SC holds industrial alcohol intoxicating liquor, can be taxed by States

NEW DELHI: Giving a huge revenue fillip to states, the Supreme Court on Wednesday ruled that the states have legislative taxing control over all kinds of alcohol including industrial alcohol and its raw material, limited only by Parliament law specified industries.

The Supreme Court ruled that states have the authority to regulate and tax industrial alcohol, expanding their control over all forms of alcohol beyond those fit for human consumption.

The 9 Judge Constitution bench comprised Chief Justice of India(CJI) DY Chandrachud, Justices Hrishikesh Roy, Abhay S. Oka, B.V. Nagarathna, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma And Augustine George Masih held by 8:1 majority, that the States have the power to regulate 'denatured spirit or industrial alcohol'.

By an 8-1 majority, the bench ruled that "intoxicating liquor," as referred to in Entry 8 of the State List (List II) of the Constitution's Seventh Schedule, includes industrial alcohol and denatured spirits.

The majority concluded that the term "intoxicating liquor" in Entry 8 of List II (State List) of the Seventh Schedule of the Constitution will include industrial alcohol.

Justice BV Nagarathna dissented from the majority ruling, delivering a separate judgment, though her reasoning has yet to be detailed.

The ruling clarifies that even alcohol unsuitable for human consumption can fall under the definition of "intoxicating liquor" if it has the potential to be used or misused for consumption.

Chief Justice Chandrachud, delivering the majority opinion, emphasized that the term "intoxicating" should not be narrowly interpreted to mean only alcohol fit for drinking. Instead, any alcohol, whether poisonous or harmful, falls within the purview of intoxicating liquor under the Constitution. This means states can regulate not just potable alcohol but also other alcoholic substances that may pose risks to public health.

The court's decision came as part of a broader examination of the scope of the Industries (Development and Regulation) Act, 1951 (IDR Act), which grants regulatory powers to the Union government over certain industries. One of the key issues was whether this Act gave the Union exclusive control over industrial alcohol or whether states could continue to regulate it under their legislative powers.

The majority ruling highlighted the importance of regulating alcohol at various stages, from production to sale, to safeguard public health. "Intoxicating liquor" cannot be limited to substances traditionally viewed as drinkable but encompasses all liquids with alcohol content that could harm individuals if consumed improperly.

The case has its roots in a 2007 referral to a nine-judge bench concerning the interpretation of Section 18G of the IDR Act, which allows the Union government to regulate the supply and distribution of products related to certain industries. The case also re-examined a previous Supreme Court decision from 1989 in Synthetics and Chemicals Ltd. vs. State of UP, which had ruled that industrial alcohol fell under the exclusive purview of the Union government.

Today's ruling overruled parts of that earlier decision, affirming that states retain the right to legislate on alcohol, even when its production or regulation might intersect with Union powers.

States, including Uttar Pradesh, West Bengal, Maharashtra, and Kerala, argued that industrial alcohol should be classified as intoxicating liquor, thus falling under their jurisdiction. They emphasized that state powers should not be undermined by central regulations, particularly in areas like alcohol, where public health concerns are paramount.

The Union government, however, contended that the IDR Act provided it with exclusive regulatory powers over industrial alcohol, asserting that its authority extended across all stages of alcohol production, distribution, and trade. However, the court concluded that states could still regulate industrial alcohol as it pertains to public health under Entry 8 of List II.

The Supreme Court's decision is a significant development in the longstanding debate over the regulatory control of alcohol in India.

It reinforces the state's ability to tax and regulate industrial alcohol, ensuring they maintain a critical role in protecting public health while generating revenue.

The full reasoning behind the judgment will be released when the detailed verdict is uploaded.