State power over denatured spirit ends after denaturation, with only limited control to prevent diversion for human consumption.

The Bombay High Court held that the State lacked legislative competence to regulate possession, use, sale, import, export and transport of denatured spirit after denaturation under the Bombay Prohibition Act and the Bombay Denatured Spirit Rules. It reasoned that constitutional entries permitting regulation of intoxicating liquor and alcoholic liquors for human consumption do not extend to denatured spirit, which is unfit for consumption. The State may regulate industrial alcohol only to prevent diversion or misuse for potable purposes and may levy reasonable regulatory fees for that limited purpose. The licensing regime for denatured spirit was therefore struck down, while the limited power to prevent diversion of rectified spirit for human consumption was preserved.

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Issues: Whether the State had legislative competence to regulate possession, use, sale, import, export and transport of denatured spirit after denaturation and to require licences under the Bombay Prohibition Act, 1949 and the Bombay Denatured Spirit Rules, 1959.

Analysis: The Act itself recognises denatured spirit as spirit rendered unfit for human consumption. The constitutional entries relied upon by the State permit regulation of intoxicating liquor and alcoholic liquors for human consumption, but not denatured spirit which is incapable of such consumption. The settled position in the Supreme Court authorities is that the State may regulate industrial alcohol only to the extent necessary to prevent its diversion or misuse for potable purposes and may levy reasonable regulatory fees for that limited purpose. Once industrial alcohol is denatured, its field of control remains with the Union, and the State cannot impose a licensing regime for its sale, possession, transport, import or export merely because denatured spirit may in some circumstances be renatured.

Conclusion: The challenge succeeded. The impugned rules regulating denatured spirit and the consequential licence requirement were held to be beyond the State's power and were struck down, while the State's limited power to prevent diversion of rectified spirit for potable use was preserved.

Ratio Decidendi: The State's regulatory power over industrial alcohol ends upon denaturation, save for limited measures to prevent diversion for human consumption and to recover reasonable regulatory fees for that purpose.

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