TaxTMI 
TaxTMI 
2016 (1) TMI 464
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.... C.A. NO. 6269/2015, C.A. NO. 5790/2015, C.A. NO. 4118/2015, C.A. NO. 6273-6274/2015 and C.A. NO. 6324/2015] JUDGMENT Vikramajit Sen, J. 1. These Appeals call into question the legal correctness of the Judgment of the Division Bench of the High Court of Kerala dated 31.3.2015 by which several Writ Appeals filed by some of the Writ Petitioners assailing the Judgment of the learned Single Judge came to be dismissed and the Writ Appeals filed by the State came to be allowed. The writ petitioners, which include hotels which have been classified as Two Star, Three Star, Four Star and Heritage hotels, challenged the Abkari Policy for the year 2014-15 as well as the amendments to the Foreign Liquor Rules. While dismissing the writ petitions, the learned Single Judge carved out an exception vis-a-vis the eligibility of Four Star and Heritage category hotels to the grant of FL-3 licence, finding their exclusion to be arbitrary and violative of Article 14 of the Constitution. This holding resulted in the filing of appeals on behalf of the State. The impugned Judgment has reversed this conclusion of the learned Single Judge and consequently only Five Star hotels in the State of Keral....
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....g grant of FL-3 licences to hotels possessing Three Star and above ratings; existing Two Star hotels possessing FL-3 licences were however renewed on the understanding that this was their bounden right. This policy was taken to the courts and was eventually settled by the decision of this Court in State of Kerala v. B.Six Hotels Resort Private Ltd. 2010 (5) SCC 186 which had upheld that policy. Obviously encouraged by this success, the State of Kerala in 2011 introduced further amendments to Rule 13(3) whereby only hotels with Four Star and above classifications were eligible for fresh FL-3 licenses. Again, on the predication that existing FL-3 licence holders were legally entitled to their renewal, this exception was recognised in the Rules. "Distance criteria" was raised and rejected and we are now no longer concerned therewith. In State of Kerala v. Surendra Das 2014 (3) SCALE 421; AIR 2014 SC 2762, this Court upheld the policy challenged by several writ petitioners insofar as it declined issuance of fresh FL-3 to Three Star hotels; the "distance criteria" was struck down. In the duration of this litigation the State Government had also made it known that it intended to extend t....
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.... order to protect the retrenched employees. The said fund will be utilized for the following purposes such as making propaganda against drinking of alcohol, for collection of data regarding this matter, to protect those who destroyed themselves by alcohol consumption, rehabilitation of the persons who lost job. The fund for this purpose will also be found out from public. 9. To implement the order urgently, the Excise Commissioner, K.S.B.C. Managing Director have to take measures to submit the recommendations urgently to the Government. By order of Governor A. Ajithkumar Secretary 5. The first paragraph of sub-rule (3) of Rule 13 was substituted by way of G.O.(P) No. 141/2014 and now reads as follows: "(3) Foreign Liquor 3 Hotel (Restaurant) license. - License in this form may be issued by the Excise Commissioner under orders of Government, in the interest of promotion of tourism in the State, to hotels which have obtained Five Star, Five Star Deluxe classifications from the Ministry of Tourism, Government of India, where the privilege of sale of foreign liquor in such hotels has been purchased on payment of an annual rental of 23,00,000 (Rupees Twenty....
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....already a mentioned two of these - B.Six Hotels and Surendra Das to which we will revert later. The Constitution Bench decision in Krishan Kumar Narula v. State of Jammu and Kashmir AIR 1967 SC 1368 concerned the challenge to the refusal to renew licences for the year 1966-67 in respect of the liquor shop of that petitioner. This Court observed that "dealing in liquor is business and a citizen has a right to do business in that commodity, but the State can make a law imposing reasonable restrictions on the said right, in public interest". 8. This very conundrum once again received the attention of the Constitution Bench in Khoday Distilleries Ltd. v. State of Karnatka 1995 (1) SCC 574, where the constitutional provisions pertinent to transacting business in liquor were considered in minute detail, along with decisions which had already been rendered by this Court. The paragraph extracted below contains a precis and commends reading: "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. Th....
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....citizens for the said purpose by charging fees. This can 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 vie....
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....) The principle underlying the guarantee of Article 14 is not that the same rules of law should be applicable to all persons within the Indian territory or that the same remedies should be made available to them irrespective of differences of circumstances. It only means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal laws would have to be applied to all in the same situation, and there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is substantially the same. (5) By the process of classification, the State has the power of determining who should be regarded as a class for purposes of legislation and in relation to a law enacted on a particular subject. This power, no doubt, in some degree is likely to produce some inequality; but if a law deals with the liberties of a number of well defined classes, it is not open to the charge of denial of equal protection on the ground that it has no application to other persons. Classification thus means segregation in classes which have a systematic relation, usually found in common ....
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....ending against the equal protection clause. On the other hand, if the statute itself does not disclose a definite policy or objective a nd it confers authority on another to make selection at its pleasure, the statute would be held on the face of it to be discriminatory, irrespective of the way in which it is applied. (10) Whether a law conferring discretionary powers on an administrative authority is constitutionally valid or not should not be determined on the assumption that such authority will act in an arbitrary manner in exercising the discretion committed to it. Abuse of power given by law does occur; but the validity of the law cannot be contested because of such an apprehension. Discretionary power is not necessarily a discriminatory power. (11) Classification necessarily implies the making of a distinction or discrimination between persons classified and those who are not members of that class. It is the essence of a classification that upon the class are cast duties and burdens different from those resting upon the general public. Indeed, the very idea of classification is that of inequality, so that it goes without saying that the mere fact of inequali....
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.... which restricted fresh licenses to hotels of Four Star and above classifications. The newly introduced 'Distance Rule' was also challenged. The Single Judge therein dismissed the writ petition, finding no vested right to get a license, no element of discrimination and no legitimate expectation. The Division Bench, however, found no distinction between existing Three Star hotels and new ones, and held that the decision to set up hotels should be left to hoteliers. It found both the amendments bad in law. This Court again reaffirmed that there is no fundamental right to trade in liquor. Since the deletion of Two Star hotels was upheld in B.Six Hotels, the deletion of Three Star hotels was upheld on the ground that it falls in the same genre. This Court dismissed the contention of the Writ Petitioner that the plea under Article 14 was not specifically considered in B.Six Hotels, inasmuch as B.Six Hotels allowed for a periodic assessment of government policy and for the promotion of tourism to be balanced with the general public interest. It has been pointed out by the Appellants herein that this Court went on to find that Two Star and Three Star hotels stand on a different footing th....
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....t to it cannot be attacked or invalidated on the ground of legitimate expectations. Regarding the challenge on the basis of Article 14, the Single Judge discussed the position of Two Star and Three Star hotels separately from Four Star and Heritage hotels. Regarding the former, it was held that their contention that the classification is discriminatory is no longer res integra in view of the dictum of this Court in B.Six Hotels and Surendra Das. So far as the Four Star hotels are concerned, the Single Judge noted that there are only 20 Five Star hotels in Kerala and only 33 hotels in the Four Star and Heritage categories. It was held that none of the material before the State Government proposed the exclusion of Four Star and Heritage hotels from the criterion of eligibility for bar licenses. While there is a presumption that the Government has full knowledge of the social aspects of the proposed controls, in the absence of any material on the record, this presumption cannot be pushed to the extent of presuming that the State could have possessed some undisclosed and unknown reason or material to justify its action. The One Man Commission and the Tax Secretary recommended the grant....
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....de the impugned policy, ergo it should be assumed that the Government duly deliberated on them. It was held that Four Star, Five Star and Heritage category hotels cannot be said to form a single class by themselves, as different yardsticks are provided for each of these categories. The Division Bench noted that the object of the policy is the reduction of consumption of alcoholic beverages in public places and the protection of the youth from the adverse consequences of consumption of alcohol. Additionally, it was an ongoing policy, so the declaration that FL-3 licenses were being restricted to only Five Star hotels could not have come as a surprise. It was found that the One Man Commission Report was considered by the Government, as evidenced by various terms in the policy, and it was not necessary for the Government to accept the recommendations in their entirety. The appeals filed by the Two Star, Three Star and unclassified hotels were therefore dismissed, and the appeals filed by the State were allowed. 14. In the interest of avoiding prolixity, we shall refrain from recording the arguments before us in unnecessary detail. Instead, we shall begin our analysis by laying out ....
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....allest percentage of sales is in Five Star hotels. 2010-2011 2011-2012 2012-2013 Category Value in Crores % Value in Crores % Value in Crores % 5 Star 2.25 0.04 9.18 0.13 6.32 0.08 4 Star 13.58 0.21 15.81 0.22 33.26 0.4 3 Star 448.71 7.09 539.12 7.35 644.19 7.76 2 Star 150.31 2.38 171.63 2.34 195.73 2.36 UN STARRED 854.8 13.5 955.39 13.0 3 1126.23 13.56 FL-1 SHOPS 4823 76.2 1 5612 76.5 3 6260 75.39 HERITAGE 4.93 0.08 8.04 0.11 12.34 0.15 CLASSIFIE D 29.89 0.47 19.77 0.27 24.55 0.29 TOTAL 6328.7 5 100 7332.1 3 100 8303.6 5 100 16. In its attempt to reduce the consumption of alcohol in Kerala, the Government has decided to curb public drinking. This is enshrined in Section 15C of the Abkari Act, which is laid out below....
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....ntial treatment between them. Reliance has been placed on the decision on the Nine-judge bench in In Re: The Special Courts Bill, 1978 which held that "all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal laws would have to be applied to all in the same situation, and there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is substantially the same." We have already discussed this landmark exposition of Constitutional law above. It has also been argued that since the object of the policy pertains to the situs of drinking, the State can distinguish between public and private places, but not between public places. Furthermore, the Explanation to Section 15C of the Abkari Act, in its clarification of what constitutes a public place, makes a class of all the public places listed therein. Hotels are thus included in the category of public places. In making an exception for only Five Star hotels, the Government is engaging in sub-sub-classification, which amounts to hostile discrimination. Additionally, the class created under Section 15C was creat....
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....State, before this Court in Surendra Das, submitted that renewal is a matter of right, and it was held in B.Six Hotels that license holders have a vested right. Finally, it has been argued that the burden of proof is on the person seeking to deviate from equality, i.e. the Respondent State, since a prima facie case of discrimination is made out. 20. The Respondent, on the other hand, has contended that the classification has been based on a reasonable differentia. In both B.Six Hotels and Surendra Das, classification based on Star gradation has been accepted by this Court. This classification was not created by the Respondent State, but is a clear classification process with specifically laid out requirements. In response to the arguments of the Appellants, it was contended that in Surendra Das, the differentia or absence of it in the case of Four Star and Five Star hotels was not in issue and therefore this issue is at large. In fact, in the course of submissions in Surendra Das, the Respondent had made bold that it intended to prohibit the grant of FL-3 licenses even to Four Star hotels. According to Khoday, the State cannot discriminate between people who are qualified to car....
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....d have been for a legitimate trade. Finally, it was submitted that constitutionality is presumed, so the burden of proof is on the person alleging that their rights under Article 14 have been violated. 23. The next ground for challenge has been under Article 19. Learned Senior Counsel for the Appellants, Mr. Aryaman Sundaram, has sought to argue that a right under Article 19(1)(g) exists in the business of liquor. In his detailed elucidation of the decision in Khoday, he has contended that the State is given three options. The first is prohibition, the second is a State monopoly in manufacture or trade or both in potable liquor, and the third, which is similar to the case at hand, is that the State allows private individuals into this business, in which event everyone would have a right to partake in it. Reliance was placed on the following paragraphs of Khoday: 55. The contention that if a citizen has no fundamental right to carry on trade or business in potable liquor, the State is also injuncted from carrying on such trade, particularly in view of the provisions of Article 47, though apparently attractive, is fallacious. The State's power to regulate and to restrict ....
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....he reasonable restrictions allowed by Article 19(6). It has been contended that the restrictions imposed herein are not reasonable, for various reasons, including that the relevant material has not been considered so the restriction was arbitrary and unreasoned. The Division Bench, while overturning the finding of the Single Judge that the relevant materials were not considered, held that "we cannot assume that the Government did not consider the report at all." The Appellants contend that an assumption that the materials were considered merely because nothing on the record definitively says that they were not is erroneous. 24. We disagree with the submissions of the Respondents that there is no right to trade in liquor because it is res extra commercium. The interpretation of Khoday put forward by Mr. Sundaram is, in our opinion, more acceptable. A right under Article 19(1)(g) to trade in liquor does exist provided the State permits any person to undertake this business. It is further qualified by Article 19(6) and Article 47. The question, then, is whether the restrictions imposed on the Appellants are reasonable. 25. We have had the privilege and indeed the pleasure hearin....
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....has been made before us, as has been done several times before in this Court, to assail and attack the impugned State policy on the anvil of Article 14 of the Constitution. To meet the tests of this Article, i.e. the right to equality, there has to be intelligible differentia in the classification or the categorisation that has been carved out either by the Legislation or by the State policy has to be discernable. So far as the State of Kerala is concerned, steady progression in this regard is perceptible inasmuch as it had started by placing a ban on the consumption of alcohol firstly on un-starred hotels, followed by Two Star hotels, which received the unqualified imprimatur of this Court in B.Six Hotels. Encouraged and emboldened by this decision, the Government thereafter placed a ban on Three Stars hotels, which was again assailed in Court on the predication that a ban exempting Four Star, Five Star and Heritage hotels created a hostile and unfair discrimination. There was another element in this litigation, namely that those who had received licences were found to possess vested rights towards their renewal. There was also a challenge to the distance criteria prescribed by th....
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....nking. There is also little scope for cavil that the guests in Five Star hotels are of a mature age; they do not visit these hotels with the sole purpose of consuming alcohol. Learned Senior Counsel for the State Mr. Sibal has taken us at great length through the One Man Commission Report to establish that the State duly considered the recommendations therein and incorporated a number of them. It is trite that since the obligation on the State was to consider the Report, not to incorporate it in its entirety, no legal requirement has been transgressed. We agree with these submissions. The policy cannot, therefore, be written off as arbitrary or procedurally unsound. 27. We now move to the arguments predicated on Article 19 of the Constitution. We have already noted that the business in potable liquor is in the nature of res extra commercium and would therefore be subject to more stringent restrictions than any other trade or business. Thus while the ground of Article 19(1)(g) can be raised, in light of the arguments discussed with regard to Article 14, it cannot be said that the qualification on that right is unreasonable. 28. We have already expressed our view that it is not....
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....lcohol. We must accept that that the possibility exists that rooms may be rented in Three and Four Star hotels, where alcohol can be brought from FL-1 shops and then consumed. However, this does not constitute public consumption, and therefore is not fatal to the besieged State's policy. We must not lose sight of the fact that the challenge to this policy in respect of Three Star hotels and below has been repulsed by this Court and we see no reason to depart from the path traversed by this Court in B.Six Hotels and thereafter in Surendra Das. 30. There has been abundance of litigation on the question of the Courts' interference in State policy. Judicial review is justified only if the policy is arbitrary, unfair or violative of fundamental rights. Courts must be loathe to venture into an evaluation of State policy. It must be given a reasonable time to pan out. If a policy proves to be unwise, oppressive or mindless, the electorate has been quick to make the Government aware of its folly. As was recently held by a Three-judge bench of this Court in Census Commissioner v. R. Krishnamurthy (2015) 2 SCC 796: From the aforesaid pronouncement of law, it is clear as noon day ....