States can't impose fee on industrial alcohol

Vam Organic Chemicals Ltd and several other industrial alcohol producers had challenged the imposition a 15 paise per litre tax on specially denatured spirit (SDS).

The high court had quashed the state action. The state government appealed to the Supreme Court, without success.

Industrial alcohol is "denatured" or rendered unfit for human consumption. It is used as raw material for production of organic chemicals.

The Supreme Court pointed out that a seven-judge Constitution Bench in the case of Synthetics & Chemicals had ruled that the states were not competent to levy tax on industrial alcohol. That power belonged to Parliament.

The state government can, however, levy a fee on potable liquor. It can also ensure that industrial alcohol is not "renatured" to potable liquor and sold for human consumption.

Moreover, imposition of a fee must be justified by a service in return to the industry. Otherwise it would amount to imposition of a tax. The industry was already paying a 10 paise per litre levy.

There was no additional service given to the industry by the authorities to justify the imposition of the new fee.

Therefore, the new levy was not justified, the apex court Bench comprising Justice Ruma Pal and Justice BN Srikrishna said.

The court also discharged all the bank guarantees furnished by the alcohol companies during the pendency of the writ petitions and the appeals. The judgment brings to a close the litigation started in 1982 by the companies.