Can States Regulate 'Industrial Alcohol' Using Powers Over 'Intoxicating Liquor'? Supreme Court Reserves Judgement

A 9-judge Constitution Bench of the Supreme Court on Thursday (March 14) reserved its verdict on the issue of whether 'denatured spirit or industrial alcohol' can be brought within the meaning of 'intoxicating liquor' under State legislation's law-making powers. The 6 day-long hearing deliberated upon the interplay between the Union's law-making powers over 'controlled industries' under Entry 52 List I, the State's powers to make laws on the subject of 'intoxicating liquor' under Entry 8 List II and the concurrent powers of Union and States on regulating trade, production, and distribution of products from industries under Union control. The Court was essentially tasked to examine whether the Industries (Development and Regulation) Act, of 1951 gave complete regulatory power to the Union on the subject of industrial alcohol.  

The bench hearing the matter is led by CJI DY Chandrachud and comprises Justices Hrishikesh Roy, Abhay S. Oka, B.V. Nagarathna, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma And Augustine George Masih.  

The present matter was referred to a nine-judge bench in 2007 and pertains to the interpretation of Section 18G of the Industries (Development and Regulation) Act, 1951(IDR Act). Section 18G allows the Central Government to ensure that certain products related to scheduled industries are distributed fairly and are available at reasonable prices. They can do this by issuing an official notification to control the supply, distribution, and trade of these products. However, as per Entry 33 of List III of the Seventh Schedule to the Constitution, the State legislature has the power to regulate trade, production, and distribution of products from industries under Union control and similar imported goods. It was argued that in Synthetics and Chemical Ltd. vs. State of U.P., a seven-judge bench had failed to address Section 18G's interference with the concurrent powers of the State. Accordingly, the Supreme Court held– 

"If the decision in the Synthetics and Chemicals case (supra) with regard to the interpretation of Section 18-G of the 1951 Act is allowed to stand, it would render the provisions of Entry 33 (a) of List III nugatory or otiose."

The matter was then referred to a nine-judge bench. It may be noted that apart from Entry 33 List III, Entry 8 List II also provides regulation powers to the state with regards to 'Intoxicating Liquor'. As per Entry 8 List II, the state has law-making powers over - “ Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors” 

Arguments Raised By States

The main contention of the State of Uttar Pradesh was that the term 'intoxicating liquor' should be given a wider interpretation to include 'denatured spirit/ industrial alcohol' and the latter be brought under the state's law-making powers. Relying on several other Statutory Definitions of 'liquor', it was submitted that all liquids containing alcohol come within the ambit of 'intoxicating liquor'. Since Entry 8 List II has been adopted from the GOI Act of 1935, the purposive meaning of the term ' Intoxicating Liquor' echoes the same intent with which it was initially introduced in 1935. 

It was further contended that when a central law (S. 18G of IDR Act) accidentally steps into areas usually controlled by state governments (referring to Entry 8 List II), it doesn't mean the state loses its powers over those areas. These incidents can help find a middle ground to the legal issues but shouldn't limit what the states can do within their own law-making spheres. In a system where both state and central governments share power,  the state's powers cannot be reduced through central notifications. This would harm the balance of power between the state and the centre. 

The appellants contended that the decision in Synthetic Chemicals merits interference and should be overruled as it flaws in mixing up 'industrial alcohol'(denatured) and 'rectified spirit'(potable) as synonymous. While 'rectified spirit' or ethyl alcohol is fit for human consumption, industrial alcohol is not. It was further clarified that 'denatured spirit'(non-suitable for human consumption) or 'industrial alcohol' was perhaps the offspring of 'intoxicating liquor'. The process is that from the molasses there is rectified alcohol, from rectified alcohol ENA is obtained and then it is the ENA which is branched further to denatured alcohol/ industrial alcohol. 

States of West Bengal, Maharashtra and Kerala also made arguments.

Arguments Raised By The Union 

The Union however countered the argument of the appellants on giving a broader import to the term 'Intoxicating Liquor'. The Union argued that the present case requires seeing meanings of terms like liquor and intoxicating liquor from a constitutional lens, with due regard to the distribution of powers and duties between the Union and the States. 

The Union submitted that there exists a symbiotic relationship between Entry 33 List III and Entry 52 List I. It was contended that both Entry 52 List I and Entry 33 List III were to be seen as two branches of the same tree- control of Union over the complete 3 stages of an industry - the pre-production and production as implied under Entry 52 List I and the post-production (trade, commerce, supply, distribution etc) as expressly provided under Entry 33 List III. 

A novel submitted with regard to the understanding of the IDR Act was also made. The Union asserted that as per S. 18 G whenever the Union deems fit, in the interest of economic welfare and market regulation of any specific industry, it may by a 'notified order' regulate the aspects of supply, distribution, trade and commerce of such a scheduled industry. As per the Union, the insertion of choice to regulate can be seen by the expression 'may…by notified order'. This underscored the principle of regulation by forbearance. The purpose of skimming through the scheme of the IDR Act was twofold- (1) to establish the Central Legislation has an occupied field in the subject of industrial alcohol, and (2) it purports a regulation by forbearance. 

The Union countered the submission of the appellants, wherein it was contended that 'industry' under Entry 52 List I only limits to the production or manufacturing process when it comes to understanding 'controlled industries'. In submitting, the decision in Tika Ramji v. State of U.P. was previously discussed. As per the Union, the said decision overlooked the all-expansive meaning of industry as intended by Dr Ambedkar during the framing of the constitution. The Union referred to the Constitutional Assembly Debates (CAD) to establish that 'Industry' would import the widest meaning possible, including all 3 stages- pre-production, production and post-production (including trade, commerce, sale, distribution etc). 

A detailed report on arguments of Day 6 will be published soon. 

Case Details: STATE OF U.P. vs. M/S. LALTA PRASAD VAISH C.A. No. 000151 / 2007 & Other Connected Matters

Does 'Intoxicating Liquor' Include 'Industrial Alcohol'? Supreme Court 9-Judge Bench Analyses Overlapping Powers Of Union & States [Day 1]

Can States Levy Tax Only On Alcohol Fit For Human Consumption? Supreme Court 9-Judge Bench Considers [Day 2 ]

Power Over Industrial Alcohol Reserved For Union, AG Tells Supreme Court [Day 3]

Why Can't States Regulate Misuse Of Industrial Alcohol To Control Liquor Tragedies? Supreme Court Asks Union [Day 4] 

IDR Act Represents Union's Intention To Exclusively Occupy The Field Of Industrial Alcohol : SG Tells Supreme Court [DAY 5]  

'Intoxicating Liquor' Doesn't Include 'Denatured Spirit', But Includes 'Extra Neutral Alcohol' : State Of Kerala To Supreme Court [Day 6]