SYNTHETICS & CHEMICALS LTD. ETC.versusSTATE OF U.P. AND ORS.

                  SYNTHETICS & CHEMICALS LTD. ETC.                                 A
                                 v.
                       STATE OF U.P. AND ORS.

                               OCTOBER 25, 1989

       [E.S. VENKATARAMIAH, CJ., SABYASACHI MUKHARJI,                              B
       RANGANATH MISRA, G.L. OZA, B.C. RAY, K.N. SINGH
                    AND S. NATARAJAN, JJ.]

            CONSTITUTION OF INDIA, l<J50: Articles I9{1)(g), 2I, 32,
      47, 245, 246, 265, 277, Seventh Schedule, List I Entries], 52, 5Y, /54 96;
      97, List II Entries 8, 24, 26, 27, 51, 52, 56 and List III Entries 19 and    C
      13-Vend Fees and imposts levied under various State Acts-Constitu-
      tional validity of.

            Preamble-Sovereignty-Conception and meaning of.

           Articles 19( l)(g) and 265-Arbitrary and excessive imposts by           D
      State-Whether a great disincentive for development of industries
      rendering units unviable and sick.

            Articles 19( l)(g), 21, 47 and 265-Right to trade in goods obno-
      xious and injurious to health and dangerous to life-Whether State can
      claim privilege of-Whether violates fundamental rights.                      E

            Article 141-Precedent-When can be deviated.

            Article 245, 246 and 265 and Part JV-Levy/fee in furtherance of
      directive principles-Whether empowers imposition, if otherwise ultra
      vires Constitution or laws.                                           F

           Article 265-Fee-Whether iustified if imposed for regulation of
      any activity-Where the revenue earned is substanual.

             Article 277-Pre-Constitutional levy-Saving proviswn for-·
      Whether ceases to be effective on amendment or addition to the levy G
      after commencement of Constitution-Doctrine of privilege-Whether
...   vests in any of the functionaries of State-Whether State can claim·
      privilege for trading in goods obnoxious and injurious to health-
      Whether violative of Articles 21 and 47.

            Police Power of State: Whether recognised as independent power-        H

                                         623
    624           SUPREME COURT REPORTS              (1989] Supp. 1 S:C.R.

    Whether same as sovereign power-Whether tax or levy justified on the
A   theory ofpolice power alone.

           Andhra Pradesh Excise Act, 1968/Andhra Pradesh Distillery Rules,
    1970/Bombay Prohibition Act, 1949: Section 49/Bombay Rectified
  . Spirit (Transport in Bond) Rules 1951/Tamil Nadu Prohibition Act, 19J7:
B Levy of vend fee or duty in respect of industrial alcohol-Legality of.

          U.P. Excise Act. 1910/U.P. Excise Rules, 1972: Sections 24A,
    24$ and 40/Rule 17(2)-Right of State to levy vend fee or duties in
    respect of industrial alcohol-Legality of.

         industries (Development and Regulation) Act, 1951: Sections 2
0   and 18G-Powers of State to legislate in respect of alcohol.
         Statutory Interpretation: Constitution-Entries in legislative lists
    -Exclusionary clause-To be strictly and narrowly construed-Rulf of
    harmonious construction of-Reiterated.
D        Words and Phrases: 'Human consumption':.__'lntoxicating liquor'
    -'Rectified spirit'-Meaning of

         Writ Petitions/Civil appeals challenging the notification dated
   31st May, 1979 which substituted a new rule 17(2) of U.P. Excise Rules
   and provided for a vend fee, the amendment to section 49 of the Bombay
E Prohibition Act, 1949 treating exclusive privilege for State in liquor
   trade and imposing a transport fee, the Bombay Prohibition Act, 1949 as
   amended from time to time along with ordinance No. 15of1981 amend-
   ing the Bombay Prohibition Act, 1949 and Section 49 added by reason
   of which the State was granted exclusive privilege of importing, export-
   ing, transporting, manufacturing, bottling, selling, buying, processing
F .or using any intoxicant; and seeking a declaration that alcohol plant of
   the petitioner-company was not covered by the A.P. Excise Act, 1968,
  \A.P. DistiIIery Rules, 1970, and A.P. Rectified Spirit Rules, 1971 and that
   alcohol plant of the company was not a 'distillery' within the meaning of
   the said expression under the A.P. Distillery Rules and, therefore, the
   Distillery Rules had no application thereto and seeking an order to
G restrain.from interfering with and/or regulating and controlling pro-
   duction, distribution, movement and supply of alcohol from the plant·of
   the company and the Tamil Nadn Prohibition Act, were filed in this
   Court.
          Review Petitions against the judgment and order of this Court
     dated 19th December, 1979 in State of U. P. etc. v. Synthetics. and
H
     Chemicals Ltd. and Ors. etc., (1980] 2 SCR 531 re-agitating challenge
                 SYNIHETICS-CHEMICALS v. STA"l'E OF U:P:                    6"25·

  to sections 24A and 248 of the U.P. Excise Act, 1910 as amended in 1972 A
  and 1976, declaring exclusive privilege of the Government for
, manufacture and -sale of foreii:n liquor as defined, which included
  denatured spirit and industrial alcohol, were also filed.

           The petitioners/appellants contenaea that the levies made by the B
   respondent States on alcohol, which was utilised as raw mater'ial by the
   industries for manufacturing the products were invalid. Some of th"8e
    industries' themselves manufactured alcohol as they bad their own dis-
   tillaries· and from where it passed through pipelines to their industtial
    units, where this was used as a raw material, whereas some purchased
    alcohol or denatured spirit on being allotted by the Government. It was
    alleged that, iit addition to excise duty levied by the Central Govern- C
    ment, excise duty and various levies in various names like vend fee,
   transport fee and others numbering about eight levies were imposed by
    the State Government. It was also contended that the State Legislature .
    had no authority, in view ·of Entry 84 of List I read with Entry 51 of List
    II to impose such levies; this being alcohol which did not within the D
   ambit of alcoholic liquors for human consumption. Ifis only tne cientre
    which had the authority to tax under Entry 84, and _that .t:ntry Sin List
    II only authorised the State Legislature to enact laws to regulate but did
    not empower it to impose any levy and the various levies-which had been
    imposed by the State Legislature on industrial alcohol and even
    methylated spirit could not be brought within the ambit of, regulatory E
    duties for purposes of regulation only, and, therefore, could not be
   justified under Entry 8 of List II, that doctrine of privilege and consideration
    for sale of privilege could be available to the State only in respect of
    alcohol or alcoholic liquors which were for huinan consumption. that by
 · merely widening the definition -of intoxicating ·liquors iit respective
    excise laws enacted by the States, the ambit-of-authority ,.of taxation F
    could not be enlarged by the State Legislature when in List II Entry 51 the
   words used were alcoholic liquors for human consumption. It was further
  .contended that though the direction and commitment to improvemeotfil the
   standards oflivin2 contained in Article 47 of the Constitution must be kept in
    view, this improvement could be achieved primarily by industrialisa-
   tion involving increased production and employment and giving prio- G
    rity to the core sectors, that the Industries (Development & Regulation)
    Act. 1951 was enacted with a view to developing and controlling various
    important industries and that the petitioners/appellants were predominantly
   and primarily concerned with using ethyl alcohol (rectifiea spmt) as an
   ·industrial raw material 3nd this industrial alcohol is required as an
    input for further manufacture of downstream products.                           H
    626            SUPREME COURT REPORTS                [1989] Supp. 1 S.C.R.

           It was submitted on behalf of Union of India that the legislative
A   competence of the State enactments in the various States would have to
    be determined by reference to Entries 7, 52, 59, 84, 96 and 97 of List I
    and Entries 8, 24, 26, 27, 51, 52, 54, 56, 62 of List II and Entries 19 and 33
    of List m, that there was a dichotomy between Entry 84 of List I and Entry
    52 of List II, but this would not control the interpretation of other
B   entries and that there was no such dichotomy in Entry 8 of List II, that
    the power to levy taxes had to be read from entry relating to the taxes
    and not from general entry, that none of the taxing entries in List II was
    controlled by_ Entry 52 of List I, that State's privilege to completely
    prohibit or farm out liquor containing alcohol for consumption did not
    comprehend a similar right of the State with regard to other intoxicat-
    ing liquids containing alcohol and to so prohibit or collect fee for farm-
c   ing out, would be unconstitutional under Article 19(l)(g) of the Con-
    stitution, that under Entry 51 of List II, State Legislature had no power
    to levy excise duty on industrial alcohol, as it was not fit for human
    consumption, and though the State could collect an amount called vend
    fee, shop rent, etc. for conferring on a citizen the right to manufacture
D   and sell alcoholic liquors if it is for human consumption, this power did
    not extend to industrial alcohol or alcohol contained in the medicinal or
    toilet preparations;

          On behalf of the respondent States, it was contended that:

E          (a) Entry 52 of List I was an exceptional entry, which not only
    prescribed the field of legislation but also enabled and empowered the
    Parliament to make laws to the exclusion of the Stae and that, being
    exclusionary in nature unlike entries merely delineating fields of legisla-
    tion, this entry had to be strictly and, therefore, narrowly construed;

F          (b) whenever the Constitution intended the Parliament to assume
    legislative competence in respect of the entire field, a declaration of an
    "nqualified nature was provided for unlike qualified provision like
    Emry 52 of List I,

          (c) the words 'control' and 'regulation' were, at times, held to be
G   interchangeable or used synonymously, but their use in the various
    entries either singly or jointly, indicated that they were sought to
    convey a different sense and the word 'control' bad in the context, a
    narrower meaning, excluding details of regulatory nature by the State;

         (d) comparing Entries 7, 23, 24, 27, 62, 64 and 67 of List I with
H   Entry 52, would demonstrate that under_entry_52, it was not the entire
              SYNTIIETICS CHEMICALS v. STATE OF U.l'.               627

field which was sought to be covered but only the control of industries; A
and that the absence of inclusion of qualifying words like 'the control of
which' could not be brushed aside;

      (e) in view of the declaration made in Section 2 of the !.D.R. Act,
1951 and the provisions made therein, the entire field was not occupied
and the vend fee or other impost by the State legislatures were not B
infringing in the field treaded by the Central Legislature; the Act did not
preclude or edipse the legislative powers of the State; the Act also did
not apply on its own terms to the levy; these operated on different
tracks;

      (I) the Parliament had no power to legislate on industrial alcohol, C
since industrial alcohol was also alcoholic liquor for human consump-
tion and Entry 84 in List I expressly excluded this category and, there-
fore, the resi!luary Entry 97 of List I would not operate as against its
own legislative intent;

      (g) the State had legislative competence to impose the levy since it D
was, both on its language and in pith and substance, legislation falling
under Entry 8. List II, intoxicating liquor, and Entry 51 List II,
alcoholic liquor for human consumption, and what was required was
intoxicating liquor and/or alcoholic liquor for human consumption;

      (h) that the State had exclusive right to deal in liquor, and this E
power was reserved by and/or derived under, Article 19(6) and 19(6)(ii)
of the Constitution, for parting which a charge was levied, and in a
series of decisions it had been ruled that the charge was neither a fee nor
a tax and was termed as privilege;

    · (i) there was no dichotomy between Ethyl Alcohol, to be used for F
beverages and for industrial purposes, and in any case the levy was on
manufacture of the Ethyl Alcohol, and the dichotomy attempted to be
drawn in Entry 84 of List f on the basis of the development of the
concept of industrial alcohol and the inapplicability of the concept of
potable liquor to the industry of alcohol was not valid.
                                                                         G
      (j) the levy was consistent with wider interpretation of alcoholic
liquor based on pre-existing legislative history;

     (k) when two interpretations were possible, the choice must fall
on that interpretation which validated existing State legislations
designed to raise revennes and rejection of the other interpretation H
    628            SUPREME COURT REPORTS               [1989] Supp. 1 :i.C.R.

    which was destructive of the scheme of distribution of powers;
A
          (I) the· words 'alcoholic liquor' in Lists I & II of the 7th Schedule
    to the Constitution must be interpretated so as to mean and take within
    its sweep alcohol as first obtained in the process of or as a product of
    fermen_tation industry at which stage, it was capable of being rendered
B   potable, and the fact that it may be rendered unfit for human consump-
    tion, did not render the substance any less liable for taxation;

          (m) imposition of a fee would be the most effective method of
    regulating intoxicating liquor other than alcohol and could be.,justified
    as the reasonable measure in regard to intoxicating liquor-as it.is the
    duty of the State, being a welfare State, to denature by incurring extra
c   cost and effort; quid pro quo was not necessary and, even if it was
    necessary, the requirements were met; and the price fixation was ·a
    valid method in regulation of consumption;

           (n) .under its police powers, the State had to regulate health, mor-
D   ality, welfare of society and incidental pauperism and crime;

          (o) in enacting a law with respect to intoxication liquor as part\of
    the legislative power, measures of social control and regulation of pri-
    vate· rights were permissible and as such may even amount to
    prohibition;
E
          (p) it has been accepted by Courts all along that the 'police
    power' of the -·State enabled regulations to be made regarding
    manufacture, transport, possession and sale of intoxicating liquor; and
    such police power could be exercised as to impose reasonable restric·
    lions as to effectuate the power;
F
          (q) trade in alCoholic drinks or intoxicating drinks, being obno-
    xious and injurious to health, a Citizen had no fund,amental right under
    Article t9(l)(g) of the Constitution and it is the privilege of the State
    alone and it can part with this privilege on receipt of a consideration;

G         (r) the levy was stipulated jointly or severally, both under· Entries
    s· of List II, Entry SI of List fl, Entry 33 of List III and what was
    de~cribed as police powers regulatory and other incidental charges, and
    the levy was justified, being a regulatory power under Article 19(~);
    and 19(6)(ii);

H         (s) the State -bad~-monopoly in alcohol trade llllll' Artiele JIC
                   SYNTHETICS CHEMICAI;S v. STAJE·OF·U.P.                   629

    granted immunity to the challenge under Articles 13, 14 and 19 of the
    Constitution, and under Article 298, trading powetofthe State-must he" A


,
    recognised, coupled with century old monopoly of the State in alcohol;
    and

          (t) the vend fee was a pre-constitutional levy, and so saved Ul)der
    Article ,277 of the Constitution: it was not a law either under Article 246 B
    or Article 254 and was, therefore, outside the purview of the Central
    Act.

           On; the questioll!i: (i) whether the vend fee in respect of theindnst-
    rial alcohol under difterent legislations and i-ules in different States was .
•   valid; (ii) whether the power to levy excise duty in case of industrial
    alcohol was with the State legislature or the Central legislature; (iii) C
    what was the scope and ambit of Entry 8 List II of the Seventh sched\11"
    of the Constituion; and (iv) whether, the State Government had ex~u­
    sive right or privilege of manufacturing, selling, distributing, etc, of
    alcohols including Industrial alcohol, and what was the extent,· scope
    and ambit of such right of privilege,                                 ·        D

          Allowing the Writ Petitions, Civil Appeals and Review Petitions,
    this Court,

        HELD: Majority: (E.S. Venkataramiah, C.J.I, Sabyasachi-
    Mukharji, Ranganath Misra, B.C. Ray, K.N. Singh and S. Natarajan, JJ.) E

    Per Sabyasai:hi Mukharji, J.

         1.1 The relevant provisions of the U.P Excise Act, 1910, A.P.
    Excise Act, 1968, Taniil-Nadu Act, and Bombay Prohibition Act, 1949
    are uncostitutional insofar as these purport to levy a tax or charge F
    imposts upon industrial alcohol, namely, alcohol used and useable for
    industrial purposes. [6SOG~H)

           1.2 Having regard to the principles of interpretation and the
    Constitutional provisions, In the light of the language used and, having
    considered the impost and the composition of industrial alcohol, and the G
    legislative practice of this__country, the imposts in question cannot be
    justified as State imposts. [680G-H)

          1.3 The different provisions, In question are not merely regu-
    latory, but are much more than that. These seek to levy imposition in
    their pith and substance. not as incidental or as mer-"ly disincentives,      H
    630            SUPREME COURT REPORTS                [1989] Supp. 1 S.C.R.        •
    but as attempts to raise revenue tor States' purposes. There is no taxing
A   provision permitting these in the lists in the field of industrial alcohol
    for the State to legislate. Furthermore, in view of the occupation of
    the field by the Industrial Development and Regulation Act, it was
    not possible to levy this impost. Besides, in view of the language used
    in the specific provision the levy is not on the manufacture of alcohol
B   as such. Tberetore, these levies cannot in essence be sustained as duty
    of excise. [681A-B]                                ·

          2.1 The meaning of the expressions used in the Constitution must
    be found from the language used. The words of the Constitution should
    be interpreted on the same principle of interpretation as one applies to
    an ordinary law but these very principles of interpretation compel one
c   to take into account the nature and scope of the Act which requires
    interpretation. [672H, 673A]
         2.2 A Constitution is the mechanism under which laws are to be
    made and not merely an Act which declares what the law is to be. l673BJ
D         2.3 It is also well-settled that a Constitution must not be construed in
    any narrow or pedantic sense and that construction which is most beneficial
    to the widest possible amplitude of its power, most be adopted. An
    excmsionary clause in any of the entries should be strictly and, there-
    fore, narrowly construed. No entry should, however, be so read as not
    to rob it of entire content. A broad and liberal spirit should, therefore,
E   inspire those whose dnty it is to interpret the Constitution, and the
    Courts are not free to stretch or to pervert the lang1iage of an enactment
    in the interest of any legal or constitutional theory. Constitutional
    adjudication is not strengthened by such an attempt but it most seek to
    declare the law. It must not try to give meaning on the theory of what
    the law should be, but must so look upon a Constitution that it is a living
F   and organic thing and must adapt itself to the changing situations and
    pattern in which it has to be interpreted. Where division of powers and
    jurisdicti'on in a federal Constitution is the scheme, it is desirable to
    read the Constitution in harmonious way. Further, in deciding whether
    any particular enactment is within the purview of one Legislature or the
    other, it is the pith and substance of the legislation in question that has
G   to be looked into. [673B-E]

           3.1 It is well-settled that the various entries in the three lists of
    the Indian Constitution are not powers but fields of legislation. The
    power to legislate is given hy Article 246 and other Articles of the
    Constitution. The three lists of the 7th Schedule to the Constitution are
H   legislative heads or fields of legislation. These demarcate the area over
               SYNTIIETICS CHEMICALS v. STAIB OF U.P.                   631
which the appropriate legislatures can operate. [673F]
                                                                               A
       3.2 It is also well-settled that widest amplitude should be given to
the language of the three entries but some of these entries in different
lists or in the same list may over-ride and sometimes may appear to be
in direct conflict, with each other, then and then comes the duty of the
Court to find the true intent and purpose and to examine the particular        B
legislature in question. Each general word should be held to extend to
all anciliary or subsidiary matters which can fairly and reasonably be
comprehended in it. [673F-GJ

      3.3 In interpreting an entry it would not be reasonable to import
any limitation by comparing or contrasting that entry with any other in_       C
the same list. It has to be interpreted that. the Constitution must be
interpreted as the ornanic document in the light of the• experience
gathered. [673HJ                                  -

       3.4 In the Constitutional scheme of division of power under the
legislative lists, there are separate entries pertaining to taxation and       D
other laws. [674AJ

     The relevant entries in the Seventh Schedule to the Constitution
demarcate legislative fields and are closely linked and supplement one
another. [674EJ
                                                                               E
      The Constitution of India like most other Constitutions is an
organic document. It should be interpreted in the light of the ex-
perience. It has to be flexible and dynamic _so that it adapts itself to the
changing conditions and accommodates itself in a pragmatic way to the
goals of national development and the industrialisation of the count']'.,_
This Conrt should, therefore, endeavour to interpret the entries and the       F
powers in the Constitution in such a way that it helps to the attainment
of undisputed national goals, as permitted by the Constitution. I674C-D]

      M.P. V. Sundararamier & Co. v. State of A.P., [1958] SCR 1422
at pages 1480-82, relied on.
                                                                               G
     The India Cement Ltd. etc. v. The State of Tamil Nadu etc.,_ [1990)
1 SCC 12 and Central Provinces and Berar Sales of Motor Spi'rit and
Lubricants Taxation Act, 1938 [1939) FCR 18 at 37-38, referred to.

    4.1 The expression of a Constitution must he understood in it~
common and normal sense. Industrial alcohol as it is, is incapable of· H
    632            SUPREME COURT REPORTS               [1989] Supp. l S.G.R

A   being consumed by a normal human being. The expression 'consump-
    tion' must also be understood in the sense of direct physical intake hy
    human beings in this context. No doubt, utilisation in some form or the
    other is consumption for the benefit of the human beings, if industrial
    alcohol is utilised for production of rubber, tyres used. But the utilisa-
    tion of those tyres in the vehicle of man cannot in the context in which the
u   expression has been used in the Constitution, be understood to mean
    that the alcohol has been used for human consumption. [665C-D]

          4.2 The expression 'alcoholic liquor for human consumption' was
    m~ant and still means that liquor which, as it is, is consumable in the
    sense capable of being taken by human beings as such as beverage of
C   drinks. Hence, the expression under Entry 84 List I must be understood
    in the light. [665E]

          4.3 Constitutional provisions specially dealing with delimitation
    of powers in a federal polity must be understood in a broad com-
    monsense point of view as understood by common people for whom the
D   Constitution is made. In terminology, as understood by the framers of
    the Constitution and as also viewed at the relevant time of its intepreta-
    tion it is not possible to proceed otherwise. Alcoholic or intoxicating
    liquors must be understood as these are, what these are capable of or
    able to become. [665G-H]
E          5.1 By common standards ethyl alcohol (which has 95%) is an
    industrial alcohol and is not fit for human consumption. The petitioners
    and the appellants were manufacturing ethyl alcohol (95%) (also known
    as rectified spirit) which is an industrial alcohol. ISi specification has     ".
    divided ethyl alcohol (as known in the trade) into several kinds of
    alcohol. Beverage and industrial alcohols .are clearly and differently
F   treated. Rectified spirit for industrial purposes is defined as "spirit
    purified by distillation having a strength not less than 95% of volume by
    ethyl alcohol". Dictionaries and technical books would show that               .
    rectified spirit (95%) is an industrial alcohol and is not potable as such.
    Therefore, industrial alcohol which is ethyl alcohol (95%) by itself is not
    only non-potable but is highly toxic. The range of spirits of potable
G   alcohol is from country spirit to whisky and the Ethyl Alcohol content
    varies between 19 to about 43 per cent. These standards are according
    to the ISi specifications. Therefore, ethyl alcohol (95%) is· not alcoholic
    liquors for human consumption but can be used as raw material input
    after processing and substantial dilution in the production of whisky,
    Gin, Country Liquor, etc. [677D-GJ
H
              SYNTHETICS CHEMICALS v. STATE OF U.P.                     633

      Delhi Cloth and General Mills Co. Ltd. v. The Excise Commis-              A
sioner, UP. Allahabad and Anr., Special Appeal No. 177 of 1970,
decided on 29.3.1973, referred to.

      6.1 Entry 8 of List I which contains the words "intoxicating li-
quor" cannot sul'.l'ort a tax. The meaning_ of this expression has been
rightly interpreted by the High Court in Balsara's case. Hence, the obser·      B
vations of this Court in Balsara's case require consideration. [677H, 675A-B]

      6.2 In the light of the new experience and development, "into-
xicating liquor" must mean liquor which is consUJllable by human
being as it is. When the word "liquor" was used by this Court, it did
not have the awareness of full use of alcohol as industrial alcohol. It is      C
true that alcohol was used for industrial purposes then also, but the full
potentiality of that user was not then comprehended or understood.
With the passage of time_, meanin_gs do not change but new experience
give new colour to the meaning. [675B-C]                        --    --
      F.N. Balsara v. Stare df Bombay, AIR 1951Born210 & 214, approved.
                                                                                D
      State of Bombay & Anr. v. F.N. Balsara, [1951] 2 SCR 682; Har
Shankar & Ors. etc. v.The Dy. Excise & Taxation Commissioner & Ors.,
[1975] 3 SCR 254; Adhyaksha Mathur Babu's Sakti Oushadhalaya
Dacca (P) Ltd. v. Union of India, [1963] 3 SCR 9571; Mis Guruswamy
& Co. etc. v. Slate of Mysore & Ors., [1967] l SCR 548; State of ¥ysore E
v. S.D. Cawasji & Co. & Ors., [1971] 2 SCR 799; R.C. Jallv. Union of
India, [1962] Suppl 3 S.C.R. 436; Om Prakash v. Giriraj Kishore,
[1986] 1 SCR 149; Inspector of Taxes v. Australian Mutual Provident
Society, [1959] 3 All England Law Report 245 and Commonwealth of
Massachusetts Et Al v. USA, 92 Lawyers, Edition p. 968, referred to.
                                                                                F
      6.3 Article 47 of the Constitution imposes npon the State the duty
to endeavour to bring about prohibition of the consumption except for
medicinal pnrpose of intoxicating drinks and products which are inju-
rious to health. If the meaning of the expression "intoxicating liquor"
is taken in the wide sense adopted in Balsara's case, it would lead to.an
anamolous result and would oblige the State to prohibit even such               G
industries as are licensed under the IDR Act but which manufacture
industrial alcohol. This was never intended by the Constitution or judg-
ments of this Court. Therefore, the decision in the Synthetics & Chemi-
cals Ltd.'s case was not correct on this aspect. [679C-D]
      ··'
      State of U.P., etc._ v. Synthetics & Chemicals Ltd. & Ors. etc.,          H
     634           SU)'REME COURT REPORTS              ]1989] Supp. 1 S.C.R.
                                                                                   .•
    [1986f2 SCR 531 and State of Bombay & Anr. v. F.N. Ba/sara, [1951)
A
    11 SCR 682, overruled.   ·

           K.K. Narula v. State of J & K, [1967) 3 SCR SO, referred to.

          7. The Indian Constitution does not recognise police power as
B   such. But, the exercise of sovereign power, which gives the State suffi-
    cient authority to enact any law, subject to the limitations of the
    Constitution to discharge its functions must he recognised. The Indian
    Constitution as a sovereign State has power to legislate on all branches
    except to the limitation as to the division of powers between the Centre
    and the States, and also subject to the fundamental rights guaranteed
    under the Constitution. The Indian State, between the Centre and the
c   States, has sovereign power. The sovereign power is plenary and inhe-
    rent in every sovereign State to do all things wl)i~h promote the peace,
    morals, education and good order of the people. Sovereignty is difficult
    to define. This power of sovereignty is, however, subject to Costitu-
    tional limitations. [666F-H)
D
          8.1 In interpreting the provisions of the Constitution, one should
    go by the plain words used by the Constitution makers. Importing
    of expression like 'police power', which is a term of variable and
    indefinite connotation, can only make the task of interpretation more
    difficult. [671B]
E
         State of West Bengal v. Subodh Copa/ & Ors., [1954] S SCR
    587 at 601-604 and Kameshwar Prasad & Ors. v. The State of Bihar &
    Anr., [1962) 3 Suppl. SCR 369, referred to.

            8.2 The power of the State to regulate, though not as emanation
F    of police power, but as an expression of the sovereign power of the State
    'is recognised, but that power has its limitations. [671G]

          8.3 Whether the States have the police power or not, they have
    the power to regulate the use of alcohol, and that power must include
    power to make provisions to prevent and/or check industrial alcohol,
G   being used as intoxicating or drinkable alcohol. However, the question
    is whether, in the garb of regulations, a legislation which is in pith and
    substance, fee or levy which has no connection with the cost or expenses
    administering the regulation, could be imposed purely as regulatory
    measure. [671D-El · ·

H          In the instant case, judged by the pith and substance of the legisla-
                         •
                 SYNTHETICS CHEMICALS v. STATE OF U.P.                   · 635

 tion in question, these levies cannot be treated as part of regulafory
 measures. [671EJ                                                                A

        9.1 The activity in potable liquor, which was regarded as a safe
 and exclusive right of the State earlier, caunot be justified under the
 police power of the State, i.e., the power to preserve public health,
 morals, etc. This reasoning can never apply to industrial alcohol B
 manufactured by industries which are to be developed in the public
 interest, and which are being encouraged by the State. In such a situa-
 tion, it is essential to strike a balance, and while doing so, it is difficult
 to find any justification for any exclusive right of a State to deal with
 industrial alcohol. Restriction valid under <me circumstance may
 become invalid in changing Circumstances. (680C-Dt
                                                                                 c
       Nashville, Chattangooga & St. Louis Railway v. Herbert S.
 Walters, 79 Lawyers' Edition 949; Leo Nebbia v. People of the State of
 New York, 78 Lawyers' Edn. 940 at p. 941 and Motor General Traders
 & Anr. etc. v. State of Andhra Pradesh & Ors. etc., [1984] 1 SCR594,
 referred to.                                                           D

       9.2 Arbitrary and excessive imposts under the so-called privilege
 of the States are a great disincentive for development of industries in the
 public interest and for industrial development in general and can
 render units unviable and sick. It is essential that there should be
 uniformity in the industry so that these are free from the vagaries and E
 arbitrary and differential treatment meted out from StaJe to State and·
 even in the same State from time to time. [644C-D]

         9 .3 Right to Ill or levy must be in accordance with the provisions
   of the Constitution. It is clear that all duties of excise, save and except
   the items specifically excepted in entry 84 of List I, are generally within   F
. the taxing power of the Central Legislature. The State Legislature has
 · power, thou~ limited in imposing duties of excise. That power is
   circumscribed under Entry 51 of List II of the 7th Schedule to the
   Constitution. [666H, 667~, 674G]

       10. In view of the subsequent amendments and additions to the G
 levies, the levies in question are not pre-Constitutional levies. l662EJ

      11.1 After 1956 amendment to the Industries (Development and
 Regulation) Act, 1951 bringing alcohol industries (under fermentation
 industries)as item 26 of the First Schedule to the Act, the control of this
 industry has vested ex~lusively in the Union. Thereafter, licences to           H
    636            SUPREME COURT REPORTS              [1989] Supp. 1 S.C.R.

A   manufacture both potable and non-potable alcohol is vested in the
    Central Government. Distilleries are manufacturing alcohol under the
    Central Li~~nces under IDR Act. No privilege for manufacture even if
    one existed, has,been transferred to the distilleries by the State. The
    State cannot itsili 111anufacture 'industrial alcohol without. the permis-
    sion of the Central Governinent. The States cannot c!aim to pass a right
.B which these do not possess. Nor can these States claim exclusive right to
    produce and manufacture industrial alcohol which are manufactured
    under the grant of licence from the Central Government. Industrial
    alcohol cannot upon coming Into existence under such grant be amen-
    able to States' claim of exclusive possession of privilege. The State can
    neither rely on Entry 8 of List II nor Entry 33 of list III as a basis for
 C such a cI3im. It cannot claim that under Entry 33 of List III, it can
   ·regulate industrial alcohol as a product of the scheduled ,industry,
    because the Union, und_er section 18 G of the IDR Act, bas evinced clear
    intention to occupy the whole field. Even otherwise, sections like St\ction
    24A and 24B of the U.P. Act do not constitute any regulation in respect
    of the industrial alcohol as product of the scheduled industry. On the
D contrary, these purport to deal with the so-called transfer of privilege
    regarding manufacturing ·and sale. This power, admittedly, bas been
    exercised by the State purporting to act under Entry 8 of list II and not
    under.Entry 33 oflistIII. [681C-F]

          11.'2 The position with regard to control of alcohol industry bas,
E   therefore, undergone material and significant change and the State is
    left with only powers to pass any legislation in the nature of prohibition
    of poiable llqu.or referable to Entry 6 of list II and regulating powers,
    lay down regulations to ensure that non-potable alcohol is not diverted
    and misused as a substitute for potable alcohol, and charge excise duty
    on potable alcohol and sal~s tax under Entry .52 of list II; however, s_ales
F   tax cannot be charged on industrial alcohol in the present case, because
    under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be
    charged by the State on industrial alcohol; and in case State is render-
    ing any service, as distinct from its claim of so-called grant of privilege,
    it may charge fees baSed on quid pro quo. [681G-H, 682A-CJ

G          Indian Mica and Micanite Industries v. State of Bihar, [1971] 2
     sec 236, relied on.
           12.1 On an analysis of the various Abkari Acts and Excise Acts, it
     is clear that various provinces/States reserve to themselves in their
     respective States the right to transfer exclusive or other privileges only
H    in respect of manufacture and sale of alcohol and not in respect of
               SYNTHETICS CHEMICALS v. STATE OF U.P.                 637

possession and use. Not all but some of States have provided such reser- A
vation in their favonr. The price charged as a consideration for the
grant of exclusive and other privileges was generally regarded as· an
excise duty. In other words, excise duty and price for privileges were
regarded as one and the same thing. So-called privilege was reserved by:
the State mostly in respect of country liquor and not foreign liquor B
which included denatured spirit. [682D-E]

       12.2 On an analysis of various decisions and practice, it is clear
that is respect of industrial alcohol the States are not authorised to
impose the impost they have purported to do. Hence, such impositions
and impost must go as being invalid. However, this would not affect any
impost so far as potable alcohol as commonly understood is concerned. C
It will also not affect any impositions of levy on industrial alcohol fee,
where there are circumstances to establish that there was quid pro quo
for the fee sought to be imposed. This will also not affect any regulating
measure as such. [682F-G]
                                                                           D
      The provisions are, therefore, declared to be illegal and invalid
prospectively. The Respondent-States are restrained from enforcing the
said levy any further but they will not be liable for any refund and the
tax already collected and paid will not be refunded. (6838]

      In respect of Tamil Nadu, no further realisations will be made in . E
future by the State Government from the petitioners. Regarding past
realisations, the application for that part of the direction should be
placed before a Division Bench, for disposal upon notice both to the
State and the Central Governments. [683F]

       Calcutta (;as Co. (Proprietary) Ltd. v. The State of West Bengal F
and Ors., (1962] Suppl. 3 SCR 1; Nashirwar etc. V: The State of M.P.,
(1975] 2 SCR 861; Sheopat Rai & Ors. v. State of U.P., (1972] All. L.J.
1000; Indian Mica & Micanite Industries Ltd. v. State of Bihar & Ors.,
[1971] Suppl. SCR 319; Town Municipal Committee, Amraoti v.
Ramachandra Vasudeo Chimote & Anr., [1964] 6 SCR 947;,
P.N. Kaushal etc. v. Union of India, [1979] 1 SCR 122; M/s Gurus- G
wamy & Co. etc. v. State of Mysore & Ors., [1967] I SCR 548; Coover-
jee Ji. Bharucha v. The Excise Commissioner and the Chief Commis-
sioner, Ajmer & Ors., (1954] SCR 873; Crowley v. Christensen, [1890]·
34 Lawyers' Edn. 620 and Southern Pharmaceuticals & Chemica/,
Trichur & Ors. etc. v. State of Kera/a & Ors. etc., (1982] 1SCR519 at
537, referred to.
                                                                        H
    638           SUPREME COURT REPORTS              [1989] Supp. 1 S.C.R.

    Per Oza, J. (Concurring)
A
          13.1 The State Legislature had no authority to levy duty or tax on
    alcohol which is not for human consumption as that could only be levied
    by the Centre. [686GJ

B         13.2 A comparison of the language of Entries 84 of List I and 51 of
    List II clearly demonstrates that the powers of taxation on alcoholic
    liquors have been based on the way in which they are used. Admittedly,
    alcoholic liquor is a very wide term and may include variety of types of
    alcohoJic liquors, but our Constitution makers have distributed them
    into heads, namely, (a) for human consumption, and (b) other than for
    human consumption. Alcoholic liquors which are for human consump-
c   tion were put in Entry 51 List II authorising the State Legislature to
    levy tax on them wltereas alcohoilc Ilquors other than for human
    consumption have beeu left to the Central Legislature uuder Entry
    84 for levy of duty of excise. This scheme of these two entries in
    List I and II is clear enough to indicate the line of demarcation for
D   purposes of taxation of alcoholic liquors. What has been excluded
    in Entry 84 has specifically been put within the authority of the State
    for purposes of taxation. [685E-HJ

          13.3 From the scheme of entries in the three lists, it is clear that
    taxing entries have been specifically enacted conferring powers of taxa-
E   tion, whereas other entries pertain to the authority of the Legislature to
    enact laws for purposes of regulation. If Entry 8 in List II is compared
    with Entry 51 it is clear that while Entry 51 authorises the State Legisla-
    ture to levy tax and duties on alcoholic liquors falling under this entry,
    Entry 8 confers authority on the State Legislature to enact laws for
    regulation. Similarly are Entries in List I. But since a declaration has
F   been made by the Parliament under Entry 52, List I, declaring the
    industry based on fermentation and alcohol to be an industry under the
    Industrial (Development and Regulation) Act, 1951, and placing it
    directly under the control of the Centre, even in respect of regulation,
    the authority of the State Legislature in Entry 8, List II could only be
    subject to the Act or rules made by the Centre. Therefore, in view of
G   clear demarcation of authority under various items in the three Lists,
    Entry 8 List II could uot be invoked to justify the levies which have been
    imposed by the State in respect of alcoholic liquors which are not meant
    for human consumption. [686C-D, F-GJ

         The State, in exercise of powers under Entry 8 of List II and by
H   appropriate law may, however, regulate and that regulation could be to
                SYNTHETICS CHEMICALS v. STATE or U.P.                        639

prevent the conversion of alcoholic liquors for industrial use to one for
                                                                                     A
human consumption and for the purpose of regulation, the regulatorv
fees only could be justified. In fact, the regulation should be the main
purpose, the fee or earning out of it has to be incidental.- [690H, 691A]

      14.l There is nothing like privilege vested in any one of the func-
tionaries of the State. In the background of this basic feature of our               B
Constitution, the doctrine of privilege is difficult to reconcile with when
this p1ivilege of trading in commodities injurious to health and dange-
rous to life is examined especially in the context of Article 21 and Article
47 of our Constitution. [688C-D]

      14.2 Article 21 castes a duty on the State to protect the life of every
citizen except as is provided under the Article. If this duty of the State is        C
compared with the scheme of privilege, it means that the State has a
privilege to endanger human life (the life of a citizen). Snch a privilege
runs contrary to Article 21 [688F]                .

        14.3 Article 47 appears in the Chapter of Directive Principles of State      D
Policy. Inclnsion of this Article in this Chapter clearly goes to show that
it is the duty of the State to do what has been provided in this Article.
It has provided that it is the duty of the State to improve public health and this
duty will be discharged by endeavouring to bring about prohibition. It,
therefore, sounds contradictory for a State, which is duty bound to
protect human life, to claim that it has the privilege of manufacture and            E
sale of alcoholic beverages which are expected to be dangerous to
human life and injurious to human health and transferring this
privilege of selling this privilege on consideration to earn hnge revenue
without thinking that this trade in liquor ultimately results in degrada-
tion of hnman life even endangering human life and is nothing bnt
moving contrary to the duty cast nnder Articles 21 and 47 and ideal of               F
prohibition enshrined in Article 47. ·[688H, 689A-CJ

      Therefore, in view of Articles 21 and 47, the State cannot claim
the privilege of having the right to trade in goods obnoxious and inju-
rious to health. [689D]       ·
                                                                                     G
       15. The doctrine of police powers enunciated in various decisions
of foreign courts is not applicable in the Indian context. In India, as the
Constitution was enacted or was framed, after having the experience of
various countries in the world, the concept of fundamental rights and
rights· like life, liberty, procedure established by law and various
legislative functions which were divided between the States and the                  H
    640            SUPREME COURT REPORTS                [1989] Supp. 1 S.C.R.        ,·

    Union, left no scope for any power except which could be derived from
A
    any provision in the Constitution coupled with an Entry in one of the
    three ,Lists which would indicate that the power vested in either the State or
    the Centre. Apart from it, the scheme or our Constitution is that there
    are no residuary powers which vest in the State and scheme of our
    Constitution also reveals that in case of any conflicts it is the Centre
B   which prevails and not the State and, therefore, applying the doctrine
    of police powers will only mean to do violence to the scheme of the
    Constitution. In fact, under our Constitution no powers could be
    conceived for which there is no provision in any one of the entries
    in the three Lists or which could not be justified under any specific
    Article of the Constitution. Thus, even under the concept of the
    doctrine of police powers, the levies imposed by the State on alcohol
c   or alcoholic liquors cannot be justified. [689E, G-H, 690A-C]

          ORIGINAL JURISDICTION: Writ Petition No. 182 of 1980
    Etc. Etc.

D         (Under Article 32 of the Constitution of India).

         F.S. Nariman, M.H. Baig, A.B. Divan, Rajinder Sacher, L.M.
    Singhvi, R.N. Banerjee, K.J. John, Harish N. Salve, S.C. Sharma,
    S.S. Shroff, Mrs. P. Shroff, Ms. S. Sharma, J.B. Dadachanji, A.P.
    Hathi, S. Ganesh, S. Sukumara!I, D.N. Misra, Mrs. A.K. Verma,
E   Sandip I. Thakore, R.F. Nariman, P.H. Parekh, Shishir Sharma,
    Poppat, Ms. Shalini Soni, Sunita Sharma, M.L. Lahoty, Shiv Prasad
    Sharma, Himanshu Shekhar, D.D. Gupta, Ms. M. Gupta, A.T.M.
    Sampath, Mrs. Swaran Mahajan, Ms. Anuradha Mahajan, K.K.
    Mohan, Laxmi Kant Pandey, R.B. Mehrotra, K.C. Dua, K.R.
    Nagaraja, P.D. Sharma, V. Balachandran, O.P. Sharma, A.K.
F   Sangal, Anil Kumar, D. Goburdhan, K.D. Prasad and Mrs. Naresh
    Bakshi for the Petitioners.

         K. Parasaran, Attorney General, C. Shivalha, G. Rath, V.M.
    Tamaskar, Altaf Ahmed, N.N. Gooptu, Dinesh Chandra Swami, A.S.
    Bobde, K. Alagiri Swamy, V.Venkataramaniah, lnder Singh, Advo-
G   cate Generals, R.N. Trivedi, Additional Adv. Genl., Yogeshwar
    Prasad, S.K. Dholakia, P .S. Poti, A.K. Ganzuli, Salish Chandra,
    KB. Datar, G.L. Sanghi, P.R. Ramasesh, R.K. Mehta, S.K. Bhat-
    tacharya, H.K. Puri, Probir Chowdhary, N._K. Sharma, M.N. Shroff,
    Ashok K. Srivastava, R.S. Rana, A.S. Bhasme, A.M. Khanwilkar,
    Sunil Gupta, T.T. Kunhikanan, V. Krishnamurthy, P. Venugopal,
H   T.V.S.N. Chari, D.R.K. Reddy, Jagan M. Rao, Ms. A. Subhashini,
       .SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.J             641

 A. Subba Rao, K.C. Dua, Satish K. Agnihotri, Ashok Singh, Indra
                                                                                 A
 Makwana, Ms. Amrita Sanghi-andN.K. Sha1ma for the Respondents.
                  '
      The following Judgments of the Court were delivered:

        SABY_ASACHI_MUKHARJI, J. These writ petitions, civil ap-
  peals and review petitions relate to the right of the States to levy vend      B
  fee or duties in.respect of industrial alcohol under different legislations.
  in different States. We will first deal with writ petition No. 182/80. In
  Writ Petition No. 182/80 (Synthetics & Chemicals Ltd. v. State of U.P.
  & Ors.), we are concerned withthe notification dated 31st May, 1979,
  substituting new rule 17(2) for old rule 17(2) and providing for a vend
  fee of Rs.1.10 per bulk litre for all issues from distillery but in case of
  FL 39 Licence (like the petitioner in this case), the vend fee would be        c
  so charged that the amount of this fee and purchase tax together does
  not exceed 25 paise per bulk litre. Then there are. three review peti-
  tions, namely, Review Petition Nos. 202-04/80 (Synthetics & Chemi-
  cals Ltd. v. State of U.P.) and Review Petition No. 17 of 1980 (Kesar
  Sugar Works Ltd. v. State of U.P.). These are directed against the             D
  judgment and order of this Court dated 19th December, 1979 in State
  of U.P., etc. v. Synthetics & Chemicals Ltd. & Ors. etc., [1980] 2 SCR
  531 re-agitating the challenge to sections 24A & 24B of the U .P. Excise
  Act, 1910 as amended in 1972 and 1976 declaring exclusive privilege of
  the Government for manufacture and sale of foreign liquor as defined
  (which includes denatured spirit and industrial alcohol). Then there is        E
  Writ Petitions Nos. 3163-64 of 1982 (All India Alcohol Based Industries
  Development Association v. State of Maharashtra,) which challenges
  the amendment to' section 49 of the Bombay Prohibition Act, 1949
  treating ·;exclusive privilege for State in li~uor trade and 1mposmg a
  transport fee of Rs.1.15 per bulk litre. There is Writ Petition No.
  4501/78 (Chemicals & Plastics India Ltd. v. State of Tamil Nadu), Writ         F
  Petition No. 2580/82 (Kolhapur Sugar Mills and Anr. v. S.R. Hegde &
  Anr. ), which challenge the Bombay Prohibition Act, 1949 ao amended
  from time to time along with Ordinance No. 15 of 1981 wh_ich
  amended the Bombay Prohibition Act, 1945 and section 49 added by
  reason of which the State was granted exclusive privilege of importing,
  exporting, transporting, manufacturing, bottling, selling, buying, pro-        G
  cessing, or using any intoxicant. Thereafter, the Bombay Rectified
. Spirit (Transport in Bond) Rules, 1951 were amended and transport
  fee was increased from the rate of 17 paise to the rate of Rs.1.25 paise.
  Thereafter, the Bombay Rectified Spirit (Transport in Bond) Amend-
  ment Rules, 1982 were amended and the transport fee was reduced
  from Rs.1.25 per litre to 0.40 paise per litre. Then there is Writ Peti-       H
     642            SUPREME'•COURT REPORTS              [1989) Supp. f S.C.R.

    tion No. 1892/73 (Hindustan Polymers Ltd. v. State of A.P.) which
A
    seeks a declaration that alcohol plant of the petitioner company is not
    covered by the A.P. Excise Act, 1968, A.P. Distillery Rules, 1970 and
    A.P. Rectified Spirit Rules, 1971 and further to declare that the
    alcohol plant of the company is not a 'distillery' within the meaning of
    the said expression under the A.P. Distillery Rules and therefore, the
B · Distillery Rules have no application thereto. It seeks also an order to
    restrain from interfering with and/or regulating and controlling the
    production, distribution, movement and supply of alcohol from the
    alcohol plant of the company anq also a writ of prohibition with the
    appropriate directions. Civil Appeal No. 4384/84 also challenges the
    A.P. Excise Act, 1968 and A.P. Distillery Rules. Similar is the posi-
    tion in C.As. Nos. 466-67 of 1980 which challenge the Tamil Nadu
c Prohibition Act.
           The main question that falls for consideration in these matters is
     whether the vend fee in respect of the industrial alcohol under diffe-
     rent legislations and rules in different States is valid. The question is--,-
D    is the vend fee and impost leviable or extractable by the States under
     different Acts. The question mainly involved in all these matters is a
     common question of law but we will have to deal with diverse factual
     situations as well as the particular provisions ot the various Acts. The
     questions with which we are mainly concerned are the following:

E                 (i) whether the power to levy excise duty in case of indust-
           rial alcohol was with the State legislature or the CentraUegisla-
           tun!?

                (ii) what is the scope and ambit of entry 8 of list II of the
           Seventh Schedule of the Constitution?
F
                 (iii) whether, the State government has exclusive right or
           privilege of manufacturing, selling, distributing, etc. of alcohols
           including industrial alcohol. In this connection, the extent, scope
           and ambit of such right or privilege has also to be examined.

G          It is necessary to bear in mind that in the last four to five
     decades there has been a tremendous change in the industrial horizon
     of this countty. During the initial stages of the Constitution, the only
     well-known industrial sectors in India were iron and steel, textiles, jute
     and cement. The rest of the production was raw materials geared to
     feed and supply the industrial base of the foreign power. After inde-
ff   pendence, an Industrial Policy Resolution was adopted to achieve
      SYNfHEHCS·CHEMKALS v. STATE 6F tJ,P. fMtJKHARJI;·J.]           643

 rapid industrialisation in a big way. In the last few decades, there has A
 been a great transformation and tremendous upsurge not only, iI1·.
 industry and commerce, but also in sophisticated technology and
 industries. The chemical, fertilizer, plastic and engineering industries
 are only some of the fields in industrial development. In this back·
ground, the views expressed previously relating to 'intoxicating liquor'
and 'alcoholic liquor for human consumption' have to be borne in B
mind. It is, in this connection, also necessary to refer to Article 47 of
the Constitution. The said Article which deals with the duty of the
State to raise the !eve.I of nutrition and the standard of living and to
improve public health, enjoins that the State shall regard the raising of
the level of nutrition and the standard of living of its people and the
improvement of public health as among its primary duties and_, in
particular, the State shall endeavour to brinK about prohibition of the
                                                                           c
consumption except for medicinal purposes of intoxicating drinks a,nd
of drugs which are injurious to health. We were invited on behalf of
the petitioners by Mr. Nariinan, Mr. Divan, Mr. Banerjee, Mr. Baig
and others that though this direction and this commitment to improve-
ment of the standard of living must be kept in view but it must be D
borne in mind that this iinprovement can be achieved priinarily by
industrialisation involving increased production and employment and
giving priority to the core sectors. Entry 52 of list I of the Seventh
Schedule to the Constitution deals with "industries", the control of
which by the Union is declared by Parliament by law to be expedient in
the public i_nterest. It is the contention oi the petitioners and appel- E
lants that the Industries (Development & Regulation) Act, 1951
(hereinafter called the 'IDR Act') was enacted with a view to develop-
ing and controlling various important industries. Section 2 of the IDR
Act declares that it is expedient in the public interest that Union
should take under its control the industries specified in the First
Schedule. The cases in this bunch are in respect of industries which are F
not concerned with potable alcohol fo~he purpose of human con-
sumption. These are predominantly and primarily concerned with
using ethyl alcohol (rectified spirit) as an industrial raw material. This
industrial alcohol Is required as an input for further manufacture of
downstream products. For this purpose, some of the industries have
their captive plants. Reference in this connection may be made and G
our attention was drawn to the report of the Alcohol Committee, 1956.
This Report indicates that-

            (a) that industrial alcohol is an input and should be avail-
      able at reasonable price.
                                                                           H
           (b) there should be uniform railway freight.
    644           SUPREME COURT REPORTS             [1989] Supp. I S.C.R.

                (c) larger capacities of molasses etc., should be available,
A         and

               (d) uniform taxation policies are essential for the develop-
          ment of these industries.

B         In order to appreciate the controversy in these matters, it is,
    therefore, necessary to keep these objectives in mind. In these mat-
    ters, this Court is concerned with the taxing power of the States to
    impose and levy excise duty on industrial alcohol and/or imposts as
    vend fees. This has been, and as has been noticed hereinbefore,
    claimed as a part of the exclusive privilege of the States to impose a
    levy as a consideration or price for manufacturing of and/or dealing
c with industrial alcohol. It is essential that there should be uniformity in
    the industry so that these are free from the vaganes and arbitrary and
    differential treatment meted out from State to State and even in the
    same State from time to time. Arbitrary and excessive imposts under
    the so-called privilege are a great disincentive for development of
Ii> industries in the public interest and for industrial development in
    general and can render units unviable and sick.

          In the above background, it is necessary to refer to certain facts
    and as such it would be appropriate to refer to the facts and conten-
    tions in writ petition No. 182/80, i.e. Synthetics & Chemicals Ltd. v.
E   State of U.P., which is under Art. 32 of the Constitution, filed by M/s.
    Synthetics & Chemicals Ltd.-a registered Company in Bombay, and
    one Mr. A.K. Roy, Director and shareholder of the said company.
    The respondent therein is the State of Uttar Pradesh and the Excise
    Commissioner, Uttar Pradesh.

p         In the said writ petition, a notification of the State of Uttar
    Pradesh, being No. 4840E/XIII-330/79, dated Lucknow May 31, 1979
    was made in exercise of the power under sub-section (1) of s. 40 of the
    U.P. Excise Act, 1910 (hereinafter referred to as 'the U.P. Act') read
    with clause (d) of sub-section (2) of the said section.

G         However, in order to appreciate the position, we should bear in
    mind the history of the legislative powers and different lists in the 7th
    Schedule, regarding impost in respect of industrial alcohol. It appears
    that local legislatures of Uttar Pradesh had enacted the United Pro-
    vinces Act, 1910 being Act IV of 1910, and it received the assent of the
    Governor on 18th December, 1909 and of the Governor-General on
H   14th Febru~ry, 1910. Before 1920 there was as such no distinct dis-
      SYNTHETICS CHEMICALS v. STATE OF U.P. IMUKHARJI, J.]             645

tribution of legislative subjects between the Central Legislature and         A
the State Legislatures. It appears that the local legislatures enacted
with the assent of the Governor-General, Excise Acts imposing duties
and r.egulating production, supply and distribution of alcoholic liquors
including denatured spirits and methylated spirits. These were done
under the Indian Councils Act, 1861 and the Indian Councils Act,
1909. The provisions of the Indian Council Act, 1861 were initially           B
applicable only to the Presidencies of Fort St. George and Bombay, but
were later made applicable to other provinces by virtue of the Indian
Councils Act, 1892 and 1909.

      Section 43 of the Indian Councils Act, 1861 enjoined that it shall
not be lawful for the Governor in Council of either of the Presidencies, C
except with the sanction of the Governor-General, previously com- ·
municated to him, to make regulations or take into consideration any
law or regulation for any of the purposes mentioned therein and one of
the purposes, inter alia, mentioned was, anything affecting the public
debt of India or the Customs Duties, or any other tax or duty then in
force and imposed by the authority of the Govt. of India for the D
general purposes of such Government.

      The Government of India Act, 1915 was amended from time to
time with a view to consolidate and amend the enactment relating to
the Govt. of India. The Governor General-in-Council with the sanc-
tion of the Secretary of State-in-Council made Devolution Rules. Rule         E
3( 1) thereof provided for distinguishing the functions of the local
governments and local legislatures of governors' provinces and of the
province of Burma from the functions of the Governor General in
Council. It was provided that any matter which is included in the list of
provincial subjects set out in Part II of Schedule I of the said Act shall,
to the extent of such inclusion, be excluded from any central subject of      F
which, but for such inclusion, it would form part. Part II of the
Government of India Act, 1915 provided that any matter which is
included in the provincial subjects set out in Part II of Schedule I shall,
to the extent of such inclusion be excluded from any central subject
of which, but for such inclusion. it would form part. Part II dealt with
provincial subjects. Item 16 of Part II provided as under:                    G

            "Excise, that is to say, the control of production, manufac-
            ture, possession, transport, purchase, and sale of alcholic
            liquor and intoxicating drugs, and the levying of excise
            duties and licence fees on or in relation to such articles, but
            excluding, in the case of opium, control of cultivation,          H
            manufacture and sale for export."
    646            SUPREME COURT REPORTS             [1989] Supp. l S.C.R.

          It appears that the Govt. of U.P. levied a vend fee on denatured
A   spirit for the first time @ 8 annas per bulk gallon, vide notification
    dated January 18, 1937 under s. 40(2) of the U.P. Excise Act, 1910. It
    was levied as a duty. By this notification Rule 17(2} was added which
    en joined that in case of issues from a distillery a vend fee of annas 8
    per bulk gallon shall be payable in advance before the spirit is issued.
B   The fee was not made chargeable in case of issues to hospitals, dis-
    pensaries and other charitable and educational institutions upto a
    quantity allowed to be issued by the Excise authorities, and also on the
    issues for export out of the provinces.

          Thereafter, on 1st April, 1937 the Govt. of India Act, 1935 came
    into effect. The federal legislative list in the 7th Schedule to the said
c Act contained entry 45 which included duties of excise on tobacco and
    other goods manufactured or produced in India except alcoholic
    liquors for human consumption. The provincial legislative List being
    List II of the 7th Schedule. contained entry 31 on intoxicating liquors
    and narcotic drugs, that is to say, the production, manufacture, posses-
D   sion, transport, purchase and sale of intoxicating liquors, opium and
    other narcotic drugs, but subject, as respects opium, to certain provi-
    sions. It also included entry 40 which was on duties of excise including,
    inter alia, all these items and alcoholic liquors, opium, Indian hemp
  . and medicinal and toilet preparations containing alcohol.

E         It was contended on behalf of M/s Synthetic Chemicals Ltd. that
    the duties previously levied by the local legislatures continued in force
    by virtue of s. 143(2) of the Govt. of India Act, 1935 only if these were
    levied befoe 31st January, 1935, and that only these duties were to be
    so continued until provisions to the contrary were made by the Federal
    Legislature.
F
           The Constituent Assembly which derived from the people all
    power and authority, was convened. On 15th August, 1947 the British
    Parliament passed the Indian Independence Act, 1947 making provi-
    sions for the setting up in !hoia of two independent dominions. Under
    s. 6( 1) of the said Act, the legislature of each of the new dominions was
G   to have full powers to make laws for that dominion including laws
    having extra-territorial operations. Under s. 8(2) read withs. 9(1) of
    the Indian Independence Act, 1947 the Governor General adopted the
    provisions of the Govt. of India Act, 1935. It appears that on 3rd
    April, 1948 the Constituent Assembly acting as the Dominion Legisla-
    ture passed the Indian Power Alcohol Act, 1948 which received the
H   _ass.eat of Governor General on the same day. By this Act. the Central
      SYNTHETICS CHEMICALS v. STATE OF U.P (MUKHARll, J.]             647

Government took under its control the Power Alcohol Industry. This
                                                                            A
was in pursuance of the declaration made by the Dominion Legislature
under entry 34 of List I of the 7th Schedule to the Government of
India Act, 1935. The entry was: "Development of Industries where
development under Dominion oontrol is declared by Dominion Law to
be expedient in public interest". "Power Alcohol" was defined as
meaning Ethyle Alcohol containing not less than 95.5% by volume of          B
Ethanol measured at 60 degree F, corresponding to 74.4 over proof
strength.

      It may be mentioned that Rectified Spirit is Ethyl Alcohol or
Ethanol with 96% alcohol v/v. ON dehydration, Ethyl Alcohol with
99.5% volume of Ethanol is produced. It was suggested that take over
by the Dominion of the potable liquor industry was precluded by vir- c
tue of entries 29 & 31 of list II read with entry 34 of list I of the Govt.
of India Act, 1935. It may be mentioned that the word 'industries' is
the analogous provision in the Stae list under the Constitution of
India, 1950, hence, the meaning given to it in that list, must be
applied. According to the petitioners/appellants, the expression D
'industries' has been given a restricted meaning so as not to entrench
on the State's power with respect to other industries specifically
assigned to the State under other entries in the State list. See Calcutta
Gas Co., [1962] Suppl 3 SCR 1.

       By virtue of the Constitution of India which came into effect E
from 26th January, 1950 the powers oflegislation in respect of alcohol
were distributed between list I and list II of the 7th Schedule to the
Constitution. Duties of excise on tobacco and other goods manufac-
tured or produced in India except, inter alia, alcoholic liquors for
human consumption, and opium, Indian hemp and other narcotic
drugs and narcotics, but including medicinal and toilet preparations F
containing alcohol or any such substance were given to Parliament
under entry 84, list I. But duties of excise on goods manufactured or
produced in the State and countervailing duties at the similar rates,
inter alia, alcoholic liquors, the State was given power by entry 51 of
list II to legislate. By entry 8 of list II, States were given power to
legislate on liquors, that is to say production, manufacture, processing, G
transport, purchase and sale thereof.

      On or about 8th May, 1952 the Parliament enacted the Industries
(Development & Regulation) Act, 1951. Chapter IIIB of the said Act
contains s. 18G whereby the Central Govt. was empowered for secur-
ing equitable distribution and availability at fair prices of any article or H
     648            SUPREME COURT REPORTS              [1989] Supp. 1 S.C.R.

     class of articles relatable to any scheduled industry to provide for
·A regulating the supply and distribution thereof, and trade and com-
     merce therein by a notified order. The notified order was also to
     provide for controlling the prices 'at which such article or class of
     articles could be bought or sold. The said Act was amended in 1956.
     Item 26 was inserted in the First Schedule to the said Act and
 B   empowered the Central Govt. to control the Fermentation Industries
     including alcohol industries. Item 26 was as follows:

                 "26. Fermentation Industries.

                 (1) Alcohol

 c               (2) Other products of Fermentation Industries."

          The Govt. oflndia issued licences for the manufacture of alcohol
     based industries.

 D         It is asserted by M/s Synthetics & Chemicals Ltd. that one
     Tulsidas Kilachand, who had promoted the said Company, was invited
     by the U .P. Govt. to set up a synthetic rubber factory in the State of
     Uttar Pradesh. It is stated that the Govt. of Uttar Pradesh assured the
     said Tulsidas Kilachand of the supplies of alcohol necessary for ·the
     factory upto 20 million gallons, on payment only of Rs. 7 .50 kilo litre as
 E   administrative charges. It is the case of M/s Synthetics & Chemicals
     that there was no assertion or claim or privilege on behalf of the State
     Govt. in respect of denatured spirit nor was the said company or its
     promoters informed that there might be a charge of rental or consi-
     deration for parting with any such privilege.

 F         On 30th December, 1960 the Govt. of U .P. issued a notification
     under s. 4(2) of the U.P. Excise Act, 1910 by which all "rectified,
     perfumed, medicated and denatured spirits wherever made" was
     included under the definition of 'foreign liqour'. Thereafter, the said
     notification was embodied in Rule 12 of the U.P. Excise Rules.

 G         On or about 28th November, 1952 the Power Alcohol Authority
     and Excise Commissioner of U .P. issued an order for allotment of
     alcohol to M/s Synthetics & Chemicals Ltd. and also provided a condi-
     tion that "the denatured alcohol meant for supply to M/s Synthetics &
     Chemicals Ltd. is exempted from payment of vend fee". Paragraph 2
     of the said order provided that M/s Synthetics & Chemicals Ltd. shall
 H   pay an administrative charge at the rate of Rs. 7.50 per kilo litre of
      S¥NTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.]            649

denatued alcohol. The denatured alcohol meant for supply to Mis              A
Synthetics & Chemicals Ltd. was exempted from payment of vend fee.
It was stipulated that alcohol shall be denatured with 5% Ethyl Ether
or 0.2% crotonaldehyde at distilleries.

      It appears that in May, 1963 M/s Synthetics & Chemicals Ltd.           B
established a factory in Bareilly. Industrial alcohol is said to be one of
the basic taw-materials for the manufacture of synthetic rubber,.
Accordingly, the Govt. of U.P. on or about 30th July, 1963 issued a
notification excluding from the levy of vend fee the alcohol issued tc
industries engaged in the manufacture of synthetic rubber on terms
and conditions the State Government might determine.
                                                                             c
      Rule 17(2) was accordingly modified. On. or about 3rd
November, 1972 the Govt. of U.P. issued a notification (being U.P.
Excise Third Amendment Rules, 1972) substituting a new rule 17(2)
which is now embodied in para 680(2) of the U .P. Excise Manual at p.
201. In the new rule, vend fee@Rs.1.10 per bulk litre was imposed on
                                                                             D
denatured spirit without examining industries engaged in the manu-
facture of synthetic rubber. Supplies to the hospitals of certain
quantity, and exports out of the State were exempted.

       In December, 1972 when a demand was raised for payment of
the vend fee, it was asserted on behalf of M/s Synthetic & Chemicals
                                                                             E
that they had to close down their factory, and filed a writ petitior, No.
8069 of 1972 in the Allahabad High Court challenging the validity of
the notification dated 30th November, 1972 whereby vend fee on
denatured spirit was introduced for the first time. The Division Bench
of the Allahabad High Court vide judgment dated 24th March, 1973
struck down the said notification holding that the vend fee could not
                                                                             F
be justified either as a tax or fee or as excise duty. Relying on the
decision of this Court in the case of Nashirwar etc. v. The State of
M.P., [1975] 2 SCR 861 and stating the same in the Preamble to the
Act, the U.P. Legislature passed Act No. 5 of 1976 being U.P. Excise
Amendment (Re-enactmem and Validation) Act, 1976 inter a/ia,
introducing ss. 24A and 24B in the U.P. Excise Act, 1910 and making
                                                                             G
other amendments with retrospective effect. Sections 24A and 24B are
as follows:

            "24-A. (1) Subject to the provisions of Section 31, the
            Excise Commissioner may grant to any person a licence or
            licence for the exclusive or othe rprivilege:                    H
     650    SUPREME COURT REPORTS               [1989] Supp. l S.C.R.

A          (a) of manufacturing or of supply by wholesale, or of both;
           or

           (b) of manufacturing or of supplying by wholesale, or or
           both and selling by retail; or
B
           (c) of selling by wholesale (to wholesale or retail vendors);
           or

           (d) of selling by retail at shops (for consumption 'off' the
           premises only);

c          anyforeign liquor in any locality:

           (2) The grant of licence or licences under clause (d) of
           sub-section (1) in relation to any locality shall be without
           prejudice to the grant of licences for the retail sale of
           foreign liquor in the same locality in hotels and restaurants
D          for consuruption in their premises.

           (3) Where more licences than one are proposed to be
           granted under clause (d) of sub•section (1) in relation to
           any locality for the same period advance intimation of the
           proposal shall be given to the prospective applicants for
E          every such licence.

           (4) The provisions of section 25, and proviso to section 39
           shall apply in relation to grant of a licence for an exclusive
           or other privilege under this section as they apply in
           respect of the grant of a licence for..an exclusive privilege
F'
           under section 24.

           24-B.. For the removal of doubts, it is hereby declared:

           (a) that the State Govt. has an exclusive right or privilege
           of manufacture and sale of country liquor and foreign
G          liquor;

           (b) that the amount described as licence fee in clause (c) of
                                                                            -
           section 41 is in its essence the rental or consideration for
           the grant of such right or privilege by the State Govern-
           ment;
H
       SYNTHETICS CHEMICALS ·v. STATE-OF U.P. (MUKHARJI, J.]          651

            (c) that the Excise Commissioner as the head of the Excise      A
            Department of the State shall be deemed while determin-
            ing or realising such fee, to act for and on behalf of the
            State Government." ·

      It is stated that in May, 1976 the State of U .P. filed an appeal
against the decision of the Allahabad High Court in writ petition No. B
8069 /72; and that between 1976 and 1978, relying on the judgment of
the Allahabad High Court certain wholesale dealers in denatured
spirit filed writ petitions in the High Court of Allahabad claiming
refund of vend fee already paid by them. These writ petitions were
heara and allowed by the fearned Single Judge of the Allahabad High
Court. Against !he judgment of the Single Judge, special appeals to a C
Division Bench were preferred by the State of U .P. and all were
allowed on 6th October, 1978, relying upon ss. 24A and 24B of the said
Act.

      In 1976, the State Government issued the U .P. Licence for the
possession of Denatured Spirit and Special Denatured Spirit Rules, D
1976 requiring a licence for possession of denatured spirit and specially
denatured spirit for industrial purposes. "Special Denatured Spirit"
was ··defined as "Spirit rendered unfit for human consumption".
Licences for possession of denatured spirit including Specially
Denatured Spirit for industrial purposes were to be of 3 kinds, accord-
ing to tlie parties.                                                      E

        ( 1) Form F.L. 39 for use in industries in which alcohol. is
  destroyed or converted chemically in the process into other product
. and the product does not contain alcohol,, such as Ether, Styrene,
  Butadiene, Acetone, ,Polythene etc. (2) Form F.L. 40 for use in in-
  dustries in which alcohol is used only as a solvent or processing agent F
  and the product does nof contain alcohol, whch is generally recovered
  for re-u~e, such as Cellulose and its derivatives, Pectin etc. (3) Form
  F.L. 41 for use in industries in which alcohol is used directly or alcohol
  is used as solvent or vehicle and appears in the final produce to some
  extent such as Lacquers, Varnishes, Polishes, Adhesives and anti-
  freezers etc.                                                              G

      The Allahabad High Court in W.P. No. 8096 of 1972, referred to
hereinbefore, held that the State did not have the legislative compe- ·
tence to impose a tax under entry 8 of list II of the Seventh Sch~dule to
the Constitution following the decision of Sheopat Rai & Ors. v. State
of U.P., (1972] All L.J. 1000. The High Court held that the power of H
    652           SUPREME COURT REPORTS              [1989) Supp. I S.C.R.

    regulatio11 does not carry with it the power of taxation and thus vend
A   fee could not be justified. The High Court also held that the levy could
    not be justified as a fee as there was no quid pro quo. It appears that in
    view of the judgment of the High Court, a telegram was issued to the
    distilleries by the Excise Commissioner that vend fee should not be
    charged from the petitioner. Instead the State Government resorted to
B   imposition of sales tax.

          It may be mentioned herein that this decision of the Allahabd
    High Court was set aside by this Court by a Bench of two judges in
    State of U.P. v. Synthetics & Chemicals, (supra). In view of the fact
    that review petition in respect of the same is pending, it may be neces-
    sary to refer to the said decision. This Court held that the levy of vend
c   fee is for parting with the exclusive right of the· State with regard to
    intoxicating liquors and for conferring a right on the licensees to sell
    such liquors. A conspectus of the decisions of this Court, according to
    the said decision, establishes: (i) that there is no fundamental right of a
    citizen to carry on trade or to do business in liquor because under its
D   police power, the State can enforce public morality, prohibit trade in ·
    noxious or dangerous goods; (ii) the State has power to enforce an
    absolute prohibition on manufacture or sale of intoxicating liquors
    pursuant to Article 47 of the Constitution; and (iii) the history of
    excise laws in the country shows that the State has the exclusive right or
    privilege to manufacture or sell liquors. Reference was made to the
E   decision of this Court in the State of Bombay & Anr. v. F.N. Balsara,
    [1951) SCR 682. This Court further held that the term "intoxicating
    liquor" is~not confined to potable liquor alone but would include all
    liquors which contain alcohol. The term "liquor", according to the
    said decision, used in Abkari Acts not only covers alcoholic liquor
    which is generally used for beverage purposes and which produces
F   intoxication but would also include liquids containing alcohols. It was
    further held that the power to regulate the notified industries is not
    exclusively within the jurisdiction of Parliament as entry 33 in the
    Concurrent List enables a law to be made regarding production, sup-
    ply and distribution of products of notified industries. The exclusive
    power of the State to provide for manufacture, distribution, sale and
G   possession of intoxicating liquors is vested in the State. The power of
    the State Government to levy a fee for parting with its exclusive right
    regarding intoxicating liquors has been recognised as could be seen
    from the various State Acts regulating the manufacture, sale, etc. of
    intoxicating liquors. It was further held that the term "foreign liquor"
    cannot be given a restricted meaning because the word consumption
H   cannot be confined to consumption of_ beverages only. When liquor is
      SYNTI!ETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.J          653

put. to any use such as manufacture of other articles. the liquor is all
                                                                            A
the same consumed. The State is empowered to declare what shall be
deemed to be country liquor or foreign liquor. "Foreign liquor" is
defined as meaning all rectified, perfumed, medicated and denatured
spirit wherever made. Therefore, this Court in that case held that the
plea that the Excise Commissioner had no right to accept payment in
consideration for the grant of licence for the exclusive privilege for      B
selling in wholesale or retail, foreign liquor which includes denatured
spirit cannot be accepted. It was further held that the definition of
"alcohol" includes both ordinary as well as specially denatured spirit.
The specially denatured spirit for industrial purposes is different from
denatured spirit only because of the difference in the quantity and
quality of the denaturants. Specially denatured spirit and ordinary
dei;1atured sp.irit are classified according to their use and denaturants
                                                                            c
used. Therefore, the contention that specially denatured spirit for
industrial purposes is different from the ordinary denatured spirit has
no force, according to the said decision. Reference was made to the
decisions of this Court in Har Shankar & Ors. etc. v. The Dy. Excise f£
Taxation Commissioner & Ors., [1975] 3 SCR 254.                             D

      In this connection, it may be necessary to refer to the observa-
tions of this Court in Har Shankar & Ors.'s case (supra), where
Chandrachud, J, (as the learned Chief Justice then was) stated:

            "In our opinion, the true position governing dealings in        E
            intoxicants is as stated and reflected in the Constitution
            Bench decision of this Court in the State of Bombay & Anr.
            v. F.N. Balsara, [1951] SCR 682, Cooverjee B. Bharucha v.
            The Excise Commissioner and the Chief Commissioner,
            Ajmer and Ors., [1954] SCR 875, State of Assam v. A.M.
            Kidwai, Commissioner of Hills Division and Appeals, Shi!-       F
            long, [ 1957] SCR 295, Nagendra Nath Bora and Anr. v. The
            Commissioner of Hills Division and Appeals, Assam and
            Ors., [1958] SCR 1240, Amar Chandra Chakraborty v. Col-
            lector of Excise, Govt. of Tripura & Ors., [1973] 1 SCR 633
            and State of Bombay v. R.M.D. Chamarbaugwala, [1957]
            SCR 874 as interpreted in State of Orissa & Ors. v.             G
            Harinarayan Jaiswal and Ors., [1972] 3 SCR 784 and
            Nashirwar etc. v. State of Madhya Pradesh and Ors. Civil
            Appeals Nos. 17!1-1721 and 1723 of 1974 decided on
            November 27, 1974. There is no fundamental right to do
            trade or business in intoxicants. The State under its regula-
            tory powers, has the right to prohibit absolutely every form    H
     654            SUPREME COURT REPORTS              [1989] Supp. 1 S.C.R.

                 of activity in relation to intoxicants-its manufacture, stor-
A
                 age, export, import, sale and possession."

           Though most of the cases dealt with the right of the State
     Government as regards auction of country liquor, in Balsara's case,
     Nashirwar's case and Har Shankar's case, this Court was concerned
B    with the right of the Stae Government over foreign liquor. After con-
     sidering all the decisions of five Constitutional Benches, Chandra-
     chud, J. summed up the position at page 274 of the Report in Har
     Shankar's case (supra) as follows:

                 "These unanimous decisions of five Constitutional Benches
                 uniformly emphasised after a careful consideration of the
c                problem involved that the State has the power to prohibit
                 trades which are injurious to the health and welfare of the
                 public is inherent in the nature of liquor business, that no
                 person has an absolute right to deal in liquor and that all
                 forms of dealings in liquor have, from their inherent
D                nature, been treated as a class by themselves by all civilised
                 communities.''

           Review Petition bas been moved by Synthetics & Chemicals Ltd.
     which was purchaser or user and not manufacturer or dealer. It is
     contended that the Synthetics & Chemicals Ltd. were never manufac-
E    turers of denatured spirit and they were and have been purchasers of
     denatured1spirit. Ii 1s contended that this Court in Synthetics & Chemi-
     cals Ltd. 's case (supra) had proceeded on the basis that State's
     privilege is with respect to manufacture or sale of foreign liquor or
     denatured spirit.

F          It is. contended that they were not liable to pay the vend fee. The
     judgment '.aforesaid had not dealt with that submission and, therefore,
     it was claimed that there was an error and that this judgment should be
     reviewed. It was contended that the fee charged is not a vend fee but
     fee in respect of licence for possession of denatured spirit. It was
     cm;itended that the judgment had not held that the purchasers are
     liable to pay vend fee. The State's appeal should have been dismissed
                                                                                   -.
,G
     and the petitioner's appeal should have been allowed, it wa; pleaded
     in the review petition. There was an error, it was contended.

            It may ',be at the outset made clear that in these matters, we will
     dispose of the contention whether vend fee is leviable in respect of
H    in_d~strial alcoho,I. If it is so leviable, who should actually pay or from
              SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.]              655

        whom the same should be realised, would not be the subject matter of           A
        this adjudication. Whether the manufacturer or the purchaser or the
        user should pay them, must be decided in separate appropriate pro-
        ceedings, if necessary.
=.I',

             In order to complete the narration of events, however, it may be
        mentioned that Ordinance No. 6 of 1973 was promulgated by the                  B
        Government of U.P. purporting to amend the U.P. General Sales Tax
        Act, 1948 so as to authorise the State Govt. to impose sales tax on
        alcohol at the rate upto Rs.2 per litre. By the said notification, the first
        schedule to the Act was amended and the new entry read as follows:

                    "Spirits and ',spirituous liquors ot all kinds including the
                    rectified spirit, methyl alcohol and absolute alcohol but
                                                                                       c
                    excluding denatured spirit and country liquor."

              Ordinance 9 of 1974 being the Uttar Pradesh Sales of Motor
        Spirit & Diesel Oil Taxation {Amendment) Ordinance 1974 was pro-
        mulgated by the Government of U.P. By virtue of the amendment,                 D
        the definition of alcohol in section 2 was amended as follows:

                    "(aaa) Alcohol means ethyl alcohol not being alcoholic
                    liquor for human consumption and includes rectified spirit,
                    absolute alcohol."
                                                                               E
              Notification was issued thereafter by the Government of U.P. in
        exercise of power under section 3(1) of the U.P. Sales of Motor Spirit
        and Diesel· Oil Taxation Act 1939. Several other notifications were
        issued. This Ordinance was struck down Qy the division bench and the
        Government was made liable to refund. Writ Petition was filed by
        Synthetics & Chemicals Ltd. Thereafter, no appeal was filed by the F
        State Government. The other facts are not relevant for the present
        controversy. There was an application challenging the purchase tax.
        The State of U.P. filed an appeal against the judgment and order dated
        24th March, 1973 of the division bench of the Allahabad High Court in
        Writ Petition No. 8069/72 striking down the vend fee notification. The
~,      appeal was numbered as Civil Appeal No. 1130(NCL}/76. After the .G
        sales tax levy was struck down the government proposed a purchase
        tax. Aggrieved by the aforesaid Act, writ petition was filed, and the
        hearing of the petition had been stayed by the order of this Court.
        Meanwhile, certain whoiesale dealers in denatured spirit filed writ
        petitions in the High Court of Judicature at Allahabad, claiming
        refund of the vend fee paid by them. Against the judgment of the High H
    656            SUPREME COURT REPORTS               [1989] Supp. 1 S.C.R.

A   Court of Allahabad dated 6th October, 1978, appeals were admitted
    being Civil Appeal Nos. 2191-98/78. All these have been disposed of
    by the bench of two learned Judges of this Court, as mentioned
    hereinbefore. It appears that Kesar Sugar Works Ltd. filed writ peti-
    tion challenging the validity both of licence fee and vend fee on the
    ground that the fees charged have all the characteristics of a duty of
B   excise which is beyond the legislative competence of the State and that
    the alcohol industry is covered by the IDR ,Act. Writ Petition Nos.
    4663-4664 of 1978 were also disposed of by the judgment of this Court
    in Synthetics & Chemicals Ltd. (supra). Notification was issued there-
    after by the Government of U .P. in 1979 in exercise of powers under
    section 40, sub-section (1) of the U.P. Excise Act of 1910, read with
    clause (d) of sub-section (2) of the said section. amending the U.P.
c   Excise (Amendment) Rules 1979. By virtue of this amendment, rule
    17 was substituted and in the case of FL 39 licence, veno fee. was to be
    so charged that the amount of vend fee and purchase together did not
    exceed 25 paise per bulk litre. It is not necessary to set out in detail the
    exact provisions. Another notification was issued. It was challenged in
D   the High Court. It was kept pending.

          The o.ther matter herein is writ petition No. 3163-64/82 (All India
    Alcohol Based Industries Developlment Association v. State of
    Maharashtra) which challenges the amendment to s. 49 of the Bombay
    Prohibition Act, 1949. It may be relevant to refer to the said section as
E   amended in 1981. The section is titled "Exclusive privilege of Govern-
    ment to import etc., intoxicants and fees levied include rent or consi-
    deration for grant of such privileges to persons concerned." In this
    connection, it is significant to refer to the Statement of Objects for the
    amendment. The section is as follows:

F               "49. Notwithstanding anything contained in this Act, the
                State Government shall have the exclusive right or privi-
                lege of importing, exporting, transporting, manufacturing,
                bottling, selling, buying, ~K>ssessing or using any intoxi-
                cant, hemp or toddy, and whenever under this Act or any
                licence, permit, pass, thereunder any fees are levied and
G               collected for any licence, permit, pass, authorisation or          .,
                other permission given to any person for any such purpose,
                such fees shall be deemed to include the rent or considera-
                tion for the grant of such right or privilege to that person by
                or on behalf of the State Government."

H         The power was contained in the Prohibition Act, 1949 which was
            SYNTHETICS CHEMICALS v. STATE OF U.P. IMUKHARJI, J.]               657

     an Act to amend and consolidate the law relating to the promotion and A
     enforcement of and carrying into effect the policy of prohibition· and
     also the Abkari law in the State of Bombay. It may be mentioned that
     the Bombay Prohibition Act, 1940 was brought into force on 25th
     May, 1949. Then there was the Bombay Rectified Spirit (Transport-in-
     Bond) Rules, 1951 brought into force. On 23rd October, 1981 the
     amendment was made introducing s. 49.                                  B

           The provision of the Andhra Pradesh Act was challenged by
     impugning the allotment of alcohol under the Andhra Pradesh Excise
     Act No. XVIlof 1968. The Andhra Pradesh Act receive•; the assent of
     the President" on 26th August, 1968. This was an Act to consolidate
     and amend the law relating to production, manufacture, possession,
     transport, purchase and sale of intoxicating liquors and drugs, the levy C
     of duties of excise and countervailing duties of alcoholic liquor for
     human consumption and opium, Indian hemp and other narcotic drugs
     and narcotics and to provide for matters connected therewith in the
     State of Andhra Pradesh.
                                                                               D
           Writ·Petition No. 1892/73-Hindustan Polymers Ltd. v. State of
     Andhra Pradesh challenges the Andhra Pradesh Distillery Rules, 1970
     and Andhra Pradesh Rectified Spirit Rules, 1971. The Tamil Nadu Pro-
     hibition Act is also challenged in C.A. Nos. 466-67 /80 as well as writ
     petition No. 4501/78. In all these the point is similar and we have hea(d
     learned counsel and respective Advocate-Generals. Appearing for the E
     petitioners S/Shri Nariman, Diwan, Baig and Banerjee and others
     have made their submissions. We have also heard Mr. Trivedi, learned
     Additional Advocate-General of U.P., Mr. Yogeshwar Prasad, Dr.
     Singhvi, Mr. Sanghi, learned Advocate Generals of Andhra Pradesh
     and other States. We had also the advantage of the submissions made
     by learned Attorney General on behalf of Union oflndia.                   F

            It was submitted in the statement on behalf of Union of India
     that the legislative competence of the State enactment in the various
     States wi!l have to be determined by reference to following entries in
     list I of the 7th Schedule-entries 7, 52, 59, 84, 96, 97 & entries in list
.-   II, being 8, 24, 26, 27, 51-52, 54, 56, 62 and entries in list III 19 & 33. It   G
     was urged that there is a dichotomy between entry 84 list I and entry 51
     of list II but this would not control the interpretation of othe entries.
     There is no such dichotomy in entry 8. It has also been stated on behalf
     of the Union of India that while opium was in entry 19 of list III and
     entry 59 of list I of the 7th Schedule, it means that Parliament will have
     power with f<Ogard to opium .. But tbe power to levy excise duty on              H
     658            SUPREME COURT REPORTS                [1989] Supp. 1 S.C.R.

    opium is given to the State, similarly medicinal and toilet preparations
    which contained alcohor and are fit for human consumption, the power
    to. levy excise duty is given to Parliament and not to the State legisla-
    ture. Entry 8 of list II similarly is not subject to entry 52 of list I for the
    reason that the aspect with regard to ,subject-matters of these two
    entries are different, it was submitted. The aspect in list I entry 52 is
B   industry while that in entry 8 of list II is intoxicating liquor. Entry 8 is,
    therefore, to be read on its own terms. The power to levy taxes is to be
    read from the entry relating to taxes and not from the general entry.
    Exception in entry 50 of list II where tax on mineral rights is subject to
    any limitation imposed by Parliament relating to mineral develop-
    ment, and this power of Parliament is in general entry i.e. entry 54 of
c   list I. According to Union of India, none of the taxing entries in list II
    is controlled by entry 52 of list I. Union of India stated that 'industry' is
    a topic of legislation. Certain entries are left to Parliament and certain
    others are left to State Legislatures. Identifying of entries is by refe-
    rence to a declaration under entry 7 of list I and entry 52 of list I. The
    aspect of legislation with regard to subject-matter of entries will be
D   topic 'industry'. On the other hand, the subject-matter of legislation
    under entry 8 of list II will be topic 'intoxicating liquors'. Th·erefore,
    there is no conflict according to the Union of India.

         The only question which has to be determined is whether into-
  xicating liquor in entry 8 in list II is confined to potable liquor or
E includes all liquors. According to the Union of India, in view of the
  difference of language in entry 8 and entry 51 of list II, it is reasonably
  possible to take the view that intoxicating liquors include both liquors.
  It was submitted by the Union of India that there are no grounds for
  overruling Balsara's case (supra) decided in 1951 after 38 ·years
  particularly when it has been followed and applied in later decisions.
F In that case it upheld the power of the States to completely prohibit,
  manufacture, sell etc. of potable liquor,, it struck down the provisions
  of the Bombay Act in so far as it imposed restrictions on medicinal and
  toilet preparations as violative of Art. 19(1)(f) of the Constitution. It is
  stated that this decision had proceeded on the basis that there could
  not be a complete prohibition in regard to medicinal preparations
G containing alcohol. Hence, it was submitted that so far as alcohol not
  fit for human consumption is concerned, it cannot be held that trade in
  such an article cannot be considered to be a noxious trade. It will be a
  noxious trade only where it is produced or manufactured for purposes
  of human consumption. It was submitted that in Indian Mica & Mica-
  nite Industries Ltd. v. State of Bihar & Ors., (1971] Suppl. SCR 319 this
H Court was dealing with denatured spirit and had held that the Bihar
        _ SYNTHETICS_CllliMICALS '· STATE OF U.P. [MUKHARJI-, J.)       659

    Orissa Excise Act, insofar as it related to denatured spirit, was regulat- A
    ing trade and business in public interest; and that entry-8 of list II
    comprehends all liquors containing alcohol. The State's privilege to
    completely prohibit or farm out liquor containing alcohol for human
    consumption does not comprehend, according to the Union of India, a
    similar right of a State with regard to other intoxicating liquids con-
    taining alcohol. According to the Union of India, to so prohibit or B
    collect fee for farming out, would be unconstitutional under Art.
    19( l)(g) of the Constitution on the same principle on which the provi-
    sions of the Bombay Act were struck down in Balsara's case. It was
    further stated on behalf of Union of India that Parliament has legisla-
    tive competence with regard to power alcohol providing for levy of
    central excise duty. See the Central Excises & Salt Act, 1944, Schedule C
    I, item 6; Motor Spirit. Similarly, Parliament has legislated the Central
    Excise Tariff Act, 1985-tariff item No. 22.04. The said item reads:

               "Ethyl alcohol, of any grade (including such alcohol when
               denatured or otherwise treated), which either by itself or in
               admixture with any other substance, is suitable for being D
               used as fuel for spark-ignition engines."

          It was stated that under Art. 277 of the Constitution, any taxes,
    duties, cesses or fees which immediately before the commencement of
    the Constitution, were being lawfully levied by the Govt. of any State
    or municipality or other local authority or body for the purpose of the E
    State, municipality, district or other local area may, notwithstanding
    that these taxes, duties, cesses or fees are mentioned in the Union list,
    continue to be levied and to be applied for the same purpose until
    provisions to the contrary are made by Parliament by law. According
•   to the Union of India, there was a similar provision in the Govt. of
    India Act, 1935 (Sees. 143(2)). Reference was made to the decision in F
    Town Municipal Committee, Amraoti v. Ra,;,achandra , Vasudeo
    Chimote &Anr., [1964] 6 SCR 947.

          Learned Attorney General drew our attention to the fact that
    Parliament has exclusive power to levy duties of excise on goods
    manufactured or produced in India including medicinal and toilet pre- G
    parations containing alcohol for opium or Indian hemp or other
    narcotic drugs. But Parliament has no legislative competence to levy
    excise duty on (a) alcoholic liquor for human consumption; (b) opium,
    Indian hemp and other narcotic drugs and narcotics (entry 84 of list
    II). The State Legislature has legislative competence to levy excise
    duty on the following goods manufactured or produced in the State H
    660           SUPREME COURT REPORTS              [1989) Supp. 1 S.C.R.

    and countervailing duties on similar goods manufactured in India-(a)
A
    alcoholic liquor for human consumption; {b) opium, Indian hemp and
    narcotics. But learned Attorney General emphasised that State Legis·
    lature has no power to levy excise duty on medicinal and toilet pre-
    parations which contain alcohol or opium or Indian hemp and other
    narcotic drugs in such medicinal and toilet preparations. Under entry
    51 of list II State Legislature, it was submitted by him, had no power to
    levy excise duty on industrial alcohol as the latter is not fit for human
    consumption. State Legislature has power to levy taxes on entry of
    goods in local areas for consumption, use or sale therein. This will
    include taxes on entry of all alcohol. See entry 52 of list II. The State
    Legislature has further power to levy taxes on goods carried by ro11d or
    by inland water. The goods therein will include both alcohol fit for
c   human consumption as well as alcohol not fit for human consumption.
    See entry 56 of list II of the 7th Schedule. State legislature will have to
    levy taxes on possession of alcoholic liquors fit for human consumption
    because these are luxuries. But alcohol not fit for human consumption
    are not luxuries and as such the State Legislatures, according to
D   learned Attorney General, will hve no power to levy taxes on such
    alcohol. Parliament will have power to levy on all alcohol taxes not
    covered by any other entries in lists I and II. See list I entry 97.

          The State Legislature will have power to levy fee in respect of all
   alcohol. See entry 66 read with entry 6 of list II. State Legislature has
E power to legislate on the topic 'intoxicating liquors' unde~ entry 8 of
   list II. It being a general entry, will not comprehend a power of taxa-
   tion but will comprehend a power to levy fee read with entry 66.
   According to the learned Attorney General, with regard to industries,
   the control of which by the Union is declared by Parliament by law to
   be expedient in public mterest, Parliament will have exclusive legisla-        •
F tive competence. See entry 52 of list I. This power includes the power
   to declare by Parliament that control by the Union of industries relat-
   ing to all types of alcohol is expedient in public interest. Once Parlia-
   ment makes such a declaration, the State Legislature will be denuded
   of its power under list II, entry 24 on the aspect 'industry' with respect
   to all subject-matters. The power to collect the lump sum amount by
G way of auction by any right or otherwise conferring the right to sell
   alcohol is neither a power to levy tax nor a power to levy fee but it will
   fall within the legislative competence of the State Legislature under
   entry 8. But this power will extend only, according to learned At-
   torney General, to alcohol for human consumption. He said that there
   can be complete prohibition with regard to manufacture and sale of
 H alcohol fit for human consumption because there is no fundamental
           SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.]            661

     right to carry on business in alcohol even for human consumption. And
                                                                                  A
     that this power to completely prohibit exists in the State as recognised
     by Art. 47 of the Constitution. The State can, therefore, collect an
     amount called vend fee, shop rent etc.' for conferring on a citizen the
     right to manufacture and sell alcoholic liquors if it is for human con-
     sumption. This power cannot extend to industrial alcohol or alcohol
     contained in the medicinal or toilet preparations. According to the          B
     learned Attorney General, there is no power to levy such rent or fee
     with regard to industrial alcohol because (a) industrial alcohol and
     alcoholic liquor for medicinal and toilet preparations cannot be comp-
     letely prohibited; (b) as there is a right to carry on business in indust-
     rial alcohol any prohibition on manufacture of industrial alcohol would
     be violative of Art. 19_(1)(g) of the Constitution. Accordmgly, in•abs-
     ence of a power to completely prohibit there will be no power to             c
     collect sums for conferring rights to manufacture or sell except the levy
     of taxes and fee.

            On behalf of the State of U .P. both the learned Additional
L    Advocate .General Mr. Trivedi as well as Mr. Yogeshwar Prasad made D
     exhaustive submissions and submitted that in order to appreciate the
     controversy it is necessary to realise that the real problem arises from
     the fact that the denaturants can be converted into renaturants in the
     illicitprocess. According_to the counsel a1ipearing in support of the levy,
     one bottle of spirit of Rs.1.50 on renaturing yields a profit of Rs.25 to
     30 at least. In this 'connection, reference was made to the report of £
     Baweja Committee. It was further emphasised that the victims are the
     weaker section and the sufferers are the "wailing workers, weeping
     wives and crying children':, not only when the earning member dies,
     but in their lifetime too, the alcohol consumes, snatches their two
     morsels, their health, nutrition and standard of living. Reference was
     made to the observations of this Court in P.N. Kaushal etc. v. Union of F
     India, [1979] 1SCR122 where Mr. Justice Krishna Iyer referred to the
     utterances of George Bernard Shaw that drinking is the chloroform
     that enables the poor to endure the painful operation of living.

            It was submitted on behalf of the State that the vend fee on
     ·denatured alcoh()l or D.enatured Spirit or what is known as industrial      G
      alcohol has been challenged on mainly two grounds, namely, (a) States
      lack legislative competence and (b) after the enactment of the IDR
      Act, 1961 the States power is completely lost. The contention of the
,_    State was that there is no dichotomy between Ethyl Alcohol to be used
      for beverages and to be used for industrial purposes. In.any case, the
      levy is on manufacture, according to Mr. Y.ogeshwar Prasad and Mr.          H
    662            SUPREME COURT REPORTS             [1989] Supp. 1 S.C.R.

    Trivedi, learned Additional Advocate-General of U.P., of the ethyl
A
    alcohol; use is different, and the collection at a later stage. The levy
    was stipulated jointly or severally both under entries 8 of iist II, entry
    51 of list II, entry 33 of list III and what is described as polic powers
    regulatory and other incidental charges, according to them. It was
    submitted that levy was justified being a regulatory power under Arti-
B   cle 19(6), 19(6)(ii). It was further urged that State has a monopoly in
    alcohol trade; and that Art. 3 lC grants immunity to the challenge
    under Articles 13, 14 & 19 of the Constitution. It was submitted that
    quid pro quo was not necessary and even if it was necessary, the
    requirements were met. Under Art. 298 trading powers of the State
    must be recognised, it was submitted, coupled with century old mono-
    poly of the State in alcohol.
c
         It was submitted that vend fee is a pre-Constitution levy. The
    U.P. Excise Act, 1910 and the vend fee levied thereunder were pre-
    Constitution Act/levy by a competent authority and will not cease to
    continue after the enforcement of the Constitution, merely because
D   the authority lost its legislative competence over the subject-matter. It
    was submitted that the levy was a pre-Constitution levy, so saved
    under Art. 277 of the Constitution. According to the State of U.P., the
    law continued under Art. 277 and is not a law either under Art. 246
    nor under Art. 254 of the Constitution, so outside the purview of the
    Central Act.
E
          At the outset, it may be noted that in view of the subsequent
    amendment and the additions to the levies it cannot, in our opinion, be
    with legitimate force contended .that the levies which are sought to be
    impugned in the present litigation are pre-Constitutional levies. So,
    these submissions on behalf of the State do 'not require any serious
F   consideration.

          It was further submitted that the Union of India has no power to
    effect the levy as levy was pre-Constitutional law and further as the
    expression 'alcoholic liquor for human consumption' in list I and 'the
    residuary entry 97 of list I of the 7th Schedule, will not operate as
G   against its own legislative intent. It was further urged that the !DR
    Act, 1951 does not preclude or eclipse the legislative powers of the
    State. This Act on its own terms, does not.apply.to the levy; these
    operate on-different tracks, according to the counsei for the State. It
    was further urged that review- was_ not maintainable. Reference was
    made to the distillation pro~ess and detailed submissions were made
H   before us explaining the same.
            SYNTHETICS CHEMICALS v. STATE OF U.P. {MUKHARJI, J.l            663

             It was submitted that sugarcane is raw-material of sugar and          A
      manufacture of sugar molasses is the waste product. Molasses when
      mixed with yeast fermentation starts and alcohol is produced. 10-12%
      strength of alcohol is toxic to yeast, hence, fermentation stops.
      According to the State of U.P., so fermented alcohol has maximum
      12% strength of alcohol, the products being beer, cider, champangne,         B
      and liquor etc. For higher strength (above 12%) distillation of
      fermented alcohol is necessary. By distillation process-firstly 96%
      strength of alcohol is produced. It is known as ethyl alcohol or rectified
      alcohol. Counsel for the State of U .P. submitted that this ethyl alcohol
      is potable and used both for beverage and industrial purposes; and that
      it is at this stage of manufacture that the charge of levy is made. It has
      to be stated in view of the language used in the specific provisions the     c
      levy is not on the manufacture of alcohol as such: therefore, in our
      opinion, these levies cannot in essence be sustained as duty of excise.

             It was contended on behalf of the State that rectified alcohol is
      diverted to different warehouses for being used as beverages (country        D
      liquor, foreign liquor) and industrial liquor. It was submitted that this
      potable alcohol can lie used for industrial purposes, but for public
      welfare, a lower levy is charged and to prevent its misuse denaturants
      are added and for denaturing in public interest, the State has to incur
      expenses, cost of denaturants, process an_d regulation etc. However,
l     this submission, by itself, does not help the controversy herein in
                                                                                   E
      essence. No attempt had been made on behalf of the State to indicate
      that the levy has any element of quid pro quo or certain element which
      can possibly have some correlation with the expenses incurred in that
      connection. It was submitted that ethyl alcohol is diluted to the requi-
      site concentration for the concerned beverage and subjected to other
      processes like reduction, blending and flavouring etc. and ethyl
                                                                                   F
      alcohol is further distilled for higher concentration-99.4% power
      alcohol and 100% absolute alcohol. It was submitted that no alcohol as
      such is fit for human consumption. It was contended that the effect is
      ultimate consumption, whether delayed or instantaneous. The effect
      of alcohol is fatal, it was stated, -may be spread out on long span or
      instant depending upon the concentration, dose and the person drink-
                                                                                   G
      ing it. Sleeping pills are illustrative, overdose puts the man to eternal
      sleep. It is in this background that we were reminded that the State
      being a welfare State, would be guilty in levying a lower levy on the
      alcohol. It is the duty of the State for being a welfare State to denature
      by incurring extra cost and effort. The industry does not need the
      denaturing.                                                                  H

',,
    664           SUPREME COURT REPORTS             (1989] Supp. 1 S.C.R.

         Our attention was drawn to various observations of Krishna Iyer,
A
  J. in P.N. Kausha/'s case (supra). There is indeed great deal of
  attempt made by some for wrong utHisation of alcohol and thereby
  endangering the community and people at large but the need to pro-
  tect the community from the evil effects of drinking does not by itself
  empower the State to levy duty or impost of fee not warranted by the
B Constitution nor sanctioned by the specific provisions of the Constitu-
  tion and the laws. It was submitted that industrial alcohol and
  denatured spirit are intoxicating liquor and or alcoholic liquor for
  human consumption. These submissions were supported by reference
  to the Dictionary meaning, Organic Chemistry, the definition in U .P.
  Excise Act, 1910 and various case laws. It is used as being consumed
  by humanity. The industry needs potable alcohol and the denaturants
c are  not required by it rather some of them are avoided, according to
  the State of U .P. In particular industry they hamper the manufacture
  of the final product. Denatured spirit or industrial alcohol is basically
  potable alcohol; it is denatured in public interest to prevent its use as
  potable alcohol, according to the State of U.P. This alcohol cannot be
D treated differently from other alcohols only because some denaturants
  are added in public interest and welfare. It was submitted that the
  State has legislative competence to impose the levy since the impugned
  levy is both on its language and in pith and substance legislation falling
  under, according to the State of U.P., entry 8 list II-intoxicating
  liquor, entry 51, list II alcoholic liquor for human consumption.
E Counsel for the State em~hasised the significant omission of the expre-
  ssion "fit for". What is required is intoxicating liquor and/or alcoholic
  liquor for human consumption, according to counsel for the State of
  U.P. Entry 33 list III-trade and commerce in, and the production,
  supply and distribution of the products of any industry where the
  control of such industry by the Union is declared by Parliament by law
F to be expedient in public interest, and imported goods of the same
  kind as such products. Under its police powers the State has to regu-
  late health, morality, welfare of society and incidental pauperism and
  crime it was submitted.

          It was further submitted by the State that the State has exclusive
G   right to deal in liquor. This power according to the counsel for t.he
    State, is reserved by and/or derived under Arts. 19(6) and 19(6)(ii) of
    the Constitution. For parting with that right a charge is levied. It was
    emphasised that in a series of decisions some of which have been
    referred to hereinbefore, it has been ruled that the charge is neither a
    fee nor a tax and termed it as privilege. The levy is on the manufac-
H   lure, possession of alcohol. The rate of levy differs on its use, accord-
       SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.]           665

  ing to the State of U .P. The impost is also stipulated under the trading A
, powers of the State under Art. 298 and it was contended that the
  petitioners and/or appellants were bound by the terms of their licence.
  It was submitted that the Parliament has no power to legislate on
  industrial alcohol, since industrial alcohol was also alcoholic liquor for
  human consumption. Entry 84 in list I expressly excludes alcoholic
  liquor for human consumption; and due to express exclusion of B
  alcoholic liquor for human consumption from list I, the residuary entry
  97 in list I will not operate as against its own legislative interest. These
  submissions have been made on the assumption that industrial liquor
  or ethyl alcohol is for human consumption. It is important to
  emphasise that the expression of a Constitution must be understood.in
  its common and normal sense. Industrial alcohol as ·it is, is incapable of C
  being consumed.by a normal human being. The expression 'consump-
  tion' mi/st also be understood in the sense of direct physical intake by
  human beings in this context. It is true that utilisation in some form or
  the other is consumption for the benefit of human beings if industrial
  alcohol is utilised for production of rubber' tyres used. The utilisation
  of those tyres in the vehicle of man cannot in the context in which the D
  expression has been used in the Constitution, be understood to mean
  that the alcohol has been for human consumption.

       We have no doubt that the framers of the Constitution when they
used the expression 'alcoholic liquor for. human consumption' they
meant at that time and still the expression means that liquor which as it    E
is is consumable in the sense capable of being taken by human beings as
such as beverage of drinks. Hence, the expression under entry 84, list I
must be understood in that light. We were taken through various
dictionary and other meanings and also invited to the process of
manufacture of alcohol in order to induce us to accept the position that
Denatured Spirit can also be by appropriate cultivation or application       F
or admixture with water or with others, be transformed into 'alcoholic
liquor for human consumption' and as such transformation would not
entail any process of manufacture as such. There will not be any
organic or fundamental change in this transformation, we were told.
We are, however,' unable to enter into this examination. Constitu-
tional provisions specially dealing with the delimitation of powers in a     G
federal polity must be understood in a broad commonsense point of
view as understood by common people .for whom the Constitution is
made. In terminology, as understood by the framers of the Constitu-
tion, and also as viewed at the relevant time of its interpretation, it is
not possible to proceed otherwise, Alcoholic or intoxicating liquors
must be un_derstood as these are, not what these are capable of or able      H
     666            SUPREME COURT REPORTS               [1989] Supp. 1 S.C.R.

     to become. It is also not possible to accept the submission that vend
A
     fee in U.P. is a pre-Constitution imposition and would not be subject.
     to Art. 245 of the Constitution. The present extent of imposition of
     vend fee is not a pre-Constitution imposition, as we notioed from the
     change of rate from time to time.

B           On behalf of the State of Maharashtra Mr. Dholakia submitted
     that the first issue is whether entry 8 in list II of the 7th Schedule of the
     Constitution, covers alcohol unfit for human consumption. The second
     issue, according to him, is, whether assuming that the entry does not
     include alcohol unfit for human consumption, its scope in that respect
     is curtailed because of item 26 of the Schedule to the IDR Act, 1951.
     The third issue, according to him, is, whether having regard to entry 51
c    in list II, the State can (a) impose regulations by creating economic
     disincentives for consumption of drinkable alcohol and (b) prevention
     of misuse of non-drinkable alcohol for consumption.

            On behalf of the State both Mr. Trivedi and Mr. Yogeshwar
D,   Prasad contended that regulatory power of the State was there and in
     order to regulate it was .possible to impose certain disincentives in the
     form of fees or levies. Imposition of these imposts as part ofregulatory
     process is permissible, it was submitted. Our attention was drawn to
     the various decisions where by virtue of "Police Power" in respect of
     alcohol the State has imposed such impositions. Though one would not
E    be justified in adverting to any police power, it is possible to conceive
     sovereign power and on that sovereign power to have the power of
     regulation to impose such conditions so as to ensure that the regula-
     tions are obeyed and complied with. We would not like, however, to
     embark upon any theory of police power because the Indian Constitu-
     tion does not recognise police power as such. But we must recognise
F    the exercise of sovereign power which gives the State sufficient autho-
     rity to enact any law subject to the limitations of the Constitution to
     discharge its functions. Hence, the Indian Constitution as a sovereign
     State has power to legislate on all branches except to the limitation as
     to the division of powers between the Centre and the States and also
     subject to the'fundamental rights guaranteed uncjer the Constitution.
G    The Indian State, between the Centre and the States, has sovereign
     power. The sovereign power is plenary and inherent in every sovereign
     State to do all things which promote the health, peace, morals, educa-
     tion and good order of the people. Sovereignty is difficult to define.
     This power of sovereignty is, however, subject to Constitutional limi-
     tations. This power, according to some constitutional authorities, is to
H    the public what necessity is to the individual. Right to tax or levy
       SYNTIIETICS CHEMICALS .v. STATE OF U.P. [MUKHARJI, J.]          667

imposts must be in accordance with the provisions of the Constitution.
                                                                              A
      It was contended that the question, necessarily arises as to
whether these regulations under the Bombay Prohibition Act, 1949 are
intended as measures of revenue or as measures to advance the cause
of prohibition. Mr Dholakia invited us to the phrase "intoxicating
liquor" which has been the subject-matter of interpretation by the            B
Federal Court, this Court and the United States Supreme Court. It has
been held that the expression is of widest import and must be given
liberal interpretation. According to him, this Court in Ba/sara's case
(supra) held that even toilet articles containing alcohol as such would
be intoxicating liquors. Mr. Dholakia suggests that United St~tes
Supreme Court has expressly held that "Denatured Spirit" is intoxicat-
ing liquor because of necessity to prevent its misuse. It was further         c
contended that the I.D.R. Act, was made by the Parliament and it is
traceable to entry 52, list I. This entry enables-the Union Legislature, to
legislate in respect of an industry the control of which is declared by
Parliament to be expedient in public interest. Entry 52, according to
him, speaks of control of an industry in its establishment. Ordinarily,       D
States have the authority to allow or not to allow any industry to be
established under entry 24 of list II. This power is not taken away by
the I.D.R. Act. According to Mr. Dholakia, if industry is allowed to
be established by law within the policy of the State then its control
thereafter would vest with the State. Ordinarily, a citizen has fonda-
mental right to establish an industry and only reasonable restrictions        E
can be placed on these. However, the case of intoxicating liquor is
different. By virtue of Art. 47 of the Constitution the State may
impose absolute prohibition in respect of intoxicating liquor. In such a
case, the State is authorised to deny a citizen the right to es'tablish an
industry in intoxicating liquor. No person can claim that he is entitled
to establish,,.n industry for manufacturing whisky in any particular          F
State. The true test, according to Mr. Dholakia, is to ascertain if there
was no I.D.R. Act to which entry of the State List, various regulations
in respect of "alcohol industry" would be traced. It was submitted that
the r~ulations would have to be traced to entry 24 of list II and not to
entry 8. It was supmitted that in case of alcohol ordinarily used for
human consumption, the extent of regulation may go to the extent of           G
complete prohibition. It may go to a lesser extent of partial prohibi-
tion. It may assume a variety of forms including one of imposing
economic· disincentives. if tbe price of drinkable alcohol becomes
higher and higher, the person given to drinking might think it better to
give it up, according to Mr. Dholakia. The price fixation is a valiq
method in regulatiOn of consumption, and if the above analysis is fully       H
    668           SUPREME COURT REPORTS             (19891 Supp. 1 S.C.R.

    valid for drinkable alcohol, it is equally valid for the non-drinkable
A
    alcohol for the following reasons, according to Mr. Dholakia: the
    major difference in non-drinkable alcohol and drinkable one is that
    the former is often the legitimate activity while in the latter no such
    claim can be made. The distinction is important for the purpose of
    determining the extent of regulations but it is of no assistance for
B   deciding the nature of the regulation. It is true, he says, that a State
    may not be entitled to prohibit the business of non-drinkable alcohol
    but the State can impose regulation by which it can make non-
    drinkable alcohol more expensive to ensure that it is not available
    cheaply to a would-be bootlegger. Mr. Dholakia invites us to hold that
    Denatured Spirit is made by addition of malodorous or noxious sub-
    stance to alcohol in order to make it unfit for human consumption:
c   Denaturing is not done for making such alcohol fit for machine; it is
    done for the purpose of ensuring that such alcohol is avoided by
    would-be drinkers. Even so, lacking the easy availability of drinkable
    alcohol, those given to drinking would make an attempt to drink
    denatured spirit after distillation. Such process of distillation is what
D   the bootleggers undertake. The process is a simple one, according to
    Mr. Dholakia. We need not detain ourselves in examining the process
    as suggested by him.

          He insisted that the dividing line between relative importance of
    prohibition and industry should be left to each individual State
E   because the conditions in all States are not identical. He suggested that
    Gujarat attaches great importance to the cause of prohibition. There
    are historical and social factors responsible for this policy. According
    to Mr. Dholakia, the Govt. of that State is prepared to sacrifice
    revenue running into hundreds of crores of rupees but the same may
    not be true of a State like Punjab. According to him, the historical and
F   social conditions there are-quite different. The power of the State
    Govt. with regard to potable liquor was sustained in the dissenting
    judgment of Justice Hidayatullah in the case of Mis Guruswamy & Co.
    etc. v. State of Mysore & Ors., (1967] 1 SCR 548. It was, however,
    suggested that levies in the instant case are not duties of excise as
    understood in the said decision. For these reasons, Mr. Dholakia sub-
G   mitted that the Bombay Prohibition Act cannot be challenged.
    According to him, the relevant section of the said Act and the
    Denatured Spirit Rules, 1959 have to impose and advance the cause of
    prohibition while at the same time assuring a reasonable availability of
    Denatured Spirit and Rectified Spirit at reasonable prices.

H         Learned Advocate"General of the State of Andhra Pradesh has
      SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, l.J             669

also submitted in support of the imposition made under the A.P.
                                                                              A
Excise Act. He has referred us to the relevant definitions and sections
contending that the Act falls within the legislative competence of the
Andhra Pradesh State Legislature by virtue of entries 8 and 51 of list II
and entry 33 of list III of the 7th Schedule. He contended that the levy
of excise duty falls within entry 51 of list 11 of the 7th Schedule to the
Constitution inasmuch as the Andhra Pradesh Act received the assent           B
of the President and is a later enactment than the l.D .R. Act. The
provisions of the Andhra Pradesh Act, according to him, will prevail
over any earlier Central Law under Art. 254 of the Constitution. The
said Central legislation is enacted under entry 52 of list I. Learned
Advocate-General also insisted that there is no fundamental right in
the business of liquor; and that Rectified Spirit is nothing but alcohol
which can be diluted and rendered fit for human consumption by addi-          c
tions of certain substances. It can also be utilised for industrial
purposes as raw-material for manufacturing other products. This
multifarious user does not bring about any change in the essential
character of alcohol after distillation. In respect of these legislations,
learned Advocate-General submitted that even if such an assumption            D
were to be regarded as conceivable, State legislation has the predo-
minant effect prevailing over the Central Legislature in respect of the
State of A.P. in view of the assent by the President and the enactment
being later in point of time in accordance with Art. 254 of the Con-
stitution of India.
                                                                              E
      It was submitted that the dichotomy attempted to be drawn in
entry 84 of list I of the 7th Schedule to the Constitution, on the basis of
the development of the concept of industrial alcohol and the inapplica-
bility of the concept of potable liquor to the industry of alcohol is not
valid. There is no qnestion of fundamental right to trade in dangerous
or hazardous alcohol. It was submitted that it is consistent with wider       F
interpretation of alcoholic liquor based on pre-existing legislative
history. It was further submitted that the test of potability of liquor is
in no way rendered invalid in relation to industrial alcohol as it still
permits of conversion to potability by addition of flavours and dilu-
tion. When two interpretations are possible, it was submitted that the
choice must fall on that interpretation which validates existing State        G
legislations designed to raise revenues and rejection of the other
interpretation which is destructive of the scheme of distribution of
powers. According to him, the words 'alcoholic liquor' in lists I & II of
the 7th Schedule to the Constitution must be interpreted so as to mean
and take within its sweep alcohol as first obtained in the process of or
as a product ()f fermentation industry. At this stage, it is capable of       H
     670           SUPREME COURT REPORTS             [1989] Supp. 1 S.C.R.

A    being rendered potable. The fact that it may be rendered unfit for
     human consumption, does not render the substance any less liable for
     taxation.

            Learned Advocates-General for the States of Gujarat and
     Kerala have also made theii submissions, and referred to several deci-
B    sions and the concept of police power, and contended that imposition
     of a fee would be the most effective method of regulating intoxicating
     liquor other than alcohol. According to the Advocate-General of
     Kerala, that would be justified as the reasonable measure in regard to
     intoxicating liquor. According to him, it has been accepted by courts
     all along that the 'police power' of the State enables regulations to be
     made regarding manufacture, transport, possession and sale of into-
c    xicating liquor. Such police power could be exercised as to impose
     reasonable restrictions as to effectuate the power. He referred to the
     observations of this Court in Cooverjee B. Bharucha v. The Excise
     Commissioner and the Chief Commissioner, Ajmer & Ors., [1954] SCR
     873 which quoted the passage from Crowley v. Christensen, [1890] 34
D    Lawyers' Edn. 620. Reference was also made to Hari Shankar's case
     (supra) where this Court quoted Vol. 38 of the American Jurispru-
     dence where it was stated that the higher the fee is imposed for a
     licence, better is the regulation. Reliance was also placed on P.N.
     Kausha/'s case (supra). It was contended that it has been accepted by
     this Court that the police power is exercisable for regulation of an
E    activity of a legislature within the permissible field or impost as
     regulatory measure. It may be valid though it may neither be fee nor a
     tax in the limited sense of the term. See the observations of this Court
     in Southern Pharmaceuticals & Chemicals, Trichur & Ors. etc. v. State
     of Kera/a & Ors. etc., [1982] 1 SCR 519 at 537. Regarding regulatory
     measures in connection with medicinal preparations containing
F    alcohol it was observed by this Court that the impugned provisions had
     to be enacted to ensure that the Rectified Spirit is not misused under
     the pretext of heing used for toilet and medicinal preparations contain-
     ing alcohol. Such a regulation is a necessary concomitant of the police
     power of the State to regulate such trade or business which is inhe-
     rently dangerous to public health. The American doctrine of police
G    power is not perhaps applicable as such in India, but powers of the
     sovereignty to regulate as part of the i:iower of the competent legisla-
     ture to effectuate its aim are there.

           It is true that in the State of West Bengal v. Subodh Copa! Bose &
     Ors., [1954] V SCR 587 at 601-604 and Kameshwar Prasad & Ors. v
.H   The State of Bihar & Anr., [1962] 3 Suppl SCR 369 the concept of
      SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.]          671

police power was accepted as such, but this doctrine was not accepted
                                                                            A
in India as an independent power but was recognised as part of the
power of the State to legislate with respect to the matters enumerated
in the State and Concurrent Lists, subject to Constitutional limitations.
It was stated that the American jurisprudence of police power as dis-
tinguished from specific legislative power is not recognised in our Con-
stitution and is, therefore, contrary to the scheme of the Constitution.    B
In interpreting the provisions of our Constitution, we should go by the
plain words used by the Constitution-makers and the importing of
expression like 'police power', which is a term of variable and inde-
finite connotation, can only make the task. of interpretation more
difficult. It was contended that in enacting a law with respect to into-
xicating liquor as part of the legislative power measures of social con-
trol and regulation of private rights are permissible and as such may
                                                                            c
even amount to prohibition.

      We are of the opinion that we need not detain ourselves on the
question whether the States have police power or not. We must accept
the position that the States have the power to regulate the use of D
alcohol and that power must include power to make provisions to
prevent and/or check industrial alcohol being used as intoxicating or
drinkable alcohol. The question is whether in the garb of regulations a
legislation which is in pith and substance, as we look upon the instant
legislation, fee or levy which has no connection with the cost or
expenses administering the regulation, can be imposed purely as E
regulatory measure. Judged by the pith and substance of the impugned
legislation, we are definitely of the opinion that these levies cannot be ,
treated as part of regulatory measures. In this view of the matter we do
not detain ourselves with examining the numerous American decisions
to which our attention was drawn by learned counsel very elaborately
and thoroughly.                                                             F

      We recognise power of the State to regulate though perhaps not
as emanation of police power, but as an expression of the sovereign
power of the State. But that power has its limitations. We have noted
the submissions made to this effect by the learned Advocates-General
of different States, including the Stae of Gujarat. Some of the G
interveners have also made the submissions. We have considered the
submissions made by M/s. Kantilal & Co. as interveners in respect of
the Constitutional validity of the Bombay Prohibition Act as amended
by the Bombay Prohibition (Gujarat Amendment) Act, 1978. We
have also the advantage of the submissions made on behalf of
Advocate-General of Madhya Pradesh by Mr. R.B. Datar. He submit- H
     672            SUPREME COURT REPORTS              [1989] Supp. 1 S.C.R.       >.



A    ted that the substance of the case put forward by the petitioners and/or
     appellants, is that the vend fee in respect of industrial alcohol is not a
     fee for any services rendered, it is a compulsory exaction of money.
     The answer to the question posed lies not in the labels used, according
     to Mr. Datar for describing the commodity in question. It lies in the
     examination of the chemical reality of the substance. He says that no
B    process of interpretation can alter the law of chemistry or the chemical
     structure of the substance described in common parlance as industrial
     alcohol or potable alcohol, or alcohol for human consumption. He
     referred us to Organic Chemistry and other books but, as mentioned
     before, the meanings must be found but in the conditions as these are.

         On behalf of State of U .P. Mr. Trivedi, learned Additional
c Advocate-General further submitted that entry 52 of list I is an excep-
  tional entry. It not only prescribes the field of legislation but also
  enables and empowers the Parliament to make laws to the exclusion of
  the State. According to him, being exclusionary in nature unlike
  entries merely delineating fields of legislation, entry 52 has to be
D strictly and, therefore, narrowly construed. The other question that
  has to be judged, according to him, is that whenever the Constitution
  intended the Parliament to assume legislative competence in respect of
  the entire field, a declaration of an unqualified nature is provided for,
  unlike a qualified provision like entry 52 of list I. The words 'control'
  and 'regulation' are at times, held to be interchangeable or used
E synonymously, their use in the .various entries either singly or jointly,
  indicates that they are sougbt to convey a different sense. The word
  'control' has in the context, a narrower meaning, excluding details of
  regulatory nature by the State. According to him, comparing entries 7,
  23, 24, 27, 62, 64 & 67 of list I with entry 52, would demonstrate that
  under entry 52 it is not the entire field which is sougbt to be covered
F but only the control of industries; and that the absence of inclusion of
  q ualifyin;; words like 'the control of which' cannot be brushed aside.
  By referring to the several decisions, he contended that in view of the
  declaration made in s. 2 of the l.D.R. Act and the provisions made
  therein the entire field was not occupied and the vend fee or other
  impost by the State Legislatures were not infringing in the field treaded
G by the Central Legislature.
           Before we deal with the contentions of the petitioners/appel-
     lants, it is necessary to reiterate the principles by which these questions
     will have to be judged.                                          ·

 H         It is well to remember that the meaning of the expressions used
       SYNTHETICS CHEMICALS v. STATE OF U.P. IMUKHARJI, J.]               673

  in ihe Constitution must be found from the language used. We should
                                                                                 A
  interpret the words of the Constitution on the same principle of
  interpretation as one applies to an ordinary law but these very princi-
  ples of interpretation compel one to take into account the nature and
  scope of the Act which requires interpretation. A Constitution is the
  mechanism under which laws are to be made and not merely an Act
·which declares what the law is to be. It is also well-settled that a            B
  Constitution must not be construed in any narrow or pedantic sense
  and that construction which is most beneficial to the widest possible
  amplitude of its power, must be adopted. An exclusfonary clause in
  any of the entries should be strictly and, therefore, narrowly cons-
  trued. No entry should, however, be so read as not to rob it of entire
  content. A broad and liberal spirit should, therefore, inspire those
  whose duty it is to interpret the Constitution, and the courts are not         C
  free to stretch or to pervert the language of an enactment in the
  interest of any legal or constitutional theory. Constitutional adjudica-
  tion is not strengthened by such an attempt but it must seek to declare
  the law but it must not try to give meaning on the theory of what the
  law should be, but it must so look upon .a Constitution that it is a living    D
  and organic thing and must adapt itself to the changing situations and
  pattern in which it has to be.interpreted. It has also to be borne in mind
  that where division of powers and jurisdiction in a federal Constitution
 "is the scheme, it is desirable to .read the Constitution in harmonious
  way. It is also necessary that in deciding whether any particular enact-
  ment is within the purview of one Legislature or the other, it is the pith     E
  and substance of the legislation in question that has to be looked into:
  It is well-settled that the various entries in the three lists of the Indian
  Constitution are not powers but fields of legislation. The power to
 legislate is given by Art. 246 and other Articles of the Constitution.
 The three lists of the 7th Schedule to the Constitution are legislative
  heads or fields of legislation. These demarcate the area over which the        F
  appropriate legislatures can operate. It is well-settled that widest
  amplitude should be given to the language of the entries in three lists
  but some of these entries in different lists or in the same list may
  override and sometimes may appear to be in direct conflict with each
  other, then and then only comes the duty of the court to find the true
  intent and purpose and to examine the particular Legislation in ques-          G
  lion. Each general word would be held to extend to all ancillary or
  subsidiary matters which can fairly and reasonably be comprehended
  in it. In interpreting an entry it would not be reasonable to import any
  limitation by comparing or contrasting that entry with any other in the
  same list. It has to be interpreted as the Constitution must be
  interpreted as an organic document in the light of the experience              H
    674            SUPREME COURT REPORTS              [1989] 5upp. 1 S.C.R.

    gathered. ln the Constitutional scheme of division of powers under the
A   legislative lists, there are separate entries pertaining to taxation and
    other laws. The aforesaid principles are fairly well-settled by various
    decisions of this Court and other courts. Some of these decisions have
    been referred to in the decision of this Court in civil appeal No. 62(N)/
    70-The India Cement Ltd. etc. v. The State of Tamil Nadu etc.,
B
          The Balsara's case (supra) was in the context of the business of
    potable alcohol. Problems arose with regard to auctions, vends, li-
    cences and the business of manufacturing, selling, etc. of potable
    alcohol. Until the case of Synthetics & Chemicals (supra), which is
    under challenge here, all other cases since then have dealt with potable
    alcohol. The only case which has dealt with alcohol used for industrial
c   purposes was the case of Indian Mica and Micanite Industries Ltd. v.
    State of Bihar & Ors., (supra). The Constitution of India, it has to be
    borne in mind, like most other Constitutions, is an organic document.
    It should be interpreted in the light of the experience. It has to be
    flexible and dynamic so that it adapts itself to the changing conditions
D   and accommodates itself in a pragmatic way to the goals of national
    development and the industrialisation of the country. This Court
    should, therefore, endeavour to interpret the entries and the powers in
    the Constitution in such a way that it helps to the attainment of indis-
    puted national goals, as permitted by the Constitution. As mentioned
    hereinbefore, the relevant entries in the Seventh Schedule to the Con-
E   stitution demarcate legislative fields and are closely linked and supple-
    ment one another. In this connection, reference may be made to entry
    84 of list I which deals with the duties of excise on tobacco and other
    goods manufactured or produced in India except, inter alia, alcoholic
    liquors for human consumption. Similarly, entry 51, list II is the
    counterpart of entry 84 of list I so far as the State List is concerned. It
F   authorises the State to impose duties of excise on alcoholic liquors for
    human consumption and opium, etc. manufactured or produced in the
    State and the countervailing duties at the same or lower rates on simi-
    lar goods produced or manufactured elsewhere in India. It is clear that
    all duties of excise save and except the items specifically excepted in
    entry 84 of list I are generally within the taxing power of the Central
G   Legislature. The State Legislature has power, though limited it is, in
    imposing duties of excise. That power is circumscribed under entry 51
    of list II of the Seventh Schedule to the Constitution. As we have
    noted hereinbefore, the correct principles of harmonious interpreta-
    tion of legislative entries have been laid down in several cases. We
    have mentioned hereinbefore some of the decisions as noted in the
H   decision of this Court in India Cement (supra). In M.P. V. Sundarara-
      SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.)           675

mier & Co. v. State of A.P., [1958] SCR 1422 at pages 1480-82, this         A
Court has laid down that-

           (i) legislative entries are to be liberally construed. But
     when a topic is governed by two entries, then they have to be
     reconciled. It cannot be that one entry is to be liberally construed
                                                                            B
     and the other entry is not to be liberally construed.

           (ii) under the Constitutional scheme of division of powers
     under legislative lists, there are separate entries pertaining to
     taxation and other laws. A tax cannot be levied under a general"
     entry.
                                                                            c
           (iii) a Constitution is an organic document and has to be so
     treated and construed.

           (iv) if there is a conflict between the entries, the first
     principle is to reconcile them. But the Union power will prevail D
     by virtue of Article 246(1) & (3). The words ''notwithstanding"
     and "subject to" are important and give primacy to the central
     legislative power.

      In the Central Provinces and Berar Sales of Motor Spirit and
Lubricants Taxation Act, 1938, [1939] FCR 18 at 37-38, the Federal
Court had emphasised that Constitution of a Government is a living E
and organic thing which of all instruments has the greatest claim to be
so construed as to make it live. In Indian Mica & Micanite India v.
State of Bihar, (supra), a bench of five Hon'ble Judges stated as under:

           "Under the 1935 Act as under our present Constitution,
           the power to levy duties on alcoholic liquor fit for human F
           consumption was allocated to the provincial legislature
         · whereas the power to levy duty on alcoholic liquor not fit
           for human consumption was allocated to the central
           legislature."

      In the aforesaid case, an impost was sought to be placed on G
denatured spirit which was used in the manufacture of micanrte. It was
held that the impost could not be justified as a tax, under the taxing
power and therefore, an enquiry was ordered to find out whether it
was justified as a fee.

     In Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P)                H
    676           SUPREME COURT REPORTS              [1989] Supp. 1 S.C.R.

A  Ltd. and Ors. v. Union of India, [ 1963] 3 SCR 957, at pages 966, 969,
   975, 976 of the report, it was observed by this Court that only the
   Central Government has the power to tax liquids containing liquor
   which was an ayurvedic medicine even though such medicines were
  -capable of being used as intoxicating things. In Mis Guruswamy & Co.
   etc. v. State of Mysore & Ors., [1967] 1 SCR 548 at pages 549, 556,
B 557, 564, 571, 572 of the report, it was held that it is clear that imposts
   which were not in the nature of excise duty were held to be ultra vires
   entry 51 of list II of the Seventh Schedule to the Constitution. In State
   of Mysore v. S.D. Cawasji & Co. & Ors., [1971] 2 SCR 799 at pp. 804,
   805 and 806 of the report, this Court rejected the contention that
   under entry 8 of list II of the Seventh Scheduly to the Constitution the
   State was competent to legislate for levy of cess in respect of "into-
c xicating liquor" that is to say, the production, manufacture, transport,
   purchase ana sale of intoxicating liquors. Legislative power normally
   includes all incidental and subsidiary powers, but the power to tax is
   neither incidental nor subsidiary to the power to legislate on a matter
   or topic. Reference was made to M.P. V. Sundararamier's case
D (supra). Entries in lists I and II, dealing with certain specific topics, it
   was held, do not grant power to levy tax on transactions relating to
   those topics. Power to tax must be derived from a specific taxing entry.
   Tax could not, therefore, be levied, ii was held on intoxicating liquors
   relying upon entry 8 of list II of te 7th Schedule. It was further held
   that the taxing power in respect of alcoholic liquors for human con-
E  sumption   is, therefore, circumscribed and it might only be levied as
   excise duty, that is a duty levied on the production and manufacture of
   alcoholic liquors. Reliance was placed on R.C. Jail v. Union of India,
   [ 1962] Supp. 3 SCR 436.

          In Om Prakash v. Giriraj Kishore, [1986] 1SCR149 at pages 158
F   and 163 of the report, Venkataramiah J., as the learned Chief-Justice
    then was, held that no tax can be levied in the guise of a fee. It was
    held at p. 158 of the report as follows:

                 "As observed in M.P. V. Sundararamier & Co. v. The State·
                 of Andhra Pradesh & Anr., [1958] SCR 1422, in list II of
G                the Se.venth Schedule to the Constitution Entries 1 to 44
                 form one group mentioning the subjects on which the
                 States can legislate and entries 45 to 63 in that list form
                 another group dealing with taxes that may be levied by
                 States. Entry 64 refers to offences against laws with respect
                 to any of the matters in List II and Entry 65 refers to
H                jurisdiction of Courts. Entry 66 em~owers the State to levy
      SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.J             677

            fees in respect of any of the matters in List II. Unless the A
            cess in question can be brought under any of the Entries
            from 45 to 63 it cannot be levied as a tax at all."

      It was further observed at p. 163 of the report as follows:

            ,-,It is constitutionally by impermissible for any State Govern- B
            ment to collect any amount which is not strictly of the
            nature of a fee in the guise of a fee. If in the guise of a fee
            the legislation imposes a tax it is for the Court on scrutiny
            of the scheme of the levy to determine its real character. If
            on a true analysis of the provisions levying the amount, the
            Court comes to the conclusion that it is, in fact, in the c
            nature of a tax and not a fee, its validity can be justified
            only by bringing it under any one of the entries in list Il of
            the Seventh Schedule to the Constitution under which the
            State can levy a tax."

      It has to be borne in mind that by common standards ethyl               D
alcohol (which has 95%) is an industrial alcohol and is not fit for
human consumption. The petitioner and the appellants were manufac-
turing ethyl alcohol (95%) (also known as rectified spirit) which is an
industrial alcohol. ISi specification has divided ethly alcohol (as
known in the trade) into several kinds of alcohol. Beverage and indust-
rial alcohols are clearly and differently treated. Rectified spirit for       E
Industrial purposes is defined as "spirit purified by distillation having a
strength not less than 95% of volume by ethyl alcohol". Dictionaries
and technical books would show that rectified spirit (95%) is an indust-
rial alcohol and is not potable as such. It appears, therefore, that
industrial alcohol which is ethyl alcohol (95%) by itself is not only
non-potable but is highly toxic. The range of spirit of potable alcohol is    F
from country spirit to whisky and the Ethyl Alcohol content varies
between 19 to about 43 per cent. These standards are according to the
ISi specifications. In other words, ethyl alcohol (95%) is not alcoholic
liquor for human consumption but can be used as raw material input
after processing and substantial dilution in ihe production of Whisky,
Gin, Country Liquor, etc. In many decisions, it was held that rectified       G
spirit is not alcohol fit for human consumption. Reference may be
made in this connection to Delhi. Cloth and General Mills Co. Ltd. v.
 The Excise Commissioner, U.P. Allahabad and Anr. Special Appeal
No. 177 of 1970, decided on 29th March, 1973. In this connection, it is
important to bear in mind the actual provision of entry 8 of list IL
Entry 8 of list II cannot support a tax. The above entry contains the         H
    678           SUPREME COURT REPORTS               [1989] Supp. 1 S.C.R.

    words "intoxicating liquor". The meaning of the expression "into-
A   xicating liquor" has been ;ightly interpreted by tbe Bombay High
    Court in the Balsara's case (supra). The decision of the Bombay High
    Court is reported in AIR 1951 Bombay 210, at p. 214. In that light,
    perhaps, the observations of Fazal Ali, J. in Balsara's case (supra)
    requires consideration. It appears that in the light of the new expe-
B   rience and development, it is necessary to state that "intoxicating
    liquor" must mean liquor which is consumable by human being as it is
    and as such when the word "liquor" was used by Fazal Ali, J., they did
    not have the awareness of full use of alcohol as industrial alcohol. It is
    true that alcohol was used for industrial purposes then also, but the full
    potentiality of that user was not then comprehended or understood.
    With the passage of time, meanings do not change but new experiences
c   give new colour to the meaning. In Har Shankar's case (supra), a
    bench of five judges have surveyed the previous authorities. That case
    dealt with the auction of the right to sell potable liquor. The position
    laid down in that case was that tbe State had the exclusive privilege or
    right of manufacturing and selling liquor and it had the power to hold
D   public auctions for granting the right or privilege to sell liquor and that
    traditionally intoxicating liquors were the subject matters of State
    monopoly and that there was no fundamental right in a citizen to carry
    on trade or business in liquor. All the authorities from Cooverji
    Barucha's case (1954) SCR 673 to Har Shankar's case (supra) dealt
    with the problems or disputes arising in connection witb the sale,
    auction, licensing or use of potable liquor.
E
           Only in two cases the question of industrial alcohol had come up
    for consideration before this Court. One is the present decision which
    is under challenge and the other is the decision in Indian Mica &
    Micanite Jndustries's case (supra). In the latter case, in spite of the
    earlier judgments including Bharucha's case, denatured spirit required
F
    for the manufacture of micanite was not regarded as being within the
    exclusive privilege of the State. It appears that in that decision at p. 321
    of the report, it was specifically held that the power of taxation with
    regard to alcoholic liquor not fit for human consumption, was within
    the legislative competence of central legislature. The impost by the
    State was held to be justifiable only if it was a fee thereby impliedly
G
    and clearly denying any consideration or price for any privilege. For
    the first time, in the Synthetics & Chemicals Ltd. 's case (supra), the
    concept of exclusive privilege was introduced into the area of indust-
    rial alcohol not fit for human consumption.

H         Balsara's case (supra) deal with the question of reasonable restr-
      SYNTHETICS CHEMICALS v. STATE OF U.P. [MUKHARJI, J.j              679

iction on medicinal and toilet preparations. In fact, it can safely be said   A
that it impliedly and sub-silentio clearly held that medicinal and toilet
preparations would not fall within the exclusive privilege of the State.
If they did there was no question of striking down of section 12 (c) &
(d) and section 13(b) of the Bombay Prohibition Act, 1949 as un-
reasonable under Article 19(1)(f) of the Constitution because total
prohibition of the same would be permissible. In K.K. Narula's case           B
(1967) 3 SCR 50, it was held that there was right to do business even in
potable liquor. It is not necessary to say whether it is good law or not.
But this must be held that the reasoning therein would apply with
greater force to industrial alcohol.

      Article 47 of the Constitution imposes upon the State the duty to C
endeavour to bring about prohibition of the consumption except for
medicinal purpose of intoxicating drinks and products which are inju-
rious to health. If the meaning of the expression "intoxicating liquor"
is taken in the wide sense adopted in Balsara's case, it would lead.to an
anamolous result. Does Article 47 oblige the State to prohibit .even
such industries as are licensed under the IDR Act but which D
manufacture industrial alcohol? This was never intended by the above
judgments or the Constitution. It appears to us that the decision in the
Synthetics & Chemicals Ltd.'s case (supra) was not correct on this
aspect.

      Reference in this connection may be made to the decision in             E
Inspector of Taxes v. Australian Mutual Provident Society, [1959] 3 All
England Law Report 245, at p, 256 of the report, Lord Denning in his
dissenting judgment observed as follows:
                                                                    -
             "My Lords, I ask myself: What authority is to be given in
             these circumstances to the decision of this House in 1947? F
             Is it to be followed from step to step regardless of conse-
             quences? Are we to hold that the tax under r,_3 is a tax on
             the profits of the business for all purposes, including the
             purposes of the Double Taxation Agreement, which this
             House never had in mind at all? I think not. The doctrine of
           . precedent does not compel your Lordships to follow the G
             wrong path until you fall over the edge of the cliff. As soon
             as you find that you are going in the wrong direction, you
             must at least be permitted to strike off in the right direc-
           . tion, even if you are not allowed to retrace your steps. And
             that is that I would ask your Lordships to do. I would invite
             your Lordships to say that the decision of this House in H
    680           SUPREME COURT REPORTS             [ 1989) Supp. 1 S.C.R.

A               1947 has no application to the meaning of the wo~d "pro-
                fits'' in the Double Taxation Agreement."

          Justice Jackson in his dissent in the case of Commonwealth of
    Massachusetts Et Alv. USA, 92 Lawyers, Edition p. 968 also upheld the
    right to set right what was said wrongly in the past.
B
           It was submitted that the activity in potable liquor which was
     regarded safe and exclusi\'e right of the state in the earlier judgments
     dealing with the potable liquor were sought to be justifiable under the
     police power of the State,- i.e., the power to preserve public health,
    morals; etc. This reasoning can never apply to industrial alcohol
c    manufactured by industries which are to be developed in the public
    int~rest and which are being encouraged by the State. In a situation of
    this nature, it is essential to strike a balance and in striking the ba-
    lance, it is difficult to find any justification for any theory of any
    exclusive right of a State to deal with industrial alcohol. Restriction
     valid under one circumstance may become invalid in changing cir-
D    cumstances·. Reference may be made to the observations of Justice
     Brandeis in Nashiville, Chattangooga & St Louis Railway v. Herbert
    S. Walters, 79 Lawyers Edition 949. See also Leo Nebbia v. People of
    the State of New York, 78 Lawyers' Edn. 940 at p. 941. Similar is the
    effect of the approach of this Court in Motor General Traders & Anr.
    etc. v. State of Andhra Pradesh & Ors. etc., [1984) 1SCR594.
E
           It is not necessary for us here to say anything on the imposts on
    potable alcohol as commonly understood. These are justified by the
    lists of our legislature practised in this country-see the observations
    of Hidayatullah J. as the Cliief Justice then was, in Mis duruswamy v.
    State of Mysore, [1967) 1 SCR 548 at· p. 573-574 and other decisions
F   mentioned hereinbefore.

          In that view of the matter, it appears to us that the relevant
    provisions of the U.P. Act, A.P. Act, Tamil Nadu Act, Bombay Pro-
    hibition Act, as mentioned hereinbefore, are unconstitutional in so far
    as these purport to levy a tax or charges imposts upon industrial
G   alcohol, namely alcohol used and useable for industrial purposes.

           Having regard to the principles of interpretation and the Con-
    stitutional provisions, in the light of the language used and having
    considered the impost and the composition of industrial alcohol, and
    the legislative practice of this country, we are of the opinion that the
n   impost in question cannot he justified as State iinposts as these have
      SYNTHETICS CHEMICALS v. STATE OF U.P. IMUKHARJI, l.]              681

been done. We have examined the different provisions. These are not
                                                                           A
merely regulatory. These are much more than that. These seek to levy
imposition in theif pith and substance not as incidental or as merely
disincentives but as attempts to raise revenue for States' purposes.
There is no taxing provision permitting these in the lists in the field of
industrial alcohol for the State to legislate·.
                                                                           B
      Furthermore, in view of the occupation of the field by the IDR
Act, it was not possible to levy this impost.

       After 1956 amendment to the IDR Act bringing alcohol indus-
tries (under fermentation industries) as item 26 of the First Schedule to
IDR Act the control of this industry has vested exclusively in the
Union. Thereafter, licences to manufacture both potable and non-               c
potable alcohol is vested in the Central Gov'ernment. Distilleries are
manufacturing alcohol under the Central Licences under IDR Act. No
privilege for manufacture even if one existed, has been transferred to
the distilleries by the State. The State cannot itself manufacture indust-
rial alcohol without the permission of the Central Government. The             D
States cannot claim to pass a right which these do not possess. Nor can
the States cla_im exclusive right to produce and manufacture industrial
alcohol which are manufactured under the grant of licence from the
Central Government. Industrial alcohol cannot upon coming into
existence under such grant be amenable to States' claim of exclusive
possession of privilege. The State can neither rely on entry 8 of list II      E
nor entry 33 of list III as a basis for such a claim. The State cannot
claim that under entry 33 of list III, it can regulate industrial alcohol as
a product of the scheduled industry, because the Union, under section
18G of the IDR Act, has evinced clear intention to occupy the whole
field. Even otherwise sections like section 24A and 24B of the U.P.
Act do not constitute any regulation in respect of the industrial alcohol      F
as product of the scheduled industry. On the contrary, these purport to
deal with the so-called transfer of privilege regarding manufacturing
and sale. This power, admittedly, has been exercised by the State
purporting to act under entry 8 of list JI and not under entry 33 of list
III.
                                                                               G
      The position with regard to the control of alcohol industry has
undergone material and significant change after the amendment of
1956 to the IDR Act. After the amendment, the State is left with only
the following powers to legislate in respect of alcohol:

            (_a) it may pass any legislation in the nature of prohibition      H
    682            SUPREME COURT REPORTS              [ 1989] Supp. 1 S.C.R.

          of potable liquor referable to entry 6 of list II and regulating
A
          powers.

               (b) it may lay down regulations to ensure that non-potable
          alcohol is not diverted and misused as a substitute for potable
          alcohol.
B
                (c) the state may charge excise duty on potable alcohol and
          sales tax under entry 52 of list II. However, sales tax cannot be
          charged on industrial alcohol in the present case, because under
          the Ethyl Alcohol (Price Control) Orders, sales tax cannot be
          charged by the state on industrial alcohol.
c                (d) however, in case State is rendering any service, as dis-
          tinct from its claim of so-called grant of privilege, it may charge
          fees based on quid pro quo. See in this connection, the observa-
          tions of India Mica's case (supra).

D         On an analysis of the various Abkari Acts and Excise Acts, it
    appears that various Provinces/States reserve to themselves in thier
    respective States the right to transfer exclusive or other privileges only
    in respect of manufacture and sale of alcohol and not in respect of
    possession and use. Not all but some of States have provided such
    reservation in their favour. The price charged as a consideration for
E   the grant of exclusive and other privileges was generally regarded as an
    excise duty. In other words, excise duty and price for privileges were
    regarded as one and the same thing. So-called provilege was reserved
    by the State mostly in respect of country liquor and not foreign liquor
    which included denatured spirit.                                          ·

F         On an analysis of the aforesaid decisions and practice, we are
    clearly of the opinion that in respect of industrial alcohol the States are
    not authorised to impose the impost they have purported to do. In that
    view of the matter, the contentions of the petitioners must succeed and
    such impositions and imposts must go as being invalid in law so far as
    industrial alcohol is concerned. We make it clear that this will not
G   affect any impost so far as potable alcohol as commonly understood is
    concerned. It will also not affect any imposition of levy on industrial
    alcohol fee where there are circumstances to establish that there was
    quid pro quo for the fee sought to be imposed. This will not affect any
    regulating measure as such.

H         We must, however, observe that these imposts and levies have
         SYNTHETICS CHEMICALS v. STATE OF U.P. [OZA, J.]            683

been imposed by virtue of the decision of this Court in Synthetics & A
Chemicals Ltd. 's case (supra). The States as well as the petitioners and
manufacturers have adjusted their rights and their position on that
basis except in the case cif State of Tamil Nadu. In that view of the
matter, it would be necessary to state that these provisions are
declared to be illegal prospectively. In other words, the respondents
states are restrained from enforcing the said levy any further but the B
respondents will not be liable for any refund and the tax already
collected and paid will not be refunded. We prospectively declare
these imposts to be illegal and invalid, but do not affect any realisa-
tions already made. The writ petitions and the appeals are disposed of
accordingly. The review petitions, accordingly, succeed though strictly
no grounds as such have been made out but in the view we have taken,
the decision in the Synthetics & Chemicals .Ltd.'s ~supra) cannot be       c
upheld. In the view we have taken also, it is not necessary to decide or
to adjudicate if the levy is valid as to who would be liable, that is to·
say, the manufacturer or the producer or the dealer.

      With regard to writ petition No. 4051/78 (Chemicals & Plastics       D
India Ltd. v. State of Tamil Nadu), certain orders were passed by this
Court on 1st November, 1978, 1st September, 1986, 1st October, 1986
and 10th October, 1986. It is stated that the present demand of the
Central Excise Department from 1st March, 1986 on alcohol
manufactured by the company in their captive distillery is over Rs.4
crores. This Court by its order dated .1st OC!ober, 1986 as confirmed E
on the 16th October, 1986 had permitted the State Government to
collect the levy on alcohol manufactured in company's captive distil-
lery subject to adjustment of equities and restrained the central excise
authorities from collecting any excise duty on such alcohol. It is, there-
fore, necessary to declare that in future no further realisation will be
made in respect of this by the State Government from the petitioners. p
So far as the past realisations made are concerned, we direct that this
application for that part of the direction, should in accordance with
our decision herein be placed before a division bench for disposal upon
notice both to the State Government and the Central Government.

   , In the facts and the circumstances of the case, the parties will G
bear and pay their own costs.

      OZA, J. While I agree with my learned brother Hon. Mukharji,
J. as regards the conclusions but l would like to add the following
reasons.
                                                                           H
      In these matters the main question that arise for consideration is
    684           SUPREME COURT REPORTS              [ 1989] Supp. 1 S.C.R.

A about the validity of the levies made by the respondent States on
    Alcohol which is utilised by the industries for manufacturing the
    products where Alcohol is the raw material. Some of these industies
    themselves manufacture Alcohol as they have their own distilleries
    and from their distilleries through pipelines it goes to their industrial
    units where this is used as a raw material whereas some are industries
B   which purchase Alcohol or denatured spirit on being allotted by the
    Government. It is alleged that in addition to excise duty levied by the
    Central Government, excise duty and various levies in various names
    like vend fee, transport fee and others numbering about eight levies
    are imposed by the State Government. The main contention on behalf
    of the industries is that the State Legislature has no authority in view
c   of Entry 84 of List I read with Entry 51 of List II to impose such levies.
    This being Alcohol which does not fall within the ambit of "Alcoholic
    liquors for human consumption". It is only the Centre which has the
    authority under Entry 84 of List I to tax. Entry 51 of List II authorises
    the State Legislature to impose a tax on "Alcoholic liquors for human
    consumption.''
D
          It is further contended that Entry 8 in List II which talks of
    intoxicating liquors only authorises the State Legislature to enact laws
    to regulate but does not empower the State Legislature to impose any
    levy and the various levies which have been imposed by the State
    Legislature on industrial alcohol and even Mithylated spirit could not
E   be brought within the ambit of regulatory duties for purposes of regu-
    lation only and therefore could not be justified under Item 8 of List II.

          It was also contended that the State ultimately falls back on the
    consideration for parting with the privilege to seil alcoholic liquors
    which has been the basis of series of decisions of this Court based on
F   English and American decisions but according to the learned counsel
    for the petitioners this doctrine of privilege and consideration for sale
    of privilege also could be available to the State only in respect of
    alcohol or alcoholic liquors which are for human consumption.
    According to the learned counsel by merely widening the definition of
    intoxicating liquors in respective excise laws enacted by the State the
G   ambit of authority of taxation could not be enlarged by the State
    Legislature when in List II Item 51 the words used are Alcoholic
    liquors for human consumption. Entry 84 in List I reads:

                "84. Duties of excise on tobacco and other goods
                manufactured or produced in India except-
H
         SYNTHETICS CHEMICALS v. STATE OF U.P. (OZA, J.]            685

            (a) alcoholic liquors for human consumption.                   A

            (b) opium, Indian hemp and other narcotic drugs and
            narcotics,

            but including medicinal and toilet preparations containing
            alcohol or any substance included in sub-paragraph (b) of B
            this entry."

      Entry 51 in List II reads:

            "51. Duties of excise on the following goods manufactured
            or produced in the State and countervailing duties at the C
            same or lower rates on similar goods manufactured or pro-
            duced elsewhere in India:

            (a) alcoholic liquors for human consumption;

            (b) opium, Indian hemp and other narcotic drugs and D
            narcotics;

            but not including medicinal and toilet preparations contain-
            ing alcohol or any substance included in sub-paragraph (b)
            of this entry."
                                                                           E
      A comparison of the language of these two entries clearly
demonstrates that the powers of taxation on alcoholic liquors have
been based on the way in which they are used as admittedly alcoholic
liquor is a very wide term and may include variety of types of alcoholic
liquors but our Constitution makers distributed them into. two heads:
                                                                           F
      (a) for human consumption

      (b) other than for human consumption

Alcoholic liquors which are for human consumption were put in Entry
51 List II authorising the State Legislature to levy tax on them whereas G
alcoholic liquors other than for human consumption have been left to
the Central Legislature under Entry 84 for levy of duty of exise. This
scheme of these two entries in List I and II is clear enough to indicate
the line of demarcation for purposes of taxation of alcoholic liquors.
What has been excluded in Entry 84 has specifically been put within
the authority of the State for purposes of taxation.                     H
     686            SUPREME COURT REPORTS               [ 1989] Supp. 1 S.C.R.

           Entry 8 in List 2 reads:
A.
                 "8. Intoxicating liquors, that is to say, the production,
                 manufacture, possession, transport, purchase and sale of
                 intoxicating liquors."

B    This Entry talks of intoxicating liquors and further on refers to produc-
     tion, manufacture, possession, transport, purchase and sale of these
     liquors. It appears that the State has levied some kind of duties in
     various names at each of these stages used in this Entry i.e. produc-
     tion, manufacture, possession, transport, purchase and sale. But from
                                                                                     •
     the scheme of entries in the three lists it is clear that taxing entries have
     been specifically enacted conferring powers of taxation whereas other
c    entries pertain to the authority of the Legislature to enact laws for
     purposes of regulation. Ifwe compare Entry 8 in List II with entry 51 it
     is clear that when Entry 51 authorises the State Legislature to levy tax
     and duties on alcoholic liquors falling in Entry 51, Entry 8 confers
     authority on the State Legislature to enact laws for regulation. Sirni-
o    larly are Entries in List I. As regards regulation or regulatory fees it
     was contended that Entry 52 in List I empowers the Parliament to
     declare the industries which the Union proposes to control in public
     interest under Industries Development and Regulation Act.

           Entry 52 List I reads as under: .
E
                 "52. Industries, the control of which by the Union is
                 declared by Parliament by law to be expedient in the public
                 interest.''

            Such a declaration is made by the Parliament and this industry
J1   i.e. industry based on fermentation and alcohol has been declared to
     be an industry under that Act and therefore is directly under the con-
     trol of the Centre and therefore even in respect of regulation the
     authority of the State Legislature in Entry 8 List II could only be
     subject to the Industries Development and Regulation Act or Rules
     made by the Centre.
G
           Under these circumstances therefore it is clear that the State
     Legislature had no authority to levy duty or tax on alcohol which is not
     for human consumption as that could only be levied by the Centre.


H
           The main emphasis it appears is that this duty on alcohol and
     alcoholic liquors is a substantial revenue of State and it appears that it
                                                                                     -
          SYNTHETICS CHEMICALS v. STATE OF U.P. 'OZA, J.J            687

was this obession which was reflected and demonstrated when this            A
concept of consideration for parting with privilege was invented by our
courts on the basis of some judgments from United States based on
some judgments from England and it is on this basis that all through
the States have been justifying their respective levies and duties on
alcohol and alcoholic beverages and overcome the test of reasonable-
ness, double taxation and of limitation as it being a consideration for     B
transfer of privilege it could be anything and no limits could be placed
thereupon.

      The main edifice of the argument on behalf of the State is that
the State has the sole privilege to deal with in Alcohol and alcoholic
substances. This, according to the arguments, is equally applicable to      c
alcohol for human consumption and also for denatured spirit or other
categories of alcoholic liquors which though may be described as not
for human consumption but arc potential substances which easily
could be converted as intoxicating liquors fit for human consumption.

       It is on this basis that the learned counsel appearing for the       D
States and the Advocate General of the States drew our attention to
various extracts of the text books on organic chemistry as it was con-
tended that there are so many types of alcohol known in the organic
chemistry of which ethyl alcohol is one which is used as a beverage
when diluted upto a particular percenta~e and also i; used for indust-
rial purposes in high concentration or sometimes denatured. The main        E
theme- of the argument was that ethyl alcohol which is a product of
distillation after fermentation is extracted in various concentrations
and can also be extracted in a very high concentration above 90 per-
cent which generally is termed as rectified spirit. It is not in dispute
that this high concentration of ethyl alcohol is a raw material for vari-
ous industries. Sometimes it is supplied after being mixed by Mithy-        F
lated alcohol or being denatured by other processes only to safeguard
against its use for conversion into alcoholic beverages for human con-
sumption. As it is well-known that when the ethyl alcohol is diluted by
water and its percentage is brought to 40 or 45 or below then it become
fit for human consumption and it was therefore argued that various
duties for purposes of regulation are imposed by the State itself to        G
prevent. the conversion of rectified spirit or mithylated alcohol to be
diverted from industrial to portable use.

      The basis of the privilege doctrine appears to be that alcoholic
drinks or intoxicating drinks are expected to be injurious to health and
therefore the trade in these commodities is described as obnoxious and      H
    688            SUPREME COURT REPORTS              (1989] Supp. 1 S.C.R.

A   therefore a citizen has no fundamental right under Article 19( l)(g) of
    the Constitution and therefore the trade in alcoholic drinks which is
    expected to be injurious to health and obnoxious is the privilege of the
    State alone and the State can part with this privilege on receipt of the
    consideration. This basis of the privilege doctrine has to be examined
    in the context of our Constitution especially Article 21 and Article 47.
B
           The concept of royal privilege has been derived historically from
    England as Great Britain continues to be a Monarchy with democracy.
    The Head of the State is the Crown. It was on these bases that what
    has not been provided for was supposed to be the privilege of the
    Crown but under Indian Constitution the Head of the State and the
c   three functionaries of the State, the Executive, the Legislature and the
    Judiciary have their powers defined under the Constitution. There is
    nothing like privilege vested in any one of the functionaries of the State
    and in the background of this basic feature of our Constitution the
    doctrine of privilege is difficult to reconcile with. If we examine this
    privilege of trading in commodities injurious to health and dangerous
D   to life in the context of Article 21 and Article 47 of our Constitution.

          Article 21 of the Constitution reads:

                "21. Protection of life and personal liberty-No person shall
                be deprived of his life or personal liberty except according
B               to procedure established by law."

    This Article casts a duty on the State to protect the life of every citizen
    except as is provided under Article 21. If we compare this duty of the
    State with the scheme of privilege which means that the State has a
    privilege to endanger human life (the life of a citizen) such a privilege
F   runs contrary to Article 21. Another significant article of our Constitu-
    tion is Article 47. It reads as under:

                "47. Duty of the State to raise the level of nutrition and
                the standard of living and to improve public health-The
                State shall regard the raising of the level of nutrition and
O               the standard of living of its people and the improvement of
                public health as among its primary duties and, in particular,
                the State shall endeavour to bring about prohibition of the
                consumption except for medicinal purposes of intoxicating
                drinks and of drugs which are injurious to health."

H   This Article appears in the Chapter of Directive Principles of State
         SYNTHETICS CHEMICALS v. STATE OF U.P. [OZA, J.]            689

Policy. Inclusion of this Article in this Chapter clearly goes to show
                                                                            A
that it is the duty of the State to do what has been enacted in Article 47
and in fact this Article starts with the phrase "Duty of the State" and
the duty is to improve public health and it is further provided that this
duty to improve public health will be di~charged by the State by
endeavouring to bring about prohibition. It sounds contradictory for a
State which is duty bound to protect human life, which is duty bound B
to improve public health and for that purpose is expected to move
towards prohibition claims that it has the privilege of manufacture and
sale of alcoholic beverages which are expected to be dangerous to
human life and injurious to human health, transferring this privilege of
selling this privilege on consideration to earn huge revenue without
thinking that this trade in liquor ultimately results in degradation of C
human life even endangering human life and is nothing but moving
contrary to the duty cast under Articles 21 and 47 and ideal of prohibi-
tion enshrined in Article 47. In view of articles 21 and 47 with all
respect to the learned Judges who so far accepted the privilege
doctrine it is not possible to accept any privilege of the State having the
right to trade in goods obnoxious and injurious to health.                  o
      The other stand of States to justify these levies is based on the
doctrine of police powers. The doctrine of police powers enunciated in
number of decisions of the American Courts and which has been the
subject matter of discussion by various authors in texts on jurispru-
dence as referred to in Indian context under our Constitution does not E
appear to be applicable. In the Constitution of U.S.A. basic factor
which must be kept in mind is: that various States after getting inde-
pendence from their European Masters came together to form a
Federal State and therefore what was not conceded to the Federal
State i.e. the residuary powers vested in the State and as it was not
conceded to the Federal Government that this residuary power of F
maintenance of law and order peace so essential for the development
in a civilised society was evolved as a doctrine of police powers vested
in the State. In India as the Constitution was enacted or was framed
after having the experience of various countries in the World, the
concept of fundamental rights and rights like life, liberty, procedure
established by law and various legislative functions which were divided G
between the States and the Union left no scope for any power except
which could be derived from any provision in the Constitution coupled
with an Entry in one of the three Lists which would indicate the power
vested in either ·the State or the Centre. Apart from it the scheme of
our Constitution is that there are no residuary powers which vest in the
State and the scheme of our Consti(!1tion also reveals that in case of H
     690          SUPREME COURT REPORTS               [1989) Supp. 1 S.C.R.

A   any conflicts it is the Centre which prevails and not the State and
    therefore trying to apply the doctrine of police powers which has been
    conceived of in the American decisions which the Government of a
    State in the United States and to apply it to a State under Indian
    Constitution, will only mean to do violence to the scheme of our Con-
    stitution. What police powers have been enunciated under the Ameri-
B   can .Constitution clearly will fall within the ambit of Articles 19, 21, 22
    and respective entries in the Schedule of the Constitution. In fact,
    under our Constitution no powers could be conceived for which there
    is no provision in any one of the entries in the three Lists or which
    could not be justified under any specific Article of the Constitution.
    Thus even this concept of the doctrine of police powers could not be of
    any help to justify the levies imposed by the State on alcohol or al-
c   coholic liquors.

         These questions about the privilege and the doctrine of police
   powers in fact would be material to be considered when the question
   about the various levies imposed by the State in respect of alcoholic
D  beverages   is considered and so far as the present cases are concerned
  .which pertain to only alcoholic liquors which are not for human con-
   sumption i.e. which are meant for industrial use. The only question
   will be as to whether the State could justify the respective levies under
   any of the entries in List II. The main theme of the argument on behalf
   of the States has been that they have imposed levies because the al-
E cohol which is not for human consumption is a commodity which could
   be easily converted into alcoholic liquors for human consumption and
   therefore the levies have been imposed assuming that it is for human
   consumption or in other words the contention has been that these
   levies have been imposed in order to prevent the conversion of
   alcoholic liquors which are not for human consumption to those which
F  are  for human consumption. A contention therefore was suggested
   that these levies could be justified as regulatory fees although it was
   frankly conceded that although the revenue earned out of it is substan-
   tial and may not be justifiable as fees but have been imposed and it was
   therefore that the main theme on behalf of the respondents has been
   based on the doctrine of the privilege of the State to trade in these
u  commodities     as that trade is considered to be obnoxious and injurious
   to public health.

         In our opinion, therefore as far as the present case is concerned
    the State in exercise of powers under Entry 8 of List II and by
    appropriate law regulate and that regulation could be to prevent the          ._
H   conversion of alcoholic liquors for industrial use to one for human
              SYNTHETICS CHEMICALS v. STATE OF U.P. [OZA, J.]         691

     consmnpt10n and for purpose of regulation, the regulatory fees only A
     could be justified. In fact, the regulation should be the main purpose,
     the fee or earning out of it has to be incidental and that is why the
     learned counsel appearing for the State attempted to use this terminio-
     logy by saying that the purpose is regulation,Jhe earnings are inciden-
     tal but frankly conceded that in fact the earnings are substantial. In
                                                                              B
     fact in some of the excise laws in the States they have even used
     terminiology relying on the doctrine of privilege and parting with
     privilege but in my opinion it is not necessary tor us to go into those
     questions in greater detail as we are not here concerned with the· trade
     in alcoholic liquors meant for human consumption and therefore in
     view of clear demarcation of authority under various items in the three
     Lists, Entry 8 List II could not be invoked to justify the levies which c
     have been imposed by the State in respect of alcoholic liquors which
     are not meant fo human consumption.

     N.P.V.                                   Petitions & Appeals allowed.
                                                                                  '


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