Arss Biofuel Pvt. Ltd. and Ors. Vs. State of Maharashtra and Ors. - (High Court of Bombay) (13 Dec 2017)

State has no power to legislate in respect of denatured alcohol which is incapable of human consumption

MANU/MH/3202/2017

Commercial

The Petitioners are manufacturers of denatured spirit and have obtained a license for manufacturing under the Rules. The Petitioners claim that they have also obtained the license under the Rules for the re-distillation process of denatured spirit granted by the Government of Maharashtra under the Maharashtra Distillation Spirit and Manufacture of Potable Liquor Rules, 1966. The Petitioners are manufacturers of Ethanol by re-distillation process of denatured spirit. The Ethanol manufactured by the Petitioners is used as ad-mixture in motor spirit. The Petitioners have described denatured spirit as a basic raw material and after extracting water, the same is converted into absolute alcohol having purity of 99.5%. Petitioners supply the absolute alcohol in form of denatured, called denatured ethanol to various petrochemical companies either in the State of Maharashtra or outside the State of Maharashtra. The Petitioners state that under the Rules they have to obtain a pass issued by Respondent No. 3 under 49 and 50 of the Rules for the import and export of denatured alcohol and this is granted only after paying import/export fees mentioned in Rule 52 and 59 of the Rules.

The Petitioners in writ petition challenge the Bombay Denatured Spirit Rules, 1959 in so far as they regulate the possession, use, sale, import, export and transport of denatured spirit after denaturation as being ultra vires and unconstitutional. The Petition also seeks directions from present Court that, the Petitioners who are manufacturers of denatured spirit do not require license under the Bombay Prohibition Act, 1949 (now Maharashtra Prohibition Act) for sale, purchase, transport, possession, storage, dehydration, import, export of denatured spirit under the Act. The issue which arises in the Petitions is whether the State has power to regulate denatured alcohol viz. rectified alcohol after its denatured.

Section 2 Sub-section (10) of the Act has defined denatured as being subjected to a process prescribed for the purpose of rendering unfit for human consumption. The Act thus, recognizes denatured spirit as being incapable of human consumption. This would be so despite denatured spirit falling within the definition of liquor in Section 2 Sub-section (24) of the Act as well as within the definition of spirit in Section 2, Sub-section (43) of the Act. The State power to regulate alcoholic liquors under the Constitution of India in List II item 51 is restricted to alcoholic liquors for human consumption and under List II Item 8 is only to regulate the production, manufacture, possession, transport, purchase and sale of 'intoxicating liquors'. Hence the State has no power to legislate in respect of denatured alcohol which is incapable of human consumption.

Section 143 of the Act provides for the Rule making power of the State and by which the impugned Rules have been enacted. The Petitioners have no grievance insofar as the Rules pertaining to obtaining of license for manufacturing denatured alcohol and regulating industrial alcohol till its denatured as provided for under the Rules. The Petitioners have also obtained license for manufacture under the Rules.

It is clear from the various judgments of the Supreme Court commencing from Synthetics and Chemicals that, the State has the power to regulate so as to prevent the conversion of alcoholic liquors for industrial use to one for human consumption and for that purpose regulatory fees imposed by the State are justified. It is clearly held that the intoxicating liquor in Entry 8 List II does not cover denatured alcohol which is incapable of human consumption.

The Supreme Court has thus drawn a distinction between rectified spirit meant exclusively for supply to industries whether after denaturing it or without denaturing it and the rectified spirit in the process of manufacture or after manufacture being diverted or misused for potable purpose. The Supreme Court has held that the State Government has no power to regulate the former i.e. rectified spirit which is exclusively for supply to industries other than for potable purposes.

The Supreme Court has consistently held that, the industrial alcohol after denaturing falls within the exclusive control of the Union. Although the judgment of the Supreme Court in Synthetics has been referred to a larger bench in State of UP v. Lalta Prasad Vaish, this does not alter the well settled position that the power of the State stops with de-naturation of industrial alcohol. In fact, the issues referred to the larger bench are different viz in relation to the provision of the Industrial (Development and Regulation) Act, and whether the provisions of the Act oust the States powers to legislate under the concurrent list and whether the States powers is also ousted by the Central Government vide Entry 52 of List I and by the legislation of Central Government to regulate the use of industrial alcohol so as to prevent it from being used as an intoxicating liquor.

The Bombay Denatured Spirit Rules, 1959 to the extent that they regulate the possession, use, sale, import, export and transport of denatured spirit viz. Rules 23 to 62 are ultra vires and unconstitutional and are struck down. There shall be no licence required under the Maharashtra Prohibition Act for sale, purchase, transport, possession, storage, dehydration, import and export of denatured spirit. The power of the State Government in the case of rectified spirit supplied for industrial purposes is only to see and ensure that rectified spirit, whether in the course of its manufacture or after its manufacture, is not diverted or misused for potable purpose. The State can make necessary regulations requiring the industry to submit periodical statements of raw material and the finished product (rectified spirits) and is entitled to verify their correctness.

Relevant : Synthetics and Chemicals Ltd. and Ors. vs. State of U.P. and Ors. MANU/SC/0595/1989, State of U.P. and Ors. vs. Lalta Prasad Vaish MANU/SC/8073/2007

Tags : DENATURED SPIRIT REGULATION POWER OF STATE