Report No. 158
2.2.5. Inconsistency in Supreme Court decisions on the subject pointed out by the Supreme Court in Haryana Brewery Ltd. case (infra).-
Another matter in C.A. 1999 & 2000/1997 (Government of Haryana v. Haryana Brewery), cited in (1997) 5 SCC 758, came up before the Court wherein the industry engaged in the manufacture of alcohol relied upon a three-Judge Bench decision of the Supreme Court in State of Uttar Pradesh v. Modi Distillery, JT 1995 (6) 523 and a two-Judge Bench decision in Mohan Meakin Ltd. v. Excise and Taxation Commissioner, Himachal Pradesh, 1996 (9) SCALE 162 in support of their contention that States do not come into the picture until alcohol attains potability.
Since it appeared that there was a certain inconsistency between the principles underlying the decision in Bihar Distillery and Vam Organics and the aforesaid decisions in Haryana Distillery and M/s. Modi Distillery, the matter has been referred to the Constitution Bench to pronounce authoritatively upon the situation arising from the several decisions of the Supreme Court which do not necessarily speak in one voice. The order of reference dated 11th March, 1997 reads as follows:-
"Certain important questions arise in these matters which, in our opinion, require to be decided authoritatively by a Constitution Bench. Much water has flowed since the decision of the seven-Judge Constitution Bench of this Court in Synthetics and Chemicals Ltd. v. State of Uttar Pradesh, [1990 (1) SCC 109]. In State of Andhra Pradesh v. McDowell, [1996 (3) JT (SC) 679], it has been held by a three-Judge Bench of this court that so far as intoxicating liquors are concerned, their production, manufacture, possession, transport, purchase and sale is the exclusive province of the States by virtue of Entry 8 of List II. It has also been held that the imposition of prohibition and levy of duties thereon is also the prerogative of the States alone.
In Vam Organic & Chemicals Ltd. v. State of Uttar Pradesh, [1997 (1) JT (SC) 625], it has been held by a two-Judge Bench of this Court that the decision in Synthetics and Chemicals was concerned only with industrial alcohol and that so long as any alcoholic preparation can be diverted to human consumption, the States have the power to legislate in that behalf and also to impose taxes. It has been held that rectified spirit can be converted into country liquor by mere addition of water and, therefore, the States are not totally excluded from control over the rectified.spirit.
In Bihar Distillery v. Union of India, (1997) 2 SCC 727, it has been held by another Bench of two Judges that having regard to the fact that by merely adding water, rectified spirit can be converted into country liquor and also because rectified spirit can also be used for manufacturing IMFLs, the States are entitled to joint control over production, storage and distribution of rectified spirit. It has been held that so far as levy of duties are concerned, the point of departure is the stage of removal. The rectified spirit which is removed for industrial purposes [purposes other than manufacture of IMFLs or country liquor] can be taxed by the Union while the rectified spirit which is removed for the purpose of manufacture of IMFL or country liquor or other intoxicating liquors can be taxed by the States.
In State of Uttar Pradesh v. Modi Distillery, [1995 (6) JT ( SC ) 523], a three-Judge Bench of this court held that any wastage occurring in the course of manufacture of alcoholic liquors occurring before it reaches the stage of alcoholic liquor for human consumption is outside the State's jurisdiction but any wastage occurring after they reach the alcoholic liquor for human consumption is the province of the State. This was held in the context of power to levy duty upon liquors. To the same effect is the decision of a two-Judge Bench in Mohan Meakins Ltd. v. Excise & Taxation Commissioner, Himachal Pradesh, 1996 (9) SCALE 162.
We are of the opinion that the legislative power conferred upon the States by the Constitution and recognised even in Synthetics & Chemicals should include all incidental and ancillary powers and it is this aspect which was emphasised in Bihar Distillery. Any principle enunciated with respect to the respective powers of the Union and the States should be practical and realistic and such as not to give room for abuse or misuse. Since the decisions aforementioned project different points of view, it is necessary to evolve a coherent and effective formula so that the Union and the State should know what are their respective powers and jurisdiction. The papers may accordingly be placed before Hon'ble the Chief Justice for orders regarding placing these matters before the Constitution Bench".