Today, On 23rd October, In a landmark ruling, a 9-judge bench of the Supreme Court determined that state governments have the authority to regulate and tax industrial alcohol. However, Justice BV Nagarathna offered a dissenting opinion, disagreeing with the majority’s decision. Justice Nagarathna’s stance emphasized that industrial alcohol should not fall under the states’ taxation powers. This dissent highlights differing interpretations within the judiciary regarding regulatory control over such substances.
New Delhi: Supreme Court Justice BV Nagarathna expressed in her dissenting opinion on Wednesday that allowing both State and Union governments to tax and regulate certain industries would undermine the goal of achieving uniform development.
Justice B V Nagarathna also held that states lacked the legislative competence to regulate production, manufacture and supply of industrial alcohol.
This opinion arose in a case related to the taxation of industrial alcohol.
Justice Nagarathna stated that,
“States lack the authority to impose taxes on industrial alcohol by invoking Entry 8 of List II (the State List) of the Constitution; only the Union government can exercise this power under Entry 52 of the Union List.”
The central issue before the nine-judge Bench was whether States could regulate industrial alcohol or denatured spirits through Entry 8 of the State List, which grants them authority over intoxicating liquors. Conversely, Entry 52 of the Union List provides the Central government with the power to regulate industries deemed to be of public interest by Parliament.
Justice Nagarathna stated,
“Industrial alcohol is categorized under item 26 (fermentation industries) of the First Schedule of the Industries (Development and Regulation) Act (IDRA), which means that it cannot be legislated upon by the States.”
The IDRA enacted by Parliament under its powers outlined in Article 246 in conjunction with Entry 52 of the Union List. She also emphasized that denatured alcohol is part of the “industrial alcohol” category and thus, Section 18G of the IDRA is applicable to it.
Section 18G grants the Central government authority to regulate the supply and distribution “of any article or class of articles relatable to a scheduled industry” to ensure equitable distribution and availability at fair prices.
In her dissenting judgment, Justice Nagarathna expressed several key points,
- Central Control: “The whole object of taking control of such industries by the Union for ensuring uniformity in their development and for ensuring the object and purpose of the IDRA would be defeated. This would result in a haphazard development of such scheduled industries in the country, which would not be conducive to the economy.”
- Constitutional Interpretation: “The interpretation of the constitutional Entries and the provisions of the Constitution must be made with consideration of the intentions of the framers of the Constitution and the nature and structure of the Indian economy, as well as the need for uniform development throughout the country of certain industries controlled by the Union.”
- State Powers: “State legislatures only have legislative competence over what is ‘intoxicating liquors’ as a beverage. So long as an industry is a scheduled industry under the IDRA, and Section 18G remains on the statute book, the State Legislatures are stripped of their powers to pass legislation or to take any regulatory or taxing action.”
- Cascading Effects: “Any interference with the said legal position would have a cascading effect on other scheduled industries. The critical importance of scheduled industries in the Indian economy must not be lost sight of.”
However, the majority of eight judges concluded that State governments have the authority to tax and regulate “industrial alcohol.”
They determined that the term “intoxicating liquor” under Entry 8 of the State List extends beyond a narrow definition of alcoholic beverages to include all types of alcohol that could negatively impact public health. Consequently, “industrial alcohol” is encompassed within the definition of “intoxicating liquor” in Entry 8 of List II and can be taxed by the States.
The majority comprised Chief Justice of India (CJI) DY Chandrachud and Justices Hrishikesh Roy, Abhay S Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih.
This case referred to the nine-judge Constitution Bench on December 8, 2010, following conflicting rulings by previous benches.
In October 2007, the Supreme Court noted in State of UP v Lalta Prasad Vaish that a 1990 decision in Synthetics & Chemicals Ltd. v. State of Uttar Pradesh had overlooked a 1956 ruling by a five-judge bench in Ch. Tika Ramji v State of Uttar Pradesh.
Today, the majority judges overruled the Synthetics & Chemicals judgment.
Read Also: “Cases Against Governors in The Supreme Court Is A Sad Story”: Justice B.V. Nagarathna
Attorney General R. Venkataramani and Solicitor General Tushar Mehta, along with advocate Kanu Agrawal, represented the Union government. Senior Advocates Dinesh Dwivedi, Arvind Datar, V. Giri, Jaideep Gupta, Balbir Singh, and Shadan Farasat argued in favour of the States’ authority to tax industrial alcohol.
Justice Nagarathna’s reasoning today echoed her recent dissent in another nine-judge Constitution Bench ruling delivered on July 26 regarding the taxation powers of States over mining and mineral-related activities.
In that case, she asserted that only the Union government can impose taxes on minerals and mineral-bearing lands, supporting the Centre’s position that permitting States to do so would lead to inconsistent taxation that would hinder mineral development across the country.
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