Supreme Court grants states regulatory powers over industrial alcohol, overturning previous ruling

In a majority 8:1 judgment, a nine-judge Constitution Bench of the Supreme Court held that states have regulatory powers over production, manufacture, supply and pricing of ‘ industrial alcohol,’ overturning a seven-judge bench’s decision that stated that states’ powers were limited to taxing alcohol for human consumption.

This is the second consecutive victory for states with regard to their taxing powers. A 9-judge bench had in July ruled that states have power to levy tax on mines and minerals.

Ending a long-standing dispute over the power-tussle between the Centre and states, a nine-judge Constitution Bench led by Chief Justice of India D.Y. Chandrachud on Wednesday said that 'industrial alcohol' comes within the meaning of 'intoxicating liquor' under Entry 8 of List II (State List) of the Constitution.

“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,” said the bench in its verdict.

The court held that the phrase ‘intoxicating liquor’ in Entry 8 goes beyond alcoholic beverages and will include alcohol not meant for human consumption.

Along with the CJI, Justices Hrishikesh Roy, Abhay S. Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih supported the states' power to regulate industrial alcohol. However, Justice B.V. Nagarathna gave a dissenting opinion.

“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’,” the majority judgment said.

Alcohol which doesn't traditionally cause intoxication will also be considered as intoxicating liquor, the top court said.

“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 an interpretation will substantially diminish the scope of other legislative entries,” according to the apex court.

The apex court set aside its 1990 verdict, which had held that intoxicating liquors only referred to potable (drinkable) alcohol. However, Justice Nagarathna while upholding the 1990 verdict, said that Entry 8 List II cannot be stretched to include such industrial alcohols. The state legislature lacks competence to decide on industrial alcohol and merely because industrial alcohol can be misused, does not give the powers to the states over it, she said.

The state governments of Punjab, Uttar Pradesh, West Bengal, Maharashtra, Kerala and others claimed that states 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 source of income.

However, 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 excluded under this provision is “potable liquor” on which only a state can regulate.