Case Note & Summary
The Supreme Court of India examined a writ petition filed by Bihar Distillery and another challenging the State of Bihar's attempt to cancel its license to manufacture rectified spirit (industrial alcohol). The dispute arose from the division of legislative powers between the Union and States over industrial alcohol and potable liquors under the Constitution and the Industries (Development and Regulation) Act, 1951. The petitioner distillery had been licensed under the Bihar Excise Act and its license was renewed up to 1991-92. In 1992, State authorities proposed cancellation. The petitioner contended that after the 1956 amendment to the IDR Act Schedule, which included alcohol as a fermentation industry (Item 26), the control over distilleries manufacturing rectified spirit vested exclusively in the Union, and the State had no jurisdiction to grant or cancel such licenses. The petitioner relied on the seven-judge Constitution Bench decision in Synthetics and Chemicals Ltd. v. State of U.P. (1990) 1 SCC 109, which held that rectified spirit of 95% purity and above is non-potable industrial alcohol within exclusive Union control and that States' power is confined to potable liquors. The background traced that rectified spirit was initially used for country liquor and IMFL, but industrialization increased demand for industrial purposes. Parliament amended the IDR Act Schedule in 1956 to include alcohol, but State excise enactments continued to regulate distilleries. This arrangement was challenged in Synthetics, where the Uttar Pradesh High Court rejected the contention that denatured spirit was not intoxicating liquor under Entry 8 List II. The Supreme Court in 1980 (2) SCR 531 also rejected the industry's claim, but the matter was ultimately reconsidered by a seven-judge Bench, which reversed the earlier view and held that 'intoxicating liquors' in Entry 8 List II means only potable liquors, and State power is limited to potable alcohol. After the Synthetics decision, confusion remained about the extent of State regulation over the initial stages of alcohol production. The present Bench, by order dated May 9, 1996, issued notice to all State governments and the Attorney General, observing that the question was thorny and that saying States step in only when alcohol becomes potable leaves room for abuse and difficulties of supervision. The court further noted that alcohol of 95% purity can be used for industrial purposes without denaturing, and that for manufacturing potable liquors, alcohol must be reduced in strength, raising licensing questions whether the Centre alone or States or both should license such industries. The petitioner argued exclusive Union jurisdiction, while States' representatives were heard; the court also considered State of A.P. v. McDowell (JT 1996 (3) SC 679) which held States have exclusive province over potable liquors. The court analyzed entries in Seventh Schedule, particularly Entry 8 and 51 List II, Entry 24 List II, Entries 7 and 52 List I, Entry 84 List I and Entry 33 List III, and emphasized the need to demarcate spheres. The judgment excerpt ends without a final decision, as the matter was being heard after notices to all States.
Headnote
A) Constitutional Law - Legislative Competence - Entry 8 List II - Constitution of India, Seventh Schedule Entry 8 List II - The expression 'intoxicating liquors' in Entry 8 List II means only potable liquors as determined by ISI standards (alcohol content not exceeding 43% v/v), and State legislative power under this entry is confined to potable liquors, not industrial alcohol. Held that rectified spirit of 95% and above purity cannot be treated as potable liquor and lies within exclusive Union control under IDR Act (Paras Not mentioned). B) Industries Regulation - Industrial Alcohol Control - Schedule Item 26 - Industries (Development and Regulation) Act, 1951, Section 2 and First Schedule Item 26 - By the 1956 amendment including alcohol as Item 26, Parliament took control of industries manufacturing industrial alcohol, denuding States of power to regulate such distilleries; State enactments cannot override this Union control. Held that after 1956, States' power is confined to regulation of potable alcohol and prevention of diversion, not to licensing or cancellation of industrial alcohol distilleries (Paras Not mentioned). C) State Excise Regulation - Licensing of Distilleries - Bihar Excise Act (sections not mentioned) - State authorities proposed cancellation of a distillery license granted under Bihar Excise Act; Supreme Court issued notice to all States to demarcate spheres of Union and States in alcoholic liquors and determine who should licence such industry - Center alone or States or both. Held that the question is thorny and requires consideration of all States (Paras Not mentioned). D) Constitutional Law - Excise Duty - Entries 51 List II and 84 List I - Constitution of India, Seventh Schedule Entries 51 (List II) and 84 (List I) - Entry 51 List II empowers States to levy excise on alcoholic liquors for human consumption, while Entry 84 List I empowers Union for other goods; industrial alcohol is excluded from State excise after Synthetics. Held that State cannot levy excise duty or vend fee on denatured spirit or industrial alcohol (Paras Not mentioned).
Issue of Consideration
Whether the State Government has jurisdiction to regulate, license, cancel license, and levy fees on a distillery manufacturing rectified spirit (industrial alcohol), or whether such power is exclusively with the Union under the Industries (Development and Regulation) Act, 1951 after its 1956 amendment.
Final Decision
Not mentioned in the extracted text; the court was hearing the matter after issuing notices to all State governments and the Attorney General, and no final order is recorded.
Law Points
- Rectified spirit of 95% and above purity is non-potable industrial alcohol under exclusive Union control under Industries (Development and Regulation) Act
- 1951
- State power to legislate on intoxicating liquors is limited to potable liquors after Synthetics
- States may make law prohibiting potable liquor and regulate it
- ensure nonpotable alcohol not diverted for potable purposes
- charge excise duty on potable alcohol
- and charge fees for services
- Entry 8 List II 'intoxicating liquors' means only potable liquors
- Entry 51 List II limited to potable liquors
- after denaturing or reducing strength
- alcohol may be potable or industrial
- licensing of distilleries manufacturing industrial alcohol raises demarcation issue whether Center alone or States or both
