The Supreme Court, in a landmark decision on October 24, affirmed that states have the authority to regulate and tax industrial alcohol, recognizing it as “intoxicating beverages” under entry 8 of the list of the States in the Seventh Schedule of the Constitution. In an 8-1 majority decision, the court overturned its own 1990 ruling, which had placed industrial alcohol under the exclusive jurisdiction of the central government.

Chief Justice of India DY Chandrachud authored the majority opinion, with Justices Hrishikesh Roy, Abhay S. Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih concurring. Justice BV Nagarathna was alone in dissenting.

The ruling is seen as a major victory for state governments as it expands their regulatory reach and taxing powers over industrial alcohol. States like Uttar Pradesh, Maharashtra and Kerala were advocating such a move, especially after the introduction of the Goods and Services Tax (GST), which diminished their revenue-generating capacity. By including industrial alcohol among “intoxicating beverages,” the court effectively restored control to the states, allowing them to impose taxes and regulations that could curb illegal conversions and raise much-needed funds.

The majority decision centered on the interpretation of “intoxicating liquors” under Entry 8 of the State List of the Seventh Schedule of the Constitution. Chief Justice Chandrachud, writing for the bench, argued that the term “intoxicating” should not be narrowly limited to alcohol intended for human consumption. Instead, he argued that the term encompasses a broader category, including industrial alcohol, which, although not consumed directly, could be misused to produce intoxicating effects.

The majority opinion traced the constitutional language, noting that the framers of the Constitution used distinct phrases – “intoxicating beverages,” “alcoholic beverages intended for human consumption” and “intoxicating beverages” – to designate different scopes. of the regulations. According to the bench, while “alcoholic beverages intended for human consumption” explicitly refers to beverages intended to be drunk, “alcoholic beverages” have been defined in a broader context, going beyond mere consumption. The decision highlights that the regulation covers “the production, manufacture, possession, transportation, purchase and sale” of all alcoholic beverages that could cause harm if misused, including industrial alcohol.

Chief Justice Chandrachud emphasized public health concerns, saying states needed regulatory powers to prevent illegal conversion of industrial alcohol into harmful and consumable alcohol. “Liquids which contain alcohol and which may possibly be used (or abused) as intoxicating beverages have been included in the meaning of this expression,” he wrote, emphasizing that industrial alcohol, although intended for industrial purposes, could be diverted to illicit use. and pose a serious threat to public safety. By reinterpreting the term “intoxicant,” the court broadened the scope of the regulations to allow states to effectively combat such misuse.

The decision also recognizes the overlap with entry 52 of the Union List, which grants the central government the power to regulate industries deemed to be of public interest.

However, the majority held that this overlap does not eliminate state jurisdiction over industrial alcohol. The judgment sought a harmonious reading of the two entries, ensuring that the powers of the State under Entry 8 are not made redundant. “Parliament cannot occupy the ground of the entire industry by merely issuing a declaration under Entry 52 of List I,” the Chief Justice said. This approach reaffirmed the autonomy of state legislatures in handling issues closely related to local governance and public health.

In her dissent, Justice BV Nagarathna offered a contrasting interpretation, emphasizing that “intoxicating beverages” must be understood strictly in its traditional meaning: alcoholic beverages intended for drinking. She argued that the majority’s broadening of the term could lead to regulatory confusion and misinterpretation of legislative intent. For Justice Nagarathna, intoxicating effect was a crucial factor in determining legislative jurisdiction. His position was that if a substance does not produce intoxication when ingested, it should not fall under state control via Entry 8.

Justice Nagarathna noted that the inclusion of industrial alcohol in the definition of “intoxicating beverage” would expand the constitutional language beyond its original intent. She argued that the authors did not envisage non-potable alcohols being included within the state’s regulatory powers, particularly those widely used in the industrial sector.

“The Constitution does not permit the state to regulate substances that are not inherently intoxicating when consumed,” Justice Nagarathna said. This view was also based on the economic importance of industrial alcohol, which is essential for the manufacturing industry, chemical industries, and fuel blending (such as gasoline mixed with ethanol). She said placing such an important industrial product under state control could disrupt national economic strategies, particularly those that depend on central coordination.

Justice Nagarathna also expressed concerns over possible inconsistencies and challenges that could arise from the regulation of industrial alcohol at the state level. She said a uniform central approach was needed for sectors where national interests, including fuel security, are at stake. “This decision could have far-reaching implications for federal governance and the economy, as where the central government must retain control of industries that are of strategic importance,” she warned, emphasizing the need for central oversight in the management of vital industrial sectors.

The case had come to the Supreme Court after several state governments challenged the 1990 judgment in the Supreme Court. Synthetics & Chemicals Ltd v State of Uttar Pradesh case, which had limited their regulatory scope. The previous decision had interpreted “intoxicating drinks” to mean only edible alcohol, thereby placing industrial alcohol under central control via entry 52 of the Union List. State governments argued that this interpretation was too narrow and failed to address the practical problems associated with illegal alcohol production, which often involves converting industrial alcohol into drinkable, but dangerous, forms.

Over the years, states have become increasingly dependent on revenue from alcohol taxes, particularly after the GST reduced opportunities to generate funds through other taxes. The lack of control over industrial alcohol has limited the ability of states to regulate its abuse, posing both fiscal and public health problems. The case, referred to a nine-judge bench, was heard in April 2024, with numerous arguments presented by both sides.

Industrial alcohol, or denatured alcohol, is ethanol treated with chemicals to make it non-consumable. It is widely used in many industries, including manufacturing, pharmaceuticals, cosmetics and fuel production. The addition of denaturants makes it unfit for human consumption, but it can still be illegally diverted to produce potable alcohol, leading to health risks and deaths. The Supreme Court’s ruling recognizes this potential for abuse, supporting the ability of states to regulate and prevent such practices.

The court’s decision has important implications for governance, public health and the economy. For state governments, the move provides an expanded revenue base, as they can now impose taxes and regulatory measures on industrial alcohol. With GST excluding alcoholic beverages, states have long relied on liquor taxes as a major source of revenue. The move effectively widens their tax net, which could potentially boost public finances, particularly in revenue-strapped regions.

From a regulatory perspective, the decision strengthens states’ ability to combat illegal alcohol production. By asserting control over industrial alcohol, states can impose stricter controls to prevent its diversion into unregulated and dangerous forms of drinking alcohol, a persistent problem that has caused numerous tragedies across the country.

However, the dissent raises legitimate concerns about regulatory consistency and economic implications. Industries that rely on industrial alcohol, such as pharmaceuticals, chemicals, and biofuels, may face varying regulations and costs across states, which could lead to disruptions in national economic strategies.

Justice Nagarathna’s caution about the need for central oversight highlights a critical balance between state autonomy and national interests. The interplay between state autonomy and central control remains a crucial aspect, and the repercussions of this decision will likely be felt over the coming months as states and industries adapt to this new regulatory framework.