State Governments’ Power to Regulate Industrial Alcohol

Transcript

Hello, everyone! Welcome to SCO explains.

I’m Gauri Kashyap and we’re here today to talk about liquor. Over six days in April 2024, the Supreme Court heard arguments about whether the Union government or the state government should have power to regulate industrial alcohol.

And this was no small bench. All of nine judges assembled to hear this case. But before we get into the details and the nitty gritties, let’s briefly look at a few Entries in the 7th Schedule of the Constitution. The 7th Schedule regulates the power allocation between the Centre and the states. List 1 discusses the Union List, List 2 the State List, and the third, a Concurrent list considers topics where both the Union and the state government share an interest.

Entry 52 reads like this: “Industries, the control of which by the union is declared by Parliament by law to be expedient in the public interest.” Lots of words. I know.

This means that out of public interest, the Union government can take control of an industry through a declaration of Parliament or law by Parliament. What does this declaration look like for our purpose? In 1951, Parliament enacted the Industries Development and Regulation Act.

Section 18G of the Industries Act said that when it thinks it’s necessary, the Union government can take control of supply, distribution, price, etc. of industries that are mentioned in the first schedule of the Act.

Next, we come to the State List. Entry 8 of this list gives state governments regulatory powers over production, manufacture, possession, transport, purchase and sale of “intoxicating liquors.” Now, whether intoxicating liquor means industrial liquor, or is it only liquor that makes one intoxicated is one of the key contentions in this case.

Finally, there’s Entry 33 of the Concurrent List. Under the Concurrent List, both Union and state governments can make laws on trade and commerce, production, supply and distribution of products of any industry which has been declared by parliament to be of public interest. Now, this may seem kind of clear.

The Union government controls declared industries; The state controls production and manufacture of intoxicating liquor. And when there is a public interest involved, the Union will regulate trade and production of some declared industries. But does the Union’s powers under Entry 52 cover alcohol, as in our beers and whiskeys?

Or does it cover alcohol used in industries? Or is it both? When Entry 8 gives states the power to control intoxicating liquor, does this mean liquor that people drink to get Intoxicated? Or is it just what they are calling alcohol because it typically has intoxicating effects?

And finally, who exactly regulates industrial alcohol, this crucial product that is used in paint, solvents, personal hygiene and consumer products, disinfectants and surgical spirits!

It is all these questions that the Supreme Court had to deal with in State of Uttar Pradesh v Lalta Prasad Vaish, which is the nine judge bench we are discussing today. Now, why did as many as nine judges assemble to hear the case?

Over the years, many judgments have dealt with the division of powers between the Union and the states over control of various industries, the sugar industry, gas and gasworks, and more. But two specific judgments bring us to Court in 2024.

Lets go back to 1956. A five judge Constitution Bench delivered a judgment in a case on sugarcane regulation. This is Tika Ramji v State of Uttar Pradesh where the Court dealt with the power of a state to enact a law regulating sugarcane when sugar was covered under the Schedule of Industries and the Industries Act. The court looked at the overall object, that is the purpose and the scheme of the IDR Act—that is, the Industries Act. It held that Entry 52 which gave the Union the power over industries only applied to manufacturing.

So only sugar and not sugar cane, which is a raw material, would be regulated by the Union. It held that therefore the state was not deprived of its powers to make laws under Entry 33 of the Concurrent List. The same five judge bench also held that a notified order by the Union was mandatory to occupy the field.

That means for the Union to come and claim power over something that a state government would otherwise have power over. Without this notified order, states would first claim power under Entry 33. Now, for 34 years. The reasoning in Tika Ramji prevailed. 

In 1989, however, a larger bench, that is a seven-judge Constitution bench in Synthetics and Chemical v State of Uttar Pradesh, said that state governments have legislative competence over potable liquor and their power to regulate industrial liquor was limited.

So when it came to preventing illegal conversion of industrial liquor to illicit liquor for consumption, the state governments powers would apply. In the decisions that came after Synthetics and Chemicals were repeatedly referred to and relied on. But with two judgments and two Constitution Bench judgments differing, conflict was slowly brewing.

Lalta Prasad Vaish, the case at hand began with a 1999 notification of the Uttar Pradesh government which imposed a license fee on wholesale vendors under the UP Excise Act 1910. An Aligarh based distributor challenged the notification saying that the Uttar Pradesh government had no power to regulate denatured spirits or industrial alcohol. In 2004,the Allahabad High Court agreed and held that license fee was wholly illegal.

Since denatured spirit or industrial alcohol was totally outside the states powers, the High Court directed the Uttar Pradesh government to refund the collected fee. Of course, Uttar Pradesh went to the Supreme Court.

This case became State of Uttar Pradesh v. Lalta Prasad Vaish. In 2007, a division bench of the Supreme Court, while hearing this case, discovered that because of Synthetics and Chemicals, Section 18G of the Industries Act was interpreted to remove states power under Entry 33 of the Concurrent List with industrial alcohol.

The division bench also found something interesting. They noted that while deciding Synthetics and Chemicals, the Supreme Court seemed to have completely forgotten the 1956 Tikaramji decision.

There, the court had clearly stated that the states legislative powers could never be removed by any Union legislation under Entry 52 of the Union list as Synthetics was a seven judge bench. The Court referred this case to a nine judge bench.

Now why does this case matter?

Of course, state governments have a huge investment in terms of revenue that they get from regulating industrial alcohol, and this is a matter of grave concern.

It also tells us the division of powers between the Central and the state governments, and it tells us who has the control to regulate a crucial raw material in our industries today. We’ve covered the case blow by blow from argument on both sides on our case page.

Make sure to check it out. And of course, for stories from the Supreme Court, visit SCObserver.in. I’ll see you soon.