New Delhi: Justice B.V. Nagarathna, as part of a nine-judge bench of the Supreme Court, is set to test the correctness of a 1989 ruling by a seven-judge bench that included her father, then chief justice E.S. Venkataramiah.
The questions in these cases pertain to the power to regulate industrial alcohol. Industrial alcohol is not fit for human consumption. However, it can be used as raw material after processing and substantial dilution in the production of drinkable liquor, including whisky, gin and country liquor.
A nine-judge Constitution bench headed by Chief Justice of India D.Y. Chandrachud and also including Justice Nagarathna began hearing the arguments in the case on 2 April. The case will be heard again Tuesday.
Justice Nagarathna is set to become the first woman Chief Justice of India in 2027.
Earlier in 2017, Justice Chandrachud in the right to privacy case, had overruled his father’s “seriously flawed” verdict in the ADM Jabalpur case of 1976, infamously called the ‘Emergency verdict’.
What does the law say on industrial alcohol and what did the 1989 judgment say on it? How did this issue reach the Supreme Court again? ThePrint explains.
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What the law says
The Seventh Schedule of the Constitution contains three lists — Union, State and Concurrent — to delineate the law-making powers of the Union and state legislatures.
According to Article 246, Parliament has exclusive powers to make laws on the subjects in the Union list, while the state legislature can make laws on subjects in the state list.
As for the concurrent list, both Parliament and state governments can enact laws listed in it. According to Article 254, if there is a conflict between the laws, the central law will override the state law.
Entry 52 of the Union list allows Parliament to make a law for certain industries in the “public interest”. It has to be declared by a central law that such industries need to be controlled by the Union.
Accordingly, Section 18G was added to the Industrial (Development and Regulation) Act 1951, through a 1956 amendment. It allows the central government to control the supply, distribution and price of certain scheduled articles, for “securing the equitable distribution and availability at fair prices”.
Item 26 of the first schedule of the act empowers the central government to control the fermentation industry, including alcohol.
However, Entry 8 of the state list allows the state legislature to make laws for “intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors”.
Further, Entry 33 of the Concurrent list allows both the state and central government to legislate on the product of any industry where “the control of such industry by the Union is declared by the Parliament by law to be expedient in the public interest”.
Father’s judgment
In 1989, a seven-judge Constitution bench of the Supreme Court in Synthetics & Chemicals Ltd vs. State of Uttar Pradesh looked into the taxing power of the states to impose and levy excise duty on industrial alcohol and/or imposts as vend fees.
The seven-judge bench then held that the states have the power to regulate the use of alcohol and that power must include the power to make provisions to prevent and/or check industrial alcohol being used as intoxicating liquor.
However, a few paragraphs later, the court also said that, after the 1956 amendment, “bringing alcohol industries (under fermentation industries) as Item 26 of the First Schedule to IDR Act, the control of this industry has vested exclusively in the Union”.
It added that, therefore, licences to manufacture both potable and non-potable alcohol are vested in the central government.
Notably, it asserted that “the state cannot claim that under Entry 33 of List III, it can regulate industrial alcohol as a product of the scheduled industry, because the Union, under Section 18G of the IDR Act, has evinced clear intention to occupy the whole field.”
However, in this judgment, the Supreme Court also failed to take into account a five-judge Constitution bench judgment in Ch.Tika Ramji v State of Uttar Pradesh — a case which pertained to UP Sugar Factories Control Act 1938 on the licensing of sugar factories and for regulating the supply of sugarcane intended to be used in such factories.
The court had then held that Section 18G of the act did not indicate the Parliament’s intention to “cover the entire field of such legislation”.
The judgment, in a way, recognised the state’s power to legislate on matters under Entry 33 of List III, regardless of the provisions and existence of Section 18G in the 1951 act.
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How case reached SC again
In 1999, the UP government issued a notification introducing a levy of 15 percent licence fee on the sale of specially denatured spirit by a distillery/wholesale vendor to licensees under the provisions of the UP Licences for the Possession of Denatured Spirit and Specially Denatured Spirit Rules, 1976.
In 2004, the Allahabad High Court ruled in favour of a petition against this law, noting that the state government had not claimed that the fee was being charged for ensuring that the rectified spirit is not diverted and used for human consumption, but that the fee was being charged for sale/purchase of denatured spirit.
It then asserted that imposition of a fee on such grounds was not acceptable since the state cannot make a law with regard to denatured spirits — which it said was the Union’s domain.
The high court even directed the government authorities to refund the fee collected from the petitioners along with interest at the rate of 10 percent per annum from the date of realisation or deposit till the date of refund within two months.
The UP government and its officers in the excise department challenged this judgment before the Supreme Court, which stayed the Allahabad HC judgment in August 2004.
In October 2007, the SC then said that the issue needed to be considered by a larger bench. It felt that if the 1989 decision on the interpretation of Section 18G of the 1951 act is allowed to stand, it would render the provisions of Entry 33 of List III “nugatory or otiose”.
The court also noted that the seven-judge bench in the 1989 bench “did not have the benefit of the views expressed by this Court earlier in Ch. Tikaramji case where the state’s power to legislate under the Concurrent list stood ousted by legislation by the central government under Entry 52 of List I and also in view of Section 18G of the Industries (Development and Regulation) Act, 1951.”
The questions
In 2007, the Supreme Court then referred six questions to a larger bench.
It asked whether Section 2 of the Industries (Development and Regulation) Act 1951 has any impact on the field covered by Section 18G of the said Act or Entry 33 of List III of the Seventh Schedule of the Constitution.
It also asked whether Section 18G of the Act falls under Entry 52 of the Union ist of the Seventh Schedule, or is it covered by Entry 33 of the Concurrent list.
The court further asked whether the mere presence of Section 18G of the act ousts the state’s power to legislate on the matter under Entry 33 of the Concurrent list.
In addition to such questions over the powers of the central and state governments to legislature on this subject, the court has also asked, “Does the interpretation given in Synthetics and Chemicals Case…in respect of Section 18G of the Industries (Development and Regulation) Act, 1951, correctly state the law regarding the state’s power to regulate industrial alcohol as a product of the Scheduled industry under Entry 33 of List III of the Seventh Schedule of the Constitution in view of clause (a) thereof?”
These questions ensure that Justice Nagarathna directly looks at the correctness of the 1989 judgment passed by her father.
(Edited by Richa Mishra)
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