Industrial Alcohol Regulation | 08 Apr 2024

Source: IE

Why in News?

The Supreme Court, led by the Chief Justice of India (CJI), is currently hearing a case with a 9-judge Constitution Bench. The case pertains to the question of whether states have the authority to regulate and impose excise duty on industrial alcohol.

What is the Constitutional Debate Regarding Industrial Alcohol?

• Constitutional Framework:
  • State List (Entry 8): Entry 8 in the State List under the Seventh Schedule of the Indian Constitution pertains to the power of state governments to legislate on the production, manufacture, possession, transport, purchase, and sale of intoxicating liquors.
  • Union List (Entry 52): Confers upon Parliament the authority to legislate on industries deemed expedient in the public interest.
  • Concurrent List (Entry 33): Allows both states and the Centre to legislate on industries, with the caveat that state laws cannot contradict central laws.
  • Industrial alcohol falls under the Industries (Development and Regulation) Act, 1951 (IDRA), which lists it as a subject of regulation. This act of Parliament provides the central government with the power to regulate industrial alcohol.
• Key Issue:
  • The central question is whether states have the autonomy to regulate industrial alcohol or if exclusive control lies with the Centre.
• Legal Interpretation:
  • Subjects in the Concurrent List can be regulated by both states and the Centre, but state laws cannot conflict with central legislation.
    • The IDRA, 1951, which lists industrial alcohol, implies central control over the subject matter.

What are the Arguments of the States?

• Interpretation of Entry 8:
  • It is argued that the phrase "intoxicating liquors" in Entry 8 of the State List encompasses all liquids containing alcohol.
    • Emphasis is placed on the historical usage of terms such as 'liquor', 'spirit', and 'intoxicant' in pre-constitutional excise laws.
• Scope of Union's Power:
  • The contention is made that Entry 52 of the Union List does not extend to the regulation of "finished products" like industrial alcohol post-denaturation.
    • It is asserted that such control falls under Entry 33 of the Concurrent List. To exercise exclusive authority over industrial alcohol regulation, the Centre would need to issue an order under Section 18-G of the IDRA. Without such an order, states retain jurisdiction.
    • The term ‘denatured alcohol’ refers to alcohol products adulterated with toxic and/or bad tasting additives (e.g., methanol, benzene, pyridine, castor oil, gasoline and acetone), making it unsuitable for human consumption.
• Preservation of States' Powers:
  • Caution is expressed against diminishing states' authority. Citing the ITC Ltd v Agricultural Produce Market Committee Case, 2002, which emphasises states are not subordinate to the Centre.
    • It stresses the need to uphold states' constitutional powers and avoid interpretations that weaken their autonomy.

What is Excise Duty?

• Excise duty is an indirect tax imposed on goods for their production, licensing, and sale. It is paid to the Government of India by producers of goods and applies to domestically manufactured goods, unlike Customs duty which is levied on goods coming from outside the country.
  • Previously, excise duty at the central level was levied as Central Excise Duty, Additional Excise Duty, etc. However, the introduction of Goods and Services Tax (GST) in July 2017 combined many types of excise duty. Currently, excise duty is only applicable to petroleum and liquor.
    • Excise duty was imposed on manufactured goods at the time of their removal, while GST was imposed on the supply of goods and services.
• Excise duty levied on alcohol is a key component of a state’s revenue, with states often adding 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%.