Holding

Rectified spirit intended for industrial use is under exclusive Union control, while rectified spirit cleared for potable liquor production is under exclusive State control, with the Union retaining only the power to permit establishment of distilleries.

Summary

The petitioners, a Bihar distillery licensed under the Bihar Excise Act to manufacture industrial alcohol (rectified spirit), challenged the State’s notice of cancellation of its licence, contending that licensing and control of such distilleries fall exclusively within the Union’s competence under the Industries (Regulation and Development) Act, 1951. The Court examined the constitutional distribution of powers under Entries 8 and 51 of List II, Entry 84 of List I, Entry 52 of List I and Entry 33 of List III, and the meaning of “intoxicating liquor” and “alcoholic liquors for human consumption”. It held that rectified spirit intended solely for industrial use is under the exclusive control of the Union, whereas rectified spirit cleared for potable liquor production is under the exclusive control of the State, with the Union retaining the power to permit establishment of distilleries. Accordingly, the State may levy excise duty, regulate, and cancel licences for distilleries whose output is destined for potable liquor, while the Union controls those supplying only industrial alcohol. The petition was dismissed and the cancellation notice was to be dealt with in accordance with the clarified division of powers.

Issues considered

The constitutional competence of the Union versus the State to grant, renew or cancel licences for distilleries manufacturing rectified spirit
Whether rectified spirit intended for industrial use falls under Union control or State control
The meaning and scope of “intoxicating liquor” (Entry 8, List II) and “alcoholic liquors for human consumption” (Entry 84, List I)
The applicability of the Industries (Regulation and Development) Act, 1951 and its Schedule to the alcohol industry
The power to levy excise duty on rectified spirit cleared for industrial versus potable purposes

Legislation cited

Bihar and Orissa Excise Act, 1915

Subjects

Constitutional lawDivision of powersUnion‑State legislative competenceExcise dutyRectified spiritIndustrial alcoholIntoxicating liquorIDR ActLicensingEntry 8 List IIEntry 51 List IIEntry 84 List IEntry 52 List IEntry 33 List III

Judgment

A BIHAR DISTILLERY AND ANR. +,;
v.
~
UNION OF INDIA AND ORS.

JANUARY 20, 1997

B [B.P. JEEVAN REDDY AND SUJATA V. MANOHAR, JJ.]

Constitution of India, 1950 : Articles 246, 254 and Schedule VII List I -,.
Entry 52, 84, List II Entry 6, 8, 24, 51 and List III Entry 33.

Alcohol-Rectified spirit--lndustries engaged in production, supply and
c distlibution of-Respective spheres of control of Union and State Govern-
ments Scope of relevant legislative entries-Held: industlies engaged in the
manufacture of rectified spirit exclusively for obtaining or manufacturing
potable liquors shall be under total and exclusive control of State Govern-
ments from the moment it was cleared/removed for that purpose from the ••
D distille1y - those engaged in manufacture of rectified spirit exclusively for
supply to industries which were not engaged in obtaining or manufacturing of
_.,
potable liquor shall be under total and exclusive control of Union-But in
case of industries engaged in manufacture of rectified spirit for obtaining or
manufacturing potable liquor as well as supplying it to industries, excise duty
on rectified spirit, removed/cleared for the fonner purposes shall be levied by
E State Government concerned, while that for the latter shall be levied by the ·
Union-How ever, the power to permit establishment and regulation of
functioning of the distillery shall be exclusively vested in the Union-The
power to take necessary steps to ensure against misuse or diversion of rectified
spilit meant for industrial pwposes to potable purposes shall vest in the State
- Industries (Regulation and Development) Act, 1951-Bihar and Orissa ~
F Excise Ac~ 1915.
Words and Phrases:

''Alcoholic liquors for human consumption"-Meaning of--ln the con-
text of Ent1y 84 List I of the Seventh Schedule of the Constitution of India,
G 1950.
"Intoxicating liquors''-Meaning of-In the context of Entry 8 List II of
the Seventh Schedule to the Constitution of India, 1950. .-
)...

The petitioner was a distillery licensed to manufacture industrial
H alcohol and was getting its licence renewed under the provisions of the
680
BIHAR DISTILLERYv. U.O.I. 681

> ;... Bihar and Orissa Excise Act, 1915. The authorities of the State proposed A
to cancel the petitioner's license for certain reasons assigned by them. The
petitioner objected to it on the ground that the grant and cancellation of
licence in respect of a distillery manufacturing rectified spirit was within
the exclusive province of the Central Government and that the State
Government had no say in the matter. With this contention the petitioner
B
. filed the present writ petition before this Court saying that it was licensed
to manufacture and manufactured only 'industrial alcohol' and no other
alcohol or liquors.

Disposing of the petition, this Court
c
HELD : 1.1. Entry 51 in List II and Entry 84 in List I of the Seventh
Schedule to the Constitution of India, 1950 compliment each other. The
relevant expression is "alcoholic liquors for human consumption" which is
included in Entry 84 in List I. The words employed denote that there may
be alcoholic liquors meant for human consumption as well as for other
D
., ..> purposes. Entry 8 in List II employs the expression "intoxicating liquors"
which express.ion is, of course, not. qualified by words "for human con-
sumption". Entry 8, it is necessary to emphasize, places all aspects of
intoxicating liquors within the State's sphere; production, manufacture,
possession, transport, purchase and sale of intoxicating liquors is placed
within the exclusive domain of the States. Entry 6, which inter alia speaks E
of "public health", is relevant only for the reason that it furnishes a ground
for prohibiting consumption of intoxicating liquors. Regarding Entry 33
in List III, the language of clause (a) thereof is significant. Even though
control of certain industries may have been taken over by the Union by
-i
~· virtue of a declaration made by Parliament in terms of Entry 52 in List I, F
yet the "trade, commerce in, and the production, supply and distribution
of the products" of such industry is placed in the concurrent field, which
in the present context means that though the control of alcohol industry
is taken over by the Union, trade, commerce in and the production, supply
and distribution of the products of alcohol industry can be regulated both
by the Union and the States subject, of course, to Article 254. It also means G
that insofar as the field is not occupied by the laws made by Union, the
... States are free to legislate. (691-C-H, 692-A-C] .
...
1.2. In the matter of industries mentioned in List II, Entry 24 in List
II is in the nature of general entry. It speaks of industries but is made H
682 SUPREME COURT REPORTS [1997] 1 S.C.R.
A expressly subject to entries 7 and 52 in List I. By making a declara~ion in
terms of Entry 52 in List I in Section 2 of the Industries (Regulation and
Development) Act, 1951, the Parliament has taken control of the several
industries mentioned in the Schedule to the Act. The States have been
denuded of their power to legislate with respect to those industries on that·
account. Entry 52 over-rides only Entry 24 in List II and no other Entry
B in List II. In view of the express language of Entry 8 in List II so far as
potable liquors are concerned, their manufacture, production, possession,
transport, purchase and sale is within the exclusive domain of the States
and the Union of India has no say in the matter. [692-D, 693-C]

C State of A.P. v. McDoweli, [1996] 3 SCC 709 and State of U.P. v.
Synthetics and Chemicals Ltd., [1991] 4 SCC 139, relied on.

2. The decision in Synthetics did not deal with the aspects, which are
arising for consideration herein, and that it was mainly concerned with
D industrial alcohol, i.e., denatured rectified spirit. While holding that rec·
tified spirit is industrial alcohol, it recognised at the same time that it -<
could be utilised for obtaining country liquor (by diluting it) or for
manufacturing I.M.F.Ls. When the decision says that rectified spir.it with
95% alcohol content v/v is "toxic", what it meant was that if taken, as it is,
it is harmful and injurious to health. By saying "toxic" it did not mean that
E it cannot be utilised for potable purposes either by diluting it or by
blending it with other items. The undeniable fact is that rectified spirit is
both industrial alcohol as well as liquor, which can be converted into
country liquor just by adding water. It is also the basic substance from
which I.M.F.Ls. are made. (Denatured rectified spirit, of course, is wholly
F and exclusircly industrial alcohol). The line of demarcation can and
should be drawn at the stage of clearance/removal of the rectified spirit.
Where the removal for industrial purposes (other than the manufacture
of potable liquor), the levy of duties of excise and all other control shall
be of the Union but: where the removal/clearance is for obtaining or
manufacturing potable liquors, the levy of duties nf excise and all other
G control shall be that of the States. This calls for a joint control and
supervision of the process of manufacture of rectified spirit and its use
and disposal. [699·G·.ff, 700-A·B, 701-B·C] -...

Synthetics and Chemicals Ltd. v. State of U.P., [1990] 1 SCC 109, held
H inapplicable.
BIHAR DISTILLERY v. U.O.L 683
Tika Ramji v. State of U.P. [1956] SCR 393, relied on. A
State of U.P. v. Synthetics and Chemicals Ltd. [1980] 2 SCR 531; Vam
.... Organic Chemicals Ltd. v. State of U.P., WP (C) No. 16782 of 1990 decided
on 9-9- 1991; Vam Organic Chemicals Ltd. v. State of U.P., [1997] Vol. II
SCC 715 and Corporation of Calcutta v. Liberty Cinema, [1965] 2 SCR 477,
referred to. B

3. In view of the above, the following principles are laid down:

(1) So far as industries engaged in manufacturing rectified spirit
meant exclusively for supply to industries (industries other than those
engaged in obtaining or manufacture of potable liquors), whether after c
denaturing it or without denaturing it, are concerned, they shall be under
the total and exclusive control of the Union and be governed by the l.D.R
Act and the rules and regulations made thereunder. Where the entire
rectified spirit is supplied for such industrial purposes, or to that extent it
is so supplied, as the case may be, the levy of excise duties and all other
D
., -~ control including establishment of distillery shall be that of the Union. The
power of the States in the case of such an industry is only to see and ensure
that rectified spirit, whether in the course of its manufacture or after its
manufacture is not diverted or misused for potable purposes. They can
make necessary regulations requiring the industry to submit periodical
statements of raw material and the finished product (rectified spirit) and E
are entitled to verify their correctness. Far this purpose, the States will also
be entitled to post their staff in the distilleries and levy reasonable
regulatory fees to defray the cost of such staff. [701-D-F]

--1 (2) So far as industries engaged in the manufacture of rectified spirit
exclusively for the purpose of obtaining or manufacturing potable liquors F
- or supplying the same to the State Government or its nominees for the
said purpose- are concerned, they shall be under the total and exclusive
control of the States in all respects and at all stages including the es tab-
lishment of the distillery. Where the entire rectified spirit produced is
supplied for potable purposes-or to the extent it is so supplied, as the case G
may be - the levy of excise duties and all other control shall be that of the
States. According to the State Governments, most of the distilleries fall
....
... under this category. [701-H, 702-A-B]
,
(3) So far as industries engaged in the manufacture of rectified spirit,
both for the purpose of (a) supplying it to industries (other than industries H
/

684 SUPREME COURT REPORTS [1997] 1 S.C.R.
A engaged in obtaining or manufacturing potable liquors/intoxicating li-
<1uors) and (b) for obtaining or manufacturing or supplying it to Govern-
ment/persons for obtaining or manufacturing potable liquors are
concerned, the following is the position: the power to permit the estab-
lishment and regulation of the functioning of the distillery is concerned, it
shall be the exclusive domain of the Union. But so far as the levy of excise
-
B duties is concerned, the duties on rectified spirit remove!lfcleared for supp-
ly to imlustries (other than industries engaged in obtaining or manufactur-
ing potable liquors), shall be levied by the Union while the duties of excise
on. rectified spirit cleared/removed for the purposes of obtaining or
manufacturing potable liquors shall be levied by the concerned State
C Government. The disposal, i.e., clearance and removal of rectified spirit in
the case of such an industry shall be under the joint control of the Union
and the concerned State to ensure no evasion of excise duties on rectified
spirit removed/cleared from the distillery. It is obvious that in respect of
these industries too, the power of the States to take necessary steps to ensure
against the misuse or di\'ersion of rectified spirit meant for industrial pur-
·D poses (supply to industries other than those engaged in obtaining or
manufacturing potable liquors) to potable purposes, both during and after
the manufacture of rectified spirit, continues unaffected. Any rectified spirit
supplied, diverted or utilised for potable purposes, i.e., for obtaining or
manufacturing potable liquors shall be supplied to and/or utilised, as the
E case may be, in accordance with the concerned State Exdse enactment and
the rules and. regulations made thereunder. If the State is so advised, it is
equally competent to prohibit the use, diversion or supply of rectified spirit
for potable purposes. [702-C-G]

(4) Tt is advisable • nay, necessary • that the Union Government
F makes necessary rules/regulations under the l.D.R. Act directing that no
rectified spirit shall be supplied to industries except after denaturing it
says lhose few industries (other than those industries which are engaged in
obtaining or manufacturing potable liquors) where denatured spirit cannot
b,e used for manufacturing llllrJ>oses. [702-H, 703-A]

G (5) So far as rectified spirit meant for being supplied to or utilised
for potable purposes is concerned, it shall be under the exclusiv~ control
of the States from the moment it is cleared/removed for that purpose from
the distillery · apart from other powers referred to above. The power to
pel'mit. the establishment of any industry engaged in the manufacture of
H potable li11uors including I.M.F.Ls., beer, country liquor and other in·
r- BIHAR DISTILLERY v. U.O.I. 685
toxicating drink!) is exclusively vested in the States. The power to prohibit A
and/or regulate the manufacture, production, sale, transport or consump-

.- tion of such intoxicating liquors is equally that of the States, as held in
McDowell. [703-B-C]

Shri Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. v. State of
Gujarat & Anr. [1992] 1 SCR 391; Gujchem Distilleries Ltd. v. State of B
Gujarat & Anr. [1992] 1 SCR 675 and State of A.P. v. McDowell & Co.,
. [1996] 3 sec 709, relied on.

CIVIL ORIGINAL JURISDICTION : Writ petition (C) No. 322 of
1996.
c
(Under Article 32 of the Constitution of India).

0
M.S. Usgaonkar, Additional Solicitor General, Harish N. Salve,
Shanti Bhushan, R. Santosh Hegde, M.S. Nargolkar, Rakesh Dwivedi,
Additional Advocate General, Bimal Kumar Sinha, Sarwa Mitter, KN. D
, __ >- Pandey, Ms. Charu Nirwari, Ashok Mathur, G.M. Kawosa, K.K. Saha, D.
Krishnan, J.R. Das, S. Hegde, Dilip Sinha, M.C. Dhingra, Ms. Kamakshi
Singh Mehlwal, Arvind Kr. Shukla, B.B. Singh, P. Mahale, D.M. Nargolkar,
Shivaji M. Jadhav, V. Krishnamurthy, K. Ram Kumar, Y. Subba Rao, C.
Balasubramaniam, Ms. Asha Nair, G. Prakash, Ms. Beena Prakash, Ms. A. E
Subashini, A. Ranganadhan, B.S. Chahar, Ashok Mathur, P.N. Misra, T.
Sridharan, Ashok K. Srivastava, Ms. Sushma Suri, A.K. Goel, Ashish
Kumar and Sri Kamlendra Mishra for the appearing parties.

The Judgment of the Court was delivered by
\ F
B.P. JEEVAN REDDY, J. Until the commencement of the constitu-
tion and for a few years thereafter, rectified spirit was mainly used for
the purpose of manufacturing country liquor, Indian Made Foreign
Liquors [I.M.F.L.) and other intoxicating drinks. Its use for industrial
purposes was not significant. The rapid pace of industrialization from G
mid-fifties onwards brought into existence several industries, which
required rectified spirit as one of their raw materials, with the result the
_____. demand of rectified spirit for industrial purposes went up substantially
,. and has been going up. Evidently, in recognition of this fact, did the
Union of India amend, in the year 1956, the Schedule to the Industries
[Regulation and Development] Act, 1951 including the alcohol industry H
1
686 SUPREME COURT REPORTS (1997] 1 S.C.R.

A therein.

Notwithstanding the aforesaid amendment of the Schedule to the
Industries [Regulation and Development] Act, 1951, the establishment
of a distillery, its working and the distribution and sale of the rectified
spirit produced by it continued to be regulated by the States as before,
-
B under various enactments in force in those States. Similar was the
position in the State of Bihar where the first petitioner-distillery is
located. As a matter of fact, right up to the year 1991-92, it was getting
its license renewed under the provisions of the Bihar Excise Act. The
original license itself was granted under the Bihar Act. In or about the
c year 1992, the authorities of the Bihar State proposed to cancel the
petitioner's license for certain reasons assigned by them. The petitioner
objected it on the ground that the grant and cancellation of license in
respect of a distillery manufacturing rectified spirit is the exclusive
provi_nce of the Government of India and that the State government had
D no say in the matter. With this contentipn has it approached this Court. /
It relies upon the seven-Judge Constitution Bench decision of this Court -.<._ •
in Synthetics and Chemicals Limited v. State of Uttar Pradesh, (1990] 1
S.C.C. 109. The petitioner says that it was licensed to manufacture and
manufactures only 'industrial alcohol' and no other alcohols or liquors.
E According to the division of legislative powers contained in the
seventh Schedule to the Constitution [relatable to Article 246], the power
to legislate on the subject of "industries" is assigned to the States. Entry 24
in List-II reads : "24. Industries subject to the provisions of Entries 7 and
52 of List-I".* Entries 7 and _52 in List-I, referred to in Entry 24 of List-II,
F read thus :

"7. Industries declared by Parliament by law to be necessary for the
purpose of defence or for the prosecution of war.

52. Industries, the control of which by the Union is declared by
•
G Parliament by law to be expedient in the public interest."

In the year 1951, the Parliament enacted the Industries (Develop-
ment and Regulation) Act, 1951 (I.D.R. Act). Section 2 contains a decla- >-
·~

Prior to C'.onstitution [Seventh Amendment] Act, 1956 only Entry 52 was referred to
H in this Entry. By the said Amendment Act, Entry 7 was also added.
r- BIHAR DISTILLERYv. U.O.l. [B.P. JEEVAN REDDY, J.] 687

ration in terms of Entry 52 of List-I. By virtue of this enactment, the Parlia- A
men! took over the control of the industries specified in the first Schedule
denuding the States of that power. In the year 1956, the Schedule to the I.D.R.
Act was amended, as stated hereinbefore, including inter alia Item 26. Item
26 reads : "26. Fermentation Industries : (i) alcohol; (ii) other products of
fermentation industries". As a matter of fact, however, the several State B
enactments continued to regulate the establishment, functioning and disposal
of rectified spirit and other product~ of these distilleries even after 1956.
Nobody ever questioned it until an industry, Synthetics and Chemicals Limited
[Synthetics] did so by way of writ petitions filed in the Allahabad High Court
in or about the years 1975-78. Synthetics was a licensee for the wholesale vend C
of denatured spirit**. It questioned the levy of vend fe.e on denatured spirit
imposed by the State of Uttar Pradesh under the provisions of the Uttar
Pradesh Excise Act and the Rules made thereunder. It contended that the
power to levy excise duty or tax on denatured spirit vested exclusively in the
Parliament and that the State was totally incompetent to levy the same. The
High Court rejected the contention holding, that the expression "intoxicating D
liquors" occurring in Entry 8 of List-II of the Seventh Schedule to the
Constitution took in its fold denatured spirit as well and, therefore, the State
had exclusive privilege to deal in denatured spirit. The matter was carried to
this Court whereinIt was contended that by virtue of Item 26 of the Schedule
to the I.D.R. Act, the Union has taken under its control the industries engaged E
in the manufacture of industrial alcohol and that the States have been denuded
of any power to deal with denatured spirit including the power to levy vend
fees. The contention was rejected by this Court (A.C. Gupta and P.S.
Kailasam, JJ.) as well, vide (1980) 2 S.C.R. 531. This Court referred inter
alia to the history of State Excise laws in this country and to the wide F
definition of 'liquor' in those enactments and observed that while enacting the
Government of India Act, 1935, the British Parliament must have been aware
of ·and must be deemed to have accepted the said wide definition [i.e.,
including non-potable liquors as well]. Synthetics was not satisfied with the
judgment. It filed a petition to review the same. Meanwhile, several other G
industrial units approached this Court by way of writ petitions raising conten-
.. Denatured spirit is rectified spirit. Denaturants are added to it to make it unfit for use
in manufacture of l.M.F.Ls., other intoxicating liquors or for diluting it to obtain
country liquor. Denaturing is not necessary for its use for industrial purposes. Indeed,
son1C industries cannot use denatured rectified spirit. But, by and large, rectified spirit
supplied to industries is denatured. H
I

688 SUPREME COURT REPORTS (1997] 1 S.C.R.
-"\
A tions similar to those rai>ed by Synthetics. The matter was referred to and
J. ,...
heard ultimately by a larger Constitution Bench of seven learned Judges whose
decision is reported in (1990) 1 S.C.C. 109. Sabyasachi Mukharj~ J. spoke for
himself, E.S. Venkataramiah, CJ., Ranganath Misra, B.C. Ray, KN. Singh and
S. Natarajan, JJ., while G.L. Oza, J. rendered a separate concurring opinion.
B This decision, reversing the deci~ion in [1980] 2 S.C.R. 531 and upholding the
contention of the writ petitioners, brought about a sea change in the thinking
on the subject. It held that the expression "intoxicating liquors" in Entry 8 of
List-II means and refers to only potable liquors and that the potability is
determined by the standards specified by I.S.I. (Indian Standards Institute),
C i.e., alcohol content not exceeding 43% v/v. Entry 51 of List-II was also
similarly held limited to potable liquors. The power of the States to legislate
in respect of liquors was held to be restricted to potable liquors alone. The
Court held further that "rectified spirit" (which expression was used interchan-
geably with the expression "ethyl alcohol" and "industrial alcohol") which is of
95% and above purity cannot be treated as a potable liquor and hence lies
D within the exclusive control of the Union by virtue of the l.D.R. Act. After
1956, the Court held, the power of the States is cammed to (1) making a law
prohibiting potable liquor and to regulate it, (2) laying down regulations to
ensure that non-potable alcohol is not diverted and mis-used for potable
purposes, (3) charging excise duty on potable alcohol and (4) to charge fees
E for rendering any service. (See para 86 at Page 158). The decision was
rendered on October 25, 1989.

When the present writ petition came up for admission before a Bench
comprising one of us (B.P. Jeevan Reddy, J.) and K.S. Paripoornan, J., it was
thought necessary to give notice to all the State governments and to the Union
F
of India in view of the peculiar nature of the problem arising herein. The order
made by the Bench on May 9, 1996, insofar as is relevant, reads thus :

"The question arising herein is a thorny one. It is also arising

G·
frequently. The decision of the larger Constitution Bench of this
Court in Synthetics & Chemicals Ltd. & Anr. v. State of U.P. & Ors.,
•
[1970) 1 SCC 109 calls for demarcation of the spheres of the Union
and the States particularly in the matter of alcoholic liquors. ·
Recently, this. Court has held in State of A.P. v. McDowell, JT
(1996) 3 SC 679 that so far as the intoxicating liquors/potable
H liquors are concerned, it is the exclusive province of the States.
~
BIHAR DISTILLERYv. U.O.I. [B.P. JEEVAN REDDY, J.] 689

. ~
But for manufacturing intoxicating liquors, or for manufacturing A
industrial alcohol as the case may be, one must have to manufacture
or purchase alcohol. It is only thereafter that the alcohol is either
converted into industrial alcohol (by denaturing it) or into potable
liquors by reducing the strength of alcohol (which is normally of
95% purity or above). Indeed, alcohol can be used for industrial
B
purposes even without denaturing it. Saying that States step in only
when alcohol becomes potable and not before it leaves a large
--"
enough room for abuse apart from difficulties of supervisi@n and
~
regulation. In the matter of licensing too, problems would arise, as
to who should licence such industry - whether the Center alone or
the States or both. Having regard to the importance of the question, c
we think that this is a proper case where notice should go to all the
States who will be heard on this question. The Union of India is
already a party to the writ petition."

Accordingly, notices have been issued to all the State governments. We
D
( have directed notice to learned Attorney General as well. We have heard Sri
_j·
Bimal Kumar Sinha, learned counsel for the writ petitioner, Sri Shanti
Bhushan for the State of West Bengal, Sri Rakesh Dwivedi, Additional
Advocate General for the State of Uttar Pradesh for Uttar Pradesh and Bihar,
Sri Santosh Hegde for the State of Karnataka, Sri M.S. Nargolkar for the State
of Maharashtra, Sri V. Krishnamurthy for the State of Tamil Nadu, Sri K Ram E
Kumar for the State of Andhra Pradesh, Sri G. Prakash for the State ofKerala,
Ms. Subhashini for the State of Goa, Sri P.N. Misra for the State of Orissa
and Sri T. Sridharan for the State of Hirnachal Pradesh. Sri M.S. Usgaonkar,
learned Additional Solicitor General appeared for the Union of India. We
.{ also requested Sri Harish N. Salve, who was appearing in the connected matter F
(Special Leave Petition (C) No. 9863/96 - involving inter alia the question at
issue herein) to address us on the general question which he has agreed
gracefully to do.

Let us fir.st notice the relevant entries in the Seventh Schedule to the
Constitution. Entry 6 in List-II deals with "Public Health and Sanitation; G
Hospitals and Dispensaries". Entry 8 reads : "Intoxicating liquors, that is
.--; to say, the production, manufacture, possession, transport, purchase and
sale of intoxicating liquors". Entry 24, which has already been referred to,
.reads: "24. Entries subject to the provisions of Entries 7 and 52 of List-I".
Entry 51, which is one of the taxing entries in List-II reads : H
690 SUPREME COURT REPORTS [1997] 1 S.C.R.

A ~'51. Duties of excise on the following goods manufactured or
_....._ _,...,
produced in the State and countervailing duties at the same or
lower rates on similar goods manufactured or produced elsewhere
in India:-

(a) alcoholic liquors for human consumption;
B
(b) opium, Indian hemp and other narcotic drugs and narcotics,

but not includin1~ medicinal and toilet preparations containing
alcohol or any substance included in sub-paragraph (b) of this
entry."
c
The last entry in List-II, viz., Entry 66 speaks of "fees in respect of any of
the matters in this List, but not including fees taken in any court."

Entries 7, 52 and 84 in List-I which alone are relevant herein read
thus:
D
"7. Industries declared by Parliament by law to be necessary for
the purpose of defence or for the prosecution of war.

52. Industries, the control of which by the Union is declared by
Parliament by law to be expedient in the public interest.
E
84. Duties of excise on tobacco and other goods manufactured or
produced in India except-

(a) alcoholic liquors for human consumption;

F (b) opium, Indian hemp and other narcotic drugs and narcotics, )
·-
but not including medicinal and toilet preparations containing
alcohol or any substance included in sub-paragraph (b) of this
entry."

G Entry 33 in List-III (Concurrent List) may also be noticed. It reads:

"33. Trade and Commerce in, and the production, supply and
distribution of, -

(a) the products of any industry where the control of such industry
by the Union is declared by Parliament by law to be expedient in
•

BIHARDISTILLERYv. U.O.I.(B.P.JEEVANREDDY,J.) 691

the public interest, and imported goods of the same kind as much A
products;

(b) foodstuffs, including edible oil seeds and oils;

(c) cattle fodder, including oilcakes and other concentrates;
B
(d) raw cotton, whether ginned or unginned, and cotton seed; and

(e) raw jute."

A reading of the above entries would immediately disclose that Entry
51 in List-II and Entry 84 in List-I compliment each other. Both provide C
for duties of excise but while the States are empowered to levy duties of
excise on (a) alcoholic liquors for human consumption and (b) opium,
Indian hemp and narcotics manufactured or produced in the State and
countervailing duties at the same or'lower rates on similar goods manufac-
.. tured or produced elsewhere in India (but excluding medicinal and toilet D
preparation containing alcohol or any substance included in sub-paragraph
(b) of this Entry), the Union is empowered to levy duties of excise on
tobacco and other goods manufactured or produced in India except (a)
alcoholic liquors for human consumption (b) opium, Indian hemp and
other narcotic including drugs and narcotics. Medicinal and toilet prepara-
tions containing alcohol or any substance included in sub-paragraph (b) E
which are excluded from Entry 51 in List-II are expressly included in this
Entry. For our purposes, the relevant expression is "alcoholic liquors for
human consumption" which is included in Entry 51 in List-II and excluded
from Entry 84 in List-I. The words employed denote that there may be
alcoholic liquors meant for human consumption as well as for other pur- F
poses. Now coming to Entry 8 in List-II, it does not use the expression
"alcoholic liquors for human consumption". It employs the expression
"intoxicating liquors" which expression is, of course, not qualified by words
"for human consumption". This is for the obvious reason that the very word
"intoxicating" signifies "for human consumption". Entry 8, it is necessary to G
emphasize, places all aspects of intoxicating liquors within the State's
sphere; production, manufacture, possession, transport, purchase and sale
of intoxicating liquors is placed within the exclusive domain of the States.
Entry 6, which inter alia speaks of "public health" is relevant only for the
reason that it furnishes a ground for prohibiting consumption of intoxicat-
ing liquors. Coming to Entry 33 in List-III, the language of clause (a) H
•

692 SUPREME COURT REPORTS (1997) 1 S.C.R.
A thereof is significant. Even though control of certain industries may have
been taken over by the Union by virtue of a declaration made by Parlia-
ment in terms of Entry 52 in List-I, yet the "trade, commerce in, and the
production, supply and distribution of the products" of such industry is
placed in the concurrent field, which in the present context means that
though the control of alcohol industry is taken over by the Union, trade
B
commerce in and the production, supply and distribution of the products
of alcohol industry can be regulated both by the Union and the States
subject, of course, to Article 254. It also means, as will be explained later,
that insofar as the field is not occupied by the laws made by Union, the
States are free to legislate.
c
In the matter of industries mentioned in List-II, Entry 24 in List-II
is in the nature of general entry. It speaks of industries but is made
expressly subject to Entries 7 and 52 of List-I. By· making a declaration in
terms of Entry 52 in List-I in Section 2 of the I.D.R. Act, the Parliament
D has taken control of the several industries mentioned in the Schedule to
the Act. The States have been denuded of their power to legislate with
respect to those industries on that account. It has, however, been held by
a three-Judge Bench of this Court in State of Andhra Pradesh v. McDowell
(1996) 3 SCC 709 that Entry 52 over-rides only Entry 24 in List-II and no
other Entry in List-II. It has been held that Entry 8 is not overridden or
E over-borne in any manner by Entry 52 - which means that so far as
intoxicating liquors are concerned, they are within the exclusive sphere of
the States. We may pause at this stage and append a clarification which
has become necessary in the light of certain words occurring in Para 85 of
the judgment of Sabyasachi Mukharji, J. in Synthetics**. At the inception
p of Para 85 of the said judgment, the following statement occurs :

"After the 1956 amendment to the IDR Act bringing alcohol
industries (under fermentation industries) as Item 26 of the Fjrst
Schedule to !DR Act the control of this industry has vested
exclusively in the Union. Thereafter, licences to manufacture both
G potable and non-potable alcohol is vested in the Central Govern-
ment. 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."

H
.. Whenever we refer to 11 Synthetics" hereafter, it would tnean the judginent of the
seven-Judge Constitution Bench reported in [1990) 1 S.C.C. .109.
BIHAR DISTILLERYv. U.O.I. [B.P. JEEVAN REDDY, J.] 693

It is obvious that the words "both potable and" occur here as .a result of A
some accidental or typographical error. The entire preceding discussion in the
judgment repeatedly affirms that so far as potable alcohols are concerned, they
are governed by Entry 8 and are within the exclusive domain of the States.
The aforesaid words cannot fit in with the said repeatedly affirmed reasoning.
We are, therefore, of the opinion that the said passage cannot be understood
B
a~ holding that even in respect of the industries engaged in the manufacture
or production of potable liquors, the control is vested in the Union by virtue
of Item 26 of the First Schedule to the I.D.R. Act. In view of the express
language of Entry 8 - as has been clearly explained in McDowell - so far as
potable liquors are concerned, their manufacture, production, possession,
transport, purchase and sale is within the exclusive domain of the States C
and the Union of India has no say in the matter. For a similar clarification
.. with respect to the power of the State to levy sales tax on industrial alcohol,
reference may be had to State of Uttar Pradesh v. Synthetics and Chemicals
Limited, [1991) 4 S.C.C. 139.
o~
The several State Governments, to whom notices have been given,
have responded. Some of them have filed very elaborate counters setting
out their case. The first and foremost contention urged on their behalf is
that rectified spirit is "intoxicating liquor" within the meaning of Entry 8 of
List-II. In other words, their contention, based upon the ratio in McDowell,
is that rectified spirit is "intoxicating liquor" within the meaning of Entry 8 E
of List-II and hence, outside the purview of Entry 24 of of List-II, which
in turn means that the Union cannot take over its control by making a
declaration in terms of Entry 52 of List-I and further that Item 26 of the
Schedule to the I.D.R. Act is ineffective and invalid insofar as it seeks to
. regulate the production, manufacture et al of rectified spirit. In support of F
their submission, they have relied upon the legislative history of the several
State enactments in India apart from a wealth of material including tech-
nical data. they submit that the decision to the contrary in Synthetics is not
correct and requires reconsideration. They have also assigned several
reasons why the holding in Synthetics insofar as the meaning of "intoxicating
liquor" is concerned should be held to be obiter. They submitted that in the G
interests of maintaining the balance between the Centre and the States and
...... to preserve the federal nature of our Constitution - which is one of its basic
features - the matter must be referred to a larger Bench to consider the
correctness of Synthetics. They submitted that the relevant words in Entry
51 of List-II and Entry 84 of List-I are "alcoholic liquors for human H
~
\

694 SUPREME COURTR.EPORTS (1997] 1 S.C.R.
consumption" and not "alcoholic liquors fit for human consumption". They .A .~

A complained with a good amount of emotion that the decision in Synthetics_
reads the word "fit" into the said entries and makes it a basis for curtailing
the legislative power of the States. There is no warrant for such addition,
they submitted. In addition to the above submissions, the following facts
are stated in the affidavit filed on behalf of the State of Uttar Pradesh: the
B reduction process of converting rectified spirit into country liquor involves
mixing of water and stirring. By adding water, the alcoholic content is
reduced to 35% v/v to make it country liquor. Adding of spices is optional. -"':""
Rule 45 of the Uttar Pradesh Excise Rules defines the expression "reduc-
tion of liquor". According to the definition, it means "tli.e reduction of
c liquor from a higher to a lower strength by the addition.of water". Mere
mixing of water, it is submitted, makes rectified spirit country liquor. On
this basis too, it is submitted, rectified spirit is really and essentially an
intoxicating liquor and merely because water is required to be added to
make it country liquor, it does not cease to be intoxicating liquor. By way
D of analogy, it is submitted that even the whiskies and brandies are not
ordinarily consumed as such but only after mixing water or soda, Addition '-.,,
of water or soda, it is submitted, does not change the character of whisky
or brandy either. It is next submitted that bulk of rectified spirit manufac-
tured in J.Jttar Pradesh is used for the purpose of obtaining country liquor
or I.M.F.Ls. Only a small quantity is used for industrial purposes. Having •
E
regard to the predominant used to which rectified spirit is put, it is
submitted, it must be understood as intoxicating liquor. The adding of
denaturants is only with a viiew to ensure that the rectified spirit is not used
for potable purposes. Yet another submission put forward by the State of
Uttar Pradesh is that even during the course of manufacture of rectified
F \.....
spirit, potable liquor comes into existence. It is submitted that the main
raw material for rectified spirit is molasses. The process of manufacture is
elaborately set out, supported by technical literature. The samples taken
from certain distilleries by the Excise staff and the result of the analysis of
the said samples is also relied upon. It is submitted that the process of
G manufacture of rectified spirit involves increasing the alcoholic content by
repeatedly processing it. The alcoholic content keeps on rising from stage
to stage. It is submitted that at several intermediary stages, the liquor can
be taken out and used for drinking purposes, whether as it is or after mixing .,...
;-.-~

water, as the case may be. Sri ·Rakesh Dwivedi, learned Additional Advo-
H cate General for the State of Uttar Pradesh, placed strong reliance upon
BIHAR DISTILLERYv. U.O.I. [B.P. JEEVAN REDDY, J.] 695

the reasoning and conclusions in the judgment of the Allahabad High A
Court in Vam Organic Chemicals Limited v. State of Uttar Pradesh, Writ
Petition (C) No. 16782 of 1990 dated September 9, 1991, which, it is
brought to our notice by written submissions, has since been affirmed by
this Court in Civil Appeal No. 230of1997 decided on January 21, 1997 by
a Bench consisting of the Hon'ble Chief Justice and Sen, J.
B
On the other hand, it is submitted by the learned counsel for the
petitioner and Sri Salve that there are no good and valid reasons for
doubting the correctness of the decision in Synthetics or for referring the
issue to a larger Constitution Bench of nine or more Judges. The accep-
tance of the States' submission would make Item 26 in the Schedule to the C
I.D .R. Act superfluous and meaningless. The decision in Sy11thetics, Sri
Salve submitted, has correctly drawn the dividing line between the respec-
tive spheres of the Union and the States and there is no good reason to
doubt its correctness. Learned counsel took us through the judgment of
Sabyasachi Mukharji, J. at considerable length to emphasise his submission D
-·;, that what all is urged now was indeed urged before the larger Bench and
considered. The law laid down after an elaborate consideration of submis-
sions made by several parties and several State governments cannot and
need not be reopened, urged Sri Salve. The learned counsel for the
petitioner submitted that the petitioner-factory is engaged in the manufac- E
ture of industrial alcohol alone and that the rectified spirit manufactured
by it is not allowed to be moved out except after denaturing it.

Sri Usgaonkar for the Union of India took the stand that the decision
in Syl!thetics lays down the law correctly and that the powers of the States
are only those as are specified therein. F

Inasmuch as strong reliance is placed by the learned Additional

- Advocate General for the State of Uttar Pradesh on the decision of a
Division Bench of the Allahabad High Court in Writ Petition 16782 of 1990
disposed of on September 9, 1991 [rendered by one of us, B.P. Jeevan G
Reddy, as the Chief Justice of that Court], it is necessary to notice the
relevant reasoning and the findings in the said judgment in view of the fact
that the same have been affirmed by this Court. The High Court first dealt
with the factual situation on the basis of the pleadings and material placed
before it and recorded the following finding, which it repeatedly affirmed, H
696 SUPREME COURT REPORTS [1997] 1 S.C.R.

A was central to the entire reasoning and conclusion in that judgment.

"Ethyl alcohol, which is also called rectified spirit, the alcoholic
content of which is 95% VIV, can be used both as an industrial' -
alcohol and also for obtaining country liquor and other liquors.
Even without denaturing it, rectified spirit can be used for in-
B dustrial purposes. But it is not correct to say that ethyl alcohol/rec-
tified spirit can be used only for industrial purposes and for no
other purpose. As stated by the respondents, just by mixing water
with it, it becomes country liquor and is sold and taxed as such by
the State. Further, it can also be used as a raw material for
c producing Indian made foreign liquors (IMFL), wines, rums etc.
Denaturing is insisted upon by the State with a view to ensure that
a particular quantity of rectified spirit/ethyl alcohol is not misu'sed
or diverted for being utilised for human consumption, viz. either
for obtaining country liquor or for manufacturing IMFLs, wines
D etc. Once denatured, the rectified spirit/ethyl alcohol cannot be·
used either for obtaining country liquor or for manufacturing
IMFLs, wines, etc. unless, of course, it is re-natured again."

Referring to the decision of this Court in Synthetics, the High
E Court made the following observations :

"It must, however, be made clear that in the said decision, the
distinction between ethyl alcohol/rectified spirit as such and dena-
tured spirit was not in issue, nor was it considered. It was generally
mentioned that ethyl alcohol/rectified spirit containing 95% al-
F cohol VIV is an industrial alcohol. As we have pointed out
hereinabove, even without denaturing, such ethyl alcohol/rectified
spirit can be used for industrial purposes ...... The distinction, which
is brought out in this case, was not in issue before the Supreme

G
Court in Synthetics and Chemicals (main judgment). It, therefore, ...
. cannot be said that the Supreme Court has ruled, as a matter of
law, that any arid every rectified spirit/ethyl alcohol is an industrial
alcohol."

At a later stage, the Bench dealt with the distinction between
.H regulatory fees and fees for services rendered with reference to the
.
'
,.l
I

BIHAR DISTILLERYv. U.0.1. [B.P.JEEVAN REDDY,J.] 697
~ "'- decision of this Court in Corporation of Calcutta v. Liberty Cinema, [1965] A
2 S.C.R. 477 and held, that in the case of regulatory fees the State is not
bound to prove quid pro qilo.

Yet another finding recorded by the High Court is that by virtue of
enactment of the 1.D .R. Act (after insertion of Item 26 aforementioned)
the State is not totally denuded of any power to. make a law with respect
B
to rectified spirit or for that matter industrial alcohol. After noticing Entry
33 of List-III in the Seventh Schedule, Section 18-G read with other
provisions of I.D.R. Act and the Rule (made-Oy the State Excise authority)
concerned therein, the High Court observed :
c
"All this discussion is for the purpose of establishing that by virtue
of the l.D.R. Act, the State Legislatures are not completely and
totally deprived of the power conferred upon them by Entry 24 of
List II, but that the deprivation is only partial, viz., to the extent
indicated in the ID R Act. This discussion is equally relevant for
_)..· D
the purpose of determining whether the field indicated by Entry
33 of List III has been totally occupied by Parliament or whether
any field is still left unoccupied for the State Legislature to make
a law. Entry 33, it may be reiterated, empowers both Parliament
,. and State Legislatures to make a law with respect to trade and
commerce in products of any industry included in the first schedule E
to the IDR Act. The said entry further empowers both Parliament
and State Legislatures to make a law with respect to production,
supply and distribution of the products of such industry. Rectified
_,,,~'I spirit is, without a doubt, a product of an industry specified in the
first schedule to the ID R Act. If so, both the Parliament and State F
Legislatures can make a law with respect to the production, supply
and distribution of products of such industry. By virtue of Section
18-G of the ID R Act, the State Legislature cannot, of course, make
a law regulating the supply and distribution of and/or trade and
commerce in such products for securing the equitable distribution
and availability at fair prices of such product; such an order can G

.........
be made only by the Central Government under that Section, but
in other respects, the field is open for the State Legislatures."

Relying upon the holding in Tika Ramji v. State of Uttar Pradesh,
[1956] S.C.R. 393, the High Court observed that "the possibility of an order H
698 SUPREME COURT REPORTS [1997) 1 S.C.R.

A under Section 18-G being issued by the Central Government would not be
enough. The existence of such an order would be the essential pre-requisite
before any repugnancy could ever arise". It was held that the rule made by

B
the State and Section 18-G of the I.D.R. Act "operate on different fields"
and not even on cognate fields if examined applying the doctrine of pith
and substance.
I
,The reasoning in·the said judgment has been approved by this Court
m all respects in its judgment dated January 21, 1997. The following
observations in the judgment dated January 21, 1997 in Civil Appeal No.
230 o(,,1997
'
are apposite :
c "This Court dealt with the question of legislative competence of
the State to impose tax or levy on industrial alcohol.in the case of
Synthetic Chemicals v. State of U.P., [1990) 1 S.C.C. 109 = [1989)
Supp. 1 SCR 623 and ruled in the negative. The High Court took
the view that the distinction between ethyl alcohol/rectified spirit
D as such and denatured spirit was not in issue, nor was it considered
in that judgment and held that this Court cannot be said to have
ruled that every rectified spirit/ethyl alcohol is industrial alcohol.
The High Court reiterated that once denatured, the alcohol be-
comes exclusively industrial alcohol since it cannot be used for
E obtaining country liquor or for manufacturing IMFLs and said that
it is to ensure that ethyl alcohol meant for industrial use is not
misused or diverted for human consumption that impugned regula-
tion is provided for by the State and further that the regulation
being part of general regulation of the trade in alcohol in the
interest of public health is relatable to Entries 6 & 8 of List-II."
F
At a later stage, the learned Chief Justice, speaking for the Bench,
observed:

"A careful reading of that judgment (Synthetics) shows that the Court
G was folly aware of the fact that rectified spirit was the ingredient for
intoxicating liquor or alcoholic liquor for human consumption although
rectified spirit/ethyl alcohol as well as denatured spirit are referred to as
'industrial alcohol' in that judgment. This Court did not hold that the State
will have no power whatsoever in relation to 'industrial alcohol'."

H This Court observed further :
BIHAR DISTILLERYv. U.0.1. [B.P. JEEVAN REDDY, .T.] 699

"It is to be noticed that the States under Entries 8 and 51 of List-II A
read with Entry 84 of List-I have exclusive privilege to legislate on
intoxicating liquor or alcoholic liquor for human consumption.
Hence, so long as any alcoholic preparation can be dive1ted to
human consumption, the States shall have the power to legislate as
also to impose taxes, etc."
B
(Emphasis added)

The decision also affirms the reasoning and conclusion of the High
Court .on the inter-play of the l.D.R. Act and the rule impugned therein in
the context of Entry 33 of List-III, referred to hereinbefore. 0Ve may say C
that this aspect has been kept in mind by us while demarcating hereinafter
the respective spheres of the Union and the States in the matter of control
over production and disposal of rectified spirit.) The learned Chief Justice
also relied upon the earlier decision of this Court in McDowell, and in
particular upon the following holding therein : D

"It follows from the above discussion that the power to make a law·
with respect to manufacture and production and its prohibition
(among other matters mentioned in Entry 8 in List-II) belongs
exclusively to the State Legislatures. Item 26 in the First Schedule
to the l.D.R. Act must be read subject to Entry 8 - and for that E
matter, Entry 6 - in List-II. So read, the said item does not and
cannot deal with manufacture, production of intoxicating liquors.
All the petitioners before us are engaged in the manufacture of
intoxicating liquors. The State Legi,slature is, therefore, perfectly
competent to make a law prohibiting their manufacture and p
production - in addition to their sale, consumption, possession and
transport - with reference to Entries 8 and 6 in List-II of the
Seventh Schedule to the Constitution read with Article 47 thereof''.

We are of the respectful and considered opinion that the decision in ,,
Synthetics did not deal with the aspects which are arising for consideration u
herein and that it was mainly concerned with industrial alcohol, i.e., dena-
tured rectified spirit. While holding that rectified spirit is industrial alcohbl,
it recognised at the same time that it can be utilised for obtaining country
liquor (by diluting it) or for manufacturing l.M.F.Ls. When the decision
says that rectified spirit with 95% alcohol content v/v is "toxic", what it H
700 SUPREME COURT REPORTS [1997] 1,S.C.R.
A meant was that if taken as it is, it is harmful and injurious to health. By
saying "toxic" it did not mean that it cannot be utilised for potable purposes
either by diluting it or by blending it with other items. The undeniable fact

'
is that rectified spirit is both industrial alcohol as well as a liquor which
B can be converted into country liquor just by adding water. It is also the
basic substance from which I.M.F.Ls. are made. (Denatured rectified spirit,
of course, is wholly and exclusively industrial alcohol.) This ba,sic factual
premise, which is not and cannot be denied by any one before us***, raises
C certain aspects for consideration herein which were not raised or con-
sidered in Synthetics. Take a case where two industries 'A' and 'B'. come
forward with proposals to manufacture rectified spirit; 'A' says that it
proposes to manufacture rectified spirit and then denature it immediately
D and sell it as industrial alcohol while 'B' says that it will manufacture
rectified spirit and utilise it entirely for obtaining country liquor (arrack or
by whatever other name, it may be called) or for manufacturing I.M.F.Ls.
form· out of it or to supply it to others for the said purpose. According to
E Synthetics, 'A' is under the exclusive control of the Union and the only
powers of the State are those as are enumerated in Para 86 quoted above.
But what about 'B'? The rectified spirit manufactured by it is avowedly
meant only for potable purposes. Can it yet be called "industrial alcohol"?
F Can it still be said that the State concerned has no power or authority to
control and regulate industry 'B" and that the Union alone will control and
regulate it until the potable liquors are manufactured? The Union is
certainly not interested in or concerned with manufacture or process of
G manufacture of country liquor or I.M.F.Ls. Dot;:s this situation not leave a
large enough room for abuse and misuse of rectified spirit? It should be
remembered that according to many States before us, bulk of the rectified
spirit produced in their respective States is meant for and is utilised for
H obtaining or manufacturing potable liquors. Can it be said even in such a
situation that the State should fold its hands and wait and watch till the
potable stage is reached. Yet another and additional circumstance is this :
it is not brought to our notice that any notified orders have been issued ;-
under Section 18-G of the I.D .R. Act regulating the sale, disposal or use
of rectified spirit for the. purpose of obtaining or manufacturing potable
liquors which means that by virtue of Entry 33 of List-III, the States do
'*' If rectified spirit is toxic and unfit for human consumption, why is it necessaiy to
denature it, asks the learned Additional Advocate General for the State. of Uttar
Pradesh. Denaturing is meant precisely for making what is meant for human consump-
tion unfit for human consun1ption, he says.
BIHARDISTILLERYv. l).O.I.[B.P.JEEVANREDDY,J.] 701

have the power to legislate on this field - field not occupied by any la·.v A
made by the Union. It is these and many other situations which have to be
taken into consideration and provided for in the interests of law, public
health, public revenue and also in the interests of proper delineation of the
spheres of the Union and the States. The line. of demarcation can and
should be drawn at the stage of clearance/removal of the rectified spirit. B
Where the removaVclearance is for industrial purposes (other than the
manufacture of potable liquor), the levy of duties of excise and all other
control shall be of the Union but where the removaVclearance is for
obtaining or manufacturing potable liquors, the levy of duties of excise and
all other control shall be that of the States. This calls for a joint control
and supervision of the process of manufacture of rectified spirit and its use c
and disposal. We proceed to elaborate :

(1) So far as industries engaged in manufacturing rectified spirit
meant exclusively for supply to industries (industries other than those
engaged in obtaining or manufacture of potable liquors), whether after D
denaturing it or without denaturing it, are concerned, they shall be under
the total and exclusive control of the Uni;en and be governed by the I.D.R.
Act and the rules and regulations made thereunder. In other words, where
the entire rectified spirit is supplied for such industrial purposes, or to. the
extent it is so supplied, as the case may be, the levy of excise duties and
all other control including establishment of distillery shall be that of the E
Union. The power of the States in the case of such an industry is only to
see and ensure that rectified spirit, whether in the course ofits manufacture
or after its manfilacture, is not diverted or misused for potable purposes.
They can make necessary regulations requiring the industry to submit
periodical statements of raw material and the finished product (rectified F
spirit) and are entitled to verify their correctness. For this purpose, the
States will also be entitled to post their staff in the distilleries and levy
reasonable regulatory fees to defray the cost of such staff, as held by this
Court inShri Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. v. State
of Gujarat & Anr., [1992] 1 S.C.R. 391 and Gujchem Distillers India Ltd. v. G
State of Gujarat & Anr., (1992] 1 S.C.R. 675.

(2) So far as industries engaged in the manufacture of rectified spirit
exclusively for the purpose of obtaining or manufacturing potable liquors
- or supplying the same to the State government or its nominees for the
said purpose - .are concerned, they shall be under the total and exclusive H
702 SUPREME COURT REPORTS
~
[1997} 1 S.C.R. I

A control of the States in all respects and at all stages including the estab-
lishment of the distillery. In other words, where the entire rectified spirit

B
produced is supplied for potable purposes - or to the extent it is so
supplied, as the case may be - the levy of excise duties and all other control
shall be that of the States. According to tlie State governments, most of the
distilleries fall under ·this category.
,
(3) So far as industries engaged in the manufacture of rectified spirit,
both for the purpose of (a) supplying it to industries (other than industries
engaged in obtaining or manufacturing potable liquors/intoxicating liquors)
and (b) for obtaining or manufacturing or supplying it to Governments/per-
C sons for obtaining or manufacturing potable liquors are concerned, the
following is the position : the power to permit the establishment and
regulation of the functioning of the distillery is concerned, it shall be the
exclusive domain of the Union. But so for as the levy of excise duties is
concerned, the duties on rectified spirit removed/cleared for supply to
D industries (other than industries engaged in obtaining or manufacturing
potable liquors), shall be levied by the Union while the duties of excise on
rectifiec! spirit cleared/removed fo~he
..., purposes of obtaining or manufac-
turing potable liquors shall be levied by the concerned State government.
The disposal, i.e., clearance and removal of rectified spirit in the case of
such an industry shall be under the joint control of the Union and the
E concerned State to ensure no evasion of excise duties on rectified spirit
removed/cleared from the distillery. It is obvious that in respect of these
industries too, the power of the States to take necessary steps to ensure
against the misuse or diversion of rectified spirit meant~for industrial
purposes (supply to industries other than those engaged in obtaining or
p manufacturing potable liquors) to potable purposes, both during and after
the manufacture of rectified spirit, continues unaffected. Any rectified
spirit supplied, diverted or utilised for potable purposes, i.e., for obtaining
or manufacturing potable liquors shall be supplied to and/or utilised, as
the case may be, in accordance with the concerned State Excise enactment
and the rules and regulations made thereunder. If the State is so advised,
G it is equally competent to prohibit the use, diversion or supply of rectified
spirit for potable purposes.

(4) It is advisable - nay, necessary - that the Union government makes
necessary rules/regulations under the I.D.R. Act directing that no rectified
H spirit shall be supplied to industries except after denaturing it save those
BIHAR DISTILLERY v. U.0.1. [B.P. JEEVAN REDDY, J.] 703

few industries (other than those industries which are engaged in obtaining A
,..._ or manufacturing potable liquors) where denatured spirit cannot be used
for manufacturing purposes.

(6) So far as rectified spirit meant for being supplied to or utilised
for potable purposes is concerned, it shall be under the exclusive control
of the States from the moment it is cleared/removed for that purpose from B
the distillery - apart from other powers referred tO above.

(7) The power to permit the establishment of any industry engaged
in the manufacture of potable liquors including I.1-...F.Ls., beer, country
liquor and other intoxicating drinks is exclusively vested in the States. The
power to prohibit and/or regulate the manufacture, production, sale,
c
transport or consumption of sucli intoxicating liquors is equally that of the
States, as held in McDowell.

The writ petition is disposed of with the above directions and
clarifications. The show-cause notice issued by the Bihar Excise authorities D
to the writ petitioner shall be disposed of in the light of the law declared
..--' herein, after making necessary enquiry into relevant factual position, ac-
cording to law.

No· costs.
E.
v.s.s. Petition disposed of.