2014 (3) TMI 456 - SC - VAT and Sales Tax

Supreme Court rulings on FL-3 licenses: Three-star hotels excluded, 2012 distance rule unconstitutional

The Supreme Court upheld the deletion of three-star hotels from eligibility for FL-3 licenses but found the distance rule introduced in 2012 to be ... Legality and validity of two amendments introduced by the first appellant-State of Kerala, in pursuance of its Abkari Policy framed in 2011- 2012 - Abkari Policy to curb the rampant alcoholism in the State of Kerala, which claims to have the highest consumption of alcohol as against the other states in India - Kerela High Court struck down amendments on the touchstone of Article 14 of the Constitution of India, as being arbitrary, discriminatory, irrational, excessive, and even malafide - Desired objective not to be fulfilled - fundamental right to trade in liquor - Held that:- There cannot be any dispute on the proposition that, there is no fundamental right to trade in liquor. At the same time we cannot ignore the dicta of the Supreme Court in Khoday Distilleries (1994 (10) TMI 269 - SUPREME COURT) and particularly in para 60(g) where the Apex Court has laid down that where such a trade is permitted, there can not be any room for discrimination. Government stated (November 2011) that there are certain bar hotels functioning with standard below two star specifications. As these hotels were functioning for long periods, they were regularised based on Abkari Policy 2007-08 - as per Rules the licences are issued each year and the standard for granting licence are still three star standard - Government, 15 years after extending time limit for the first time, again extended (12 March 2007) the time limit up to 31 March 2007 and stated that failure to comply with the standards would lead to cancellation of licences. However, on the very next day, i.e. 13 March 2007 the Government added a proviso to Rule 13 that all existing licensees not having the above classification and which were functional as on 31 March 2007 shall be regularised. The Abkari policy for 2008-09 (February 2008) stated that the Government would insist on minimum facility and hygienic conditions in all the 418 bar hotels which did not have 2-star status, but which were regularised during 2007-08. Consequences of the amendment of 2012 will be that four star and five star hotels would not be permitted to have FL-3 licences only on the ground that they are within the prohibited distance from such hotels which have poor hygiene standards, and which are not following norms laid down by the State Government. We may mention that the FL3 licences are issued on an annual basis, and it is quite within the powers of the Government not to renew these licenses if such serious violations are reported. But the Government appears to be slow in taking any such action. It will surely be counter- productive to the objective of Rule 13 (3), which is to promote tourism, as well as to the State's avowed policy of improving the health and nutrition standards of its citizens. The criticism of the respondents, particularly of the hotels which have been permitted under the 6th and 7th proviso to Rule 13(3), is therefore quite justified. If the Government is really serious about reducing the consumption of liquor, it should also take steps to reduce its own shops and depots and in any case should not open new ones. In view of the very high consumption of liquor, which the State Government intends to reduce, what we expect is that the Government should consider not issuing further FL-1 licences. If it is not possible for the Government to reduce the existing FL-1 shops, with respect to which it enjoys a monopoly, it is of no use for it to direct the private sector alone to function in a particular manner. The Government must as well behave in conformity with the mandate of Article 47. The judgment rendered by the Division Bench is set-aside to the extent it interferes with the amendment brought in the year 2011. The deletion of three star hotels from the category of hotels eligible for FL3 licenses under Rule 13(3) is held valid - The state government will not proceed to deny FL3 licenses to hotels with a classification of four star and above by resorting to their deletion under Rule 13 (3) until the report of the one-man commission is received, and until it takes action against the non-standard restaurants which have been permitted under the sixth and seventh proviso of Rule 13(3) - Decided partly in favour of Revenue. Issues Involved:1. Legality and validity of amendments to Rule 13(3) of the Foreign Liquor Rules under the Kerala Abkari Act.2. Constitutionality of the amendments under Article 14 of the Constitution of India.3. Impact of the amendments on tourism and public health policies.Detailed Analysis:Legality and Validity of Amendments:The amendments in question were introduced by the State of Kerala in its Abkari Policy for 2011-2012. The first amendment, dated 9.12.2011, omitted the words 'three star' from Rule 13(3), making three-star hotels ineligible for FL-3 licenses for retail sale of liquor. The second amendment, dated 27.3.2012, introduced Rule 13(3E), which imposed a distance restriction on new bar hotels, prohibiting them from being opened within 3 km in panchayat areas and 1 km in municipal areas from existing bar hotels.Constitutionality under Article 14:The respondents challenged these amendments on the grounds of arbitrariness, discrimination, irrationality, and excessiveness under Article 14 of the Constitution. They argued that the amendments would not achieve their objectives and would adversely affect tourism. The High Court of Kerala struck down the amendments as unconstitutional, leading to the present appeals.Impact on Tourism and Public Health Policies:The Abkari Policy aimed to curb rampant alcoholism in Kerala, which has the highest alcohol consumption in India. The policy was in pursuit of Article 47 of the Constitution, which mandates the State to endeavor to bring about prohibition of intoxicating drinks. The amendments were intended to reduce the availability of liquor and its adverse social impacts. However, the respondents contended that these measures would hinder tourism, a significant revenue source for the State.Judgment Analysis:Single Judge's Judgment:The Single Judge dismissed the writ petitions challenging the amendments, holding that there was no vested right or Fundamental Right to obtain a liquor license. The Judge found no element of discrimination or legitimate expectation and upheld the amendments.Division Bench's Judgment:The Division Bench allowed the writ appeals, holding the amendments unconstitutional. It noted that while there is no Fundamental Right to trade in liquor, any permitted trade must comply with Article 14, ensuring no arbitrariness or discrimination. The Bench highlighted that the State's monopoly on wholesale liquor trade and high revenue from liquor sales contradicted its stated objective of reducing alcohol consumption. The Bench also criticized the amendments for creating a monopoly for existing hotels and potentially encouraging spurious liquor consumption.Supreme Court's Analysis:Deletion of Three-Star Hotels:The Supreme Court upheld the deletion of three-star hotels from eligibility for FL-3 licenses, referencing the precedent set in B. Six Holiday Resorts Pvt. Ltd. v. State of Kerala, which upheld a similar restriction on two-star hotels. The Court noted that the promotion of tourism should be balanced with public interest and that periodic reassessment of policy is permissible.Distance Rule:The Supreme Court found the distance rule introduced in 2012 to be arbitrary and counterproductive. The rule would prevent new four-star and five-star hotels from obtaining licenses based on proximity to non-standard hotels with poor hygiene and safety standards. The Court emphasized the need for the State to take firm action against such non-standard hotels rather than imposing blanket restrictions on new establishments.Conclusion:1. Validity of 2011 Amendment: The deletion of three-star hotels from eligibility for FL-3 licenses is upheld.2. Invalidity of 2012 Amendment: The distance rule is struck down as arbitrary and unconstitutional.3. Future Licensing: The State is directed not to deny FL-3 licenses to four-star and above hotels until the one-man commission's report is received and action is taken against non-standard hotels.4. Contempt Petitions: No separate orders are required; the State must act in accordance with the Supreme Court's directions.The Supreme Court's decision balances the State's objectives of reducing alcohol consumption and promoting tourism while ensuring compliance with constitutional principles.