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State Of U.P And Another v. Synthetics & Chemicals Ltd. And Another
Factual and Procedural Background
The petition arises from a writ proceeding in which the Allahabad High Court held that the Central Government has the exclusive power to grant licences for the manufacture of industrial alcohol and directed the State of Uttar Pradesh not to interfere with the respondent-company’s distillery operations. The High Court further directed the State to allot molasses to the company in accordance with an earlier Government assurance dated 23 March 1989. Aggrieved, the State of Uttar Pradesh filed the present Special Leave Petition (SLP) before the Supreme Court of India. After hearing counsel for both sides, the Supreme Court dismissed the SLP.
Legal Issues Presented
- Whether, in light of the Supreme Court’s decision in Synthetics and Chemicals Ltd. v. State of U.P. (1990) 1 SCC 109, the State of Uttar Pradesh can require a PD-2 licence or otherwise interfere with the manufacture of industrial alcohol.
- Whether the High Court’s direction to allot molasses to the respondent-company is sustainable when no detailed reasons were recorded in the judgment.
Arguments of the Parties
State of Uttar Pradesh (Petitioner)
- Contended that rectified spirit—produced as an intermediate stage before manufacturing industrial alcohol—can be converted into potable liquor merely by dilution with water, necessitating State regulation.
- Questioned the High Court’s unconditional direction to allot molasses, pointing out the absence of recorded reasons and the need to comply with the Molasses Control Order.
- Sought to raise additional contentions not argued before the High Court; the Supreme Court declined to entertain these new grounds.
Respondent-Company
- Submitted, through counsel Mr F. S. Nariman, that the Government’s assurance of molasses supply dated 23 March 1989 had been extended in subsequent years, justifying the High Court’s direction.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Synthetics and Chemicals Ltd. v. State of U.P. (1990) 1 SCC 109 |
|
The Supreme Court held that the High Court merely reiterated these principles; it affirmed that no PD-2 licence is required for industrial alcohol while recognising the State’s authority to ensure that the product is not diverted to potable use. |
Court's Reasoning and Analysis
The Supreme Court found “no reason to entertain” the SLP because the High Court correctly applied the principles from Synthetics and Chemicals. The Court accepted that:
- The Union Government has exclusive licensing power over industrial alcohol, so the State cannot insist on a PD-2 licence for such manufacture.
- The State’s regulatory authority to prevent diversion to potable liquor remains safeguarded; the respondent’s manufacture is therefore subject to lawful checks by the State.
- The High Court’s direction regarding molasses supply must be read in harmony with the Molasses Control Order and other governing laws; the State is not compelled to act contrary to those statutory frameworks.
The Court refused to entertain additional arguments raised by the State because they had not been urged before the High Court.
Holding and Implications
The Special Leave Petition is dismissed.
Immediate Effect: The High Court’s order stands affirmed; the respondent-company may continue manufacturing industrial alcohol without obtaining a PD-2 licence, subject to the State’s lawful oversight to prevent conversion into potable liquor. Molasses supply, if made, must comply with the Molasses Control Order and other applicable laws.
Broader Implications: The decision reinforces the doctrinal boundaries between Union and State powers over industrial and potable alcohol as previously settled in Synthetics and Chemicals, but does not establish a new precedent.
Order
1. Heard counsel for the petitioners as well as the counsel for the respondents. We see no reason to entertain this special leave petition. It is established by the decision of this Court in Synthetics and Chemicals Ltd. v. State of U.P (1990) 1 SCC 109 that so far as the industrial alcohol is concerned, the power of licencing vests in the Union of India alone. At the same time it is held that the power of the State Government to legislate with respect to potable liquor referable to Entry 8 of List II remains unaffected. It is also held that the State has the power to make regulations and to take appropriate action to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol. Another principle enunciated in the said decision is that the State can, not only charge excise duty on potable alcohol and sales tax on sales of such potable alcohol, but is also entitled, in cases it renders any service, as distinct from its claim of grant of privilege, to charge fees based on quid pro quo. The High Court in this case has merely reiterated the said principles. It has held “that the Central Government has the exclusive power to grant a licence for the manufacture of industrial alcohol. It is not necessary for the petitioner to obtain a PD-2 licence from the Excise Commissioner, U.P, Allahabad before starting its distillery for the manufacture of industrial alcohol. The provisions in the U.P Excise Manual relating to taking of PD-2 licence are not applicable to a case where a person wants to manufacture industrial alcohol. The other provisions of the Act and Rules of the U.P Excise Act and Manual are applicable in order to ensure that industrial alcohol is not converted into potable alcohol.” The final order of the High Court is to the following effect:
“In view of the above, we allow the writ petition and direct the respondents not to interfere with the petitioner's manufacturing industrial alcohol in the distillery for which licence had been granted. This is, however, subject to the right of the State Government to ensure that industrial alcohol is not converted into potable alcohol.”
2. In our opinion the said observations must be understood as reiterating the principles enunciated by this Court in the decision afore-cited. Mr Salve, learned counsel for the State of Uttar Pradesh submitted that before manufacturing industrial alcohol, the respondent-company has to manufacture rectified spirit and that rectified spirit can be converted into potable liquor by merely adding water. Maybe so. The observations made by the High Court and the law laid down by this Court recognise and safeguard the power of the State Government to guard against such abuse. We affirm it.
3. Shri Salve questioned the direction given by the High Court to the following effect: “We further direct that the respondents shall allot molasses to the petitioner in accordance with the assurance given to the petitioner, vide order of the Government dated March 23, 1989.” The proceeding dated March 23, 1989 of course pertains to the year 1989. But Mr F.S Nariman, learned counsel for the respondent-company says that the said order has been extended from time to time for the subsequent years as well. Mr Salve points out that in the body of the judgment of the High Court no reasons are given in support of the aforesaid direction. We are, however, of the opinion that the said direction cannot be construed and shall not be understood, as calling upon or directing the Government to do anything, or to make any supplies, contrary to the provisions of the Molasses Control Order or any other law governing the supply of molasses. The supply of molasses to the respondent shall be made in accordance with law.
4. Mr Salve raised certain other contentions but we did not allow him to do so in view of the fact that those contentions were not urged before the High Court. We need express no opinion thereon.
5. Special leave petition is accordingly dismissed subject to the above observations.
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