In a decisive 8:1 majority, a nine-judge bench of the Supreme Court on Wednesday confirmed that state governments hold the authority to regulate and tax industrial alcohol, overturning a previous ruling by a seven-judge bench. The judgment underscores a significant shift in regulatory powers, with substantial revenue implications for state coffers.
The contention originated from a 1999 case where the Uttar Pradesh government sought to impose an ad valorem tax of 50% on the sale of industrial alcohol by wholesale vendors. This tax was contested on the premise that state governments lacked the authority to regulate and tax industrial alcohol.
In a notable political backdrop, the Yogi Adityanath-led Uttar Pradesh government presented its argument against the Narendra Modi-led Centre, emphasizing the importance of such taxation powers post-GST as a vital source of state revenue. The state’s stance was opposed by the Centre, with the Solicitor General cautioning the Supreme Court of the potential negative impacts on central authority over industries should the ruling be unfavorable.
Justice BV Nagarathna stood alone in dissent, opposing the majority’s view.
The case also saw the state of Kerala joining as a co-petitioner, supporting Uttar Pradesh’s position to affirm the rights of states to manage and profit from the taxation of industrial alcohol.
Industrial alcohol, distinct from its potable counterpart, finds extensive use across various industries, including manufacturing, pharmaceuticals, cosmetics, food processing, cleaning products, automotive, and biotechnology. It is crucial as a solvent and an ingredient in numerous applications but remains unsuitable and unsafe for human consumption.
This landmark judgment not only clarifies the scope of state authority over industrial alcohol but also sets a precedent in the ongoing balance of power between state governments and the Centre, particularly in the wake of the GST regime’s implementation.
