EXCISE
DUTY - ECONOMY
News:
Before SC’s 9-judge
bench, question of whether states can levy excise duty on industrial alcohol
What's
in the news?
●
Excise
duty levied on alcohol is a key component of a state’s revenue,
with states often adding an additional 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%.
Excise
Duty:
●
Excise duty is a form of tax imposed on goods for their production,
licensing and sale.
●
It is an indirect tax paid to the Government of India by producers of goods.
Backdrop:
●
Excise duty is the opposite of Customs
duty in that it applies to goods
manufactured domestically in the country, while Customs is levied on those
coming from outside of the country.
●
At the central level, excise duty earlier
used to be levied as Central Excise Duty, Additional Excise Duty, etc.
●
However, the Goods and Services Tax (GST), introduced in July 2017, subsumed
many types of excise duty.
●
Today, excise duty applies only on
petroleum and liquor.
Excise
Duty Levied on Alcohol:
●
Excise duty levied on alcohol is a key
component of a state’s revenue, with states often adding an additional 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%.
States
and Industrial Alcohol:
●
Industrial alcohol is used as a raw
material to create other products, and is not meant for human consumption.
Can
States Levy Excise Duty on Industrial Alcohol?
●
A 9-judge Bench of the Supreme Court
hearing arguments on whether state governments have the power to regulate and
control the sale, distribution, pricing and other factors relating to
industrial alcohol.
●
Entry
8 in the State List under the Seventh Schedule gives states
the power to legislate on the production, manufacture, possession, transport,
purchase and sale of intoxicating liquors.
●
At the same time, Entry 52 of the Union List, and Entry 33 of the Concurrent List
mention industries, whose control is declared by Parliament by law to be
expedient in public interest.
○
Notably, subjects in the Concurrent List
can be legislated upon by both states and the Centre, but where a central law
exists, the state law cannot be repugnant to it.
●
Industrial
alcohol is listed in the Industries (Development and Regulation) Act, 1951
(IDRA).
Supreme
Court and Industrial Alcohol Issue:
●
In 1989, a 7-judge Constitution Bench in
Synthetics & Chemicals Ltd v. State of Uttar Pradesh held that states’
powers, as per Entry 8 of the State
List, were limited to regulating “intoxicating liquors” which are different
from industrial alcohol.
●
The SC acknowledged that states’ power to
regulate consumable alcohol must include the power to “prevent and/ or check
industrial alcohol being used as intoxicating or drinkable alcohol”.
●
But the court found that the taxes and
levies in question were designed primarily to increase the revenue collected by
the state — not as measures to regulate the use of industrial alcohol, or
prevent its conversion to drinkable alcohol.
●
Essentially, the SC said that only the Centre can impose levies or taxes
on industrial alcohol, which is not meant for human consumption.
Arguments
Presented by the States:
●
As per the arguments forwarded by States,
the phrase intoxicating liquors in Entry 8 of the State List includes all
liquids containing alcohol.
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Liquor, spirit, and intoxicant were used
in excise laws before the Constitution came into force.
●
The Union’s power under Entry 52 of the
Union List also does not include control over finished products (such as
industrial alcohol after the denaturation process).
●
In order to exercise exclusive control
over regulation of industrial alcohol, the Centre would first have to issue an
order to that effect under Section 18-G of the IDRA. Without such an order,
that control would vest with the states.
Types
of Excise Duties:
●
Before GST kicked in, there were three
kinds of excise duties in India.
Basic
Excise Duty:
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Basic excise duty is also known as the Central Value Added Tax (CENVAT).
●
This category of excise duty was levied on
goods that were classified under the first schedule of the Central Excise
Tariff Act, 1985.
●
This duty was levied under Section 3 (1)
(a) of the Central Excise Act, 1944. This duty applied on all goods except
salt.
Additional
Excise Duty:
●
Additional excise duty was levied on goods of high importance, under the
Additional Excise under Additional Duties of Excise (Goods of Special
Importance) Act, 1957.
●
This duty was levied on some special
category of goods.
Special
Excise Duty:
●
This type of excise duty was levied on
special goods classified under the Second
Schedule to the Central Excise Tariff Act, 1985.
●
Presently the central excise duty
comprises a Basic Excise Duty, Special Additional Excise Duty and Additional
Excise Duty (Road and Infrastructure Cess) on auto fuels.