STATES TO REGULATE INDUSTRIAL ALCOHOL NOW

[Dr. Sanjiv Agarwal]

Regulation of taxation of alcohol has always been a bone of contention between the Union and the States - be it industrial alcohol or alcohol meant for human consumption.

Recently a nine-member Constitutional Bench of Supreme Court gave its majority verdict (8: 1) in the matter of taxation power of states for industrial alcohol in STATE OF U.P. & OTHERS VERSUS M/S. LALTA PRASAD VAISH AND SONS - 2024 (11) TMI 281 - SUPREME COURT (LB).

A larger 9 - member of bench of apex court in the said case decided the issue by a majority of 8:1. It held that in India, only states have the power to regulate production, manufacture, supply and pricing of industrial alcohol, i.e. alcohol meant for industrial consumption. Till now, powers of states were held to be limited to taxation of alcohol meant for human consumption.

It has been held that industrial alcohol comes within the meaning of intoxicating liquor under Entry 8 of List II (State List) of the Constitution and Parliament does not have the legislative competence to enact a law taking control of the industry of intoxicating liquor covered by Entry 8 of List II in exercise of the power under Article 246 read with Entry 52 of List I. Further, the phrase ‘intoxicating liquor’ in Entry 8 goes beyond alcoholic beverages and will include alcohol not meant for human consumption.

Accordingly, Entry 8 of List II of the Seventh Schedule to the Constitution is both an industry based entry and a product based entry. It includes the regulation of everything from the raw materials to the consumption of intoxicating liquor. Thus, alcohol which doesn’t traditionally cause intoxicating will also be considered as intoxicating liquor.

The court observed that alcohol is inherently a noxious substance that is prone to misuse affecting public health at large. Entry 8 covers alcohol that could be used noxiously to the detriment of public health. This includes alcohol such as rectified spirit, ENA and denatured spirit which are used as raw materials in the production of potable alcohol and other products. However, it does not include the final product (such as a hand - sanitiser) that contains alcohol since such as interpretation will substantially diminish the scope of other legislative entries.

This judgment has over ruled its own judgment of 1990 in SYNTHETICS & CHEMICALS LTD., ETC. VERSUS STATE OF UP. - 1989 (10) TMI 214 - SUPREME COURT which was a 7 - member bench judgment which held that intoxicating liquor only referred to potable (drinkable) alcohol. The only dissenting judge opined against the majority and held that 1990 judgment was correct and that Entry 8 of List II cannot be stretched to include industrial alcohol.

In the instant case, the state Governments of Punjab, Uttar Pradesh, West Bengal, Maharashtra, Kerala and others claimed that state have exclusive power to regulate the production, manufacture, possession, transport, purchase and sale of all intoxicating liquors. They said that the power to tax industrial alcohol was particularly crucial in the post goods and services tax era as a significant sources of income. On the other hand, the centre argued that the field of alcohol is occupied by Section 18G of the Industries (Development and Regulation) Act, 1951 and the only form of alcohol which is excluded under this provisions is potable liquor on which only state can regulate.

In conclusion states can now regulate taxation of industrial alcohol too as Entry 8 of List II now gives the states the power to regulate production, manufacture, purchase, sale and pricing of alcohol or intoxicating liquor.