States can levy excise duty on industrial alcohol

News Excerpt:  

Chief Justice of India began hearing arguments on whether state governments have the power to regulate and control the sale, distribution, pricing and other factors relating to ‘industrial’ alcohol.

What is Excise Duty?

  • Excise duty is a form of tax imposed on goods for their production, licensing and sale
    • An indirect tax paid to the Government of India by producers of goods, 
  • Excise duty is the opposite of Customs duty in that it applies to goods manufactured domestically in the country, 
    • while Customs is levied on those coming from outside of the country.
  • At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc. 
    • However, the Goods and Services Tax (GST), introduced in July 2017, subsumed many types of excise duty
    • Today, excise duty applies only on petroleum and liquor.
  • Excise duty was levied on manufactured goods and levied at the time of removal of goods, 
    • while GST is levied on the supply of goods and services.
  • Alcohol does not come under the purview of GST as an exclusion mandated by constitutional provision. 
    • States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST.
  • After GST was introduced, excise duty was replaced by central GST because excise was levied by the central government.

Excise duty Levied on 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.
    • Industrial alcohol is used as a raw material to create other products, and is not meant for human consumption.

What is the current case before the SC?

  • The Bench headed by Chief Justice of India began hearing arguments on whether state governments have the power to regulate and control the sale, distribution, pricing and other factors relating to ‘industrial’ alcohol
  • 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).

Has the 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”. 
  • But the court found that the taxes and levies in question were designed primarily to increase the revenue collected by the state — not as measures to regulate the use of industrial alcohol, or prevent its conversion to drinkable alcohol.
  • Essentially, the SC said that only the Centre can impose levies or taxes on industrial alcohol, which is not meant for human consumption.

What have the states argued so far?

  • The phrase “intoxicating liquors” in Entry 8 of the State List includes “all liquids containing alcohol”. 
  • 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.
  • 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,


In conclusion,  the importance of preserving states' powers, drawing from Justice Ruma Pal's concurring opinion in the ITC Ltd v Agricultural Produce Market Committee (2002) case. The Supreme Court's stance, asserting that states are not merely extensions of the Centre and their powers should not be tampered with, underscores the need to avoid interpretations that diminish states' reserved powers. This cautionary approach aligns with the principle of maintaining the integrity of states' authority within the constitutional framework.

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