States can tax, regulate industrial alcohol: SC in 8:1 majority ruling

• In a decision that will boost the coffers of States, the Supreme Court, in an 8:1 majority ruling on Wednesday, held that the phrase “intoxicating liquors” in the State list includes industrial alcohol, and States have the power to regulate and tax it.

Highlights:

• In a landmark decision on Wednesday, the Supreme Court, in an 8:1 majority ruling, clarified that the term "intoxicating liquors" in the State List includes industrial alcohol, granting States the authority to regulate and tax it. This ruling is expected to significantly boost the revenue of various State governments.

Details of the Majority Ruling:

• The majority opinion was delivered by Chief Justice D Y Chandrachud, along with Justices Hrishikesh Roy, Abhay S Oka, J B Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih.
• The Chief Justice articulated that the interpretation of "intoxicating liquor" has broadened beyond just alcoholic beverages that produce intoxicating effects upon consumption. He emphasized that the Constitution distinguishes between three terms related to alcohol and that the phrase encompasses the broader spectrum of production, manufacture, possession, transport, purchase, and sale of intoxicating liquors.

Dissenting Opinion:

• Justice B V Nagarathna was the sole dissenting voice, asserting that States should only tax intoxicating liquors meant for direct human consumption. She argued that the intoxicating effect is crucial for legislative competence over any liquors under Entry 8, List II. According to her, industrial alcohol should not be included in this category as it is typically not consumed as a beverage.

Overturning Previous Judgments:

• The recent ruling overturns a 1990 seven-judge judgment in Synthetics & Chemicals Ltd vs State of Uttar Pradesh, which stated that States could not tax industrial alcohol. The matter was referred to a nine-judge bench in 2010, prompting this reassessment of legal interpretations.

Context and Implications:

• This decision aligns with a previous 8:1 majority ruling in July, which affirmed that States have the power to levy royalties on the extraction of minerals from their lands. The consistency of these rulings indicates a strong trend towards granting greater regulatory authority to States, despite dissenting views on certain interpretations.
• Justice Nagarathna’s dissent reiterates concerns about the legislative scope of States regarding non-potable or industrial alcohol, suggesting a more restrictive interpretation than that proposed by the majority.
• This ruling is set to redefine the landscape of alcohol regulation and taxation in India, with significant implications for both State revenues and industry practices.

Prelims Takeaways:

• Entry 8 of List II (State list)