IN THE HIGH COURT OF KERALA AT ERNAKULAM
WA.No. 1563 of 2002(B)
1. M.D. DHANESH, PROPRIETOR, HOTEL MEENUS,
... Petitioner
2. M.D. DHANESH, MANAGING PARTNER,
Vs
1. STATE OF KERALA, REPRESENTED BY
... Respondent
2. THE COMMISSIONER OF EXCISE,
3. THE ASSISTANT COMMISSIONER OF EXCISE,
For Petitioner :SRI.GEORGE POONTHOTTAM
For Respondent :SRI.V.K.BEERAN, ADDL.ADVOCATE GENERAL
The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice K.T.SANKARAN
Dated :10/12/2008
O R D E R
H.L.DATTU, C.J. & K.T.SANKARAN, J.
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W.A.NOS.1563, 942, 1164 & 960 OF 2002
and
O.P.NOS.20977 & 27266 OF 2002
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Dated this the 10th December, 2008
JUDGMENT
K.T.Sankaran, J.
The appellants in the Writ Appeals and the petitioners in the Writ
Petitions challenge the validity of Foreign Liquor (Amendment) Rules,
2001 made as per SRO.No.920/2001 dated 8.10.2001, published in the
Kerala Gazette Extra Ordinary, dated 8.10.2001. The learned single
Judge dismissed the Writ Petitions and the four Writ Appeals were filed
by the writ petitioners therein. Two other Writ Petitions which came up
subsequently were posted before the Division Bench along with the Writ
Appeals. The appellants in the Writ Appeals and the petitioners in the
Writ Petitions are referred to hereinafter as the petitioners. Appellant
No.4 in W.A.No.1164 of 2002 is Kerala Bar Hotels Association,
represented by its General Secretary. There are 401 members in the
said Association. The list of all the members were submitted and
separate court fee was paid by all of them. As per the order dated
23.10.2007, appellant No.4 Association was permitted to prosecute the
Writ Appeals on behalf of all the members of the Association as they
had paid the necessary court fee and obtained leave of the Court.
W.A.NO.1563 OF 2002 AND CONNECTED CASES
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2. The petitioners own bar attached hotels having FL3 license
issued under Rule 13(3) of the Foreign Liquor Rules. Licences were
issued to the petitioners for the period from 1.4.2001 to 31.3.2002. Each
of the petitioners were required to pay a sum of Rs.13 lakhs as annual
rental/fee as provided in Rule 13(3) of the Foreign Liquor Rules. Rule 13
(3) of the Foreign Liquor Rules was amended and the annual rental of
Rs.13 lakhs was enhanced to Rs.15 lakhs. By the same amendment
Sub-Rule (15) was added to Rule 13.
3. The relevant portion of Rule 13(3) (before the amendment) was
as follows:
“(3) Foreign Liquor 3 Hotel (Restaurant) Licence:
Licence in this Form may be issued by the Excise
Commissioner under orders of Government in the interests
of promotion of tourism in the State to Hotels or Restaurants
conforming to the standard of Two Star and higher
classifications, owned or run by the Kerala Tourism
Development Corporation Limited (KTDC) and India Tourism
Development Corporation Limited (ITDC) and also to hotels
having rating of Three Stars and higher classifications,
Heritage and Resort hotel as well as classified restaurants
where the privilege of sale of foreign liquor in such Hotels or
Restaurant, has been purchased on payment of an annual
rental of Rs.13,00,000 (Rupees Thirteen lakhs only).”4. The relevant portion of the Amendment Rules 2001, is the
following:
“2, Amendment of the Rules:- (2) In the Foreign Liquor
Rules, in rule 13,-W.A.NO.1563 OF 2002 AND CONNECTED CASES
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(a) in sub-rule (3), for the words, brackets and figures,
“Rs.13,00,000 (Rupees thirteen lakhs only)” the
words, brackets and figures “Rs.15,00,000 (Rupees
fifteen lakhs only)” shall be substituted;(b) after sub-rule (14) the following sub-rule shall be
added, namely:-(15) Notwithstanding anything contrary contained in
these rules, if the Government are satisfied that the annual
rental/fee prescribed for the licenses issued under rule 13 is
not reasonable, they may enhance the annual rental/fee at
any time during the course of a financial year and on such
enhancement all licensees are liable to remit the difference
between the amount of annual rental/fee already remitted
and the enhanced rental/fee.”5. The contentions raised by the petitioners are the following: (1)
Amendment of Rule 13 is beyond the rule making power of the
Government. (2) Sections 18A, 24 and 29 of the Abkari Act do not
empower the Government to make the impugned rules which are in effect
and substance having retrospective effect. (3) The subordinate delegated
authority has no power to frame a rule which has retrospective effect. (4)
The rental/fee was settled on 31.3.2001 and the petitioners having paid
the same for continuing to hold the licence for the period from 1.4.2001 to
31.3.2002, the rental/fee cannot be enhanced modifying or altering the
terms of contract.
6. The question to be considered is whether the rental/fee could
W.A.NO.1563 OF 2002 AND CONNECTED CASES
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enhanced during the currency of an abkari year, i.e., from 1.4.2001 to
31.3.2002.
7. The learned counsel for the petitioners, Sri.K.Ramakumar,
Sri.C.C.Thomas and Sri.George Poonthottam would rely on the decisions
in 2003 (1) KLT 984, 1982 KLT 166, ILR 1979 (1) Kerala 344, (2006) 5
SCC 702, (2007) 6 SCC 317 and (2006) 4 SCC 327. Learned Additional
Advocate General would place reliance on (1995) 1 SCC 574. He also
distinguished the decisions in 2003 (1) KLT 984, contending that in that
decision this Court was dealing with Rule 13(3) regarding issue of new
license. Sri.K.Ramakumar laid emphasis on the expression “permit and
license” and contended that wherever permit is intended it is specifically
provided in the Act and Rules. He referred to the various provisions of the
Act and Rules including Sections 18A, 24, 26, 27 and 29.
8. In the counter affidavit filed by the Commissioner of Excise, it is
stated that the license fee was fixed at Rs.13 lakhs as per the Excise
Policy of the year 1999-2000 issued as G.O.(MS) No.18/99 dated
1.2.1999. No change in the payment of license fee was effected during
the year 2000-01. Due to a ban to arrack in the State, there was much
demand for Indian Made Foreign Liquor (IMFL). In the budget speech for
the year 2001-02 presented before the Legislative Assembly on
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19.7.2001 by the Minister of Finance, it was declared that the license fee
for bar hotels would be enhanced from Rs.13 lakhs to Rs.15 lakhs and
thereby expected to raise an additional revenue of Rs.9.5 crores.
S.R.O.No.920/2001 amending the Foreign Liquor Rules by the
Amendment Rules, 2001 was issued in the above circumstances. No
enhancement of bar license fee/rental was effected during the year 2000-
01 and the ban of arrack in the State has resulted in much increase in the
demand of IMFL in the State. In view of the peculiar situation prevailing
due to the ban of arrack the owners of bar hotel would be in a position to
remit the increased rental without incurring much difficulty. It is further
contended that the when the amendment was introduced, the period of
licence was not over and therefore, it cannot be said that there was
retrospective enhancement of rental. It was felt that the FL3 licence fee
was not reasonable and that was one of the main reasons for enhancing
the rental so as to raise and additional revenue of Rs. 9.5 crores.
9. The Abkari Act is a consolidating and amending Act of law
relating to import, export, transport, manufacture, sale and possession of
intoxicating liquor and of intoxicating drugs in the State of Kerala. Section
3(1) of the Act defines `abkari revenue` as thus:
“(1) Abkari Revenue:- “Abkari Revenue” means revenue
derived or derivable from any duty, fee, tax, fine orW.A.NO.1563 OF 2002 AND CONNECTED CASES
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confiscation, imposed or order under the provisions of this
Act, or of any other law for the time being in force relating to
liquor or intoxicating drugs.”Section 18A of the Abkari Act provides for grant of exclusive or other
privilege of manufacture, etc., on payment of rentals. It reads as follows:
“18A. Grant of exclusive or other privilege of
manufacture, etc., on payment of rentals:- (1) It shall be
lawful for the Government to grant to any person or persons,
on such conditions and for such period as they may deem
fit, the exclusive or other privilege:–(i) of manufacturing or supplying by wholesale; or
(ii) of selling by retail; or
(iii) of manufacturing or supplying by wholesale and
selling by retail, any liquor or intoxicating drugs
within any local area on his or their payment to the
Government of an amount as rental in
consideration of the grant of such privilege. The
amount of rental may be settled by auction,
negotiation or by any other method as may be
determined by the Government, from time to time,
and may be collected to the exclusion of, or in
addition, to the duty or tax leviable under Sections
17 and 18.
(2) No grantee of any privilege under sub-section (1)
shall exercise the same until he has received a licence in
that behalf from the Commissioner.
(3) In such cases, if the Government shall by
notification so direct, the provisions of Section 12 relating to
toddy and toddy producing trees shall not apply.”
Section 24 of the Act provides for the forms and conditions of licenses. It
reads as follows:
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“24. Forms and conditions of licenses, etc:- Every
license or permit granted under this Act shall be granted –
(a) on payment of such fees, if any;
(b) for such period;
(c) subject to such restrictions and on such conditions;
and
(d) shall be in such form and contain particulars – as
the Government may direct either generally, or in any
particular instance in this behalf.”
Section 29 confers the rule making power on the Government. Sub-
section (1) of Section 29 provides that the Government may make rules
for the purpose of carrying out the provisions of the Act. Sub -section (2)
states that in particular and without prejudice to the generality of the
foregoing provision, the Government may make rules in respect of items
mentioned therein.
10. Section 18A(1) (iii) confers power on the Government to settle
the rental by auction, negotiation or by any other method. Section 24
confers power to prescribe the fee to be paid and the restrictions or
conditions to be imposed. These substantive provisions confer power on
the rule making authority and such power is traceable to Section 29(1) of
the Act. Section 69 of the Act provides that all rules made and
notifications issued under the Act shall be made and issued by publication
in the Gazette and all such rules and notifications shall thereupon have
W.A.NO.1563 OF 2002 AND CONNECTED CASES
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the force of law and read as part of the Act and may in like manner be
varied, suspended or annulled.
11. In exercise of the powers conferred by Sections 10, 24 and 29
of the Cochin Abkari Act 1 of 1077 (ME), as subsequently amended and
as continued in force by the Travancore-Cochin State Administration and
Application of Laws Act, Act VI of 1125 (ME), the Government, in
supercession of the Government notification dated 2.6.1949 as
subsequently amended, prescribed Foreign Liquor Rules for the issue of
licence for the possession, use or sale of foreign liquor. Rule 13 of the
Rules provides for licences for possession and sale of foreign liquor and
for possession or use of foreign liquor. Rule 13(3) has already been
quoted above. The licence shall be issued by the Excise Commissioner.
The Rule also provides for restrictions in the matter of issue of licence.
Rule 14 states that if any of the licences referred to in Rule 13 is granted
in the course of a financial year, the full annual fee shall be paid and the
licence shall expire at the end of the financial year. Except in the case of
FL-1 shops, the rental or the fee, as the case may be, shall be paid in full
to the Government Treasury before the issue of licence, as provided in
Rule 18. Rule 36 empowers the Excise Commissioner, upon giving
fifteen days’ notice, to revoke any licence. On such revocation, a
proportionate part of the fee paid by the licencee shall be refunded to him.
W.A.NO.1563 OF 2002 AND CONNECTED CASES
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The conditions for the issue of FL-3 licence also provide for the same.
12. We will now examine whether the decision of the Division
Bench in B.Six Holiday Resorts (P) Ltd. V. State of Kerala (2003 (1)
KLT 984) would cover the issue involved in the case. According to the
petitioners, the decision in B.Six Holiday Resorts (P) Ltd.’s case would
clinch the issue, while, according to the learned Advocate General, it
would not. The facts stated in B.Six Holiday Resorts (P) Ltd.’s case
would indicate the following: On 11.12.2000, the petitioner therein
applied for FL-3 licence which would permit it to serve liquor in its
restaurant. The application was not processed expeditiously. Several
Writ Petitions were filed by the petitioner therein at various stages where
the application was rejected by several orders. On 20.2.2002, the
Government of Kerala, in exercise of its powers under Section 18A read
with Sections 24 and 29 of the Abkari Act, amended Rule 13 (3) by
adding a proviso that no new licence under the Rules shall be issued.
The amendment to Rule 13(3) came into effect from 1.7.2001. On the
basis of the amendment, the application for FL-3 licence was rejected by
the Excise Commissioner. That order was challenged in the Writ Petition
by B.Six Holiday Resorts (P) Ltd.. On the question of law whether the
authority exercising subordinate legislative functions can make a Rule
with retrospective effect, it was held as follows:
W.A.NO.1563 OF 2002 AND CONNECTED CASES
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“11. Ground (D):
The learned counsel appears to be on firmer ground when
he contends that the notification dated 20.2.2002 is bad to
the extent it gives retrospective effect to the proviso added
to rule 13(3) of the Rules. In I.T.O. Alleppey v.
M.C.Ponnoose ((1969) 2 SCC 351 (paragraph 5), the
Supreme Court observed: “The Parliament can delegate its
legislative power within the recognised limits. Where any
rule or regulation is made by any person or authority to
whom such powers have been delegated by the Legislature
it may or may not be possible to make the same so as to
give retrospective operation. It will depend on the language
employed in the statutory provision which may in express
terms or by necessary implication empower the authority
concerned to make a rule or regulation with retrospective
effect. But where no such language is to be found it has
been held by the courts that the persons or authority
exercising subordinate legislative functions cannot make a
rule, regulation or bye-law which can operate with
retrospective effect. (See in this connection Dr.Indramani
Pyarelal Gupta v. W.R.Nathu & Ors., (1963) 1 SCR 721,
Modi Food Products Ltd. V. Commissioner of Sales Tax,
U.P.(AIR (1956) All.35), India Sugar Refineries Ltd. V.
State of Mysore (AIR (1960) Mysore 326 and General
S.Shivdev Singh and Anr. V. The State of Punjab and
Ors. (1959 PLR 514).”
12. In Hukam Chand v. Union of India, (1972) 2 SCC
601, (vide Paragraph 8), the Supreme Court pointed out
that the underlining principle is that, unlike sovereign
legislature, which has power to enact laws with retrospective
operation, the authority vested with the power of making
subordinate legislation has to act within the limits of its
power and cannot transgress the same. The difference
between subordinate legislation and the statute laws lies in
the fact that a subordinate law-making body is bound by the
terms of its delegated or derived authority and that court of
law, as a general rule, will not give effect to the rules, thus
made, unless satisfied that all the conditions precedent to
the validity of the rules have been fulfilled.
W.A.NO.1563 OF 2002 AND CONNECTED CASES
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13. In R.T.O. V. Associated Transport Madras, (1980)
4 SCC 597 (paragraph 4), the Supreme Court observed:
“The legislature has no doubt a plenary power in the matter
of enactment of statutes and can itself make retrospective
laws subject, of course, to the constitutional limitations. But
it is trite law that a delegate cannot exercise the same power
unless there is special conferment thereof to be spelled out
from the express words of the delegation or by compelling
implication”. To same effect is the judgment of a Full Bench
of this Court in R.K.V.Motors & Timbers v. R.T.O. (1982 KLT
166).”
After holding thus, the Division Bench considered the contention of the
learned Advocate General and held thus:
“14. With this formidable array of precedents the
learned Advocate General found it difficult to sustain the
retrospective effect given to the proviso added by the
amendment notified on 20.2.2002, since there is no
provision in the Kerala Abkari Act, which empowers the rule
making authority to make rules retrospectively. The learned
Advocate General, therefore, frankly conceded that he would
not be able to sustain the validity of the retrospective effect
given to the proviso in R.13(3).”
13. Learned counsel for the petitioners would submit that the
Division Bench held that there is no provision in the Kerala Abkari Act
which empowers the rule making authority to make rules retrospectively.
Learned Advocate General conceded that he could not sustain the
validity of the retrospective effect given to the proviso in Rule 13(3).
There cannot be any dispute that if the Act does not empower the rule
making authority to make rules retrospectively, a rule cannot be made
with retrospective operation. We are in respectful agreement with the
W.A.NO.1563 OF 2002 AND CONNECTED CASES
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dictum laid down by the Division Bench in paragraphs 11 to 13 of the
decision in B.Six Holiday Resorts (P) Ltd.’s case.
14. In State of Kerala v. V.M.Koya (ILR 1979 (1) Kerala 344), the
fact situation can be seen from paragraph 2 of the judgment which is
quoted below:
“2. The question raised in W.A.No.32 of 1976 is
regarding the quantum of licence fee payable for the year
1975-76 (that is for the period from 1st April 1975 to 31st
March 1976) in respect of foreign liquor 3 licence which was
applied for by the writ petitioner for that year. The
application was made on 27th March 1975. At that time the
licence fee which was current and in force was Rs.4,000. By
Ext.P1 letter dated 2nd April 1975 sent by the Excise
Inspector, the writ petitioner was informed, enclosing a copy
of the Board of Revenue’s order (Ext.P1), that the differential
rental (licence fee) had to be remitted within 24 hours. The
enclosed order of the Board of Revenue stated that the
rental in respect of foreign liquor 3 licence had been
enhanced to Rs.12,000 per year. The writ petitioner claims
that he was issued permit for the transport of the liquor to his
place of business. The relevant Government notification
enhancing the licence fee was issued only on 10th April 1975
(Ext.P2). It was the petitioner’s case that as the application
for the licence had been made on 27th March 1975, before
the issuance of the notification enhancing the licence fee, he
was entitled to the grant of licence at the rate in force on the
date of the application, and not at the enhanced rate. He
accordingly prayed to declare section 24 of the Kerala Abkari
Act, 1077 M.E unconstitutional, and to quash Exts.P1 and
P2. The learned Judge quashed Exts.P1 and P2 and
directed a renewal of the petitioner’s foreign liquor 3 licence
with effect from 1st April 1975. It was ordered that the
Government was entitled to get the annual fee as per Ext.R2
notification dated 10th April 1975 only on and from that date;
and that in regard to the renewal of the licence asked for
W.A.NO.1563 OF 2002 AND CONNECTED CASES
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before 1st April 1975 the Government was bound to renew
the licence in accordance with the law then existing. The
Fixed Deposit handed over to the authorities by the writ
petitioner as per the direction of this Court was directed to
be handed back to him.”
The Division Bench allowed the Writ Appeal filed by the State holding
thus:
“From these provisions, we are unable to see any
right on the part of the petitioner to have the licence fee
levied and collected only at the rate prevailing on the date of
the application or on the commencement of the financial
year for which the application was made. Indeed, the
provisions of rules 14 and 18, which we have extracted
seem to militate against any such construction. And neither
the provisions of the statute and the rules, nor the nature of
the right to obtain a licence justify our applying in this region,
the principle applicable else where, that an application made
before an amendment of the substantive law is to be dealt
with according to the law in force on the date of the
application, unless express or implied provision is found to
the contrary. The decisions of this court which have
sustained the provisions of the Abkari Act and the validity of
the impost levied thereby, have explained the nature of the
licence fee levied and collected by the Act. (See Madhavan
v. Assistant Excise Commissioner, Palghat (ILR 1969 (2)
Ker. 71) confirmed on appeal in Damodaran v. State of
Kerala (ILR 1969(2) Ker.95). See also Nashirwar v. State of
M.P. (A.I.R. 1975 S.C.360) where the first noted decision
was referred to with approval. In the light of these decisions,
we are unable to sustain the direction given by the learned
Judge that the petitioner is entitled to renewal of the Foreign
Liquor 3 Licence for 1975-76 at the rate prevailing on the
date of the application, and that the enhanced licence fee
will have application only from 10th April 1975. The licence
applied for by the writ petitioner had not been granted.
Before that, he had approached this court with the writ
petition. In the circumstances, he was not entitled to the
relief granted by the learned Judge.”
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The Division Bench also did not agree with the view taken by the learned
single Judge that the enhancement of the rate of licence fee on 10.4.1975
cannot take effect on the pending applications for the licence for the same
year.
15. In Kuldeep Singh v. Govt. of NCT of Delhi ((2006) 5 SCC
702), the Supreme Court considered a case where the Government, after
inviting applications for the grant of licence to vend liquor and before the
disposal of the applications, took a decision not to grant any new licence.
Applications for the grant of licences for the sale of Indian Made Foreign
Liquor were rejected on the basis of the decision of the Government,
which was challenged in writ petitions. The High Court allowed the Writ
Petitions and directed the State to grant the licences. Letters patent
appeals filed against the decision in the Writ Petitions were allowed. The
writ petitioners challenged the decision before the Honourable Supreme
Court. In that context, it was held in paragraphs 30, 33 and 36 as follows:
“30. Unless, therefore, an accrued or vested right had
been derived by the appellants, the policy decision could
have been changed.
……….
33. The question again came up for consideration in
Howrah Municipal Corpn. V. Ganges Rope Co. Ltd. ((2004)
1 SCC 663) wherein this Court categorically held: (SCC
p.680, para 37)
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“The context in which the respondent Company
claims a vested right for sanction and which has been
accepted by the Division Bench of the High Court, is not
a right in relation to `ownership or possession of any
property’ for which the expression `vest’ is generally
used. What we can understand from the claim of a
`vested right’ set up by the respondent Company is that
on the basis of the Building Rules, as applicable to their
case on the date of making an application for sanction
and the fixed period allotted by the Court for its
consideration, it had a `legitimate’ or `settled expectation’
to obtain the sanction. In our considered opinion, such
`settled expectation’, if any, did not create any vested
right to obtain sanction. True it is, that the respondent
Company which can have no control over the manner of
processing of application for sanction by the Corporation
cannot be blamed for delay but during pendency of its
application for sanction, if the State Government, in
exercise of its rule-making power, amended the Building
Rules and imposed restrictions on the heights of
buildings on G.T.Road and other wards, such `settled
expectation’ has been rendered impossible of fulfillment
due to change in law. The claim based on the alleged
`vested right’ or `settled expectation’ cannot be set up
against statutory provisions which were brought into
force by the State Government by amending the Building
Rules and not by the Corporation against whom such
`vested right’ or `settled expectation’ is being sought to
be enforced. The `vested right’ or `settled expectation’
has been nullified not only by the Corporation but also by
the State by amending the Building Rules. Besides this,
such a `settled expectation’ or the so-called `vested right’
cannot be countenanced against public interest and
convenience which are sought to be served by
amendment of the Building Rules and the resolution of
the Corporation issued thereupon.
……………
36. In a case of this nature where the State has the
exclusive privilege and the citizen has no fundamental right
to carry on business in liquor, in our opinion, the policy which
would be applicable is the one which is prevalent on the
W.A.NO.1563 OF 2002 AND CONNECTED CASES
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date of grant and not the one, on which the application had
been filed. If a policy decision had been taken on
16.9.2005 not to grant L-52 licence, no licence could have
been granted after the said date.”
16. Reliance was placed by the petitioners on paragraph 17 of the
decision in Kerala Samsthana Chethu Thozhilali Union v. State of
Kerala and others ((2006) 4 SCC 327), wherein it was held thus:
“17. A rule is not only required to be made in
conformity with the provisions of the Act whereunder it is
made, but the same must be in conformity with the
provisions of any other Act, as a subordinate legislation
cannot be violative of any plenary legislation made by
Parliament or the State Legislature.”
17. In Khoday Distilleries Ltd. And others v. State of Kerala
and others ((1995) 1 SCC 574), the Supreme Court summarised the law
on the subject in paragraph 60 of the judgment thus:
“60. We may now summarise the law on the subject
as culled from the aforesaid decisions.
(a) The rights protected by Article 19(1) are not absolute
but qualified. The qualifications are stated in clauses
(2) to (6) of Article 19. The fundamental rights
guaranteed in Article 19(1)(a) to (g) are, therefore, to be
read along with the said qualifications. Even the rights
guaranteed under the Constitutions of the other civilized
countries are not absolute but are read subject to the
implied limitations on them. Those implied limitations
are made explicit by clauses (2) to (6) of Article 19 of
our Constitution.
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(b) The right to practice any profession or to carry on any
occupation, trade or business does not extend to
practicing a profession or carrying on an occupation,
trade or business which is inherently vicious and
pernicious, and is condemned by all civilized societies.
It does not entitle citizens to carry on trade or business
in activities which are immoral and criminal and in
articles or goods which are obnoxious and injurious to
health, safety and welfare of the general public, i.e. res
extra commercium, (outside commerce). There cannot
be business in crime.
(c) Potable liquor as a beverage is an intoxicating and
depressant drink which is dangerous and injurious to
health and is, therefore, an article which is res extra
commercium being inherently harmful. A citizen has,
therefore, no fundamental right to do trade or business
in liquor. Hence the trade or business in liquor can be
completely prohibited.
(d) Article 47 of the Constitution considers intoxicating
drinks and drugs as injurious to health and impeding the
raising of level of nutrition and the standard of living of
the people and improvement of the public health. It,
therefore, ordains the State to bring about prohibition of
the consumption of intoxicating drinks which obviously
include liquor, except for medicinal purposes. Article 47
is one of the directive principles which is fundamental in
the governance of the country. The State has,
therefore, the power to completely prohibit the
manufacture, sale, possession, distribution and
consumption of potable liquor as a beverage, both
because it is inherently a dangerous article of
consumption and also because of the directive principle
contained in Article 47, except when it is used and
consumed for medicinal purposes.
(e) For the same reason, the State can create a monopoly
either in itself or in the agency created by it for the
manufacture, possession, sale and distribution of the
liquor as a beverage and also sell the licences to the
citizens for the said purpose by charging fees. This can
W.A.NO.1563 OF 2002 AND CONNECTED CASES
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be done under Article 19(6) or even otherwise.
(f) For the same reason, again, the State can impose
limitations and restrictions on the trade or business in
potable liquor as a beverage which restrictions are in
nature different from those imposed on the trade or
business in legitimate activities and goods and articles
which are res commercium. The restrictions and
limitations on the trade or business in potable liquor can
again be both under Article 19(6) or otherwise. The
restrictions and limitations can extend to the State
carrying on the trade or business itself to the exclusion
of and elimination of others and/or to preserving to itself
the right to sell licences to do trade or business in the
same, to others.
(g) When the State permits trade or business in the potable
liquor with or without limitation, the citizen has the right
to carry on trade or business subject to the limitations, if
any, and the State cannot make discrimination between
the citizens who are qualified to carry on the trade or
business.
(h) The State can adopt any mode of selling the licences
for trade or business with a view to maximize its
revenue so long as the method adopted is not
discriminatory.
(i) The State can carry on trade or business in potable
liquor notwithstanding that it is an intoxicating drink and
Article 47 enjoins it to prohibit its consumption. When
the State carries on such business, it does so to restrict
and regulate production, supply and consumption of
liquor which is also an aspect of reasonable restriction
in the interest of general public. The State cannot on
that account be said to be carrying on an illegitimate
business.
(j) The mere fact that the State levies taxes or fees on the
production, sale and income derived from potable liquor
whether the production, sale or income is legitimate or
illegitimate, does not make the State a party to the said
activities. The power of the State to raise revenue by
W.A.NO.1563 OF 2002 AND CONNECTED CASES
:: 19 ::
levying taxes and fees should not be confused with the
power of the State to prohibit or regulate the trade or
business in question. The State exercises its two
different powers on such occasions. Hence the mere
fact that the State levies taxes and fees on trade or
business in liquor or income derived from it, does not
make the right to carry on trade or business in liquor a
fundamental right, or even a legal right when such trade
or business is completely prohibited.
(k) The State cannot prohibit trade or business in medicinal
and toilet preparations containing liquor or alcohol. The
State can, however, under Article 19(6) place
reasonable restrictions on the right to trade or business
in the same in the interests of general public.
(l) Likewise, the State cannot prohibit trade or business in
industrial alcohol which is not used as a beverage but
used legitimately for industrial purposes. The State,
however, can place reasonable restrictions on the said
trade or business in the interests of the general public
under Article 19(6) of the Constitution.
(m) The restrictions placed on the trade or business in
industrial alcohol or in medicinal and toilet preparations
containing liquor or alcohol may also be for the
purposes of preventing their abuse or diversion for use
as or in beverage.”
As regards the contention whether the State can place restrictions and
limitations under Article 19(6) of the Constitution by subordinate
legislation, the Supreme Court held, in paragraph 64 of the judgment in
Khoday Distilleries Ltd.’s case, as follows:
“64. The last contention in these groups of matters is
whether the State can place restrictions and limitations
under Article 19(6) by subordinate legislation. Article 13(3)W.A.NO.1563 OF 2002 AND CONNECTED CASES
:: 20 ::
(a) of the Constitution states that law includes “any
ordinance, order, bye-law, rule, regulation, notification,
custom or usage having in the territory of India the force of
law”. Clauses (2) to (6) of Article 19 make no distinction
between the law made by the legislature and the
subordinate legislation for the purpose of placing the
restrictions on the exercise of the respective fundamental
rights mentioned in Article 19(1)(a) to (g). We are
concerned in the present case with clause (6) of Article 19.
It will be apparent from the said clause that it only speaks of
“operation of any existing law insofar as it imposes. …”
“from making any law imposing” reasonable restrictions on
the exercise of the rights conferred by Article 19(1)(g).
There is nothing in this provision which makes it imperative
to impose the restrictions in question only by a law enacted
by the legislature. Hence the restrictions in question can
also be imposed by any subordinate legislation so long as
such legislation is not violative of any provisions of the
Constitution. This is apart from the fact that the trade or
business in potable liquor is a trade or business in res extra
commercium and hence can be regulated and restricted
even by executive order provided it is issued by the
Governor of the State. We, therefore, answer the question
accordingly.”
18. Now we shall consider the question whether the amendment to
Rule 13 is really retrospective in operation. Rule 1(2) of the Amendment
Rules provides that the Rules shall come into force at once. The date of
commencement of the amendment was 8.10.2001. By amendment of
sub-rule (3) of Rule 13, the annual rental was enhanced from Rs.13 lakhs
to Rs.15 lakhs. There is no case for the petitioners that the rule making
authority has no power under Section 29 read with Sections 18A and 24
to fix any conditions or to fix any rental or fee. The case of the petitioners
W.A.NO.1563 OF 2002 AND CONNECTED CASES
:: 21 ::
is that no such enhancement could be made so as to affect the licences
already granted for a fixed period. The power of the Government to fix
the licence fee/rental from time to time is also not disputed. There is also
no case that the enhancement of the annual rental is illegal. The main
challenge is against sub-rule (15) of Rule 13, which empowers the
Government to enhance the annual rental/fee at any time during the
course of the financial year.
19. In our view, sub-rule (15) of Rule 13 cannot be said to be
having any retrospective effect. Section 18A empowers the Government
to fix the rental by auction, negotiation or by any other method as may be
determined by the Government from time to time and may be collected to
the exclusion, or in addition to the duty or tax leviable under Sections 17
and 18. A licence under Section 24 shall be granted on payment of such
fee, for such period and subject to such restrictions and on such
conditions as the Government may direct either generally or in any
particular instance. Sub-rule (15) of Rule 13 cannot be said to be contrary
to the provisions of Sections 18A and 24 of the Act. In our view,
enhancement of rental/fee as provided in sub-rule (15) of Rule 13 at any
time during the course of a financial year cannot be said to be
retrospective. The licencee would be entitled to continue to run the
business for the rest of the period covered by the licence. The only
W.A.NO.1563 OF 2002 AND CONNECTED CASES
:: 22 ::
restriction is that the licencee would be liable to pay the enhanced
rental/fee fixed by the Government. In this context, it is to be noted that
the exclusive right to deal in liquor vests with the Government and a
citizen has no fundamental right to carry on the business in liquor. It is
well settled that the right to vend liquor is a privilege granted by the
Government. It would not be illegal to fix rental/fee from time to time.
There cannot be any vested right as claimed by the petitioners, since a
licence granted to the licencee is liable to be cancelled at any time.
Section 26 of the Abkari Act provides that the Commissioner may cancel
or suspend any licence or permit granted under the Act if any fee, duty,
tax or rental payable by the holder of the licence is not duly paid. The
power to cancel or suspend any licence or permit can be exercised on the
requisition in writing of the licencee as well under Section 26(d) of the Act
or if the conditions of the licence or permit provide for such cancellation
or suspension at will as provided in Section 26(e) of the Act. Rule 36 of
the Foreign Liquor Rules states that the Excise Commissioner may, upon
giving 15 days notice, revoke any licence, in which case a proportionate
part of the fee paid by the licencee shall be refunded to him. These
provisions would clearly indicate that enhancement of the rental/fee would
not affect any right of the licencee much less a vested right, if any.
Therefore, we are of the view that sub-rule (15) of Rule 13 is not
retrospective in its operation. As regards the reasonableness of the
W.A.NO.1563 OF 2002 AND CONNECTED CASES
:: 23 ::
enhancement, it is not disputed that there was a ban on the sale of arrack
in the State during the relevant period. It cannot also be disputed that
there was much demand for foreign liquor during the relevant period due
to the ban on the sale of arrack. That there was a loss of abkari revenue
due to the ban of arrack is the specific case put forward by the State,
which, according to them, necessitated enhancement of the rental/fee for
FL3 licence. In the budget speech for 2001-02 presented before the
Legislative Assembly on 19.7.2001, it was declared that the licence fee for
FL3, hotel, restaurant licence would be enhanced from Rs.13 lakhs to
Rs.15 lakhs in order to raise an additional revenue of Rs.9.5 crores. The
enhancement, therefore, cannot be said to be unreasonable.
20. Section 29 of the Act was amended subsequently,
empowering the Government to make rules either prospectively or
retrospectively. This amendment was with effect from 1.4.2003. We
have already held that amendment of sub-rule (3) of Rule 13 and the
introduction of sub-rule (15) in Rule 13 by the Amendment Rules, 2001
are not retrospective in effect and that the challenge against the same is
unsustainable. In view of that finding, it is not necessary for us to
consider whether the Government had the power to make rules
retrospectively. In view of the amendment of Section 29 empowering the
Government to make rules retrospectively, (which came into force on
W.A.NO.1563 OF 2002 AND CONNECTED CASES
:: 24 ::
1.4.2003), the said question does not assume much importance and such
an exercise would be purely academic.
For the aforesaid reasons, we hold that the Writ Appeals and the
Writ Petitions lack merit and they are accordingly dismissed. No order as
to costs.
Pending interlocutory applications in all these cases are also
dismissed.
(H.L.DATTU)
Chief Justice
(K.T.SANKARAN)
Judge
ahz/
H.L.DATTU, C.J. &
K.T.SANKARAN, J.
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W.A.NOS.1563, 942, 1164 &
960 OF 2002and
O.P.NOS.20977 & 27266/2002
JUDGMENT
10th December, 2008
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