Supreme Court’s decision allowing Indian states to tax industrial alcohol

Source: The post Supreme Court’s decision allowing Indian states to tax industrial alcohol has been created, based on the article “Express View on SC verdict on industrial alcohol: Lifting spirits” published in “Indian Express” on 25th October 2024

UPSC Syllabus Topic: GS Paper 2- Governance- issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.

Context: The article discusses the Supreme Court’s decision allowing Indian states to tax industrial alcohol. This decision, favoring states’ revenue autonomy, reverses a past ruling. It follows a similar July verdict, supporting state royalties on mining, highlighting states’ financial independence.

For detailed information on Supreme Court Upholds States’ Power to Regulate Industrial Alcohol read this article here

What are the issues with industrial alcohol taxation?

1. Historical Restrictions: A 1990 Supreme Court ruling in Synthetics & Chemicals Ltd vs State of Uttar Pradesh restricted states from taxing industrial alcohol, limiting their revenue potential from this lucrative source.
2. Revenue Needs Post-GST: States argue for increased revenue sources, especially after GST centralization. Industrial alcohol, essential in sectors like biofuels, sanitizers, and the food industry, provides an untapped income stream for states.
3. Constitutional Interpretation: The case hinged on whether industrial alcohol qualifies as “intoxicating liquor” under the State List 8 in the Seventh Schedule, which allows states to tax “intoxicating liquors.” This debate led to legal ambiguity over states’ taxation rights.

What is the recent judicial view on the term “intoxicating liquor”?

1. The Supreme Court recently ruled that states can tax industrial alcohol, overturning the 1990 Synthetics & Chemicals Ltd vs State of Uttar Pradesh decision.
2. Chief Justice DY Chandrachud argued for a broad interpretation of “intoxicating liquor” in the Seventh Schedule, allowing states to include industrial alcohol in this category if it causes intoxication.
3. Justice B V Nagarathna dissented, stating industrial alcohol, meant for non-consumption uses like biofuels and sanitizers, should not be included.
4. The ruling strengthens state revenues, especially vital in the GST era, when states seek additional revenue sources.

Question for practice:

Discuss the implications of the Supreme Court’s recent ruling allowing states to tax industrial alcohol on their financial autonomy and revenue generation.