TaxTMI 
TaxTMI 
2017 (12) TMI 779
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....all matters except WP No. 10072 of 2004 Mrs. Veena Thadhani and Mr. Mahesh Gawade For The Respondents : Mr. A.B. Vagyani, GP with Mr. Manish M. Pabale, AGP, Ms. G.R. Golatkar, AAGP, and Mr. R.S. Sawant ORAL JUDGMENT :- (Per Riyaz I. Chagla J.) 1. The Petitioners in writ petition no. 8548 of 2004 challenge the Bombay Denatured Spirit Rules, 1959 ( for short "the Rules") 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 this Court that the Petitioners who are manufacturers of denatured spirit do not require license under the Bombay Prohibition Act, 1949 ( now Maharashtra Prohibition Act and for short "the Act") for sale, purchase, transport, possession, storage, dehydration, import, export of denatured spirit under the Act. The other Petitions have similar challenges and hence these Petitions are decided by this common judgment. 2. 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 Rule....
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.... sale, possession of the industrial alcohol or Fermentation Industry. The Petitioners have claimed that the State has only power to levy duty or fees on alcoholic beverages for human consumption including regulating the rectified spirit, which can be diverted for potable purpose. The power of the State to regulate and control comes to an end, the moment the rectified spirit becomes denatured. 4. The Petitioners have relied upon the definition of denatured spirit in Section 2, sub-section (10) of the Bombay Prohibition Act, which reads thus :- "denatured" means subjected to a process prescribed for the purpose of rendering unfit for human consumption." The Petitioners have submitted that the Rule making power of the State under Section 143 of the Act does not empower the State to impose duty upon alcohol which is not for human consumption. This is further made clear by the Constitution of India in Entry No. 51 of List II of Schedule VII, which reads thus:- "the duties of the excise on the following goods manufactured on produce in the State and contravene duties at the same or lower rates on similar goods manufactured or perused elsewhere in India; (a) Alcohol liquors for hu....
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....possession, use, sale, import, export and transport of denatured spirit after denaturation. He has submitted that the position of law is been well settled by a seven Judge Bench of the Supreme Court in Synthetic & Chemicals Vs. State of U.P. And Ors. AIR 1990 Supreme Court p.109 as well as in the judgment of the Supreme Court in Bihar Distillery and Anr. Vs. Union of India, AIR 1997 Supreme Court p.1208 and in judgments of the Supreme Court in VAM Organic Chemicals Ltd. Vs. State of U.P.(VAM I) (1997) 2 SCC p.715 and State of U.P. And Ors Vs. VAM Organic Chemicals Ltd. (VAM - II) (2004) 1 SCC p.225. It has been consistently held that although the State is competent to regulate and ensure that rectified spirit / industrial alcohol is not surreptitiously converted into potable alcohol so that the State is deprived of revenue, but the power of the State to so regulate stops once there is denaturation of industrial alcohol. He has thus submitted that the State has no power to regulate denatured alcohol as denatured alcohol is incapable of human consumption. He has referred to other judgments of the Supreme Court which have relied upon the seven bench judgment in Synthetics and Chemical....
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.... that there have been several casualties in the case of persons consuming denatured spirit as 'hooch' and he has stated that since there was no control or regulation over use and sale of denatured spirit, the State had enacted the Rules. 9. He has also relied upon the judgment of the Supreme Court in Bihar Distilleries (Supra), where the Supreme Court has observed that the State has the power to ensure that rectified spirit in the course of manufacture or after its manufacturing is not diverted or misused for potable purposes. He has also relied upon the Forensic Science Laboratories Reports and the result of analysis of the products manufactured by the Petitioners which have borne out the inclusion of Methyl alcohol and Ethanol. These products tested were seized by the police in Alibaug, Dist. Raigad. He has contended that this denatured alcohol is capable of being misused and hence it is necessary for the State to regulate its sale, possession, import or export etc. in order to prevent casualties of those consuming denatured alcohol. He has relied upon a decision of this Court in Saral Manufacturing Company Vs. State of Maharashtra dated on 19th November 1998 which has a....
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.... to obtaining wholesale and retail licence for denatured spirit viz. Rules 32 to 47. As well as the Transport Permit Rules viz. Rules 48 to 50 B and the Import Rules (Rules 51 to 56) and Export Rules (Rule 57 to 62) which provide for obtaining pass from the State Government by paying to them import / export fees. 11. The issue which arises in the Petitions is whether the State has power to regulate denatured alcohol viz. rectified alcohol after its denatured. It is clear from the various judgments of the Supreme Court commencing from Synthetics and Chemicals (Supra) 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 Paragraphs 80, 94 and 110 of the judgment read thus:- "80. It was submitted that the activity in potable liquor which was regarded safe and exclusive right of the State in the earlier judgments dealing with the potable liquor were sought to be justifiable under the pol....
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.... we are not here concerned with the trade in alcoholic liquors meant for human consumption and therefore in view of clear demarcation of authority under various items in the three lists, Entry 8 List II could not be invoked to justify the levies which have been imposed by the State in respect of alcoholic liquors which are not meant for human consumption." 12. The Supreme Court in Bihar Distillery (Supra), following Synthetics and Chemicals (Supra) has in paragraph 24 (1) held thus:- "So far as industries engaged in manufacturing rectified spirit meant exclusively for supply to industries (industries other than those engaged in obtaining or manufacture of potable liquors), whether after denaturing it or without denaturing it, are concerned, they shall be under the total and exclusive control of the Union and be governed by the I.D.R. Act and the rules and regulations made thereunder. In other words, where the entire rectified spirit is supplied for such industrial purposes, or to the extent it is so supplied, as the case may be, the levy of excise duties and all other control including establishment of distillery shall be that of the Union. The power of the States in the case o....