IDR Act Represents Union's Intention To Exclusively Occupy The Field Of Industrial Alcohol : SG Tells Supreme Court [DAY 5]

The SG submitted that since various provisions of the IDR Act establish that it was the Parliament's intention to occupy the complete field of alcohol including industrial alcohol in all three stages - pre-production, production and post-production, any state legislation on the same subject would become repugnant and void.

The CJI recalled his decision in Forum for People's Collective Efforts (FPCE) vs. State of West Bengal, where the court had rejected the argument that the state in the absence of an express prohibition could make a law identical to an existing central law. The CJI noted that only because S.18G provides that the central government may regulate through a notified order and that there is an absence of such notified order, such an argument alone does not negate other factors showing Parliament's intent to occupy the complete field.

“ We overruled it and set aside the State Law, we said that once the Central Law - RERA has held the field, the state cannot enact a law even on all fours of the Central law. So repugnancy in the sense, that they both cannot stand together in one aspect of repugnancy….with respect to S.18G, it says that the government by notified order provide XYZ. Now the issuance of a notified order is an administrative act. This cannot be determinative of the field which is occupied by the Parliament.”

S.18 G of the IDR Act provides that the Union may by notification regulate post-production processes (supply, distribution, trade, commerce) of the alcohol industry.

18G. Power to control supply, distribution, price, etc., of certain articles - (1) The Central Government, so far as it appears to it to be necessary or expedient for securing the equitable distribution and availability at fair prices of any article or class of articles relatable to any scheduled industry, may, notwithstanding anything contained in any other provisions of this Act, by notified order, provide for regulating the supply and distribution thereof and trade and commerce therein.

'Should The Correctness of 'Tika Ramji Be Looked Into? The Bench Mulls

During the hearings, a key contention was raised by SG on the incorrectness of the decision in Tika Ramji. It was the case of the Union to interpret 'industry' as incorporate of all 3 processes - (1) pre-production (including raw materials); (2) production/manufacturing and (3) post production which includes sale, trade, commerce, distribution etc.

In Tikaramji, there existed a clash of law-making powers over the subject matter. The question over the validity of the 1953 UP Sugarcane (Regulation of Supply and Purchase) Act, which serves as the basis for the 1954 UP Sugarcane Supply and Purchase Order, was brought to the fore. The critiques of the act's legitimacy hinged on the viewpoint that it encompasses the 'industry' field, an area the Union is considered to occupy in oversight for the want of public interest, under the Parliament's directive in Entry 52 of List I ( Industries controlled by the Union in Public Interest). In response, the Industries (Development and Regulation) Act was enacted by Parliament in 1951. This legislation underscored the Union's crucial role in regulating specific industries for the common good, enumerating these industries in the First Schedule, which includes those that deal with the manufacturing or production of sugar.

The Court interpreted that the concept of "industry" includes three primary elements: essential raw materials for industrial activities, the actual process of manufacturing or production, and the distribution process of the end products. It was explained that issues pertaining to the manufacturing process are covered by Entry 24 of List II (Industries subject to the provisions of [entries 7 and 52] of List I). Unless the industry is under the jurisdiction of the central government, at which point, it is governed by Entry 52 of List I.

Contrary to the argument that Entry 52 of List I mentions of "industries" is wide-ranging enough to encompass laws regarding raw materials or the distribution of industrial goods, the Court clarified that such components do not fall within Entry 52 of List I domain.

However, the CJI, considering the long-standing law laid down in Tika Ramji on the definition of 'industry', pondered whether it is essential for the court to dwell on its correctness.

“ Is it strictly necessary for us to start wielding the axe and going into an earlier judgement, can you not independently sustain your argument without getting into the correctness of Tika Ramji?”

SG then clarified that the present 9-judge bench would not be bound by the decision of Tika Ramji. He expressed that the reason for him to address the decision in Tika Ramji was essentially to counter the appellant's earlier arguments wherein they have relied on the decision to establish that 'industry' under Entry 52 List I excludes the state's law-making powers on pre-production and post-production processes. The SG also addressed the apprehension raised by the appellants on the absence of a notified order, which according to the latter paves the way for the State to legislate on post-production processes of the alcohol industry. S.18 G of the IDR Act specifies the need for a 'notified order' by the Central Government to regulate the supply and distribution of alcohol.

“If your lordships are persuaded that (1) raw material does not fall within the term 'industry'; (2) industry as a term only includes manufacturing; (3) in the absence of a notified order, there is a field open and the State can legislate.”

At this point, Senior Advocate Mr Dinesh Dwivedi intervened to clarify that the decision in Tika Ramji defining industry is crucial to the present case as the IDR Act acts contrary to the meaning given to the term industry. Since S.18G delegates to the Union the power to regulate post-production processes in the alcohol industry, that is sale, trade, distribution etc, this would run in conflict with the concurrent powers given to the State under Entry 33 List III. The conversation between Mr Dwivedi and CJI went as follows:

Mr Dwivedi: “ Tika Ramji is essential for the reason that the alcohol which is subject matter of dispute in Synthetics Chemicals is a product of the notified industry. Because the IDR Act specified the alcohol industry. So taking a product to be under the notified industry, the question of sale, distribution etc will go where?

CJI reverted that “ It would go under Entry 33 List III”

Mr Dwivedi continued, “ Exactly, so there the question inevitably arises, is there a law made under S.18G because 18 G is traceable?”

The CJI was seemingly sceptical about dwelling on the validity of the decision in Tika Ramji. He observed, “ We are a bench of 9, we are untrammelled. At the same time when there is a law- authority which has stood the test of time, it is easier for future benches to distinguish it, say its not applicable …”

It may be noted that Entry 33 List III provides “Trade and commerce in and the production, supply and distribution of,—

(a) the products of any industry where the control of such industry by the Union is declared by Parliament by law to be expedient in the public interest, and imported goods of the same kind as such products;...”

Concluding Submissions By The Union

The SG in continuance of his argument stressed the history and scheme of the IDR Act.

The main points made by the SG, and as observed summarily by the CJI, were : (1) 'Intoxicating liquor' under Entry 8 List II (regulation powers to the state with regards to 'Intoxicating Liquor') only refers to potable alcohol for human consumption; (2) since denatured spirit or industrial alcohol is not covered under the ambit of Entry 8 List II, it gets covered under the larger umbrella of Entry 24 List II (Union notified 'controlled industries'); Entry 24 of List II is subject to Entry 52 List I ( Industries controlled by the Union in Public Interest) which gives the Union law-making powers over 'controlled industries' declared in the public interest; (4) IDR Act is Union's manifestation of law making powers under Entry 52 List I, which covers industrial alcohol within its legislative fold; (5) the IDR Act made in light of Entry 52 List I covers the entire field of 'industrial alcohol' per say; (6) the presence of IDR Act holistically covers the different processes of the alcohol industry thus denuding the state's shared power under Entry 33 List III.

Additionally, Justice Nagarathna observed that Article 246 of the Constitution provides that every exercise of power of the State legislature is subject to the powers of the Union under List I and the Union's powers in the Concurrent List III. Therefore even in the alternative, the powers of the state legislature are denuded through the said constitutional provision.

The SG also submitted the reason why two different expressions are used under Entry 8 List II and Entry 51 List II. While the former uses the term 'intoxicating liquor', the latter uses the expression 'Alcoholic Liquor for human consumption'.

He stressed that the reason why there exists such a distinction is twofold (1) Entry 51 List II being a taxing entry needs to specify the instance at which taxing shall take place, thus its mentions 'for human consumption' as the valid instance for taxing; (2) There exists several products which contain alcoholic liquor but it is not intoxicating, for instance, cough syrup- “if it used not abused” - thus cautioning that several times even such products which are not intoxicating by themselves may be overused to obtain an intoxicating effect.

In the last few minutes of the hearing, the CJI lauded the efforts of the juniors assisting the SG through the complexities of the present case, allowing them a few minutes each to supplement the submissions of the SG. Mr Omar Ahmad, Ms Tahira Karanjawala and Ms. Sansriti Pathak assisting the SG made submissions on similar lines to the earlier arguments raised by the SG.

The bench will hear rejoinder arguments by the appellants on Thursday (April 18). 

Background

The present 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(IDR Act). 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 to regulate 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”

The bench hearing the matter is led by CJI DY Chandrachud and comprises Justices Hrishikesh Roy, Abhay S. Oka, B.V. Nagarathna, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma And Augustine George Masih.

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