Why Can't States Regulate Misuse Of Industrial Alcohol To Control Liquor Tragedies? Supreme Court Asks Union [Day 4]

The CJI also weighed to observe that the framers of the Constitution have couched the regulatory powers in a more vivid sense than the framing of the taxing powers of the state. Keeping in mind that taxing laws require specificity, the Entries of taxing liquor have been expressed with certainty, however, the framers were mindful that regulatory powers would entail social factors that may arise in future and hence entries of regulation per se were kept more open.

He noted that when the government decides to impose tax on a subject like alcoholic drinks that people consume, they specifically mention alcoholic drinks because that's what they're interested in taxing. However, when it comes to making rules about 'intoxicating liquor', the approach is broader. This is because rules aren't just about taxes; they're also about controlling both legal and illegal activities related to liquor. The idea behind giving states the power to control 'intoxicating liquor' isn't just about dealing with alcohol itself. It's also about managing its social impacts and handling situations where the problem isn't alcohol but other substances that can make people intoxicated.

"Alcoholic liquor for consumption by humans is a species of Intoxicating Liquor, so intoxicating liquor will include a variety of products and goods, including alcoholic liquor for human consumption. When the legislature imposes a tax, it has to impose a tax with clarity, therefore , they identify the product itself, the alcoholic liquor for human consumption. When it comes to the regulatory power of the state, that regulatory power is couched in much wider terms than the taxing powers, for the reason, that when you regulate, you regulate both what is legal and what is illegal. So the idea of conferring powers on the States to regulate intoxicating liquor was to allow them to deal with after effects, social effects (SG supplements for CJI) and where the intoxication may not be due to alcohol but non-alcoholic intoxication also in that liquor."

The reason states have a wider scope in regulating than in taxing comes down to the need for specificity in taxation. Regulation, on the other hand, covers a broader range of substances, including non-alcoholic ones that might still cause intoxication. This broad regulatory power is important because it lets states address all types of intoxication, not just those caused by alcohol.

“… So the alcoholic content of the liquor may be one source of intoxication, but suppose they were to use the expression “ Alcoholic liquor” under Entry 8 List II, states may not have then the power to deal with things with are non-alcoholic but which are intoxicating nonetheless. So the regulatory domain of the states was widened as compared to the taxing because in taxing you always have to specify.”

The SG's main contention was that the term ' Intoxicating Liquor” under Entry 8 List II(regulation powers to the state with regards to 'Intoxicating Liquor') limits the State's regulatory powers only to potable (drinkable alcohol) and not industrial or non-potable alcohol. The regulatory powers deemed under Entry 8 List II do not imply the State to make powers on the production of industrial alcohol.

“ I pose this question to myself, that when you buy non-potable alcohol mainly ENA or any industrial alcohol, I hereby regulate, do not add more than 30% volume per water, or add 50% volume per water, that is not the regulation contemplated.”

To which the CJI pondered, that in the reality of the alcohol market, as it stands today, one cannot ignore the trend of converting denatured spirit into human consumable alcohol and therefore abusing the conversion process. In light of the same, the CJI highlighted that it may be imperative for the state to be given regulatory powers to ensure that public health at the grassroots level is not compromised.

“Suppose there is a kind of a denatured spirit which can, and we know that it can be converted into intoxicating liquor either by a process or whatever. Now if that possibility of abuse is there, can we deny to the state its regulatory power to ensure that the abuse does not take place?”

The SG however asserted that such a regulatory power concerning the denatured spirits is already vested with the Union under the IDR Act (Industries (Development and Regulation) Act, 1951). Thus, if the Union wishes, it can delegate the regulatory powers to the State when the need arises to address such illegal conversions from non-portable to portable alcohol take place.

Is Any Intoxicating Substance A Part Of 'Intoxicating Liquor'? Bench & SG Enter A Rally Of Contentions

During the discussion on the possibility of misuse of processes to create non-authorised 'intoxicating liquor', Justice Oka weighed in to enquire if it would be correct to say that denatured spirit can be converted into consumable alcohol as argued by the appellants.

Pointing out the fallacy in such an argument, the Union contended that denatured alcohol without an industrious process involving cleansing cannot be converted into a consumable alcohol.  The argument of converting non-potable alcohol into potable alcohol without legal permission or processes would not be governed under the meaning of 'intoxicating liquor', which simply refers to processed, cleaned and drinkable alcohol.

“ For example, snake bites (poison) in a limited quantity gives you intoxication. Some cough syrups have higher alcohol content, people drink the entire bottle and get the intoxicated. This is an intoxicating drink, but you cannot permit it. When you convert clandestinely….in the breweries they convert industrial alcohol into potable alcohol by way of methodology, machines, controlled environment etc and the purpose is to create alcohol for human consumption. What my learned friend (appellant's counsel) is saying is that we can add something and make it intoxicating, but that is not 'intoxicating liquor'. You are clandestinely misusing the product which is due to ensure that you get intoxicated, " SG said.

States are guardians of public health, they need to control misuse of industrial alcohol

Seeming to take a different view of the matter, the CJI observed that the expression 'Intoxicating Liquor' could not be restricted to mean only industrially cleansed potable liquor but should be extended to include those substances which induce intoxication by way of abusing the industrial process. He observed that Entry 6 List II which gives the power to the states to regulate “Public health and sanitation; hospitals and dispensaries” cannot be read in disjunction Entry 8 List II which regulates 'Intoxicating Liquor' considering the ongoing clandestine conversion of industrial alcohol to consumable one in several states, especially in the ones where liquor prohibition policy applies.

The SG countered this by suggesting that a possible solution in such a scenario is the Union government passing a directive under the IDR Act to delegate some regulatory powers to the states to ensure that public health is not jeopardized through such clandestine practices.

“ Such powers cannot be traced to Entry 8 List II, there are powers to issue directions within the IDR Act”

See The IDR Act From The Lens Of 'Forbearance Regime'- Union Highlights

The Union made a novel submission when referring to S. 18 G of the IDR Act. As per S. 18 G whenever the Union deems fit, in the interest of economic welfare and market regulation of any specific industry, it may by a 'notified order' regulate the aspects of supply, distribution, trade and commerce of such a scheduled industry. As per the SG, the insertion of choice to regulate can be seen by the expression 'may…by notified order'. This underscored the principle of regulation by forbearance.

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.

He stressed that the purpose of skimming through the scheme of the IDR Act was twofold- (1) to establish the Central Legislation has an occupied field in the subject of industrial alcohol, and (2) it purports a regulation by forbearance.

The SG explained the essence of the union's power to issue a notified order - “ Whenever the Act says notified order/ by way of notified order, it gives an enabling power to the Central Government to do or not to do.”

A regulatory power can be of two categories : (a) positive or active regulation - by doing something; (b) regulation by forbearance- as recognised throughout the world. He explained that the forbearance regime, being a widely accepted regulatory principle throughout the world, gives a choice to the Union Governments to either exercise its powers on a subject or keep such powers on standby and use them only sparingly when required.

“That right now I am not regulating, but that is the way I am regulating! By making a conscious choice of not regulating but I have the power….. that is a new concept across the countries, that you retain the power and choose not to regulate, but that is also a choice, a power of regulation”

CJI however rebutted the said proposition of the forbearance regime. He analysed that it would not be the case to establish that the Union occupies an unqualified field on the subject of alcohol, considering that it has chosen not to exercise its powers on the subject in order to make the economy more lucrative for foreign investments and business-friendly. Had it intended to hold complete control over the alcohol industry, it would have consciously agreed to apply the IDR Act to the fullest.

“ Economic policy, therefore means that obviously the government on the one hand demonstrating that we are moving increasingly to a market-driven economy, you attract investment, create a business-friendly climate and therefore there is forbearance from enforcing this (IDR Act) with regards to 4 industries (Alcohol being one of them), therefore we cannot say that is a doctrine of occupied field, it's a conscious decision not to implement the provisions of this Act (IDR).”

'Tikaramji' Falters In Overlooking The Intention Of Constitution Framers - 'Industry' Is All Expansive, SG Asserts

The Union countered the submission of the appellants, wherein it was contended that 'industry' under Entry 52 List I only limits to the production or manufacturing process when it comes to understanding 'controlled industries'. In submitting, the decision in Tika Ramji v. State of U.P. was previously discussed. As per the SG, the said decision overlooked the all-expansive meaning of industry as intended by Dr Ambedkar during the framing of the constitution.

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. 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.

The SG, disagreeing with the above observation of the Court in Tika Ramji, relied upon the following passage from the Constitutional Assembly Debates (CAD) to establish that 'Industry' would import the widest meaning possible, including all 3 stages- pre-production, production and post-production (including trade, commerce, sale, distribution etc). The CAD mentioned here was in context to concerns raised by other members of the drafting committee with regards to giving powers to the union under 'controlled industries' by virtue of Entry 52 List I and Entry 24 List II as it would disturb Union-state relations.

“ Sir, the Entry as it stands (Entry 52 List I) is perfectly alright and carries out the intention that the drafting committee has in mind. My submission is that once the centre obtains jurisdiction over any particular industry that industry comes within the jurisdiction of Parliament in all its aspects. Not merely in development but may be in other aspects. Consequently, we have thought that the best thing is to put to the industries first of in the undoubted jurisdiction to the Parliament, to deal with it in the manner it likes, not necessarily development.”

However, the CJI observed that if that was indeed the intention of the framers then Entry 33 List III (Concurrent Powers of Union and State over trade, commerce, production, supply etc of a Union-controlled industry) would not have expressly given concurrent powers to the Union and state in matters of post-production in 'controlled industries'.

“In fact Entry 33 List III seems to indicate that Entry 52 List I would not otherwise confine to manufacturer. If Entry 52 List I was only confined to manufacture, there was no need to create Entry 33 List III. Entry 33 List III carves out something from Entry 52 List I which would have otherwise been within the fold of Entry 52 List I.”

The Attorney General (AG) Mr R Venkataramani in continuance of his previous arguments, made a short submission on the understanding of the term 'liquor' from the colonial point of view. He highlighted that the general sense of the term was only limited to the packaged and drinkable alcohol by persons and does not imply an expansive view of undertaking industrial or denatured spirit into its fold.

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

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