Additional Security Demand on Liquor Units under Rule 13(4) Not Pursued by State; Kerala HC Quashes Notices

Kerala HC Quashes Additional Security Demands on Liquor Manufacturers After State Drops Pursuit

Ernakulam: The Kerala High Court on Thursday set aside a series of demand notices issued by the state government to various liquor manufacturing companies for an enhanced additional security deposit. The decision came after the government informed the court that it was no longer insisting on these demands in light of the current Abkari Policy.

The judgment was delivered by a single bench of Justice P.M. Manoj , who was hearing a batch of writ petitions filed by prominent distilleries and breweries including United Spirits Ltd, SDF Industries Ltd, and Kaycee Distilleries.

Background of the Dispute

The petitioners, all licensed to manufacture Indian Made Foreign Liquor (IMFL) in Kerala, challenged the legality of demand notices that sought to levy an additional security deposit calculated at 1% of the average excise duty paid by them over the past three years.

The manufacturers hold licenses under the Kerala Abkari Act and the Kerala Foreign Liquor (Compounding Blending and Bottling) Rules, 1975. As per Rule 13(4) of these rules, they are required to furnish a security deposit for the due observance of their license conditions.

Petitioners' Arguments

The core argument from the petitioners was that the government's move to enhance the security deposit was in direct contravention of a prior High Court judgment. They cited the court's decision in WA No.383 of 2017 , dated February 28, 2017, which had previously dealt with a similar attempt by the government to increase the security deposit in 2008.

In that ruling, the High Court had held that the additional security was not intended to be a substantial amount and, crucially, that the rules did not permit the government to link the enhancement of security to the company's production volume. The petitioners argued that the new demand notices, based on a percentage of excise duty (which is directly related to production), were a "blatant violation" of this established legal precedent.

Government Concedes Position

During the proceedings, the Special Government Pleader, Sri V. Manu, submitted letters from the Additional Chief Secretary and the Excise Commissioner. In a significant development, these communications clarified the state's current stance.

The letters stated:

"In the light of the above Abkari Policy, at present Excise Department does not insist on the demands for Additional Security that have been challenged and stayed in the captioned writ petitions. The matter of demanding Additional Security became infructure [infructuous]."

This submission effectively rendered the legal challenge moot, as the government itself conceded it was not pursuing the demands.

Court's Final Order

Accepting the government's submission, Justice P.M. Manoj found it appropriate to quash the impugned notices. The court's judgment noted:

"In the light of the above, I deem it appropriate to set aside all the demand notices raised by the Government, which were impugned in these writ petitions."

Consequently, the court allowed all the writ petitions and formally set aside the demand notices, providing a significant victory for the liquor manufacturers. This ruling reaffirms the principles laid down in the 2017 judgment and brings closure to the dispute over the enhancement of security deposits based on production metrics.