EXCISE DUTY ON INDUSTRIAL ALCOHOL
Excise duty levied on alcohol is a key component of a state’s revenue, with states often adding an additional excise duty on alcohol consumption to drive its income up. For example, in 2023, Karnataka hiked the Additional Excise Duty (AED) on Indian Made Liquor (IML) by 20%.
However, when it comes to ‘industrial alcohol’, do states have the power to regulate and tax it? This is the question that a 9-judge bench of the Supreme Court is hearing.
WHAT IS INDUSTRIAL ALCOHOL?
Industrial alcohol is used as a raw material to create other products, and is not meant for human consumption.
THE CONSTITUTIONAL PROVISIONS
Entry 8 in the State List under the Seventh Schedule gives states the power to legislate on the production, manufacture, possession, transport, purchase and sale of “intoxicating liquors”.
At the same time, Entry 52 of the Union List, and Entry 33 of the Concurrent List mention industries, whose control is “declared by Parliament by law to be expedient in public interest”.
Notably, subjects in the Concurrent List can be legislated upon by both states and the Centre, but where a central law exists, the state law cannot be repugnant to it. Industrial alcohol is listed in the Industries (Development and Regulation) Act, 1951 (IDRA).
WHAT IS THE QUESTION BEFORE THE COURT?
Essentially, the question before the apex court is whether states can regulate industrial alcohol or whether the centre exercises exclusive control on the subject.
HAS SC CONSIDERED THIS ISSUE EARLIER?
In 1989, a 7-judge Constitution Bench in Synthetics & Chemicals Ltd v. State of Uttar Pradesh held that states’ powers, as per Entry 8 of the State List, were limited to regulating “intoxicating liquors” which are different from industrial alcohol.
The SC acknowledged that states’ power to regulate consumable alcohol must include the power to “prevent and/ or check industrial alcohol being used as intoxicating or drinkable alcohol”. The power to levy taxes should be with the Center only.
ARGUMENTS BY THE STATE
Senior Advocate Dinesh Dwivedi, appearing for the State of UP, said that the phrase “intoxicating liquors” in Entry 8 of the State List includes “all liquids containing alcohol”. He said that ‘liquor’, ‘spirit’, and ‘intoxicant’ were used in excise laws before the Constitution came into force.
He also argued that the Union’s power under Entry 52 of the Union List does not include control over “finished products” (such as industrial alcohol after the denaturation process), as that is specifically covered by Entry 33 of the Concurrent List. In order to exercise exclusive control over regulation of industrial alcohol, the Centre would first have to issue an order to that effect under Section 18-G of the IDRA. Without such an order, that control would vest with the states.
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