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TMI Blog1995 (12) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... ween 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. - C.A. 4708 OF 1989 - - - Dated:- 15-12-1995 - JAGDISH SARAN VERMA, K. RAMASWAMY, V. SUJATA MANOHAR, JJ. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s International Ltd. (hereinafter referred to as `MSIL') as a company so specified and has granted it the distributor licence. The appellants challenged the validity of these amendments on various grounds. The challenge was repelled by the Karnataka High court. Hence the present appeals and other matters have come before us. One of the main contentions raised by the appellants was : By compelling the appellants to sell liquor to MSIL and prohibiting them from selling liquor to anyone else, the State Government had violated their fundamental right under Article 19(1)(g) of the Constitution to carry on trade or business. They further contended that the restrictions placed by these amendments on their right to carry on trade were far from reasonable. This issue relating to violation of the fundamental rights of the appellants under Article 19(1)(g) has already been negatived by this Court in the present cases in Khoday Distilleries Ltd. Ors. v. State of Karnataka Ors. (1995 (1) SCC 574). It has been held (paragraph 60) that the right to carry on any occupation, trade or business does not extend to carrying on trade or business in activities which are inherently perniciou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcept under a licence. It provides : 13(1) : No person shall - (a)....................... (b)....................... (c)....................... (d) construct or work a distillery or brewery; or (e) bottle liquor for sale; (f).........................., except under the authority and subject to the terms and conditions of a licence granted by the Deputy Commissioner in that behalf or under the provisions of Section 18. Section 15(1) provides that no intoxicant shall be sold except under the authority and subject to the terms and conditions of a licence granted in that behalf. Both these sections, therefore, provide for issuing a licence for the manufacture, possession, purchase or sale of liquor. In fact such activity is prohibited without a licence. The terms and conditions of the licence may be such as may be prescribed. Section 17 deals with the power to grant a lease of the right to manufacture etc. Sub-section (1) of Section 17 provides as follows : 17(1) : The State Government may lease to any person, on such conditions and for such period as it may think fit, the exclusive or other right - (a) of manufacturing or supplying by wholesale or of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 deals with licences for the vend of Indian liquor (other than Arrack) or Foreign liquor or both. It deals with licences of all types. Sub-rule (1) deals with wholesale licences for vend of Indian liquor or Foreign liquor or both. Sub-rule (2) deals with retail of shop licence for vend of Indian liquor or Foreign liquor or both. Sub-rule (4) deals with licences to clubs. Sub-rule (5) deals with occasional licences. Sub- rule (5) deals with occasional licences. Sub-rule (6) deals with special licences. Sub-rule (7) deals with hotel and boarding house licences and so on. Sub-rule (11) which is introduced by the amendment deals with distributor licences. All kinds of licences, therefore, which regulate the activity of manufacture, distribution and sale of liquor are covered by Rule 3 of the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968. Is a distributor licence something different from or alien to the licences contemplated under the Act and prescribed under the above Rule 3? We do not think so. A distributor licence is basically no different from the licences so prescribed. In fact the licences cover the whole gamut of activities from manufacture to consumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority, we fail to see how the Rules can be challenged on the ground of lack of legislative competence. If the Act is valid, so are the Rules. It is next submitted before us that the amended Rules are arbitrary, unreasonable and cause undue hardship and, therefore, violate Article 14 of the Constitution. Although the protection of Article 19(1)(9) may not be available to the appellants, the rules must, undoubtedly, satisfy the test of Article 14, which is a guarantee against arbitrary action. However, one must bear in mind that what is being challenged here under Article 14 is not executive action but delegated legislation. The tests of arbitrary action which apply to executive actions do not necessarily apply to delegated legislation. In order that delegated legislation can be struck down, such legislation must be manifestly arbitrary; a law which could not be reasonably expected to emanate from an authority delegated with the law-making power. In the case of Indian Express Newspapers (Bombay) Pvt. Ltd. Ors. v. Union of Indian Ors. (1985 (2) SCR 287 at p.243) this Court said that a piece of subordinate legislation does not carry the same degree of immunity which is enjo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elling the appellants to sell their product to the distributor. The appellants have pointed out that the amendments must be considered as arbitrary because they cause undue hardship to all those who are concerned with the manufacture and sale of liquor. They point out that although the manufacturers are obliged to sell their commodity to the MSIL, there is no corresponding obligation cast on the MSIL to buy the liquor manufactured by the manufacturers in the State of Karnataka. In the absence of such an obligation on the MSIL to buy the liquor, it can well happen that MSIL may act arbitrarily or capriciously and may purchase or not purchase liquor from the manufacturers at its own sweet-will. This would seriously affect the business of all those engaged in the manufacture and sale of liquor. This apprehension does not appear to be justified. In the Statement of Objections on behalf of the State Excise Commissioner which were filed before the High Court of Karnataka, the respondents have explained in paragraph 16 that it is not correct to state that the Government company is at liberty to purchase or not to purchase the liquor produced by the petitioners. It is bound to purchase the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second ground of hardship which is pointed out relates to excise duty. Under the Karnataka Excise (Excise Duties and Privileges Fee) Rules, 1968 a rebate in excise duty is given in respect of liquor which is either exported outside India or is exported to another State within India. This makes the liquor sold outside the State or exported considerably cheaper since it bears less incidence of excise duty. Under the present scheme, however, all these sales are converted into local sales because the sale must be made to MSIL who, in turn, will either export it, if it has received an export order, or will export it to a place within India but outside the State. In both these cases, since the first sale will be within the State to MSIL, a substantial rebate in excise will be lost and the goods manufactured by the appellants will become far more expensive and therefore will become much less competitive in the outside market. There is a similar provision relating to rebate in sales-tax which also the appellants will lose. There is no doubt that this will cause some hardship to the appellants. The fact, however, remains that nay concession which is granted by the State for export sales or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow such evasion is to be checked, however, is a matter of policy. So long as the policy as formulated in the amended Rules is not manifestly arbitrary or wholly unreasonable, it cannot be considered as violative of Article 14. There is, in the present case, no self evident disproportionality between the object to be achieved and the Rules which have been frames. It was lastly submitted that MSIL ought not to have been nominated for a distributor licence because it is not competent to discharge its obligations and does not have the necessary infrastructure. This plea was raised before the Karnataka High Court at a time when MSIL had not started functioning. It is now a fully functional authority. MSIL has stated that it has a large number of depots in various districts of the State and is already handling very substantial business. This plea, therefore, merits no further consideration. In any event, some problems with the discharge of its duties by MSIL will not render the amended Rules providing for a distributor licence arbitrary or violative of Article 14. In the premises, these appeals have no merit and they are dismissed with costs. Under the interim orders, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendments to various Rules under the Karnataka Excise Act. On the question of violation of Article 19(1)(g) of the Constitution this Court has already held in these very matters (Khoday Distilleries Ltd. Ors. v. State of Karnataka Ors. (supra) that the amended Rules do not violate Article 19(1)(g) of the Constitution. The only challenge, therefore, which survives is the challenge under Article 14. The petitioners contend that the approval fee for labels has been suddenly enhanced from Rs.100/- to Rs.25000/- by virtue of the amendments. In some cases such a fee has been introduced for the first time. These amendments are highly arbitrary and, therefore, violate Article 14 of the constitution. It is also contended that the Andhra Pradesh Excise Act, 1968 does not contemplate any fee of this kind. Now, Section 21(3) of the Andhra Pradesh Excise Act provides that different rates may be specified for different kinds of excisable articles and different modes of levying duties under Section 22 may be prescribed. Section 22 prescribes different modes of levying excise duty and countervailing duty under Section 21. Sub-clause (d) of Section 22 provides for imposition of fees or requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities or to carry on these activities vests in the state. When, therefore, such rights are parted with, it is open to the State to part with such rights for a consideration. The fee for approval of labels is an aspect of the right to sell or distribute liquor which right the State Government has parted with for consideration in the form of a fee. The increase in the fee from Rs.100/- to Rs.25000/- may appear, at first glance, to be exorbitant. But it constitutes an extremely small percentage of the total turn-over of various products to which these labels are affixed. The fee for approval can not, therefore, be considered as exorbitant or its imposition wholly arbitrary. It is not the case of the petitioners that their trade in liquor is seriously affected by the levy of this increased fee. In the case of Har Shanker Ors. v. The Deputy Excise Taxation Commissioner Ors. (1975 (3) SCR 254 at 278) this Court upheld the right of the State to prohibit absolutely all forms of activities in relation to intoxicants. It said that the wider right to prohibit absolutely would include the narrower right to permit dealing in intoxicants on such terms of general application as the State ..... X X X X Extracts X X X X X X X X Extracts X X X X
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