Centre lacks regulatory power over production of industrial alcohol: Supreme Court overturns verdict by 8:1 ruling

State's power to make laws on industrial alcohol cannot be taken away, the top court observed.

New Delhi: The Supreme Court on Wednesday upheld the power of states to impose tax on all kinds of alcohol, including the industrial alcohol and its raw material, in a major boost to their revenue.

A nine-judge Constitution bench led by Chief Justice of India D Y Chandrachud by a majority view of 8:1 ruled that industrial alcohol comes within the meaning of 'intoxicating alcohol' under Entry 8 of the State List, so the states can regulate and tax it.

The apex court said that intoxicating liquor under Entry 8 cannot be restricted to potable alcohol. Though Entry 52 of the Union List empowered the central government to regulate those industries which have been declared by Parliament to be of public interest, legislative lists must be given a wide interpretation, the bench said.

"The meaning of the phrase ‘intoxicating liquor’ cannot be restricted to potable alcoholic liquor, that is, alcohol that is sold as a beverage. Alcohol is an inherently noxious substance that is prone to misuse affecting public health at large," the bench said.

The court pointed out the purpose of Entry 8 is to to cover alcohol that could be used noxiously to the detriment of public health. The Entry covers all alcohol that could be ‘prone’ to noxious use. It also covers variants of alcohol that are not used for the preparation of potable alcohol but which could be misused to harm public health. This interpretation is in consonance with the mischief sought to be covered by the Entry, the bench added.

The bench opined that there can be an overlap between the two entries and the way out is to reconcile the two entries to see that neither are rendered redundant.

The court overruled its 1990 judgment in Synthetics and Chemicals Ltd Vs State of UP (by a seven-judge bench) which had held that intoxicating liquor referred only to potable liquor and States cannot tax industrial alcohal.

"An analysis of the evolution of the legislative entries relating to alcohol does not provide an unambiguous interpretation. While the evolution of the entries does indicate that the drafters were aware of the distinction between potable alcohol and alcohol used as a raw material in the production of other products, there is no clear answer to whether ‘intoxicating liquor’ includes both. The evolution of the entries provides us with some context and background but not a conclusive answer," the bench said.

Justice B V Nagarathna, however, gave a dissenting judgment. She held there is a lack of legislative competence in the State Legislature when viewed from the constitutional framework and statutory framework of the Industries (Development and Regulation) Act, 1951, passed by the Parliament on the strength of Entry 52 – List I of the Seventh Schedule of the Constitution.

The other judges in the bench were Justices Hrishikesh Roy, Abhay S Oka, J B Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih.

The matter was referred to the nine-judge bench in 2010.

Entry 8 of the State List empowered a state to make laws for “intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors.”

However, under Entry 33 of the Concurrent List both the State and Union governments can make laws on the products of any industry, even if Parliament has granted control to the Union in public interest, which became a point of contention as who has the power to regulate industrial alcohol.

The Uttar Pradesh government had on January 13, 1990 issued a notification under UP Licences for the Possession of Denatured Spirit and Specially Denatured Spirit Rules, 1976 (1976 Rules) and imposed a licence fee of 15 paise per litre on the quantity of specially denatured spirit obtained from distilleries, which led to the filing of petitions.