Industrial alcohol: How Supreme Court made it ‘happy hours’ for states

The Supreme Court, in a landmark ruling on October 24, affirmed that states have the authority to regulate and tax industrial alcohol, recognising it as part of “intoxicating liquors” under Entry 8 of the State List in the Seventh Schedule of the Constitution. In an 8:1 majority decision, the court overruled its own 1990 judgment, which had placed industrial alcohol under the exclusive jurisdiction of the central government.
Chief Justice of India D.Y. Chandrachud authored the majority opinion, with Justices Hrishikesh Roy, Abhay S. Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih concurring. Justice B.V. Nagarathna stood alone in dissent.
The judgment is seen as a major victory for state governments as it expands their regulatory reach and taxation powers over industrial alcohol. States such as Uttar Pradesh, Maharashtra and Kerala had been advocating such a decision, particularly after introduction of the Goods and Services Tax (GST), which diminished their revenue-raising capacities. By including industrial alcohol under “intoxicating liquors”, the court has effectively restored states’ control, enabling them to impose taxes and regulations that could curb illegal conversions and raise much-needed funds.
The majority ruling centered on the interpretation of “intoxicating liquor” under Entry 8 of the State List in the Constitution’s Seventh Schedule. Chief Justice Chandrachud, writing for the bench, argued that the term “intoxicating” should not be narrowly confined to alcohol intended for human consumption. Instead, he posited that the term encompasses a broader category, including industrial alcohol, which, although not consumed directly, could be misused to produce intoxicating effects.
The majority opinion traced the constitutional language, noting that the framers of the Constitution used distinct expressions—“intoxicating liquor”, “alcoholic liquor for human consumption” and “intoxicating drinks”—to denote different regulatory scopes. According to the bench, while “alcoholic liquor for human consumption” explicitly refers to beverages meant for drinking, “intoxicating liquor” was defined in a broader context, extending beyond mere consumption. The ruling emphasised that the regulation covers the “production, manufacture, possession, transport, purchase and sale” of all liquors that can potentially cause harm if misused, including industrial alcohol.
Chief Justice Chandrachud emphasised on public health concerns, stating that states needed regulatory powers to prevent the illegal conversion of industrial alcohol into harmful, consumable liquor. “Liquids which contain alcohol, and which can possibly be used (or misused) as intoxicating liquor have been included within the meaning of the phrase,” he wrote, underscoring that industrial alcohol, while intended for industrial purposes, could be diverted for illicit use and pose a serious threat to public safety. By reinterpreting the term “intoxicating”, the court expanded the regulatory ambit to allow states to address such misuse effectively.
The ruling also acknowledged the overlap with Entry 52 of the Union List, which grants the central government powers to regulate industries deemed to be in public interest.
However, the majority held that this overlap does not eliminate state jurisdiction over industrial alcohol. The judgment sought a harmonious reading of the two entries, ensuring that state powers under Entry 8 were not rendered redundant. “The Parliament cannot occupy the field of the entire industry merely by issuing a declaration under Entry 52 of List I,” the chief justice stated. This approach reaffirmed the autonomy of state legislatures in managing matters closely tied to local governance and public health.
In her dissent, Justice B.V. Nagarathna offered a contrasting interpretation, emphasising that “intoxicating liquor” should be understood strictly in its traditional sense—alcoholic beverages meant for drinking. She argued that the majority’s expansion of the term could lead to regulatory confusion and misinterpretation of legislative intent. For Justice Nagarathna, the intoxicating effect was a crucial factor in determining legislative competence. Her position was that if a substance does not produce intoxication when ingested, it should not fall under state control via Entry 8.
Justice Nagarathna stressed that including industrial alcohol within the definition of “intoxicating liquor” would stretch the constitutional language beyond its original intent. She contended that the framers did not envisage non-potable alcohols being included under state regulatory powers, especially those used extensively in the industrial sector.
“The Constitution does not permit the State to regulate substances that are not inherently intoxicating upon consumption,” Justice Nagarathna said. This view was also grounded in the economic importance of industrial alcohol, which is essential for manufacturing, chemical industries and fuel blending (such as ethanol-blended petrol). According to her, placing such an important industrial commodity under state control could disrupt national economic strategies, particularly those reliant on central coordination.
Justice Nagarathna also raised concerns about the possible inconsistencies and challenges that might arise from state-level regulation of industrial alcohol. She said a uniform central approach was necessary for industries where national interests, including fuel security, are involved. “This decision may have far-reaching implications for federal governance and the economy, as the central government needs to retain control over industries that are strategically significant,” she cautioned, underscoring the necessity for central oversight in managing vital industrial sectors.
The case had reached the Supreme Court after several state governments challenged the 1990 judgment in the Synthetics & Chemicals Ltd vs State of Uttar Pradesh case, which had limited their regulatory scope. The earlier ruling had interpreted “intoxicating liquors” to mean only potable alcohol, thereby placing industrial alcohol under central control via Entry 52 of the Union List. State governments argued that this interpretation was too narrow and failed to address the practical issues related to illegal liquor production, which often involves converting industrial alcohol into drinkable, yet dangerous, forms.
Over the years, states had become increasingly reliant on revenue from alcohol taxes, especially after GST reduced avenues to generate funds through other taxes. The absence of control over industrial alcohol limited states’ capacity to regulate its misuse, posing both fiscal and public health challenges. The case, referred to a nine-judge bench, was heard in April 2024, with extensive arguments presented by both sides.
Industrial alcohol, or denatured alcohol, is ethanol treated with chemicals to make it non-consumable. It is widely used across industries, including manufacturing, pharmaceuticals, cosmetics and fuel production. The addition of denaturants makes it unsuitable for human consumption, but it can still be diverted illegally to produce drinkable alcohol, leading to health risks and fatalities. The Supreme Court’s ruling recognises this potential for misuse, supporting states’ ability to regulate and prevent such practices.
The court’s ruling has significant implications for governance, public health and the economy. For state governments, this decision provides an expanded revenue base, as they can now impose taxes and regulatory measures on industrial alcohol. With GST excluding alcoholic beverages, states have long depended on liquor taxes as a major source of income. This ruling effectively broadens their tax net, potentially boosting state finances, especially in revenue-strapped regions.
From a regulatory perspective, the ruling strengthens states’ capacity to tackle illegal liquor production. By asserting control over industrial alcohol, states can impose stricter checks to prevent its diversion into unregulated and dangerous forms of drinkable alcohol, a persistent issue that has caused numerous tragedies across the country.
However, the dissent raises valid concerns about regulatory consistency and the economic implications. Industries that rely on industrial alcohol, such as pharmaceuticals, chemicals and biofuels, may face varying regulations and costs across states, potentially leading to disruptions in national economic strategies.
Justice Nagarathna’s cautionary note about the need for central oversight highlights a critical balance between state autonomy and national interests. The interplay of state autonomy and central control remains a crucial aspect, and the repercussions of this ruling will likely unfold over the coming months as states and industries adapt to this new regulatory framework.