Supreme Court: While considering the instant appeal which raised issues pertaining to the scope of the power of the State Legislatures under Entry 8 and the meaning of the phrase “intoxicating liquor”; whether “intoxicating liquor” in Entry 8 only includes potable alcohol, such as alcoholic beverages or also includes alcohol which is used in the production of other products; the 9 Judge Constitution Bench, with a ratio of 8:1, held the following:
Entry 8 of List II of the Seventh Schedule to the Constitution is both an industry-based entry and a product-based entry. The words that follow the expression “that is to say” in the Entry are not exhaustive of its contents. It includes the regulation of everything from the raw materials to the consumption of ‘intoxicating liquor’
Parliament cannot occupy the field of the entire industry merely by issuing a declaration under Entry 52 of List I. The State Legislature’s competence under Entry 24 of List II is denuded only to the extent of the field covered by the law of Parliament under Entry 52 of List I;
Parliament does not have the legislative competence to enact a law taking control of the industry of intoxicating liquor covered by Entry 8 of List II in exercise of the power under Article 246 read with Entry 52 of List I;
Entry 8 of List II is based on public interest. It seeks to enhance the scope of the entry beyond potable alcohol. This is inferable from the use of the phrase ‘intoxicating’ and other accompanying words in the Entry. Alcohol is inherently a noxious substance that is prone to misuse affecting public health at large. Entry 8 covers alcohol that could be used noxiously to the detriment of public health. This includes alcohol such as rectified spirit, ENA and denatured spirit which are used as raw materials in the production of potable alcohol and other products. However, it does not include the final product (such as a hand sanitiser) that contains alcohol since such an interpretation will substantially diminish the scope of other legislative entries.
The majority of Dr DY Chandrachud, CJ.* Hrishikesh Roy, Abhay S. Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ., further overruled 7-Judge Bench ruling in Synthetics and Chemicals Ltd. v. State of U.P., , wherein it was held that States cannot tax industrial alcohol.
B.V Nagarathna, J., was the sole dissenter in the matter.
Background:
Constitutional and Statutory Scheme and Synthetics Judgment (supra):
The issues in the instant appeal revolved around power of State Legislatures under Entry 8 Schedule VII of the Constitution vis-a-vis regulation and taxation of industrial liquor.
Under the Constitutional Scheme, the State has legislative competence under Entry 24 of List II over ‘industries’ but this is subject to Entries 7 and 52 of List I. Entry 8 of List II deals with ‘intoxicating liquors’. These words are followed by the expression “that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors”. The Seventh Schedule also demarcates taxing powers related to alcohol separately.
In exercise of the power under Article 246 read with Entry 52 of List I, Parliament enacted the (IDRA). Section 2 of IDRA gives Union the control over “Fermentation Industries” which include Alcohol and other products of fermentation industries. In 2016, Item 26 of the First Schedule to the IDRA was amended to exclude potable alcohol from the ambit of the Item. Section 18-G of IDRA grants the Central Government the power to regulate the supply and distribution “of any article or class of articles relatable to a scheduled industry” for securing equitable distribution and availability at fair prices.
In Synthetics (supra), the 7-Judge Bench of the Supreme Court had to consider- Whether the vend fee in respect of the industrial alcohol under different legislations and rules in different States is valid; Whether the power to levy excise duty in case of industrial alcohol was with the State legislature or the Central legislature. It was held that the phrase ‘intoxicating liquor’ in Entry 8 means ‘liquor which is consumable by human being as it is” and List II does not confer the State Legislature the power to levy of tax on industrial alcohol. Furthermore, the decision laid down 3 principles- (1) States do not have the competence to levy tax on industrial alcohol; (2) States have the competence to levy tax on potable alcohol; (3) States have the competence to levy fee on industrial alcohol.
The Supreme Court in State of UP v. Lalta Prasad, , framed 6 issues for adjudication by a larger Bench. Eventually, in December 2010, a 5-Judge Bench of the Supreme Court observed that the decision in Synthetics (supra) requires to be considered by a Bench of nine Judges and directed the matter be placed before a larger Bench.
Court’s Assessment:
In its preliminary observations, the Court delved into the distinction between potable and non-potable alcohol. It was noted that the complexity, where the materials for the preparation of potable alcohol are also used for the preparation of other products, a simplistic classification of ‘potable’ and ‘non-potable’ alcohol cannot be made for the purposes of this judgment.
Legislative power; Scheme of Legislative Entries
One of the prominent features of a federal Constitution is the distribution of legislative powers between the Union and the States. Article 246 of the Constitution provides for the distribution of legislative powers between Parliament and the State Legislatures. The federal balance lies not on the recognition that the Constitution grants Parliament predominant legislative power but on the identification of the scope of such predominance.
The Lists in the Seventh Schedule demarcate the legislative fields between Parliament and the State Legislatures. The three Lists make a clear distinction between general entries and taxation entries. The power of taxation cannot be derived from a general entry. Furthermore, numerous language devices are used in the Seventh Schedule to prevent conflict of entries and ensure a clear demarcation of the fields of entry. Barring the express legislative device of subordination, the States have complete power to enact laws over the fields specified in List II of the Seventh Schedule to the Constitution. The legislative entries must be given a wide meaning. All incidental and ancillary matters which can be fairly and reasonably comprehended must be brought within them. However, if there is an overlap between two entries the Court must endeavor to interpret the entries harmoniously.
Entry 8 of List II, Entry 52 of List I and their Reconciliation
Entry 8 of List II deals with ‘intoxicating liquor’. The Entry specifies the scope of the provision by the usage of the phrase ‘that is to say’. The Entry stipulates that it includes everything from the production to the sale of intoxicating liquor, with the use of the expressions ‘production, manufacture, possession, transport, purchase and sale’. The Entry specifies the breadth of the provision by couching it in over broad terms.
While interpreting the expression ‘that is to say’, it must not be lost that it features in the legislative list which must be interpreted widely and to include all ancillary items. The interpretation of taxing statutes (which must be construed strictly) and legislative entries in the Seventh Schedule (which are required to be construed widely and liberally) cannot be the same.
The expression ‘that is to say’ in Entry 8 of List II cannot be interpreted to circumscribe the scope of the Entry. The words that follow ‘that is to say’ are illustrative and explanatory of the scope of the provision. The expression does not limit the scope of the entry. Thus, the scope of Entry 8 of List II cannot be limited to the ‘production, manufacture, possession, transport, purchase and sale’ of Intoxicating Liquor.
Entry 8 is a specific entry dealing only with ‘intoxicating liquor’. The distinction made between industry and products in the general entries to give effect to the scheme of legislative distribution on industries is not adopted in Entry 8. Entry 8 in itself indicates that the intent is to ensure that it is read as broadly as possible. The Entry itself covers the ‘production, manufacture, possession, transport, purchase and sale’ of intoxicating liquors. Thus, it is clear that Entry seeks to regulate everything from the stage of the raw materials to the consumption of ‘intoxicating liquor’. Entry 8 of List II includes both the industry and the product of ‘intoxicating liquor’.
Entry 52 of List I deals with industries, the control of which by the Union is declared by Parliament to be expedient in the public interest. The State Legislature will have the competence to enact laws with respect to ‘industries’. The State Legislature will have the competence to enact laws with respect to all industries, unless Parliament has taken control of the industry under Entries 52 or 7 of List I.
It was noted that the expression ‘to the extent to which’ is absent in Entry 52 of List I. Whether an implied limitation can be read into Entry 52 of List I in the absence of the expression “to the extent to which”. If an implied limitation is not read into the Entry, Parliament by a simple declaration may take over the complete industry and subject the power of the State Legislature to make any provision with respect to that industry to the power of Parliament. The power of Parliament in Entry 52 of List I is defined by the phrase ‘control’. The Entry does not read as “industries, declared by Parliament by law to be expedient in the public interest.”
The question is whether Parliament under Entry 52 of List I takes over the industry of intoxicating liquor covered by Entry 8; the answer is in the negative. Irrespective of whether the term ‘industry’ is interpreted in a narrow or a wide manner, the industry of intoxicating liquor cannot be taken over by Parliament under Entry 52 of List I for the following reasons:
The general principle is that legislative lists must be interpreted widely. The courts must not apply the principle of legislative supremacy of Parliament at the stage of reconciliation.
The only limitation in Entry 52 is that the control of the industry by the Union must be necessary for public interest. Thus, Entry 52 of List I and Entry 8 of List II overlap on the aspect of ‘industry’ of intoxicating liquor.
Entry 8 of List II is not subject to Entry 52 of List I. Thus, the State Legislature has the exclusive competence to enact a law on the field in Entry 8. When one entry is not subject to the other, the Court must harmonise the overlap of the entries. The only way to reconcile the entries is either to exclude the industry of intoxicating entry from Entry 52 of List I or Entry 8 of List II. The Court while reconciling the provisions, must ensure that neither of the entries is rendered redundant via the principle of generalia specialibus non derogant. A special entry must prevail over a general entry, otherwise, the special entry may become redundant. Entry 52 of List I is a general entry dealing with industry. Entry 8 of List II is a special entry dealing with one particular industry.
Hence it was held that Parliament does not have the legislative competence to enact a law taking control of the industry of intoxicating liquor under Entry 52 of List I.
Meaning of ‘intoxicating liquor’
The Court noted that none of the pre-constitutional statutes defined the phrase ‘intoxicating liquor’ for it to have acquired a legal meaning. The definition of ‘liquor’ in pre-constitutional statutes as liquids containing alcohol cannot be transposed to interpret the legislative Entry. The phrase used in the legislative Entry is ‘intoxicating liquor’. The definition of one part of the expression in statutes cannot be used to interpret expressions that are used to indicate a collective meaning, particularly when the common parlance definition starkly varies. The common parlance meaning of ‘intoxicating liquor’ means liquor which causes intoxication, that is, which causes someone to lose control.
The Court clarified that the issue before in the instant appeal is squarely related to the interpretation of the expression ‘intoxicating liquor’.
The Court pointed out that the Constitution uses three distinct expressions relating to alcohol: “intoxicating liquor”, “alcoholic liquor for human consumption” and “intoxicating drinks”. The evolution of the entries in the legislative Lists indicate that it was a conscious decision to substitute ‘alcoholic liquor’ with ‘intoxicating liquor’ in the regulatory provision. It was also a conscious decision to use different phrases in the taxing entry and the regulatory entry.
The expressions “alcoholic liquor for human consumption” and ‘intoxicating drink’ are used in the context of ‘consumption’. However, the provision relating to “intoxicating liquor” is not limited to its consumption. It stretches to its ‘production, manufacture, possession, transport, purchase and sale of intoxicating liquors’ and beyond.
Hence the Court explained that the meaning of the phrase ‘intoxicating liquor’ cannot be restricted to potable alcoholic liquor, that is, alcohol that is sold as a beverage.
The purpose of Entry 8 is to cover alcohol that could be used noxiously to the detriment of public health. The Entry covers all alcohol that could be ‘prone’ to noxious use. It also covers variants of alcohol that are not used for the preparation of potable alcohol, but which could be misused to harm public health. This interpretation is in consonance with the mischief sought to be covered by the Entry.
The correctness of the decision in Synthetics (supra)
7-Judge Bench Court in Synthetics (supra) did not determine the meaning of the expressions ‘intoxicating’ or ‘liquors’ or ‘intoxicating liquors’ independently. It did not compare the difference in the language used to describe alcohol or liquor in different provisions of the Constitution to understand the significance of the difference.
The Court overruled the interpretation in Synthetics (supra) on the scope of Entry 8 and the interaction between Entry 8 and Entry 52 of List. The phrase ‘intoxicating liquor’ in Entry 8 includes denatured alcohol. “Thus, the State will have the competence to levy fees with respect to denatured alcohol, but for the reasons in this judgment”.
Regarding Item 26 of IDRA, 1951
Parliament under Entry 52 of List I does not have the legislative competence to enact a law taking control of the industry of intoxicating liquor. The State Legislatures will have control over the industry of ‘intoxicating liquor’. Parliament could not have taken control of the field covered by Entry 8 since the Court interpreted intoxicating liquor to include alcohol other than potable alcohol as well. Therefore, Item 26 of the First Schedule to the IDRA must be read as excluding the industry of “intoxicating liquor”, as interpreted in this judgment.
[State of UP v. Lalta Prasad Vaish, Civil Appeal No 151 of 2007, decided on 23-10-2024]
Advocates who appeared in this case :
Appellants: Dinesh Dwivedi, Sr. Advocate; Arvind Datar, Sr. Advocate; Jaideep Gupta, Sr. Advocate; V. Giri, Sr Advocate; Balbir Singh, Sr. Advocate and Advocates Shadan Farasat and Dr. Vivek Sharma,
For Respondents: Mr Dhruv Agrawal, Senior counsel; Mr Abhimanyu Bhandari; Mr Omar Ahmad; Ms Tahira Karanjawala; Ms Sansriti Pathak; Mr Pawan Shree Agarwal; Mr S Nandakumar; and Mr Akash Bajaj, Counsel
Mr R Venkataramani, Attorney General for India for Union of India; Tushar Mehta, Solicitor General of India
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