TaxTMI 
TaxTMI 
2017 (3) TMI 154
X X X X Extracts X X X X
X X X X Extracts X X X X
....Single Judge in W.P.No.19788/2015 and W.P.No.45068/2016, whereby the learned Single Judge for the reasons recorded in the order has quashed and set aside the notification dated 09.06.2014 inserting Clause 7-D in Rule 3 of the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968 and the amendment made in Rule 8 providing for annual fees for such licences for the persons belonging to Scheduled Caste/Scheduled Tribe. 3. The short facts of the case appear to be that in the State of Karnataka, there is Karnataka Excise Act, 1965 (hereinafter referred to as 'the Act' for the sake of convenience) which came into force on 30th September 1967. The object of the Act inter alia provides that the same is enacted with a view to provide a uniform Excise law in the State for the production, manufacture, possession, import, export, transport, purchase and sale of liquor and intoxicating drugs and to levy duties of excise thereon in the State of Karnataka. 4. Section 15 of the Act provides for prohibition of the excisable item without licence. Chapter-VI interalia provides for the Licences and Permits and it also provides for form and conditions of the licences etc. 5. Section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e following shall be inserted, namely:- "(7-D). Hotel and Boarding House Licenses owned by the person belonging to Scheduled Castes and Scheduled Tribes - (a)a license under this clause shall be applied for and obtained in Form CL-7D from the Deputy Commissioner. (b) No liquor under this license shall be sold to persons other than those accommodated in the licensed hotel and boarding houses and their guests and casual visitors who take meals in such places. Provided that no license under this clause shall be granted unless the hotel and boarding house is having a minimum of fifteen double rooms in Corporation areas and ten double rooms in other area." 3. Amendment of rule 3A. - In rule 3A of the said rules, after the letter and figure "CL-7" the letter and figure "CL-7D" shall be inserted. 4. Amendment of rule 8. - In rule 8 of the said rules, in sub-rule(1) after serial number (7-C), the following shall be inserted, namely:- "(7-D) Hotel and Boarding House Licenses owned by the person belonging to Scheduled Castes and Scheduled Tribes specified in clause 7D of rule 3, in the case of,- (a) City Municipal Corporation areas having....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of transactions and submit the return every month to the Excise Officer concerned, within the first week of the following month. 5. The license may be suspended or cancelled in accordance with the provisions of Section 29 of the Act and licensee or his employee shall be liable for prosecution for breach of any of the conditions of the license, under the provisions of the Act or the rules and orders there under. 6. The license shall continue in force till the ..... 7. The sale of liquor is restricted to the residents for their own use and that of their guests requiring liquor with the meals supplied to them. 8. The opening and closing hours shall be form 9.00 A.M. to 12 midnight. Office of the Deputy Commissioner Deputy Commissioner ............ District. .............. District." By order and in the name of Governor of Karnataka Sd/- Under Secretary to Government (In-charge) Finance Department (Excise) As per the above rules, special provision is made for grant of licences to Hotel and Boarding houses owned by the person belonging to Scheduled Caste and Scheduled Tribes (hereinafter referred to as 'the persons belonging to Reserved Category' f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce, the learned Advocates shall be referred to as 'for the appellants' whereas the learned Advocate appearing for the main contesting party- original petitioner shall be referred to as 'for the original petitioner'). 12. The learned counsel for the appellants submitted that, it is by bringing about the amendment in the rules, the State has given special relaxation to the persons belonging to the reserved class. The contention on behalf of the appellants was that, as per the provisions of Article 15(4), the State can make special provision for the advancement of any reserved class of the Society. It was also submitted that if as per Article 15(5) of the Constitution, special provision can also be made when it is a subject relating to Article 19(1)(g) of the Constitution. 13. Learned Additional Advocate General contended that, the rationale behind provisions is that, as per Sub-rule (7) for the licensees of Hotel and Boarding House, the requirement was that such Hotel or Boarding house should have minimum 30 double rooms in the Corporation area and 20 double rooms in other area. The State had found that very negligible percentage of the persons belonging to reserved class were....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ging to the person concerned but, such premises should have minimum 30 double rooms in the Corporation area and 20 double rooms in the other areas. As per the provisions of Sub-rule (7) for CL-7 Licence it was not required to have the ownership of Hotel or Boarding House and one can apply even if such Hotel or boarding house having minimum 30 double rooms or 20 double rooms as the case may be is acquired on rental basis or otherwise it would suffice. Whereas, under the amended Rule, requirement is to put up construction for the Hotel or boarding owned by the person belonging to reserved class. He submitted that, if the rationale or the object was to grant relaxation, it is no relaxation but rather more stringent condition is put up which would attract more financial investment in comparison to the requirement as it existed by virtue of Sub-rule (7). He submitted that a judicial notice can also be taken if one is to own hotel or Boarding house having minimum 20 or 10 double rooms it would require more investment in comparison to a hotel or boarding house having minimum 30 double rooms or 20 double rooms obtained or taken on rental basis or having possession other than the ownership.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate to refer to certain case laws. 17. The Apex Court in case of State of Maharashtra and Another vs. Indian Hotel and Restaurants Association and others reported at 2013(8) SCC 519 for testing a legislation as to whether it is arbitrary or not under Article 14 read with Article 19(1)(g) of the Constitution has observed at paragraphs 106 and 107 as under: Is the impugned legislation ultra vires Article 14? 106. Before we embark upon the exercise to determine as to whether the impugned Amendment Act is ultra vires Article 14 and 19(1)(g), it would be apposite to notice the well established principles for testing any legislation before it can be declared as ultra vires. It is not necessary for us to make a complete survey of the judgments in which the various tests have been formulated and reaffirmed. We may, however, make a reference to the judgment of this Court in Budhan Choudhry Vs. State of Bihar, wherein a Constitution Bench of seven Judges of this Court explained the true meaning and scope of Article 14 as follows : (AIR p. 193, para 5) "5.... It is now well established that while article 14 forbids class legislation, it does not forbid reasonable classification fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the court on which the classification may be reasonably be regarded as based, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile or discriminating legislation." (emphasis supplied) These principles were reiterated by this Court in Shashikant Laxman Kale. The relevant observations have already been noticed in the earlier part of the judgment. (Emphasis Supplied) The aforesaid shows that the classification must be founded on a intelligible differentia and that it must have rationale nexus to the object to be achieved. What is required is that, there must be a nexus between the basis of the classification and the object sought to be achieved so as to meet the test of Article 14 of the Constitution. Otherwise, Article 14 condemns the discrimination not only the substantive law but also procedural law. Further, as per the above referred observation made by the Apex Court if the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to test the legislation or any subordinate legislation with the anvil of Article 14 read with Article 19(1)(g) of the Constitution, we need not burden the present order with the earlier case law since the aforesaid decision takes in its sweep parameters for testing any legislation whether ultravires to Article 14 or 19(1)(g) of the Constitution or not. 19. At this stage, we may also refer to the decision of the Apex Court in case of Khoday Distilleries Ltd. and Others Vs. State of Karnataka and Others reported at 1995 (1) SCC page 574, wherein the Apex Court summarized the law at paragraph-60 of the said decision for the interpretation of the provisions of Article 19 read with Article 47 of the Constitution, which reads as under: 60. We may now summarise the law on the subject as culled from the aforesaid decisions. (e) For the same reason, the State can create a monopoly either in itself or in the agency created by it for the manufacture, possession, sale and distribution of the liquor as a beverage and also sell the licences to the 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, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion between citizens who are qualified to carry on trade or business. The State can also adopt mode of selling licences for trade or business with a view to maximize its revenue so long as the method adopted is not discriminatory. What needs to be emphasized is that once the State has prescribed the limitation for business of a potable liquor, the State cannot discriminate between citizens who are qualified to carry on trade or business. The State may decide to retain certain business and may also decide to issue licences to the citizens, but once the conditions and the limitations are prescribed, it needs to be common either by condition prescribed or by limitations or by qualification for all the citizens. 21. We may also usefully refer to another decision of the Apex Court in case of Aashirwad Films Vs. Union of India and Others reported at (2007) 6 SCC 624, wherein the question arose before the Apex Court to consider as to whether the State can discriminate in the matter of taxation statute, wherein the Apex Court at paragraphs-24 and 25 has observed thus: "24. This Court in this case is not concerned with the application of test of reasonableness while considering the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and suggest upon which it can levy tax, it is trite that taxing legislations are not immune from attack based on Article 14. It is also not the case of the respondent State that in imposing different rate of tax, they intend to achieve an avowed object envisaged under Part IV of the Constitution of India." (Emphasis Supplied) The aforesaid shows that though the State has power to make a class legislation, it has to meet with the test of Article 14 of the Constitution. The class legislation which makes an improper discrimination by confirming a particular privilege upon a class of persons arbitrarily selected from the large number of persons, all of whom stand in the same position may not meet with the test of Article 14. The classification must not be arbitrary, artificial, or evasive and there must be a reasonable, natural and substantial distinction in the nature of class or classes upon which the law operates. The Apex Court also found that mere classification on the basis of the language or a film without anything more or in particular having regard to the difference in the rate of tax is ex facie arbitrary. The Apex Court had taken note that the burden was therefore upon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion. 24. In case of State of Kerala and Others Vs. Unni and Another reported at 2007 (2) SCC page 365, and more particularly, the observations made by the Apex Court from paragraphs 30 to 36 shows that the principles on which the Constitutionality of a statute is to be judged and that of the subordinate legislations are different. While imposing conditions in regard to the prescribed normal norms, the State is expected to undertake a deeper study in the matter and it should also have undertaken the annual experiments. The subordinate legislation can be questioned on various grounds and it is well known that the subordinate legislation would not enjoy the same degree of immunity as the legislative Act would. Unreasonableness can be one of the ground of judicial review of a delegated legislation. The reasonableness of a statute or otherwise must be judged having regard to the various factors which would include the effect thereof on a person carrying on a business. When a statute provides for a condition which is impossible to be performed, the unreasonableness of the statute shall be presumed, of course, it would be for the State to justify the reasonableness thereof. But at the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quor and intoxicating drugs and the levy duties of excise thereon. Even if the contention of the learned Addl. Advocate General is considered that since there were different Acts prevailing in the State of Karnataka, the word "uniform law" found in the object, is to provide uniform law in the whole area of Karnataka, then also one cannot come out of the mandate of the Constitution as provided under Article 15 that the law has to give the same treatment and therefore one can say that the uniform law has been provided. In any case, the law itself would fall in the category of law made by the State legislature under Article 19(1)(g) of the Constitution for general public interest in the production, manufacture, possession, import, export, purchase and sale of liquor and intoxicated drugs. 27. As in the present appeals, the issue is concerning the sale of excisable articles, the other aspect for production, manufacturing etc., need not be discussed. But Section 15 of the Act provides for prohibition of sale of any intoxicant except under the authority and subject to the terms and conditions of licence granted in that behalf. 28. Section 71(e) of the Karnataka Excise Act, 1965, wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is clause shall be applied for and obtained in Form CL-7 from the Deputy Commissioner. (b) No liquor under this licence shall be sold to persons other than those accommodated in the licenced hotel and boarding houses and their guests and casual visitors who take meals in such places.] [Provided that no licence under this clause shall be granted unless the hotel and boarding house is having a minimum of thirty double rooms in corporation areas and twenty double rooms in other areas: Provided further that the licences granted under this clause for the excise year 2001-2002 shall be allowed to renew the licences under the rule existing prior to the commencement of the Karnataka Excise (Sale of Indian and Foreign Liquors) (First Amendment) Rules, 2002:] [Provided further more that in respect of Hotels and Boarding Houses leased by the Karnataka State Tourism Development Corporation to private persons, firm or companies on renovate, operate, maintain and transfer (ROMT) basis, while granting or renewing the licenses under this clause, the Excise Commissioner may relax the condition regarding the minimum requirement of thirty double rooms in Corporation areas and twenty doubl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e cannot be different standard restriction if one is of a general category or one is of a reserved class. Therefore when one talks of restriction provided under Article 19(6) of the Constitution and the rights of the citizen under Article 19(1)(g) of the Constitution, it would not be open to the State to relax the restriction or qualification provided for enabling the citizen to do a particular business or trade. Of course, the aforesaid is with the clarification that it is open to the State to provide that a particular percentage of the business or sale of liquor of a hotel or boarding house may be retained by the State itself or the State may provide for a quota of a licence of hotel and boarding house for a particular class of a citizen may be reserved class. By the impugned amendment, the State has not provided for retaining of the business of sale of liquor in hotel and boarding house or the State has not provided for a particular percentage licence or a particular percentage of business for itself or for a reserved class. But the State for the same type of business has relaxed the restriction which otherwise has to meet with the test of Article 19(6) of the Constitution. It i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er capacity which can be possessed on lease or leave and licence basis. Therefore, if the object is to make relaxation so as to uplift the reserved class, such relaxation by the impugned amendment leads to the requirement of more investment in contra-distinction to the existing provisions of Sub-Rule (7). Resultantly it can be said that there is no relaxation in the economic requirement but rather it is more stringent upon the persons belonging to reserved class. If the condition imposed by the subordinate legislation is more stringent from the economic point of view of requirement of investment, we are unable to gather as to how such can be termed as relaxation or as to how such relaxation would achieve the object for the upliftment of the reserved class for which a class legislation is sought to be made. On the contrary, such class legislation even if it is considered for the person belonging to reserved class since there is requirement of ownership in the impugned legislation, it would not at all achieve the object provided under Article 15(4) of the Constitution but it would act in a reverse manner. 35. Apart from the above, if the contention of the State is to provide more ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te. It has not even considered that if the requirement of ownership is provided, the resultant effect would be more stringent and that too of a person belonging to reserved class having higher financial capacity of investment of hotel and boarding house having atleast fifteen double rooms in the Corporation area and ten double rooms in the other area. 37. In our considered view, the State has failed to discharge the burden of demonstrating that such classification or a differential treatment is with a view to achieve the object of providing more opportunity to the reserved class. Under the circumstances a class legislation sought to be inserted by Sub-Rule (7-D) in the Rules, even if considered for the sake of examination that the State has power under Article 15(4) of the Constitution, it would not meet the test of Article 14 of the Constitution, not being arbitrary and it has no nexus to the object sought to be achieved and hence the same has to be termed as unconstitutional and void. 38. The learned Counsel appearing for the appellants did contend that so far as the original petitioner is concerned he is holding CL-9 licence and therefore he cannot be said to be affected b....