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1995 (12) TMI 378 - SC - Central ExciseWhether there is any manifest arbitrariness in prescribing a distributor licence which can be granted only to a company owned by the State; and in compelling the appellants to sell their product to the distributor? - Held that - No question of any hardship being caused to the appellants by reason of the fact that their sales have to be channelled through an intermediary. Depending upon the orders received by the MSIL, it in turn, places orders with the suppliers or manufacturers concerned. The business activity of the appellants cannot, therefore, be said to be curtailed in any manner. Nor can there be any hardship on the appellants. Once the Rules oblige the manufacturers to supply their product only to the company holding the distributor licence, a corresponding duty is cast on the distributor to place orders with the suppliers concerned whenever demand for a particular product is received by it. Looking to the channelizing role of MSIL, the fear of discrimination between different suppliers expressed by the appellants does not appear to be justified. Appeal dismissed. Whether there is no quid pro qua between the increased label fee and the services rendered? - Held that - The licence fee which the State Government charged to the licensee through the medium of auctions or the fixed fee which was charged to the vendors of foreign liquor holding licences need bear no quid pro quo to the services rendered to the licences. The word fee in this context is not used in the technical sense of the expression. By licence fee or fixed fee is meant the price or consideration which the Government charges to the licensees for parting with its privileges and granting them to the licensees. As the State can carry on a trade or business, such a charge is the normal incidence of a trading or business transaction. The contention, therefore, of the petitioners that there is no quid pro qua between the increased label fee and the services rendered also has no merit. It is based upon a misconception of the nature of the levy. Appeal dismissed.
Issues Involved:
1. Validity of amendments to the Karnataka Excise Rules, 1968. 2. Violation of fundamental rights under Article 19(1)(g) of the Constitution. 3. Ultra vires nature of the amendments. 4. Legislative competence of the State. 5. Arbitrariness and unreasonableness of the amended rules under Article 14. 6. Hardship caused by the amendments. 7. Validity of amendments to the Andhra Pradesh Excise Rules, 1970. Detailed Analysis: 1. Validity of Amendments to the Karnataka Excise Rules, 1968: The amendments to the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968, introduced a distributor license under Rule 3(11), which can only be issued to a company owned or controlled by the State Government. The appellants challenged these amendments, arguing they were ultra vires as they exceeded the scope of the delegated authority under the Karnataka Excise Act, 1965. The court held that the amendments were within the scope of the Act, which allows the State to regulate the number and types of licenses issued. The distributor license was not considered alien to the licenses contemplated under the Act. 2. Violation of Fundamental Rights under Article 19(1)(g): The appellants contended that the amendments violated their fundamental right to carry on trade or business under Article 19(1)(g) of the Constitution. This issue had already been addressed in Khoday Distilleries Ltd. v. State of Karnataka, where it was held that there is no fundamental right to trade in intoxicating liquor. The State can create a monopoly for the manufacture, possession, sale, and distribution of liquor, and any trade in liquor is subject to the limitations imposed by the State. 3. Ultra Vires Nature of the Amendments: The appellants argued that the amendments were ultra vires as there was no legislative policy in the Karnataka Excise Act, 1965, for a distributor license. The court evaluated the scheme of the Act and found that it provided for the issuance of various types of licenses, including those for the manufacture, possession, and sale of liquor. The rule-making authority under Section 71 of the Act was broad enough to include the creation of a distributor license. Therefore, the amendments were not ultra vires. 4. Legislative Competence of the State: The appellants contended that the amended rules were beyond the legislative competence of the State. The court rejected this argument, stating that the Karnataka Excise Act, 1965, was within the legislative competence of the State Legislature, and the rules framed under the Act were within the scope of the delegated authority under Section 71. Therefore, the rules could not be challenged on the ground of lack of legislative competence. 5. Arbitrariness and Unreasonableness of the Amended Rules under Article 14: The appellants argued that the amended rules were arbitrary, unreasonable, and violated Article 14 of the Constitution. The court noted that while executive actions can be challenged for arbitrariness, delegated legislation can only be struck down if it is manifestly arbitrary. The court found that the amendments were not manifestly arbitrary or unreasonable, as they aimed to prevent leakage of excise revenue and were within the regulatory powers of the State. The court also held that the rules did not violate Article 14, as they applied uniformly to all manufacturers and suppliers within the State. 6. Hardship Caused by the Amendments: The appellants pointed out that the amendments caused undue hardship, as they were required to sell their products to MSIL, which had no obligation to purchase from them. The court found that this apprehension was unfounded, as MSIL was required to act bona fide and place orders based on demand. The court also addressed concerns about the loss of excise duty rebates for export sales, stating that such concessions were a matter of policy and did not make the rules arbitrary or unreasonable. 7. Validity of Amendments to the Andhra Pradesh Excise Rules, 1970: The amendments to the Andhra Pradesh Excise Rules, 1970, increased the fee for label approval from Rs. 100 to Rs. 25,000. The petitioners challenged these amendments as arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution. The court held that the fee was within the regulatory powers of the State and did not violate Article 14. The increase in fee was considered a consideration for parting with the State's rights, and the fee was not deemed exorbitant in relation to the turnover of the products. The court upheld the validity of the amendments and dismissed the petitions. Conclusion: The court dismissed the appeals and writ petitions, upholding the validity of the amendments to the Karnataka and Andhra Pradesh Excise Rules. The rules were found to be within the legislative competence of the State, not ultra vires, and not violative of Articles 14 and 19(1)(g) of the Constitution. The appellants were directed to comply with the interim orders and pay the requisite commission to MSIL.
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