Balancing the scale
In a milestone verdict on Wednesday, the Supreme Court affirmed that states have the right to regulate not only alcoholic beverages but also ‘industrial’ alcohol—with an 8:1 majority ruling on this long-contested issue. Alcohol has long been a key source of revenue for states, particularly through excise duties on drinking liquor. The Supreme Court’s decision further opens up a new avenue, empowering states to tax industrial alcohol as well. The roots of the decision lie deep in constitutional interpretation—marking a much-needed distinction in the realm of federalism.
The issue at hand revolves around whether the term ‘intoxicating liquor’ could be stretched to include industrial alcohol, which is not intended for human consumption but rather used in a variety of industries such as pharmaceuticals, cosmetics, and cleaning agents. The Centre argued that industrial alcohol, categorised under the Industries (Development and Regulation) Act of 1961 (IDRA), falls under its jurisdiction as a controlled industry. Meanwhile, states maintained that they should be allowed to regulate it to prevent the risk of it being repurposed into illicit, dangerous liquor—a significant issue that has resulted in several public health tragedies lately.
Chief Justice of India DY Chandrachud, who authored the majority opinion, argued that the term ‘intoxicating liquor’ should be understood broadly. The logic was that ‘intoxication’ doesn’t solely refer to the effect of drinking but also to poisoning. By this interpretation, industrial alcohol could fall under the states’ regulatory control, as the potential for harm and intoxication due to illegal repurposing makes it a matter of public health. This, the Court held, justified states’ authority over industrial alcohol, even if that meant overlapping with central control over industries. In Chandrachud’s view, interpreting ‘intoxicating liquor’ too narrowly could diminish the scope of Entry 8 in the State List, undermining the intention of the Constitution to let states oversee matters directly impacting their populations. Notably, this ruling has overturned a 1990 Supreme Court decision that had kept industrial alcohol out of the states’ purview. States like Karnataka, for instance, have increasingly relied on excise duty, raising additional revenue through taxes on drinking alcohol. This expanded authority will likely allow them to enhance income through taxes on industrial alcohol as well.
Anyway, one cannot overlook the dissenting note of Justice BV Nagarathna. Nagarathna argued that industrial alcohol, which is a core component in the chemical industry, should remain under the Centre’s regulation. For her, the constitutional framers’ original intent behind using the term ‘intoxicating liquor’ was confined to potable, or drinkable, alcohol. Industrial alcohol serves as a fundamental base for the country’s chemical, pharmaceutical, and fuel industries. Justice Nagarathna warned that stretching the definition of intoxicating liquor to include industrial variants could weaken federal stability and hinder economic development. In her view, if every state creates its own set of regulations and taxes on industrial alcohol, it could create inconsistencies that complicate industrial production and market stability on a national scale. The IDRA, she emphasised, was designed to centralise control over critical industries with an aim to establish a unified regulatory framework to promote economic growth.
The ruling also highlights an ongoing shift in the judiciary’s view on federalism. Recently, the Supreme Court upheld states’ rights to tax mineral rights, and now, with this verdict on industrial alcohol, it is clear that the Court is moving toward a stronger recognition of states’ autonomy in areas traditionally thought to require centralised control. These decisions are indicative of the court’s constitutional commitment to federal balance, an approach that may tilt toward states’ legislative powers in specific areas, and could also usher in potential regulatory fragmentation, challenging the Centre’s overarching industrial policies. For states, this judgment is indeed a victory. But, for the industries that depend on industrial alcohol, it appears to have introduced an element of uncertainty. Different states might now enforce varying tax structures and regulatory guidelines, which would potentially raise obstacles for sectors that rely on consistent industrial supply chains across state borders. On a highly positive note, however, the apex court has acted as a guardian of federalism at a time when centralising tendencies are on the rise. It is time for the states to act responsibly and diligently.
