Regulating Industrial Alcohol | Day 1: Federal structure can’t be nullified by reducing states’ powers, Uttar Pradesh argues

State’s power to regulate industrial alcohol

Judges: D.Y. Chandrachud CJI, Hrishikesh Roy J, A.S. Oka J, B.V. Nagarathna J, J.B. Pardiwala J, Manoj Misra J, Ujjal Bhuyan J, S.C. Sharma J, A.G. Masih J

Today, a nine-judge Constitution Bench of the Supreme Court began hearing arguments in the case concerning state governments’ power to regulate “industrial alcohol.” The Court will determine whether the power to regulate industrial alcohol can be exercised harmoniously by both the Union and state governments or lies exclusively with one of them. 

The Bench heard arguments from Senior Advocate Dinesh Dwivedi appearing for the State of Uttar Pradesh, the appellant in the case. After hearing the first few arguments, Chief Justice D.Y. Chandrachud remarked that this was a fairly simple case, and may not require many days of hearing. Dwivedi claimed that this was an important case, and would require more time than the Bench suspects. Considering the Bench had asked Dwivedi to wrap up his arguments by lunch today and that he is still scheduled to continue tomorrow, the Court may have to temper its expectations of expediency after all.


Entry 8 of the State List vests state governments the power to make laws on “Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors.” In Synthetics & Chemicals Ltd. v State of Uttar Pradesh (1990) the Supreme Court had held that “intoxicating liquors” only referred to potable (drinkable) alcohol, and that industrial alcohol (also called rectified or denatured spirit) was outside of the scope of state government’s powers. It also took away states’ powers under Entry 33 of the Concurrent List, citing that Parliament by declaration (law making) can allow the Union government to “cover the field” of industrial alcohol regulation.

On 27 October 2007, a Division Bench of the Supreme Court in State of U.P. v Lalta Prasad Vaish held that Synthetics & Chemicals had interpreted Section 18G of the Industries (Development and Regulation) Act, 1951 to remove the powers of the state legislature from Entry 33 of Concurrent list. Section 18G empowers the Union to control supply, distribution, price, etc. of certain articles in scheduled industry for securing the equitable distribution and availability at fair prices.

The Bench noted that the seven-judge Bench in Synthetics & Chemicals had missed referring to Ch. Tika Ramji v State of Uttar Pradesh (1956) where the Court had noted that the state’s legislative competence under Concurrent list was not ousted by Section 18G. The Court finally noted that if the decision in Synthetics & Chemicals “was allowed to stand”, it would render Entry 33(a) of Concurrent list “nugatory or otiose.” 

On 8 December 2010, after noting that the views expressed by the seven-judge Bench in Synthetics & Chemicals had “been distinguished” in several subsequent decisions of the Court, a five-judge Bench finally referred the matter to a nine-judge Constitution Bench.

“Intoxicating Liquor” was a phrase deliberately used by framers of the Constitution

Entry 8, Dwivedi argued, referred to “intoxicating liquor” by design. “Why would framers (of the Constitution) use different language to explain different things?” he asked. The history of the usage of the phrase in law can be traced to the Government of India Act, 1935. The British sensibility and position on alcohol, he said, was crucial. Dwivedi took the Court through nine pre-Constitution Excise laws made in different states (such as Bombay Abkari Act, 1878; The Bengal Excise Act, 1909 and The Chhattisgarh Excise Act, 1915) to show how the words “liquor” and “spirit” included “all liquids containing alcohol.” 

In some cases, the word “intoxicant” was used in the same context. It is evident, Dwivedi argued, that these laws were “alive and aware” of industrial alcohol being a part of the category of spirits and liquor. His written submissions state that intoxicating liquor “only follows the past legislative history for convenience as part of a settled vocabulary which it had come to denote.” The phrase “industrial alcohol,” he pointed out, was not present in any of the lists. This indicates that Constitution framers included it in “intoxicating liquor.”

Further, Dwivedi argued that Entry 51 of the State List specifically refers to “alcoholic liquors for human consumption,” creating a clearly different category than “intoxicating liquor.” If the set phrase for potable alcohol was “alcoholic liquors for human consumption,” Entry 8 would have referred to it that way as well.

Entry 8 is a distinct entry in the State List, not a general industry

Under Entry 52 of the Union List, the Union government can regulate industries which Parliament chooses, out of “public interest.” This power is exercised through Section 18-G of the Industries (Development and Regulation) Act, 1951 (Industries Act). The Union government regulates specific products related to “scheduled industries.” Entry 24 of the State List gives state governments the power to regulate “industries subject to the provisions of entries 7 and 52 of List I.”

Justice B.V. Nagarathna asked: If intoxicating liquor is a declared industry, then how would state governments have any power to regulate it? 

Dwivedi responded that Entry 8 of the State List confers exclusive jurisdiction to states to regulate industrial alcohol, as intoxicating liquor is a general term, unrestricted by any other entry. Entry 8 was a specific entry, “carved out” of Entry 24 of the State List or Entry 52 of the Union List, which refers to industries in general. Framers were clear that they wanted “the production, manufacture, possession, transport, purchase and sale” of intoxicating liquor to be regulated by the state. 

So, intoxicating liquor falls under Entry 8—not generally under Entry 24 as an industry. Hence, the limitations placed on states’ exercise of power under the Industries Act do not apply to intoxicating liquor, and by extension to industrial alcohol.  

Manufacture is different from trade and commerce of a “Product”

Dwivedi then offered the Bench an alternate argument. He stated that if “industry” in Entry 24 of the State List or 52 of the Union List is ultimately interpreted to include industrial alcohol, then Union’s control would only extend to manufacturing and other elements mentioned in Entry 8 of the State List. Once it becomes  a product, it would fall within the purview of Entry 33 of the Concurrent List, which reads:

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;

The Union’s exercise of power under Entry 52 of the Union list does not include finished products. The word “industry”, Dwivedi said, only includes manufacture. CJI Chandrachud said that this line of argument “appears to be more acceptable”. 

Dwivedi added that the state will only have power under Entry 33 if the field is unoccupied by the Union government. Till date, he said, there is no legislation that does this. Section 18G of the Industries Act gives the Union an enabling power to regulate the products of the industries notified, for the purpose of ensuring “equitable distribution and availability at fair prices.” However, a notified order under Section 18G must be issued to take the field that Entry 33 of the Concurrent List otherwise vests with the states. Dwivedi relied strongly on Ch. Tika Ramji v State of Uttar Pradesh (1956) which defined the scope of “Industry” under Entry 24 State List and Entry 52 Union List as limited to “manufacture and or production.”

States’ power cannot be cut down by parliamentary declarations

In the second half of the full-day hearing, Dwivedi shifted his focus to the demarcation between the states’ and the Union Government’s power to regulate industrial alcohol. This “exclusive jurisdiction” enjoyed by the states, he said, cannot be left to be modifiable by parliamentary legislation. “Incidental encroachment on the State list can never imply reduction of state jurisdiction,” he said. This would be most damaging to the federal structure. He argued that when Parliament makes laws and incidentally encroaches on the State list, a state’s autonomy would be lost if Parliament’s power is held to be paramount.

He asserted that the Court has repeatedly held that one cannot use an approach that “whittles down the states’ powers.” Dwivedi referred to Jayant Verma v Union of India, (2018) which held that under Article 246 of the Constitution, “incidental encroachment by Parliament cannot be tolerated when the exclusive field allotted to the State legislature is not unoccupied.”

Dwivedi then relied on Justice Ruma Pal’s concurring opinion in ITC Ltd. v Agricultural Produce Market Committee (2002). Justice Pal had written:

“The fact that under the scheme of our Constitution, greater power is conferred upon the Centre vis–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”.

CJI D.Y. Chandrachud found ITC Ltd. useful, and commented that “Justice Ruma Pal’s judgement is very illuminating”

The Court’s conundrum

CJI Chandrachud pointed out that in Tika Ram and in ITC Ltd, the Court was dealing with different parts of industry. In Tika Ram the Court dealt with  raw materials and  in ITC it was market and fairs. This time around, however, the Court was dealing with the issue of manufacturing and production.

“I’ll come back tomorrow morning with fresh ammunition,” Dwivedi said.

As the day’s hearing ended, Justice Hrishikesh Roy joked that since the case concerned a variety of alcohol, some members of the Bench may not be familiar with the variety. “Would material exhibit help?” he remarked. 

Dwivedi will resume arguments tomorrow, on 3 April 2024.