Civil Appeal No 151 of 2007

State of U.P. & Ors.                                        …Appellants

Versus

 M/S Lalta Prasad Vaish and sons                             …Respondent

Date of Judgement:-  23 october, 2024

Presiding judges:-

Dr DY Chandrachud, CJ.*

Hrishikesh Roy, J

Abhay S. Oka, J

JB Pardiwala, J

Manoj Misra, J

Ujjal Bhuyan, J

Satish Chandra Sharma

B V Nagarathna, J and

Augustine George Masih, JJ.

INTRODUCTION:-

In an appeal concerning the scope of State Legislatures’ power under Entry 8 and the interpretation of “intoxicating liquor”—whether it includes only potable alcohol or also extends to alcohol used in other industries—a 9-Judge Constitution Bench ruled by an 8:1 majority as follows:

1. Entry 8 of List II in the Seventh Schedule of the Constitution serves as both an industry-based and product-based entry. The phrase “that is to say” does not limit its scope, covering everything from raw materials to the consumption of intoxicating liquor.
2. Parliament cannot claim complete control over the industry through a declaration under Entry 52 of List I. The State Legislature’s power under Entry 24 of List II is only restricted to the extent that Parliament legislates under Entry 52 of List I.
3. Parliament lacks the legislative competence to take control of the intoxicating liquor industry covered under Entry 8 of List II using its authority under Article 246 and Entry 52 of List I.
4. Entry 8 of List II is grounded in public interest and extends beyond potable alcohol.

The term “intoxicating” suggests that it includes alcohol with potential misuse affecting public health. This encompasses substances like rectified spirit, ENA, and denatured spirit, which serve as raw materials for alcoholic beverages and other products. However, it does not cover final products containing alcohol, such as hand sanitizers, as that would encroach upon other legislative domains.

The majority opinion, delivered by Chief Justice Dr. DY Chandrachud along with Justices Hrishikesh Roy, Abhay S. Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih, also overruled the 7-Judge Bench decision in Synthetics and Chemicals Ltd. v. State of U.P., (1990) 1 SCC 109, which had held that States could not impose taxes on industrial alcohol.

Justice  V. Nagarathna was the sole dissenter in the case.

Background:

Constitutional Framework, Statutory Provisions, and the Synthetics Judgment:-

The present appeal centered on the legislative authority of State Legislatures under Entry 8 of the Seventh Schedule of the Constitution, specifically concerning the regulation and taxation of industrial alcohol.

As per the Constitutional framework, States have legislative competence over ‘industries’ under Entry 24 of List II. However, this power is subject to Entries 7 and 52 of List I. Entry 8 of List II pertains to ‘intoxicating liquors,’ followed by the phrase “that is to say, the production, manufacture, possession, transport, purchase, and sale of intoxicating liquors.” Additionally, the Seventh Schedule distinctly allocates taxing powers related to alcohol.

Under Article 246, in conjunction with Entry 52 of List I, Parliament enacted the Industries (Development and Regulation) Act, 1951 (IDRA). Section 2 of IDRA grants the Union control over “Fermentation Industries,” including alcohol production. A 2016 amendment to Item 26 of the First Schedule of IDRA specifically excluded potable alcohol from its ambit. Furthermore, Section 18-G of IDRA empowers the Central Government to regulate the supply and distribution of goods related to a scheduled industry to ensure equitable distribution and fair pricing.

In Synthetics and Chemicals Ltd. v. State of U.P., a 7-Judge Bench of the Supreme Court examined two key issues:

The validity of vend fees imposed on industrial alcohol under various State laws, and

Whether the power to levy excise duty on industrial alcohol rested with the State or the Centre.

The Court held that the term “intoxicating liquor” in Entry 8 refers exclusively to liquor that is consumable in its existing form by humans. It further established three key principles:

1. States lack the authority to impose taxes on industrial alcohol.
2. States can impose taxes on potable alcohol.
3. States can levy fees on industrial alcohol.

In State of U.P. v. Lalta Prasad, (2007) 13 SCC 463, the Supreme Court identified six issues requiring adjudication by a larger Bench. Subsequently, in December 2010, a 5-Judge Bench observed that the ruling in Synthetics warranted reconsideration by a 9-Judge Bench and directed the matter accordingly.

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.

Reconciling Entry 8 of List II and Entry 52 of List I

Entry 8 of List II specifically deals with ‘intoxicating liquor,’ defining its scope through the phrase “that is to say,” which serves to clarify its coverage rather than restrict it. This entry includes all aspects of intoxicating liquor, from production to sale, as indicated by the terms “production, manufacture, possession, transport, purchase, and sale.” The wording of this entry is deliberately broad, ensuring comprehensive regulation.

When interpreting the phrase “that is to say,” it is crucial to remember that legislative lists in the Constitution must be understood in an expansive manner to encompass all related aspects. Unlike tax laws, which are to be construed strictly, legislative entries in the Seventh Schedule require a broad and liberal interpretation. Therefore, the phrase “that is to say” in Entry 8 should not be read as a limiting clause but as an illustrative one, meaning that the scope of Entry 8 is not confined to only the enumerated activities but extends to all facets of intoxicating liquor.

Entry 8 is a unique provision dealing solely with intoxicating liquor. Unlike other general entries that distinguish between industries and products for legislative clarity, Entry 8 does not follow that approach. Instead, it takes a comprehensive view, regulating both the industry and the product of intoxicating liquor. The entry ensures coverage from the raw material stage to final consumption, emphasizing the broad regulatory powers of State Legislatures over intoxicating liquor.

Understanding Entry 52 of List I and its Limitations

Entry 52 of List I pertains to industries where Parliament has declared Union control to be necessary in the public interest. Generally, States hold legislative power over industries under Entry 24 of List II unless Parliament exercises control under Entries 52 or 7 of List I.

A crucial aspect of Entry 52 is that it lacks the phrase “to the extent to which,” which raises the question of whether an implicit limitation should be read into the entry. If no such limitation is imposed, Parliament could take complete control over an entire industry through a simple declaration, thereby overriding State legislative powers in that domain. However, the defining term in Entry 52 is “control,” rather than a complete takeover. The entry does not state that Parliament has absolute authority over all industries it declares to be in the public interest, but rather grants control over such industries.

Whether Entry 52 of List I Override Entry 8 of List II?

The key question is whether Parliament, under Entry 52 of List I, can take control of the intoxicating liquor industry covered under Entry 8 of List II. The answer is no. Regardless of whether “industry” is interpreted narrowly or broadly, the intoxicating liquor industry cannot be brought under Parliament’s control through Entry 52 of List I for several reasons:

Legislative entries must be interpreted broadly – Courts should not automatically assume Parliament’s legislative supremacy when resolving overlaps between entries.

Overlap between Entry 8 of List II and Entry 52 of List I – While Entry 52 allows Parliament to take control of industries in the public interest, Entry 8 of List II explicitly grants States the authority to regulate intoxicating liquor. The two entries intersect only concerning the “industry” aspect of intoxicating liquor.

State Legislature’s exclusive power – Entry 8 of List II is independent and not subject to Entry 52 of List I. In cases where two legislative entries overlap but one is not subordinate to the other, courts must harmonize them rather than allowing one to override the other.

To reconcile these provisions, either intoxicating liquor must be excluded from Entry 52 of List I or Entry 8 of List II. However, courts should avoid rendering any entry redundant. According to the principle of generalia specialibus non derogant (a specific provision prevails over a general one), a specialized entry must take precedence over a general entry. Since Entry 52 broadly covers industries, whereas Entry 8 specifically pertains to intoxicating liquor, the latter prevails.

Parliament Lacks Power to Control the Intoxicating Liquor Industry

Based on this interpretation, Parliament does not have the authority under Entry 52 of List I to take control of the intoxicating liquor industry. The regulation of this industry falls exclusively under the domain of State Legislatures as per Entry 8 of List II.

Defining ‘Intoxicating Liquor’

The term “intoxicating liquor” was not explicitly defined in pre-constitutional statutes in a way that would establish a settled legal meaning. While earlier laws defined “liquor” as any liquid containing alcohol, this definition cannot be directly applied to interpret Entry 8, as the phrase used in the Constitution is “intoxicating liquor.” The meaning of one part of a phrase cannot be applied universally, especially when its common usage significantly differs. In ordinary language, “intoxicating liquor” refers to any liquor that causes intoxication or impairs self-control.

The Court emphasized that the present appeal primarily concerns the interpretation of the term “intoxicating liquor.” A close analysis of the Constitution reveals three distinct expressions related to alcohol:

“Intoxicating liquor” – Found in Entry 8 of List II, this phrase governs regulatory powers.

“Alcoholic liquor for human consumption” – Used in the context of taxation.

“Intoxicating drinks” – Associated with the concept of consumption.

The legislative history indicates a deliberate choice to replace “alcoholic liquor” with “intoxicating liquor” in the regulatory provision. Additionally, the Constitution employs different terminology in taxation and regulatory contexts, reinforcing the view that “intoxicating liquor” is not limited to alcoholic beverages meant for consumption.

While “alcoholic liquor for human consumption” and “intoxicating drinks” relate specifically to drinking, “intoxicating liquor” in Entry 8 extends beyond consumption to include production, manufacturing, transport, possession, purchase, and sale. Therefore, the scope of “intoxicating liquor” cannot be confined to potable alcohol alone.

The objective of Entry 8 is to regulate all alcohol that has the potential for noxious use, meaning substances that can harm public health if misused. This includes types of alcohol that may not be intended for beverages but could still pose risks if misused. The interpretation aligns with the constitutional intent to address the dangers associated with intoxicating substances.

Revisiting the Synthetics Judgment

The 7-Judge Bench in Synthetics and Chemicals Ltd. v. State of U.P. failed to independently define terms such as “intoxicating liquor” and did not consider the variations in constitutional terminology when referring to alcohol. As a result, the judgment did not fully explore the distinctions between different expressions used in the Constitution.

The Court in the present case overruled the Synthetics decision concerning the scope of Entry 8 and its interaction with Entry 52. It concluded that “intoxicating liquor” includes denatured alcohol, thereby affirming the States’ competence to regulate and impose fees on such substances. However, this power must be exercised in accordance with the principles outlined in the present judgment.