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New Delhi Any liquid containing alcohol not fit for human consumption but meant for industrial use will fall within the regulation regime of the Centre, Attorney general (AG) R Venkataramani told the Supreme Court on Wednesday amid a Centre vs states battle on the power to tax production of industrial alcohol being heard by a bench of nine judges.

There has been an ongoing battle between the Centre and states on the power to tax production of industrial alcohol. (Hindustan Times)

In his written submissions submitted to the top court, Venkataramani stated that there exist several national and public interests in the Constitution assigning federal control to Centre with regard to non-potable alcohol to ensure equitable distribution, fair prices, and utility of products of industry for serving the interests of all the states. He is expected to make his arguments in the matter on Thursday.

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The country’s top law officer further submitted that since Section 18G of the Industries (Development and Regulation) Act, 1951 held the field in this regard, and there is no scope for states to legislate on this subject.

“Since the 1951 Act has enacted in respect of the entire spectrum of control and regulation and also the details of their working, for instance, as spelt out in Section 18G of the said Act, there is no unoccupied field at all available to the States… As a result, the subject matter of the fermentation industry as a whole or otherwise stands within the scope of the 1951 Act and within the details of Section 18G,” the AG said.

A bench headed by chief justice of India (CJI) Dhananjaya Y Chandrachud heard arguments by states of Uttar Pradesh, West Bengal and Kerala claiming that the power to tax industrial alcohol will lie with the states.

The note given by AG said, “For the purposes of exclusion of competence of states from entering into any one of the above matters, it is sufficient that the 1951 Act has touched upon the areas and nature of control and regulation vis-à-vis the scheduled industry.

Senior advocate Arvind Datar, appearing for Uttar Pradesh along with advocate Samar Vijay Singh, said, “Section 18G is an empowering section and enables the Central Government to provide for regulating supply and distribution thereof and the trade and commerce. For the field to be occupied, a further step of a notified order is necessary. The legislative power of any State will be denuded to subjects the notified order provides.”

The states have sought a reconsideration of a 1990 Supreme Court decision in Synthetics & Chemicals Limited v State of UP that took away state’s power in relation to industrial alcohol under Entry 33 of the Concurrent List. This entry provides for trade and commerce in production, supply and distribution of certain industrial products.

It was submitted by the UP government that the 1990 judgment held that “denatured spirit” is industrial alcohol and its regulation will fall outside the legislative jurisdiction of the states to regulate sale of “intoxicating liquor” under Entry 8 of List II of the Seventh Schedule to the Constitution.

Datar pointed out that if the 1990 judgment is allowed to hold the field it will have a deleterious effect on the state funds. The bench, also comprising justices Hrishikesh Roy, AS Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma and AG Masih asked the attorney general: “According to you Entry 8 of List II relating to sale of intoxicating liquor is only for potable (consumable) liquor and not industrial alcohol?”

The AG replied in the affirmative.

His submissions to the court said, “The litmus test of Entry 8 is from the point of view of human factors, namely human consumption. The word ‘intoxicating’ must be seen only with reference to the impact owing to human consumption. That which is not consumable by humans will not fall within the meaning of intoxicating.”

Several national and public interests are perceived to be served by federal control, including subserving the common good, equitable distribution, fair prices, utility of products of industry for serving the interests of all the states, he added.

The long history of definitions of “liquor” includes liquids with alcohol content, and it cannot be canvassed that the human consumption part can be kept aside, his submissions stated. While there is no specific entry regarding “industrial alcohol” in any of the lists under the Seventh Schedule, the AG stated, “It is immaterial that there is no entry in the VII Schedule specifically designated as industrial alcohol. All uses of liquids containing alcohol, other than meant for human consumption, would all fall under one heading of non-potable alcohol.”

The nine-judge bench is hearing a batch of 30 appeals referred to it by a five-judge bench in December 2010 doubting the correctness of the 1990 judgment. The lead petition by the UP government challenged a decision of the Allahabad high court of 2004 which directed the state to refund all fees collected under “industrial alcohol” from distillery units along with a 10% annual interest payable to the business units.

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Datar told the court that the 1990 decision failed to note that intoxicating liquor under Entry 8 of List II would include even denatured spirit. “Intoxicating liquor is ‘genus’ and it has primarily two species or sub-divisions – alcohol meant for human consumption and alcohol for industrial purposes. Since the base in both cases is ethyl alcohol and the bifurcation takes place only on denaturing, the alcohol industry will be within the state’s control till the time it is made unfit for human consumption,” he said.

However, Kerala government represented by senior advocate V Giri differed with Datar that denatured spirit cannot be considered part of intoxicating liquor. Arguments by other states will continue on Thursday.

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