VAM ORGANIC CHEMICALS LTD. AND ANR. versus U. P. EXCISE ACT 1910

Citation: [1997] 1 S.C.R. 403 · Decided: 21-01-1997 · Supreme Court of India · Bench: A.M. AHMADI, S.C. SEN · Disposal: Dismissed
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Judgment (excerpt)

f 
VAM ORGANIC CHEMICALS LTD. AND ANR. 
v. 
THE STATE OF UTTAR PRADESH AND ORS. 
JANUARY 21, 1997 
[AM. AHMADI 0. ANDS. C. SEN, J.] 
U. P. Excise Act 1910-Section 41 Rule 2. read with Sec. 2 and 18-G 
of the Industries Development and Regulation Act 1956-lndustrial Alcohol 
Denaturation of spirit-Notification No. 25/Licence/3 dated 18-5-1990,regard-
A 
B 
ing levy of denaturation fee-Legislative competence of State--Held, so long C 
as any alcoholic preparation can be diverted to human consumption, the states 
shall have the power to legislate as also to impose taxes etc. and denaturation 
of spirit is not only an obligation on the States but also within the competence 
of States to enforce--Denaturation fee is in the nature of regulatory fee for 
which quid pro quo is not necessary--Held, rate of fee of 7 paise per litre is, D 
on facts-Reasonable-Constitution of India, Arts. 246, 254, 248 and Sch. VII 
List-II Entries 8, 51, 6, 24, 66, List-I Entries 84, 52, List-III Entry 33. 
Constitution of India. 
Articles 110(2), 99(2}-Regulatory/Licence fees different from fees for E 
services rendered-For regulatory fee quid pro quo not necessary though 
impost should be reasonable. 
Entries 8 and 51 of List-II read with Entry 84 of List-I - States have 
exclusive-Privilege to legislate on intoxicating liquor or alcoholic liquor for 
human consumption. 
F 
The appellants were holding licence to manufacture and use in-
dustrial alcohol as the main raw material for its products. State legislature 
vide Notification No. 25/licence/Part-3 dated 18-5-1990 imposed a licence 
fee on the distilleries, holding licence for denaturation of spirit, at the rate G 
of 7 paise per litre. 
Appellants filed a writ petition challenging the said Notification on 
the grounds that State has no power to legislate in respect of industrial 
alcohol or to levy taxes in respect thereof and that the levy being not based 
on quid pro quo. High Court rejected the contentions of the appellant and H 
403 
404 
SUPREME COURT REPORTS 
[1997] 1 S.C.R. 
A dismissed the writ petitions. Hence. these appeals by way of special leave. 
B 
Appellants contended that as this court held in Synthetic and Chemi-
cals Ltd. v. State of U.P., JT 1989 (4) SC 267 that the rectified spirit being 
industrial alcohol not fit for human consumption, the State Legislature 
has no power to make law with r'l!spect to it or to charge licence fee or levy 
any other impost. It was further contended that industrial alcohol is within 
the exclusive domain of the Parliament by virtue of the declaration made 
by it in Sec 2 of the Industries Development and Regulation Act, 1956 and 
by addition of Item 26 in the schedule of the Act, and that Entry 8 or 51 
of List-II of the Seventh Schedule to the Constitution cannot support the 
C Notification. Entry 33 of List-Ilil also could not sustain it as the field was 
occupied by the provisions of Section 18-G of the IDR Act. 
Dismissing the appeal, this Court 
HELD: 1.1. Rectified spirit is, however, toxic and unfit for human 
D consumption but could be usecl as country liquor if diluted with water. To 
prevent such misuse of the rectified spirit, produced for industrial use, it 
·is required to be denatured by adding denaturants, which make the spirit 
unpalatable and nauseating. Itr is meant to prevent misuse of non- potable 
alcohol for human consumption. A careful reading of the judgment of 
E Synthetic Chemical case, this Court has enumerated various areas relating 
to industrial alcohol in which State could legislate and make law, including 
preventing its misuse. [407-C-D; 414-B-C; H] 
1.2. As the power under Sec. 18G, IDR Act is concerned, can be 
exercised only so far as permitted by Sub-Sec.(1) viz., for securing thr. 
F equitable distribution and availability at fair price of any article or class 
of artides relatable to any scheduled industry. To this extent the State 
Legislature cannot make any law but in other respects, the field is still 
open to the State Legislatmre. So, the impugned Notification issued to 
ensure. that rectified spirit sought to be used for industrial purposes was 
G not diverted for obtaining country liquor or other form of potable liquor 
was thus, justified under Ent.ry 6 List· II-Public health: and Entry 8 List-II 
- Possession and sale of intoxication liquor. [412-A·B] 
1.3. The State under Entries 8 and 51 of List-II read with Entry 84 
of List-I have exclusive privilege to legislate on intoxicating liquo
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