SC Upholds State’s Power to Regulate Industrial Alcohol

Syllabus: GS2/Polity

Context

• The Supreme Court (SC) upheld that States have the power to tax not just alcoholic beverages, but also ‘industrial’ alcohol.

About

• Industrial alcohol is not meant for human consumption. The key interpretative question before the court was whether “intoxicating liquor” can be defined to also include “industrial alcohol”.
• And whether states can regulate it or whether the Centre has exclusive control on the subject.

Dispute

• 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.
  • 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.
• The Centre argued that it “occupied the field” when it comes to industrial alcohol, and that states could not regulate the subject.
• States, on the other hand, argued that industrial alcohol can be misused to produce consumable alcohol illegally, which required them to enact legislation.

Industrial Alcohol

• Industrial alcohol is impure alcohol that is used as an industrial solvent. 
• Mixing chemicals such as benzene, pyridine, gasoline, etc. in ethanol, which is produced by fermenting grains, fruit, molasses, etc., — a process that is called ‘denaturation’ — turns it into industrial alcohol. 
• This makes the alcohol unfit for human consumption, and significantly lowers its price.
• It is used to manufacture a range of products including pharmaceuticals, perfumes, cosmetics, and cleaning liquids.
• It is sometimes used to make illicit liquor, cheap and dangerous intoxicants whose consumption poses severe risks, including blindness and death.

SC Ruling

• SC noted that the tax levied on alcohol is a key component of a state’s revenue, with state governments often adding an additional excise duty on alcohol consumption to further drive up incomes. 
• The verdict also provides clarity on Centre-state relations when it comes to control over industries.
  • It affirms the power of states to pass laws on subjects in the State List, even in the face of the wide powers granted to the Centre regarding the control of ‘Industries’ as a whole.
• The ruling also set aside the SC’s 1990 judgment in Synthetics & Chemicals Ltd. v State of Uttar Pradesh, which held that “intoxicating liquor” refers only to potable alcohol and, therefore, states could not tax industrial alcohol.
• The SC also held that “when there are two possible interpretations of the entries, the Court must choose the one that maintains the federal balance”.

Source: TH