TaxTMI 
TaxTMI 
2014 (3) TMI 456
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.... Adv. Mr. G. Prakash, Adv. Mr. V.K. Sidharthan, Adv. Mr. Ramesh Babu M.R., Adv. Mr. Shiv Sagar Tiwari, Adv. JUDGMENT H.L. Gokhale J. Leave granted 2. This group of Civil Appeals raises the questions with respect to the legality and validity of two amendments introduced by the first appellant-State of Kerala, in pursuance of its Abkari Policy framed in 2011- 2012, in the Foreign Liquor Rules framed under the Kerala Abkari Act, since those amendments have been struck down as unconstitutional by the impugned judgment and order rendered by the High Court of Kerala. 3. Rule 13 of the Foreign Liquor Rules governs the grant of licences for the sale of the Indian Manufactured Foreign Liquor ('IMFL' for short). The two amendments which are disputed are as follows:- (i) Firstly, the words 'three star' were omitted from Rule 13(3) of these rules by Government of Kerala by issuing notification dated 9.12.2011. Consequently, after this amendment of the rule which has come into force immediately, three star hotels not already having a licence, will not be eligible to get a bar licence for retail sale of liquor in the hotels. Thus, no new hotels having the three ....
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....ons were allowed by a Division Bench of the High Court by its common judgment and order dated 27.7.2012, which struck down the two amendments as unconstitutional. Being aggrieved by the said judgment and order, these appeals have been filed by the appellant-State of Kerala and its concerned officers of the Excise Department. Abkari Policy of the Government of Kerala for the year 2011-2012:- 6. Before we deal with the impugned judgment and the amendments, we must first refer to the Abkari Policy of the Government of Kerala which led to the two disputed amendments to Rule 13. The Government of Kerala announced the Abkari Policy on 17.8.2011. In the second sub-para of the very first paragraph of this policy, the Government noted as follows:- "This Government views with serious concern the rising trend of alcoholism and the consequential social issues arising in the Kerala society. Strong feelings against this have been emanating from the civil society. Fully realising, Government intends to formulate a stringent Abkari Policy." 7. The notable features of this policy were as follows:- "a. The Government noted the rising trend of alcoholism in the state and its consequenc....
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....urial ground. Hotels other than those in the private sector having four star, five star, five star deluxe classification will be exempted from the distance restrictions in the interest of promotion of tourism in the State. In the case of hotels in the private sector of the above categories and hotels having heritage, heritage grand and heritage classic classification issued by the Ministry of Tourism, Government of India, no such licence shall be issued if located within 50 (fifty) metres from any educational institution, temple, church, mosque, burial ground or scheduled caste/scheduled tribe colony. The applicant shall produce from the Abkari Workers Welfare Fund Inspector a certificate to the effect that he has remitted before the date of application for the licence/renewal of licence, the arrears of contributions, if any, payable upto the 31st of December of the preceding year. The existing licencees who do not maintain two star standards will be allowed time upto 31st March, 2007 to upgrade their standards to two star. Their licence will be renewed till that date. Failure to upgrade the standard of those hotels would lead to cancellation of licence and forfeiture of rental ....
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....usand)]. xxx xxx xxx (3E) 2 Notwithstanding anything contained in these rules, no new FL- 3 licence shall be granted to hotels which are located within a radius of three kilometers in Grama Panchayat and one kilometer in Municipal Corporation/City Corporation, from another hotel having an FL-3 licence granted under this rule]. 1. Deleted by impugned Amendment of 2011. 2. Introduced by impugned Amendment of 2012." Judgment of the Single Judge:- 9. The learned single Judge who heard the matter concerning the denial of licences to new three star hotels held that there was no vested right to get a licence, leave aside any Fundamental Right. It was held that there was no element of discrimination, nor that of legitimate expectation. He also held that the unamended rule cannot be applied once the amendment comes into force, and therefore rejected the petition. Judgment of the Division Bench:- 10. The Division Bench, on the other hand, noted in paragraph 5 of its judgment the submission of the respondents that although there was no Fundamental Right to carry on business in liquor, as held in Khoday Distilleries Ltd. & Ors. vs. State of Karnataka reported in 1995 (1) S....
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....e Court was of the view that there was no distinction between the existing three star hotels and the new three star hotels, to be opened. Besides most of these hotels were set up in areas where there was a thriving tourism business like the Kovalam Beach near Thiruvanantapuram. The decision to set up hotels ought to be left to the hoteliers. The State Government will defeat the tourism policy by introducing, by amendment, the distance rule. For all these reasons the Court held that the two amendments were discriminatory, and will not achieve the policy which they intended to achieve. The Court, therefore, held the two amendments to be bad in law and unconstitutional. 13. Learned senior counsel, Mr. V. Giri assisted by Mr. Ramesh Babu, learned counsel, has appeared for the appellants. He has been supported by Mr. P.K. Bali, learned senior counsel appearing for the Kerala Pradesh Madhya Virudh Samithy (i.e. committee opposing consumption of liquor in the area of Kerala). Senior counsel Mr. Mukul Rohtagi, Chander Udai Singh, Krishnan Venugopal and others have appeared for the respondents and the interveners. Submissions on behalf of the appellants:- 14. The principal submissi....
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....ay Distilleries (supra) to the following effect:- "(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, exce....
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....lement a new policy. By the said amendment, the minimum eligibility for licence was increased from Two-star categorization to Three-Star categorization and the ban on issue of fresh licences was removed by deleting the proviso which was inserted by the amendment dated 20.2.2002. It was contended that the amendments merely implemented the policies of the government from time to time. There is considerable force in the contention of the State. If the State on a periodical re-assessment of policy changed the policy, it may amend the Rules by adding, modifying or omitting any rule, to give effect to the policy. If the policy is not open to challenge, the amendments to implement the policy are also not open to challenge. When the amendment was made on 20.2.2002, the object of the newly added proviso was to stop the grant of fresh licences until a policy was finalized." 19. It was, therefore, submitted by Mr. Giri that when a policy was introduced with a good intention, after considering the serious problems in the society, and after consulting all affected interests including the hoteliers, there was no reason for the High Court to interfere therein by calling it arbitrary or discrim....
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.... the year 2012. The High Court should not have interfered, and held this added rule as unconstitutional on the ground of alleged discrimination against parties which had not set up their hotels as yet. The State was trying to do its best in furtherance to the Directive Principle contained in Article 47 of the Constitution, and as Article 37 of the Constitution states, the principles laid down in the Directive Principles are fundamental in the governance of the country, and the State has the duty to apply them in making the laws. He submitted that as held in Khoday Distilleries Ltd. (supra) the correct way to describe the Fundamental Rights under Article 19(1) is to call them 'Qualified Fundamental Rights'. The right to practice any profession, or to carry on any occupation, trade or business guaranteed under Article 19(1)(g) of the Constitution is subject to the reasonable restrictions under sub-article (6) thereof, and there was no reason to hold that the restrictions imposed under the present rules are in any way unreasonable. Mr. Giri, referred to Section 69 of Kerala Abkari Act, and submitted that the rules framed under the statute must be considered as a part of the st....
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....Court to decide the policy matters. The affected persons are women and children also, and the State has taken steps to protect their interest. 22. The submissions of Mr. Giri were supported by learned senior counsel Mr. Bali. He represented the earlier referred Kerala Pradesh Madhya Virudha Samithy. It has filed a separate SLP challenging the impugned judgment bearing No. 38251/2012. He drew our attention to various judgments. The salient from amongst them are mentioned hereafter. Firstly he referred to the judgment of this Court in State of Andhra Pradesh and Ors. vs. Mc Dowell and Co. reported in 1996 (3) SCC 709, wherein a bench of three Judges of this Court laid down:- "43........A law made by the Parliament or the Legislature can be struck down by Courts on two grounds and two grounds alone, viz., (1) lack of legislative competence and (2) violation of any of the fundamental rights guaranteed in Part-III of the constitution or of any other constitutional provision. There is no third ground. We do not wish to enter into a discussion of the concepts of procedural unreasonableness and substantive unreasonableness concepts inspired by the decisions of United States Supreme C....
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....for respondent No. 3 in SLP No. 14956/2003. Respondent No. 3 is one Shashidharan, a resident of a village in Distt. Thrissur. He is objecting to a bar hotel being set up in his village, and his submission was that he should be heard in case a licence is to be given to set up a hotel in that village. He supported the policy of the State Government and the submission of Mr. Giri and Mr. Bali. Reply on behalf of the respondents:- 25. The learned senior counsel appearing for the respondents submitted that as can be seen from paragraph 5 of the impugned judgment, the High Court has considered the relevant observations of this Court in Khoday Distilleries (supra), wherein this Court has held that although there is no right to carry on liquor business as a Fundamental right, wherever it is permitted by the state, there should not be any room for discrimination. It was submitted that this observation is supported by paragraph 60(g) of the very judgment which reads as follows:- "(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 canno....
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....nt of revenue, it is not reducing the number of depots and shops which are set up by itself. Reliance was placed in this behalf on the judgment in the case of Rashbihari Panda vs. State of Orissa reported in 1969 (1) SCC 414. This case involved the creation of a monopoly, with respect to Kendu leaves, by the Government, in favour of those licensees who had worked satisfactorily in the previous year and had paid the amounts due from them regularly, to continue their licences with the added provision that the agents with whom they had been working in 1967 will also work during 1968. This was challenged on the ground that the Government, by offering to enter into agreements for advance purchases of Kendu leaves by private offers, in preference to open competition, was favoring existing licensees, and this was hit by Article 14 of the Constitution. This Court accepted the contention and directed that the tenders for purchase of Kendu Leaves be invited by the Government, in the next season, from all persons interested in the trade. The Respondents relied on certain observations made by this Court, with respect to the creation of a monopoly that favours private individuals, in the cloak ....
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....ce) Act, 1971. This report contained the results of the audit on the working of the State Excise Department for the year 2006-07 to 2010-11, and it was submitted to the Governor of Kerala under Article 151(2) of the Constitution of India. In paragraph 5.3.1.1, the report deals with the issue as to whether the FL3 licences were issued and renewed to non- standard hotels/restaurants. The report was relied upon to point out that many hotels which were not meeting the standards were permitted and regularized, initially upto 30.6.1992. Thereafter, the regularization was extended till 31.3.2007, and on the next day (that is on 1.4.2007) all existing licences were regularized. Subsequently, on 1.4.2010 all FL3 licences functional during 2009-2010 were regularized. The report points that the licences were issued to hotels, with poor hygiene standards, which did not abide by the working hours prescribed for hotels, and which sold liquor even on dry days. The report also pointed out that in January 2011 the Excise Commissioner of the State had sent a letter to the Government of Kerela, highlighting the poor standards maintained by 418 unclassified bars, and requested it not to grant fresh FL....
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....situation that exists in the State. 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 (supra) 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. 33. There are two amendments which are under challenge. We will have to deal with these two amendments in the light of the factual scenario and the law governing the same. As far as the deletion of three star hotels is concerned, we do have a judgment of this Court in the case of B. Six Holiday Resorts (supra), wherein, the previous deletion of two star hotels from the eligibility of FL-3 licences was upheld by this Court. It has been submitted by the respondents that the plea under Article 14 was not specifically canvassed when the matter was considered and decided. In this behalf we have already referred to paragraphs 30 and 31 of this judgment. In paragraph 30 this Court has held that promotion of tourism should be balanced with general public interest. Paragraph 31 permits a periodical reassessmen....
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.... introducing the distance rule is concerned, we cannot ignore the hard realities which are recorded in the report of the Comptroller and Auditor General who is a constitutional functionary, and who has made the report on receiving the necessary information from the State Government. This above referred para 5.3.1.1 of this report speaks for itself and reads as follows:- "5.3.1.1 Were FL3 licenses issued and renewed to non-standard hotels/restaurants? The minimum standard eligible for obtaining an FL3 licence was 2-star standards from April 1982 and 3-star and above from April 2002. We noticed that licenses were issued and renewed to 418 bar hotels, ie. 61 per cent of the total bar hotels in the state even though they were not eligible for the FL3 licenses as per the Rules. We noticed that the Government first allowed time up to 30 June 1992 for those licensees who had not attained the prescribed two star standards to attain the prescribed standard and subsequently extended the period. During the review period, we noticed that the Excise Commissioner submitted his proposals for the Abkari policy for the year 2007-08 vide letter dated 11 January 2007 which did not inc....
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....unclassified hotels. He also pointed out that he had personally seen that almost all the customers went there to drink liquor and not for taking food. We noticed that even though the Excise Commissioner had requested not to issue fresh FL3 licenses, seven more FL3 licenses were issued between 12 January and 31 March 2011. Moreover in the Abkari Policy for 2010-11, the Government declared that the FL3 licensees not having the requisite star qualification and who were functional during 2009-10 should be regularised. Thus, the Government has made it a regular feature to regularise ineligible licensees. We are of the opinion that the Government has not taken a firm stand to ensure that only hotels of a minimum standard are issued FL3 licenses. Further, we opine that the Government has seriously compromised public safety by (a) regularising 418 unclassified bars, though they were not able to attain the minimum standards despite repeated extension of time and (b) by turning a blind eye towards the various complaints against these unclassified bars. On this being pointed out in audit the Department stated (June 2011) that the Government is the competent authority to issue orders allowi....
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....idays, but that was applicable only to hotels, restaurants and other institutions, and was not applicable to the institutions run by the Government. The Court held this to be prima-facie discriminatory. In the words of Krishna Iyer,J who wrote the judgment for a bench of three Judges "It suggests a dubious dealing by State Power". The Learned Judge observed that "such hollow homage to Article 47 and the Father of the Nation gives diminishing credibility mileage in a democratic polity". Thankfully, the Additional Solicitor General made a statement to the Court which is recorded in paragraph 42 of that judgment that the Government readily agreed that the ban would be observed by the State Government also. Paragraph 42 of the said judgment reads as follows:- "42. We must here record an undertaking by the Punjab Government and eliminate a possible confusion. The amended rule partially prohibits liquor sales in the sense that on Tuesdays and Fridays no hotel, restaurant or other institution covered by it shall trade in liquor. But this prohibition is made non-applicable to like institutions run by the Government or its agencies. We, prima facie, felt that this was discriminatory on i....