State price control over rectified spirit upheld in principle, but unguided delegation and arbitrary fixation were unconstitutional.

The State retained competence to regulate and fix the price of rectified spirit sold to arrack manufacturers because Section 18-G of the Industries (Development and Regulation) Act, 1951 did not create an exclusive central field unless the Central Government had actually fixed the price. Rule 17 of the Karnataka Excise Rules was nevertheless ultra vires to the extent it authorised unguided price fixation, as it conferred excessive delegated discretion without legislative standards. The price fixed at Rs. 8.50 per litre was also struck down as arbitrary and irrational because it lacked a reliable cost basis or policy justification.

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Issues: (i) Whether the State had legislative competence to regulate and fix the price of rectified spirit sold to arrack manufacturers after decontrol by the Central Government. (ii) Whether Rule 17 of the Karnataka Excise (Manufacture and Bottling of Arrack) Rules, 1987, insofar as it empowered price fixation of rectified spirit, was ultra vires the Act and amounted to excessive delegation. (iii) Whether the price fixed at Rs. 8.50 per litre was arbitrary, unreasonable and unconstitutional.

Issue (i): Whether the State had legislative competence to regulate and fix the price of rectified spirit sold to arrack manufacturers after decontrol by the Central Government.

Analysis: Rectified spirit was treated as an industrial product whose sale to arrack manufacturers fell within the sphere of trade, supply and distribution of the product of a controlled industry. The State's power to regulate non-potable alcohol to prevent diversion and misuse remained intact, and the Court held that Section 18-G of the Industries (Development and Regulation) Act, 1951, did not by itself create an exclusive central field unless and until the Central Government actually occupied it by a price-fixing order. The Court also held that the earlier statement in the second Synthetics case on occupied field did not control the present situation, and that the principle in Tika Ramji remained applicable.

Conclusion: The State had competence to regulate the subject and to fix price so long as the Central Government had not fixed the price under Section 18-G of the Industries (Development and Regulation) Act, 1951.

Issue (ii): Whether Rule 17 of the Karnataka Excise (Manufacture and Bottling of Arrack) Rules, 1987, insofar as it empowered price fixation of rectified spirit, was ultra vires the Act and amounted to excessive delegation.

Analysis: The Act and the Rule proceeded on the assumption that rectified spirit was part of the State's privileged excise domain, but that premise was no longer sustainable after the later legal position on industrial alcohol. Rule 17 contained no statutory guidance, policy or for the Excise Commissioner's price fixation, even though the price decision directly affected a commodity outside the State's exclusive privilege. The Court held that delegation cannot be unguided or absolute, and that the rule conferred an impermissible executive discretion without adequate legislative standards.

Conclusion: Rule 17, insofar as it governed rectified spirit and authorised its price fixation, was unconstitutional and ultra vires the State Act.

Issue (iii): Whether the price fixed at Rs. 8.50 per litre was arbitrary, unreasonable and unconstitutional.

Analysis: The material showed that molasses, the raw material, had risen sharply in price and that the State did not establish any reliable basis showing that the fixed price reflected relevant costs or a rational pricing policy. The Court held that even where price fixation is a matter of policy, it must rest on relevant material and not be manifestly unfair or arbitrary. On the record, the fixation at Rs. 8.50 per litre bore no rational relation to the actual cost structure or to any discernible policy justification.

Conclusion: The price fixed at Rs. 8.50 per litre was arbitrary, unreasonable and unfair, and was unconstitutional.

Final Conclusion: The writ petitions succeeded because the challenged price-fixing regime for rectified spirit could not be sustained either on legislative competence or on the standards governing delegated power and constitutional fairness.

Ratio Decidendi: Where the Central enactment does not itself occupy the field by an operative price-fixing order, the State may regulate the sale of rectified spirit within its residual regulatory sphere; however, a delegated price-fixing power that lacks legislative guidance and produces an arbitrary price is unconstitutional.

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