Supreme Court Upholds State Regulation of Denaturation of Industrial Alcohol. Fee of 7 Paise Per Litre for Denaturation Licence Valid Under Entries 6 and 8 of State List and Section 41 of U.P. Excise Act.

Writ petitions challenging the validity of Notification No.25/Licence/Part-3 dated 18.5.1990 issued by the Excise Commissioner, Uttar Pradesh, which required a denaturation licence in form DS-1 and imposed a denaturation fee of 7 paise per litre.

The appellants sought quashing of the impugned notification and refund of the denaturation fee, arguing that the State lacked legislative competence and the fee was not based on quid pro quo.

The appellants contended that rectified spirit/industrial alcohol fell within the exclusive Union legislative field due to the declaration under the IDR Act, and that the State of Uttar Pradesh could not regulate or levy fees on denaturation.

The High Court of Allahabad dismissed the writ petitions on 9.9.1991, upholding the notification and the State's competence; the appellants then filed special leave petitions in the Supreme Court.

Whether the State of Uttar Pradesh has legislative competence to regulate denaturation of rectified spirit under Entries 6 and 8 of List II of the Seventh Schedule to the Constitution, notwithstanding the declaration under Section 2 of the IDR Act and Entry 52 of List I? Whether the levy of denaturation fee at 7 paise per litre is valid in the absence of a quid pro quo? Whether the impugned Notification is within the powers conferred by Section 41 of the U.P. Excise Act, 1910?

Appellants argued that rectified spirit is industrial alcohol and not fit for human consumption; the State Legislature has no power to make law or levy fee because the field is occupied by the IDR Act via Entry 52 List I and Section 18G. Appellants contended that the fee of 7 paise per litre was not based on quid pro quo and hence invalid as a fee. State argued that the denaturation regulation was necessary to prevent diversion of industrial alcohol to potable liquor, and was supported by Entries 6 and 8 of List II; the fee was regulatory.

The State Legislature has competence under Entries 6 and 8 of List II to enact measures for public health and intoxicating liquors, including regulating denaturation of rectified spirit to prevent diversion to potable liquor; Section 18G of the IDR Act does not occupy the field because it is limited to equitable distribution and availability at fair price; the fee for denaturation is a regulatory fee and not required to satisfy strict quid pro quo.

Denaturation of rectified spirit is a highly technical process. The impugned Notification dated 18.5.1990 was issued in exercise of powers conferred by Section 41 of the U.P. Excise Act, 1910 with the prior approval of the State Government. The High Court goes on to say that the impugned Notification is issued to ensure that rectified spirit sought to be used for industrial purposes is not diverted for obtaining country liquor or other forms of potable liquor and that it is not concerned with equitable distribution and availability at fair price of either rectified spirit or the denatured spirit. Thus, the power under Section 18G can be exercised only so far as is permitted by sub-section (1) viz., for securing the equitable distribution and availability at fair price of any article or class of articles relatable to any scheduled industry.

Writ petitions were filed before the Allahabad High Court challenging the Notification No.25/Licence/Part-3 dated 18.5.1990. The High Court dismissed the writ petitions on 9.9.1991. The appellants filed Special Leave Petitions, which were granted, and the appeals were heard by the Supreme Court (date of judgment 1997-01-21).

• U.P. Excise Act, 1910: Section 24, Section 24A, Section 24-B, Section 41, Rule 785
• Industries Development & Regulations Act, 1956: Section 2, Section 18G, First Schedule Item 26
• Constitution of India: Seventh Schedule, List I Entry 52, List II Entries 6, 8, 24, 51, 66, List III Entry 33