Does 'Intoxicating Liquor' Include 'Industrial Alcohol'? Supreme Court 9-Judge Bench Analyses Overlapping Powers Of Union & States [Day 1]

The Supreme Court on Tuesday (April 2) commenced the hearing of the 9-judge Constitution Bench on the issue of overlapping powers between the Centre and the State in production, manufacturing, supply and regulation of 'Industrial Alcohol'. The bench led by CJI DY Chandrachud comprises Justices Hrishikesh Roy, Abhay S. Oka, B.V. Nagarathna, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma And Augustine George Masih.

The matter was referred to a nine-judge bench in 2007 and pertains to the interpretation of Section 18G of the Industries (Development and Regulation) Act, 1951. Section 18G allows the Central Government to ensure that certain products related to scheduled industries are distributed fairly and are available at reasonable prices. They can do this by issuing an official notification to control the supply, distribution, and trade of these products. However, as per Entry 33 of List III of the Seventh Schedule to the Constitution, the State legislature has the power of regulating trade, production, and distribution of products from industries under Union control and similar imported goods. It was argued that in Synthetics and Chemical Ltd. vs. State of U.P., a seven-judge bench had failed to address Section 18G's interference with the concurrent powers of the State. Accordingly, the Supreme Court held–

"If the decision in the Synthetics and Chemicals case (supra) with regard to the interpretation of Section 18-G of the 1951 Act is allowed to stand, it would render the provisions of Entry 33 (a) of List III nugatory or otiose."

The matter was then referred to a nine-judge bench. It may be noted that apart from Entry 33 List III, Entry 8 List II also provides regulation powers to the state with regards to 'Intoxicating Liquor'. As per Entry 8 List II, the state has law-making powers over - “ Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors”

Appearing on behalf of the State of U.P (appellants), Senior Advocate Mr Dinesh Dwivedi made 4 key formulations before the bench :

1. Entry 8 List II confers exclusive jurisdiction on the states to regulate industrial alcohol because Industrial alcohol is a part of intoxicating liquor.

Mr Dwivedi further added that “ Intoxicating liquor is a general term, unlimited, it has not been restricted by any phrases before or after….unrestricted by any other entry unlike Entry 24 List II ( Industries subject to the provisions of [entries 7 and 52] of List I)”

1. Entry 8 List II could be considered a special entry under the State List when compared to Entry 24 List II. Entry 24 List II is a general entry pertaining to industries apart from those specified under Entry 7 (Industries declared by Parliament necessary for the purpose of defence/ prosecution of war) and Entry 52 ( Industries controlled by the Union in Public Interest) of List I.
2. Entry 51(Duties of excise on alcoholic liquors for human consumption) and 54 of List II (taxes on sale and purchase of goods apart from newspapers) use the expression “Alcoholic Liquor for human consumption” , Entry 8 of List II could have used the same phrase had the framers intended, but Entry 8 uses a wider phrase “Intoxicating liquors”. If intoxicating liquor falls under Entry 8 of List II, it does not fall under Entry 24 of List II and is therefore not subject to Entry 52 of List II (taxes on entry of goods into local area for consumption/use/sale).
3. In his alternative argument, Mr Dwivedi contended that the word “industry” includes industrial alcohol. Even if 'industry' in Entry 24 List II or Entry 52 List I includes 'industrial alcohol' then powers go to the Union under List I regarding the manufacturing of the industrial alcohol.

Mr Dwivedi explained that once the industrial alcohol is brought up to be as notified Industry emerges, it goes to Entry 33 List III (trade, commerce in, production, supply and distribution of products of an industry controlled by the Union in public interest). The product is not included in Entry 24 List II or 52 List I.

The second limb of his alternative argument, as contended was that S. 18G of the Industries (Development and Regulation) Act, (IDR Act) 1951 confers an enabling power on the Union to regulate the products of the notified industries. Mr Dwivedi added that for securing equitable distribution and availability at fair price, the Union can regulate such products. Such regulation has to be through a notification order issued by the Central Government.

Legislative History & The Essence Of 'Intoxicating Liquor'

When Mr Dwivedi reminded the bench that the present issue on the law was first decided in 1951 and has been continued ever since the CJI interjected to point out that the cause for pendency is not because there existed multiple complexities in the issue at hand but because, with the changing times, the judicial perspectives have also evolved, considering the constant developments in the realm of federalism as an ever-growing notion.

“The reason for the reference is not because it is so complex, but because perceptions change. Our perception of what India is today is very different from what the judges had in 1950s, there is a new dimension to State's rights as federalism has progressed, there are a lot of reasons why we have to federally re-look at it”

The senior counsel submitted the Government Of India (GOI) Act 1935 first introduced Entry 31 of List II which had then prescribed that the Provincial Legislature could pass any law concerning the production, manufacture, transport, purchase, possession and sale of intoxicating liquor. The said Entry 31 List II is presently in the form of Entry 8 List II of the Constitution.

The dictionary meaning of 'liquor' as submitted by Mr Dwivedi in the case of State of Bombay v. F.N. Balsara, 1951 SCC 860 provides :

40. In the Oxford English Dictionary, edited by James Murry, several meanings are given to the word “liquor”, of which the following may be quoted:

Liquor….1. A liquid; matter in a liquid state; in wider sense a fluid.

2. A liquid or a prepared solution used as a wash or bath, and in many processes in the industrial arts.

3. Liquid for drinking; beverage, drink. Now almost exclusively a drink produced by fermentation or distillation. Malt liquor, liquor brewed from malt; ale, beer, porter, etc.

4. The water in which meat has been boiled; broth, sauce; the fat in which bacon, fish or the like has been fried; the liquid contained in oysters.

5. The liquid produced by infusion (in testing the quality of a tea). In liquor, in the state of an infusion.

The CJI then pointed out paragraph 44 of F.N. Balsara to highlight that the term 'liquor' cannot just be restricted to the simple meaning of drinking alcohol but also industrial alcohol aswell. The paragraph reads as follows :

44. ….. Even if we exclude the American and English Acts from our consideration, we find that all the Provincial Acts of this country have consistently included liquids containing alcohol in the definition of “liquor” and “intoxicating liquor”. The framers of the Government of India Act, 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, accordingly I consider the appropriate conclusion to be that the word “liquor” covers not only those alcoholic liquids which are generally used for beverage purposes and produce intoxication, but also all liquids containing alcohol. It may be that the latter meaning is not the meaning which is attributed to the word “liquor” in common parlance especially when that word is prefixed by the qualifying word “intoxicating”, but in my opinion having regard to the numerous statutory definitions of that word, such a meaning could not have been intended to be excluded from the scope of the term “intoxicating liquor” as used in Entry 31 of List II.

Relying on several other Statutory Definitions of 'liquor', Mr Dwivedi submitted that all liquids containing alcohol come within the ambit of 'intoxicating liquor'. He further stressed that since Entry 8 List II has been adopted from the GOI Act of 1935, the purposive meaning of the term ' Intoxicating Liquor' echoes the same intent with which it was initially introduced in 1935.

“The pattern, the thinking would be the same as it was then (1935). And if in 31 that was the concept, then it has to be the same in the Constitution, because they have adopted the same.”

The CJI then asked if there was any specific reason why the legislature differentiated in its terminology by using 'intoxicating liquor' under Entry 8 List II as opposed to the option of using the simple 'liquor'.

“When the legislature or the Constitution uses the expression liquor, it means all liquids containing alcohol. But when the word 'liquor' is qualified by the term 'Intoxicating' does that make any difference?”

Mr Dwivedi explained that a liquor containing an intoxicant of a higher degree would essentially be referred to as 'intoxicating liquor', although the term comes under the larger understanding of the 'liquor' genus.

“Every liquid containing alcohol is included as 'intoxicating liquor'. 'Intoxicating Liquor' means liquor, …. There can be a drug in a liquid form which may be intoxicating, so therefore it may be a liquid containing intoxicant. The word intoxicant was wider.”

CJI then reverted, “Intoxicating does not mean that it has to be capable of human consumption”

To which the senior advocate said, “It indicates the potentiality of the item, that it contains alcohol in it. And therefore it is intoxicating”. Giving the example of recent trends of whiskeys, vodkas and countrymade alcohols containing high percentages of alcohol, Mr Dwivedi illustrated that the term 'Intoxicating Liquor' includes both, human drinkable liquid containing high contents of alcohol as well as non-drinkable liquids with high saturation of alcohol.

“Nowadays there are all kinds of liquor, whiskeys, vodkas they go upto 72% - 57-67%, recently I discovered a potable liquor consisting of 92% (of alcohol) ! So as my lords said, as the time passes, new things emerge, people keep on experimenting they want the strong drink possible.”

Incidental Encroachment In State List Doesn't Reduce The Powers Of The State Legislature - Mr Dwivedi Emphasizes

In his main contention, Mr Dwivedi argued that the present issue is one with regards to incidental encroachment into the state's powers on 'intoxicating liquor' by virtue of S. 18G of the IDR Act. Underscoring the significance of maintaining federal balance, the counsel stressed that when a central law accidentally steps into areas usually controlled by state governments, it doesn't mean the state loses its powers over those areas. These incidents can help find a middle ground to the legal issues but shouldn't limit what the states can do within their own law-making spheres. In a system where both state and central governments share power, we can't just reduce the state's powers through central notifications. This would harm the balance of power between the state and the centre.

“Incidental encroachment in state list can never imply a reduction in the State's jurisdiction. It can at best save the law which is in dispute but it cannot be tantamount to restricting the scope of the Entry which is within the state's legislative power, which is independent. States are in a federal polity they are equally sharing sovereignty. So we cannot cut short the state's power through Parliamentary Declarations. That would be most damaging for the federal structure.”

Mr Dwivedi then explained that in the case where there happens to be incidental encroachment, then as a principle the dominant legislature, in whose list the subject is would prevail to legislate. Reliance was placed upon the observations made in the decision of the Supreme Court in Jayant Verma v. Union of India, (2018) 4 SCC 743.

42. Indeed, in a recent judgment of this Court, this has, in fact, been held. In UCO Bank v. Dipak Debbarma [UCO Bank v. Dipak Debbarma, (2017) 2 SCC 585 : (2017) 2 SCC (Civ) 175] , this Court held : (SCC p. 596, paras 13 & 14)

“13. The federal structure under the constitutional scheme can also work to nullify an incidental encroachment made by the parliamentary legislation on a subject of a State legislation where the dominant legislation is the State legislation. An attempt to keep the aforesaid constitutional balance intact and give a limited operation to the doctrine of federal supremacy can be discerned in the concurring judgment of Ruma Pal, J. in ITC Ltd. v. Agricultural Produce Market Committee [ITC Ltd. v. Agricultural Produce Market Committee, (2002) 9 SCC 232] , wherein after quoting the observations of this Court in S.R. Bommai v. Union of India [S.R. Bommai v. Union of India, (1994) 3 SCC 1] , the learned Judge has gone to observe as follows : (ITC Ltd. case [ITC Ltd. v. Agricultural Produce Market Committee, (2002) 9 SCC 232] , SCC p. 282, paras 93-94

'93. … “276. The fact that under the scheme of our Constitution, greater power is conferred upon the Centre vis-à-vis the States does not mean that States are mere appendages of the Centre. Within the sphere allotted to them, States are supreme. The Centre cannot tamper with their powers. More particularly, the courts should not adopt an approach, an interpretation, which has the effect of or tends to have the effect of whittling down the powers reserved to the States.” (S.R. Bommai case [S.R. Bommai v. Union of India, (1994) 3 SCC 1] , SCC pp. 216-17, para 276)

94. Although Parliament cannot legislate on any of the entries in the State List, it may do so incidentally while essentially legislating within the entries under the Union List. Conversely, the State Legislatures may encroach on the Union List, when such an encroachment is merely ancillary to an exercise of power intrinsically under the State List. The fact of encroachment does not affect the vires of the law even as regards the area of encroachment. [A.S. Krishna v. State of Madras [A.S. Krishna v. State of Madras, AIR 1957 SC 297 : 1957 Cri LJ 409] , Chaturbhai M. Patel v. Union of India [Chaturbhai M. Patel v. Union of India, (1960) 2 SCR 362 : AIR 1960 SC 424] , State of Rajasthan v. G. Chawla [State of Rajasthan v. G. Chawla, AIR 1959 SC 544 : 1959 Cri LJ 660] and Ishwari Khetan Sugar Mills (P) Ltd. v. State of U.P. [Ishwari Khetan Sugar Mills (P) Ltd. v. State of U.P., (1980) 4 SCC 136] This principle commonly known as the doctrine of pith and substance, does not amount to an extension of the legislative fields. [Ed. : Emphasis has been supplied to the matter between two asterisks.] Therefore, such incidental encroachment in either event does not deprive the State Legislature in the first case or Parliament in the second, of their exclusive powers under the entry so encroached upon. [Ed. : Emphasis has been supplied to the matter between two asterisks.] In the event the incidental encroachment conflicts with legislation actually enacted by the dominant power, the dominant legislation will prevail.'

The 'Conundrum' Faced By The Bench - The State Or The Union, Who Prevails?

The CJI raised a major concern in the present case, as to the direct and complete overlap of subject matter between List I of the Union and List II of the State. Both Entry 52 List I and Entry 8 List II give law-making powers over the production and manufacturing of goods, including liquor, to  the Union and the state respectively. In such a circumstance, the CJI expressed that there existed a conundrum as to which legislature would dominate the field of subject matter.

“The conundrum which we face is this, that Entry 52 List I covers production. Manufacturer etc expressly. Entry 8 List II covers production, and manufacture expressly, so there is a complete overlap between Entry 52 List I and Entry 8 List II. Now one answer to this is if you read therefore both of them are overlapping and Entry 52 List I having predominence, then Entry 8 is rendered otiose. But when two entries are completely overlapping, Entry 8 List II expressly and Entry 52 List I through interpretation then what will be the way?”

CJI discussed how laws work when both the state and central government have similar powers. He points out that sometimes both the state and central government might want to make laws on the same thing – like how products are made or sold. He says there are two ways to look at this:

1. One side believes that if the state wants to make a law about something that the central government also has the power to regulate, the state should be allowed to do so fully. This entails the pro-state or pro-federal approach;
2. The other side says that because Indian federal system favours central power , meaning, in disputes between state and central law, central law often gets priority. In the event of such a clash,the central government's legislation should be given precedence, based on Article 246(1) of the Constitution.

Article 246(1) states: "Subject to clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the 'Union List')."

Under this provision, it is exclusively the role of the Parliament to craft legislation concerning the topics that are outlined in List I (Union List) found within the Seventh Schedule in the Constitution. Article 246(1) plays a crucial role by creating a ranking of legislative authorities. Subjects that falls under the Union List comes solely under the jurisdiction of the Parliament, ensuring that any laws it crafts concerning these areas stand above opposing legislation from the State Legislatures. This guarantees a consistency and uniform approach in handling key national matters throughout the nation.

The CJI opined, “there are two possible answers, one is the pro-state or pro-federal principle, that if the entry is made subject to the Central Entry then the state must have its full operation. The other is apply that the Constitution is federal, the constitution is federal because it ways in favour of the Centre and then say if the two entries overlap, then Article 246(1) will prevail.”

Referring to the previous decisions from the written submissions of Mr Dwivedi, the CJI expressed that all the prior cases where there seemed to be a clash between the state and union list, the overlap was not as direct as in the present case at hand, making it a first of its kind scenario.

“Therefore all these judgements really say that look Entry 52 List I does not cover the activity which is being legislated upon by the state. In one case, the raw materials the state can legislate, market the state can legislate. We are in a situation where, both entries are exactly on all fours together - production and manufacturing. Then what happens?”

Leaving the counsels with the open ended question, the Bench will resum its hearing today.

Case Details : STATE OF U.P. vs. M/S. LALTA PRASAD VAISH C.A. No. 000151 / 2007 & Other Connected Matters