Express View on SC verdict on industrial alcohol: Lifting spirits
On Wednesday, India’s federal polity and the country’s taxation system experienced a déjà-vu of sorts when the Supreme Court ruled in favour of states in a case on the taxation of “industrial alcohol”. The decision, which enhances the ability of state governments to tax what is a rich source of revenue, comes close on the heels of a similar decision by the apex court in July. The Court had then granted states the freedom to charge royalty from mining leases. Both decisions overturned long-standing SC rulings and were taken with a majority of 8 to1.The case has its origins in a 1990 ruling by a seven-judge bench of the apex court. In Synthetics & Chemicals Ltd vs State of Uttar Pradesh, the Supreme Court had ruled that a state government cannot tax industrial alcohol. This ruling was challenged not just by the UP government but by several other states as well. In 2010, the matter was referred to a nine-judge bench. It rested on a question of semantics: Whether “intoxicating liquor” can be defined to include “industrial alcohol”. Entry 8 of the State List in the Constitution’s Seventh Schedule gives states the power to regulate “the production, manufacture, possession, transport, purchase and sale of intoxicating liquors”. To complicate matters, the Constitution uses three distinct expressions relating to alcohol: “Intoxicating liquor”, “alcoholic liquor for human consumption” and “intoxicating drinks”.
CJI DY Chandrachud held that entries in the Seventh Schedule must be given a “wide meaning”. He observed that “…even liquor which colloquially or traditionally is not considered as alcoholic liquor may be covered by the phrase ‘intoxicating liquor’ if it produces the effect of intoxication”. Justice B V Nagarathna, also the dissenting voice in the July ruling on mining royalties, stated that industrial or denatured alcohol cannot be included in the contentious category. Regardless of its legal nuances, the verdict’s political and economic significance lies in the fact that it boosts the ability of state governments to raise their own revenues. The petitioners had argued that the power to tax industrial alcohol is particularly crucial in the post-GST era as a source of income for states — industrial alcohol today is used in a variety of purposes, including as solvents and reagents, biofuels, making sanitisers and in the food industry. The SC’s decision could work to the advantage of states at a time when several of them have complained of not getting a fair share of the national tax kitty.