IMPORTANT POINT
States under Entries 8 and 51 of List II read with Entry 84 of List I of the Seventh Schedule, Constitution of India, have exclusive privilege to legislate on intoxicating liquor or alcoholic liquor for human consumption.

JUDGMENT

A.M. Ahmadi, CJI. - Leave granted.

2. These two appeals are filed against the judgment of the High Court of Allahabad dated 9.9.1991 whereby the writ petitions filed by the appellants herein challenging the Notification No. 25/Licence/Part-3 dated 18.5.1990 issued by the Excise Commissioner, Uttar Pradesh, were dismissed. The impugned Notification dated 18.5.1990 was issued in exercise of powers conferred by Section 41 of the U.P. Excise Act, 1910 (hereinafter called the Act ) with the prior approval of the State Government. By the said Notification certain amendments were made in the Rules published with Notification No. 423-Five/284/B, dated 26th September 1910. Section 41 of the Act gives power to the Excise Commissioner to make Rules, inter alia, for regulating the manufacture, supply, storage or sale of any intoxicant; for regulating deposit and removal of any intoxicant and prescribing the scale of fees or manner of fixing the fees payable for licence, permit or pass, including for the grant of any exclusive or other privilege under Sections 24 and 24A of the said Act. The earlier Rule 2 was substituted by a new Rule 2 entitled "Denaturation of Spirit". The amended rule provides for a new licence for denaturation of spirit in a prescribed form to be issued by the Collector to all distilleries situated within his district holding licence PD-1 or PD-2 and persons holding licences FL-16, FL-39, FL-40 and Fl-41 to denature the spirit. It further prescribed that the distilleries mentioned above and holding licence for denaturation of spirit shall be liable to pay a denaturation fee at the rate of 7 paise per litre in advance. The appellants Vam Organic Chemicals Limited are manufacturing vinyl acetate monomer, a basic organic chemical for which industrial alcohol is the main feed stock. The industrial alcohol is being produced in the distillery of the appellants and according to the appellants the entire industrial alcohol produced is denatured as per the method approved by the State Excise Authorities and is being used in their factory for manufacturing vinyl acetate monomer. The other appellants, viz., India Glycols Limited and another, are manufacturing Monoethylene Glycol and its products Diethylene glycol and heavy glycol. One part of the factory of these appellants is being used for manufacturing ethyl alcohol produced by them for being captively consumed.

3. The appellants hold licences in the form of FL-39 to enable them to use the industrial alcohol as the main raw material for their product. They were obliged to take out licence in the form of DS-1 as prescribed in the impugned Notification and pay a licence fee at the rate of 7 paise per litre with effect from 2nd June, 1990. The Notification is challenged on two grounds, namely, that the State of Uttar Pradesh has no power to legislate in respect of industrial alcohol or to levy taxes in respect thereof and further that the levy being not based on quid pro quo was otherwise bad,. The State of Uttar Pradesh contested the writ petitions. By the impugned judgment, the High Court rejected all the contentions of the appellants and dismissed the writ petitions. Hence these appeals by special leave.

4. Before proceeding further, it will be proper to understand the difference between industrial alcohol, denatured spirit and potable liquor. Ethyl alcohol is rectified spirit of 95 v/v in strength. Rectified spirit is highly toxic and unfit diluted with water is country liquor. Rectified spirit, as it is, can be used for manufacture of various other products like chemicals, etc. Rectified spirit, produced for industrial use is required by a Notification issued under the Act to be denatured in order to prevent the spirit from being directed to human consumption. Rectified spirit is denatured by adding denaturants which make the spirit unpalatable and nauseating. As such rectified spirit can be converted to potable liquor but once denatured it can be used only as indust