SYNTHETICS & CHEMICALS LTD. ETC. v. STATE OF U.P. AND ORS.

It was submitted on behalf of the State that the vend fee on ·denatured alcoh()l or D.enatured Spirit or what is known as industrial G alcohol has been challenged on mainly two grounds, namely, (a) States lack legislative competence and (b) after the enactment of the IDR Act, 1961 the States power is completely lost. The contention of the ,_ State was that there is no dichotomy between Ethyl Alcohol to be used for beverages and to be used for industrial purposes. In.any case, the levy is on manufacture, according to Mr. Y.ogeshwar Prasad and Mr. H

662 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

Trivedi, learned Additional Advocate-General of U.P., of the ethyl A alcohol; use is different, and the collection at a later stage. The levy was stipulated jointly or severally both under entries 8 of iist II, entry 51 of list II, entry 33 of list III and what is described as polic powers regulatory and other incidental charges, according to them. It was submitted that levy was justified being a regulatory power under Arti- B cle 19(6), 19(6)(ii). It was further urged that State has a monopoly in alcohol trade; and that Art. 3 lC grants immunity to the challenge under Articles 13, 14 & 19 of the Constitution. It was submitted that quid pro quo was not necessary and even if it was necessary, the requirements were met. Under Art. 298 trading powers of the State must be recognised, it was submitted, coupled with century old mono- poly of the State in alcohol. c It was submitted that vend fee is a pre-Constitution levy. The U.P. Excise Act, 1910 and the vend fee levied thereunder were pre- Constitution Act/levy by a competent authority and will not cease to continue after the enforcement of the Constitution, merely because D the authority lost its legislative competence over the subject-matter. It was submitted that the levy was a pre-Constitution levy, so saved under Art. 277 of the Constitution. According to the State of U.P., the law continued under Art. 277 and is not a law either under Art. 246 nor under Art. 254 of the Constitution, so outside the purview of the Central Act. E At the outset, it may be noted that in view of the subsequent amendment and the additions to the levies it cannot, in our opinion, be with legitimate force contended .that the levies which are sought to be impugned in the present litigation are pre-Constitutional levies. So, these submissions on behalf of the State do 'not require any serious consideration.

It was further submitted that the Union of India has no power to effect the levy as levy was pre-Constitutional law and further as the expression 'alcoholic liquor for human consumption' in list I and 'the residuary entry 97 of list I of the 7th Schedule, will not operate as against its own legislative intent. It was further urged that the !DR Act, 1951 does not preclude or eclipse the legislative powers of the State. This Act on its own terms, does not.apply.to the levy; these operate on-different tracks, according to the counsei for the State. It was further urged that review- was_ not maintainable. Reference was made to the distillation pro~ess and detailed submissions were made before us explaining the same.

SYNTHETICS CHEMICALS v. STATE OF U.P. {MUKHARJI, J.l 663

It was submitted that sugarcane is raw-material of sugar and manufacture of sugar molasses is the waste product. Molasses when mixed with yeast fermentation starts and alcohol is produced. 10-12% strength of alcohol is toxic to yeast, hence, fermentation stops. According to the State of U.P., so fermented alcohol has maximum 12% strength of alcohol, the products being beer, cider, champangne, and liquor etc. For higher strength (above 12%) distillation of fermented alcohol is necessary. By distillation process-firstly 96% strength of alcohol is produced. It is known as ethyl alcohol or rectified alcohol. Counsel for the State of U .P. submitted that this ethyl alcohol is potable and used both for beverage and industrial purposes; and that it is at this stage of manufacture that the charge of levy is made. It has to be stated in view of the language used in the specific provisions the c levy is not on the manufacture of alcohol as such: therefore, in our opinion, these levies cannot in essence be sustained as duty of excise.

It was contended on behalf of the State that rectified alcohol is diverted to different warehouses for being used as beverages (country liquor, foreign liquor) and industrial liquor. It was submitted that this potable alcohol can lie used for industrial purposes, but for public welfare, a lower levy is charged and to prevent its misuse denaturants are added and for denaturing in public interest, the State has to incur expenses, cost of denaturants, process an_d regulation etc. However, l this submission, by itself, does not help the controversy herein in essence. No attempt had been made on behalf of the State to indicate that the levy has any element of quid pro quo or certain element which can possibly have some correlation with the expenses incurred in that connection. It was submitted that ethyl alcohol is diluted to the requi- site concentration for the concerned beverage and subjected to other processes like reduction, blending and flavouring etc. and ethyl alcohol is further distilled for higher concentration-99.4% power alcohol and 100% absolute alcohol. It was submitted that no alcohol as such is fit for human consumption. It was contended that the effect is ultimate consumption, whether delayed or instantaneous. The effect of alcohol is fatal, it was stated, -may be spread out on long span or instant depending upon the concentration, dose and the person drink- G ing it. Sleeping pills are illustrative, overdose puts the man to eternal sleep. It is in this background that we were reminded that the State being a welfare State, would be guilty in levying a lower levy on the alcohol. It is the duty of the State for being a welfare State to denature by incurring extra cost and effort. The industry does not need the denaturing. H

664 SUPREME COURT REPORTS (1989] Supp. 1 S.C.R.

Our attention was drawn to various observations of Krishna Iyer, A J. in P.N. Kausha/'s case (supra). There is indeed great deal of attempt made by some for wrong utHisation of alcohol and thereby endangering the community and people at large but the need to pro- tect the community from the evil effects of drinking does not by itself empower the State to levy duty or impost of fee not warranted by the B Constitution nor sanctioned by the specific provisions of the Constitu- tion and the laws. It was submitted that industrial alcohol and denatured spirit are intoxicating liquor and or alcoholic liquor for human consumption. These submissions were supported by reference to the Dictionary meaning, Organic Chemistry, the definition in U .P. Excise Act, 1910 and various case laws. It is used as being consumed by humanity. The industry needs potable alcohol and the denaturants c are not required by it rather some of them are avoided, according to the State of U .P. In particular industry they hamper the manufacture of the final product. Denatured spirit or industrial alcohol is basically potable alcohol; it is denatured in public interest to prevent its use as potable alcohol, according to the State of U.P. This alcohol cannot be D treated differently from other alcohols only because some denaturants are added in public interest and welfare. It was submitted that the State has legislative competence to impose the levy since the impugned levy is both on its language and in pith and substance legislation falling under, according to the State of U.P., entry 8 list II-intoxicating liquor, entry 51, list II alcoholic liquor for human consumption. E Counsel for the State em~hasised the significant omission of the expre- ssion "fit for". What is required is intoxicating liquor and/or alcoholic liquor for human consumption, according to counsel for the State of U.P. Entry 33 list III-trade and commerce in, and the production, supply and distribution of the products of any industry where the control of such industry by the Union is declared by Parliament by law to be expedient in public interest, and imported goods of the same kind as such products. Under its police powers the State has to regu- late health, morality, welfare of society and incidental pauperism and crime it was submitted.

It was further submitted by the State that the State has exclusive right to deal in liquor. This power according to the counsel for t.he State, is reserved by and/or derived under Arts. 19(6) and 19(6)(ii) of the Constitution. For parting with that right a charge is levied. It was emphasised that in a series of decisions some of which have been referred to hereinbefore, it has been ruled that the charge is neither a fee nor a tax and termed it as privilege. The levy is on the manufac- H lure, possession of alcohol. The rate of levy differs on its use, accord-

SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.] 665

ing to the State of U .P. The impost is also stipulated under the trading A , powers of the State under Art. 298 and it was contended that the petitioners and/or appellants were bound by the terms of their licence. It was submitted that the Parliament has no power to legislate on industrial alcohol, since industrial alcohol was also alcoholic liquor for human consumption. Entry 84 in list I expressly excludes alcoholic liquor for human consumption; and due to express exclusion of alcoholic liquor for human consumption from list I, the residuary entry 97 in list I will not operate as against its own legislative interest. These submissions have been made on the assumption that industrial liquor or ethyl alcohol is for human consumption. It is important to emphasise that the expression of a Constitution must be understood.in its common and normal sense. Industrial alcohol as ·it is, is incapable of being consumed.by a normal human being. The expression 'consump- tion' mi/st also be understood in the sense of direct physical intake by human beings in this context. It is true that utilisation in some form or the other is consumption for the benefit of human beings if industrial alcohol is utilised for production of rubber' tyres used. The utilisation of those tyres in the vehicle of man cannot in the context in which the expression has been used in the Constitution, be understood to mean that the alcohol has been for human consumption.

We have no doubt that the framers of the Constitution when they used the expression 'alcoholic liquor for. human consumption' they meant at that time and still the expression means that liquor which as it is is consumable in the sense capable of being taken by human beings as such as beverage of drinks. Hence, the expression under entry 84, list I must be understood in that light. We were taken through various dictionary and other meanings and also invited to the process of manufacture of alcohol in order to induce us to accept the position that Denatured Spirit can also be by appropriate cultivation or application or admixture with water or with others, be transformed into 'alcoholic liquor for human consumption' and as such transformation would not entail any process of manufacture as such. There will not be any organic or fundamental change in this transformation, we were told. We are, however,' unable to enter into this examination. Constitu- tional provisions specially dealing with the delimitation of powers in a G federal polity must be understood in a broad commonsense point of view as understood by common people .for whom the Constitution is made. In terminology, as understood by the framers of the Constitu- tion, and also as viewed at the relevant time of its interpretation, it is not possible to proceed otherwise, Alcoholic or intoxicating liquors must be un_derstood as these are, not what these are capable of or able H

666 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

to become. It is also not possible to accept the submission that vend A fee in U.P. is a pre-Constitution imposition and would not be subject. to Art. 245 of the Constitution. The present extent of imposition of vend fee is not a pre-Constitution imposition, as we notioed from the change of rate from time to time.

B On behalf of the State of Maharashtra Mr. Dholakia submitted that the first issue is whether entry 8 in list II of the 7th Schedule of the Constitution, covers alcohol unfit for human consumption. The second issue, according to him, is, whether assuming that the entry does not include alcohol unfit for human consumption, its scope in that respect is curtailed because of item 26 of the Schedule to the IDR Act, 1951. The third issue, according to him, is, whether having regard to entry 51 c in list II, the State can (a) impose regulations by creating economic disincentives for consumption of drinkable alcohol and (b) prevention of misuse of non-drinkable alcohol for consumption.

On behalf of the State both Mr. Trivedi and Mr. Yogeshwar D, Prasad contended that regulatory power of the State was there and in order to regulate it was .possible to impose certain disincentives in the form of fees or levies. Imposition of these imposts as part ofregulatory process is permissible, it was submitted. Our attention was drawn to the various decisions where by virtue of "Police Power" in respect of alcohol the State has imposed such impositions. Though one would not be justified in adverting to any police power, it is possible to conceive sovereign power and on that sovereign power to have the power of regulation to impose such conditions so as to ensure that the regula- tions are obeyed and complied with. We would not like, however, to embark upon any theory of police power because the Indian Constitu- tion does not recognise police power as such. But we must recognise the exercise of sovereign power which gives the State sufficient autho- rity to enact any law subject to the limitations of the Constitution to discharge its functions. Hence, the Indian Constitution as a sovereign State has power to legislate on all branches except to the limitation as to the division of powers between the Centre and the States and also subject to the'fundamental rights guaranteed uncjer the Constitution. G The Indian State, between the Centre and the States, has sovereign power. The sovereign power is plenary and inherent in every sovereign State to do all things which promote the health, peace, morals, educa- tion and good order of the people. Sovereignty is difficult to define. This power of sovereignty is, however, subject to Constitutional limi- tations. This power, according to some constitutional authorities, is to H the public what necessity is to the individual. Right to tax or levy

SYNTIIETICS CHEMICALS .v. STATE OF U.P. [MUKHARJI, J.] 667

imposts must be in accordance with the provisions of the Constitution. A It was contended that the question, necessarily arises as to whether these regulations under the Bombay Prohibition Act, 1949 are intended as measures of revenue or as measures to advance the cause of prohibition. Mr Dholakia invited us to the phrase "intoxicating liquor" which has been the subject-matter of interpretation by the B Federal Court, this Court and the United States Supreme Court. It has been held that the expression is of widest import and must be given liberal interpretation. According to him, this Court in Ba/sara's case (supra) held that even toilet articles containing alcohol as such would be intoxicating liquors. Mr. Dholakia suggests that United St~tes Supreme Court has expressly held that "Denatured Spirit" is intoxicat- ing liquor because of necessity to prevent its misuse. It was further c contended that the I.D.R. Act, was made by the Parliament and it is traceable to entry 52, list I. This entry enables-the Union Legislature, to legislate in respect of an industry the control of which is declared by Parliament to be expedient in public interest. Entry 52, according to him, speaks of control of an industry in its establishment. Ordinarily, D States have the authority to allow or not to allow any industry to be established under entry 24 of list II. This power is not taken away by the I.D.R. Act. According to Mr. Dholakia, if industry is allowed to be established by law within the policy of the State then its control thereafter would vest with the State. Ordinarily, a citizen has fonda- mental right to establish an industry and only reasonable restrictions E can be placed on these. However, the case of intoxicating liquor is different. By virtue of Art. 47 of the Constitution the State may impose absolute prohibition in respect of intoxicating liquor. In such a case, the State is authorised to deny a citizen the right to es'tablish an industry in intoxicating liquor. No person can claim that he is entitled to establish,,.n industry for manufacturing whisky in any particular F State. The true test, according to Mr. Dholakia, is to ascertain if there was no I.D.R. Act to which entry of the State List, various regulations in respect of "alcohol industry" would be traced. It was submitted that the r~ulations would have to be traced to entry 24 of list II and not to entry 8. It was supmitted that in case of alcohol ordinarily used for human consumption, the extent of regulation may go to the extent of G complete prohibition. It may go to a lesser extent of partial prohibi- tion. It may assume a variety of forms including one of imposing economic· disincentives. if tbe price of drinkable alcohol becomes higher and higher, the person given to drinking might think it better to give it up, according to Mr. Dholakia. The price fixation is a valiq method in regulatiOn of consumption, and if the above analysis is fully H

668 SUPREME COURT REPORTS (19891 Supp. 1 S.C.R.

valid for drinkable alcohol, it is equally valid for the non-drinkable alcohol for the following reasons, according to Mr. Dholakia: the major difference in non-drinkable alcohol and drinkable one is that the former is often the legitimate activity while in the latter no such claim can be made. The distinction is important for the purpose of determining the extent of regulations but it is of no assistance for deciding the nature of the regulation. It is true, he says, that a State may not be entitled to prohibit the business of non-drinkable alcohol but the State can impose regulation by which it can make non- drinkable alcohol more expensive to ensure that it is not available cheaply to a would-be bootlegger. Mr. Dholakia invites us to hold that Denatured Spirit is made by addition of malodorous or noxious sub- stance to alcohol in order to make it unfit for human consumption: c Denaturing is not done for making such alcohol fit for machine; it is done for the purpose of ensuring that such alcohol is avoided by would-be drinkers. Even so, lacking the easy availability of drinkable alcohol, those given to drinking would make an attempt to drink denatured spirit after distillation. Such process of distillation is what D the bootleggers undertake. The process is a simple one, according to Mr. Dholakia. We need not detain ourselves in examining the process as suggested by him.

He insisted that the dividing line between relative importance of prohibition and industry should be left to each individual State E because the conditions in all States are not identical. He suggested that Gujarat attaches great importance to the cause of prohibition. There are historical and social factors responsible for this policy. According to Mr. Dholakia, the Govt. of that State is prepared to sacrifice revenue running into hundreds of crores of rupees but the same may not be true of a State like Punjab. According to him, the historical and F social conditions there are-quite different. The power of the State Govt. with regard to potable liquor was sustained in the dissenting judgment of Justice Hidayatullah in the case of Mis Guruswamy & Co. etc. v. State of Mysore & Ors., (1967] 1 SCR 548. It was, however, suggested that levies in the instant case are not duties of excise as understood in the said decision. For these reasons, Mr. Dholakia sub- G mitted that the Bombay Prohibition Act cannot be challenged. According to him, the relevant section of the said Act and the Denatured Spirit Rules, 1959 have to impose and advance the cause of prohibition while at the same time assuring a reasonable availability of Denatured Spirit and Rectified Spirit at reasonable prices.

H Learned Advocate"General of the State of Andhra Pradesh has

SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, l.J 669

also submitted in support of the imposition made under the A.P. A Excise Act. He has referred us to the relevant definitions and sections contending that the Act falls within the legislative competence of the Andhra Pradesh State Legislature by virtue of entries 8 and 51 of list II and entry 33 of list III of the 7th Schedule. He contended that the levy of excise duty falls within entry 51 of list 11 of the 7th Schedule to the Constitution inasmuch as the Andhra Pradesh Act received the assent B of the President and is a later enactment than the l.D .R. Act. The provisions of the Andhra Pradesh Act, according to him, will prevail over any earlier Central Law under Art. 254 of the Constitution. The said Central legislation is enacted under entry 52 of list I. Learned Advocate-General also insisted that there is no fundamental right in the business of liquor; and that Rectified Spirit is nothing but alcohol which can be diluted and rendered fit for human consumption by addi- c tions of certain substances. It can also be utilised for industrial purposes as raw-material for manufacturing other products. This multifarious user does not bring about any change in the essential character of alcohol after distillation. In respect of these legislations, learned Advocate-General submitted that even if such an assumption D were to be regarded as conceivable, State legislation has the predo- minant effect prevailing over the Central Legislature in respect of the State of A.P. in view of the assent by the President and the enactment being later in point of time in accordance with Art. 254 of the Con- stitution of India. E It was submitted that the dichotomy attempted to be drawn in entry 84 of list I of the 7th Schedule to the Constitution, on the basis of the development of the concept of industrial alcohol and the inapplica- bility of the concept of potable liquor to the industry of alcohol is not valid. There is no qnestion of fundamental right to trade in dangerous or hazardous alcohol. It was submitted that it is consistent with wider F interpretation of alcoholic liquor based on pre-existing legislative history. It was further submitted that the test of potability of liquor is in no way rendered invalid in relation to industrial alcohol as it still permits of conversion to potability by addition of flavours and dilu- tion. When two interpretations are possible, it was submitted that the choice must fall on that interpretation which validates existing State G legislations designed to raise revenues and rejection of the other interpretation which is destructive of the scheme of distribution of powers. According to him, the words 'alcoholic liquor' in lists I & II of the 7th Schedule to the Constitution must be interpreted so as to mean and take within its sweep alcohol as first obtained in the process of or as a product ()f fermentation industry. At this stage, it is capable of H

670 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

A being rendered potable. The fact that it may be rendered unfit for human consumption, does not render the substance any less liable for taxation.

Learned Advocates-General for the States of Gujarat and Kerala have also made theii submissions, and referred to several deci- B sions and the concept of police power, and contended that imposition of a fee would be the most effective method of regulating intoxicating liquor other than alcohol. According to the Advocate-General of Kerala, that would be justified as the reasonable measure in regard to intoxicating liquor. According to him, it has been accepted by courts all along that the 'police power' of the State enables regulations to be made regarding manufacture, transport, possession and sale of into- c xicating liquor. Such police power could be exercised as to impose reasonable restrictions as to effectuate the power. He referred to the observations of this Court in Cooverjee B. Bharucha v. The Excise Commissioner and the Chief Commissioner, Ajmer & Ors., [1954] SCR 873 which quoted the passage from Crowley v. Christensen, [1890] 34 D Lawyers' Edn. 620. Reference was also made to Hari Shankar's case (supra) where this Court quoted Vol. 38 of the American Jurispru- dence where it was stated that the higher the fee is imposed for a licence, better is the regulation. Reliance was also placed on P.N. Kausha/'s case (supra). It was contended that it has been accepted by this Court that the police power is exercisable for regulation of an activity of a legislature within the permissible field or impost as regulatory measure. It may be valid though it may neither be fee nor a tax in the limited sense of the term. See the observations of this Court in Southern Pharmaceuticals & Chemicals, Trichur & Ors. etc. v. State of Kera/a & Ors. etc., [1982] 1 SCR 519 at 537. Regarding regulatory measures in connection with medicinal preparations containing alcohol it was observed by this Court that the impugned provisions had to be enacted to ensure that the Rectified Spirit is not misused under the pretext of heing used for toilet and medicinal preparations contain- ing alcohol. Such a regulation is a necessary concomitant of the police power of the State to regulate such trade or business which is inhe- rently dangerous to public health. The American doctrine of police power is not perhaps applicable as such in India, but powers of the sovereignty to regulate as part of the i:iower of the competent legisla- ture to effectuate its aim are there.

It is true that in the State of West Bengal v. Subodh Copa! Bose & Ors., [1954] V SCR 587 at 601-604 and Kameshwar Prasad & Ors. v .H The State of Bihar & Anr., [1962] 3 Suppl SCR 369 the concept of

SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.] 671

police power was accepted as such, but this doctrine was not accepted A in India as an independent power but was recognised as part of the power of the State to legislate with respect to the matters enumerated in the State and Concurrent Lists, subject to Constitutional limitations. It was stated that the American jurisprudence of police power as dis- tinguished from specific legislative power is not recognised in our Con- stitution and is, therefore, contrary to the scheme of the Constitution. B In interpreting the provisions of our Constitution, we should go by the plain words used by the Constitution-makers and the importing of expression like 'police power', which is a term of variable and inde- finite connotation, can only make the task. of interpretation more difficult. It was contended that in enacting a law with respect to into- xicating liquor as part of the legislative power measures of social con- trol and regulation of private rights are permissible and as such may c even amount to prohibition.

We are of the opinion that we need not detain ourselves on the question whether the States have police power or not. We must accept the position that the States have the power to regulate the use of alcohol and that power must include power to make provisions to prevent and/or check industrial alcohol being used as intoxicating or drinkable alcohol. The question is whether in the garb of regulations a legislation which is in pith and substance, as we look upon the instant legislation, fee or levy which has no connection with the cost or expenses administering the regulation, can be imposed purely as regulatory measure. Judged by the pith and substance of the impugned legislation, we are definitely of the opinion that these levies cannot be , treated as part of regulatory measures. In this view of the matter we do not detain ourselves with examining the numerous American decisions to which our attention was drawn by learned counsel very elaborately and thoroughly. F

We recognise power of the State to regulate though perhaps not as emanation of police power, but as an expression of the sovereign power of the State. But that power has its limitations. We have noted the submissions made to this effect by the learned Advocates-General of different States, including the Stae of Gujarat. Some of the G interveners have also made the submissions. We have considered the submissions made by M/s. Kantilal & Co. as interveners in respect of the Constitutional validity of the Bombay Prohibition Act as amended by the Bombay Prohibition (Gujarat Amendment) Act, 1978. We have also the advantage of the submissions made on behalf of Advocate-General of Madhya Pradesh by Mr. R.B. Datar. He submit- H

672 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R. >.

A ted that the substance of the case put forward by the petitioners and/or appellants, is that the vend fee in respect of industrial alcohol is not a fee for any services rendered, it is a compulsory exaction of money. The answer to the question posed lies not in the labels used, according to Mr. Datar for describing the commodity in question. It lies in the examination of the chemical reality of the substance. He says that no B process of interpretation can alter the law of chemistry or the chemical structure of the substance described in common parlance as industrial alcohol or potable alcohol, or alcohol for human consumption. He referred us to Organic Chemistry and other books but, as mentioned before, the meanings must be found but in the conditions as these are.

On behalf of State of U .P. Mr. Trivedi, learned Additional c Advocate-General further submitted that entry 52 of list I is an excep- tional entry. It not only prescribes the field of legislation but also enables and empowers the Parliament to make laws to the exclusion of the State. According to him, being exclusionary in nature unlike entries merely delineating fields of legislation, entry 52 has to be strictly and, therefore, narrowly construed. The other question that has to be judged, according to him, is that whenever the Constitution intended the Parliament to assume legislative competence in respect of the entire field, a declaration of an unqualified nature is provided for, unlike a qualified provision like entry 52 of list I. The words 'control' and 'regulation' are at times, held to be interchangeable or used synonymously, their use in the .various entries either singly or jointly, indicates that they are sougbt to convey a different sense. The word 'control' has in the context, a narrower meaning, excluding details of regulatory nature by the State. According to him, comparing entries 7, 23, 24, 27, 62, 64 & 67 of list I with entry 52, would demonstrate that under entry 52 it is not the entire field which is sougbt to be covered but only the control of industries; and that the absence of inclusion of q ualifyin;; words like 'the control of which' cannot be brushed aside. By referring to the several decisions, he contended that in view of the declaration made in s. 2 of the l.D.R. Act and the provisions made therein the entire field was not occupied and the vend fee or other impost by the State Legislatures were not infringing in the field treaded by the Central Legislature. Before we deal with the contentions of the petitioners/appel- lants, it is necessary to reiterate the principles by which these questions will have to be judged. ·

H It is well to remember that the meaning of the expressions used

SYNTHETICS CHEMICALS v. STATE OF U.P. IMUKHARJI, J.] 673

in ihe Constitution must be found from the language used. We should A interpret the words of the Constitution on the same principle of interpretation as one applies to an ordinary law but these very princi- ples of interpretation compel one to take into account the nature and scope of the Act which requires interpretation. A Constitution is the mechanism under which laws are to be made and not merely an Act ·which declares what the law is to be. It is also well-settled that a B Constitution must not be construed in any narrow or pedantic sense and that construction which is most beneficial to the widest possible amplitude of its power, must be adopted. An exclusfonary clause in any of the entries should be strictly and, therefore, narrowly cons- trued. No entry should, however, be so read as not to rob it of entire content. A broad and liberal spirit should, therefore, inspire those whose duty it is to interpret the Constitution, and the courts are not free to stretch or to pervert the language of an enactment in the interest of any legal or constitutional theory. Constitutional adjudica- tion is not strengthened by such an attempt but it must seek to declare the law but it must not try to give meaning on the theory of what the law should be, but it must so look upon .a Constitution that it is a living and organic thing and must adapt itself to the changing situations and pattern in which it has to be.interpreted. It has also to be borne in mind that where division of powers and jurisdiction in a federal Constitution "is the scheme, it is desirable to .read the Constitution in harmonious way. It is also necessary that in deciding whether any particular enact- ment is within the purview of one Legislature or the other, it is the pith and substance of the legislation in question that has to be looked into: It is well-settled that the various entries in the three lists of the Indian Constitution are not powers but fields of legislation. The power to legislate is given by Art. 246 and other Articles of the Constitution. The three lists of the 7th Schedule to the Constitution are legislative heads or fields of legislation. These demarcate the area over which the appropriate legislatures can operate. It is well-settled that widest amplitude should be given to the language of the entries in three lists but some of these entries in different lists or in the same list may override and sometimes may appear to be in direct conflict with each other, then and then only comes the duty of the court to find the true intent and purpose and to examine the particular Legislation in ques- G lion. Each general word would be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. In interpreting an entry it would not be reasonable to import any limitation by comparing or contrasting that entry with any other in the same list. It has to be interpreted as the Constitution must be interpreted as an organic document in the light of the experience H

674 SUPREME COURT REPORTS [1989] 5upp. 1 S.C.R.

gathered. ln the Constitutional scheme of division of powers under the A legislative lists, there are separate entries pertaining to taxation and other laws. The aforesaid principles are fairly well-settled by various decisions of this Court and other courts. Some of these decisions have been referred to in the decision of this Court in civil appeal No. 62(N)/ 70-The India Cement Ltd. etc. v. The State of Tamil Nadu etc., B The Balsara's case (supra) was in the context of the business of potable alcohol. Problems arose with regard to auctions, vends, li- cences and the business of manufacturing, selling, etc. of potable alcohol. Until the case of Synthetics & Chemicals (supra), which is under challenge here, all other cases since then have dealt with potable alcohol. The only case which has dealt with alcohol used for industrial c purposes was the case of Indian Mica and Micanite Industries Ltd. v. State of Bihar & Ors., (supra). The Constitution of India, it has to be borne in mind, like most other Constitutions, is an organic document. It should be interpreted in the light of the experience. It has to be flexible and dynamic so that it adapts itself to the changing conditions D and accommodates itself in a pragmatic way to the goals of national development and the industrialisation of the country. This Court should, therefore, endeavour to interpret the entries and the powers in the Constitution in such a way that it helps to the attainment of indis- puted national goals, as permitted by the Constitution. As mentioned hereinbefore, the relevant entries in the Seventh Schedule to the Con- E stitution demarcate legislative fields and are closely linked and supple- ment one another. In this connection, reference may be made to entry 84 of list I which deals with the duties of excise on tobacco and other goods manufactured or produced in India except, inter alia, alcoholic liquors for human consumption. Similarly, entry 51, list II is the counterpart of entry 84 of list I so far as the State List is concerned. It F authorises the State to impose duties of excise on alcoholic liquors for human consumption and opium, etc. manufactured or produced in the State and the countervailing duties at the same or lower rates on simi- lar goods produced or manufactured elsewhere in India. It is clear that all duties of excise save and except the items specifically excepted in entry 84 of list I are generally within the taxing power of the Central G Legislature. The State Legislature has power, though limited it is, in imposing duties of excise. That power is circumscribed under entry 51 of list II of the Seventh Schedule to the Constitution. As we have noted hereinbefore, the correct principles of harmonious interpreta- tion of legislative entries have been laid down in several cases. We have mentioned hereinbefore some of the decisions as noted in the H decision of this Court in India Cement (supra). In M.P. V. Sundarara-

SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.) 675

mier & Co. v. State of A.P., [1958] SCR 1422 at pages 1480-82, this A Court has laid down that-

(i) legislative entries are to be liberally construed. But when a topic is governed by two entries, then they have to be reconciled. It cannot be that one entry is to be liberally construed B and the other entry is not to be liberally construed.

(ii) under the Constitutional scheme of division of powers under legislative lists, there are separate entries pertaining to taxation and other laws. A tax cannot be levied under a general" entry. c (iii) a Constitution is an organic document and has to be so treated and construed.

(iv) if there is a conflict between the entries, the first principle is to reconcile them. But the Union power will prevail by virtue of Article 246(1) & (3). The words ''notwithstanding" and "subject to" are important and give primacy to the central legislative power.

In the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, [1939] FCR 18 at 37-38, the Federal Court had emphasised that Constitution of a Government is a living and organic thing which of all instruments has the greatest claim to be so construed as to make it live. In Indian Mica & Micanite India v. State of Bihar, (supra), a bench of five Hon'ble Judges stated as under:

"Under the 1935 Act as under our present Constitution, the power to levy duties on alcoholic liquor fit for human consumption was allocated to the provincial legislature · whereas the power to levy duty on alcoholic liquor not fit for human consumption was allocated to the central legislature."

In the aforesaid case, an impost was sought to be placed on denatured spirit which was used in the manufacture of micanrte. It was held that the impost could not be justified as a tax, under the taxing power and therefore, an enquiry was ordered to find out whether it was justified as a fee.

In Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P) H

676 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

A Ltd. and Ors. v. Union of India, [ 1963] 3 SCR 957, at pages 966, 969, 975, 976 of the report, it was observed by this Court that only the Central Government has the power to tax liquids containing liquor which was an ayurvedic medicine even though such medicines were -capable of being used as intoxicating things. In Mis Guruswamy & Co. etc. v. State of Mysore & Ors., [1967] 1 SCR 548 at pages 549, 556, B 557, 564, 571, 572 of the report, it was held that it is clear that imposts which were not in the nature of excise duty were held to be ultra vires entry 51 of list II of the Seventh Schedule to the Constitution. In State of Mysore v. S.D. Cawasji & Co. & Ors., [1971] 2 SCR 799 at pp. 804, 805 and 806 of the report, this Court rejected the contention that under entry 8 of list II of the Seventh Scheduly to the Constitution the State was competent to legislate for levy of cess in respect of "into- c xicating liquor" that is to say, the production, manufacture, transport, purchase ana sale of intoxicating liquors. Legislative power normally includes all incidental and subsidiary powers, but the power to tax is neither incidental nor subsidiary to the power to legislate on a matter or topic. Reference was made to M.P. V. Sundararamier's case D (supra). Entries in lists I and II, dealing with certain specific topics, it was held, do not grant power to levy tax on transactions relating to those topics. Power to tax must be derived from a specific taxing entry. Tax could not, therefore, be levied, ii was held on intoxicating liquors relying upon entry 8 of list II of te 7th Schedule. It was further held that the taxing power in respect of alcoholic liquors for human con- E sumption is, therefore, circumscribed and it might only be levied as excise duty, that is a duty levied on the production and manufacture of alcoholic liquors. Reliance was placed on R.C. Jail v. Union of India, [ 1962] Supp. 3 SCR 436.

In Om Prakash v. Giriraj Kishore, [1986] 1SCR149 at pages 158 F and 163 of the report, Venkataramiah J., as the learned Chief-Justice then was, held that no tax can be levied in the guise of a fee. It was held at p. 158 of the report as follows:

"As observed in M.P. V. Sundararamier & Co. v. The State· of Andhra Pradesh & Anr., [1958] SCR 1422, in list II of the Se.venth Schedule to the Constitution Entries 1 to 44 form one group mentioning the subjects on which the States can legislate and entries 45 to 63 in that list form another group dealing with taxes that may be levied by States. Entry 64 refers to offences against laws with respect to any of the matters in List II and Entry 65 refers to jurisdiction of Courts. Entry 66 em~owers the State to levy

SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.J 677

fees in respect of any of the matters in List II. Unless the cess in question can be brought under any of the Entries from 45 to 63 it cannot be levied as a tax at all."

It was further observed at p. 163 of the report as follows:

,-,It is constitutionally by impermissible for any State Govern- B ment to collect any amount which is not strictly of the nature of a fee in the guise of a fee. If in the guise of a fee the legislation imposes a tax it is for the Court on scrutiny of the scheme of the levy to determine its real character. If on a true analysis of the provisions levying the amount, the Court comes to the conclusion that it is, in fact, in the c nature of a tax and not a fee, its validity can be justified only by bringing it under any one of the entries in list Il of the Seventh Schedule to the Constitution under which the State can levy a tax."

It has to be borne in mind that by common standards ethyl D alcohol (which has 95%) is an industrial alcohol and is not fit for human consumption. The petitioner and the appellants were manufac- turing ethyl alcohol (95%) (also known as rectified spirit) which is an industrial alcohol. ISi specification has divided ethly alcohol (as known in the trade) into several kinds of alcohol. Beverage and indust- rial alcohols are clearly and differently treated. Rectified spirit for E Industrial purposes is defined as "spirit purified by distillation having a strength not less than 95% of volume by ethyl alcohol". Dictionaries and technical books would show that rectified spirit (95%) is an indust- rial alcohol and is not potable as such. It appears, therefore, that industrial alcohol which is ethyl alcohol (95%) by itself is not only non-potable but is highly toxic. The range of spirit of potable alcohol is from country spirit to whisky and the Ethyl Alcohol content varies between 19 to about 43 per cent. These standards are according to the ISi specifications. In other words, ethyl alcohol (95%) is not alcoholic liquor for human consumption but can be used as raw material input after processing and substantial dilution in ihe production of Whisky, Gin, Country Liquor, etc. In many decisions, it was held that rectified spirit is not alcohol fit for human consumption. Reference may be made in this connection to Delhi. Cloth and General Mills Co. Ltd. v. The Excise Commissioner, U.P. Allahabad and Anr. Special Appeal No. 177 of 1970, decided on 29th March, 1973. In this connection, it is important to bear in mind the actual provision of entry 8 of list IL Entry 8 of list II cannot support a tax. The above entry contains the H

678 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

words "intoxicating liquor". The meaning of the expression "into- A xicating liquor" has been ;ightly interpreted by tbe Bombay High Court in the Balsara's case (supra). The decision of the Bombay High Court is reported in AIR 1951 Bombay 210, at p. 214. In that light, perhaps, the observations of Fazal Ali, J. in Balsara's case (supra) requires consideration. It appears that in the light of the new expe- B rience 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 Fazal 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 then comprehended or understood. With the passage of time, meanings do not change but new experiences c give new colour to the meaning. In Har Shankar's case (supra), a bench of five judges have surveyed the previous authorities. That case dealt with the auction of the right to sell potable liquor. The position laid down in that case was that tbe State had the exclusive privilege or right of manufacturing and selling liquor and it had the power to hold D public auctions for granting the right or privilege to sell liquor and that traditionally intoxicating liquors were the subject matters of State monopoly and that there was no fundamental right in a citizen to carry on trade or business in liquor. All the authorities from Cooverji Barucha's case (1954) SCR 673 to Har Shankar's case (supra) dealt with the problems or disputes arising in connection witb the sale, auction, licensing or use of potable liquor. E Only in two cases the question of industrial alcohol had come up for consideration before this Court. One is the present decision which is under challenge and the other is the decision in Indian Mica & Micanite Jndustries's case (supra). In the latter case, in spite of the earlier judgments including Bharucha's case, denatured spirit required for the manufacture of micanite was not regarded as being within the exclusive privilege of the State. It appears that in that decision at p. 321 of the report, it was specifically held that the power of taxation with regard to alcoholic liquor not fit for human consumption, was within the legislative competence of central legislature. The impost by the State was held to be justifiable only if it was a fee thereby impliedly and clearly denying any consideration or price for any privilege. For the first time, in the Synthetics & Chemicals Ltd. 's case (supra), the concept of exclusive privilege was introduced into the area of indust- rial alcohol not fit for human consumption.

H Balsara's case (supra) deal with the question of reasonable restr-

SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.j 679

iction on medicinal and toilet preparations. In fact, it can safely be said A that it impliedly and sub-silentio clearly held that medicinal and toilet preparations would not fall within the exclusive privilege of the State. If they did there was no question of striking down of section 12 (c) & (d) and section 13(b) of the Bombay Prohibition Act, 1949 as un- reasonable under Article 19(1)(f) of the Constitution because total prohibition of the same would be permissible. In K.K. Narula's case B (1967) 3 SCR 50, it was held that there was right to do business even in potable liquor. It is not necessary to say whether it is good law or not. But this must be held that the reasoning therein would apply with greater force to industrial alcohol.

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 inju- rious to health. If the meaning of the expression "intoxicating liquor" is taken in the wide sense adopted in Balsara's case, it would lead.to an anamolous 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 judgments or the Constitution. It appears to us that the decision in the Synthetics & Chemicals Ltd.'s case (supra) was not correct on this aspect.

Reference in this connection may be made to the decision in E Inspector of Taxes v. Australian Mutual Provident Society, [1959] 3 All England Law Report 245, at p, 256 of the report, Lord Denning in his dissenting judgment observed as follows: - "My Lords, I ask myself: What authority is to be given in these circumstances to the decision of this House in 1947? F Is it to be followed from step to step regardless of conse- quences? Are we to hold that the tax under r,_3 is a tax on the profits of the business for all purposes, including the purposes of the Double Taxation Agreement, which this House never had in mind at all? I think not. The doctrine of . precedent does not compel your Lordships to follow the G wrong path until you fall over the edge of the cliff. As soon as you find that you are going in the wrong direction, you must at least be permitted to strike off in the right direc- . tion, even if you are not allowed to retrace your steps. And that is that I would ask your Lordships to do. I would invite your Lordships to say that the decision of this House in H

680 SUPREME COURT REPORTS [ 1989) Supp. 1 S.C.R.

A 1947 has no application to the meaning of the wo~d "pro- fits'' in the Double Taxation Agreement."

Justice Jackson in his dissent in the case of Commonwealth of Massachusetts Et Alv. USA, 92 Lawyers, Edition p. 968 also upheld the right to set right what was said wrongly in the past. B It was submitted that the activity in potable liquor which was regarded safe and exclusi\'e right of the state in the earlier judgments dealing with the potable liquor were sought to be justifiable under the police power of the State,- i.e., the power to preserve public health, morals; etc. This reasoning can never apply to industrial alcohol c manufactured by industries which are to be developed in the public int~rest and which are being encouraged by the State. In a situation of this nature, it is essential to strike a balance and in striking the ba- lance, it is difficult to find any justification for any theory of any exclusive right of a State to deal with industrial alcohol. Restriction valid under one circumstance may become invalid in changing cir- D cumstances·. Reference may be made to the observations of Justice Brandeis in Nashiville, Chattangooga & St Louis Railway v. Herbert S. Walters, 79 Lawyers Edition 949. See also Leo Nebbia v. People of the State of New York, 78 Lawyers' Edn. 940 at p. 941. Similar is the effect of the approach of this Court in Motor General Traders & Anr. etc. v. State of Andhra Pradesh & Ors. etc., [1984) 1SCR594. E It is not necessary for us here to say anything on the imposts on potable alcohol as commonly understood. These are justified by the lists of our legislature practised in this country-see the observations of Hidayatullah J. as the Cliief Justice then was, in Mis duruswamy v. State of Mysore, [1967) 1 SCR 548 at· p. 573-574 and other decisions mentioned hereinbefore.

In that view of the matter, it appears to us that the relevant provisions of the U.P. Act, A.P. Act, Tamil Nadu Act, Bombay Pro- hibition Act, as mentioned hereinbefore, are unconstitutional in so far as these purport to levy a tax or charges imposts upon industrial alcohol, namely alcohol used and useable for industrial purposes.

Having regard to the principles of interpretation and the Con- stitutional provisions, in the light of the language used and having considered the impost and the composition of industrial alcohol, and the legislative practice of this country, we are of the opinion that the n impost in question cannot he justified as State iinposts as these have

SYNTHETICS CHEMICALS v. STATE OF U.P. IMUKHARJI, l.] 681

been done. We have examined the different provisions. These are not A merely regulatory. These are much more than that. These seek to levy imposition in theif pith and substance not as incidental or as merely disincentives but as attempts to raise revenue for States' purposes. There is no taxing provision permitting these in the lists in the field of industrial alcohol for the State to legislate·. B Furthermore, in view of the occupation of the field by the IDR Act, it was not possible to levy this impost.

After 1956 amendment to the IDR Act bringing alcohol indus- tries (under fermentation industries) as item 26 of the First Schedule to IDR Act the control of this industry has vested exclusively in the Union. Thereafter, licences to manufacture both potable and non- c potable alcohol is vested in the Central Gov'ernment. Distilleries are manufacturing alcohol under the Central Licences under IDR Act. No privilege for manufacture even if one existed, has been transferred to the distilleries by the State. The State cannot itself manufacture indust- rial alcohol without the permission of the Central Government. The D States cannot claim to pass a right which these do not possess. Nor can the States cla_im exclusive right to produce and manufacture industrial alcohol which are manufactured under the grant of licence from the Central Government. Industrial alcohol cannot upon coming into existence under such grant be amenable to States' claim of exclusive possession of privilege. The State can neither rely on entry 8 of list II E nor entry 33 of list III as a basis for such a claim. The State cannot claim that under entry 33 of list III, it can regulate industrial alcohol as a product of the scheduled industry, because the Union, under section 18G of the IDR Act, has evinced clear intention to occupy the whole field. Even otherwise sections like section 24A and 24B of the U.P. Act do not constitute any regulation in respect of the industrial alcohol F as product of the scheduled industry. On the contrary, these purport to deal with the so-called transfer of privilege regarding manufacturing and sale. This power, admittedly, has been exercised by the State purporting to act under entry 8 of list JI and not under entry 33 of list III. G The position with regard to the control of alcohol industry has undergone material and significant change after the amendment of 1956 to the IDR Act. After the amendment, the State is left with only the following powers to legislate in respect of alcohol:

(_a) it may pass any legislation in the nature of prohibition H

682 SUPREME COURT REPORTS [ 1989] Supp. 1 S.C.R.

of potable liquor referable to entry 6 of list II and regulating A powers.

(b) it may lay down regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol. B (c) the state may charge excise duty on potable alcohol and sales tax under entry 52 of list II. However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the state on industrial alcohol. c (d) however, in case State is rendering any service, as dis- tinct from its claim of so-called grant of privilege, it may charge fees based on quid pro quo. See in this connection, the observa- tions of India Mica's case (supra).

D On an analysis of the various Abkari Acts and Excise Acts, it appears that various Provinces/States reserve to themselves in thier respective States the right to transfer exclusive or other privileges only in respect of manufacture and sale of alcohol and not in respect of possession and use. Not all but some of States have provided such reservation in their favour. The price charged as a consideration for E the grant of exclusive and other privileges was generally regarded as an excise duty. In other words, excise duty and price for privileges were regarded as one and the same thing. So-called provilege was reserved by the State mostly in respect of country liquor and not foreign liquor which included denatured spirit. ·

F On an analysis of the aforesaid decisions and practice, we are clearly of the opinion that in respect of industrial alcohol the States are not authorised to impose the impost they have purported to do. In that view of the matter, the contentions of the petitioners must succeed and such impositions and imposts must go as being invalid in law so far as industrial alcohol is concerned. We make it clear that this will not G affect any impost so far as potable alcohol as commonly understood is concerned. It will also not affect any imposition of levy on industrial alcohol fee where there are circumstances to establish that there was quid pro quo for the fee sought to be imposed. This will not affect any regulating measure as such.

H We must, however, observe that these imposts and levies have

SYNTHETICS CHEMICALS v. STATE OF U.P. [OZA, J.] 683

been imposed by virtue of the decision of this Court in Synthetics & A Chemicals Ltd. 's case (supra). The States as well as the petitioners and manufacturers have adjusted their rights and their position on that basis except in the case cif State of Tamil Nadu. In that view of the matter, it would be necessary to state that these provisions are declared to be illegal prospectively. In other words, the respondents states are restrained from enforcing the said levy any further but the B respondents will not be liable for any refund and the tax already collected and paid will not be refunded. We prospectively declare these imposts to be illegal and invalid, but do not affect any realisa- tions already made. The writ petitions and the appeals are disposed of accordingly. The review petitions, accordingly, succeed though strictly no grounds as such have been made out but in the view we have taken, the decision in the Synthetics & Chemicals .Ltd.'s ~supra) cannot be c upheld. In the view we have taken also, it is not necessary to decide or to adjudicate if the levy is valid as to who would be liable, that is to· say, the manufacturer or the producer or the dealer.

With regard to writ petition No. 4051/78 (Chemicals & Plastics D India Ltd. v. State of Tamil Nadu), certain orders were passed by this Court on 1st November, 1978, 1st September, 1986, 1st October, 1986 and 10th October, 1986. It is stated that the present demand of the Central Excise Department from 1st March, 1986 on alcohol manufactured by the company in their captive distillery is over Rs.4 crores. This Court by its order dated .1st OC!ober, 1986 as confirmed E on the 16th October, 1986 had permitted the State Government to collect the levy on alcohol manufactured in company's captive distil- lery subject to adjustment of equities and restrained the central excise authorities from collecting any excise duty on such alcohol. It is, there- fore, necessary to declare that in future no further realisation will be made in respect of this by the State Government from the petitioners. p So far as the past realisations made are concerned, we direct that this application for that part of the direction, should in accordance with our decision herein be placed before a division bench for disposal upon notice both to the State Government and the Central Government.

, In the facts and the circumstances of the case, the parties will G bear and pay their own costs.

OZA, J. While I agree with my learned brother Hon. Mukharji, J. as regards the conclusions but l would like to add the following reasons. H In these matters the main question that arise for consideration is

684 SUPREME COURT REPORTS [ 1989] Supp. 1 S.C.R.

A about the validity of the levies made by the respondent States on Alcohol which is utilised by the industries for manufacturing the products where Alcohol is the raw material. Some of these industies themselves manufacture Alcohol as they have their own distilleries and from their distilleries through pipelines it goes to their industrial units where this is used as a raw material whereas some are industries B which purchase Alcohol or denatured spirit on being allotted by the Government. It is alleged that in addition to excise duty levied by the Central Government, excise duty and various levies in various names like vend fee, transport fee and others numbering about eight levies are imposed by the State Government. The main contention on behalf of the industries is that the State Legislature has no authority in view c of Entry 84 of List I read with Entry 51 of List II to impose such levies. This being Alcohol which does not fall within the ambit of "Alcoholic liquors for human consumption". It is only the Centre which has the authority under Entry 84 of List I to tax. Entry 51 of List II authorises the State Legislature to impose a tax on "Alcoholic liquors for human consumption.'' D It is further contended that Entry 8 in List II which talks of intoxicating liquors only authorises the State Legislature to enact laws to regulate but does not empower the State Legislature to impose any levy and the various levies which have been imposed by the State Legislature on industrial alcohol and even Mithylated spirit could not E be brought within the ambit of regulatory duties for purposes of regu- lation only and therefore could not be justified under Item 8 of List II.

It was also contended that the State ultimately falls back on the consideration for parting with the privilege to seil alcoholic liquors which has been the basis of series of decisions of this Court based on F English and American decisions but according to the learned counsel for the petitioners this doctrine of privilege and consideration for sale of privilege also could be available to the State only in respect of alcohol or alcoholic liquors which are for human consumption. According to the learned counsel by merely widening the definition of intoxicating liquors in respective excise laws enacted by the State the G ambit of authority of taxation could not be enlarged by the State Legislature when in List II Item 51 the words used are Alcoholic liquors for human consumption. Entry 84 in List I reads:

"84. Duties of excise on tobacco and other goods manufactured or produced in India except- H

SYNTHETICS CHEMICALS v. STATE OF U.P. (OZA, J.] 685

(a) alcoholic liquors for human consumption. A

(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."

Entry 51 in List II reads:

"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 pro- duced 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 contain- ing alcohol or any substance included in sub-paragraph (b) of this entry." E A comparison of the language of these two entries clearly demonstrates that the powers of taxation on alcoholic liquors have been based on the way in which they are used as admittedly alcoholic liquor is a very wide term and may include variety of types of alcoholic liquors but our Constitution makers distributed them into. two heads: F (a) for human consumption

(b) other than for human consumption

Alcoholic liquors which are for human consumption were put in Entry 51 List II authorising the State Legislature to levy tax on them whereas G alcoholic liquors other than for human consumption have been left to the Central Legislature under Entry 84 for levy of duty of exise. This scheme of these two entries in List I and II is clear enough to indicate the line of demarcation for purposes of taxation of alcoholic liquors. What has been excluded in Entry 84 has specifically been put within the authority of the State for purposes of taxation. H

686 SUPREME COURT REPORTS [ 1989] Supp. 1 S.C.R.

Entry 8 in List 2 reads: A. "8. Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors."

B This Entry talks of intoxicating liquors and further on refers to produc- tion, manufacture, possession, transport, purchase and sale of these liquors. It appears that the State has levied some kind of duties in various names at each of these stages used in this Entry i.e. produc- tion, manufacture, possession, transport, purchase and sale. But from • the scheme of entries in the three lists it is clear that taxing entries have been specifically enacted conferring powers of taxation whereas other c entries pertain to the authority of the Legislature to enact laws for purposes of regulation. Ifwe compare Entry 8 in List II with entry 51 it is clear that when Entry 51 authorises the State Legislature to levy tax and duties on alcoholic liquors falling in Entry 51, Entry 8 confers authority on the State Legislature to enact laws for regulation. Sirni- o larly are Entries in List I. As regards regulation or regulatory fees it was contended that Entry 52 in List I empowers the Parliament to declare the industries which the Union proposes to control in public interest under Industries Development and Regulation Act.

Entry 52 List I reads as under: . E "52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest.''

Such a declaration is made by the Parliament and this industry J1 i.e. industry based on fermentation and alcohol has been declared to be an industry under that Act and therefore is directly under the con- trol of the Centre and therefore even in respect of regulation the authority of the State Legislature in Entry 8 List II could only be subject to the Industries Development and Regulation Act or Rules made by the Centre. G Under these circumstances therefore it is clear that the State Legislature had no authority to levy duty or tax on alcohol which is not for human consumption as that could only be levied by the Centre.

H The main emphasis it appears is that this duty on alcohol and alcoholic liquors is a substantial revenue of State and it appears that it -

SYNTHETICS CHEMICALS v. STATE OF U.P. 'OZA, J.J 687

was this obession which was reflected and demonstrated when this concept of consideration for parting with privilege was invented by our courts on the basis of some judgments from United States based on some judgments from England and it is on this basis that all through the States have been justifying their respective levies and duties on alcohol and alcoholic beverages and overcome the test of reasonable- ness, double taxation and of limitation as it being a consideration for transfer of privilege it could be anything and no limits could be placed thereupon.

The main edifice of the argument on behalf of the State is that the State has the sole privilege to deal with in Alcohol and alcoholic substances. This, according to the arguments, is equally applicable to c alcohol for human consumption and also for denatured spirit or other categories of alcoholic liquors which though may be described as not for human consumption but arc potential substances which easily could be converted as intoxicating liquors fit for human consumption.

It is on this basis that the learned counsel appearing for the D States and the Advocate General of the States drew our attention to various extracts of the text books on organic chemistry as it was con- tended that there are so many types of alcohol known in the organic chemistry of which ethyl alcohol is one which is used as a beverage when diluted upto a particular percenta~e and also i; used for indust- rial purposes in high concentration or sometimes denatured. The main E theme- of the argument was that ethyl alcohol which is a product of distillation after fermentation is extracted in various concentrations and can also be extracted in a very high concentration above 90 per- cent which generally is termed as rectified spirit. It is not in dispute that this high concentration of ethyl alcohol is a raw material for vari- ous industries. Sometimes it is supplied after being mixed by Mithy- F lated alcohol or being denatured by other processes only to safeguard against its use for conversion into alcoholic beverages for human con- sumption. As it is well-known that when the ethyl alcohol is diluted by water and its percentage is brought to 40 or 45 or below then it become fit for human consumption and it was therefore argued that various duties for purposes of regulation are imposed by the State itself to G prevent. the conversion of rectified spirit or mithylated alcohol to be diverted from industrial to portable use.

The basis of the privilege doctrine appears to be that alcoholic drinks or intoxicating drinks are expected to be injurious to health and therefore the trade in these commodities is described as obnoxious and H

688 SUPREME COURT REPORTS (1989] Supp. 1 S.C.R.

A therefore a citizen has no fundamental right under Article 19( l)(g) of the Constitution and therefore the trade in alcoholic drinks which is expected to be injurious to health and obnoxious is the privilege of the State alone and the State can part with this privilege on receipt of the consideration. This basis of the privilege doctrine has to be examined in the context of our Constitution especially Article 21 and Article 47. B The concept of royal privilege has been derived historically from England as Great Britain continues to be a Monarchy with democracy. The Head of the State is the Crown. It was on these bases that what has not been provided for was supposed to be the privilege of the Crown but under Indian Constitution the Head of the State and the c three functionaries of the State, the Executive, the Legislature and the Judiciary have their powers defined under the Constitution. There is nothing like privilege vested in any one of the functionaries of the State and in the background of this basic feature of our Constitution the doctrine of privilege is difficult to reconcile with. If we examine this privilege of trading in commodities injurious to health and dangerous D to life in the context of Article 21 and Article 47 of our Constitution.

Article 21 of the Constitution reads:

"21. Protection of life and personal liberty-No person shall be deprived of his life or personal liberty except according B to procedure established by law."

This Article casts a duty on the State to protect the life of every citizen except as is provided under Article 21. If we compare this duty of the State with the scheme of privilege which means that the State has a privilege to endanger human life (the life of a citizen) such a privilege F runs contrary to Article 21. Another significant article of our Constitu- tion is Article 47. It reads as under:

"47. Duty of the State to raise the level of nutrition and the standard of living and to improve public health-The State shall regard the raising of the level of nutrition and O the standard of living of its people and the improvement of public health as among its primary duties and, in particular, the State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health."

H This Article appears in the Chapter of Directive Principles of State

SYNTHETICS CHEMICALS v. STATE OF U.P. [OZA, J.] 689

Policy. Inclusion of this Article in this Chapter clearly goes to show that it is the duty of the State to do what has been enacted in Article 47 and in fact this Article starts with the phrase "Duty of the State" and the duty is to improve public health and it is further provided that this duty to improve public health will be di~charged by the State by endeavouring to bring about prohibition. It sounds contradictory for a State which is duty bound to protect human life, which is duty bound to improve public health and for that purpose is expected to move towards prohibition claims that it has the privilege of manufacture and sale of alcoholic beverages which are expected to be dangerous to human life and injurious to human health, transferring this privilege of selling this privilege on consideration to earn huge revenue without thinking that this trade in liquor ultimately results in degradation of human life even endangering human life and is nothing but moving contrary to the duty cast under Articles 21 and 47 and ideal of prohibi- tion enshrined in Article 47. In view of articles 21 and 47 with all respect to the learned Judges who so far accepted the privilege doctrine it is not possible to accept any privilege of the State having the right to trade in goods obnoxious and injurious to health. o The other stand of States to justify these levies is based on the doctrine of police powers. The doctrine of police powers enunciated in number of decisions of the American Courts and which has been the subject matter of discussion by various authors in texts on jurispru- dence as referred to in Indian context under our Constitution does not appear to be applicable. In the Constitution of U.S.A. basic factor which must be kept in mind is: that various States after getting inde- pendence from their European Masters came together to form a Federal State and therefore what was not conceded to the Federal State i.e. the residuary powers vested in the State and as it was not conceded to the Federal Government that this residuary power of maintenance of law and order peace so essential for the development in a civilised society was evolved as a doctrine of police powers vested in the State. In India as the Constitution was enacted or was framed after having the experience of various countries in the World, the concept of fundamental rights and rights like life, liberty, procedure established by law and various legislative functions which were divided between the States and the Union left no scope for any power except which could be derived from any provision in the Constitution coupled with an Entry in one of the three Lists which would indicate the power vested in either ·the State or the Centre. Apart from it the scheme of our Constitution is that there are no residuary powers which vest in the State and the scheme of our Consti(!1tion also reveals that in case of H

690 SUPREME COURT REPORTS [1989) Supp. 1 S.C.R.

A any conflicts it is the Centre which prevails and not the State and therefore trying to apply the doctrine of police powers which has been conceived of in the American decisions which the Government of a State in the United States and to apply it to a State under Indian Constitution, will only mean to do violence to the scheme of our Con- stitution. What police powers have been enunciated under the Ameri- B can .Constitution clearly will fall within the ambit of Articles 19, 21, 22 and respective entries in the Schedule of the Constitution. In fact, under our Constitution no powers could be conceived for which there is no provision in any one of the entries in the three Lists or which could not be justified under any specific Article of the Constitution. Thus even this concept of the doctrine of police powers could not be of any help to justify the levies imposed by the State on alcohol or al- c coholic liquors.

These questions about the privilege and the doctrine of police powers in fact would be material to be considered when the question about the various levies imposed by the State in respect of alcoholic D beverages is considered and so far as the present cases are concerned .which pertain to only alcoholic liquors which are not for human con- sumption i.e. which are meant for industrial use. The only question will be as to whether the State could justify the respective levies under any of the entries in List II. The main theme of the argument on behalf of the States has been that they have imposed levies because the al- E cohol which is not for human consumption is a commodity which could be easily converted into alcoholic liquors for human consumption and therefore the levies have been imposed assuming that it is for human consumption or in other words the contention has been that these levies have been imposed in order to prevent the conversion of alcoholic liquors which are not for human consumption to those which F are for human consumption. A contention therefore was suggested that these levies could be justified as regulatory fees although it was frankly conceded that although the revenue earned out of it is substan- tial and may not be justifiable as fees but have been imposed and it was therefore that the main theme on behalf of the respondents has been based on the doctrine of the privilege of the State to trade in these u commodities as that trade is considered to be obnoxious and injurious to public health.

In our opinion, therefore as far as the present case is concerned the State in exercise of powers under Entry 8 of List II and by appropriate law regulate and that regulation could be to prevent the ._ H conversion of alcoholic liquors for industrial use to one for human

SYNTHETICS CHEMICALS v. STATE OF U.P. [OZA, J.] 691

consmnpt10n and for purpose of regulation, the regulatory fees only A could be justified. In fact, the regulation should be the main purpose, the fee or earning out of it has to be incidental and that is why the learned counsel appearing for the State attempted to use this terminio- logy by saying that the purpose is regulation,Jhe earnings are inciden- tal but frankly conceded that in fact the earnings are substantial. In B fact in some of the excise laws in the States they have even used terminiology relying on the doctrine of privilege and parting with privilege but in my opinion it is not necessary tor us to go into those questions in greater detail as we are not here concerned with the· trade in alcoholic liquors meant for human consumption and therefore in view of clear demarcation of authority under various items in the three Lists, Entry 8 List II could not be invoked to justify the levies which c have been imposed by the State in respect of alcoholic liquors which are not meant fo human consumption.

N.P.V. Petitions & Appeals allowed. '