Holding

The Union has exclusive authority to licence industrial alcohol production, while the State may regulate to prevent its conversion to potable liquor, and the High Court's molasses direction cannot compel supply contrary to law.

Summary

The State of Uttar Pradesh filed a Special Leave Petition challenging a Allahabad High Court order that allowed Synthetics and Chemicals Ltd. to manufacture industrial alcohol without obtaining a PD‑2 licence and directed the State not to interfere, subject to preventing conversion of industrial alcohol into potable liquor. The State also contested a direction that the respondents be allotted molasses in accordance with a 1989 government order. The Supreme Court reiterated its earlier decision that the Union alone has the exclusive power to grant licences for industrial alcohol, while the State retains the authority to regulate to ensure such alcohol is not diverted for human consumption. It held that the High Court’s direction regarding molasses could not be read as compelling the government to supply molasses contrary to the Molasses Control Order or other applicable law. Consequently, the Court dismissed the Special Leave Petition, affirming the State’s right to guard against abuse but upholding the Union’s exclusive licensing jurisdiction.

Issues considered

The extent of the Union's exclusive power to grant licences for the manufacture of industrial alcohol versus the State's power to regulate its use.
Whether the High Court's direction to allot molasses to the respondent is valid under the Molasses Control Order and other statutes.
The necessity for the respondent to obtain a PD‑2 licence under the Uttar Pradesh Excise Act before commencing industrial alcohol production.

Legislation cited

Subjects

industrial alcohollicensingUnion vs State powersexcise lawmolasses supplyconversion to potable liquorspecial leave petitionArticle 136

Judgment

STATE OF U.P. AND ANR. A
v,
SYNTHETICS AND CHEMICALS LTD. AND ANR.

MARCH 15, 1993

[B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.) B

Constitution of India, 1950 : Article 136-Special leave petition-High
Court's direction : "We further direct that the respondents shall not allot molas-
ses to the petitioner in accordance wich the assurance given to the petitioner
vide order of the Government dated 23.3:1989''---ConstlUction. C
The High Court reiterating the principles enunciation in Synthetics
and Chemicals Ltd. and Ors. v. State of U.P. and Ors., [1990] 1 S.C.C. 109
held that the Central Government had the exclusive power to grant a
licence for the manufacture of industrial alcohol and it was not necessary
for the Company-respondent to obtain a PD-2 licence from the Excise D
Commissioner before starting its distillery for the manufacture of indus-
tial alcohol. The High Court directed the State of U.P. and another not to
interfere with the respondent-Company's manufacturing Indnstrial al·
cohol in the distillery for which licence was granted bot subject to the
State Government's right to ensure that industrial alcohol was not con· E
verted into potable alcohol. The State of U.P. filed a special ;eave petition
against the judgment of the High Court, in this Court contending that
before manufacturing industrial alcohol, the respondent-company was to
manufacture into rectified spirit and that rectified spirit Could be con·
verted potable liquor by merely adding water; that the High Court did not
give any reason in support of the High Court's direction.
F

-- 'We further direct that the respondents shall allot molasses to the
petitioner in accordance with the assurance given to the petitioner vide
order of the Government dated 23.3.198J."
G
The respondent-Company submitted that the High Court order was
extended from time to time for the subsequent years as well.

Dismissing the Special Leave Petition, this Court,

HELD: 01. The law laid down by this court and the observations of H
~· 291
)
...
_

292 SUPREME COURT REPORTS [1993] 2 S.C.R.

A the High Court in the impugned judgment recognise and safeguard the
right of the State Govt. to guard against any abuse and to ensure that ....,.
rectilied spirit is not diverted for human consumption. That power is
affirmed. [293F)

02. The direction of the High Court cannot be construed and shall
B not be understood as calling upon or directing the Government to do
anything, or to make any supplies, contrary to the provisions of the
provisions of the Molasses Contra! Order or any other law governing the
supplies of molasses. The supply of molasses to the respondent shall he
made in accordance with law. {294A-B]
c Synthetics and Chemicals Ltd. and Ors. v. State of U.P. and Ors.,
[1990] 1 SCC 109, referred. to. [292F]

CIVIL APPELLATE JURISDICTION : Special Leave Petition (c)
No.17098 of 1992.
D
From the Judgment and Order dated 23.10.1992 of the Allahabad
High Court in Civil Misc. Writ Petition No.473 of 1992.

R.B. Misra for the Petitioners.
I
E Ms. Shalini Soni, Mrs. P.S. Shroff (For M/s S.A. Shroff & Co.) for
the Respondents.

The following Order of the Court was delivered:

Heard counsel for the petitioners as well as the counsel for the
F respondents. We see no reason to entertain this special leave petition. It is
established by the decision of this Court in Synthetics and Chemicals Ltd
and Ors. v. State ·of U.P. and Ors., [1990] 1 S.C.C. 109 that so far as the
industrial alcohol is concerned, the power of licencing vests in the Union
of India alone. At the same time it is held that the power of the State
Government to legislate with respect to potable liquor referable to Entry
G 6 of List II remains unaffected. It is also held that the S•ate has the power
to make regulations and to take appropriate action to ensure that non-
potable alcohol is not diverted and misused as a substitute for potable J
alcohol. Another principle enunciated in the said decision is that the State j
can, not only charge excise duty on potable alcohol and sales tax on sales
H of such potable alcohol, but also entitled, in cases it renders any service,
STAIB OF U.P. v. SYNTHETICS & CHEMICALS LTD. 293

as distinct from its claim of grant of privilege, to charge fees based on quid A
pro quo. The High Court in this case has merely reiterated the said
principles. It has held "that the Central Government has the exclusive
power to grant a licnece for the the manufacture of Industrial Alcohol. It
is not necessary for the petitioner to obtain a PD-2 licence from the Excise
Commissioner, U.P., Allahabad before starting its distillery for the B
manufacture of Industrial Alcohol. The provisions in the U.P. Excise
Manual relating to taking of PD-2 licence are not applicable to a case
where a person wants to manufacture industrial alcohol. The other
provisions of the Ayt and Rules of the U.P. Excise Act and Manual are
applicable in order to ensure that Industrial alcohol is not converted into
potable alcohol." The final order of the High Court is to the following C
effect:

"In view of the above, we allow the writ petition and direct
the respondents not to interfere with the petitioner's
manufacturing industrial alcohol in the distillery for which
licence had been granted. This is, however, subject to the
D
right of the State Government to ensure that industrial
alcohol is not converted into potable alcohol."

In our opinion the said observations must be understood as reiterat-
ing the principles enunciated by this Court in the decision afore-cited. Mr. E
Salve, learned counsel for the State of Uttar Pradesh submitted that before
manufacturing industrial alcohol, the Respondent-company has to
manufacture rectified spirit and that rectified spirit can be coverted into
potable liquor by merely adding water. May be so. The observations made
by the High Court and the law laid down by this Court recognise and F
safegu'ard the power of the State Government to guard against such abuse.
We affirm it.
\.

Shri Salve questioned the direction given by the High Court to the
following effect: 'We further direct that the respondents shall allot molas- G
ses to the petitioner in accordance with the assurance given to the
petitioner vide order of the Government dated 23.3.1989." The proceeding
dated.23.3.1989 of course pertaints to the year 1989. But Mr. F.S. Nariman,
leanred counsel for the Respondent-Company says that the said order has
been extended from time to time for the subsequent years as well. Mr. Salve
points out that in the body of the Judgment of the High Court no reasons H
294 SUPREME COURT REPORTS (1993] 2 S.C.R.

A are given in support of the aforesaid direction. We are, however, of the
opinion that the said direction cannot ·be construed and shall not be ~·
understood, as calling upon C'r directing the Government to do anything,
or to make any supplies, contrary to the provisions of the Molasses control
order or any other law governing the supply of molasses. The supply of
molasses to the Respondent shall be made in accordance with law.
B
Mr. Salve raised certain other contentions bui we did not allow him
to do so in view of the fact that those contentions were not urged before
the High Court. We need express no opinion thereon.

Special Leave Petition is accordingly dismissed subject to the above
c observations. -
V.P.R. Petition dismissed.

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