The matter was referred to the nine-judge bench in 2010.
The Supreme Court on Tuesday sought to know from the Centre why the states, as the custodians of the health of citizens, cannot impose regulations on industrial alcohol and levy fees to ensure that its abuse does not take place.
A nine-judge constitution bench is examining the issue of overlapping powers of the Centre and states in the production, manufacturing, supply and regulation of industrial alcohol.
"We all know about hooch tragedies and the states are widely concerned about the health of its citizens. Why should the states not have the power to regulate? If they can regulate to ensure that there is no misuse, then it can impose any fees," the bench headed by Chief Justice D Chandrachud asked Solicitor General Tushar Mehta, appearing for the Centre.
A bunch of petitions came before the bench after a seven-judge constitution bench ruled against the states.
The matter was referred to the nine-judge bench in 2010 after the seven-judge bench ruled in 1997 that the Centre would have regulatory power over the production of industrial alcohol.
The seven-judge bench had in 1990 observed that through the Industries (Development and Regulation) Act, 1951, the Union had "evinced a clear intention to occupy" legislative competence on the subject and hence Entry 33 could not empower a state government.
The nine-judge constitution bench asked Mr Mehta why the states cannot have a regulatory mechanism for industrial alcohol.
"There is one area. Denatured spirit can be converted into intoxicating liquor by a process. There is a possibility of abuse there. Can we deny to the state the regulatory power to ensure that the abuse does not take place? The Centre is a national entity from the state, you are not going to control what is happening in a district or collectorate," the bench said.
"Suppose, there is a strong possibility of denatured spirit of being misused for consumption. "The state is rightly concerned as a custodian of health and it can impose regulations for ensuring that abuse does not take place. Why should we deny them the power to impose fees for that purpose," it asked.
Referring to hooch tragedies in the country, it said, "Can the state not say that this is happening within my territory and is likely to cause law and order problems."
Mr Mehta replied that regulation of industrial alcohol lies with the Centre under the Industries (Development and Regulation) Act, 1951 and only the Union has legislative power to levy excise duty on alcohol not fit for human consumption.
Commencing his arguments before the nine-judge bench, the law officer said the interpretation given by the court would not impact just industrial alcohol (the only subject argued by the petitioners) but every industry included in the Schedule I of Industries Regulation and Development Act, 1951.
"Some of the industries have always been considered to be necessary to remain under the central control if it is found to be in national interest. From the beginning of the evolution of Entry 52 List I, the power of the central government to take within its control such industries have existed.
"The Parliament, under List I Entry 52, is fully entitled to control everything as per its wisdom, requirements of a particular industry and to achieve the stated object of IDRA when Parliament is satisfied that the activities of an industry/industries which affects the country as a whole," Mr Mehta said.
The bench also comprised Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih.
Mr Mehta submitted that the Union is also entitled to control the requirements of a particular industry if it ought to be governed by economic factors of an all-India import and cannot be permitted to be decided by any state according to their provincial interests.
"At the outset, it is made clear that the present reference does not deal with the taxing entries about alcohol, be it potable or non-potable. Neither the questions referred in the reference deal with the same nor the petitioners have made submissions on taxing power of Parliament vis-a-vis state legislature," Mr Mehta said.
The hearing remained inconclusive and will resume on April 16.
Asserting its right to regulate industrial alcohol, the Centre had earlier told the top court that legislative power to levy excise duty on alcohol not fit for human consumption but meant for industrial use lies exclusively with Parliament.
Attorney General R Venkataramani had submitted that a "conscious decision" was taken to treat alcoholic liquors fit for human consumption and alcoholic liquors not fit for human consumption separately, with the former falling within the domain of provincial legislatures and the latter within the ambit of the federal legislature.
Prior to that, BJP-ruled Uttar Pradesh and Trinamool Congress-governed West Bengal were on the same page in the top court where they asserted the legislative power vested in states to regulate industrial alcohol is untrammelled and complete and beyond the Centre's jurisdiction.
Senior advocate Dinesh Dwivedi, appearing for the Uttar Pradesh government, had told the court that liquor has always been within the legislative sphere of states and the Centre does not have any jurisdiction with regard to industrial alcohol.
Excise, liquor and spirit have always been part of the state's jurisdiction, including industrial alcohol, he had said.
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