Supreme Court Ruling Puts Most Distilleries Under State Control

The Supreme Court yesterday ruled that the Centre will levy excise duties and will have total and exclusive control on industries engaged in manufacturing rectified spirit meant exclusively for supply to industries.

On the other hand, industries engaged in the manufacture of rectified spirit exclusively for use as potable liquors will be under the total and exclusive control of the state governments in all respects and at all stages, including the establishment of the distillery.

The judgment is a boon for the state governments, as most of the distilleries fall under the potable category. The states will now not only get excise duties from distilleries but will also have total control over them from the point of establishment. The state governments now have the power to permit, regulate or prohibit such distilleries.

 

The Supreme Court judgment, delivered by a division bench consisting of Justice B P Jeevan Reddy and Justice Sujata Manohar, settles a number of issues which have been coming up repeatedly before the apex court.

In view of the importance of the questions involved, the court had issued notices to most states especially Uttar Pradesh, Bihar, Karnataka, Maharashtra, Tamil Nadu, Andhra Pradesh, Kerala, Goa, Orissa and Himachal Pradesh and heard them.

Even after the leading judgments in the Synthetics & Chemicals Ltd (1990) and McDowell (1996), the disputes had not died down.

The main issue was the constitutional power to grant licences and levy excise in the case of several types of liquors. The distilleries argued that this power belonged to the Union government.

The court clarified that in regard to industrial alcohol, the Industries (Regulation and Development) Act would apply. In the case of this type of alcohol, the power of the states is only to see and ensure that rectified spirit, whether in the course of its manufacture or after its manufacture, is not diverted or misused for potable purposes.

The state governments can make regulations requiring the industry to submit periodical statements or raw material and the finished product and are entitled to verify their correctness.

The state governments are also entitled to post their staff in the distilleries and charge reasonable regulatory fees to defray the cost of the staff, the judgment said.

About the industries engaged in the manufacture of rectified spirit both for the purpose of supplying it to industries and for potable use the court ruled that the power to permit the establishment and regulation of the functioning of the distillery will be the exclusive domain of the Centre. The levy of excise duties on rectified spirit cleared for supply to industries will be levied by the Centre.

On the other hand, duties on rectified spirit cleared for potable liquors will be levied by the state governments.

The disposal, clearance and removal of rectified spirit in the cases of such industries will be under the joint control of the Centre and the state government concerned.

It is obvious that in respect of these industries too, the power of the states to take necessary steps to ensure against the misuse or diversion of rectified spirit meant for industrial purpose to potable purposes, both during and after the manufacture of rectified spirit, continues unaffected, the court clarified.

If the state government is so advised, it is competent to prohibit the use, diversion or supply of rectified spirit for potable purposes.

The court stated that it is advisable, nay, necessary, that the Centre makes necessary rules and regulations under the IDR Act directing that no rectified spirit will be supplied to industries except after denaturing it, save those few industries where denatured spirit cannot be used for manufacturing purposes.