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PETITIONER: SYNTHETICS & CHEMICALS LTD. ETC.

       Vs.

RESPONDENT: STATE OF U.P. AND ORS.

DATE OF JUDGMENT25/10/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) VENKATARAMIAH, E.S. (CJ) MISRA RANGNATH OZA, G.L. (J) RAY, B.C. (J) SINGH, K.N. (J) NATRAJAN, S. (J)

CITATION:  1990 AIR 1927            1989 SCR  Supl. (1) 623  1990 SCC  (1) 109        JT 1989 (4)   267  1989 SCALE  (2)1045  CITATOR INFO :  E          1992 SC 872  (2,4,5,6)

ACT:     CONSTITUTION OF INDIA, 1950: Articles 19(1)(g), 21,  32, 47, 245, 246. 265, 277, Seventh Schedule, List I Entries  7. 52, 59, 84 96, 97, List II Entries 8, 24, 26, 27, 51, 52, 56 and List III Entries 19 and 13--Vend Fees and imposts levied under various State Acts--Constitutional validity of. Preamble--Sovereignty--Conception and meaning of.     Articles’  19(1)(g)  and  265--Arbitrary  and  excessive imposts by State--Whether a great disincentive for  develop- ment of industries rendering units unviable and sick.     Articles  19(1)(g),  21, 47 and 265--Right to  trade  in goods  obnoxious  and injurious to health and  dangerous  to life--Whether State can claim privilege of--Whether violates fundamental rights. Article 141--Precedent--When can be deviated.     Article  245, 246 and 265 and Part IV--Levy/fee in  fur- therance  of directive principles--Whether empowers  imposi- tion, if otherwise ultra vires Constitution or laws.     Article  265--Fee--Whether  justified  if  imposed   for regulation  of  any activity--Where the  revenue  earned  is substantial.     Article  277--Pre-Constitutional levy--Saving  provision for-Whether ceases to be effective on amendment or  addition to the levy after commencement of Constitution--Doctrine  of privilege--Whether  vests  in any of  the  functionaries  of State--Whether  State  can claim  privilege for  trading  in goods obnoxious and injurious to health-Whether violative of Articles 21 and 47. Police  Power  of State: Whether recognised  as  independent power-- 624 Whether same as sovereign power--Whether tax or levy  justi- fied on the theory of police power alone.     Andhra Pradesh Excise Act, 1968/Andhra Pradesh  Distill- ery  Rules,  1970/Bombay  Prohibition  Act,  1949:   Section 49/Bombay   Rectified  Spirit  (Transport  in  Bond)   Rules

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1951/Tamil  Nadu Prohibition Act, 1937: Levy of vend fee  or duty in respect of industrial alcohol--Legality of.     U.P. Excise Act. 1910/U.P. Excise Rules, 1972:  Sections 24A, 24B and 40/Rule 17(2)--Right of State to levy vend  fee or duties in respect of industrial alcohol--Legality of.     Industries  (Development  and  Regulation)  Act,   1951: Sections 2 and 18G--Powers of State to legislate in  respect of alcohol.     Statutory   Interpretation:   Constitution--Entries   in legislative lists --Exclusionary clause--To be strictly  and narrowly   construed--Ruff   of   harmonious    construction of--Reiterated.     Words  and Phrases:  ’Human  consumption’--’Intoxicating liquor’ --’Rectified spirit’--Meaning of.

HEADNOTE:     Writ  Petitions/Civil appeals challenging the  notifica- tion dated 31st May, 1979 which substituted a new rule 17(2) of U.P. Excise Rules and provided for a vend fee, the amend- ment  to  section  49 of the Bombay  Prohibition  Act,  1949 treating  exclusive privilege for State in liquor trade  and imposing  a transport fee, the Bombay Prohibition Act,  1949 as amended from time to time along with ordinance No. 15  of 1981  amending the Bombay Prohibition Act, 1949 and  Section 49 added by reason of which the State was granted  exclusive privilege of importing, exporting, transporting, manufactur- ing,  bottling,  selling, buying, processing  or  using  any intoxicant; and seeking a declaration that alcohol plant  of the  petitioner-company was not covered by the  A.P.  Excise Act, 1968. ’A.P. Distillery Rules, 1970, and A.P.  Rectified Spirit Rules. 1971 and that alcohol plant of the company was not a ’distillery’ within the meaning of the said expression under the A.P. Distillery Rules and, therefore, the Distill- ery Rules had no application thereto and seeking an order to restrain  from interfering with and/or regulating  and  con- trolling  production, distribution, movement and  supply  of alcohol  from  the plant of the company and the  Tamil  Nadu Prohibition Act, were filed in this Court.     Review Petitions against the judgment and order of  this Court  dated  19th December, 1979 in State of U.P.  etc.  v. Synthetics  and Chemicals Ltd. and Ors. etc., [1980]  2  SCR 531 re-agitating challenge 625 to  sections  24A and 24B of the U.P. Excise  Act,  1910  as amended  in 1972 and 1976, declaring exclusive privilege  of the Government for manufacture and sale of foreign liquor as defined,  which  included denatured  spirit  and  industrial alcohol, were also filed.     The  petitioners/appellants  contended that  the  levies made by the respondent States on alcohol, which was utilised as  raw  material by the industries  for  manufacturing  the products  were invalid. Some of three  industries’themselves manufactured alcohol as they had their own distillaries’ and from  where it passed through pipelines to their  industrial units,  where this was used as a raw material, whereas  some purchased  alcohol or denatured spirit on being allotted  by the  Government. It was alleged that, in addition to  excise duty  levied  by  the Central Government,  excise  duty  and various levies in various names like vend lee, transport fee and others numbering about eight levies were imposed by  the State  Government.  It  was also contended  that  the  State Legislature had no authority, in view of Entry 84 of List  I read  with Entry 51 of List I1 to impose such  levies;  this

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being  alcohol which did not within the ambit  of  alcoholic liquors  for human consumption. It is only the centre  which had the authority to tax under Entry 84, and that Entry 8 In List II only authorised the State Legislature to enact  laws to  regulate but did not empower it to impose any  levy  and the  various  levies  which hod been imposed  by  the  State Legislature on industrial alcohol and even methylated spirit could  not be brought within the ambit of regulatory  duties for  purposes of regulation only, and, therefore, could  not be  justified  under  Entry 8 of List H,  that  doctrine  of privilege  and consideration for sale of privilege could  be available  to the State only in respect of alcohol or  alco- holic  liquors  which were for human  consumption.  that  by merely  widening the definition of intoxicating  liquors  in respective  excise laws enacted by the States, the ambit  of authority  of  taxation could not be enlarged by  the  State Legislature  when  in List II Entry 51 the words  used  were alcoholic  liquors  for human consumption.  It  was  further contended  that though the direction and commitment  to  im- provement of the standards of living contained in Article 47 of  the Constitution must be kept in view, this  improvement could  be achieved primarily by industrialisation  involving increased  production and employment and giving priority  to the core sectors, that the Industries (Development & Regula- tion)  Act, 1951 was enacted with a view to  developing  and controlling various important industries and that the  peti- tioners/appellants  were  predominantly and  primarily  con- cerned  with  using ethyl alcohol (rectified spirit)  as  an industrial  raw  material  and this  industrial  alcohol  is required  as an input for further manufacture of  downstream products. 626     It  was submitted on behalf of Union of India  that  the legislative  competence of the State enactments in the  var- ious  States  would have to be determined  by  reference  to Entries  7, 52, 59, 84, 96 and 97 of List I and  Entries  8, 24, 26, 27, 51, 52, 54, 56, 62 of List II and Entries 19 and 33  of List III, that then was a dichotomy between Entry  84 of  List I and Entry 52 of List II, but this would not  con- trol the interpretation of other entries and that there  was no  such dichotomy in Entry 8 of List II, that the power  to levy  taxes had to be read from entry relating to the  taxes and not from general entry, that none of the taxing  entries in  List  II  was controlled by Entry 52  of  List  I,  that State’s privilege to completely prohibit or farm out  liquor containing  alcohol  for consumption did  not  comprehend  a similar right of the State with regard to other intoxicating liquids containing alcohol and to so prohibit or collect fee for  farming  out, would be unconstitutional  under  Article 19(1)(g)  of the Constitution, that under Entry 51  of  List II,  State Legislature had no power to levy excise  duty  on industrial alcohol, as it was not fit for human consumption, and  though  the State could collect an amount  called  vend fee,  shop rent, etc. for conferring on a citizen the  right to manufacture and sell alcoholic liquors if it is for human consumption, this power did not extend to industrial alcohol or  alcohol  contained in the medicinal or  toilet  prepara- tions; On behalf of the respondent States; it was contended that:     (a)  Entry 52 of List I was an exceptional entry,  which not  only prescribed the field of legislation but also  ena- bled and empowered the Parliament to make laws to the exclu- sion  of  the State and that, being exclusionary  in  nature unlike  entries  merely delineating fields  of  legislation, this  entry  had  to be strictly  and,  therefore,  narrowly

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construed;     (b) whenever the Constitution intended the Parliament to assume  legislative  competence  in respect  of  the  entire field, a declaration of an  unqualified nature was provided for unlike qualified provi- sion like Entry 52 of List 1,     (c) the words ’control’ and ’regulation’ were, at times, held  to he interchangeable or used synonymously, but  their use  in the various entries either singly or jointly,  indi- cated that they were sought to convey a different sense  and the  word ’control’ had in the context, a narrower  meaning, excluding details of regulatory nature by the State;     (d)  comparing Entries 7, 23, 24, 27, 62, 64 and  67  of List I with Entry 52, would demonstrate that under entry 52, it was not the entire 627 field which was sought to be covered but only the control of industries; and that the absence of inclusion of  qualifying words  like  ’the  control of which’ could  not  be  brushed aside;     (e) in view of the declaration made in Section 2 of  the I.D.R. Act, 1951 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; the Act did not preclude or eclipse the legislative powers of the State; the Act also did  not apply on its own terms to the levy; these  operated on different tracks;     (f)  the Parliament had no power to legislate on  indus- trial  alcohol, since industrial alcohol was also  alcoholic liquor for human consumption and Entry 84 in List I express- ly  excluded  this category and,  therefore,  the  residuary Entry  97  of List I would not operate as  against  its  own legislative intent;     (g)  the State had legislative competence to impose  the levy  since  it was, both on its language and  in  pith  and substance, legislation failing under Entry 8 List II, intox- icating  liquor, and Entry 51 List II, alcoholic liquor  for human  consumption, and what was required  was  intoxicating liquor and/or alcoholic liquor for human consumption;     (h)  that the State had exclusive right to deal in  liq- uor,  and this power was reserved by and/or  derived  under, Article 19(6) and 19(6)(ii) of the Constitution, for parting which  a charge was levied, and in a series of decisions  it had  been ruled that the charge was neither a fee nor a  tax and was termed as privilege;     (i) there was no dichotomy between Ethyl Alcohol, to  be used  for beverages and for industrial purposes, and in  any case  the levy was on manufacture of the Ethyl Alcohol,  and the dichotomy attempted to be drawn in Entry 84 of List I on the  basis of the development of the concept  of  industrial alcohol  and the inapplicability of the concept  of  potable liquor to the industry of alcohol was not valid.    (j) the levy was consistent with wider interpretation  of alcoholic liquor based on pre-existing legislative history;     (k)  when two interpretations were possible, the  choice must  fall on that interpretation which  validated  existing State legislations designed to raise revenues and  rejection of the other interpretation 628 which  was  destructive  of the scheme  of  distribution  of powers;     (1) the words ’alcoholic liquor’ in Lists I & II of  the 7th Schedule to the Constitution must be interpretated so as to mean and take within its sweep alcohol as first  obtained

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in  the process of or as a product of fermentation  industry at  which stage, it was capable of being  rendered  potable, and  the fact that it may be rendered unfit for  human  con- sumption,  did not render the substance any less liable  for taxation;     (m)  imposition  of a fee would be  the  most  effective method of regulating intoxicating liquor other than  alcohol and  could be justified as the reasonable measure in  regard to  intoxicating  liquor--as it is the duty  of  the  State, being  a welfare State, to denature by incurring extra  cost and  effort; quid pro quo was not necessary and, even if  it was  necessary,  the requirements were met;  and  the  price fixation was ’a valid method in regulation of consumption;     (n)  under its police powers, the State had to  regulate health, morality, welfare of society and incidental  pauper- ism and crime;     (o)  in  enacting  a law with  respect  to  intoxication liquor as part of the legislative power, measures of  social control  and regulation of private rights  were  permissible and as such may even amount to prohibition;     (p)  it has been accepted by Courts all along  that  the ’police  power’ of the State enabled regulations to be  made regarding  manufacture,  transport, possession and  sale  of intoxicating  liquor; and such police power could  be  exer- cised as to impose reasonable restrictions as to  effectuate the power;     (q)  trade in alcoholic drinks or  intoxicating  drinks, being  obnoxious and injurious to health, a citizen  had  no fundamental right under Article 19(1)(g) of the Constitution and  it Is the privilege of the State alone and it can  part with this privilege on receipt of a consideration;     (r)  the levy was stipulated jointly or severally,  both under’  Entries 8 of List II, Entry 51 of List II, Entry  33 of List III and what was described as police powers  regula- tory  and other incidental charges, and the levy was  justi- fied,  being  a regulatory power under  Article  19(6),  and 19(6)(ii); the State had. a monopoly in alcohol trade and Article 31C 629 granted immunity to the challenge under Articles 13, 14  and 19 of the Constitution, and under Article 298, trading power of  the State must be recognised, coupled with  century  old monopoly of the State in alcohol; and     (t)  the vend fee was a pre-constitutional levy, and  so saved  under Article 277 of the Constitution: it was  not  a law either under Article 246 or Article 254 and was,  there- fore, outside the purview of the Central Act.     On the questions: (i) whether the vend fee in respect of the  industrial  alcohol under  different  legislations  and rules in different States was valid; (ii) whether the  power to  levy excise duty m case of industrial alcohol  was  with the State legislature or the Central legislature; (iii) what was  the scope and ambit of Entry 8 List Ii of  the  Seventh schedule  of the Constitution; and (iv) whether,  the  State Government  had exclusive right or privilege of  manufactur- ing,  selling,  distributing,  etc.  of  alcohols  including industrial alcohol, and what was the extent, scope and ambit of such right of privilege,     Allowing  the Writ Petitions, Civil Appeals  and  Review Petitions, this Court,     HELD:    Majority:   (E.S.     Venkataramiah,     C.J.I, Sabyasachi  Mukharji, Ranganath Misra, B.C. Ray, K.N.  Singh and S. Natarajan, JJ.) Per Sabyasachi Mukharji, J.     1.1 The relevant provisions of the U.P Excise Act, 1910,

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A.P.  Excise Act, 1968, Tamil Nadu Act, and Bombay  Prohibi- tion Act, 1949 are unconstitutional insofar as these purport to  levy  a tax or charge imposts upon  industrial  alcohol, namely,  alcohol  used and usable for  industrial  purposes. [680G-H]     1.2  Having regard to the principles  of  interpretation and  the  Constitutional  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. the imposts in question cannot  be justified as State imposts. [680G-H]     1.3 The different provisions, in question are not merely regulatory, but are much more than that. These seek to  levy imposition in their pith and substance, not as incidental or as merely disincentives, 630 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. Furthermore,  in view of the occupation of the field by  the Industrial Development and Regulation Act, it was not possi- ble  to levy this impost. Besides, in view of  the  language used in the specific provision the levy is not on the  manu- facture  of alcohol as such. Therefore, these levies  cannot in essence be sustained as duty of excise, [681A-B]     2.1 The meaning of the expressions used in the Constitu- tion must be found from the language used. The words of  the Constitution should be interpreted on the same principle  of interpretation  as one applies to an ordinary law but  these very  principles of interpretation compel one to  take  into account  the  nature  and scope of the  Act  which  requires interpretation. [672H, 673A]     2.2 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. [673B]     2.3 It is also well-settled that a Constitution must not be  construed in any narrow or pedantic sense and that  con- struction  which is most beneficial to the  widest  possible amplitude  of  its power, must be adopted.  An  exclusionary clause in any of the entries should be strictly and,  there- fore,  narrowly construed. 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.  Constitu- tional  adjudication is not strengthened by such an  attempt but it must seek to declare the law. It must not try to give meaning on the theory of what the law should be, but 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. Where division of powers  and  jurisdiction in a federal Constitution  is  the scheme, it is desirable to read the Constitution in harmoni- ous way. Further, 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. [673B-E]     3.1  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 Article  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

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631 which the appropriate legislatures can operate. [673F]     3.2 It is also well-settled that widest amplitude should be  given to the language of the three entries but  some  of these  entries  in different lists or in the same  list  may over-ride and sometimes may appear to be in direct conflict, with  each other, then and then comes the duty of the  Court to  find  the  true intent and purpose and  to  examine  the particular legislature in question. Each general word should be  held  to extend to all anciliary or  subsidiary  matters which  can  fairly  and reasonably be  comprehended  in  it. [673F-G]     3.3 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  inter- preted  that  the Constitution must be  interpreted  as  the organic  document in the light of the  experience  gathered. [673H]     3.4  In the Constitutional scheme of division  of  power under  the  legislative lists, there  are  separate  entries pertaining to taxation and other laws. [674A]     The  relevant  entries in the Seventh  Schedule  to  the Constitution  demarcate legislative fields and  are  closely linked and supplement one another. [674E]     The Constitution of India 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  and accommodates  itself  in  a pragmatic way to  the  goals  of national development and the industrialisation of the  coun- try.  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  undisputed  national goals, as permitted by the Constitution. [674C-D]     M.P.V. Sundararamier & Co. v. State of A.P., [1958]  SCR 1422 at pages 1480-82, relied on.     The  India Cement Ltd. etc. v. The State of  Tamil  Nadu etc., [1990] 1 SCC 12 and Central Provinces and Berar  Sales of Motor Spirit and Lubricants Taxation Act, 1938 [1939] FCR 18 at 37-38, referred to.     4.1 The expression of a Constitution must be  understood in  its  common and normal sense. Industrial alcohol  as  it ISI, is incapable of 632 being  consumed  by  a normal human  being.  The  expression ’consumption’ must also be understood in the sense of direct physical  intake by human beings in this context. No  doubt, utilisation in some form or the other is consumption for the benefit  of the human beings, if industrial alcohol is  uti- lised for production of rubber, tyres used. But the utilisa- tion  of  those tyres in the vehicle of man  cannot  in  the context in which the expression has been used in the Consti- tution, be understood to mean that the alcohol has been used for human consumption. [665C-D]     4.2 The expression ’alcoholic liquor for human  consump- tion’ was meant and still 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  the  light. [665E]     4.3  Constitutional  provisions specially  dealing  with delimitation  of powers in a federal polity must  be  under- stood in a broad commonsense point of view as understood  by common  people for whom the Constitution is made. In  termi- nology, as understood by the framers of the Constitution and

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as also viewed at the relevant time of its intepretation  it is  not possible to proceed otherwise. Alcoholic or  intoxi- cating  liquors must be understood as these are, what  these are capable of or able to become. [665G-H]     5.1 By common standards ethyl alcohol (which has 95%) is an industrial alcohol and is not fit for human  consumption. The petitioners and the appellants were manufacturing  ethyl alcohol  (95%) (also known as rectified spirit) which is  an industrial  alcohol.  ISI specification  has  divided  ethyl alcohol (as known in the trade) into several kinds of  alco- hol.  Beverage and industrial alcohols are clearly and  dif- ferently  treated. Rectified spirit for 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 industrial alcohol and is not potable  as such.  Therefore, industrial alcohol which is ethyl  alcohol (95%) by itself is not only non-potable but is highly toxic. The  range  of spirits of potable alcohol  is  from  country spirit  to whisky and the Ethyl Alcohol content  varies  be- tween 19 to about 43 per cent. These standards are according to the ISI specifications. Therefore, ethyl alcohol (95%) is not alcoholic liquors for human consumption but can be  used as  raw  material  input after  processing  and  substantial dilution  in the production of whisky, Gin, Country  Liquor, etc. [677D-G] 633     Delhi  Cloth  and General Mills Co. Ltd. v.  The  Excise Commissioner,  U.P. Allahabad and Anr., Special  Appeal  No. 177 of 1970, decided on 29.3.1973, referred to.     6.1 Entry 8 of List I which contains the words  "intoxi- cating  liquor’’ cannot support a tax. The meaning  of  this expression has been rightly interpreted by the High Court in Balsara’  s case. Hence, the observations of this  Court  in Balsara’s case require consideration. [677H, 675A-B]     6.2 In the light of the new experience and  development, "intoxicating  liquor" must mean liquor which is  consumable by human being as it is. When the word "liquor" was used  by this  Court,  it 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  poten- tiality  of  that user was not then comprehended  or  under- stood. With the passage of time, meanings do not change  but new experience give new colour to the meaning. [675B-C] F.N.  Balsara v. State of Bombay, AIR 1951 Born 210  &  214, approved.     State  of  Bombay & Anr. v. F.N. Balsara, [1951]  2  SCR 682;  Har Shankar & Ors. etc. v. The Dy. Excise  &  Taxation Commissioner  &  Ors., [1975] 3 SCR  254;  Adhyaksha  Mathur Babu’s Sakti Oushadhalaya Dacca (P) Ltd. v. Union of  India, [1963]  3  SCR 9571; M/s Guruswamy & Co. etc.  v.  State  of Mysore  &  Ors., [1967] 1 SCR 548; State of Mysore  v.  S.D. Cawasji & Co. & Ors., [1971] 2 SCR 799; R.C. Jallv. Union of India,  [1962]  Suppl 3 S.C.R. 436; Om  Prakash  v.  Giriraj ’Kishore, [1986] 1 SCR 149; Inspector of Taxes v. Australian Mutual  Provident Society, [1959] 3 All England  Law  Report 245  and  Commonwealth  of Massachusetts Et AI  v.  USA,  92 Lawyers, Edition p. 968, referred to.     6.3  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’s case, it would lead  to an  anamolous result and would oblige the State to  prohibit

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even  such industries as are licensed under the IDR Act  but which manufacture industrial alcohol. This was never intend- ed  by the Constitution or judgments of this  Court.  There- fore, the decision in the Synthetics & Chemicals Ltd.’s case was not correct on this aspect. [679C-D] State  of U.P., etc. v. Synthetics & Chemicals Ltd.  &  Ors. etc., 634 [1980] 2 SCR 531 and State of Bombay & Anr. v. F.N. Balsara, [1951] 11 SCR 682, overruled. K.K. Narula v. State of J & K, [1967] 3 SCR 50, referred to.     7.  The  Indian Constitution does not  recognise  police power  as such. But, the exercise of sovereign power,  which gives  the  State  sufficient authority to  enact  any  law, subject to the limitations of the Constitution to  discharge its functions must be recognised. The Indian Constitution as a  sovereign  State has power to legislate on  all  branches except  to the limitation as to the division of  powers  be- tween  the  Centre and the States, and also subject  to  the fundamental  rights guaranteed under the  Constitution.  The Indian State, between the Centre and the States, has  sover- eign  power. The sovereign power is plenary and inherent  in every  sovereign  State to do all things which  promote  the peace,  morals,  education  and good order  of  the  people. Sovereignty is difficult to define. This power of sovereign- ty  is,  however,  subject  to  Constitutional  limitations. [666F-H]     8.1 In interpreting the provisions of the  Constitution, one  should go by the plain words used by  the  Constitution makers.  Importing of expression like ’police power’,  which is  a term of variable and indefinite connotation, can  only make the task of interpretation more difficult. [671B]     State  of West Bengal v. Subodh Gopal & Ors.,  [1954]  5 SCR 587 at 601-604 and Kameshwar Prasad & Ors. v. The  State of Bihar & Anr., [1962] 3 Suppl. SCR 369, referred to.     8.2  The power of the State to regulate, though  not  as emanation  of  police  power, but as an  expression  of  the sovereign  power of the State is recognised, but that  power has its limitations. [671G]     8.3  Whether  the States have the police power  or  not, they 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. However, the question is whether,  in the garb of regulations, a legislation which is in pith  and substance, fee or levy which has no connection with the cost or  expenses administering the regulation, could be  imposed purely as regulatory measure. [671D-E] In the instant case, judged by the pith and substance of the legisla- 635 tion in question, these levies cannot be treated as part  of regulatory measures.[671E]     9.1  The activity in potable liquor, which was  regarded as  a safe and exclusive right of the State earlier,  cannot be justified 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 manufactured by indus- tries which are to be developed in the public interest,  and which  are being encouraged by the State. In such  a  situa- tion,  it is essential to strike a balance, and while  doing so, it is difficult to find any justification for any exclu- sive  right  of  a State to deal  with  industrial  alcohol. Restriction valid under one circumstance may become  invalid in changing circumstances. [680C-D]

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   Nashville,  Chattangooga & St. Louis Railway v.  Herbert S. Walters, 79 Lawyers’ Edition 949; Leo Nebbia v. People of the  State of New York, 78 Lawyers’ Edn. 940 at p.  941  and Motor General Traders & Anr. etc. v. State of Andhra Pradesh JUDGMENT:     9.2 Arbitrary and excessive imposts under the  so-called privilege of the States are a great disincentive for  devel- opment  of industries in the public interest and for  indus- trial  development in general and can render units  unviable and sick. It is essential that there should be uniformity in the  industry so that these are free from the  vagaries  and arbitrary and differential treatment meted out from State to State and even in the same State from time to time. [644C-D] 9.3  Right  to tax or levy must be in  accordance  with  the provisions of the Constitution. It is clear that all  duties of  excise, save and except the items specifically  excepted in entry 84 of List 1, are generally within the taxing power of the Central Legislature. The State Legislature has power, though  limited in imposing duties of excise. That power  is circumscribed under Entry 51 of List II of the 7th  Schedule to the Constitution. [666H, 667A, 674G]      10. In view of the subsequent amendments and  additions to the levies, the levies in question are not  pre-Constitu- tional levies. [662E]      11.1  After 1956 amendment to the Industries  (Develop- ment  and Regulation) Act, 1951 bringing alcohol  industries (under  fermentation  industries)as  item 26  of  the  First Schedule to the Act, the control of this industry has vested exclusively in the Union. Thereafter, licences to 636 manufacture  both potable and non-potable alcohol is  vested in  the Central Government. Distilleries  are  manufacturing alcohol under the Central Licences under IDR Act. No  privi- lege  for manufacture even if one existed, has :been  trans- ferred  to the distilleries by the State. The  State  cannot itself manufacture industrial alcohol without.the permission of the Central Government. The States cannot claim to pass a right which these do not possess. Nor can these States claim exclusive right to produce and manufacture industrial  alco- hol  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 nor Entry 33 of list  III as a basis for such a claim. It 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 18 G of the IDR Act, has evinced  clear intention  to occupy tile whole field. Even otherwise,  sec- tions  like Section 24A and 24B of the U.P. Act do not  con- stitute any regulation in respect of the industrial  alcohol as product of the scheduled industry. On the contrary, these purport  to  deal with the so-called transfer  of  privilege regarding  manufacturing and sale. This  power,  admittedly, has  been  exercised by the State purporting  to  act  under Entry  8  of  list II and not under Entry 33  of  list  III. [681C-F]     11.2  The  position with regard to  control  of  alcohol industry has, therefore, undergone material and  significant change  and the State is left with only powers to  pass  any legislation  in the nature of prohibition of potable  liquor referable  to Entry 6 of list II and regulating powers,  lay down  regulations to ensure that non-potable alcohol is  not diverted  and misused as a substitute for  potable  alcohol, and  charge  excise duty on potable alcohol  and  sales  tax

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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; and in case  State is rendering any service, as distinct  from  its claim  of so-called grant of privilege, it may  charge  fees based on quidpro quo. [681G-H, 682A-C]     Indian  Mica and Micanite Industries v. State of  Bihar, [1971] 2 SCC 236, relied on.     12.1  On  an  analysis of the various  Abkari  Acts  and Excise  Acts,  it  is clear  that  various  provinces/States reserve  to themselves in their respective States the  right to transfer exclusive or other privileges only in respect of manufacture and sale of alcohol and not in respect of 637 possession and use. Not all but some of States have provided such  reservation  in their favour. The price charged  as  a consideration  for the grant of exclusive and  other  privi- leges  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 privilege was reserved  by the  State mostly in respect of country liquor and not  for- eign liquor which included denatured spirit. [682D-E]     12.2  On an analysis of various decisions and  practice, it is clear that is respect of industrial alcohol the States are not authorised to impose the impost they have  purported to  do. Hence, such impositions and impost must go as  being invalid. However, this would not affect any impost so far as potable alcohol as commonly understood is concerned. It will also not affect any impositions of levy on industrial  alco- hol  fee,  where there are circumstances to  establish  that there  was  quid pro quo for the fee sought to  be  imposed. This  will also not affect any regulating measure  as  such. [682F-G]     The  provisions are, therefore, declared to  be  illegal and  invalid  prospectively. The Respondent-States  are  re- strained  from enforcing the said levy any further but  they will  not be liable for any refund and the tax already  col- lected and paid will not be refunded. [683B]     In  respect of Tamil Nadu, no further realisations  will be made in future by the State Government from the petition- ers.  Regarding past realisations, the application for  that part  of  the direction should be placed before  a  Division Bench,  for disposal upon notice both to the State  and  the Central Governments. [683F]     Calcutta Gas Co. (Proprietory) Ltd. v. The State of West Bengal . and Ors., [1962] Suppl. 3 SCR 1; Nashirwar etc.  v. The  State of M.P., [1975] 2 SCR 861; SheopatRai &  Ors.  v. State of U. P., [1972] All. L.J. 1000; Indian Mica &  Mican- ite Industries Ltd. v. State of Bihar & Ors., [1971]  Suppl. SCR  319; Town Municipal Committee, Amraoti  v.  Ramachandra Vasudeo   Chimote & Anr.,  [1964]  6 SCR 947;  P.N.  Kaushal etc.  v. Union of India, [1979] 1 SCR 122; M/s  Guruswamy  & Co.  etc. v. State of Mysore & Ors., [1967] 1 SCR 548;  Coo- verjee B. Bharucha v. The Excise Commissioner and the  Chief Commissioner,  Ajmer  &  Ors., [19541 SCR  873;  Crowley  v. Christensen, [1890] 34 Lawyers’ Edn. 620 and Southern  Phar- maceuticals  &  Chemicals Trichur & Ors. etc.  v.  State  of Kerala & Ors. etc., [1982] 1 SCR 519 at 537, referred to. 638 Per Oza, J. (Concurring)     13.1 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. [686G]     13.2 A comparison of the language of Entries 84 of  List

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I and 51 of List II clearly demonstrates that the powers  of taxation on alcoholic liquors have been based on the way  in which they are used. Admittedly, alcoholic liquor is a  very wide  term  and may include variety of  types  of  alcoholic liquors,  but our Constitution makers have distributed  them into heads, namely, (a) for human consumption, and (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  alcoholic liquors  other than for human consumption have been left  to the  Central Legislature under Entry 84 for levy of duty  of excise. This scheme of these two entries in List I and II is clear  enough to indicate the line of demarcation  for  pur- poses  of taxation of alcoholic liquors. What has  been  ex- cluded  in  Entry 84 has specifically been  put  within  the authority of the State for purposes of taxation. [685E-H]     13.3  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 entries pertain to  the authority of the Legislature to enact laws for  pur- poses of regulation. If Entry 8 in List II is compared  with Entry  51  it is clear that while Entry  51  authorises  the State  Legislature to levy tax and duties on alcoholic  liq- uors failing under this entry, Entry 8 confers authority  on the State Legislature to enact laws for regulation. Similar- ly  are Entries in List I. But since a declaration has  been made by the Parliament under Entry 52, List I, declaring the industry based on fermentation and alcohol to be an industry under the Industrial (Development and Regulation) Act, 1951, and  placing  it directly under the control of  the  Centre, even  in respect of regulation, the authority of  the  State Legislature in Entry 8, List II could only be subject to the Act or rules made by the Centre. 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 have been imposed by the State in  respect  of alcoholic liquors which are not meant for human consumption. [686C-D, F-G]     The  State, in exercise of powers under Entry 8 of  List II  and by appropriate law may, however, regulate  and  that regulation could be to 639 prevent  the conversion of alcoholic liquors for  industrial use  to  one for human consumption and for  the  purpose  of regulation, the regulatory fees only could be justified.  In fact, the regulation should be the main purpose, the fee  or earning out of it has to be incidental. [690H, 691A]     14.1  There is nothing like privilege vested in any  one of the functionaries of the State. In the background of this basic feature of our Constitution, the doctrine of privilege is difficult to reconcile with when this privilege of  trad- ing in commodities injurious to health and dangerous to life is  examined  especially in the context of  Article  21  and Article 47 of our Constitution. [688C-D]     14.2  Article 21 castes a duty on the State  to  protect the  life of every citizen except as is provided  under  the Article.  If  this duty of the State is  compared  with  the scheme of privilege, it means that the State has a privilege to  endanger  human  life (the life of a  citizen).  Such  a privilege runs contrary to Article 21 [688F]     14.3  Article  47 appears in the  Chapter  of  Directive Principles  of  State 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 provided in this Article. It  has provided that it is the duty of the State to improve  public

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health  and this duty will be discharged by endeavouring  to bring about prohibition. It, therefore, sounds contradictory for  a State, which is duty bound to protect human life,  to claim  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  and  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  endan- gering human life and is nothing but moving contrary to  the duty cast under Articles 21 and 47 and ideal of  prohibition enshrined in Article 47. [688H, 689A-C]     Therefore,  in  view of Articles 21 and  47,  the  State cannot  claim the privilege of having the right to trade  in goods obnoxious and injurious to health. [689D]     15. The doctrine of police powers enunciated in  various decisions of foreign courts is not applicable in the  Indian context.  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 640 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 that 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 scheme of  our Constitution  also reveals that in case of any conflicts  it is  the Centre which prevails and not the State and,  there- fore, applying the doctrine of police powers will only  mean to  do violence to the scheme 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  spe- cific  Article  of the Constitution. Thus,  even  under  the concept of the doctrine of police powers, the levies imposed by  the  State  on alcohol or alcoholic  liquors  cannot  be justified. [689E, G-H, 690A-C]

& ORIGINAL  JURISDICTION: Writ Petition No. 182 of  1980  Etc. Etc. (Under Article 32 of the Constitution of India).     F.S.  Nariman, M.H. Baig, A.B. Divan,  Rajinder  Sacher, L.M.  Singhvi,  R.N. Banerjee, K.J. John, Harish  N.  Salve, S.C.  Sharma,  S.S. Shroff, Mrs. P. Shroff, Ms.  S.  Sharma, J.B.  Dadachanji, A.P. Hathi, S. Ganesh, S. Sukumaran,  D.N. Misra,  Mrs.  A.K. Verma, Sandip I. Thakore,  R.F.  Nariman, P.H.  Parekh,  Shishir  Sharma, Poppat,  Ms.  Shalini  Soni, Sunita  Sharma,  M.L. Lahoty, Shiv Prasad  Sharma,  Himanshu Shekhar,  D.D.  Gupta, Ms. M. Gupta,  A.T.M.  Sampath,  Mrs. Swaran Mahajan, Ms. Anuradha Mahajan, K.K. Mohan, Laxmi Kant Pandey, R.B. Mehrotra, K.C. Dua, K.R. Nagaraja, P.D. Sharma, V.  Balachandran, O.P. Sharma, A.K. Sangal, Anil  Kumar,  D. Goburdhan, K.D. Prasad and Mrs. Naresh Bakshi for the  Peti- tioners.     K.  Parasaran, Attorney General, C. Shivalha,  G.  Rath, V.M.  Tamaskar,  Altar Ahmed, N.N.  Gooptu,  Dinesh  Chandra Swami,  A.S.  Bobde, K.  Alagiri  Swamy,  V.Venkataramaniah, Inder  Singh,  Advocate Generals, R.N.  Trivedi,  Additional

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Adv. Genl., Yogeshwar Prasad, S.K. Dholakia, P.S. Poti, A.K. Ganguli,  Satish  Chandra,  R.B. Datar,  G.L.  Sanghi,  P.R. Ramasesh,  R.K. Mehta, S.K. Bhattacharya, H.K. Purl.  Probir Chowdhary,  N.K. Sharma, M.N. Shroff, Ashok  K.  Srivastava, R.S.  Rana, A.S. Bhasme, A.M. Khanwilkar, Sunil Gupta,  T.T. Kunhikanan, V. Krishnamurthy, P. Venugopal, T.V.S.N.  Chari, D.R.K. Reddy, Jagan M. Rao, Ms. A. Subhashini, 641 A.  Subba Rao, K.C. Dua, Satish K. Agnihotri,  Ashok  Singh, Indra  Makwana,  Ms. Amrita Sanghi and N.K. Sharma  for  the Respondents- The following Judgments of the Court were delivered:     SABYASACHI  MUKHARJI,  J. These  writ  petitions,  civil appeals  and  review petitions relate to the  right  of  the States  to levy vend fee or duties in respect of  industrial alcohol under different legislations in different States. We will  first  deal  with writ petition No.  182/80.  In  Writ Petition No. 182/80 (Synthetics & Chemicals Ltd. v. State of U.P.  & Ors.), we are concerned with the notification  dated 31st  May,  1979, substituting new rule 17(2) for  old  rule 17(2)  and  providing for a vend fee of Rs.  1.10  per  bulk liter  for all issues from distillery but in case of  FL  39 Licence  (like  the petitioner in this case), the  vend  fee would be so charged that the amount of this fee and purchase tax  together does not exceed 25 paise per bulk litre;  Then there  are three review petitions, namely,  Review  Petition Nos. 202-04/80 (Synthetics & Chemicals Ltd. v. State of U.P. ) and Review Petition No. 17 of 1980 (Kesar Sugar Works Ltd. v.  State of U.P.). These are directed against the  judgment and  order of this Court dated 19th December, 1979 in  State of  U.P., etc. v. Synthetics & Chemicals Ltd. &  Ors.  etc., [1980] 2 SCR 531 re-agitating the challenge to sections  24A &  24B of the U.P. Excise Act, 1910 as amended in  1972  and 1976  declaring  exclusive privilege of the  Government  for manufacture  and  sale of foreign liquor as  defined  (which includes  denatured  spirit and  industrial  alcohol).  Then there  is  Writ Petitions Nos. 3163-64 of  1982  (All  India Alcohol Based Industries Development Association v. State of Maharashtra, ) which challenges the amendment to section  49 of  the  Bombay  Prohibition Act,  1949  treating  exclusive privilege for State in liquor trade and imposing a transport fee  of Rs. 1.15 per bulk litre. There is Writ Petition  No. 4501/78  (Chemicals & Plastics India Ltd. v. State of  Tamil Nadu),  Writ Petition No. 2580/82 (Kolhapur Sugar Mills  and Anr.  v.  S.R. Hegde & Anr. ), which  challenge  the  Bombay Prohibition  Act,  1949 as amended from time to  time  along with  Ordinance  No.  15 of 1981 which  amended  the  Bombay Prohibition  Act,  1945 and section 49 added  by  reason  of which  the State was granted exclusive privilege of  import- ing,   exporting,  transporting,  manufacturing,   bottling, selling, buying, processing, or using any intoxicant. There- after,  the  Bombay  Rectified Spirit  (Transport  in  Bond) Rules,  1951  were amended and transport fee  was  increased from  the  rate of 17 paise to the rate of Rs.  1.25  paise. Thereafter, the Bombay Rectified Spirit (Transport in  Bond) Amendment Rules, 1982 were amended and the transport fee was reduced  from  Rs. 1.25 per litre to 0.40 paise  per  litre. Then there is Writ Peri- 642 tion No. 1892/73 (Hindustan Polymers Ltd. v. State of  A.P.) which  seeks a declaration that alcohol plant of  the  peti- tioner company is not covered by the A.P. Excise Act,  1968, A.P. Distillery Rules, 1970 and A.P. Rectified Spirit Rules, 1971  and further to declare that the alcohol plant  of  the company is not a ’distillery’ within the meaning of the said

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expression  under the A.P. Distillery Rules  and  therefore, the  Distillery Rules have no application thereto. It  seeks also  an  order  to restrain from  interfering  with  and/or regulating  and  controlling the  production,  distribution, movement and supply of alcohol from the alcohol plant of the company and also a writ of prohibition with the  appropriate directions.  Civil  Appeal No. 4384/84 also  challenges  the A.P. Excise Act, 1968 and A.P. Distillery Rules. Similar  is the  position in C.As. Nos. 466-67 of 1980  which  challenge the Tamil Nadu Prohibition Act.     The main question that falls for consideration in  these matters is whether the vend fee in respect of the industrial alcohol under different legislations and rules in  different States is valid. The question is. is the vend fee and impost leviable or extractable by the States under different  Acts. The  question  mainly  involved in all these  matters  is  a common question of law but we will have to deal with diverse factual  situations as well as the particular provisions  of the  various  Acts. The questions with which we  are  mainly concerned are the following:                      (i)  whether the power to  levy  excise               duty  in case of industrial alcohol  was  with               the State legislature or the Central  legisla-               ture?                      (ii)  what  is the scope and  ambit  of               entry 8 of list II of the Seventh Schedule  of               the Constitution?                      (iii) whether, the State government has               exclusive right or privilege of manufacturing,               selling,  distributing, etc. of  alcohols  in-               cluding  industrial alcohol. In  this  connec-               tion,  the  extent, scope and  ambit  of  such               right or privilege has also to be examined.     It is necessary to bear in mind that in the last four to five  decades  there  has been a tremendous  change  in  the industrial  horizon  of  this country.  During  the  initial stages  of the Constitution, the only well-known  industrial sectors  in  India were iron and steel, textiles,  jute  and cement. The rest of the production was raw materials  geared to feed and supply the industrial base of the foreign power. After  independence,  an Industrial  Policy  Resolution  was adopted to achieve 643 rapid  industrialisation in a big way. In the last few  dec- ades,  there has been a great transformation and  tremendous upsurge  not  only  in industry and commerce,  but  also  in sophisticated  technology  and  industries.  The   chemical, fertilizer, plastic and engineering industries are only some of the fields in industrial development. In this background, the  views  expressed previously relating  to  ’intoxicating liquor’ and ’alcoholic liquor for human consumption’ have to be borne in mind. It is, in this connection, also  necessary to refer to Article 47 of the Constitution. The said Article which deals with the duty of the State to raise the level of nutrition  and the standard of living and to improve  public health,  enjoins that the State shall regard the raising  of the  level  of nutrition and 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. We were invited on behalf  of  the petitioners  by  Mr. Nariman, Mr. Divan, Mr.  Banerjee,  Mr. Baig and others that though this direction and this  commit- ment  to improvement of the standard of living must be  kept

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in  view but it must be borne in mind that this  improvement can  be  achieved primarily by  industrialisation  involving increased  production and employment and giving priority  to the core sectors. Entry 52 of list I of the Seventh Schedule to the Constitution deals with "industries", the control  of which  by the Union is declared by Parliament by law  to  be expedient  in the public interest. It is the  contention  of the petitioners and appellants that the Industries (Develop- ment  & Regulation) Act, 1951 (hereinafter called  the  ’IDR Act’) was enacted with a view to developing and  controlling various  important  industries.  Section 2 of  the  IDR  Act declares  that it is expedient in the public  interest  that Union should take under its control the industries specified in  the First Schedule. The cases in this bunch are  in  re- spect  of  industries which are not concerned  with  potable alcohol  for  the purpose of human  consumption.  These  are predominantly  and  primarily  concerned  with  using  ethyl alcohol  (rectified spirit) as an industrial  raw  material. This industrial alcohol is required as an input for  further manufacture  of downstream products. For this purpose,  some of  the industries have their captive plants.  Reference  in this  connection may be made and our attention was drawn  to the  report  of  the Alcohol Committee,  1956.  This  Report indicates that--                      (a) that industrial alcohol is an input               and should be available at reasonable price.               (b) there should be uniform railway freight.               644               (c) larger capacities of molasses  etc.,should               be available,               and                      (d)   uniform  taxation  policies   are               essential for the development of these  indus-               tries.     In order to appreciate the controversy in these matters, it  is,  therefore, necessary to keep  these  objectives  in mind.  In  these matters, this Court is concerned  with  the taxing power of the States to impose and levy excise duty on industrial  alcohol  and/or imposts as vend fees.  This  has been,  and  as has been noticed hereinbefore, claimed  as  a part  of the exclusive privilege of the States to  impose  a levy as a consideration or price for manufacturing of and/or dealing with industrial alcohol. It is essential that  there should be uniformity in the industry so that these are  free from  the vagaries and arbitrary and differential  treatment meted  out  from State to State and even in the  same  State from time to time. Arbitrary and excessive imposts under the so-called privilege are a great disincentive for development of  industries  in the public interest  and  for  industrial development  in  general and can render units  unviable  and sick.     In  the  above background, it is necessary to  refer  to certain  facts and as such it would be appropriate to  refer to  the facts and contentions in writ petition  No.  182/80, i.e. Synthetics & Chemicals Ltd. v. State of U.P., which  is under Art. 32 of the Constitution, filed by M/s.  Synthetics &  Chemicals Ltd.--a registered Company in Bombay,  and  one Mr. A.K. Roy, Director and shareholder of the said  company. The respondent therein is the State of Uttar Pradesh and the Excise Commissioner, Uttar Pradesh.     In  the said writ petition, a notification of the  State of Uttar Pradesh, being No. 4840E/XIII-330/79, dated Lucknow May  31, 1979 was made in exercise of the power  under  sub- section (1) of s. 40 of the U.P. Excise Act, 1910 (hereinaf- ter  referred to as ’the U.P. Act’) read with clause (d)  of

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sub-section (2) of the said section.     However, in order to appreciate the position, we  should bear  in  mind  the history of the  legislative  powers  and different  lists  in the 7th Schedule, regarding  impost  in respect of industrial alcohol. It appears that local  legis- latures  of Uttar Pradesh had enacted the  United  Provinces Act,  1910 being Act IV of 1910, and it received the  assent of the Governor on 18th December, 1909 and of the  Governor- General  on  14th February, 1910. Before 1920 there  was  as such no distinct dis- 645 tribution of legislative subjects between the Central Legis- lature and the State Legislatures. It appears that the local legislatures enacted with the assent of the  Governor-Gener- al,  Excise Acts imposing duties and regulating  production, supply  and  distribution  of  alcoholic  liquors  including denatured  spirits and methylated spirits. These  were  done under the Indian Councils Act, 1861 and the Indian  Councils Act,  1909. The provisions of the Indian Council  Act,  1861 were  initially applicable only to the Presidencies of  Fort St.  George  and Bombay, but were later made  applicable  to other  provinces by virtue of the Indian Councils Act,  1892 and 1909.     Section  43  of the Indian Councils Act,  1861  enjoined that  it shall not be lawful for the Governor in Council  of either of the Presidencies, except with the sanction of  the Governor-General,  previously communicated to him,  to  make regulations or take into consideration any law or regulation for  any  of the purposes mentioned therein and one  of  the purposes, inter alia, mentioned was, anything affecting  the public debt of India or the Customs Duties, or any other tax or  duty then in force and imposed by the authority  of  the Govt. of India for the general purposes of such Government.     The Government of India Act, 1915 was amended from  time to  time with a view to consolidate and amend the  enactment relating  to  the Govt. of India. The  Governor  General-in- Council  with  the sanction of the  Secretary  of  State-in- Council  made Devolution Rules. Rule 3(1)  thereof  provided for  distinguishing the functions of the  local  governments and  local legislatures of governors’ provinces and  of  the province of Burma from the functions of the Governor General in Council. It was provided that any matter which is includ- ed in the list of provincial subjects set out in Part II  of Schedule  I  of the said Act shall, to the  extent  of  such inclusion,  be excluded from any central subject  of  which, but  for such inclusion, it would form part. Part II of  the Government of India Act, 1915 provided that any matter which is included in the provincial subjects set out in Part II of Schedule I shall, to the extent of such inclusion be exclud- ed  from any central subject of which, but for  such  inclu- sion,  it  would form part. Part II  dealt  with  provincial subjects. Item 16 of Part II provided as under:               "Excise,  that is to say, the control of  pro-               duction,  manufacture, possession,  transport,               purchase,  and  sale of alcoholic  liquor  and               intoxicating drugs, and the levying of  excise               duties  and licence fees on or in relation  to               such  articles, but excluding, in the case  of               opium, control of cultivation, manufacture and               sale for export." 646      It appears that the Govt. of U.P. levied a vend fee  on denatured  spirit  for  the first time @ 8  annas  per  bulk gallon,  vide notification dated January 18, 1937  under  s. 40(2) of the U.P. Excise Act, 1910. It was levied as a duty.

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By  this  notification Rule 17(2) was added  which  enjoined that in case of issues from a distillery a vend fee of annas 8  per  bulk gallon shall be payable in advance  before  the spirit is issued. The fee was not made chargeable in case of issues  to hospitals, dispensaries and other charitable  and educational  institutions  upto  a quantity  allowed  to  be issued by the Excise authorities, and also on the issues for export out of the provinces.     Thereafter,  on 1st April, 1937 the Govt. of India  Act, 1935  came into effect. The federal legislative list in  the 7th  Schedule to the said Act contained entry 45  which  in- cluded duties of excise on tobacco and other goods  manufac- tured  or  produced in India except  alcoholic  liquors  for human  consumption.  The provincial legislative  List  being List  II of the 7th Schedule. contained entry 31 on  intoxi- cating  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  certain  provi- sions.  It  also included entry 40 which was  on  duties  of excise including, inter alia, all these items and  alcoholic liquors, opium, Indian hemp and medicinal and toilet  prepa- rations containing alcohol.     It  was contended on behalf of M/s  Synthetic  Chemicals Ltd. that the duties previously levied by the local legisla- tures continued in force by virtue of s. 143(2) of the Govt. of  India  Act, 1935 only if these were levied  before  31st January,  1935,  and that only these duties were  to  be  so continued until provisions to the contrary were made by  the Federal Legislature.     The  Constituent Assembly which derived from the  people all power and authority, was convened. On 15th August,  1947 the  British Parliament passed the Indian Independence  Act, 1947  making provisions for the setting up in India  of  two independent  dominions. Under s. 6(1) of the said  Act,  the legislature  of each of the new dominions was to  have  full powers to make laws for that dominion including laws  having extra-territorial  operations.  Under s. 8(2) read  with  s. 9(1)  of  the  Indian Independence Act,  1947  the  Governor General  adopted the provisions of the Govt. of  India  Act, 1935.  It  appears that on 3rd April, 1948  the  Constituent Assembly  acting  as  the Dominion  Legislature  passed  the Indian Power Alcohol Act, 1948 which received the assent  of Governor General on the same day. By this Act, the Central 647 Government  took under its control the Power Alcohol  Indus- try.  This was in pursuance of the declaration made  by  the Dominion  Legislature  under entry 34 of List I of  the  7th Schedule  to  the Government of India Act, 1935.  The  entry was:  "Development  of Industries  where  development  under Dominion control is declared by Dominion Law to be expedient in public interest". "Power Alcohol" was defined as  meaning Ethyle  Alcohol containing not less than 95.5% by volume  of Ethanol measured at 60 degree F, corresponding to 74.4  over proof strength.     It  may  be  mentioned that Rectified  Spirit  is  Ethyl Alcohol  or  Ethanol with 96% alcohol v/v.  ON  dehydration, Ethyl  Alcohol with 99.5% volume of Ethanol is produced.  It was suggested that take over by the Dominion of the  potable liquor  industry was precluded by virtue of entries 29 &  31 of  list  II read with entry 34 of list I of  the  Govt.  of India  Act, 1935. It may be mentioned that the word  ’indus- tries’  is the analogous provision in the State  list  under the Constitution of India, 1950, hence, the meaning given to it in that list, must be applied. According to the petition-

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ers/appellants, the expression ’industries’ has been given a restricted  meaning  so as not to entrench  on  the  State’s power with respect to other industries specifically assigned to  the  State under other entries in the  State  list.  See Calcutta Gas Co., [1962] Suppl 3 SCR 1.     By  virtue of the Constitution of India which came  into effect from 26th January, 1950 the powers of legislation  in respect of alcohol were distributed between list I and  list II of the 7th Schedule to the Constitution. Duties of excise on tobacco and other goods manufactured or produced in India except, inter alia, alcoholic liquors for human consumption, and opium, Indian hemp and other narcotic drugs and  narcot- ics,  but including medicinal and toilet  preparations  con- taining alcohol or any such substance were given to  Parlia- ment  under entry 84, list 1. But duties of excise on  goods manufactured  or  produced in the State  and  countervailing duties at the similar rates, inter alia, alcoholic  liquors, the  State was given power by entry 51 of list II to  legis- late.  By  entry 8 of list II, States were  given  power  to legislate  on liquors, that is to say  production,  manufac- ture, processing, transport, purchase and sale thereof.     On  or  about 8th May, 1952 the Parliament  enacted  the Industries  (Development  & Regulation) Act,  1951.  Chapter IIIB  of  the said Act contains s. 18G whereby  the  Central Govt. was empowered for securing equitable distribution  and availability at fair prices of any article or 648 class  of  articles relatable to any scheduled  industry  to provide for regulating the supply and distribution  thereof, and  trade  and commerce therein by a  notified  order.  The notified  order  was  also to provide  for  controlling  the prices  at which such article or class of articles could  be bought  or sold. The said Act was amended in 1956.  Item  26 was  inserted  in  the First Schedule to the  said  Act  and empowered  the  Central Govt. to  control  the  Fermentation Industries  including  alcohol industries. Item  26  was  as follows: "26. Fermentation Industries. (1) Alcohol (2) Other products of Fermentation Industries."     The  Govt. of India issued licences for the  manufacture of alcohol based industries.     It  is asserted by M/s Synthetics & Chemicals Ltd.  that one  Tulsidas Kilachand, who had promoted the said  Company, was  invited by the U.P. Govt. to set up a synthetic  rubber factory in the State of Uttar Pradesh. It is stated that the Govt.  of Uttar Pradesh assured the said Tulsidas  Kilachand of the supplies of alcohol necessary for the factory upto 20 million  gallons, on payment only of Rs.7.50 kilo  litre  as administrative  charges. It is the case of M/s Synthetics  & Chemicals that there was no assertion or claim or  privilege on behalf of the State Govt. in respect or’ denatured spirit nor  was  the said company or its  promoters  informed  that there  might  be  a charge of rental  or  consideration  for parting with any such privilege.     On 30th December, 1960 the Govt. of U.P. issued a  noti- fication under s. 4(2) of the U.P. Excise Act, 1910 by which all  "rectified, perfumed, medicated and  denatured  spirits wherever made" was included under the definition of ’foreign liqour’.  Thereafter, the said notification was embodied  in Rule 12 of the U.P. Excise Rules.     On  or about 28th November, 1952 the Power  Alcohol  Au- thority and Excise Commissioner of U.P. issued an order  for allotment of alcohol to M/s Synthetics & Chemicals Ltd.  and also provided a condition that "the denatured alcohol  meant

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for  supply to M/s Synthetics & Chemicals Ltd.  is  exempted from  payment  of vend fee". Paragraph 2 of the  said  order provided  that M/s Synthetics & Chemicals Ltd. shall pay  an administrative charge at the rate of Rs.7.50 per kilo  litre of 649 denatued alcohol. The denatured alcohol meant for supply  to M/s Synthetics & Chemicals Ltd. was exempted from payment of vend fee. It was stipulated that alcohol shall be  denatured with 5% Ethyl Ether or 0.2% crotonaldehyde at distilleries.     It appears that in May, 1963 M/s Synthetics &  Chemicals Ltd.  established a factory in Bareilly. Industrial  alcohol is  said to be one of the basic raw-materials for the  manu- facture of synthetic rubber. Accordingly, the Govt. of U .P. on or about 30th July, 1963 issued a notification  excluding from  the levy of vend fee the alcohol issued to  industries engaged in the manufacture of synthetic rubber on terms  and conditions the State Government might determine.     Rule   17(2) was accordingly modified.  On or about  3rd November,  1972  the  Govt. of U.P.  issued  a  notification (being U.P. Excise Third Amendment Rules, 1972) substituting a new rule 17(2) which is now embodied in para 680(2) of the U.P.  Excise Manual at p. 20 1. In the new rule, vend fee  @ Rs.  1.10  per bulk litre was imposed  on  denatured  spirit without  examining industries engaged in the manufacture  of synthetic  rubber.  Supplies  to the  hospitals  of  certain quantity, and exports out of the State were exempted.     In  December, 1972 when a demand was raised for  payment of the vend fee, it was asserted on behalf of M/s  Synthetic &  Chemicals that they had to close down their factory,  and filed  a  writ petition, No. 8069 of 1972 in  the  Allahabad High  Court  challenging the validity  of  the  notification dated  30th  November, 1972 whereby vend  fee  on  denatured spirit was introduced for the first time. The Division Bench of the Allahabad High Court vide judgment dated 24th  March, 1973 struck down the said notification holding that the vend fee  could  not be justified either as a tax or  fee  or  as excise  duty. Relying on the decision of this Court  in  the case  of Nashirwar etc. v. The State of M.P., [1975]  2  SCR 861  and  stating the same in the Preamble to the  Act,  the U.P. Legislature passed Act No. 5 of 1976 being U.P.  Excise Amendment  (Re-enactment  and Validation)  Act,  1976  inter alia,  introducing ss. 24A and 24B in the U.P.  Excise  Act, 1910 and making other amendments with retrospective  effect. Sections 24A and 24B are as follows:               "24-A.  (1) Subject to the provisions of  Sec-               tion 31, the Excise Commissioner may grant  to               any person a licence or licence for the exclu-               sive or other privilege:               650               (a)  of manufacturing or of supply  by  whole-               sale, or of both; or               (b) of manufacturing or of supplying by whole-               sale, or  both and selling by retail; or               (c)  of selling by wholesale (to wholesale  or               retail vendors); or               (d)  of selling by retail at shops  (for  con-               sumption ’off’ the premises only);               any foreign liquor in any locality.               (2)  The  grant of licence or  licences  under               clause  (d) of sub-section (1) in relation  to               any locality shall be without prejudice to the               grant  of  licences  for the  retail  sale  of               foreign liquor in the same locality in  hotels               and  restaurants  for  consumption  in   their

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             premises.               (3) Where more licences than one are  proposed               to be granted under clause (d) of  sub-section               (1)  in relation to any locality for the  same               period  advance  intimation  of  the  proposal               shall  be given to the prospective  applicants               for every such licence.               (4) The provisions of section 25, and  proviso               to section 39 shall apply in relation to grant               of a licence for an exclusive or other  privi-               lege  under  this  section as  they  apply  in               respect  of  the  grant of a  licence  for  an               exclusive privilege under section 24.               24-B. For the removal of doubts, it is  hereby               declared:               (a)  that  the State Govt.  has  an  exclusive               right or privilege of manufacture and sale  of               country liquor and foreign liquor;               (b)  that the amount described as licence  fee               in clause (c) of section 41 is in its  essence               the  rental or consideration for the grant  of               such  right or privilege by the State  Govern-               ment;               651               (c)  that the Excise Commissioner as the  head               of the Excise Department of the State shall be               deemed  while  determining or  realising  such               fee,  to  act for and on behalf of  the  State               Government."     It  is stated that in May, 1976 the State of U.P.  filed an  appeal against the decision of the Allahabad High  Court in  writ  petition No. 8069/72; and that  between  1976  and 1978,  relying on the judgment of the Allahabad  High  Court certain  wholesale  dealers in denatured spirit  filed  writ petitions in the High Court of Allahabad claiming refund  of vend  fee  already paid by them. These writ  petitions  were heard and allowed by the learned Single Judge of the Allaha- bad  High Court. Against the judgment of the  Single  Judge, special  appeals to a Division Bench were preferred  by  the State  of  U.P. and all were allowed on 6th  October,  1978, relying upon ss. 24A and 24B of the said Act.     In  1976, the State Government issued the  U.P.  Licence for the possession of Denatured Spirit and Special Denatured Spirit  Rules,  1976 requiring a licence for  possession  of denatured  spirit and specially denatured spirit for  indus- trial  purposes. "Special Denatured Spirit" was  defined  as "Spirit rendered unfit for human consumption". Licences  for possession of denatured spirit including Specially Denatured Spirit  for industrial purposes were to be of 3  kinds,  ac- cording to the parties.     (1) Form F.L. 39 for use in industries in which  alcohol is  destroyed  or converted chemically in the  process  into other product and the product does not contain alcohol, such as  Ether, Styrene, Butadiene, Acetone, Polythene  etc.  (2) Form F.L. 40 for use in industries in which alcohol is  used only  as a solvent or processing agent and the product  does not  contain alcohol, which is generally recovered  for  re- use, such as Cellulose and its derivatives, Pectin etc.  (3) Form F.L. 41 for use in industries in which alcohol is  used directly  or alcohol is used as solvent or vehicle  and  ap- pears in the final produce to some extent such as  Lacquers, Varnishes, Polishes, Adhesives and antifreezers etc.     The  Allahabad  High  Court in W.P. No.  8096  of  1972, referred  to hereinbefore, held that the State did not  have the legislative competence to impose a tax under entry 8  of

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list II of the Seventh Schedule to the Constitution  follow- ing  the  decision of Sheopat Rai & Ors. v. State  of  U.P.. [1972] All L.J. 1000. The High Court held that the power of 652 regulation does not carry with it the power of taxation  and thus  vend fee could not be justified. The High  Court  also held that the levy could not be justified as a fee as  there was no quid pro quo. It appears that in view of the judgment of the High Court, a telegram was issued to the distilleries by  the  Excise  Commissioner that vend fee  should  not  be charged  from the petitioner. Instead the  State  Government resorted to imposition of sales tax.     It  may  be mentioned herein that this decision  of  the Allahabd  High Court was set aside by this Court by a  Bench of  two  judges in State of U.P v. Synthetics  &  Chemicals, (supra). In view of the fact that review petition in respect of the same is pending, it may be necessary to refer to  the said decision. This Court held that the levy of vend fee  is for  parting  with  the exclusive right of  the  State  with regard to intoxicating liquors and for conferring a right on the  licensees  to sell such liquors. A  conspectus  of  the decisions  of  this Court, according to the  said  decision, establishes:  (i)  that there is no fundamental right  of  a citizen  to carry on trade or to do business in  liquor  be- cause  under its police power, the State can enforce  public morality, prohibit trade in noxious or dangerous goods; (ii) the  State has power to enforce an absolute  prohibition  on manufacture  or  sale of intoxicating  liquors  pursuant  to Article  47  of the Constitution; and (iii) the  history  of excise  jaws  in the country shows that the  State  has  the exclusive right or privilege to manufacture or sell liquors. Reference  was  made to the decision of this  Court  in  the State  of  Bombay & Anr. v. F.N. Balsara, 1195 1]  SCR  682. This Court further held that the term "intoxicating  liquor" is  not confined to potable liquor alone but  would  include all  liquors which contain alcohol. The term  "liquor",  ac- cording  to the said decision, used in Abkari Acts not  only covers alcoholic liquor which is generally used for beverage purposes  and  which produces intoxication  but  would  also include  liquids  containing alcohols. It was  further  held that  the power to regulate the notified industries  is  not exclusively  within the jurisdiction of Parliament as  entry 33 in the Concurrent List enables a law to be made regarding production, supply and distribution of products of  notified industries. The exclusive power of the State to provide  for manufacture, distribution, sale and possession of intoxicat- ing  liquors is vested in the State. The power of the  State Government  to  levy a fee for parting  with  its  exclusive right regarding intoxicating liquors has been recognised  as could  be  seen from the various State Acts  regulating  the manufacture,  sale,  etc. of intoxicating  liquors.  It  was further held that the term "foreign liquor" cannot be  given a restricted meaning because the word consumption cannot  be confined to consumption of beverages only. When liquor is 653 put  to any use such as manufacture of other  articles.  the liquor  is all the same consumed. The State is empowered  to declare what shall be deemed to be country liquor or foreign liquor.  "Foreign liquor" is defined as meaning  all  recti- fied,  perfumed,  medicated and  denatured  spirit  wherever made. Therefore, this Court in that case held that the  plea that the Excise Commissioner had no right to accept  payment in consideration for the grant of licence for the  exclusive privilege for selling in wholesale or retail, foreign liquor which  includes denatured spirit cannot be accepted. It  was

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further held that the definition of "alcohol" includes  both ordinary as well as specially denatured spirit. The special- ly  denatured  spirit for industrial purposes  is  different from denatured spirit only because of the difference in  the quantity and quality of the denaturants. Specially denatured spirit and ordinary denatured spirit are classified  accord- ing  to their use and denaturants used. Therefore, the  con- tention  that  specially  denatured  spirit  for  industrial purposes is different from the ordinary denatured spirit has no force, according to the said decision. Reference was made to the decisions of this Court in Har Shankar & Ors. etc. v. The Dy. Excise & Taxation Commissioner & Ors., [1975] 3  SCR 254.     In this connection, it may be necessary to refer to  the observations  of  this Court in Hat Shankar & Ors.  ’s  case (supra), where Chandrachud, J. (as the learned Chief Justice then was) stated:               "In  our opinion, the true position  governing               dealings  in  intoxicants  is  as  stated  and               reflected  in the Constitution Bench  decision               of this Court in the State of Bombay & Anr. v.               F.N.  Balsara,  [1951] SCR 682,  Cooverjee  B.               Bharucha  v. The Excise Commissioner  and  the               Chief Commissioner, Ajmer and Ors., [1954] SCR               875,  State of Assam v. A.M.  Kidwai,  Commis-               sioner  of Hills Division and  Appeals,  Shil-               long,  [1957] SCR 295, Nagendra Nath Bora  and               Anr. v. The Commissioner of Hills Division and               Appeals, Assam and Ors., [1958] SCR 1240, Amar               Chandra  Chakraborty v. Collector  of  Excise,               Govt. of Tripura & Ors., [1973] 1 SCR 633  and               State  of  Bombay  v.  R.M.D.  Chamarbaugwala,               [1957]  SCR  874 as interpreted  in  State  of               Orissa & Ors. v. Harinarayan Jaiswal and Ors.,               [1972]  3 SCR 784 and Nashirwar etc. v.  State               of Madhya Pradesh and Ors. Civil Appeals  Nos.               1711-1721 and 1723 of 1974 decided on November               27, 1974. There is no fundamental right to  do               trade  or business in intoxicants.  The  State               under its regulatory powers, has the right  to               prohibit absolutely every form               654               of  activity in relation  to  intoxicants--its               manufacture, storage, export, import, sale and               possession."      Though  most of the cases dealt with the right  of  the State  Government as regards auction of country  liquor,  in Balsara’s  case,  Nashirwar’s case and Har  Shankar’s  case, this Court was concerned with the right of the State Govern- ment  over foreign liquor. After considering all  the  deci- sions of five Constitutional Benches, Chandrachud, J. summed up  the position at page 274 of the Report in Har  Shankar’s case (supra) as follows:               "These  unanimous decisions of five  Constitu-               tional  Benches uniformly emphasised  after  a               careful consideration of the problem  involved               that  the  State  has the  power  to  prohibit               trades  which are injurious to the health  and               welfare  of  the  public is  inherent  in  the               nature of liquor business, that no person  has               an  absolute right to deal in liquor and  that               all  forms  of dealings in liquor  have,  from               their inherent nature, been treated as a class               by themselves by all civilised communities."     Review Petition has been moved by Synthetics & Chemicals

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Ltd.  which  was purchaser or user and not  manufacturer  or dealer. It is contended that the Synthetics & Chemicals Ltd. were  never manufacturers of denatured spirit and they  were and have been purchasers of denatured spirit. It is contend- ed  that  this Court in Synthetics & Chemicals  Ltd.’s  case (supra) had proceeded on the basis that State’s privilege is with  respect  to manufacture or sale of foreign  liquor  or denatured spirit.     It  is  contended that they were not liable to  pay  the vend  fee.  The judgment aforesaid had not dealt  with  that submission and, therefore, it was claimed that there was  an error  and  that this judgment should be  reviewed.  It  was contended that the fee charged is not a vend fee but fee  in respect  of licence for possession of denatured  spirit.  It was  contended that the judgment had not held that the  pur- chasers  are  liable  to pay vend fee.  The  State’s  appeal should  have  been  dismissed and  the  petitioner’s  appeal should  have  been  allowed, it was pleaded  in  the  review petition. There was an error, it was contended.     It  may be at the outset made clear that in  these  mat- ters, we will dispose of the contention whether vend fee  is leviable  in  respect  of industrial alcohol. If  it  is  so leviable, who should actually pay or from 655 whom  the same should be realised, would not be the  subject matter of this adjudication. Whether the manufacturer or the purchaser  or the user should pay them, must be  decided  in separate appropriate proceedings, if necessary.     In  order to complete the narration of events,  however, it may be mentioned that Ordinance No. 6 of 1973 was promul- gated by the Government of U.P. purporting to amend the U.P. General  Sales  Tax Act, 1948 so as to authorise  the  State Govt.  to impose sales tax on alcohol at the rate upto  Rs.2 per  litre. By the said notification, the first schedule  to the Act was amended and the new entry read as follows:               "Spirits  and spirituous liquors of all  kinds               including the rectified spirit, methyl alcohol               and  absolute alcohol but excluding  denatured               spirit and country liquor."     Ordinance  9  of 1974 being the Uttar Pradesh  Sales  of Motor  Spirit  & Diesel Oil Taxation  (Amendment)  Ordinance 1974 was promulgated by the Government of U.P. By virtue  of the  amendment, the definition of alcohol in section  2  was amended as follows:               "(aaa)  Alcohol means ethyl alcohol not  being               alcoholic  liquor  for human  consumption  and               includes rectified spirit, absolute alcohol."     Notification was issued thereafter by the Government  of U.P.  in  exercise of power under section 3(1) of  the  U.P. Sales  of  Motor Spirit and Diesel Oil  Taxation  Act  1939. Several other notifications were issued. This Ordinance  was struck  down  by the division bench and the  Government  was made liable to refund. Writ Petition was filed by Synthetics &  Chemicals  Ltd. Thereafter, no appeal was  filed  by  the State  Government. The other facts are not relevant for  the present  controversy. There was an  application  challenging the purchase tax. The State of U.P. filed an appeal  against the  judgment and order dated 24th March, 1973 of the  divi- sion bench of the Allahabad High Court in Writ Petition  No. 8069/72 striking down the vend fee notification. The  appeal was  numbered  as Civil Appeal No. 1130(NCL)/76.  After  the sales  tax  levy was struck down the government  proposed  a purchase tax. Aggrieved by the aforesaid Act, writ  petition was  filed, and the hearing of the petition had been  stayed by  the  order of this Court. Meanwhile,  certain  wholesale

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dealers in denatured spirit filed writ petitions in the High Court  of  Judicature at Allahabad, claiming refund  of  the vend fee paid by them. Against the judgment of the High 656 Court  of  Allahabad dated 6th October, 1978,  appeals  were admitted being Civil Appeal Nos. 2191-98/78. All these  have been disposed of by the bench of two learned Judges of  this Court,  as  mentioned hereinbefore. It  appears  that  Kesar Sugar Works Ltd. filed writ petition challenging the validi- ty  both of licence fee and vend fee on the ground that  the fees  charged  have  all the characteristics of  a  duty  of excise  which  is beyond the legislative competence  of  the State  and that the alcohol industry is covered by  the  IDR Act. Writ Petition Nos. 4663-4664 of 1978 were also disposed of  by the judgment of this Court in Synthetics &  Chemicals Ltd.  (supra).  Notification was issued  thereafter  by  the Government  of  U.P.  in 1979 in exercise  of  powers  under section 40, sub-section (1) of the U.P. Excise Act of  1910, read with clause (d) of sub-section (2) of the said section, amending  the U.P. Excise (Amendment) Rules 1979. By  virtue of  this amendment, rule 17 was substituted and in the  case of  FL 39 licence, vend fee, was to be so charged  that  the amount  of vend fee and purchase together did not exceed  25 paise  per  bulk litre. It is not necessary to  set  out  in detail  the exact provisions. Another notification  was  is- sued.  It  was  challenged in the High Court.  It  was  kept pending.     The other matter herein is writ petition No. 3 163-64/82 (All India Alcohol Based Industries Development  Association v.  State of Maharashtra) which challenges the amendment  to s.  49 of the Bombay Prohibition Act, 1949. It may be  rele- vant  to refer to the said section as amended in  1981.  The section  is  titled "Exclusive privilege  of  Government  to import  etc.,  intoxicants and fees levied include  rent  or consideration  for grant of such privileges to persons  con- cerned."  In this connection, it is significant to refer  to the  Statement of Objects for the amendment. The section  is as follows:               "49.  Notwithstanding  anything  contained  in               this Act, the State Government shall have  the               exclusive  right  or privilege  of  importing,               exporting,  transporting, manufacturing,  bot-               tling,  selling, buying, possessing  or  using               any  intoxicant, hemp or toddy,  and  whenever               under  this Act or any licence, permit,  pass,               thereunder  any fees are levied and  collected               for  any licence, permit, pass,  authorisation               or  other permission given to any  person  for               any such purpose, such fees shall be deemed to               include  the  rent or  consideration  for  the               grant  of  such  right or  privilege  to  that               person  by or on behalf of the  State  Govern-               ment." The  power was contained in the Prohibition Act, 1949  which was 657 an  Act  to amend and consolidate the law  relating  to  the promotion  and enforcement of and carrying into  effect  the policy  of prohibition and also the Abkari law in the  State of  Bombay. It may be mentioned that the Bombay  PrOhibition Act,  1940  was brought into force on 25th May,  1949.  Then there  was the’ Bombay Rectified  Spirit  (Transport-inBond) Rules,  1951 brought into force. On 23rd October,  1981  the amendment was made introducing s. 49.     The  provision of the Andhra Pradesh Act was  challenged

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by  impugning  the  allotment of alcohol  under  the  Andhra Pradesh Excise Act No. XVII of 1968. The Andhra Pradesh  Act receive,  the assent of the President on 26th August,  1968. This was an Act to consolidate and amend the law relating to production, manufacture, possession, transport, purchase and sale  of intoxicating liquors and drugs, the levy of  duties of excise and countervailing duties of alcoholic liquor  for human consumption and opium, Indian hemp and other  narcotic drugs  and  narcotics and to provide for  matters  connected therewith in the State of Andhra Pradesh.     Writ  Petition No. 1892/73--Hindustan Polymers  Ltd.  v. State  of Andhra Pradesh challenges the Andhra Pradesh  Dis- tillery  Rules,  1970 and Andhra  Pradesh  Rectified  Spirit Rules,  1971. The Tamil Nadu Prohibition Act is  also  chal- lenged  in C.A. Nos. 466-67/80 as well as writ petition  No. 4501/78. In all these the point is similar and we have heard learned counsel and respective Advocate-Generals.  Appearing for the petitioners S/Shri Nariman, Diwan, Baig and Banerjee and  others have made their submissions. We have also  heard Mr.  Trivedi, learned Additional Advocate-General  of  U.P., Mr.  Yogeshwar  Prasad,  Dr. Singhvi,  Mr.  Sanghi,  learned Advocate Generals of Andhra Pradesh and other States. We had also the advantage of the submissions made by learned Attor- ney General on behalf of Union of India.     It was submitted in the statement on behalf of Union  of India that the legislative competence of the State enactment in  the various States will have to be determined by  refer- ence   to   following  entries  in  list  I   of   the   7th Schedule--entries  7, 52, 59, 84, 96, 97 & entries  in  list II,  being 8, 24, 26, 27, 51-52, 54, 56, 62 and  entries  in list  III  19 & 33. It was urged that there is  a  dichotomy between  entry  84 list I and entry 51 of list II  but  this would not control the interpretation of other entries. There is no such dichotomy in entry 8. It has also been stated  on behalf  of the Union of India that while opium was in  entry 19  of list III and entry 59 of list I of the 7th  Schedule, it  means  that Parliament will have power  with  regard  to opium. But the power to levy excise duty on 658 opium is given to the State, similarly medicinal and  toilet preparations  which contained alcohol and are fit for  human consumption,  the  power  to levy excise duty  is  given  to Parliament and not to the State legislature. Entry 8 of list Il  similarly is not subject to entry 52 of list I  for  the reason  that the aspect with regard to  .subject-matters  of these  two  entries  are different, it  was  submitted.  The aspect in list I entry 52 is industry while that in entry  8 of list II is intoxicating liquor. Entry 8 is, therefore, to be  read on its own terms. The power to levy taxes is to  be read  from  the  entry relating to taxes and  not  from  the general entry. Exception in entry 50 of list II where tax on mineral  rights  is  subject to any  limitation  imposed  by Parliament  relating to mineral development, and this  power of  Parliament is in general entry i.e. entry 54 of list  I. According  to Union of India, none of the taxing entries  in list II is controlled by entry 52 of list I. Union of  India stated  that ’industry’ is a topic of  legislation.  Certain entries  are left to Parliament and certain others are  left to  State Legislatures. Identifying of entries is by  refer- ence  to a declaration under entry 7 of list I and entry  52 of  list  I.  The  aspect  of  legislation  with  regard  to subject-matter  of entries will be topic ’industry’. On  the other hand, the subject-matter of legislation under entry  8 of list II will be topic ’intoxicating liquors’.  Therefore, there is no conflict according to the Union of India.

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   The only question which has to be determined is  whether intoxicating  liquor  in entry 8 in list II is  confined  to potable  liquor  or includes all liquors. According  to  the Union  of  India, in view of the difference of  language  in entry  8 and entry 51 of list II, it is reasonably  possible to  take  the view that intoxicating  liquors  include  both liquors.  It was submitted by the Union of India that  there are no grounds for overruling Balsara’s case (supra) decided in  1951 after 38 years particularly when it has  been  fol- lowed and applied in later decisions. In that case it upheld the power of the States to completely prohibit, manufacture, sell  etc. of potable liquor, it struck down the  provisions of  the Bombay Act in so far as it imposed  restrictions  on medicinal  and  toilet  preparations as  violative  of  Art. 19(1)(f)  of the Constitution. It is stated that this  deci- sion  had proceeded on the basis that there could not  be  a complete  prohibition  in regard to  medicinal  preparations containing  alcohol. Hence, it was submitted that so far  as alcohol  not  fit  for human consumption  is  concerned,  it cannot  be  held  that trade in such an  article  cannot  be considered to be a noxious trade. It will be a noxious trade only  where it is produced or manufactured for  purposes  of human  consumption. It was submitted that in Indian  Mica  & Micanite  Industries Ltd. v. State of Bihar &  Ors.,  [1971] Suppl. SCR 319 this Court was dealing with denatured  spirit and had held that the Bihar 659 Orissa Excise Act, insofar as it related to denatured  spir- it,  was regulating trade and business in  public  interest; and that entry 8 of list II comprehends all liquors contain- ing alcohol. The State’s privilege to completely prohibit or farm  out  liquor containing alcohol for  human  consumption does  not  comprehend, according to the Union  of  India,  a similar  right of a State with regard to other  intoxicating liquids containing alcohol. According to the Union of India, to  so  prohibit or collect fee for farming  out,  would  be unconstitutional under Art. 19(1)(g) of the Constitution  on the same principle on which the provisions of the Bombay Act were struck down in Balsara’s case. It was further stated on behalf  of  Union of India that Parliament  has  legislative competence  with regard to power alcohol providing for  levy of central excise duty. See the Central Excises & Salt  Act, 1944,  Schedule I, item 6; Motor Spirit. Similarly,  Parlia- ment   has  legislated  the  Central  Excise   Tariff   Act, 1985--tariff item No. 22.04. The said item reads:               "Ethyl  alcohol, of any grade (including  such               alcohol when denatured or otherwise  treated),               which  either by itself or in  admixture  with               any  other  substance, is suitable  for  being               used as fuel for spark-ignition engines."     It  was stated that under Art. 277 of the  Constitution, any  taxes, duties, cesses or fees which immediately  before the  commencement of the Constitution, were  being  lawfully levied  by the Govt. of any State or municipality  or  other local authority or body for the purpose of the State, munic- ipality,  district or other local area may,  notwithstanding that  these taxes, duties, casses or fees are  mentioned  in the Union list, continue to be levied and to be applied  for the  same purpose until provisions to the contrary are  made by Parliament by law. According to the Union of India, there was a similar provision in the Govt. of India Act, 1935 (See s.  143(2)).  Reference  was made to the  decision  in  Town Municipal Committee, Amraoti v. Ramachandra Vasudeo  Chimote & Anr., [1964] 6 SCR 947.     Learned Attorney General drew our attention to the  fact

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that Parliament has exclusive power to levy duties of excise on goods manufactured or produced in India including medici- nal and toilet preparations containing alcohol for opium  or Indian  hemp or other narcotic drugs. But Parliament has  no legislative competence to levy excise duty on (a)  alcoholic liquor  for  human consumption; (b) opium, Indian  hemp  and other  narcotic drugs and narcotics (entry 84 of  list  II). The  State  Legislature has legislative competence  to  levy excise duty on the following goods manufactured or  produced in the State 660 and  countervailing duties on similar goods manufactured  in India--(a)  alcoholic  liquor  for  human  consumption;  (b) opium,  Indian  hemp  and narcotics.  But  learned  Attorney General  emphasised that State Legislature has no  power  to levy excise duty on medicinal and toilet preparations  which contain  alcohol or opium or Indian hemp and other  narcotic drugs in such medicinal and toilet preparations. Under entry 51  of list II State Legislature, it was submitted  by  him, had  no power to levy excise duty on industrial  alcohol  as the latter is not fit for human consumption. State  Legisla- ture  has  power to levy taxes on entry of  goods  in  local areas  for consumption, use or sale therein. This  will  in- clude  taxes on entry of all alcohol. See entry 52  of  list II. The State Legislature has further power to levy taxes on goods carried by road or by inland water. The goods  therein will include both alcohol fit for human consumption as  well as  alcohol not fit for human consumption. See entry  56  of list II of the 7th Schedule. State legislature will have  to levy taxes on possession of alcoholic liquors fit for  human consumption because these are luxuries. But alcohol not  fit for human consumption are not luxuries and as such the State Legislatures,  according to learned Attorney  General,  will have no power to levy taxes on such alcohol. Parliament will have  power to levy on all alcohol taxes not covered by  any other entries in lists I and II. See list I entry 97.     The  State  Legislature will have power to levy  fee  in respect  of all alcohol. See entry 66 read with entry  6  of list  II.  State Legislature has power to legislate  on  the topic  ’intoxicating liquors’ under entry 8 of list  1I.  It being a general entry, will not comprehend a power of  taxa- tion but will comprehend a power to levy fee read with entry 66.  According to the learned Attorney General, with  regard to industries, the control of which by the Union is declared by  Parliament  by law to be expedient in  public  interest, Parliament  will have exclusive legislative competence.  See entry 52 of list I. This power includes the power to declare by Parliament that control by the Union of industries relat- ing to all types of alcohol is expedient in public interest. Once Parliament makes such a declaration, the State Legisla- ture will be denuded of its power under list II, entry 24 on the  aspect ’industry’ with respect to all  subject-matters. The  power to collect the lump sum amount by way of  auction by  any  right  or otherwise conferring the  right  to  sell alcohol  is neither a power to levy tax nor a power to  levy fee  but it will fail within the legislative  competence  of the  State  Legislature under entry 8. But this  power  will extend  only,  according  to learned  Attorney  General,  to alcohol  for  human consumption. He said that there  can  be complete prohibition with regard to manufacture and sale  of alcohol fit for human consumption because there is no funda- mental 661 right  to carry on business in alcohol even for  human  con- sumption. And that this power to completely prohibit  exists

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in  the State as recognised by Art. 47 of the  Constitution. The State can, therefore, collect an amount called vend fee, shop  rent  etc. for conferring on a citizen  the  right  to manufacture  and sell alcoholic liquors if it is  for  human consumption. This power cannot extend to industrial  alcohol or  alcohol  contained in the medicinal or  toilet  prepara- tions.  According to the learned Attorney General, there  is no power to levy such rent or fee with regard to  industrial alcohol because (a) industrial alcohol and alcoholic  liquor for  medicinal and toilet preparations cannot be  completely prohibited; (b) as there is a right to carry on business  in industrial alcohol any prohibition on manufacture of  indus- trial  alcohol  would be violative of Art. 19(1)(g)  of  the Constitution.  Accordingly, in. absence of a power  to  com- pletely prohibit there will be no power to collect sums  for conferring rights to manufacture or sell except the levy  of taxes and fee.     On  behalf of the State of U.P. both the  learned  Addi- tional ’Advocate General Mr. Trivedi as well as Mr.  Yogesh- war Prasad made exhaustive submissions and submitted that in order  to  appreciate  the controversy it  is  necessary  to realise that the real problem arises from the fact that  the denaturants can be converted into renaturants in the illicit process.  According to the counsel appearing in  support  of the  levy,  one bottle of spirit of Rs. 1.50  on  renaturing yields a profit of Rs.25 to 30 at least. In this connection, reference was made to the report of Baweja Committee. It was further  emphasised that the victims are the weaker  section and  the sufferers are the "wailing workers,  weeping  wives and  crying  children’?, not only when  the  earning  member dies,  but  in  their lifetime too,  the  alcohol  consumes, snatches  their  two morsels, their  health,  nutrition  and standard  of living. Reference was made to the  observations of this Court in P.N. Kaushal etc. v. Union of  India,[1979] 1  SCR  122 where Mr. Justice Krishna 1yet referred  to  the utterances  of  George  Bernard Shaw that  drinking  is  the chloroform  that  enables  the poor to  endure  the  painful operation of living.     It  was submitted on behalf of the State that  the  vend fee  on  denatured alcohol or Denatured Spirit  or  what  is known  as industrial 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. Yogeshwar Prasad and Mr. 662 Trivedi, learned Additional Advocate-General of U.P., of the ethyl  alcohol;  use is different, and the collection  at  a later  stage. The levy was stipulated jointly  or  severally both under entries 8 of list II, entry 51 of list II,  entry 33 of list III and what is described as police powers  regu- latory  and other incidental charges, according to them.  It was  submitted  that levy was justified being  a  regulatory power  under Article 19(6), 19(6)(ii). It was further  urged that  State has a monopoly in alcohol trade; and  that  Art. 31C 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 require- ments  were met. Under Art. 298 trading powers of the  Stare must  be recognised, it was submitted, coupled with  century old monopoly of the State in alcohol.     It  was  submitted that vend fee is  a  pre-Constitution

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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  enforce- ment of the Constitution, merely because 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  Consti- tution, so outside the purview of the Central Act.     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  seri- ous 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 IDR  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 counsel for the State. It was further urged that review  was not  maintainable.  Reference was made to  the  distillation process  and  detailed submissions were made before  us  ex- plaining the same. 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,  champangine,  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 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  be 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  and regulation  etc. However, 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 requisite concentration for  the  concerned beverage  and subjected to other processes  like  reduction,

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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 instanta- neous. 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 drinking  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. 664     Our  attention  was  drawn to  various  observations  of Krishna  Iyer, J. in P.N. Kaushal’s case (supra).  There  is indeed great deal of attempt made by some for wrong utilisa- tion  of alcohol and thereby endangering the  community  and people  at large but the need to protect 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 Constitution  nor sanctioned by the specific  provisions  of the Constitution and the laws. It was submitted that  indus- trial  alcohol and denatured spirit are intoxicating  liquor and or alcoholic liquor for human consumption. These submis- sions 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  dena- turants  are  not  required by it rather some  of  them  are avoided, according to the State of U.P. In particular indus- try they hamper the manufacture of the final product.  Dena- tured  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 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 failing under, according to the State of U.P., entry 8  list II--intoxicating liquor, entry 51, list II alcoholic  liquor for human consumption. Counsel for the State emphasised  the significant  omission of the expression "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 Ill--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  regulate health, morality, welfare of society and incidental  pauper- ism 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 the 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  empha- sised 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 manufacture, possession of alcohol. The  rate of levy differs on its use, accord-

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665 ing to the State of U.P. The impost is also stipulated under the  trading 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  ’consumption’  must 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  expres- sion  means  that liquor which as it 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  admix- ture  with water or with others, be transformed into  ’alco- holic liquor for human consumption’ and as such  transforma- tion  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.  Constitutional   provisions specially  dealing  with  the delimitation of  powers  in  a 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  Constitution, and also as  viewed  at  the relevant  time of its interpretation, it is not possible  to proceed otherwise, Alcoholic or intoxicating liquors must be understood  as these are, not what these are capable  of  or able 666 to become. It is also not possible to accept the  submission that  vend 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-Con- stitution imposition, as we noticed from the change of  rate from time to time.     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

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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 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.  Yogesh- war 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. Imposi- tion  of  these  imposts as part of  regulatory  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  regulations are obeyed and complied with. We would not like, however, to embark  upon any theory of police power because  the  Indian Constitution does not recognise police power as such. But we must  recognise the exercise of sovereign power which  gives the  State sufficient authority to enact any law subject  to the  limitations of the Constitution to discharge its  func- tions.  Hence, the Indian Constitution as a sovereign  State has power to legislate on all branches except to the limita- tion as to the division of powers between the Centre and the States and also subject to the fundamental rights guaranteed under the Constitution. 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,  education and  good order of the people. Sovereignty is  difficult  to define.  This power of sovereignty is, however,  subject  to Constitutional  limitations. This power, according  to  some constitutional authorities, is to the public what  necessity is to the individual. Right to tax or levy 667 imposts  must  be in accordance with the provisions  of  the Constitution.     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 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 Balsara’s  case (supra) held that even toilet articles  con- taining  alcohol as such would be intoxicating liquors.  Mr. Dholakia  suggests  that  United States  Supreme  Court  has expressly  held  that  "Denatured  Spirit"  is  intoxicating liquor  because of necessity to prevent its misuse.  It  was further  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 or’ an industry the control of which is declared by  Parlia- ment to be expedient in public interest. Entry 52, according to  him, speaks of control of an industry in its  establish- ment. Ordinarily, States have the authority to allow or  not to  allow any industry to be established under entry  24  of list  I1.  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

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control thereafter would vest with the State. Ordinarily,  a citizen  has fundamental right to establish an industry  and only reasonable restrictions can be placed on these.  Howev- er, 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 establish an industry in intoxicating liquor. No person  can claim  that  he  is entitled to establish  an  industry  for manufacturing whisky in any particular 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 regula- tions  in respect of "alcohol industry" would be traced.  It was  submitted that the regulations would have to be  traced to entry 24 of list 11 and not to entry 8. It was  submitted that  in case of alcohol ordinarily used for human  consump- tion,  the  extent  of regulation may go to  the  extent  of complete  prohibition. It may go to a lesser extent of  par- tial prohibition. It may assume a variety of forms including one  of  imposing economic disincentives. If  the  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  valid method in regulation of consumption, and if the above analy- sis is fully 668 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 deter- mining 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 nondrinkable  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  nox- ious  substance  to alcohol in order to make  it  unfit  for human  consumption. 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 distil- lation  is what 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 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  sacri- fice  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 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 M/s Guruswamy & Co. etc. v. State of Mysore & Ors., [1967] 1 SCR 548. 1t was,  howev- er, suggested that levies in the instant case are not duties

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of  excise  as understood in the said  decision.  For  these reasons, Mr. Dholakia submitted 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  Dena- tured Spirit and Rectified Spirit at reasonable prices. Learned Advocate-General of the State of Andhra Pradesh has 669 also  submitted in support of the imposition made under  the A.P. Excise Act. He has referred us to the relevant  defini- tions and sections contending that the Act falls within  the legislative competence of the Andhra Pradesh State  Legisla- ture  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 II of the  7th Schedule to the Constitution inasmuch as the Andhra  Pradesh Act  received  the assent of the President and  is  a  later enactment than the I.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 Recti- fied Spirit is nothing but alcohol which can be diluted  and rendered  fit for human consumption by additions 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  re- spect  of these legislations, learned Advocate-General  sub- mitted  that even if such an assumption were to be  regarded as conceivable, State legislation has the predominant 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 Constitution of India.     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 inapplicability of the concept of  potable liquor to the industry of alcohol is not  valid. There  is no question of fundamental right to trade in  dan- gerous  or  hazardous alcohol. It was submitted that  it  is consistent  with  wider 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 dilution. When two interpretations are  possi- ble,  it  was submitted that the choice must  fall  on  that interpretation  which validates existing State  legislations designed to raise revenues and rejection of the other inter- pretation 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  of fermentation industry. At this stage, it is capable of 670 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 their submissions, and  referred  to

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several  decisions  and  the concept of  police  power,  and contended that imposition of a fee would be the most  effec- tive  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, trans- port,  possession  and  sale of  intoxicating  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 Lawyers’ Edn. 620. Reference  was also  made to Hari Shankar’s case (supra) where  this  Court quoted  Vol. 38 of the American Jurisprudence 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. Kaushal’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 Kerala & Ors. etc., [1982] 1 SCR 519 at  537.  Re- garding  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 being used for toilet and medicinal  preparations containing alcohol. Such a regulation is a necessary concom- itant  of  the police power of the State  to  regulate  such trade  or business which is inherently 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 power of the competent  legisla- ture to effectuate its aim are there.      It  is true that in the State of West Bengal v.  Subodh Gopal Bose & Ors., [1954] V SCR 587 at 601-604 and Kameshwar Prasad  & Ors. v The State of Bihar & Anr., [1962]  3  Suppl SCR 369 the concept of 671 poliCe power was accepted as such, but this doctrine was not accepted 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  distinguished from  specific  legislative power is not recognised  in  our Constitution  and is, therefore, contrary to the  scheme  of the  Constitution.  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  indefinite connotation,  can only make the task of interpretation  more difficult.  It  was contended that in enacting  a  law  with respect  to intoxicating liquor as part of  the  legislative power  measures of social control and regulation of  private rights are permissible and as such may even amount to prohi- bition.     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

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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  im- posed  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  deci- sions  to which our attention was drawn by  learned  counsel very elaborately and thoroughly.     We  recognise  power  of the State  to  regulate  though perhaps not as emanation of police power, but as an  expres- sion 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 State of Gujarat. Some of the interveners have also  made the submissions. We have considered  the  submis- sions 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- 672 ted that the substance of the case put forward by the  peti- tioners  and/or appellants, is that the vend fee in  respect of  industrial  alcohol is not a fee for any  services  ren- dered,  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 process of interpretation can alter the  law of  chemistry  or the chemical structure  of  the  substance described in common parlance as industrial alcohol or  pota- ble  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  Addi- tional  Advocate-General further submitted that entry 52  of list  I is an exceptional 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  en- tries 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  inter- changeable  or used synonymously, their use in  the  various entries  either singly or jointly, indicates that  they  are sought  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 sought to be covered but only the control  of industries; and that the absence of inclusion of qualifying,

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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 I.D.R. Act  and the  provisions made therein the entire field was not  occu- pied and the vend fee or other impost by the State  Legisla- tures  were not infringing in the field treaded by the  Cen- tral Legislature.     Before   we   deal   with   the   contentions   of   the petitioners/appellants,  it  is necessary to  reiterate  the principles by which these questions will have to be judged. It  is well to remember that the meaning of the  expressions used 673 in the Constitution must be found from the language used. We should  interpret the words of the Constitution on the  same principle  of interpretation as one applies to  an  ordinary law  but these very principles 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 Constitution must not be construed in any narrow or pedan- tic sense and that construction which is most beneficial  to the widest possible amplitude of its power, must be adopted. An  exclusionary  clause  in any of the  entries  should  be strictly  and,  therefore,  narrowly  construed.  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  Constitu- tion,  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 adjudication  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 Constitu- tion  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 enactment  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  oper- ate.  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 fists 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 question. 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

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674 gathered. In the Constitutional scheme of division of powers under  the  legislative lists, there  are  separate  entries pertaining to taxation and other laws. The aforesaid princi- ples  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.,     The  Balsara’s  case (supra) was in the context  of  the business  of potable alcohol. Problems arose with regard  to auctions, vends, licences and the business of manufacturing, selling, etc. of potable alcohol. Until the case of Synthet- ics & Chemicals (supra), which is under challange here,  all other cases since then have dealt with potable alcohol.  The only  case which has dealt with alcohol used for  industrial 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 Constitu- tions,  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 and  accommodates itself in a pragmatic way to the goals  of national development and the industrialisation of the  coun- try.  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  indisputed  national goals, as permitted by the Constitution. As mentioned  here- inbefore,  the relevant entries in the Seventh  Schedule  to the Constitution demarcate legislative fields and are close- ly  linked and supplement one another. In  this  connection, reference may be made to entry 84 of fist 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, fist II is  the counterpart  of entry 84 of fist I so far as the State  List is  concerned. It 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  counter- vailing  duties at the same or lower rates on similar  goods produced  or  manufactured elsewhere in India. It  is  clear that all duties of excise save and except the items specifi- cally  excepted in entry 84 of list 1 are  generally  within the  taxing  power  of the Central  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 harmo- nious  interpretation of legislative entries have been  laid down  in several cases. We have mentioned hereinbefore  some of  the decisions as noted in the decision of this Court  in India Cement (supra). In M.P.V. Sundarara- 675 mier & Co. v. State of A.P., [1958] SCR 1422 at pages  1480- 82, this Court has laid down that--                     (i) legislative entries are to be fiber-               ally  construed. But when a topic is  governed               by  two entries, then they have to  be  recon-               ciled.  It cannot be that one entry is  to  be               fiberally construed 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

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             levied under a general entry.                      (iii)  a  Constitution  is  an  organic               document  and  has to be so treated  and  con-               strued.                      (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  impor-               tant and give primacy to the central  legisla-               tive 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  in- struments  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 where-               as 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 micanite. 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) 676 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 M/s Guruswamy & Co. etc. v. State of Mysore & Ors., [1967] 1 SCR 548 at pages 549, 556, 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 "intoxicating liquor" that is to  say, the production, manufacture, transport, purchase and 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  legis- late  on  a matter or topic. Reference was  made  to  M.P.V. Sundararamier’s  case  (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, it was held  on intoxicating liquors relying upon entry 8 of list II of  the 7th  Schedule. It was further held that the taxing power  in respect  of  alcoholic  liquors for  human  consumption  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

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R.C. I all v. Union of India, [1962] Supp. 3 SCR 436.     In  Om Prakash v. Giriraj Kishore, [1986] 1 SCR  149  at pages  158 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 Seventh  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               empowers the State to levy               677               fees in respect of any of the matters in  List               I1. 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  Government 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 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 II of the Seventh Schedule to the Consti-               tution under which the State can levy a tax."     It  has  to be borne in mind that  by  common  standards ethyl  alcohol (which has 95%) is an industrial alcohol  and is  not  fit for human consumption. The petitioner  and  the appellants  were  manufacturing ethyl  alcohol  (95%)  (also known  as rectified spirit) which is an industrial  alcohol. ISI specification has divided ethyl alcohol (as known in the trade) into several kinds of alcohol. Beverage and industri- al  alcohols are clearly and differently treated.  Rectified spirit  for Industrial purposes is defined as "spirit  puri- fied 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  industrial 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  the 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

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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 II. Entry 8 of list II  cannot support a tax. The above entry contains the 678 words  "intoxicating liquor". The meaning of the  expression "intoxicating  liquor" has been tightly interpreted  by  the Bombay  High Court in the Balsara’s case (supra). The  deci- sion 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  considera- tion. 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 Fazal  Aft, 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 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 the State had the exclusive  privilege or right of manufacturing and selling liquor and it had  the power  to  hold 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  Coo- verji  Barucha’s case (1954) SCR 673 to Har  Shankar’s  case (supra)  dealt  with  the problems or  disputes  arising  in connection  with  the  sale, auction, licensing  or  use  of potable liquor.     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  Industries’s  case (supra).  In the latter case, in spite of the earlier  judg- ments  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 specifical- ly held that the power of taxation with regard to  alcoholic liquor not fit for human consumption, was within the  legis- lative competence of central legislature. The impost by  the State was held to be justifiable only if it was a fee there- by 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 industrial alcohol not fit for human consumption. Balsara’s case (supra) deal with the question of  reasonable restr- 679 iction on medicinal and toilet preparations. In fact, it can safely  be said 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 unreasonable  under  Article 19(1)(f)  of  the  Constitution because total prohibition of the same would be  permissible. In  K.K.  Narula’s case (1967) 3 SCR 50, it  was  held  that

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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 injurious 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 &  Chemi- cals Ltd. ’s case (supra) was not correct on this aspect.     Reference in this connection may be made to the decision in Inspector of Taxes v. Australian Mutual Provident  Socie- ty,  [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  deci-               sion  of this House in 1947? Is it to be  fol-               lowed  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 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 direction, 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               680               1947 has no application to the meaning of  the               word  "profits" in the Double Taxation  Agree-               ment."     Justice  Jackson in his dissent in the case  of  Common- wealth  of Massachusetts Et A.I v. USA, 92 Lawyers,  Edition p.  968  also upheld the right to set right  what  was  said wrongly in the past.     It  was  submitted that the activity in  potable  liquor which was regarded safe and exclusive 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 manufactured by industries which are to be developed in  the public interest 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 balance, it is difficult to find any justification for any theory of any exclusive fight of a State  to  deal with industrial alcohol.  Restriction  valid under  one circumstance may become invalid in changing  cir- cumstances.  Reference  may be made to the  observations  of Justice  Brandeis  in Nashiville, Chattangooga &  St.  Louis Railway  v. Herbert S. Waiters, 79 Lawyers Edition 949.  See also  Leo  Nebbia  v. People of the State of  New  York,  78

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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] 1 SCR 594.     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 Chief  Justice then was, in  M/s Guruswamy v. State  of  My- sore,  [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 Prohibition 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 usable for industrial purposes.     Having  regard to the principles of  interpretation  and the Constitutional 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 impost in  question cannot be justified as State imposts as these have 681 been done. We have examined the different provisions.  These are  not merely regulatory. These are much more  than  that. These  seek to levy imposition in their 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.     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 industries (under fermentation industries) as item 26 of the First  Schedule to IDR Act the control of this industry  has vested  exclusively  in the Union. Thereafter,  licences  to manufacture both potable and nonpotable alcohol is vested in the  Central  Government.  Distilleries  are   manufacturing alcohol under the Central Licences under IDR Act. No  privi- lege  for manufacture even ii one existed, has  been  trans- ferred  to the distilleries by the State. The  State  cannot itself manufacture industrial alcohol without the permission of the Central Government. The States cannot claim to pass a right  which these do not possess. Nor can the States  claim exclusive right to produce and manufacture industrial  alco- hol  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 I1 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  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 II and not under entry 33 of list III.     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,

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the  State is left with only the following powers to  legis- late in respect of alcohol:               (a) it may pass any legislation in the  nature               of prohibition               682               of     potable liquor referable to entry 6o of               list II and regulating powers.                     (b)  it  may  lay  down  regulations  to               ensure that non-potable alcohol is not divert-               ed  and  misused as a substitute  for  potable               alcohol.                     (c) the state may charge excise duty  on               potable  alcohol and sales tax under entry  52               of  list  II.  However, sales  tax  cannot  be               charged  on industrial alcohol in the  present               case,  because under the Ethyl Alcohol  (Price               Control)  Orders, sales tax cannot be  charged               by the state on industrial alcohol.                      (d) however, in case State is rendering               any  service,  as distinct from its  claim  of               so-called  grant of privilege, it  may  charge               fees  based on quid pro quo. See in this  con-               nection, the observations of India Mica’s case               (supra).                   On an analysis of the various Abkari  Acts               and  Excise  Acts,  it  appears  that  various               Provinces/States  reserve  to  themselves   in               their 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  con-               sideration  for  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 privilege  was  re-               served  by  the  State mostly  in  respect  of               country  liquor and not foreign  liquor  which               included denatured spirit.     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 imposi- tions and imposts must go as being invalid in law so far  as industrial alcohol is concerned. We make it clear that  this will  not  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. We must, however, observe that these imposts and levies have 683 been  imposed  by virtue of the decision of  this  Court  in Synthetics  & 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 of State of Tamil Nadu. In that view of the matter,  it would  be necessary to state that these provisions  are  de- clared  to  be illegal prospectively. In  other  words,  the respondents  states are restrained from enforcing  the  said levy any further but the respondents will not be liable  for

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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  realisations already  made. The writ petitions and the appeals  are  dis- posed  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 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. 405 1/78 (Chemicals  & Plastics India Ltd. v. State of Tamil Nadu), certain  orders were passed by this Court on 1st November, 1978, 1st Septem- ber,  1986, 1st October, 1986 and 10th October, 1986. It  is stated that the present demand of the Central Excise Depart- ment  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 October, 1986 as confirmed on the 16th October, 1986 had permitted the State Government to  collect  the levy on alcohol manufactured  in  company’s captive  distillery  subject to adjustment of  equities  and restrained  the central excise authorities  from  collecting any excise duty on such alcohol. It is, therefore, necessary to  declare  that in future no further realisation  will  be made  in  respect of this by the State Government  from  the petitioners.  So far as the past realisations made are  con- cerned, 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 bear and pay their own costs.     OZA,  J.  While  I agree with my  learned  brother  Hon. Mukharji, J. as regards the conclusions but I would like  to add the following reasons. In these matters the main question that arise for considera- tion is 684 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  materi- al. Some of these industries themselves manufacture  Alcohol as they have their own distilleries and from their  distill- eries  through pipelines it goes to their  industrial  units where this is used as a raw material whereas some are indus- tries  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 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  consump- tion".  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."     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

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levies  which have been imposed by the State Legislature  on industrial  alcohol and even Mithylated spirit could not  be brought  within the ambit of regulatory duties for  purposes of  regulation  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 sell alcoholic liquors which has been the basis of series of decisions of this Court based on English and American  deci- sions but according to the learned counsel for the petition- ers 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  respec- tive excise laws enacted by the State the 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  ex-               cept--               685               (a) alcoholic liquors for human consumption.               (b)  opium,  Indian hemp  and  other  narcotic               drugs and narcotics,               but  including medicinal and  toilet  prepara-               tions  containing  alcohol  or  any  substance               included in sub-paragraph (b) of this entry."               Entry 51 in List 11 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  prepa-               rations  containing alcohol or  any  substance               included in sub-paragraph (b) of this entry."     A comparison of the language of these two entries clear- ly  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  Con- stitution makers distributed them into two heads: (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 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  indi- cate  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. 686               Entry 8 in List 2 reads:               "8. Intoxicating liquors, that is to say,  the               production,  manufacture,  possession,  trans-               port,  purchase and sale of intoxicating  liq-               uors."

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This  Entry  talks of intoxicating liquors  and  further  on refers  to production, 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.  production, 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  confer- ring powers of taxation whereas other entries pertain to the authority  of the Legislature to enact laws for purposes  of regulation.  If we compare Entry 8 in List II with entry  51 it is clear that when Entry 51 authorises the State Legisla- ture 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. Similarly 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:               "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 i.e. industry based on fermentation and alcohol has been declared to be an industry under that Act and therefore is  directly under the control 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.     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.     The main emphasis it appears is that this duty on  alco- hol and alcoholic liquors is a substantial revenue of  State and it appears that it 687 was this obsession 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 justify- ing their respective levies and duties on alcohol and  alco- holic  beverages  and overcome the test  of  reasonableness, double  taxation and of limitation as it being a  considera- tion  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 alcohol for human  con- sumption  and also for denatured spirit or other  categories of  alcoholic liquors which though may be described  as  not for  human  consumption but are 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 States and the Advocate General of the States  drew our  attention  to  various extracts of the  text  books  on organic chemistry as it was contended 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 dilut- ed upto a particular percentage and also is used for  indus-

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trial purposes in high concentration or sometimes denatured. The main 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 percent which generally  is termed  as rectified spirit. It is not in dispute that  this high  concentration of ethyl alcohol is a raw  material  for various  industries.  Sometimes it is supplied  after  being mixed  by  Mithylated alcohol or being  denatured  by  other processes  only to safeguard against its use for  conversion into  alcoholic  beverages for human consumption. 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 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 commod- ities is described as obnoxious and 688 therefore  a citizen has no fundamental right under  Article 19(1)(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 consid- eration.  This  basis of the privilege doctrine  has  to  be examined  in  the  context of  our  Constitution  especially Article 21 and Article 47.     The concept of royal privilege has been derived histori- cally from England as Great Britain continues to be a Monar- chy  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 three  function- aries  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 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 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  privi- lege which means that the State has a privilege to  endanger human  life  (the life of a citizen) such a  privilege  runs contrary  to Article 21. Another significant article of  our Constitution 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  the               standard  of  living  of its  people  and  the               improvement  of  public health  as  among  its               primary  duties and, in particular, the  State

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             shall endeavour to bring about prohibition  of               the consumption except for medicinal  purposes               of intoxicating drinks and of drugs which  are               injurious to health." This Article appears in the Chapter of Directive  Principles of State 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  discharged  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  endan- gering human life and is nothing but moving contrary to  the duty cast under Articles 21 and 47 and ideal of  prohibition 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  privi- lege of the State having the right to trade in goods  obnox- ious and injurious to health.     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 jurisprudence  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 independence from their European  Mas- ters  came  together to form a Federal State  and  therefore what was not conceded to the Federal State i.e. the  residu- ary powers vested in the State and as it was not conceded to the Federal Government that this residuary power of  mainte- nance  of law and order peace so essential for the  develop- ment  in  a civilised society was evolved as a  doctrine  of police powers vested in the State. In India as the Constitu- tion  was enacted or was framed after having the  experience of various countries in the World, the concept of  fundamen- tal  rights and rights like life, liberty, procedure  estab- lished  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  Constitution  also reveals that in case of 690 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 Constitution.  What

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police  powers have been enunciated under the American  Con- stitution clearly will fall within the ambit of Articles 19, 21, 22 and respective entries in the Schedule of the Consti- tution.  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 alcoholic 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 beverages is considered and so far as the present cases are concerned which pertain to only alcoholic  liquors which are not for human consumption  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 alcohol 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 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 substantial 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 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 conversion of alcoholic liquors  for industrial use to one for human 691 consumption  and for purpose of regulation,  the  regulatory fees only 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 terminiology by saying  that the  purpose is regulation, the earnings are incidental  but frankly conceded that in fact the earnings are  substantial. In  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  for  us  to go into those  questions  in  greater detail as we are not here concerned with the trade in  alco- holic  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 have been imposed by the State  in respect  of alcoholic liquors which are not meant  of  human consumption. N.P.V.                                Petitions  &   Appeals allowed. 692

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