Constitution, or is it covered by Entry 33 of List III thereof? Q. 3. In the absence of any notified order by the Central Government under Section 18-G of the above Act, is the power of the State to legislate in respect of matters enumerated in Entry 33 of List III ousted?

p. 2047 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

Q. 4. Does the mere enactment of Section 18-G of the above Act, give rise to a presumption that it was the intention of the Central Government to cover the entire field in respect of Entry 33 of List III so as to oust the States’ competence to legislate in respect of matters relating thereto? Q. 5. Does the mere presence of Section 18-G of the above Act, oust the State’s power to legislate in regard to matters falling under Entry 33(a) of List III? Q. 6. Does the interpretation given in Synthetics and Chemicals case (1990) 1 SCC 109 in respect of Section 18-G of the Industries (Development and Regulation) Act, 1951, correctly state the law regarding the States’ power to regulate industrial alcohol as a product of the scheduled industry under Entry 33 of List III of the Seventh Schedule of the Constitution in view of Clause (a) thereof?” 2.1 A similar view was expressed by a five-Judge Bench in very same case wherein this Court was of the view that the matter has to be considered by a Bench of nine-Judges. 2.2 In view of the nature of questions raised by the three-Judge Bench as well as the five-Judge Bench of this Court, the correctness or otherwise of judgment of this Court in Synthetics and Chemicals (7J) is being considered by this nine-Judge Bench.

Conclusions arrived at by the learned Chief Justice:

3. His Lordship, the Chief Justice has overruled the judgment in Synthetics and Chemicals (7J) and has arrived at the following conclusions: “In view of the discussion above, the following conclusions emerge: a. 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

p. 2048 Copy page pinpoint

Digital Supreme Court Reports

exhaustive of its contents. It includes the regulation of everything from the raw materials to the consumption of ‘intoxicating liquor’; b. Parliament cannot occupy the field of the entire industry merely by issuing a declaration under Entry 52 of List I. The State Legislature’s competence under Entry 24 of List II is denuded only to the extent of the field covered by the law of Parliament under Entry 52 of List I; c. 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; d. The judgments of the Bombay High Court in FN Balsara v. State of Bombay (supra), this Court in FN Balsara (supra) and Southern Pharmaceuticals (supra) did not limit the meaning of the expression ‘intoxicating liquor’ to its popular meaning, that is, alcoholic beverages that produce intoxication. All the three judgments interpreted the expression to cover alcohol that could be noxiously used to the detriment of health; e. The expression ‘intoxicating liquor’ in Entry 8 has not acquired a legislative meaning on an application of the test laid down in Ganon Dunkerley (supra); f. The study of the evolution of the legislative entries on alcohol indicates that the use of the expressions “intoxicating liquor” and “alcoholic liquor for human consumption” in the Seventh Schedule was a matter well-thought of. It also indicates that the members of the Constituent Assembly were aware of use of the variants of alcohol as a raw material in the production of multiple products; g. Entry 8 of List II is based on public interest. It seeks to enhance the scope of the entry beyond potable alcohol. This is inferable from the use of the phrase

p. 2049 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

‘intoxicating’ and other accompanying words in the Entry. Alcohol is inherently a noxious substance that is prone to misuse affecting public health at large. Entry 8 covers alcohol that could be used noxiously to the detriment of public health. This includes alcohol such as rectified spirit, ENA and denatured spirit which are used as raw materials in the production of potable alcohol and other products. However, it does not include the final product (such as a hand sanitiser) that contains alcohol since such an interpretation will substantially diminish the scope of multiple other legislative entries; h. The judgment in Synthetics (7J) (supra) is overruled in terms of this judgment; i. Item 26 of the First Schedule to the IDRA must be read as excluding the industry “intoxicating liquor”, as interpreted in this judgement; j. The correctness of the judgment in Tika Ramji (supra) on the interpretation of word ‘industry’ as it occurs in the Legislative entries does not fall for determination in this reference; and k. The issue of whether Section 18G of the IDRA covers the field under Entry 33 of List III does not arise for adjudication in view of the finding that denatured alcohol is covered by Entry 8 of List II.” 3.1 While coming to the aforesaid conclusions, His Lordship, the Chief Justice of India has held that the entire industry of “intoxicating liquors” including raw materials is covered by Entry 8 – List II and is completely out of Entry 52 – List I; that the scope and ambit of Entry 8 – List II covers both potable and non-potable alcohol and therefore, only State Legislatures have the power to regulate the subject. I respectfully disagree. 3.2 While coming to the aforesaid conclusions, significant judgments of this Court in State of Bombay vs. FN Balsara, AIR 1951 SC 318 (“FN Balsara”); Ch. Tika Ramji vs. State of Uttar Pradesh, AIR 1956 SC 676 (“Tika Ramji”); Calcutta Gas Company (Proprietary) Ltd. vs. State of West Bengal, AIR

p. 2050 Copy page pinpoint

Digital Supreme Court Reports

1962 SC 1044 (“Calcutta Gas Company”); Indian Mica and Micanite Industries vs. State of Bihar (1971) 2 SCC 236 (“Indian Mica”); Ishwari Khetan Sugar Mills (P) Ltd. vs. State of Uttar Pradesh, AIR 1980 SC 1955 (“Ishwari Khetan”); State of AP vs. McDowell & Co. (1996) 3 SCC 709 (“McDowell”); Bihar Distillery vs. Union of India (1997) 2 SCC 727 (“Bihar Distillery”); Vam Organic Chemicals Ltd. vs. State of U.P. (1997) 2 SCC 715, (“Vam Organic I”); and State of UP vs. Vam Organic Chemicals Ltd. (2004) 1 SCC 225 (“Vam Organic II”), amongst others, have been discussed.

Submissions:

4. As the learned Chief Justice has recorded the submissions of the respective parties in detail, I need not be repetitive except highlighting the submissions of the learned senior counsel Sri Rakesh Dwivedi, Sri Datar and Sri Jaideep Gupta and other counsel for the appellants. The main contention of the appellants is that the States have jurisdiction over “industrial alcohol” and therefore the judgment of this Court in Synthetics and Chemicals (7J) is incorrect. The expression “intoxicating liquors” in Entry 8 – List II of the Seventh Schedule of the Constitution cannot be restricted to alcoholic liquors for human consumption by a deduction from a reading of Entry 84 – List I with Entry 51 – List II. In other words, “intoxicating liquors” cannot be equated with only “alcoholic liquors for human consumption”. On the other hand, it is contended that the expression “intoxicating liquors” has attained a specific meaning over the passage of time which is more expansive than “alcoholic liquors for human consumption”. 4.1 The further submission was that only the production and manufacture of “industrial alcohol” would be governed by the Union List even if the requirement of a declaration under Section 2 of the IDRA read with Item 26 of the First Schedule thereto is as per Entry 52 – List I. However, when it comes to Entry 33 – List III, there is need for a notified order to claim exclusive jurisdiction on a product of a scheduled industry. If no such order has been issued, the legislative powers of the State would remain exclusive. It was further submitted that alcoholic liquors for human consumption means it is capable of being consumed by humans and it would fall under Entry 51 – List II, while denatured alcohol such as ethyl alcohol or rectified spirit which usually undergoes

p. 2051 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

denaturation for the purposes of their use in industries would fall under Entry 84 – List I. That everything, except denatured spirit is alcohol for human consumption because it has the potential to be consumed by humans. That Extra Neutral Alcohol (‘ENA’, for short) and rectified spirit may therefore be understood to be for human consumption and ceases to be such only upon undergoing denaturation. But according to the judgment in Synthetics and Chemicals (7J), the States do not have the power to levy tax on ENA despite being fit for human consumption. This position of law in the aforesaid decision has restricted the competence of the States to levy tax under Entry 51 – List II. That pursuant to the aforesaid decision, the Law Commission in its 158th Report suggested an amendment to the IDRA by which Item 26 in the First Schedule has been amended to mean that “Fermentation Industries” would not include “potable alcohol” with retrospective effect. It was contended that this amendment does not in any way clear the confusion created in the aforesaid case and hence, Synthetics and Chemicals (7J) may be overruled. It was also contended that in Tika Ramji, this Court has devised a three-fold classification as pre-production, production and post-production and it was only in the second category i.e. production which would be covered by the word “industry”. 4.2 Taking a different stance, Sri V. Giri submitted that denatured alcohol is excluded from the scope of the term “intoxicating liquors” in Entry 8 – List II and is covered under Entry 24 – List II. Further, unless a notified order under Section 18G of the IDRA is issued, the Parliament cannot occupy the field under Entry 33 – List III merely on the strength of the said provision being brought on the statute book. 4.3 On the other hand, Sri R. Venkataramani, learned Attorney General, leading the arguments for the Union of India and other respondents contended that Entry 52 – List I and Entry 33 – List III are interrelated as they touch upon matters relating to a scheduled industry under the provisions of the IDRA, whose control is with the Union. It was contended that Entry 52 – List I is provided in order to ensure a uniform control and development of an industry throughout the length and breadth of the country. This is not only in the interest of the scheduled industry but also to achieve equitable distribution of the products of such

p. 2052 Copy page pinpoint

Digital Supreme Court Reports

industry and as an economic measure. As a result, in respect of a scheduled industry, the powers of the State under Entries 26 and 27 - List II are denuded. Also, if the field is occupied by the Parliament (Union) and the States are denuded of their powers under Entry 33 – List III. Therefore, the judgment in Synthetics and Chemicals (7J) would not call for a reconsideration as it was correctly decided. It was further contended that all liquids containing alcohol would fall under two categories, namely, those meant for human consumption (potable alcohol) and non-potable alcohol. Entry 8 – List II deals with only potable alcohol meant for human consumption as a beverage. Thus, non-potable alcohol is outside the scope of Entry 8 – List II. The amendment to Item 26 of First Schedule of IDRA has clarified this position. Further, the use of the expression “that is to say” in Entry 8 – List II refers to the various activities concerning potable alcohol and does not refer to any other class of liquor. 4.4 Learned Solicitor General of India submitted that the controversy in this case must be tread carefully as it would have a bearing on other legislation. That having regard to national interest, there is a requirement for a uniform development throughout the country in respect of the products of an industry that are sought to be equally distributed, and, therefore, the control of such industries is taken over by the Union exercising powers in relation to Entry 52 – List I. That the IDRA is an instance of such legislation. It was contended that the judgment in Tika Ramji insofar as it held that there must be a notified order in force pursuant to Section 18G for the doctrine of repugnancy to apply is not correct and in Synthetics and Chemicals (7J), the judgment in Tika Ramji was rightly not considered. The expression “intoxicating liquors” in Entry 8- List II means a beverage which has the effect of intoxication upon consumption. In Synthetics and Chemicals (7J), this Court held that “intoxicating liquors” is “alcoholic liquors fit for human consumption”. Other learned counsel for the respondents have adopted the above arguments.

5. On enumerating the questions for opinion of this nine-Judge Bench, the following issues have been crystallised for consideration in paragraph 42 of the judgment of the learned Chief Justice of India which read as under:

p. 2053 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

“42. With the above preliminary observations, we have formulated the following issues: a. Whether Entry 52 of List I of the Seventh Schedule to the Constitution overrides Entry 8 of List II; b. Whether the expression ‘intoxicating liquors’ in Entry 8 of List II of the Seventh Schedule to the Constitution includes alcohol other than potable alcohol; and c. Whether a notified order under Section 18G of the IDRA is necessary for Parliament to occupy the field under Entry 33 of List III of the Seventh Schedule to the Constitution.”

Relevant Constitutional Framework:

6. Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. Article 366 is a definition clause and it states that in the Constitution, unless the context otherwise requires, the expressions mentioned therein have the meanings thereby respectively assigned to them. For the purpose of this case, Article 366(12) and (28) are relevant and the same read as under: “Article 366. Definitions.- In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say – xxx (12) “goods” includes all materials, commodities and articles; xxx (28) “taxation” includes the imposition of any tax or impost, whether general or local or special and “tax” shall be construed accordingly;” The aforesaid definition of ‘taxation’ 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. There can be no cavil to the proposition that before any tax or impost could be levied or collected, it must have the authority of law vide Article 265 including legislative competence.

p. 2054 Copy page pinpoint

Digital Supreme Court Reports

6.1 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. They read as under: “246. Subject-matter of laws made by Parliament and by the Legislatures of States. — (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List 1 in the Seventh Schedule (in this Constitution referred to as the “Union List”). (2) Notwithstanding anything in clause (3), Parliament and subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the “Concurrent List”). (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the ‘State List’). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List. xxx

254. Inconsistency between laws made by Parliament and laws made by the Legislatures of States.—(1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature

p. 2055 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void. (2) Where a law made by the Legislature of a State with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State: Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State.” 6.2 With regard to the allocation of subjects under the three Lists, namely, List I - Union List; List II - State List and List III - Concurrent List, it may be useful to refer to the Devolution Rules drawn under the Government of India Act, 1919 and the Government of India Act, 1935 which are the precursors to the distribution of legislative powers between the Union and the States under the Seventh Schedule of the Constitution of India. Some of the salient aspects concerning the distribution of the legislative powers between Parliament and State Legislature as per the three Lists in the backdrop of the provisions could be alluded to. 6.3 Article 246 of the Constitution deals with the distribution of legislative powers between the Union and the States. The said Article has to be read along with the three Lists, namely, the Union List, the State List and the Concurrent List. The taxing powers of the Union as well as the States are also demarcated as separate Entries in the Union List as well as the State List i.e. List I and List II respectively. The Entries in the Lists are fields of legislative powers conferred under Article 246 of the Constitution. In other words, the Entries define the areas of legislative competence of the Union and the State Legislature. (vide: State of Karnataka vs. State of Meghalaya (2023) 4 SCC 416 para 56), (“State of Karnataka”).

p. 2056 Copy page pinpoint

Digital Supreme Court Reports

Interpretation of Legislative Entries: 6.4 On the aspect of interpretation of legislative Entries in the three Lists, the following principles are apposite as discussed in State of Karnataka: (i) The power to legislate, which is dealt with under Article 246 has to be read in conjunction with the Entries in the three Lists which define the respective areas of legislative competence of the Union and State Legislatures. While interpreting these Entries, they should not be viewed in a narrow or myopic manner but by giving the widest scope to their meaning, particularly, when the vires of a provision of a statute is assailed. In such circumstances, a liberal construction must be given to the Entry by looking at the substance of the legislation and not its mere form. However, while interpreting the Entries in the case of an apparent conflict, every attempt must be made by the Court to harmonise or reconcile them. Where there is an apparent overlapping between two Entries, the doctrine of pith and substance is applied to find out the true character of the enactment and the Entry within which it would fall. The doctrine of pith and substance, in short, means, if an enactment substantially falls within the powers expressly conferred by the Constitution upon the Legislature which enacted it, the same cannot be held to be invalid merely because it incidentally encroaches on matters assigned to another Legislature. Also, in a situation where there is overlapping, the doctrine has to be applied to determine to which Entry, a piece of legislation could be related to. In order to examine the true character of an enactment or a provision thereof, due regard must be had to the enactment as a whole and to its scope and object. It is said that the question of invasion into another legislative territory has to be determined by substance and not by degree. (ii) In case of any conflict between Entries in List I and List II, the power of Parliament to legislate under List I will supersede when, on an interpretation, the two powers cannot be reconciled. But if a legislation in pith and substance squarely falls within any of the Entries of List II, the State Legislature’s competence cannot be questioned

p. 2057 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

on the ground that the field is covered by the Union list or the Concurrent list vide Prafulla Kumar Mukherjee vs. Bank of Commerce Limited, Khulna, AIR 1947 P.C. 60 (“Prafulla Kumar Mukherjee”). According to the pith and substance doctrine, if a law is, in its pith and substance within the competence of the Legislature which has made it, it will not be invalid because it incidentally touches upon the subject lying within the competence of another Legislature vide FN Balsara. (iii) Once the legislation is found to be ‘with respect to’ the legislative Entry in question, unless there are other constitutional prohibitions, the power would be unfettered. It would also extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in that topic or category of legislation vide United Provinces vs. Atiqa Begum, AIR 1941 FC 16 (“Atiqa Begum”). (iv) Another important aspect while construing the Entries in the respective Lists is that every attempt should be made to harmonise the contents of the Entries so that interpretation of one Entry should not render the entire content of another Entry nugatory vide Calcutta Gas Company. This is especially so when some of the Entries in a different List or in the same List may overlap or may appear to be in direct conflict with each other. In such a situation, a duty is cast on the Court to reconcile the Entries and bring about a harmonious construction. Thus, an effort must be made to give effect to both Entries and thereby arrive at a reconciliation or harmonious construction of the same. (v) In short, 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.

p. 2058 Copy page pinpoint

Digital Supreme Court Reports

(vi) Further, where one Entry is made “subject to” another Entry, all that it means is that out of the scope of the former Entry, a field of legislation covered by the latter Entry has been reserved to be specially dealt with by the appropriate Legislature. (vii) Also, when one Entry is general and another is specific, normally, the latter will exclude the former on a subject of legislation. 6.5 The sequitur to the aforesaid discussion is that if the Legislature passes a law which is beyond its legislative competence, it is a nullity ab-initio. The Legislation is rendered null and void for want of jurisdiction or legislative competence vide RMDC vs Union of India, AIR 1957 SC 628 (“RMDC”). 6.6 On a close perusal of the Entries in the three Lists, it is discerned that the Constitution has divided the topics of legislation into the following three broad categories: (i) Entries enabling laws to be made; (ii) Entries enabling taxes to be imposed; and (iii) Entries enabling fees and stamp duties to be collected. 6.7 Thus, 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. In this context, reliance could be placed on MPV Sundararamier vs. State of Andhra Pradesh, AIR 1958 SC 468 (“MPV Sundararamier”), wherein at paragraph 51 it was observed as under: “51. In List I Entries 1 to 81 mention the several matters over which Parliament has authority to legislate. Entries 82 to 92 enumerate the taxes which could be imposed by a law of Parliament. An examination of these two groups of entries shows that while the main subject of legislation figures in the first group, a tax in relation thereto is separately

p. 2059 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

mentioned in the second. Thus, Entry 22 in List I is “Railways”, and Entry 89 is “Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights”. If Entry 22 is to be construed as involving taxes to be imposed, then Entry 89 would be superfluous. Entry 41 mentions “Trade and commerce with foreign countries; import and export across customs frontiers”. If these expressions are to be interpreted as including duties to be levied in respect of that trade and commerce, then Entry 83 which is “Duties of customs including export duties” would be wholly redundant. Entries 43 and 44 relate to incorporation, regulation and winding up of corporations. Entry 85 provides separately for corporation tax. Turning to List II, Entries 1 to 44 form one group mentioning the subjects on which the States could legislate. Entries 45 to 63 in that List form another group, and they deal with taxes. Entry 18, for example, is “Land” and Entry 45 is “Land revenue”. Entry 23 is “Regulation of mines” and Entry 50 is “Taxes on mineral rights”. The above analysis—and it is not exhaustive of the entries in the Lists—leads to the inference that taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of Article 248 clauses (1) and (2) and of Entry 97 in List I of the Constitution. Construing Entry 42 in the light of the above scheme, it is difficult to resist the conclusion that the power of Parliament to legislate on inter-State trade and commerce under Entry 42 does not include a power to impose a tax on sales in the course of such trade and commerce.” 6.8 What falls for interpretation in these cases is the content, interplay and meaning of Entries 52 and 84 – List I, Entries 8, 24, 26, 27, 51 – List II and Entry 33 – List III. The aforesaid Entries read as under:

p. 2060 Copy page pinpoint

Digital Supreme Court Reports

“List – I

52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest. xxx

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 including medicinal and toilet preparations containing alcohol or any substance included in sub- paragraph (b) of this entry. List – II

8. Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors. xxx

24. Industries subject to the provisions of Entries 7 and 52 of List I. xxx

26. Trade and commerce within the State subject to the provisions of entry 33 of List III.

27. Production, supply and distribution of goods subject to the provisions of entry 33 of List III. xxx

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;

p. 2061 Copy page pinpoint

State of U.P. & Ors. v. M/s Lalta Prasad Vaish and sons

(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. List – III

33. Trade and commerce in, and the production, supply and distribution of,— (a) the products of any industry where the control of such industry by the Union is declared by Parliament by law to be expedient in the public interest, and imported goods of the same kind as such products; (b) foodstuffs, including edible oilseeds and oils; (c) cattle fodder, including oilcakes and other concentrates; (d) raw cotton, whether ginned or unginned, and cotton seed; and (e) raw jute.” For a better understanding of the discussion to follow, it would be relevant to refer to the scheme of the IDRA.

Scheme of IDRA:

7. The Preamble of the IDRA states that it is an Act to provide for the development and regulation of certain industries. Section 2 declares that it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule to the said Act. Hence, the question would be, whether, the Parliament by law has declared it expedient in public interest that the Union should take control of certain industries. Section 2 of the IDRA, for immediate reference, reads as under: “2. Declaration as to expediency of control by the Union.- It is hereby declared that it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule.”