Tourism-based liquor licensing rules fail Article 14 scrutiny when they discriminate between similarly placed hotels.

Rule 13(3) of the Foreign Liquor Rules, framed for tourism promotion, was analysed as creating unequal treatment by excluding new three-star hotels while retaining existing licensed hotels in the same class; the deletion of three-star hotels was treated as lacking a rational nexus with the stated policy objective and was struck down as violative of Article 14. Rule 13(3E), which imposed a distance-based bar on new FL-3 licences for star hotels, was likewise treated as discriminating between new and existing establishments and as obstructing fresh investment without a realistic connection to liquor reduction or tourism policy; it was also struck down under Article 14. The commentary concludes that eligible three-star and above, including heritage, hotels remained entitled to consideration under the unamended rule.

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Issues: (i) Whether deletion of three-star hotels from eligibility for FL-3 licence under Rule 13(3) of the Foreign Liquor Rules was arbitrary, discriminatory and violative of Article 14 of the Constitution of India; (ii) Whether insertion of Rule 13(3E) of the Foreign Liquor Rules, imposing a distance-based bar on grant of new FL-3 licences to star hotels, was arbitrary, discriminatory and violative of Article 14 of the Constitution of India.

Issue (i): Whether deletion of three-star hotels from eligibility for FL-3 licence under Rule 13(3) of the Foreign Liquor Rules was arbitrary, discriminatory and violative of Article 14 of the Constitution of India.

Analysis: Rule 13(3) was intended to promote tourism by permitting bar licences to classified hotels. Three-star hotels and existing licensed three-star hotels were similarly situated for the purpose of tourism-oriented licensing, and denial of licences only to new three-star hotels did not bear a rational nexus to the stated objective of reducing liquor consumption or furthering prohibition under Article 47 of the Constitution of India. Selective retention of licences for existing hotels while excluding new comparable hotels created unequal treatment within the same class.

Conclusion: The deletion of three-star hotels from Rule 13(3) was held to be arbitrary and discriminatory and was struck down as violative of Article 14 of the Constitution of India.

Issue (ii): Whether insertion of Rule 13(3E) of the Foreign Liquor Rules, imposing a distance-based bar on grant of new FL-3 licences to star hotels, was arbitrary, discriminatory and violative of Article 14 of the Constitution of India.

Analysis: The distance restriction applied only to new hotels, while existing licence-holders continued to enjoy the benefit irrespective of proximity. In tourism centres, such a restriction operated to block fresh investment and stultify expansion of the hotel industry, without realistically advancing reduction in liquor consumption. The rule was therefore inconsistent with the tourism-oriented purpose of Rule 13(3) and created an artificial preference for existing establishments.

Conclusion: Rule 13(3E) was held to be arbitrary and discriminatory and was struck down as violative of Article 14 of the Constitution of India.

Final Conclusion: The impugned amendments were invalidated, and the eligible three-star and above, including heritage, hotels were entitled to consideration for FL-3 licence under the unamended rule.

Ratio Decidendi: Where a licensing rule framed for tourism promotion creates unequal treatment between similarly placed eligible hotels without a rational nexus to the stated policy objective, the restriction is arbitrary and unconstitutional under Article 14.

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