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PETITIONER: M/S. KHODAY DISTILLERIES LTD. ETC.

       Vs.

RESPONDENT: STATE OF KARNATAKA & ORS.

DATE OF JUDGMENT15/12/1995

BENCH: MANOHAR SUJATA V. (J) BENCH: MANOHAR SUJATA V. (J) VERMA, JAGDISH SARAN (J) RAMASWAMY, K.

CITATION:  1996 AIR  911            JT 1995 (9)   449  1995 SCALE  (7)262

ACT:

HEADNOTE:

JUDGMENT: (With C.A. Nos. 4718-4727/89, W.P. (C) Nos. 666/90, 667/90, 693/90, 694/90, 910/90, 707/90, SLP(C) Nos. 13817-13828/93)                       J U D G M E N T Mrs. Sujata V. Manohar, J. C.A. Nos. 4708-12, 4718-4727 of 1989      The Karnataka Excise Act, 1965 provides for the levy of duties on  the manufacture,  transport, purchase  and  sale, import and  export of liquor and intoxicants. In exercise of the rule  making power  conferred on  the  State  under  the Karnataka Excise Act, 1965 various Rules have been framed by the State  of Karnataka.  We are  concerned in these matters with the  Karnataka  Excise  (Sale  of  Indian  and  Foreign Liquors) Rules,  1968, the Karnataka Excise (Brewery) Rules, 1967, the Karnataka Excise (Distillery and Warehouse) Rules, 1967, and  the Karnataka  Excise (Manufacture  of Wine  from Grapes) Rules, 1968 as amended on 13-9-1989 by Notifications issued by the State of Karnataka.      By reason of the amendments carried out in these Rules, a distributor licence is prescribed for the first time under Rule 3(11)  of the  amended Karnataka Excise (Sale of Indian and  Foreign  Liquors)  Rules,  1968.  Under  Rule  3(11)  a distributor  licence   shall  be   granted  by   the  Excise Commissioner for  the whole of the State or any part thereof to deal  in the  products of  all distilleries, breweries or wineries in  the State  or to import liquor from outside the State for  the purpose  of distribution  or sale  within the State or any part of it, as may be specified in the licence. The licensee  is required  to establish  not less  than  one depot in  each district within the State or within that part of the  State where  it proposes  to distribute or sell such liquor. What  is more  important for  our purpose,  the rule provides that  a distributor licence shall be issued only to such company  owned or controlled by the State Government as the State  Government may specify. The other rules mentioned

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above have also been correspondingly amended to provide that the licensees  under those  Rules shall sell the liquor only to a  holder of  a distributor  licence under  the Karnataka Excise (Sale  of Indian  and Foreign  Liquors) Rules,  1968, subject to  certain exceptions  specified in  each of  these Rules. In  other words,  as a  result of these amendments, a licensee  either  for  manufacture  or  sale  of  liquor  is prohibited from  selling liquor  to anyone  other  than  the holder of  a distributor  licence. And  the holder of such a licence can  only be  a company  owned or  controlled by the State Government, specified under the Karnataka Excise (Sale of Indian  and  Foreign  Liquors)  Rules,  1968.  The  State Government has  specified Mysore  Sales  International  Ltd. (hereinafter  referred   to  as  ‘MSIL’)  as  a  company  so specified and has granted it the distributor licence.      The  appellants   challenged  the   validity  of  these amendments on various grounds. The challenge was repelled by the Karnataka  High court.  Hence the  present  appeals  and other  matters   have  come  before  us.  One  of  the  main contentions raised by the appellants was : By compelling the appellants to  sell liquor to MSIL and prohibiting them from selling liquor  to anyone  else, the  State  Government  had violated their  fundamental right  under Article 19(1)(g) of the Constitution to carry on trade or business. They further contended that  the restrictions  placed by these amendments on their right to carry on trade were far from reasonable.      This issue  relating to  violation of  the  fundamental rights of  the appellants under Article 19(1)(g) has already been negatived  by this Court in the present cases in Khoday Distilleries Ltd.  & Ors. v. State of Karnataka & Ors. (1995 (1) SCC 574). It has been held (paragraph 60) that the right to carry  on any  occupation, trade  or  business  does  not extend to  carrying on trade or business in activities which are inherently pernicious or injurious to health, safety and welfare of  the general  public. This Court has further held that a  citizen has  no fundamental  right to  do  trade  or business  in   intoxicating  liquor.  Hence  such  trade  or business in  liquor can  be completely  prohibited. 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 liquor  as a beverage and it  can also  sell licences to citizens for this purpose by charging  fees. When  the State permits trade or business in potable  liquor with  or without  limitation, the citizen has the  right to carry on trade or business only subject to the limitations  so placed.  After thus  deciding the  above question, the  appeals, special  leave  petitions  and  writ petitions were  directed to  be placed before an appropriate Bench for  decision of  other  questions  arising  in  these matters.      Accordingly, these  matters have been placed before us. The appellants contend that the Rules as amended in 1989 are ultra  vires  because  they  go  beyond  the  scope  of  the delegated authority  given to  the State to formulate Rules. The appellants  have contended  that there is no legislative policy prescribed  by the Karnataka Excise Act of 1965 for a distributor  licence.   Hence  the   Rules   prescribing   a distributor licence  have travelled  beyond the scope of the main  Act   and  are  beyond  the  ambit  of  the  delegated authority.      In order  to evaluate  this contention, it is necessary to look at the scheme of the Karnataka Excise Act, 1965. The Preamble to  the Karnataka Excise Act, 1965 states, "Whereas it is expedient to provide for a uniform law relating to the production,   manufacture,   possession,   import,   export,

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transport, purchase  and sale  of  liquor  and  intoxicating drugs and  the levy of duties of excise thereon in the State of Karnataka",  the Karnataka  Excise Act  has been enacted. The Preamble  has a  clear reference  to Entry 8, List II of the Seventh  Schedule to the Constitution which empowers the States  to   legislate  in   connection  with  "intoxicating liquors,  that  is  to  say,  the  production,  manufacture, possession, transport,  purchase and  sale  of  intoxicating liquors." Chapter  IV of  the Act  deals  with  manufacture, possession and  sale of  intoxicating  liquors.  Section  13 which forms  a part  of Chapter  IV  prohibits  manufacture, possession or  sale of  the excisable  article  in  question except under a licence. It provides :      "13(1) : No person shall -      (a).......................      (b).......................      (c).......................      (d) construct  or work  a distillery  or      brewery; or      (e) bottle liquor for sale;      (f)..........................,    except      under the  authority and  subject to the      terms  and   conditions  of   a  licence      granted by  the Deputy  Commissioner  in      that behalf  or under  the provisions of      Section 18."      Section 15(1) provides that no intoxicant shall be sold except under  the authority  and subject  to the  terms  and conditions of  a licence  granted in that behalf. Both these sections, therefore,  provide for  issuing a licence for the manufacture, possession, purchase or sale of liquor. In fact such activity is prohibited without a licence. The terms and conditions of  the licence may be such as may be prescribed. Section 17  deals with  the power  to grant  a lease  of the right to  manufacture etc.  Sub-section (1)  of  Section  17 provides as follows :      "17(1) :  The State Government may lease      to any  person, on  such conditions  and      for such period as it may think fit, the      exclusive or other right -      (a) of  manufacturing  or  supplying  by      wholesale or of both or,      (b) of  selling  by  whole  sale  or  by      retail, or      (c) of  manufacturing  or  supplying  by      wholesale, or  of both and of selling by      retail,      any Indian  liquor or  intoxicating drug      within any specified area."      Section 71 provides as follows :      "71(1) :  The State  Government may,  by      notification    and    after    previous      publication, make Rules to carry out the      purposes of this Act.      (2) In  particular and without prejudice      to  the   generality  of  the  foregoing      provision, the State Government may make      Rules -      (a)...........      (b) omitted      (c)...........      (d)  regulating   the  import,   export,      transport,   manufacture,   cultivation,      collection,   possession,    supply   or      storage of any intoxicant............

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    (e)   regulating    the   periods    and      localities in  which, and the persons or      classes of persons to whom, licences for      the wholesale  or  retail  sale  of  any      intoxicant may be granted and regulating      the number of such licences which may be      granted in any local area ;      (f)...........      (g)...........      (h) prescribing  the authority by which,      the form  in which  and  the  terms  and      conditions on  and subject  to which any      licence or  permit shall be granted, and      may, be such Rules, among other matters,      -      (i) fix the period for which any licence      or permit shall continue in force;      (ii) to (vi)...................      (i) to (m).....................      (n)  any   other  matter   that  may  be      prescribed under this Act.      Sub-section (3)  of Section 71 provides that every rule made under  this Act shall have effect as if enacted in this Act subject  to such modifications as may be made under sub- section (4).  Sub-section (4) requires every rule to be laid as soon as may be before each House of the State Legislature for total  period of 30 days in the manner prescribed there. Section 71, therefore, clearly contemplates Rules being made prescribing different  kinds of  licences which may regulate the activity  of manufacture and sale of intoxicants and the terms and  conditions subject  to which such licences may be issued. It  also contemplates  regulation of  the number  of such licences.  The  Act  does  not  specify  the  kinds  of licences which  may be  issued. This  is left  to  the  rule making authority.  Thus  different  kinds  of  licences  are specified under  the Karnataka  Excise (sale  of Indian  and Foreign Liquors) Rules, 1968. Rule 3 of the Karnataka Excise (Sale of  Indian and Foreign Liquors) Rules, 1968 deals with licences for  the vend  of Indian liquor (other than Arrack) or Foreign  liquor or  both. It  deals with  licences of all types. Sub-rule  (1) deals  with wholesale licences for vend of Indian  liquor or  Foreign liquor  or both.  Sub-rule (2) deals with  retail of shop licence for vend of Indian liquor or Foreign  liquor or both. Sub-rule (4) deals with licences to clubs.  Sub-rule (5) deals with occasional licences. Sub- rule (5)  deals with occasional licences. Sub-rule (6) deals with special  licences. Sub-rule  (7) deals  with hotel  and boarding house  licences and  so on.  Sub-rule (11) which is introduced by the amendment deals with distributor licences. All  kinds   of  licences,  therefore,  which  regulate  the activity of manufacture, distribution and sale of liquor are covered by  Rule 3  of the  Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968. Is a  distributor licence  something different from or alien to the  licences contemplated  under the  Act and prescribed under the  above Rule  3? We  do not think so. A distributor licence is  basically no  different  from  the  licences  so prescribed. In  fact the  licences cover  the whole gamut of activities from manufacture to consumption of liquor. Clause (11) of  the amended Rule 3 of the Karnataka Excise (Sale of Indian and  Foreign Liquors)  Rules, 1968 which prescribes a distributor licence refers to it as a licence to deal in the products of all distilleries or breweries or wineries in the State, or  a licence to import liquor from outside the State for the purpose of distribution or sale within the State; or

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to export  liquor outside  the  State.  This  is  clearly  a licence to  deal in  liquor in the above manner. The licence shall be  in Form CL 11 and shall be subject to renewal each year at  the discretion of the Excise Commissioner. The Form CL 11  prescribes the  conditions of  a distributor licence. Conditions 2, 3 and 6 are :      "(2) The  licensee   may  purchase   the      liquor             only             from      distilleries/breweries/wineries  located      within Karnataka  or import from outside      the State.      (3)  The licensee  shall sell the liquor      only to  a person  who is  holding CL  1      licence in the State or export liquor to      a  person  outside  the  State,  who  is      holding  a  valid  licence  to  deal  in      liquor.      (6)  The licensee  shall sell  only  the      approved brands of liquor."      A distributor  licence, therefore, is only a licence to deal in liquor by sale and purchase of liquor. This activity is not  something different  from what is contemplated under the Act  itself or  in  respect  of  which  the  rule-making authority has  been delegated to the State under Section 71. The mere  fact that  a monopoly  of distributor  licence  is sought to  be created, does not take the licence outside the ambit of the Act. The Act itself provides that the number of licences can be regulated by the State. If the State chooses to regulate  licences by providing that the licence shall be granted only  to a  company owned by the State, it cannot be said that  such a  licence is something which is outside the purview of the Act or the rule-making authority of the State under the Act.      The appellants  also contend that the amended Rules are beyond  the   legislative  competence  of  the  State.  This argument must  be rejected.  The Act  is clearly  within the legislative competence  of the State Legislature. Nobody has challenged it. The amended Rules are within the scope of the delegated authority  under Section  71. If  the main  Act is within the  legislative competence  of the State Legislature and the  Rules have  been framed  under a  validly delegated authority and  are within  the scope  of that  authority, we fail to see how the Rules can be challenged on the ground of lack of  legislative competence. If the Act is valid, so are the Rules.      It is  next submitted  before us that the amended Rules are arbitrary,  unreasonable and  cause undue  hardship and, therefore, violate  Article 14 of the Constitution. Although the protection  of Article  19(1)(9) may not be available to the appellants,  the rules  must, undoubtedly,  satisfy  the test of  Article 14,  which is a guarantee against arbitrary action. However,  one must  bear in  mind that what is being challenged here under Article 14 is not executive action but delegated legislation.  The tests  of arbitrary action which apply to  executive actions  do  not  necessarily  apply  to delegated legislation.  In order  that delegated legislation can be  struck down,  such legislation  must  be  manifestly arbitrary; a  law which  could not be reasonably expected to emanate from  an authority  delegated  with  the  law-making power. In  the case  of Indian  Express Newspapers  (Bombay) Pvt. Ltd. & Ors. v. Union of Indian & Ors. (1985 (2) SCR 287 at p.243)  this Court  said  that  a  piece  of  subordinate legislation does not carry the same degree of immunity which is enjoyed by a statute passed by a competent legislature. A subordinate legislation  may be  questioned under Article 14

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on the  ground that it is unreasonable; "unreasonable not in the sense  of not being reasonable, but in the sense that it is manifestly  arbitrary". Drawing  a comparison between the law in England and in India, the Court further observed that in England  the Judges would say, "Parliament never intended the authority  to make such Rules; they are unreasonable and ultra vires".  In India,  arbitrariness is  not  a  separate ground since  it will  come within the embargo of Article 14 of the  Constitution. But subordinate legislation must be so arbitrary that it could not be said to be in conformity with the  statute   or  that   it  offends   Article  14  of  the Constitution.      In this  connection, we  would also  like to refer to a decision of this Court in the State of Madhya Pradesh & Ors. v. Nandlal  Jaiswal &  Ors. (1987  (1) SCR  1 at p.53). This Court has  held that though there is no fundamental right in a citizen  to carry  on trade or business in liquor; and the State under  its regulatory  power has the power to prohibit absolutely every form of activity in relation to intoxicants such as  its manufacture,  storage, export, import, sale and possession; nevertheless  when the  State decides  to  grant such right  or privilege  to others, the State cannot escape the rigor  of Article 14. The Court, however, observed, "But while considering  the applicability of Article 14 in such a case we  must bear  in mind that having regard to the nature of the  trade  or  business  the  Court  would  be  slow  to interfere with  the policy laid down by the State Government for grant  of licences  for manufacture  and sale of liquor. The Court would, in view of the inherently pernicious nature of the  commodity allow  a large  measure of latitude to the State Government  in determining  its policy  of  regulating manufacture and  trade in  liquor. Moreover,  the  grant  of licences  for   manufacture  and   sale  of   liquor   would essentially be  a matter  of economic policy where the Court would hesitate  to intervene  and strike down what the State Government  has   done  unless  it  appears  to  be  plainly arbitrary, irrational or mala fide."      In the present case, therefore, we must examine whether there  is   any  manifest  arbitrariness  in  prescribing  a distributor licence  which can  be granted only to a company owned by the State; and in compelling the appellants to sell their  product  to  the  distributor.  The  appellants  have pointed out  that  the  amendments  must  be  considered  as arbitrary because they cause undue hardship to all those who are concerned  with the manufacture and sale of liquor. They point out  that although  the manufacturers  are obliged  to sell their  commodity to the MSIL, there is no corresponding obligation cast  on the  MSIL to buy the liquor manufactured by the  manufacturers in  the State  of  Karnataka.  In  the absence of such an obligation on the MSIL to buy the liquor, it  can  well  happen  that  MSIL  may  act  arbitrarily  or capriciously and  may purchase  or not  purchase liquor from the  manufacturers   at  its   own  sweet-will.  This  would seriously affect  the business  of all  those engaged in the manufacture and  sale of  liquor. This apprehension does not appear to  be justified.  In the  Statement of Objections on behalf of  the State  Excise Commissioner  which were  filed before the  High Court  of Karnataka,  the respondents  have explained in  paragraph 16  that it  is not correct to state that the Government company is at liberty to purchase or not to purchase  the liquor  produced by  the petitioners. It is bound to  purchase the  liquor if  there is  demand from the wholesalers. Even  otherwise  it  has  been  submitted  that proper guidelines  will be  issued to the Government company in this  behalf. The  Government company  is expected to act

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bona fide  and with  responsibility and it is not correct to contend that  the Government  agency will be interested only in  a   particular   manufacturer.   This   submission   has considerable force.  What  is  more  important,  during  the period that  these appeals  were pending before us, MSIL has not merely  established several  depots but  has carried  on distribution of  liquor in the State of Karnataka on a large scale. Learned  counsel appearing  for the  respondents have stated before  us that  MSIL receives orders for supply from various purchasers. These orders specify the brand of liquor and the  company  from  which  the  supplies  are  required. Accordingly MSIL  places orders with the concerned companies for the  brands  of  liquor  which  are  demanded  by  their purchasers. It  is on the basis of these demand requisitions received  by   MSIL  that  MSIT  places  orders.  There  is, therefore, no  question of  any hardship being caused to the appellants by reason of the fact that their sales have to be channelled  through  an  intermediary.  Depending  upon  the orders received  by the MSIL, it in turn, places orders with the  suppliers  or  manufacturers  concerned.  The  business activity of  the appellants cannot, therefore, be said to be curtailed in  any manner.  Nor can  there be any hardship on the appellants.  Once the  Rules oblige the manufacturers to supply  their  product  only  to  the  company  holding  the distributor licence,  a corresponding  duty is  cast on  the distributor to  place orders  with the  suppliers  concerned whenever demand for a particular product is received by it.      Looking to  the channelizing  role of MSIL, the fear of discrimination between  different suppliers expressed by the appellants does  not appear  to be justified. In the case of Maganlal Chhagganlal (Pvt.) Ltd. v. Municipal Corporation of Greater Bombay  & Ors.  (1975 1  SCR 1 at 23) this Court has observed  that  it  is  not  every  fancied  possibility  of discrimination but  the real  risk of discrimination that we must take  into account.  The same  view was  reiterated  in Director of  Industries, U.P.  & Ors.v.  Deep Chand Aggarwal (1980  (2)   SCR  1015   at  1021-22).  Also,  if  there  is discrimination  in   actual  practice,  this  Court  is  not powerless.      The second  ground of  hardship which  is  pointed  out relates to  excise duty.  Under the Karnataka Excise (Excise Duties and  Privileges Fee)  Rules, 1968  a rebate in excise duty is  given in respect of liquor which is either exported outside India  or is exported to another State within India. This makes  the liquor  sold outside  the State  or exported considerably cheaper since it bears less incidence of excise duty. Under the present scheme, however, all these sales are converted into  local sales because the sale must be made to MSIL who, in turn, will either export it, if it has received an export  order, or  will export it to a place within India but outside  the State. In both these cases, since the first sale will  be within the State to MSIL, a substantial rebate in excise  will be  lost and  the goods  manufactured by the appellants will become far more expensive and therefore will become much less competitive in the outside market. There is a similar  provision relating  to rebate  in sales-tax which also the  appellants will  lose. There is no doubt that this will cause  some  hardship  to  the  appellants.  The  fact, however, remains that nay concession which is granted by the State for  export sales  or inter-state sales is a matter of policy. Granting  of such  concession  or  absence  of  such concession cannot  make the rule itself manifestly arbitrary or unreasonable.  If the  appellants are  aggrieved  by  the existing Rules  or would  like a  similar concession  to  be extended to sales which are to be made to MSIL in respect of

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export  orders  or  orders  for  supply  outside  the  State received by  it, it  is open  to them  to  make  a  suitable representation to  the  State  Government.  The  absence  of availability of  such a concession, however, cannot make the Rules  arbitrary   or   violative   of   Article   14.   All manufacturers and  suppliers within  the State  of Karnataka are governed  by the same Rules and will, therefore, have to pay the  same taxes.  All persons who are similarly situated are similarly  affected by  the  amended  Rules.  There  is, therefore,  no   discrimination  under  Article  14  in  its traditional sense.      The  appellants   have   placed   reliance   upon   the observations of this Court in Doongaji & Co. (I) v. State of Madhya Pradesh  & Ors. (1991 Suppl. (2) SCC 313 at p.220) to the effect  that there  is no fundamental right in a citizen to carry  on trade  or business in liquor. However, when the State has  decided to  part with  such right or privilege to others, then  the State can regulate the business consistent with the  principles of  equality enshrined under Article 14 and any  infraction  in  this  behalf  at  its  pleasure  is arbitrary as  violating Article 14. Therefore, the exclusive right or privilege of manufacture, storage, sale, import and export of  liquor through  any agency  other than  the State would  be   subject  to  the  rigorous  of  Article  14.  We respectfully agree  with these  observation. In  the present case, however, there is no violation of Article 143      It was  also submitted before us that the Rules must be considered manifestly  arbitrary because  the avowed purpose of formulating  the amended  Rules is  to  stop  evasion  of excise. In  the counter statement filed by the Government of Karnataka it  has set  out the  object of the amendment. The affidavit states.  "The impugned  Rules have  been made with the sole object of preventing leakage of excise revenue and, therefore,  they  are  reasonable  restrictions  within  the meaning of  Article 19(6)."  It is  submitted before us that such evasion  could have  been checked  by other means which would have  been more  beneficial to  or less  hard  on  the appellants. How such evasion is to be checked, however, is a matter of policy. So long as the policy as formulated in the amended  Rules   is  not   manifestly  arbitrary  or  wholly unreasonable,  it  cannot  be  considered  as  violative  of Article 14.  There is,  in the present case, no self evident disproportionality between the object to be achieved and the Rules which have been frames.      It was  lastly submitted  that MSIL  ought not  to have been nominated  for a  distributor licence because it is not competent to discharge its obligations and does not have the necessary infrastructure.  This plea  was raised  before the Karnataka High  Court at  a time  when MSIL  had not started functioning. It  is now  a fully  functional authority. MSIL has stated  that it  has a large number of depots in various districts  of   the  State  and  is  already  handling  very substantial  business.   This  plea,  therefore,  merits  no further consideration.  In any event, some problems with the discharge of  its duties by MSIL will not render the amended Rules providing  for  a  distributor  licence  arbitrary  or violative of Article 14.      In the  premises, these  appeals have no merit and they are dismissed  with costs.  Under the  interim  orders,  the appellants are  liable to  pay compensation  to MSIL if they lose in the appeals. This is in view of the commission which is prescribed  under the  Rules which is to be paid to MSIL. The appellants  were also directed to keep separate accounts of their dealings and supply a copy of the same, inter alia, to MSIL.  Some of  the appellants  have accordingly supplied

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statements of  account to  MSIL. Those who have not supplied such statements  are directed  to supply  the same  to  MSIL within eight  weeks from  today. The appellants are directed to pay  to MSIL the requisite commission amount on the basis of the  dealings conducted  by them within twelve weeks from today. W.P. Nos. 666, 667 693, 694, 707 & 910 of 1990      For the  same reasons,  the  writ  petitions  are  also dismissed with the above directions. S.L.P. (C) Nos. 13817-13828/1993      These petitions are for leave to appeal from a judgment of the  Andhra Pradesh  High Court upholding the validity of the amendments  made to  sub-rule (2) of Rule 4 and sub-rule (2) of  Rule 11  of the  Andhra Pradesh  (Foreign Liquor and Indian Liquor)  Rules, 1970 as also sub-rule (12) of Rule 66 of the Andhra Pradesh Distillery Rules, 1970 and Rule 34 (2) of the  Andhra Pradesh Brewery Rules, 1970. These rules have been framed  under the  Andhra Pradesh Excise Act of 1968 in exercise of  powers conferred  by Section  72 of  the Andhra Pradesh Excise  Act of  1968. They  were amended by G.O.M.S. No.  187  Revenue  (Excise  III(2)  dated  18.3.1991.  These amendments were  challenged before  the Andhra  Pradesh High Court on  the ground  that they  violated  the  petitioners’ rights under Articles 14 and 19(1)(g) of the Constitution of India. These  challenges have  been negatived  by the Andhra Pradesh High Court except for the retrospective operation of the amended  Rules. The  present petitions  are for leave to appeal from  this judgment  and order  of the Andhra Pradesh High Court. As a result of these amendments, the fee for the approval of  any one  variety of  labels to  be  affixed  on bottles of  liquor is  either enhanced from Rs. 100/- to Rs. 25000/- or  fee of  Rs.25000/- for  approval  of  lables  is introduced for  the first  time.  The  approval  has  to  be obtained every  year. These  amendments were  challenged  as violative of Articles 14 and 19(1)(g) of the Constitution.      As common  questions of law arise, these petitions have been heard  along with the petitions and appeals challenging amendments to  various Rules under the Karnataka Excise Act. On the  question of  violation of  Article 19(1)(g)  of  the Constitution this  Court has  already  held  in  these  very matters  (Khoday  Distilleries  Ltd.  &  Ors.  v.  State  of Karnataka &  Ors. (supra)  that the  amended  Rules  do  not violate Article  19(1)(g)  of  the  Constitution.  The  only challenge, therefore,  which survives is the challenge under Article 14.  The petitioners  contend that  the approval fee for labels  has been  suddenly  enhanced  from  Rs.100/-  to Rs.25000/- by virtue of the amendments. In some cases such a fee has been introduced for the first time. These amendments are highly  arbitrary and,  therefore, violate Article 14 of the constitution.  It is  also  contended  that  the  Andhra Pradesh Excise  Act, 1968  does not  contemplate any  fee of this kind.      Now, Section  21(3) of  the Andhra  Pradesh Excise  Act provides that different rates may be specified for different kinds of  excisable articles  and different modes of levying duties under  Section  22  may  be  prescribed.  Section  22 prescribes  different  modes  of  levying  excise  duty  and countervailing duty  under Section  21.  Sub-clause  (d)  of Section 22 provides for imposition of fees or requirement of licences for  manufacture, supply  or sale  of any excisable article. Section  72 deals  with the  power to  make  rules. Under Section  72(2)(g) and Section 72(h)(ii) it is provided as follows :-      "72(2) :  In  particular   and   without      prejudice  to   the  generality  of  the

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    foregoing provision,  the Government may      make rules -      (g)  regulating  the   time,  place  and      manner of payment of any duty or fee and      the  taking  of  security  for  the  due      payment of any duty or fee ;      (h): prescribing the authority by which,      the form  in which  and  the  terms  and      conditions on  and subject  to which any      licence or  permit shall  be granted  or      issued and  may, by  rules, among  other      matters -      (ii):     prescribe the  scale of  fees,      or the manner of fixing the fees payable      in respect  of  any  lease,  licence  or      permit, or  the storing of any excisable      article." Thus the  State Government  is authorized  to levy  fees for various kinds  of permits  or licences which may be required for activities  connected with  the manufacture,  supply  or sale of  liquor. Labelling  of  liquor  bottles  with  brand lables is  an essential activity connected with the sale and distribution of  different varieties  of liquor manufactured in the  State by different manufacturers or imported into or exported outside  the State.  Different varieties  of liquor produced by  various manufacturers  are thus  identified for purchase of  sale. It  is, therefore,  permissible  for  the State Government  under the  Andhra Pradesh Excise Act, 1968 to levy  fees for  approval of different varieties of labels to  be   affixed  to  liquor  bottles  for  the  purpose  of distribution and  sale of  liquor. The amendments are within the rule-making power of the State Government. In fact prior to these amendments, a fee of Rs.100/- was being charged for approval of  lables. It  is nobody’s  case that  the fee was beyond the rule-making power under Section 72 of the Act.      It is also contended that the fee of Rs.25000/- for the approval of  any one  variety of  labels is  exorbitant  and totally disproportionate  to the  work involved.  Therefore, such levy violates Article 14. But in this connection, it is necessary  to   bear  in  mind  that  the  State  under  its regulatory powers  has the right even to prohibit absolutely every form  of activity  in  relation  to  intoxicants,  its manufacturers, storage,  export, import  sale or possession. In all these respects the right to regulate these activities or to  carry on  these activities  vests in the state. When, therefore, such  rights are  parted with,  it is open to the State to  part with such rights for a consideration. The fee for approval  of labels is an aspect of the right to sell or distribute liquor  which  right  the  State  Government  has parted with  for consideration  in the  form of  a fee.  The increase in  the fee from Rs.100/- to Rs.25000/- may appear, at first  glance, to  be exorbitant.  But it  constitutes an extremely small percentage of the total turn-over of various products to  which these  labels are  affixed. The  fee  for approval can  not, therefore, be considered as exorbitant or its imposition  wholly arbitrary.  It is not the case of the petitioners that their trade in liquor is seriously affected by the  levy of  this increased  fee. In  the  case  of  Har Shanker &  Ors. v. The Deputy Excise & Taxation Commissioner & Ors. (1975 (3) SCR 254 at 278) this Court upheld the right of the  State to prohibit absolutely all forms of activities in relation  to intoxicants. It said that the wider right to prohibit absolutely  would include  the  narrower  right  to permit dealing  in intoxicants  on  such  terms  of  general application as  the State  deems expedient.  The Court  said

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that the  Government has  the power  to charge  a price  for parting with  its rights.  It also further observed that the licence fee  which  the  State  Government  charged  to  the licensee through  the medium  of auctions  or the  fixed fee which was  charged to  the vendors of foreign liquor holding licences need  bear no quid pro quo to the services rendered to the  licences. The word ‘fee’ in this context is not used in the  technical sense  of the expression. By ‘licence fee’ or ‘fixed fee’ is meant the price or consideration which the Government charges  to the  licensees for  parting with  its privileges and  granting them to the licensees. As the State can carry  on a  trade or  business, such  a charge  is  the normal incidence  of a  trading or business transaction. The contention, therefore,  of the  petitioners that there is no quid pro  qua  between  the  increased  label  fee  and  the services rendered  also has  no merit.  It is  based upon  a misconception of the nature of the levy.      In the  premises,  we  agree  with  the  reasoning  and conclusions arrived  at by  the Andhra  Pradesh High  Court. These special leave petitions are, therefore, dismissed with costs.