Kerala Hotel and Restaurant Association v. State of Kerala

This case was about whether the State of Kerala’s statutory amendment restricting the grant of bar licenses, that allow the sale of Indian Made Foreign Liquor to the public, to five-star hotels alone was constitutional. Many may feel that in upholding this measure, the court has justifiably approved the State government’s legitimate attempt to curb alcoholism, which has statistically been shown to be an “acute social problem”.The most important issue, however, is unrelated to the legitimacy of the government’s ultimate objective, or whether there is a right to trade in liquor (which the court dwells on at length). The key question relates to the exception that has been made in favor of (20 or so) five-star hotels in the State, and, consequently, those who can access such hotels, and whether this amounts to discrimination based on wealth and social class, violating the right to equality guaranteed by Article 14 of the Constitution.

Name of the Case- Kerala Hotel and Restaurant Association Vs. State of Kerala

Citation- 1990 AIR 913, 1990 SCR (1) 516

Year of the case- 21 February 1990

Appellant: Kerala Hotel & Restaurant Association and Ors.etc. Etc.

Respondent: State of Kerala and Ors.

 Bench: VERMA, JAGDISH SARAN (J), RANGNATHAN, S., OJHA, N.D. (J)

Act Involved: Kerala General Sales Tax Act, 1963: Sections 5, 9 First Schedule Item 57-Constitutional  validity–Imposition of Sales Tax–Cooked food sold to affluent in luxury hotels–Exemption about modest eating houses–Whether discriminatory and violates Article 14. Tamil  Nadu General Sales Tax Act, 1959:  Section3(2) Schedule  I Item 150–Imposition of Sales  Tax–Cooked food sold to affluent in luxury hotels–Exemption about modest eating houses–Whether discriminatory and violates Article 14.

Introduction

The petitioner in this writ petition is the Kerala Hotel and Restaurant Association represented by its Secretary. They are aggrieved by the action of the District Consumer Disputes Redressal Forum, Thrissur in entertaining a complaint filed by the Kerala Consumer Education Society, the 2nd respondent herein, complaining about the steep increase in prices of food articles in hotels and restaurants in Kerala and seeking appropriate directions to the Corporation, the District Collector and the District Supply Officer to regulate the prices of food articles in restaurants and hotels by appropriate classification of the hotels and fixing the prices of food articles to be sold in hotels and restaurants. They contend that Ext.P1 complaint is not maintainable at all under the Consumer Protection Act, 1986. They would submit that the Ext.P1 complaint is not filed by a consumer or on behalf of a consumer or consumers who only can apply the CDRF.

Secondly, they would contend that the complaint is based on a newspaper report and a complaint based on a newspaper report is not maintainable. Thirdly they would contend that before entertaining a complaint, the CDRF is bound to consider whether the complaint is maintainable and entertaining of a complaint is not automatic.

In support of that contention, they rely upon the decision of this Court in Fon-Ess India (P) Ltd. v. Kerala State Consumer D.R. Commission [2006 (3) KLT 500]. They would further contend that the pricing of food articles in hotels and restaurants cannot be regulated by either the Government or the Corporation and it is the absolute discretion of the restaurants to fix the price of food articles sold by them, in the absence of any law authorizing them to do so, which has been held so by this Court in Kerala Hotel and Restaurant Association v. State of Kerala [2005 (4) KLT 497].

Background of the case

According to the writ petitioners, [i]Article 366(29A) of the Constitution, introduced by the Constitution (Forty-Sixth Amendment) Act, makes the supply of food and beverages in a restaurant, enumerated in sub-clause (zzzzv) of Clause 105, a deemed sale of those articles, enabling the States to impose a tax on the same, invoking Entry 54 of List II of the Seventh Schedule. As far as the matter enumerated in sub-clause (zzzzw) is concerned, the case of the petitioners is that the same is a matter covered by Entry 62 of List II of the Seventh Schedule and invoking the said Entry, the State legislature had already enacted the Kerala Tax on Luxuries Act, by which, tax is imposed and levied by the State Government for the matters enumerated in that sub-clause. According to the petitioners, they are remitting value-added tax on the entire value of the consideration received from their customers towards the supply of food and beverages in the restaurants and remitting luxury tax for the consideration received for providing accommodation in the Hotels owned by them. The case of the petitioners, therefore, is that by the impugned legislation, the Parliament has encroached upon the legislative powers of the State under Entries 54 and 62 of List II of the Seventh Schedule.

Facts

The state government has the power to frame or amend the special rules with or without retrospective effect. mohanan k.r. & anr vs director of homeopathy, Kerala homeopathy services, Trivandrum & Ors. – the direction was that price lists published are to be appropriately streamlined with the general directions, and in case of failure, petitioners were liable to be prosecuted..steps.

A counter affidavit has been filed on behalf of the respondents, and the district supply officer is the signatory as authorized to swear to the affidavit. according to him, the original petitions were misconceived and were liable to be rejected. it had been pointed out by the said officer that ext. was not unauthorized as pointed out, and as a matter of fact, the minutes of the food advisory committee showed that such restrictions were validly incorporated as a condition for operating the establishments. advertence was made to a report made by the subcommittee. the hotels were classified into four groups, depending upon the seating capacity, investment, and the general ambiance that had been found available. the representatives of the hotel owners association were also.

Issue

 The States of Kerala and Tamil Nadu which result in the imposition of sales tax in the two States on cooked food sold to the affluent in the luxury hotels while exempting the same from sales tax in the modest eating houses patronized by the lesser mortals. In both these States, the eligibility to sales tax of cooked food sold only in luxury hotels was challenged on the ground that it amounted to hostile discrimination. The Kerala High Court rejected the challenge while the Madras High Court has upheld it. This has led to the filing of Civil Appeal Nos. 912-20 of 1988 against the Kerala High Court’s decision and Writ Petition (Civil) No. 281 of 1988 under Article 32 of the Constitution by the unsuccessful hoteliers of Kerala while Civil Appeal Nos. 4460-80 of 1985 are by the State of Tamil Nadu against the Madras High Court’s decision. These conflicting decisions of the two High Courts giving rise to these matters are Sangu Chakra Hotels Pvt. Ltd. v. State of Tamil Nadu, [1985] 60 STC 125 (Madras) and Hotel Elite v. the State of Kerala, [1988] 69 STC 119 (Kerala).

 Related Provision

The Constitutional validity of similar provisions in the States of Kerala and Tamil Nadu which result in the imposition of Sales Tax on cooked food sold only in luxury hotels while exempting the same from sales tax in modest eating houses was challenged by some hoteliers in both  States on the ground that this amounted to hostile discrimination and therefore violative of Article 14 of the Constitution. While the Kerala High Court rejected the challenge, the High Court of  Madras upheld it. Consequently, one set of appeals and a Writ Petition under Article 32 of the Constitution have been preferred by the unsuccessful hoteliers of Kerala and the other set of appeals by the State of Tamil Nadu against the decision of the Madras High Court allowing the Writ Petitions filed before it by the hoteliers.

Upholding the constitutional validity of the impugned provisions in both States, while dismissing the appeals and Writ  Petition filed by the hoteliers and allowing the appeals by the State of Tamil Nadu, this Court, HELD: It is the substance and not form alone which must be seen. The difference in the cooked food classified differently, taxed and taxfree, is as intelligible and real the two types of customers to whom they are served at these different eating houses. This difference must also be available to support the difference in the incidence of the impugned sales tax. This classification does bear rational nexus with the 517 objects sought to be achieved.

The object is to raise the needed revenue from this source, determined by the fiscal policy, which can be achieved by taxing the sale of costly food on the affluent alone in the society. The classification is made by grouping together only those places where costly food is sold leaving out the comparatively modest ones. The classification is, therefore,    rounded on intelligible differentia and has a rational nexus with the object sought to be achieved. In other words, those grouped possess a common characteristic justifying their inclusion in the group, but distinguishing them from those excluded; and the performance of this exercise bears a  rational nexus with the reason for the exercise. [526B-D]

 Related Cases

Ganga  Sugar Corporation Limited v. State of Uttar         Pradesh  & Ors., [1980] 1 SCC 223; M/s S. Kodar  v. the State of Kerala, [1974] 4 SCC 42.2; P.H. Ashwathanarayana  Setty  & Ors. v. State of Karnataka & Ors., [1989] Suppl. 1 SCC696; ITO  v. K.N. Takim Roy Rymbai; Federation of Hotel and              Restaurant Association of India & Ors. v. Union of  India  & Ors.,  [1989] 178 ITR 97; A.R. Krishna lyer & Ors. v.  The state of  Madras,  [1956] 7 STC 346; Kadiyala  Chandrayya v. The State of  Andhra, [1957] 8 STC 33 and Budhan  Chowdhary v.The state of Bihar, [1955] 1 SCR 1045,

Judgment

M. Ramachandran, J.

1. The Taluk Supply Officer, Trichur had issued notices during July 1998 and the recipients have filed these Original Petitions challenging the same, a specimen copy of which is produced as Ext.P3 in O.P.No. 14891 of 1998. He had brought it to the attention of the petitioners, who are hoteliers, an order (No. Fl.2396/98) of the District Collector, whereby he had classified the hotels and had fixed the prices of normal food items. [ii]The Officer found that excess charges were being levied. For instance, in the case of the first petitioner in O.P.No. 14720 of 1998, the price of tea exhibited was Rs. 3/- whereas the prescribed price was Rs. 2.50 and therefore, excess of fifty paise was being collected from the general public. Some other food items also were named and it had been warned that this is illegal.

The direction was that price lists published are to be appropriately streamlined with the general directions, and in case of failure, petitioners were liable to be prosecuted. Although individual petitioners, as also their Association had objected to the above proposal pointing out that this was unauthorized since they were apprehending prosecution proceedings, original petitions had come to be filed. Interim orders had been passed by this Court staying all coercive steps.

2. A counter affidavit has been filed on behalf of the respondents, and the District Supply Officer is the signatory as authorized to swear to the affidavit. According to him, the Original Petitions were misconceived and were liable to be rejected. It had been pointed out by the said officer that Ext.P3 was not unauthorized as pointed out, and as a matter of fact, the minutes of the Food Advisory Committee showed that such restrictions were validly incorporated as a condition for operating the establishments. Advertence was made to a report made by the Sub Committee.

The hotels were classified into four groups, depending upon the seating capacity, investment, and the general ambiance that had been found available. The representatives of the Hotel Owners Association were also there in the committee, and the proposals became binding on them. It is further submitted that the decision was taken in the public interest. Complaints were forthcoming from several individuals and organizations about the levy of extra price, despite general notifications, and it was why the Administration had sprung to action.

3. Further, it had been claimed that it was the duty of the Government to maintain a fair price. The authorities had been compelled to take steps noticing the exorbitant prices charged for foodstuffs sold. The Food Advisory-cum-Vigilance Committee had been constituted for Thrissur District of which the District Supply Officer is the Convener and the District Collector the Chairman. The Committee consisted of members from various walks of life, including representatives from elected bodies and the Sub Committee had come to a decision taking notice of all relevant materials. Mostly, it was unobjectionable. This was as per Government directives.

4. The Government Pleader had attempted to sustain the order on the strength of the Kerala Food Stuffs (Display of Prices by Catering Establishments) Order, 1977. It required the caterers to publish the price of food articles sold by them. Such orders were issued under the authority of the Essential Commodities Act. Ext.P3 was valid and one made in the right step.

5. Despite the above submissions, I find it difficult to accept the stand that any of these are enabling provisions for imposing restrictions in the matter of the price of food articles sold by an eating house. It may be in the public interest to restrict the price, but such powers, if at all, are circumscribed by the requirement to recognize the fundamental rights of a person to carry on an industry or business to his liking. [iii]The District Authorities might be getting complaints about the prices levied by the establishments, but only in authorized matters, it may be possible for them to exert themselves. The issue is far too complex for them to issue edicts.

There is no case that the licenses issued to the petitioners by the Local Authority contain a stipulation that they would be subjected to such restrictions. The orders referred to also do not authorize the Administration to impose an upper limit on the price. What is contemplated there is the only publication of price. The respondents have also no case that there is any supply of rationed articles at concessional prices to the hotel owners and they are reaping profits forfeiting the trust or violating any undertakings given by them.

6. The price of a food item may depend on various factors. To cite a few, the investment that is there for starting up or running the same will be one. The expenditure that is incurred for running an establishment varies from place to place and locality. The quality of foodstuff also will necessarily require the caterer to fix a price, if he is keen to make a profit. Above all, there is no compulsion of whatever nature for a person to go and take food from any public eating house, which is not to his taste. A person can avoid a hotel which charges higher prices if price alone is his concern.

7. In the matter of services, unless there is law in operation (e.g. bus fare, taxi fare, etc.), it may be difficult for the Administration to prescribe prices, be it personal service or professional service. Imagine the situation where the District Administration is of opinion that the fee charged by a hospital or a chartered accountant or even a lawyer is excessive. The theory of demand and supply is a time tested concept. It may not be possible for them to suggest control in such areas unless the State applies its mind and bring in legislation, which authorizes restriction; thereby fettering the freedom of an entrepreneur. [iv]Therefore, the hotelier will have the absolute discretion as of now at least to prescribe the price of his ghee roast, parotta, or Pulau, if the business is not situated in restricted places or areas.

8. I find that the petitioners are justified in contending that Ext.P3 and similar orders issued by the District Supply Officer/District Administration suffers from want of jurisdiction. Consequently, impugned orders in these Original Petitions stand set aside.

Concept highlighted

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 that 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 license, 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 Kerala are presently permitted to serve alcohol in their bars i.e. in public. 2 The Abkari Act, 1077 was introduced in the erstwhile State of Cochin in 1902 and came to be extended throughout the State of Kerala in 1967. The Foreign Liquor Rules were promulgated by Sections 10 and 24 to 29 of the Abkari Act, relating to the sale of Indian Made Foreign Liquor (IMFL). As at present, the private sector is not permitted to manufacture IMFL and there is only one State-owned distillery. Previous to the extant policy, FL-1 licenses i.e. retail of license sale of foreign liquor, were auctioned by the State to private parties, which practice, as is obvious, has been discontinued. It may also be relevant to mention that the State of Kerala made a futile foray into prohibition, but this was withdrawn in 1967. The existence of a Union Territory, Mahe, within the State of Kerala, and boundaries with the States of Karnataka and Tamil Nadu where the sale or consumption of liquor is not prohibited indubitably makes it almost impossible for the State to venture into prohibition.


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