In a landmark ruling on Wednesday, a nine-judge bench of the Supreme Court handed state governments a significant victory, affirming their authority to regulate and tax industrial alcohol. This decision, made by a slim 5-4 majority, overturns a previous ruling from a seven-judge bench, shifting the balance of regulatory power with substantial financial implications for the states.
The case dates back to 1999, when the Uttar Pradesh government attempted to impose a 50% ad valorem tax on industrial alcohol sales by wholesalers. This move was challenged on the grounds that states lacked the power to regulate or tax industrial alcohol. With the implementation of the Goods and Services Tax (GST), this issue took on new significance, as states, including Uttar Pradesh under Chief Minister Yogi Adityanath, viewed this tax as a crucial revenue stream.
In an unusual political scenario, the Uttar Pradesh government found itself opposing the central government, led by Prime Minister Narendra Modi. The Centre, represented by the Solicitor General, argued that allowing states to regulate industrial alcohol could weaken central control over industries. Justice BV Nagarathna, in a lone dissenting voice, expressed her concerns about the majority decision, highlighting the complexities of state-Centre relations.
Kerala joined Uttar Pradesh in the fight, standing in solidarity to defend the rights of states to manage industrial alcohol taxation. Industrial alcohol, used across a wide range of industries including manufacturing, pharmaceuticals, and cosmetics, is critical in many products but is unsafe for human consumption.
For the states, this ruling is a crucial affirmation of their financial autonomy, especially in the post-GST era when many states are seeking ways to boost their revenue. Beyond the legalities, this decision touches on the ongoing tug-of-war between states and the Centre over regulatory powers, illustrating how deeply intertwined governance and fiscal stability have become.
The ruling is a clear reminder that the dynamics between state governments and the Centre are constantly evolving, and at the heart of it, the livelihoods of millions are impacted by these complex legal and political decisions.
