1995 (12) TMI 378 - SC - Central Excise

Validity of amendments to the Karnataka Excise Rules 1968 - levy of duties on the manufacture transport purchase and sale import and export of liquor and intoxicants -violation of fundamental right under Article 19(1)(g) of the Constitution - rebate in excise duty - manifest arbitrariness - carrying on trade or business in activities which are inherently pernicious or injurious to health safety and welfare of the general public. 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.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the amendments to the Karnataka Excise Rules, specifically the introduction of a distributor licence and its exclusive allocation to a state-controlled company, violate the appellants' fundamental rights under Article 19(1)(g) of the Constitution.
• Whether the amendments are ultra vires, going beyond the scope of the delegated authority under the Karnataka Excise Act, 1965.
• Whether the amendments are arbitrary, unreasonable, and cause undue hardship, thus violating Article 14 of the Constitution.
• Whether the amendments are within the legislative competence of the State.
• Whether the amendments to the Andhra Pradesh Excise Rules, specifically the increase in approval fees for liquor labels, violate Articles 14 and 19(1)(g) of the Constitution.

2. ISSUE-WISE DETAILED ANALYSIS

Violation of Fundamental Rights under Article 19(1)(g):

The appellants contended that the amendments violated their right to carry on trade or business. The Court referenced its previous decision in Khoday Distilleries Ltd. v. State of Karnataka, which established that there is no fundamental right to trade in intoxicating liquor. The State can create a monopoly in itself or an agency for the sale and distribution of liquor. Thus, the amendments do not violate Article 19(1)(g) as the trade in liquor is subject to state regulation.

Ultra Vires and Delegated Authority:

The appellants argued that the amendments exceeded the scope of the delegated authority under the Karnataka Excise Act, 1965. The Court examined the Act's provisions, particularly Sections 13, 15, 17, and 71, which allow the State to regulate the manufacture and sale of liquor through licences. The Court found that the introduction of a distributor licence falls within the scope of the Act and the rule-making authority. The Act permits the regulation of the number and type of licences, including a distributor licence.

Arbitrariness and Violation of Article 14:

The appellants claimed the amendments were arbitrary and caused undue hardship, violating Article 14. The Court noted that while Article 14 applies to delegated legislation, it must be manifestly arbitrary to be struck down. The Court found no arbitrariness in the amendments. The State's policy to prevent excise evasion through a state-controlled distributor is not unreasonable. The Court also addressed concerns about potential discrimination by MSIL, stating that the risk of discrimination must be real, not fancied.

Legislative Competence:

The appellants questioned the State's legislative competence to enact the amendments. The Court affirmed that the Karnataka Excise Act, 1965, is within the legislative competence of the State Legislature, as it pertains to intoxicating liquors, a subject under the State List in the Constitution. Since the Act is valid, the rules framed under it, including the amendments, are also valid.

Amendments to Andhra Pradesh Excise Rules:

The appellants challenged the increase in approval fees for liquor labels under the Andhra Pradesh Excise Rules. The Court referenced the Andhra Pradesh Excise Act, 1968, which authorizes the State to levy fees for licences and permits related to liquor. The increase in fees was deemed within the State's regulatory powers. The Court noted that the fee increase does not violate Article 14, as it is a consideration for parting with the State's rights to regulate liquor trade.

3. SIGNIFICANT HOLDINGS

The Court held that the amendments to the Karnataka Excise Rules do not violate Article 19(1)(g) as there is no fundamental right to trade in liquor. The amendments are within the scope of the Karnataka Excise Act, 1965, and the rule-making authority. The Court found no manifest arbitrariness in the amendments and affirmed their validity under Article 14. The legislative competence of the State to enact these amendments was upheld.

Regarding the Andhra Pradesh Excise Rules, the Court held that the increase in approval fees for liquor labels is within the State's powers and does not violate Articles 14 and 19(1)(g). The fee is a consideration for the State's regulatory rights over liquor trade.

The appeals and petitions were dismissed, and the appellants were directed to comply with the interim orders regarding compensation and account statements to MSIL.