A nine-judge Constitution bench of the Supreme Court, by a decisive 8:1 majority, rendered a landmark judgment on 23.10.2024, holding that the Parliament lacks the legislative competence to enact a law asserting control over the intoxicating liquor industry. The central issue for consideration pertained to the scope of the State Legislatures’ power under Entry 8 and whether industrial alcohol falls in the ambit of the term “intoxicating liquor” as contemplated therein. This reference to a nine-judge bench arose from a challenge to the correctness of the decision rendered by a seven-judge bench in Synthetic & Chemicals Ltd v. State of Uttar Pradesh[1] (Synthetic Judgement), wherein the Supreme Court had held that States do not have the power to regulate ‘industrial alcohol’ as it does not fall within the scope of intoxicating liquor intended for human consumption. By virtue of this judgment, the Synthetic Judgement now stands overruled.
While rendering this decision, the Apex court embarked upon a painstaking analysis of the scheme of legislative entries enshrined in the Constitution of India, 1950, elucidating that the demarcation of legislative fields is based on a deliberate design as well as on the principles of federalism. It was observed that the matters requiring coordination between different regions of the country or of national importance have been placed in the field of Parliament. Conversely, matters requiring localized focus and limited or no coordination between States have been placed in the State List. The Court further highlighted that in the event of an overlap between two entries, the Court must endeavour to interpret the entries harmoniously, while ensuring that no entry is rendered redundant. This principle of interpretation, the Court clarified, applies equally to entries within the same List and entries within different lists, and the principle of parliamentary supremacy must be applied only when the attempted reconciliation by the above methods of interpretation fails.
Applying the doctrine of harmonious construction to both entries, the Supreme Court has held that the Parliament cannot occupy the field of the ‘entire industries’ by merely issuing a declaration under Entry 52 of List I. In doing so, the Court affirmed that the authority to regulate industrial alcohol remains within the exclusive legislative domain of the State Governments.
The Bench further clarified that although industrial alcohol is not meant for human consumption, it nonetheless falls under the category of intoxicating substances. Consequently, it falls squarely within the ambit of Entry 8 of List II (State List) of the Seventh Schedule of the Constitution, thereby vesting the States with the exclusive power to legislate on its regulation and levy taxation thereon.
The crux of the case is the conflict of legislative competence between the Centre and the States over the power to levy tax, manufacture, and produce industrial alcohol. In furtherance of its position, the Central government argued that industrial alcohol qualifies as an ‘industry’ within the meaning of Entry 52 of List I (Union List) under the Seventh Schedule to the Constitution. It was contended that, by virtue of a parliamentary declaration made in the interest of public welfare, the regulation of such an industry falls squarely within the exclusive legislative domain of Parliament. On the other hand, the State contended that the authority to regulate and tax intoxicating liquors, including industrial alcohol, should rightly fall under their jurisdiction, in view of Entry 8 of List II of the Seventh Schedule of the Constitution. This entry expressly confers upon the States the power to legislate on “intoxicating liquors,” encompassing the production, manufacture, possession, transport, purchase, and sale of such substances.
The Majority judgment was authored by the Hon’ble Chief Justice of India, Dr Dhananjaya Y Chandrachud along with Hon’ble Justices Mr. Hrishikesh Roy, Mr. Abhay S Oka, Mr. JB Pardiwala, Mr. Manoj Misra, Mr. Ujjal Bhuyan, Mr. Satish Chandra Sharma and Mr. Augustine George Masih of the Supreme Court of India. The learned Bench, by a decisive pronouncement, upheld the authority of the States to regulate industrial alcohol, rejecting the contention that a mere declaration under Entry 52 of List I would suffice to divest the States of their legislative competence over the subject matter. In a noteworthy dissent, Justice Nagarathna remained steadfastly true to the juridical position she had previously espoused in MMDRA & Anr. v. M/s Steel Authority of India & Anr. Etc[2], maintaining, with doctrinal consistency, that States lacked the legislative competence to regulate production, manufacture and sale of industrial alcohol.
This judgment potentially opens significant revenue opportunities for States, enabling them to collect taxes on industrial alcohol. By enhancing their fiscal autonomy, States can independently regulate and tax industrial alcohol without relying on the Union, likely influencing pending litigations related to such State-imposed levies. The court's inclusion of industrial alcohol under the category of “intoxicating liquors” has effectively reinstated State control, empowering them to impose taxes and enforce regulations. This authority not only addresses the issue of illegal conversions but also offers the States a valuable source of revenue, contributing to essential funding needs.
This Article shall trace the jurisprudential evolution concerning the power of taxation on industrial alcohol up to the landmark nine-judge bench ruling. It will further analyze the rationale underpinning the ratio decidendi of this judgment, which has effectively overturned a series of judicial precedents that consistently reaffirmed the position established in the Synthetic Judgment.
Background:
Before analysing the core issues addressed in the nine-bench judgment, it is crucial to contextualize the legal and constitutional backdrop that culminated in this decision. The Supreme Court, in the Synthetic Judgement, had held that States do not possess the power to regulate ‘industrial alcohol’, as it does not fall in the purview of intoxicating liquor intended for human consumption. The Supreme Court, in its ruling, laid down the following principles:
a) States do not have the legislative competence to levy tax on industrial alcohol,
b) States possess the legislative competence to levy tax on potable alcohol,
c) States are empowered to levy fees on industrial alcohol,
The regulatory power of the State Government under Entry 8 of List II is confined to preventing the conversion of alcoholic liquors meant for industrial use into those fit for human consumption, and a regulatory fee can be levied by the State for this limited purpose.
Notably, the ratio laid down in the Synthetic Judgment has been invoked by various courts in rendering their decisions.
History of Jurisprudence on Industrial Alcohol
While interpreting the definition of intoxicating liquor in the context of industrial alcohol, the nine Judge Bench discussed various judicial pronouncements to trace the history of the term as understood until this present judgement. For instance, in State of UP v. Vam Organic[3]On January 13, 1990, the government of Uttar Pradesh issued a notification under the U.P. Licences for the Possession of Denatured Spirit and Specially Denatured Spirit Rules, 1976. Through this notification, the State government introduced a fee of 15 paise per litre on the quantity of specially denatured spirits obtained from distilleries. This imposition gave rise to multiple writ petitions before the Allahabad High Court, challenging the legality of the notification. In adjudicating these challenges, the High Court relied upon the principles enunciated in the Synthetics case, affirming that legislative power over alcohol deemed "unfit for human consumption," specifically industrial alcohol, rested solely with the Union. The Court clarified that the scope of State power in this domain was confined primarily to administrative oversight, including matters such as staff salaries and preventing the conversion of industrial alcohol into potable alcohol.
Subsequently, in October 2003, the Supreme Court’s Division Bench ruled on a Special Leave Petition (SLP) in the case of State of Uttar Pradesh v. Vam Organic Chemicals Ltd., which assailed the Allahabad High Court’s decision regarding the additional 15 paise per litre charge. The Bench upheld the State Government’s power to levy a fee to deter the unauthorized conversion of industrial alcohol into consumable alcohol. This regulatory measure, the Court noted, was crucial to safeguard the public and the State from the harms posed by illicit liquor consumption.
In a similar vein, the Supreme Court, in the case of Shri Bileshwar Khand Udyog Khedut Sahakari Mandalli v. State of Gujarat[4], relying upon the Synthetic Judgment, observed that while industrial alcohol does not fall within the scope of the State’s regulatory powers under Entry 8 or its taxing power under Entry 51 of List II, the State has the power to ensure that industrial alcohol is not diverted for use as potable alcohol.
Further, in Bihar Distillery v. Union of India[5], the Petitioner had challenged the State’s cancellation of its license for preparing ‘rectified spirit’ on the ground that State lacked legislative competence in view of the principles laid down in the Synthetic judgment. The Bench, however, distinguished the ruling in the Synthetic judgment, holding that the judgment was mainly concerned with legislative competence over denatured rectified spirit and not rectified spirit.
Moreover, a three-Judge Bench of the Supreme Court in State of UP v. Lalta Prasad[6], ruled that while States had full legislative authority over the regulation of potable alcohol, their authority over industrial alcohol was limited to measures aimed at preventing its misuse as intoxicating liquor. The Court, however, had overlooked the ruling in Tika Ramji[7], wherein it was observed that the State’s legislative authority under the Concurrent List was not displaced by the Union’s legislation under Entry 52 of the Union List. In light of this, the matter in State of Up v. Lalta Prasad was referred to a five-judge Constitutional Bench. Upon deliberation, the five-judge bench finally referred the case to be decided by a nine-judge Constitutional Bench. By order dated December 8, 2010, the Constitution Bench observed that decision in Synthetics (Seven-Judges Bench judgment) warranted reconsideration by a larger Bench comprising nine judges.
Issues formulated by the Nine-Judges Bench:
To settle the pending controversy, the Nine-Judges Bench formulated following issues for consideration:
a. Whether Entry 52 of List I of the Seventh Schedule to the Constitution overrides Entry 8 of List II;
b. Whether the expression ‘intoxicating liquors’ in Entry 8 of List II of the Seventh Schedule to the Constitution includes alcohol other than potable alcohol; and
c. Whether a notified order under Section 18G of the Industries Development Regulation Act is necessary for Parliament to occupy the field under Entry 33 of List III of the Seventh Schedule to the Constitution.
Addressing the issues:
Following issues were discussed at length by the Nine-Judges Bench:
(i) Entry 8 of List II (State List) - meaning of ‘that is to say’
The Majority observed that Entry 8 of List II deals with ‘intoxicating liquor’ and specifies the scope of the provision by usage of the phrase ‘that is to say’, essentially stipulating that the Entry includes everything from the production to the sale of intoxicating liquor, with the use of the expression ‘production, manufacture, possession, transport, purchase and sale’. The Entry specifies the breadth of the provision by couching it in broad terms.
The Court further observed that the expression ‘that is to say’ in Entry 8 of List II cannot be interpreted to circumscribe scope of the Entry. The words that follow ‘that is to say’ are illustrative and explanatory of scope of the provision. The expression does not limit the scope of the Entry.
In contrast, Justice Nagarathna dissented, emphasizing that Parliament, by virtue of Entry 52 of List I, enacted the Industries (Disputes & Regulation) Act, 1951 (“IDRA”) to take control of ‘fermentation industries’ including alcohol and other non-potable products, as scheduled industry. Justice Nagarathna observed that such ‘fermentation industries’ would exclude intoxicating liquors, which remain within the exclusive legislative domain of the States under Entry 8 of List II. Additionally, she noted that Entry 33(a) of List III does not address ‘intoxicating liquors’, reinforcing the view that such matters remain within the exclusive competence of the States . The 2016 Amendment further specified that Item 26 on ‘Fermentation Industries’ excludes potable alcohol.
(ii) Entry 8 of List II (State List) - ‘Product’ or ‘Industry’ based Entry
The Majority observed that Entry 8 itself of List II is framed in broad terms, indicating that the legislative intent is to afford it the widest possible interpretation. The Entry itself covers ‘production, manufacture, possession, transport, purchase and sale’ of intoxicating liquors, thereby indicating that it seeks to regulate everything, from the stage of raw materials to consumption of ‘intoxicating liquor’. The Court further held that Entry 8 of List II includes both the industry and product of ‘intoxicating liquor’.
(iii) Entry 52 of List I (Union List) - expression ‘to the extent to which’ is absent
The Court referred to the MMDRA judgment, where the phrase ‘to the extent to which’ was interpreted as imposing limits on the Centre, affecting how much authority the States retain. For example, in the Ishwari Khetan Sugar Mills case, the Supreme Court examined the extend of control the Parliament needs to declare under Entry 52 to prevent States from passing their own laws in those areas.
The central issue before the Court was whether States can legislate on industries that are subject to parliamentary regulation under Entry 52 of List I. The Court found that while the Centre has the authority to define the extent of control by clarifying how much it wants to oversee, the States are not automatically divested of their legislative competence without clear parliamentary intent to assume full control over the subject matter.
The Majority endorsed the reasoning in Ishwari Khetan, emphasizing the unique nature of Entries 52 and 54 in List I vis-à-vis Entries 23 and 24 in List II. The Ishwari Khetan judgement expressly held that even though Entries 23 and 24 stipulate that they are subject to specific Entries in List I, they are actually subject to the law made by Parliament under the Entries. The Entries are unique in the sense that the scope of an entry in the State List is not subjected to another Entry in the Union List but rather by the law made by Parliament. . The Majority concurred that Parliament could, theoretically, enact laws to take complete control over industries, which would render the corresponding State List entries ineffective. However, to uphold the constitutional equilibrium between the Union and the States, the Majority stressed the necessity of construing these entries in a manner that protects the federal balance of power. When multiple interpretations are possible, the Court should favour the construction that best maintains this balance.
Additionally, the Majority observed that the Constituent Assembly had deliberately included ‘industries’ in the State List to allow for localized regulation. Had the intent been otherwise, it could have placed it in the Union or Concurrent List. Accordingly, the Court held that the unique placement of this Entry should be respected, and should not be interpreted in a way that effectively reassigns it to the Concurrent List.
(iv) Entry 52 of List I and Entry 8 of List II - reconciling the potential overlap.
The Majority held that Parliament cannot assume control of the intoxicating liquor industry under Entry 52 of List I. Whether the term ‘industry’ is interpreted broadly or narrowly, such control is impermissible for the following reasons:
- As a rule, legislative lists should be interpreted broadly. However, where two entries appear to overlap, the court must reconcile them in a way that preserves the federal balance, rather that prioritizing parliamentary supremacy in the process of reconciliation.
- Entry 8 of List II is independent of Entry 52 of List I. Consequently, the State Legislature possesses exclusive legislative competence over matters falling under Entry 8.
- To reconcile the entries, the court must either exclude intoxicating liquor industry from Entry 52 of List I or Entry 8 of List II, ensuring that neither is made redundant.
Conversely, Justice Nagarathna dissented, holding that Parliament can occupy the field of entire industry by merely issuing a declaration under Entry 52 of List I and the State Legislature’s competence under Entry 24 of List II stands denuded with respect to the field of entire industry and specifically to the extent of the field covered by the law of Parliament under Entry 52 of List I.
(v) Entry 8 of List II - meaning of ‘intoxicating liquor’.
The Majority held that the term ‘intoxicating liquor’ in Entry 8 of List II extends beyond alcoholic beverages causing intoxication. It also includes any alcohol-containing liquids that could potentially be misused for intoxication. The Majority identified four approaches to define the scope of ‘intoxicating liquor’:
(1) determining its legislative meaning,
(2) examining the legislative history,
(3) applying the common parlance test and
(4) using the principle of workability.
Based on these approaches, the Majority recognized three possible interpretations of the term ‘intoxicating liquor’:
a. Alcoholic beverages intended for human consumption, like beer or gin (potable liquor);
b. Any liquid containing alcohol if ‘liquor’ is taken to mean liquid;
c. Alcohol used as a raw material in producing items like pharmaceuticals and cosmetics, which may include denatured or non-denatured alcohol.
The Majority examined whether ‘intoxicating liquor’ should be interpreted broadly to include any liquid containing alcohol. It was observed that such an interpretation would lead to overlap, covering products like hand sanitizer under both Entry 8 of List II (intoxicating liquor) and Entry 19 of List III (drugs) and would conflict with the settled principle of interpretation favouring practical and workable provisions.
Contrarily, Justice Nagarathna, took a restrictive approach, asserting that for a State Legislature to legislate under Entry 8 of List II, the liquor-in-question must cause an ‘intoxicating’ effect through direct human consumption, specifically as a drink or beverage. Accordingly, she held that Entry 8 of List II does not extend to indirect uses, such as alcohol used as a raw material in industrial, medicinal, or cosmetic products.
Justice Nagarathna further clarified that Entry 8 of List II cannot be extended to cover industrial alcohol, like rectified spirit, even if it could potentially be misused as intoxicating beverage. Entry 8 addresses only the prevention of misuse of industrial alcohol for human consumption but does not confer legislative competence upon States to regulate industrial alcohol itself. Thus, Entry 24 of List II covers fermentation industries, except where intoxicating liquors intended for direct consumption are concerned, which fall under Entry 8.
Justice Nagarathna further emphasized that in determining ‘intoxicating liquors’, interpretation should focus solely on the nature of the product itself, not the broader alcohol industry. Entry 8 of List II confers upon the States, legislative power to regulate production, manufacture, possession, transport, purchase and sale of intoxicating liquors specifically, and not other alcohol-based products. In addition, Justice Nagrathna stated that the use of the expression ‘industrial alcohol’ or non-potable alcohol in Synthetic judgment was only to crystallise all variants of alcohol which were non-potable and to distinguish them from potable alcohol meant only for human consumption as a beverage.
Dissenting judgment in support of Synthetic judgment
Justice Nagarathna, in her dissent, firmly held that the Synthetic judgment does not deserve to be overruled. She noted that while States have the authority to ensure that non-potable alcohol is not diverted for potable use, but this does not grant them the power to regulate industrial or non-potable alcohol directly. Justice Nagarathna emphasized that the Legislative power over the main subject includes related incidental matters; however, these cannot be used to expand the entry’s scope. Thus, while preventing misuse of industrial alcohol falls within Entry 8 of List II, industrial alcohol itself is not covered by this entry.
Justice Nagarathna further highlighted that framers of the Constitution intended to classify alcoholic liquors into two categories, assigning legislative powers accordingly: (a) Potable alcoholic liquors for human consumption, under State jurisdiction. (b) Non-potable alcoholic liquors, like industrial alcohol, under Parliament's purview.
Justice Nagarathna clarified that alcoholic liquor used as a raw material for industrial products, commonly referred to as ‘industrial alcohol’, does not qualify as ‘alcoholic liquor for human consumption’, as it is not used directly as a beverage. She reasoned that although industrial alcohol could potentially be misused for intoxication, this possibility does not reclassify industrial alcohol as a consumable alcoholic liquor.
Justice Nagarathna referenced the Synthetics judgment’s analysis of ‘intoxicating liquors’ and ‘alcoholic liquors for human consumption’ under Article 47 of the Constitution, which aims to protect public health by limiting harmful consumption. The judgment dealt with ethyl alcohol as an industrial raw material, not for human consumption, and ruled that States could not impose excise duties on ‘industrial alcohol’, as it falls outside their legislative competence under Entry 51 of List II.
Justice Nagarathna drew a parallel to her observations in the MMDRA judgment, noting that in any federal system with distinct State and Union powers, jurisdictional overlaps are inevitable. She emphasized that while State laws on matters assigned to them may be valid, they can sometimes conflict with Union authority, and vice versa. The principle of Union supremacy resolves these conflicts, allowing harmonious coexistence of State and Union laws. This principle is essential for a stable federal system; without it, the federal structure would be at risk of chaos, legal conflict and confusion, weakening the federal balance. Rejecting the notion of State legislative supremacy over the Union, Justice Nagarathna underscored that in a federal system, the whole must retain priority over its parts.
In light of these observations, Justice Nagarathna concluded that the Synthetic judgment need not be overruled in relation to Section 18G of the IDRA as it continues to be good law in the context of what comprises the expression ‘industrial alcohol’ and ‘intoxicating liquors’.
Conclusions by the Majority 8:1 of the Nine-Judges Bench:
In contrast to Justice Nagrathna’s dissenting view, the 8:1 Majority of the Supreme Court concluded as follows:
- Entry 8 of List II is both industry- and product-based, covering the entire lifecycle of "intoxicating liquor" from raw material to consumption and is not limited by the terms following “that is to say.”
- Parliament, under Entry 52 of List I, cannot take over an entire industry merely by issuing a declaration; the State Legislature retains authority under Entry 24 of List II, limited only by the scope of the specific federal law.
- Parliament lacks the power to control the intoxicating liquor industry under Entry 8 of List II through Entry 52 of List I and Article 246.
- Entry 8 is broad, aimed at public interest, covering various forms of alcohol (like rectified spirit and ENA) that could harm public health but not final products like hand sanitizers.
- The Synthetics (7J) decision is overruled as per this judgement.
Authored by:
Kabir Dixit, Counsel
Kushagra Kaul, Associate
Sharvil Kala, Associate
[1] Synthetic & Chemicals Ltd v. State of Uttar Pradesh (1990) 1 SCC 109
[2] MMDRA and Anr. v. M/s Steel Authority of India & Anr Etc Civil Appeal Nos. 4056-4064 of 1999
[3] State of UP v. Vam Organic (2004) 1 SCC 225
[4] Shri Bileshwar Khand Udyog Khedut Sahakari Mandalli v. State of Gujarat (1992) 2 SCC 42
[5] Bihar Distillery v. Union of India (1997) 2 SCC 727
[6] State of UP v. Lalta Prasad, 2007 13 SCC 463