SC Upholds States' Right to Regulate Industrial Alcohol

In a big victory for states, the Supreme Court (SC), in an 8:1 majority, upheld the states’ right to regulate taxes on industrial alcohol, overruling a 1990 judgment.

Background of the Case (Issue Before the Court)

• The core of the dispute arises from two “overlapping” entries in the Seventh Schedule of the Constitution, which lays down the division of lawmaking powers between the Centre and the states.
• The case revolves around the interpretation of Entry 8 of List II (State List) and Entry 52 of the Union List in the Constitution.
  • Entry 8 of List II (State List) gives states the power to regulate “the production, manufacture, possession, transport, purchase and sale of intoxicating liquors”
  • Entry 52 of List I (Union List) allows the Centre to regulate industries as a whole to the extent “declared by Parliament by law to be expedient in public interest”.
• Centre VS States Arguments
  • Centre: As alcohol and other products of fermentation industries that deal with non-potable (non-drinkable) alcohol are included in the Industries (Development and Regulation) Act, 1961. The Centre argued that it “occupied the field” when it comes to industrial alcohol, and that states could not regulate the subject.
  • States: States, on the other hand, argued that industrial alcohol can be misused to produce consumable alcohol illegally, which required them to enact legislation.
• The Supreme Court needed to address whether "industrial alcohol" or denatured spirits could be classified under the term "intoxicating liquor," thus allowing states to regulate and tax it.
• The controversy traces back to a 1990 Supreme Court judgment in Synthetics & Chemicals vs. State of Uttar Pradesh, which limited the definition of "intoxicating liquor" to potable alcohol, ruling that states could not tax industrial alcohol.
• The current case revisited this ruling, with the Supreme Court considering its implications on state powers and public health concerns.

Key-takeaways from Supreme Court’s Ruling

• Definition of Intoxicating Liquor: The Supreme Court ruled that "industrial alcohol" falls within the meaning of "intoxicating liquor" under Entry 8 of List II of the Constitution. This broader interpretation allows states to regulate and tax industrial alcohol.
  • The definition of "intoxicating liquor" extends beyond just alcoholic beverages suitable for human consumption. It includes all types of alcohol that could pose risks to public health.
• The court stated, “Alcoholic liquor is defined by its ingredients, and ‘intoxicating’ is defined by its effects.” This emphasis on public health reinforces states’ obligations to prevent misuse of industrial alcohol.
• Overruling of Previous Judgment: The court overruled the earlier decision in Synthetics & Chemicals, asserting that the Entry 8 of List II cannot exclude raw materials used in producing intoxicating liquors. The Bench highlighted the necessity for states to enact regulations to prevent industrial alcohol from being misused as a consumable liquor.
• Legislative Powers: The ruling confirms that the subject of intoxicating liquors falls exclusively within state jurisdiction, allowing state legislatures to enact laws addressing the production, transport, and sale of industrial alcohol. This grants states greater autonomy to combat illegal consumption and regulate alcohol-related activities.
• The judgment empowers state governments to introduce more stringent regulations on industrial alcohol, potentially leading to changes in how it is produced, transported, and consumed.