Holding

The State has exclusive privilege to regulate intoxicating liquor, including denatured spirit, and may levy a vend fee as consideration for that privilege; the Uttar Pradesh Excise (Amendment) Act, 1972 (validated by the 1976 Act) is constitutionally valid.

Summary

The State of Uttar Pradesh levied a vend fee on the wholesale sale of denatured spirit and sought to validate the levy through the Uttar Pradesh Excise (Amendment) Act, 1972 and its 1976 re‑enactment. Licensees challenged the fee, arguing that the State lacked legislative competence, that the fee was an excise duty prohibited by the Constitution, and that the Industries (Development and Regulation) Act, 1951 gave exclusive control of such industries to the Union. The Supreme Court examined the constitutional entries relating to intoxicating liquor, the definition of "foreign liquor" and "intoxicating liquor", and held that the State possesses an exclusive privilege to regulate and auction the right to vend intoxicating liquor, including denatured spirit. It further held that the vend fee is a permissible consideration for the grant of that exclusive privilege, not a tax, and that the 1972 Act (validated retrospectively by the 1976 Act) is within State competence. Consequently, the Court allowed the State's appeal and dismissed all other appeals and writ petitions.

Issues considered

The State's legislative competence to levy a vend fee on denatured spirit under the Uttar Pradesh Excise Act.
Whether the vend fee constitutes an excise duty or a permissible fee for the exclusive privilege of vend.
Impact of the Industries (Development and Regulation) Act, 1951 and Union jurisdiction on the State's power over notified industries.
Whether specially denatured spirit falls within the definition of foreign/intoxicating liquor for the purpose of the fee.
Constitutionality of the retrospective validation of the 1972 Excise Amendment by the 1976 Act.

Legislation cited

Constitution of Indias. Art. 19(1)(g), s. Art. 47, s. List I Entry 52, s. List II Entry 24, s. List II Entry 26, s. List II Entry 51, s. List II Entry 8, s. List III Entry 33
Ethyl Alcohol (Price Control) Order, 1971 (as amended 1974, 1975)
Industries (Development and Regulation) Act, 1951s. 10, s. 11, s. 12, s. 14, s. 15, s. 18(G), s. 2
United Provinces Excise Act, 1910s. 12, s. 24, s. 24A, s. 24B, s. 28, s. 3, s. 30, s. 40, s. 41
Uttar Pradesh Excise (Amendment) Act, 1972
Uttar Pradesh Excise (Amendment) (Re‑enactment and Validation) Act, 1976

Subjects

excise lawdenatured spiritvend feelegislative competencestate vs union jurisdictionintoxicating liquorretrospective legislationconstitutional validityArticle 19Article 47

Judgment

531

STATE OF U.P., ETC. ETC. A
v.
SYNTHE11CS & CHEMICALS LTD. & ORS. ETC. ETC.
• December 19, 1979
[A. C. GUPTA AND P. S. KAILASAM, JJ.]
Excise laws-"Denatured spirit" if an intoxicating liquor-Licence fee levied
r 011 sale d"latured spirit-If within the competence of the Stdte.
The respondents who were licensees for the whole.sale vend of denatured
spirit in their v.Tit petitions before the High Court con.tended that levy of fees
) on denatured ~pirit was not justified because (i) the Sta•tci was not proViding
any service to the trade and (ii) since it is. the; Parliament which has the power C:
to levy excise, duty or tax on denatured spirit, th~ State was incompetent to levy
the fees. llej~cting the contentions, the fligh Court held that the State had
exclusive privilege to deal with any intoxicating liquor which included dena-tured
spirit, that it had the right to vend liquor either in retail or wholesale and that
therefore its power to levy fees cannot be' questioned.
In appeal to this Court it was contended on behalf of the licensees that (I) })
levy o( vend fee on denatured spirit by thei State was without legislative com·
petence (2) with the ena<:tment of Industrial (Development and Regulation)
Act, 1951 the Union had taken under its control industries including fermentation
of industrial alcohol and, therefore, it is only the Union which could levy the
fees on denatured spirit or industrial alcohol.

Atowing the State's appeal. E
IIELD : The levy of vend 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 surh liquors. A conspectus of the decisions of this Court
esta·blbhes (i) that there is no fundamental right of a citizen to carry on tfade
or to do business in liquor because under its police pov/er, the State can enforce
public morality, prohibit trade in noxious or dangerous goods (ii) the State F
has pGwer to enforce an absolute prohibition on manufacture or sale of in1oxj,
eating liquors pllfsuant to Atiicle 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 n1anufacture· or sell liquors. [549 F-H]
Stat!! of Bo1nbay and Anr. v. F. N .. Balsara [1951] S.C.R. 1582 referred to.
(iv) The terms "intoxicating liquor" is not confined t'o potable liquor alone G
but would include allliquors which contain alcohol. [537 G]
l'lasiiirwar v. State of Nladhya Pradesh [1975] 2 S.C.R. 861; Har Shankar v.
The D~puty Excise and Taxation Co1nmisisoner [1975] 3 S.C.R. 254; State of
Bornbay and Anr. v. F. i\l. Balsara & Ors. (1951] S.C.R. 682; B!zola Prasad v.
The King Emperor [1942] F.C.R. 17 at p. 25 referred to.
-, (v) The torm "liquor" used in Abkari Acts not only covers alcoholic liquor H
·~ which is, generally used for beverage purposes and which produces intoxication
but would also include liquids containing alcohols. [537 B-C]
532 SUPREME COURT REPORTS (1980] 2 S.C.R. ,
A Cooverjec B. Bharucha v. The Exci!Je Commissioner and Chief Conzmfasioiier,
Ajn1er & Anr. [1954] S.C.R. 873; Mis. Guruswamy & Co. etc. v. State. of i\Jy.~ore
& Ors. [1967] I S.C.R. 548;Swte of Orissa & Ors. v. Harinarayan laisiral &
Ors. [1972] 3 S.C.R. 784; Anzar Chandra Chakraborty v. Collector of Excise,
Gove1nnient of Tripura anti Ors. [1973] 1 S_._C.R. 533; Har Shankar & Ors. etc.
v. The Dy. Excise & 1 axation Conunissioner & Ors. [1975] 3 S.C.R. 254 ·referred
•
to.
B
2(a) The power to reguJa_.te the notified industries is not e:LX.clusively within
the jurisdiction of Parliament as Entry 33 in the Concurrent List enables a Jaw
to be made regarding production, supply and distribution o.f products of notified
industries. The exclusive. power of the State to provide for manufacture, distri·
bution, sale nnd possession of intoxicating liquors is vested in the State. The
power of the State Government to levy a fee for parting with its exclusive
c right regarding intoxicating liquors has been recognized as could be· seen from
the various State Acts regulating the manufacture, sale, etc. of intoxicating
liquors. [544 C, A-Bl

Ch. Tika J?an1ji and Ors. etc. v. The State of Uttar Pradesh and Ors. [1956]
S.C.R. 393; Baijnath Kedai v. State of Bihar & Ors. [1970] 2 S.C.R. 100 dlstin·
guished.
D
(b) The term "foreign liquor" cannot be given a restricted mooning because
the \\'ord consu1nption cannot be confined to consumption of beverages oilly.
When liquor is put to any use1 such as manufacture of other articles, the liquor
is al! the same consun1ed. The State is empowered to declare v.;hat sbaTI be
deemed to be country liquor or foreign liquor. "Foreign liquor" is defiried as
meaning all rectified, perfumed, medicated and denatured spirit wh(!rever made.
E Therefore, the plea that the· Excise; Commissioner had no right to accept paoyment
in consideration for the grant of licence for the exclusive privilege for selling
in \Vholesale or retail, foreign liquor \Vhich incJpdes denatured spirit cannot be
accepted. [548 H, 549 A-Bl - 1,
( c) The definition of "alcohol" includes both ordinary as well as specially
denatured spirit. The specially denatured spirit for industrial purposes is
F different from denatured spirit only because of the difference in the quantity and
quality of the denaturants. Specially dem.atured spirit and ordinary denatured
spirit are classified according to their use and denaturants used. Therefore, the
contention that specially denatured spirit for industrial purposes is: different from
the ordinary denatured spirit has no force. [551 B, 550 H-551 AJ

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1130 of 1976.
Appeal by Special Leave from the Judgment and Order dated
24-3-1972 of the Allahabad High Court in Misc. Writ No. 8069/72.
AND
CIVIL APPEAL NOS 2248/78, 2191-2198/78 A.VD 2284/78.
H Appeals by Special Leave from the Judgment and Order dated
6-10-1978 of the Allahabad High Court in Special Appeal Nos. 356,
352-·355, 357-359/'75.
U.P. STATE v. SYNTHETICS CHEMICALS (Kailasam, J.) 533

AND A
CIVIL APPEAL NO. 245 of 1979.
Appeal by Special Leave from the Judgment and Order dated
17-10-1978 of the Allahabad High Court in Civil Misc. Writ No.
11702/77.
AND
CIVIL APPEAL NO. 626 of 1979.'
Appeal by Speciai Leave from the Judgment and Order cfated
17-10-1978 of the High Court of Judicature. of Allahabad in Civil Misc.
Writ (Tax) No. 824/75.
c
AND
WRIT PETITION NOS. 4663-4664 of 1978 & 4501 of 1978.
Under Article 32 of the Constitution.
AND
)}
SPECIAL LEAVE PETITION (CIVIL) NOS. 6526-28/78, 125-126,
201 and 2533 of 1979.
. From the Judgment and Order dated 6-11-1978 and 17-10-78 and
16-11-1978 and 17-10-78 of the Allahabad High Court in Civil Misc.
Writ Nos. 89/77, 3822/73, 540/75 and 4129-30 of 1976 and C.W.
No. 703 /76 and C. Misc. Writ No. 41 /76. E
'
Rishi Ram, Advocate General for the State of U.P., G. N. Dikshit,
0. P. Verma, S. C. Verma and Mrs. Sadhna Ramchandran, for the
-~ Appellant in CA No. 1130/76 and respondents in all the matters.
F. S. Nariman, Dr. L. M. Singhvi, B. G. Murdeslnvar, P. C. Mur-
F
deshwar, P. C. Bhartari, S. P. Nayar, L. K. Pandeya, N. R. Khairan,
Praveen Kumar, Miss Reena Gupta, Anip Satchthey and Mrs. Baby
Krishnan for the Appellants and Petitioners in all other matters and
respondents in CA 1130/76.
F. S. Nariman, Talat Ansari, R. Narain and S. p. Nayar for the
Intervene.rs (M/s .T. K. Synthetics and Agarwal Spirit Supply Co.) G
The Judgment of the Court was delivered by
KAILASAM, J.-These batches of Civil Appeals, Writ Petitions and
Speci,U Leave Petitions raise the samei question and can be disposed of
by a common judgment.
ff
C.A. No. 1130/76 is by the. State. The other Appeals, Writ Peti-
tions and Special Leave Petitions are by the aggrieved parties.
534 SUPREME COURr REPORTS [19<D! 2 s.c.R.

A For thu sake of convenience appellants in Civil, Appeals by Special
'<
Leave except the State would be referred as the appellants in this '
judgment. Similarly the petitioners in Writ Petition~ and Special Leave
Petitions will be referred to as petitioners.
The appellants in Civil Appeals by Special Leave filed writ petitions
B before the High Court of Allahabad praying for quashing the Excise
Commissioner's order dated 18th September, 1974 whereby it was
provided that the vend fee be continued to, be charged for the wholesale
licence dealer of denatured spirit. They also prayed for a direction to
the Excise Commissioner to refund the vend fee actually paid by the
appellants for a period of three years prior to the institution of tho writ
c petitions.

The appellants have licenses for the wholes.ale vend of denatured
spirit. It was contended that the State was providing no service to the
trade of the denatured spirit and, therefore, the levy of fee is not justi-
fied. The State, it was submitted, was not competent to authorise a
D levy of excise duty or tax as it was within the jurisdiction of the
Parliament. On behalf of the State it was contended tliat in law the
State had exclusive privilege to deal with intoxicating liquor which
included denatured spirit and the levy of a licence fee and vend fee
constituted consideration for permitting the appellants to carry on
wholesale trade o[ the denatured spirit.
E
The main point that was considered by the High Court was whetheJ:
the imposition of vend fee on denatured spirit for grant of license for
wholesale vend of denatured spirit is within the competence of State
Government. This Court in Nashinvar v. State of Madhya Pradesh(')
and Har Shankar v. Ihe Deputy Excise and Taxation Commissionei·('),
F held that the State has exclusive privilege to deal in intoxicating liquor
and, therefore, the Stato can auction the right to vend by retail or whole-
sale foreign liquor. It also found that intoxicating liquor included dena-
tured spirit and the validity of the levy of the vend fee by thel State can-
not be questioned. Following this view the High Court dismissed the
G Writ Petitions. Against the decision, the appeals have been preferred by
special leave. A batch of Writ Petitions have been filed in this Court
under Art. 32 of the Constitution of India challenging the validity of the
levy of vend fee. Apart from the grounds taken in the Civil Appeals.
the Constitutional validity of U.P. Excise (Amendment) Act 5 of 1976
has been challenged as unconstitutional and beyond the legislative com-
H petence of thel State. It is further pleaded that the provisions of the
(I) [1975] 2 S.C.R. 861.
(2) [1975] 3 S.C.R. 254.
U.P. STATE v. SYNTHETICS CHEMICALS (Kailasam, J.) 535

Industries (Development and Regulation) Act, 1951 has taken control A
of fermentation industry and as such a right to legislate by the State
with regard to denatured spirit and industrial alcohol is beyond the
competence 0f the State Legislature.

U.P. Excise Act was enacted in the year 1910. It empowers the
State to prohibit the import and export, transport manufacture sale and B
possc'5ion of liquor and all intoxicating drugs in the United Prnvinces.
The vend fee was first imposed by the Government of U.P. on J 8-3-193 7
on denatured spirit. In 1972 the State Legislature enacted the U.P.
Excis.: Amendment Act l3 of 1972. By a notification dt. 3-11-72
the Government was authorised to sell by auction the right of retail or
wholesale vend of foreign liquor. New Rules were framed, the eliect
c
of which was that a vend fee of Rs. 1.10 p. per bulk litre was imposed
payable in advance on denatured spirit issued for industrial purposes.
The legality of the levy was challenged in the High CourB of Allahabad
and a Bench of that Court on 24th March, 1973 held the notification
was ultra vires. After the decision of the Allahabad High Court holding D
that the levy was illegal, this Court in two decisions Nashirwar v. State
of Madhya Pradesh (supra) and Har Shankar v. The Deputy Excise,
und Taxation Com'11issioner, (supra) held that the State under its
regulatory powef5 can prohibit every form of activity in relation to
intoxicants, its manufacture, storage, export, import and sale. The
State's power to auction the right to vend by retai~ or wholesale foreign E
liquor was upheld.

Relying on the two decisions of this Court, the u.P. State Legisla-
ture repealed and re-enacted the U.P. Excise (Amendment) Act No.
30 of 1972 by the U.P. Excise (Amendment) (Re-enactment and Vali-
dation) Act, 1976. The validity of the amendment Act 1976 was aga'n F
challenged in the Allahabad High Court in V. P. Anand and Sons v.
State of U.P. ('). A Full Bench of the Court held that the State has
exclusive privilege of auctioning the right of wholesale or retail vend
of intoxicating liquor and upheld the validity of the Act.

Mr. Nariman learned counsel raised several contentions. The first G
main contention of the learned counsel was that the levy of vend fee
(under rule 17-para 680 of the Excise Manual-page 200-201) on
the denatured spirit is without legislative competence as it does not fall
within Entry 8 of List II of the Seventh Schedule. Even if it is held
that the exclusive right of the Stllte to grant privilege for t!Je manufac-
H
ture and sale of intoxicating liquor, it was submitted that the right did
(I 1976 A. L. J. 436-F.B.
536 SUPREME COURT REPORTS (1980] 2 S.C.R.

A not extend to denatured spirit used for industrial purposes as it is con- 'r
~
fined only to potable liquor. The second important cqutention raised
by the learned counsel was that after the enactment of Industries
(Development; and Regulation) Act, 1951 unde~ Entry 52 of List 1 by
Parliament, the Union had taken under its control in public interest the
industries including the fermentation of industrial alcohol and as such
the Central Government alone is empowered to provide for regulating
by licence/permit or otherwise the distribution, transport, disposal,
acquisition, possession, use or consumption of any ,article relatable fo a
schedule industry as for example denatured spirit or industrial alcohol.
In State of Bombay and An1'. v. F. N. Balsara & Ors.(') the Con-
c stitutional validity of the Bombay Prohibition Act (XXV of 1949) in
so far as it restricted the possession and sale of foreign liquor was
impugned on the ground that it was an encroachment on the field
assigned to the Dominion Legislature under Entry 19 of List I. under
Entry 31, List II to the Seventh Schedule of the Government of India
Act, 1935, the Provincial Legislature had the power to make' laws in
D
respect of intoxicatimg liquor that is to say the production, manufacture,
i:ossession, transport, purchase and sale of intqxicating liquors. ·The
corresponding entry in the Constitution of ln;dia is List II Entry 8
which is in identical terms. The plea that wa~ taken was that List I,
Entry 19 conferred the power on the Dominion Legislature to make
E laws with respect to import, export across customs frontiers! and as such
the State Law restricting possession and sale of foreign liquor encroached
upon the field of Dominion Legislature. This Court held that the
worcjs 'possession and sale' occurring in Entry 31 List II must be read
without any qualification. In considering the meaning of the words
'intoxicating liquor' set out in entry 31 of List II, Gwyer C.J., in mwla
F Prni,od v. The King Emperor('), stated as follows : -

"A power to legislate with respect to intoxicating liquors
could not well be expressed in wider terms."

Again the Learned C11ief Justice observed : -
G "It is difficult to conceive of legislation with respect to '
intoxicating liquors and narcotic drugs which did not deal iii
some way or other with their production, manufacture, pos-
session, transport, purchase or sale; and these words. seem
apt to cover the whole field of possible legislation on the
subject."
H
(I) [195lj 2 S.C.R. 682.
(2) [1942] F.C.R. 17" p. 25.
U;P. STATE v. SYNTHETICS CHEMICALS (Kailasam, J.) 537

The above observations were affirmed by this Court in Balsara's A
case (supra), Dealing with the meaning of word 'liquor', the Court
referoxl to the various Abkari cases in several provinces and found
that all the Provincial Acts of this country have consistently included
liquor containing alcohol in the definition of 'liquor' and 'intoxicating
liquor' and, therefore, the framers of the Government of India Act, B
1935, could not have been entirely ignorant of the accepted sense in
which the word 'liquor' has been used in the various excise ActS of
this country and conCiuded that the word 'liquor' covers not only those
alcoholic liquids which are generally used for beverage purposes and
produc~ intoxication, but also nll liquids containing alcohol. By
adopting another method of npproach, the Court observed that th~ c
object of the Prohibition Act was not merely. to levy excise duties but
also to prohibit the use, consumption, possession and sale of intoxicat-
ing liquor and to enforce the prohibition effectively, the wider delfnition
of the word 'liquor' would have to be adopted so a~ to include all alco-
holic liquids which may be used as substitution of intoxicating drinks
to the detriment of the health. In Nashirwar v. The State ol Madhya D
Pradesh (supra), Chief Justice Ray held that the State Legislature is
.. authorised to make a provision for public auction by reason of power
contained in Entry B of List II of the Constitution. The decision nega-
tived the concept of inherent right of citizen to do business in liquor.
This Court gave three principal reasons to hold tbnt there is no
• fundamental right of citizen to carry on trade or to do business in E
liquor. First, there is the police power of the State to enforce public
morality to prohibit trades in noxious or dangerous goods. Second,
there is power of the State to enforce an absolute prohibition of manu-
facture or sale of intoxicating liquor. Article 4 7 states that the State
shall endeavour to bring about prohibition of the consumption except F
for medicinal purpose of intoxicating drinks and of drugs which are
injuriows to health. Third, the history of excise laws shows that the
State has tbe exclusive right or priyjlege of manufacture or sale of
liquor. After pointing out the three principal reasons, the Court
followed. the decision in SlcJI~ of Bombay and Anr. v. F. N. Balsara(')
holding that absolute prohibition of manufacture or sale of liquor is G
permissible and the only exception can be for medicinal preparations.
In the context. it is clear that the decisions proceeded on the basis that
tbe word 'intoxicating liquor' is not confined to p0table liquor alone
but would include all liquor which C-Ontain alcohol.
Mr. Nariman, the learned counsel, submitted that the two cases- H
Ba/sara's case (supra) and the Nashlrwar's case (supra)-cannot be
-(!)-[1951]
- - -S.C.R.
- 682.
13-21 SCI/80
538 SUPREME COURT REPORTS [1980] 2 S.C.R.

A read as to include alcohol manufactured for the purpose of industries
such as industrial alcohol. It was submitted that in both the cases
the Court was concerned only with legislation re!a,ting to prohibition
and the decisions should be restricted to liquor which may contain
alcohol which is likely to be misused as potable liquor. In suppo1t
of his contention, the learned counsel referred to two decisions A.
B Nageshwara Rao v. State of Madras(') and Malit/al Chandra v. Em-
peror(') and submitted that if the State can exercise any control over
intoxicating liquor, it can only be restricted for the purpose of pre-
venting subversion of its use for defeating the prohibition policy.
We are unable to accept this contention for in Balsara's case after
explicitly approving of the definition of word 'liquor' in various Abkari
Acts in the Provinces of India, the Court held that liquor would not
only cover alcoholic liquor which is generally us'ed for beverage pur-
poses and produce intoxication but would also include liquids contain-
ing alcohol.

We will now briefly refer to the decisions of the Supreme Court
D
which the learned counsel submitted were confined only to potable
liquor.
Cooverjee B. Bharucha v. The Excise Commissioner and Chief '
Colllmissioner, Ajmer & Anr. (') related to an auction sale of liquor
shop under the Excise Regulation. Act, 1915. In Bharucha's case
E it was held that licence may be restricted, that the restriction must be •
in regard to the sale of liquor and that there may be absolute prohi-
bition of the sale of liquor. The Court also took into account the
public expediency and public morality and police power of State to
regulate business and mitigate evils.
F In M/s. Guruswamy & Co. etc. v. State of Mysore & Ors.( 4 ) the
auction related to exclusive privilege of selling toddy from certain
shops. The Court held that the auction enabled the licensee to sell
the toddy and the licensee paid what he considered to be the equiva-
lent value of the right. State of Orissa & Ors. v. Harinarayan Jaiswal
& Ors.(•) related to sale by public auction of the exclusive privilege
G of selling country liquor in retail shops. Amar Chandra Chakra-
borty v. Collector of Excise, Government of Tripura and Ors,, (') ~-

also related to the cancellation of the licence by the Excise Collector '
(1) A.1.R. 1954 (Mad) 643.
(2) I.L.R. 39 Cd. 1053.
(3) [1954] S.C.R. 873
H (4) [1967] I S.C.R. 548.
(5) [1972] 3 S.C.R. 784.
(6) [1973] 1 S.C.R. 533.
U.P. STATE v. SYNTHETICS CHEMICALS (Kailasam, !.) 539

to establish warehouse for the stornge in bond and wholesale vend of A
country spirit by import and for supply to the excise vendors in the
territory of Tripura. The next case that was referred to by the learn-
ed counsel was Har Shankar & Ors. etc. v. Tile Dy. Excise & Taxa-
tion Commissioner & Ors. ('). Chandrachud, J. as he then was,
speaking for the Court stated : -
B
"In our opinion the true position governing dealings in
intoxicants is as stated and reflected in the Constitution
Bench decision of this Court in the State of Bombay a11d
Anr. v. F. N. Balsara-[1951] SCR. 682, Cooverjee B.
Bharucha v. The Excise Cpmmissioner and the Chief Com-
mi.lsioner, Ajmer and Ors.-[1954] SCR. 875, State of c
Assam v. A. M. Kidwai, Commissioner of Hills Division and
Appeals, Shillong-{1957] SCR. 295, Nagendra Nath
Bora and Anr. v. 1'he Commissioner of Hills Division and
Appeals, Assam.and Ors.-[1958] SCR. 1240, Amar Chandra
Chakraborty v. Collector of Excise, Government of Tripura
D
& Ors.-[1973] 1 S.C.R. 633 and State of Bombay
v. ,R.M.D. Chamarbaugwala-[1957] SCR. 874 as inter-
• preted in State o~ Orissa and Ors. v. Harbzarayan Jaiswal
• and Ors-[1972] 3 SCR. 784 and Nashirwar Etc. v. State
--
l
of Madhya Pradesh and Ors. Civil Appeals Nos. 1711-
1721 and 1723 of 1974 decided on November 27, 1974. E
There is no fundamental right to do trade or business in in-
toxicants. The State under its regulatory powers, has the
right to prohibit absolutely every form of activity in relation
to intoxicants-its· manufacture, storage, export, import, sale
and possession".
Though most 0f the cases dealt with the right of the State Gov- F
ernment as regard auction of country liquor, in Balsara's case, Nashir-
war's case and Har Shankar's case, the Court was concerned with the
right of the State Government over foreign liquor.
After considering all the decisions of five Constitutional Benches,
Chandrachud, J. as be then was summed up the position at page 274 G
as follows : -
"These unanimous decisions of five Constitutional Ben-
ches uniformly emphasised after a careful consideration
of the problem involved that the State has the power to
prohibit trades which are injurious to the health and welfare H
of the public is inherent in the nature of liquor business,
(4) (197'] 3 S. C. R. 254.
540 SUPREME COURT REPORTS [1980] 2 S.C.R.

A that no person has an absolute right to deal in liquor and
that all forms of dealings in liquor have, from their inhe-
rent nature, been treated as a clas·s by themselves by all
civilised communities."
Har Shankar's case related to licensing of retail sale of foreign
B liquor for consumption on the premises of the licensees. The grant
of license for sale of country spirit, foreign liquor, beer were subject to
the provisions. of the Punjab Act 1 af 1914. Th~ demand by the Gov-
ernment for payment of large sums of money from hoteliers or bar-
keepers who supply foreign liquor for consumption were challenged
as arbitrary, without authority and illegal. The provisions in the
c Act which provided for a levy on retail vend of foreign liquor was
held to be valid. The decisions referred to above make it clear that
~e power to legislate: under List II Entry 8 relating to intoxicating Liq-
uor comprises of liquor which contains alcohol whether it is potable or
not. The plea of the State is that the levy is for parting with the
exclusive right of the State with regard to intoxicating liquor and the
D levy was for the purpose of conferring a right on the licensees. That
the State has the exclusive right of manufacture or sale of intoxicating
liqnor which includes liquor contnining alcohpl has been recognis-
•
ed. •
The second most important contention raised by Mr. Nariman is
E that after passing of the Industries (Development and Regulation):
Act, 1951, the claim by the State to monoply with regard to produc-
tion and manufacture and the sale of the denatured spirit or indus-
trial alcohol is unsustainable. In order to appreciate this contention
it is necessary to refer to the relevant entries in Lists I and ll of the
Seventh Schedule of the Constitution. List I Entry 52 runs as folc
F lows:-
"Industries, the control of which by the Union is dec-
lared by Parliament by Jaw to be expedient in the pnblk
interest".

In List II the entry relating to industries is Entry 24 which is as
follows:- ,-'\
"Industries mbject to the provisions of (entries 7 and
52 of List 1)".
Entry 7 in List I relates to industries to be declared by Parliament
H by law to be necessary for the purpose of defence or for the prose-
cution of war. In this case we arei not concerned with Entry 7. A
reading of Entry 52 in List I and Entry 24 in List II makes it clear
U.P. STATE v. SYNTHETICS CHEMICALS (Kailasam, J.) 541

that the Parliament will have exclusive jurisdiction to legislate regard- A
ing industries, the control of which by the Union is declared by Par-
liament by law to be expedient in the public interest. Connected with
these two entries is entry 33 in List ID Concurrent List which pro-
vides : -
"Trade and commerce in, and the production, supply
B
and distribution of-
(a) the products of any industry where the control or
such industry by the Union is declared by Parliament by law
to be expedient in the public interest, and imported goods
of the same kind as such ornducts :
(b) x x x c
(c) x x x
( d) x x x
(e) x x x"
The subject of trade and comme.rce in, and the production supply
and distribution of the products of any industry which has been dec- D
lared by Parliament under Item I Entry 52 is in the Concurrent List
on which both Parltament and State can legislate.
The Industries (Development and Regulation) Act, 1951 was
enacted by Parliament to provide for development and regulation of
certain indv~tries. Section 2 declares that it is expedient in the public
• intere3t that the Union shall take in its control industries specified in
First Schedule. Item 26 in the First Schedule is fermentation industries
(i) Alcohol (ii) other prodm;ts and fermentation industries. Chapter
II of the Act provides for establishment of Central Advisory Council
and Development Council. Chapter III deals with regulation of
scheduled industries. Section 10 requires registration of existing in-
F-
dustrial undertakings. Section 11 deals with the licensing of new
industrial undertakings. Section 12 deals with revocation and amend·
"' ment of licenses in certain cases. Section 14 deals with the procedure
for the grant of license or permission. Section 15 confers power of
investigation to be made into scheduled industries and industrial
J undertakings. Section 18 (b) confers power on the Central Govern- G
ment to control, supply, distribution, price, etc. of certain articles. As
considerable reliance was placed on Section 18(G) for the contention
that the Central Government has the exclusive power with regard to
notified industries to control supply distribution, fixation of price etc.
it is necessary to set out the material part of the Section in full.
Section 18(G)(l) runs as follows:- H
"'I'be Central Government, so far as it appears to it to
be necessary or expedient for securing the equitable distri-
542 . SUPREME COURT REPORTS [l980J 2 s.c.R •

A bution and availability at fair prices of any article or class of
articles relatable to any scheduled industry, may, notwith-
standing anything contained in any other provision of this
Act, by notified order, provide for regulating the supply
and distribution thereof and trade and commerce therein."
B Sub-section 2 of Section 18(G) confers certain powers without
prejudice to the generality of the powers conferred by sub-section ( 1)
by a notified order to provide for matters enumerated in it (a) to (h)
of the sub-section. These powers include amongst others the right to
. "\control the price. The powers conferred under section 18(G) (1)
~ is exercisable by the Central Government in so far as it considers it
C to be necessary or expedient. TI1e plea of the learned counsel is that
the notification made by the Central Government excludes the power
of the State Government to fix the price of denatured spirit and recti-
fied spirit as it has been placed beyond the powers of the State to
regulate the distribution of licences, permits etc. The not.ification that
is relied on is the Ethyl Alcohol (PT<ce Control) Amendment Order,
n 1975 dated 31st October, 1975. The order reads as follows : -
"In exercise of the powers conferred by S. 18(G) of the
Industries (Development and Regulation) Act, 1951 (115
of 1951), the Central Government hereby makes the follow-
ing order further to amend the Ethyl Alcohol (Price Con-
E trol) Order, 1971 namely :
I. (l) This order may be called the Ethyl Alcohol (Price
Control) Amendment Order, 1975.

F
(2) It shall come into force on the date of its publication in
the official gazette. -
2. In the Ethyl Alcohol (Price Control) Order, 1971
(hereinafter referred to as the said order), in clause 2, for
the Table the following Table shall be substituted, namely : -

(2)
\
G 1. Absolute Alcohol Conforming to TSI Six hundred and sixty eight rupees and
Standard No. 321-1952., names for forty one paise per kilo litre.
equivalent volume at 100 per cent v/v.
strength;.
2. Rectified spirit conforming to ISI Six hundred and twenty two rupees
stanGard No. 323~1959 named for and twenty paise for kilo litre.
equivalent volume at 100 per cent v/v
strength.
H 3. Rectified spirit conforming to ISi Five hundred and eighty nine rupees
standard No. 323-1959 named for and ten paise per kilo litre. J
94 ·68 per cent v/v strength.
U.P. STATE v. SYNTHETICS CHEMICALS (Kailasam, !.) 543

The: table prescribes the price of various types of alcohol and A
rectified spirit. The price of ethyl alcohol is fixed under the powers
conferred on the Central Government under S. 18(G) (1) for securing
the equitable distribution and availability at fair price. The Ethyl
Alcohol (Price Control) Order, 1961 which was made by the Central
Government in exercise of the powers conferred on it under S. 18(G)
of the Industries (Development and Regulation) Act, 1951 fixed the
maximum ex-distillery price for industrial alcohol and rectified spirit
under d. 1 and 2 of the Order. Cl. 3 permitted certain additional
charges in certain cases of alcohol supplied after denaturation with
\ general or special denaturants, the cost of such denaturation being
allowed to be charged. Ethyl Alcohol (Price Control) Order, 1964
c
while fixing the maximum ex-distillery price of ethyl alcohol under
cl. 3 p:rmitted additional charges to be levied in certain cases such
as for covering costs incurred for transport of molasses to the dis-
tillery and any octroi duty paid or payable on molasses and when
alcohol is supplied after denaturation, to include actual cost of such
denatur:mts plus some octroi charges as specified in the clauses. Cl. D
3(a) empowered the Excise Co=issioner of the State to determine
the additional charges leviable under cl. 3 in case of any doubt or
' distillery price of ethyl alcohol provided for fixation of the price after
taking into account various factors enumerated in cl. 2(2) (a to h).
Reading, various Ethyl Alcohol (Price Control) Orders passed by the
Government from time to time, it is clear that the order permitted the E
adding of the expenses incurred for transportation, payment of octroi
duty etc. to the price fixed. We are unable to read the Ethyl Alcohol
(Price Control) Orders as explicitly or impliedly taking away the
power of the State to regulate the distribution of intoxicating liquor
by collecting a levy for parting with its exclusive rights. If the powers
of Parliament and the State Legislature were confined to entry 52 in F
List I and entry 24 in List II, Parliament would have had exclusive
power to legislate in respect of industries notified by Parliament.
The power of the State under Entry 24, List II is subject to the pro-
visions o! Entry 52 in List I. But we have to take into account Entry
) 26 in List II and Entry 33 in List III for determining the scope of
G
legislative power of the Parliament and the State. Entry 26 in List
II is as follows : -

"Trade and Co=erce within the State subject to the
provisions of entry 33 of List III."
H
• Und1:r Entry 33 List III the Parliament and the State have con-
current powers to legislate regarding the production, supply and
544 ~llPREME COURT REPORTS [1980] 2 S C.R.

A distribution of the products of industries notified by the Parliament.
Furthermore it has to be noted that the exclusive power of the State
to provide for manufacture, distribution, sale and possession etc. of in-
toxicating liquor is vested with the State. The power of the State
Government to levy a fee for parting with its exclusive right regarding
intoxicating liquor has also been recognised as is seen from the various
B State Acts regulating manufacture, sale. etc. of intoxicating liquor. A
fair scrutiny of the relevant entries makes it clear that the power to
regulate the notified industries is not exclusively within the jurisdiction
of Parliament as List II Entry 33 in the concurrent list enables a law
to be made regarding production, supply, distribution of products of
a notified industry.

In Ch. Tika Ramji and Ors. etc. v. The State of Uttar Pradesh and
Ors.( 1) a question arose whether Sugarcane regulation, supply and
purchase Act passed by the State Legislature and the notification
issued therein by the State Government were repugnant to the notifica-
tions made under the Industries (Development and Regulation) Act
D
of 1951. Two notifications wre issued by the State Government
under the U.P. Sugarcane Regulations, supply and purchase Act 1953
prohibiting the occupier of the factory to w!iich area is assigned from
entering into an agreement to purchase cane except through a cane
growers Cooperative Society under certain circumstances and assign-
E ing different sugarcane factories specified to certain purchase centre
for supply to them sugarcane for the crushing season were challenged
as ultravires. The plea was that the subject 11\atter of the legislation
fell within the exclusive jurisdiction of Parliament and the impugned
notifications were repugnant to the notifications made under the Indus-
tries (Development and Regulation) Act, 1951. On 31st October,
F 1951, Parliament enacted the Industries (Development and Regula-
tion) Act, 1951 to provide for development and regulation of certain
industries. By section 2 of the Act it was declared that it was ex-
pedient in public interest that the Union should take in its control the
industries specified in the First Schedule which included in Item 8
thereof, the industries engaged in the manufacture or production of
·c sugarcane. Industries (Development and Regulation) Act, 1951 was
\

amended by Act 26 of 1953 by adding Chapter IHA entrusting Central
Government with power so far as it appears necessary or expedient for
securing the equitable distribution and availability at fair price of any
article relatable to scheduled industry to provide by notified order for
regulation, supply and distribution and trade and commerce thereof.
H
The impugned notification which required the factories to purchase
(1) .[1956] S.C.R. 393.
U.P. STATE v. SYNTHETICS CHEMICALS (Kailasam, J.) 545

.
"(
their sugarcane from the cooperative societies and assigned certain A
• areas as cane purchasing centre for the factories was stated to be ultra
vlres as they were beyond the State's competence and covered by the
notification under the Industries (Development and Regulation) Act.
Justice Bhagwati observed at page 411 : -
"When, however, it came to the products of the con- B
trolled industries comprised in Entry 52 of List I, trade and
,- commerce in, and production, supply and distribution of,
these goods became the subject-matter of Entry 33 of List
Ill and both Parliament and the State Legislatures bad
jurisdiction to legislate in regard thereto."
The learned Judge proceeded to observe : - c
"That sugarcane being goods which fell directly under
entry 27 of List II was within the exclusive jurisdiction of
the State Legislature and it was competent to legislate with
regard to it and as such the impugned Act was intra vires
of the state Legislature. The power to legislate regarding D
production, supply and distribution of goods is subject to pro-
visions entry 33 List III which deals with products and in-
' dustries notified by Parliament. Entry 33 being in the con-
current List, legislative power of the State regarding
production, supply and distribution of goods cannot be
denied." E
The Court on the facts of the case found that even assuming that
sugarcane. was an article or class of articles relating to the notified
industries within the meanin11 of Section 18(G) of Act 65 of 1951,
no order was issued by the Central Government in exercise of its
powers vested in it and, therefore, no question of repugnancy arose. F
In the case before us it cannot be discerned from the Ethyl Alcohol
Control Order that the power of the State Government to prescribe a
levy for parting with its exclusive rights relating to intoxicating liquor
had been takei:i away.
In Baijnath Kedvai v. State of Bilwr & Ors.(') a question arose as G
to whether the Bihar Legislature. had jurisdiction to enact the second
proviso to section 10(2) of the Bihar Land Refotms Act, 1950 by
which the terms and conditions of the lease of mines and minerals
could be substituted for the terms and conditions laid down in the
Bihar Mines and Minerals Concession Rules. On the >trength of the
amended section 10(2) of the Reforms Act and amended Rules 20 H
• the Bihar Government demanded from the appellant rent contrary to
(1) [1970] 2 S.C.R. 100.
546 SUPREME COURT REPORTS [1980] 2 S.C.R.

A the terms of his lease. It was held that Entry 54 in Union List speaks
of requirements of mines and minerals development and Entry 23 in
List II is subject to entry 54. Once a declaration was made under
entry 54 specifying the extent of vesting the competency was
only with Parliament.

B The attempt of the learned counsel to trace the power to enact the
second proviso to section 10 of the Act to Entry 18 of List II was
rejected. The plea of the learned counsel was that the modification
of the existing lease was a separate topic and not covered by section
15 of Act 67 of 1957. The Court rejected the plea on the ground
that the entire legislative field in relation to mines and minerals had
c been withdrawn from the State Legislature. The decision does not
help the appellants for on the facts it is clear that the entire field
relating to mines and minerals had been occupied and tak!!n away
from the Legislature and as iuch it was beyond the competence of the
State to legislate on mines and minerals. In the case before us the
position is different because the power of the State Legislature to legis-
D late in respect of the intoxicating liquor and its exclusive right regard-
ing intoxicating liquor cannot be questioned.
The third contention of Mr. Nari.man, is that the vend fee levied
by the State is not and was never treated by the State as charge or
rental as the consideration for granting exclusive privilege. On the
E other hand the levy is excise duty or a fee which the State is not en-
titled to collect. The submission of the learned counsel was that even
though it is found that the State is entitled to make laws regarding
intoxicating liquor under List II, Entry 8, it has no power to impose
any tax. The power to tax by the State is confined only to Entry 51,
List II which empowers the State to levy duty on alcoholic liquors for
F human consumption and as denatured spirit is not alcoholic liquor
for human consumption, a levy of excise duty is not permissible by
the State. It was contended that the levy of a fee was also not per-
missible unless it had some relation to the expenses incurred for that
purpose. According to the Solicitor-General, Mr. Kakkar, the levy
was not a tax or a fee but a levy for parting with the exclusive right
G of the State in respect of intoxicating liquor. In view of the stand
taken by the State, it is unnecessary for us to go into the question as
to whether the levy is a tax or a fee.
For dealing with the contention of Mr. Nariman that the levy was
never collected in lieu of the State parting with its rights, it is necessary
II to refer to the relevant provisions of the Act. The United Provinces
•
Excise Act, 1910 (Act 4 of 1910) was passed in 1910. Subsequently, J

it was adapted and modified by the Government of India (Adaptation
U.P. STATE v. SYNTHETICS CHEMICALS (Kailasam, !.) 547

ofl Indian Laws) Order, 1927 and Adaptation of Laws Order, 1950. A
Chapter IV of the Act deals with manufacture, possession and sale
while Chapter V deals with duties and fees. The Act refers to Excise
Revenue, Duty, fee, tax, fine and payment as condition for the grant
of licenc1~ for any exclusive privilege, S. 3 ( 1) defines Excise Revenue
as meaning revenue derived or derivable from any duty, fee, tax, fine
or confiscation imposed or ordered under the Provisions of the Act B
or of any law in force relating to alcohol or intoxicating drug. Excise
r Duty, and Countervailing duty is defined under S. 3 and 3 (a) as
,..._ meaning such excise duty or countervailing duty, as the case may be,
"" as mentioned in entry 51 of List II of the Seventh Schedule of the
'f Constitution. Chapter II relates to establishment and control of the
Excise Department. Chapter III prohibits import of intoxicants. c
Intoxicant means any liquor which in turn includes any liquids con-
taining alcol)ol. S. 12 prohibits import unless permission is obtained
and conditions imposed by the State Government are satisfied and any
duty imposed under S. 28 is paid. S. 28 refers to duties and fee and
provides that an excise duty or countervailing duty, as the case may D
be, directed by the State Government may be imposed on any excise-
able article. Under this section, a dnty on import, export, transport,
manufacture is levied in accordance with the provisions of S. 12(1),
- 13, 17 and 18. The stand taken by the State before us is that the
levy which is being collected, is not in the nature of an excise duty or
counter-veiling duty. Though a duty under S. 28, Proviso II on de- E
natured spirH was levied after Proviso II to S. 28 was omitted by the
Government {Adaptation of Indian Law) Order, 1937, no excise duty
on denatured spirit was levied.
Apart from the duty that is leviable, the Excise Commissioner is
empowered under S. 30 instead of or in addition to any duty to accept
F
payment of a sum in consideration of the grant of licence of any ex-
clusive privilege under s. 24. Section 24 provides that subject to the
provisions of S. 31, the Excise Commissioner may grant any person
a licence for exclusive privilege of manufacturing or supplying or
selling whok:sale or retail, any country liquor or intoxicating drug
within any local area. Reading S. 30 and 24 together, it is clear that G
the Excise Commissioner may accept payment in consideration for the
grant of the licence for any exclnsive privilege. The exclusive privilege
under S. 24 was confined only to country liquor within a local ~rea.
Before examining, the impact of amended S. 24A by U.P. Act 30 of
1972, it may be mentioned that Chapter VI empowers the collection
of fees for licence or permits granted under the Act. A licence fee was n
only collected under notification dated 22-5-1930 for licence for whole-
sale vend of denatured spirit. The Excise Department on 23-1-1937
548 SUPREME COURT REPORTS [1980] 2 S.C.R.

A introduced rule 17(2) underS. 40(2)(d) imposingvendfeeofAnnas •
7 per bulk gallon for the issue from the distillery. This fee was not
collected regarding denatured spirit issued to industries engaged in the
manufacture of synthetic rubber.

By notification dated 3rd November, 1972 the U.P. Government
B amended the Excise Rules and substituted rule 17 (2). The rule is
purported tQ have been issued under S. 40(2) (d) in exercise of the .
powers conferred on the Government under S. 40(1). By the noti- ~"<;
fication on the issue of denatured spirit from a distillery a vend fee of ,,.......
Rs. 1.lOp. per litre was made payable in advance except regarding/-
the issue to institutions exempted under the rule. The Learned
c Counsel strenuously contended that this levy does not purport to be
in consideration of the grant of licence for any exclusive privilege.
On the other hand, the learned Counsel pointed out that S. 40(2)(d)
refers· to the rule making power ,of the Government for regulating the
import, export, transport or possession of the intoxicants. The power,
0 if any, is conferred on the Excise Commissioner under S. 41 enabling
him to make rules prescribing the scale of fees in respect of licence,
permits or pass or storing any intoxicants. In 1972 U.P. Act 30/1972
added S. 24A which provides that subject to provisions of S. 31, the
Excise Commissioner may grant to any person a licence or licences
for the exclusive privilege of selling by retail at shops (for consump-
E tion both on and off the licensed premises, or for consumption off the
liceneed premises only) any foreign liquor in any locality. After the
introduction of S. 24A, the Excise Commissioner is empowered to
grant any person a licence for the exclusive privilege . of selling ~7
foreign liquor. Before· the amendment, S. 24 was restricted to coun-
try liquor m: intoxicating drug. By the amended Sec. 24A the Excise
F Commissioner may accept payment of a sum in consideration for the
grant of the licence for any exclusive privilege for selling foreign
liquor. S. 31 to which S. 24A is subject, relates to grant of licences
and it does n,ot in any way restrict the power thus conferred by S. 24A.
The plea put forward by the learned counsel is that the word 'foreign
G liquor' cannot be understood as including denatured spirit as the Sec-
tion would itself indicate that the l'cence is for selling for consump-
tion which would indicate that f,oreign liquor is meant for human
consumption. We are unable to give the words 'foreign liquor' such
a restricted meaning for the word consumption cannot be confined to
consumption of beverage alone. When liquor is put to any use such
H as manufacture of other articles, the liquor is, all the same consumed.
Further, S. 4(2) provides that the State may declare what shall be )
deemed to be country liquor or foreign liquor. The State had under
1[).P. STATE v. SYNTHETICS CHEMICALS (Kai/asam, J.) - 549

--( rule 12 issued notification dated 30th December, 1960 defining A
• foreign liquor as meaning all rectified, perfumed, medicated aud d<!na-
tured spirit, wherever made. The plea that the Excise C,ommissioner
had no right to accept payment in consideration for the graht of the
licence for the exclusive privilege for selling wholesale or retail foreign
liquor which includes denatured spirit, cannot, therefore be accepted.
Rule 17 (2) no doubt pufjJiorts to have been issued under the rule B.
making powers conferred on the Government under S. 40(2)(d)
which enables the Government to make rules for regulating the im-
port, export, transport for possession of any intoxicants. It may be
\noted that when the amended rule 17(2) was introduced on 3-11-1972,
S. 24A had been amended by U.P. Act, 30/1972 and the power of
the Excise Commissioner to accept payment for grant of licence for C
exclusive privilege cannot be denied.

The validity of Act 30/1972 which authorised the Excise Com-
missioner to collect a vend fee for the retail or wholesale vend of
foreign liquor was challenged. The Allahabad High Court upheld D
the challenge holding that the State did not have the exclusive privi-
lege to collect the vend fee. This view was not accepted by the
Supreme Court in Nashirwar's case (supra) and Hanshankar's case
(supra) which held that under the regulatory power, the State had
power to auction the right to vend by retail or wholesale fore'gn
liquor. As Act 30 of 1972 was struck down by the Allahabad High E
Court the State came forward to validate Act 30 of 1972 as it stood
when it was passed by introducing the U.P. Excise (Amendment) (Re-
enactment and Validation) Act, 1976 (U.P. Act 5 of 1976). The
preamble refers to the passing of U.P. Amendment Act, it being struck
down by the Allahabad High Court and the subsequent decision of
the Supreme, Court in Nashirwar's case, and states that it had become F
necessary to enact the (Amendment) (Re-enactment and Validation)
Act. In the main Act, after S. 1, sub-s. (2) was introduced provid-
ing that it shall be deemed to have been in force ever since the com-
mencement of the United Provinces Excise Act, 1910. After S. 24
' of the principal Act, S. 24A was introduced. S. 24A( 1) re-enacts G
S. 24A(l) added by U.P. Act 30 of 1972. S. 24B was• introduced
for removal of doubts which declared (1) that the State Government
has exclusive privilege for mannfacture and sale of country and
foreign liquor; (2) that the amount described as licence fee in cL (c)
of S. 41 is in its essence rental or consideration for the grant of such
right or privilege by the State Government and (3) that the Excise B
Commissioner as the head of the Excise Department of the State shall
be deemed while determining pr realising such foe, to act for and on
550. SUPREME COURT REPORTS [1980) 2 S.C.R.

A behalf of the State Government. S. 30 was substituted which specifi-
ca14' mentioned that the Excise Commissioner may accept payment
of a sum in consideration of the grant of privilege for any exclusive
or other privilege under S. 24A. S. 24A was not specifically mentioned
in S. 30 as it stood before the re-enactment. After the introduction of
S. 24A, the Excise Commissioner had a r;ght to grant the pr;v:Jege
B of selling of foreign liquor. The fact that S. 30 did not specifically
mention S. 24A might not have made any difference. But in order
to remove all doubts, the new Section 30 had been introduced. S. 41, ·~
cl. (3) was re-enacted to enable the fixation of fee payable for the
grant of exclusive or other privilege under S. 24 and 24A. S. 40 _1- _,,..
C was also amended so as to give retrospective effect. S. 4 of the Act ~
5 of 1976 also provides that the U.P. Excise (Amendment) Act, 1972
shall be deemed to be and always to have been as valid as if the provi-
sions of this Act were in force at all material times. In short the
purpose of introduction of Act 5 of 1976 was to make it clear that
U.P. Excise (Amendment) Act, 1972 shall be deemed to and always
D to have been valid. In view of our findings that U.P. Excise
(Amendment) Act, 1972 was valid, the effect of U.P. Act 5 of 1976
is to remove all doubts and to give retrospective effect.

It was next contended that foreign liquor which is defined under
rule 12, as including denatured spirit, cannot apply to specially dena-
E lured spirit. Foreign liquor was defined as including specially dena-
tured spirit. By a notificafon the Excise Commissioner of U .P. on
3-5-1976 framed U.P. Licences for the possession of denatured spirit
and specially denatured spirit Rules, 1976. In the preamble to the
rules, it is stated that the Excise Commissioner with the previous sanc-
tion ofth e State Government was making the rules relating to licence
F for possession pf denatured spirit including specially denatured spirit
for industrial purposes. Rule 1 (iii) provides that specially dena-
tured spirit· means rendered unfit for human consumption in such
manner as may be prescribed by the Excise Commissioner by notifica-
tion in this. behalf and does not include ordinary denatured spirit for
G general use. Rule 2 provides that licences for the possession of the
denatured spirit including specially denatured spirit for industrial
•
purpose shall be of three kinds. The learned counsel contended that
though foreign liquor is defined as including denatured spirit, it cannot
be held to include specially denatured spirit. Denatured spirit men-
tioned in the rules is treated as ·including specially denatured spirit for
II industrial purpose. Denatured spirit has ethyl alcohol as one of its
constituents. The specially denatured spirit for industrial purpose
)
is different from denatured spirit only because of the difference in the
U.P. STATE v. SYNTHETICS CHEMICALS (Kailasam, !.) 551

( quantity and quality pf the denaturants. Specially denatured spirit A
' and ordinary denatured spirit are classified according to their use and
denaturants used. We are unable to accept the contention of the
learned counsel that specially denatured spirit for industrial purpose
is different from the ordinary denatured spirit. The definition of
alcoho1 under rule 12 includes f:\oth ordinary as well as specially dena-
tured spirit. B

It was next contended that if the levy of Re. 1.lOp per bulk
gallon of denatured spirit as vend fee, is upheld it would result in
violating the appellants/petitioners fundamental right to carry on
their trade and business under Art. 19(1) (g) of the Constitution.
According to the learned counsel, the price fixed per gallon of ethyl
c
alcohol under the Ethyl Alcohol (Price Control) Order is 59 paise,
per gallon. If the levy is not considered as a tax and could not be
passed on to the consumer as price fixed under the Ethyl Alc.obol
Amendment Order, is only 59 p., it .would be confiscatory in nature.
It is seen that the right of the State Government to accept payment D
of a sum for the grant of its exclusive privilege cannot be questioned.
The price fixed for ethyl alqohol is ex-distillery price and we see no
impediment for the addition of Re. 1.10 as vend fee by the State
Government.

Dr. L. N. Singhvi, who appeared as intervener in Civil Appeal E
Nos. 2191 to 2198 of 1978 for the appellants and for petitioners in
Special Leave Petitions Nos. 125 to 126/79 while adopting the con-
tentions of Mr. Nariman submitted that the stand taken by the U.P.
Government in earlier proceedings in the High Court was that the
levy was in the nature of Excise Duty or a fee while the present stand F
is that it is neither a duty nor fee but only a levy for the conferment
of the exdusive privilege. It is true that the stand taken by the
Government in the earlier proceedings was different but that would
not make any difference so long as the Government had a right to
impose the levy. It has been found that after the addition of S. 24A
by Act 30 of 1972, the Commissioner was entitled to accept payment
f,or conferiring the privilege which the State owned exclusively. The
learned counsel submitted that so far as his clients M/s. Rallis
ChemiCllls, Kanpur and M/s. Rallis India, petitioners in Special Leave
Petitions Nos. 125 to 126 of 1979 are concerned they are only holders
of licences for possession and are not licencees under F.L. 16. In
the same class fall the appellants in Civil Appeal No. 2248 of 1978, H
M/s. Synthetic and Chemicals who are only purchasers of denatured
spirit. It was submitted that for this class of persons if the vend fee iS
552 SUPREME COURT REPORTS (1980] 2 S.C.R.

A for the grant of exclusive privilege of the State for sale of liquor, it
caunot be recovoced from the purchasers. Rule 17 ( 1) relates to vend "' '
of denatured spirit. It empowers the Collector ( 1) to grant to a distiller
a licence for manufacture of denatured spirit (2) to grant to approved
dealers of denatured spirit a licence in form F.L. 16 for the wholesale
vend of denatured spirit. Scale of fee is given in the rule which pres-
B cribes that for sales not exceeding 10,000 litres per annum a fee will
be of Rs. 100/- and fo.r sales exceeding 10,000 litres, the fee shall be
increased by Rs. 500/- for every 5000 litres or fraction thereof. Sub-
rule (2) provides that in case of issue from a distillery, a vend foe
of rupee one and ten paise per bulk gallon will be payable before the
c spirit is issued. The fee charged is very different from the one in Rule
17 ( 1) which provides that the distillery or an approved dealer for
wholesale vend of denatured spirit may be given a licence in Form
F.L. 16. The distiller and the approved dealer is to pa; a licence fee
for the sales a~ the rate prescribed. But rule (2) speaks ·of levy of vend
fee in case of issued from the distillery which is payable in advance
D before the spirit is issued. It is admitted that the petitioners and the
appellants who claim as purchasers do not have a licence under F.L.
16. Therefore, sulrs. (1) has no appJ:cation. The levy on persons who
are purchasers is for the possession of denatured spirit in excess of the
prescribed limit. The permission granted in their favour and the allot-
ment orders of the specially denatured spirit prescribes the terms and
E conditions unde.r which the allotment is made.' The licences are granted
to them under form F.L. 39 and they have to abide by thost1 condi-
tions. The notification of the &cisc Commissioner of U.P. dated
3-5-1976 provides that the licence for the possession of denatured
spirit including the specially denatured spirit of industrial purpose shall
be of three kinds. We are concerned with the licences for the possession
F for use in industries in which alochol is destroyed or
converted chemically in the process into other products
and the product does not contain alcohol such as, Ethel,
Styrene, Butadiene, Acetone and Polythene etc. The licence granted
for this purpose is in form F.L. 39. Rule 3 (a) provides that the. fee for
the licence in Form F.L. 39 shall be at a .rate prescribed for industry
G
to industry by the Excise Commissioner per litre, payable on the
quantity of specially denatured spirit obtained from any distillery in
Uttar Pradesh and that fee shall be realised by the Excise Inspector
incharge Distillery from the licensee before issue of the specially dena-
tured spirit f.rom the distillery. The conditions relating to grant of a
H licence for issue of denatured spirit for industrial purpose are laid down
in rule 4. Special conditions regarding licence in form F.L. 39, 40 and
41 are prescribed in rule 5. The appellants/petitioners having applied
U.P. STATE v. SYNTHETICS CHEMICALS (Kailasam, J.) s 53
for and obtained licences in form F.L. 39 are bound to comply with A
the conditions.
Lastly, it was contended that the provisions of Uttar Pradesh Excise
(Amendment) (Re-enactment and Validation). Act, 1976 is invalid
and confiscatory as its retrospective operation imposes an unbearable
burden on the appellants/petitioners. It was stated that the licence B
under F.L. 39 was issued only in the year 1979 and no levy could be
made regarding denatured spirit that was supplied before that date.
The answer of the State is that the levy was imposed for permission
granted in their favour and allotment orders of denatured spirit issued
to them from the various distilleries. The parties after having paid the
fee had taken possession of the denatured spirit from the distillery. Act c
5 of 1976 has been given retrospective effect as the levy imposed
unde.r Act 30 of 1972 was found to be illegal and unsustainable by
the Albhabati ;High Court which was reversed by this Court by giving
retrosp<:ctive effect, the State has only restored the status quo enabling
the collection of the levy validly made by Act 30 of 1972.
D
Reliance was placed on the decision of this Court in A. B. Abdul
Kadir & Ors. etc. v. State of Kerala(') for the contention that retros-
pective operation of ;m Act when it harshly operates is liable to be held
as inva!J'd. At page 706 this Court obse.rved that the power to make a
valid law' would enable providing lair prospective and retrospective
operation of the provisions. It was observed that in judging the reason- E
ableness of the retrospective operation of law, the test of: length of time
covered by the retrospective operation could not by itself be treated
as decisive. On the facts of the case there could be no complaint
because what is sought to be. collected is levy which was legally made.
The result is, all the contentions raised by the learned counsel for
the appellants/petitioners fail and appeals and the petitions are dismis- F
sed with costs one set of hearing fee. The State Appeal C.A. No. 1130/
76 is allowed but there will be no order as to costs.

P.B.R. State appeals allowed.

(I) [11!>76] 2 S.G.R. 690.
14-21 SCl!/80