The judgment established the principles of reasonableness applicable to delegated legislation, emphasized the need for rules to satisfy the test of Article 14, and distinguished between taxes and fees.

JUDGMENT

H.K. SEMA, J.

1. These appeals have a chequered history. We shall, however, notice few facts leading to the filing of the present appeals, strictly for the purpose of disposal of these appeals.

2. The Jammu and Kashmir Excise Act, 1901 (hereinafter the Act) was passed on 4.12.1901.

3. The Jammu and Kashmir Distillery Rules 1946 (hereinafter the Rules) were framed on 29.6.1946.

4. On 5.9.1973, an order was passed by the Excise Commissioner under Rule 17 of the Rules that charges on account of salary of Excise Department staff were to be recovered from management at 50% of total expenses. This order was, however, withdrawn on 1.4.1974. On 13.8.1981, the Excise Commissioner, withdrew the exemption granted by an order dated 5-9-1973. By an order dated 10.9.1981, the Excise Commissioner made a demand for payment of salaries of Excise personnel posted at appellants distillery. Notice of demand was issued on 6.10.1988. On 28.9.1981, the appellant filed first OWP No. 549 of 1981 challenging Rule 17 as being ultra vires the Act. The High Court stayed the recovery proceedings. The appellant has also filed Writ Petition No. 1208 of 1989 chall9nging the demand made on October 6, 1989 on account of staff charges, which was dismissed by the learned Single Judge by its order dated 27th September, 1990. Aggrieved thereby, the appellant preferred LPA (W) NO.159 of 1990, which was dismissed by the Division Bench by the impugned order. Hence the present appeals.

5. Section 25 of the Act empowers the Government to frame rules. The relevant portion for the present purpose reads:-

"25. The Government may from time to time frame rules-

(g) for the inspection and supervision of stills, distilleries, private warehouses and breweries;

(o) generally to carry out the provisions of this Act or of any other law for the time being in force and relating to the Excise revenue."

6. Rule 17 of the Rules is claimed to stream from Section 25, which has been assailed as ultra vires the Act reads:-

"The licensee shall, if required by the Excise and Taxation Commissioner, make into the Government treasury such payment as may be demanded on account of the salaries of the Government excise establishment posted to the distillery, but he shall not make any direct payment to any member of such establishment."

7. The validity of the Rules has been challenged before the learned Single Judge, before the LPA Bench and before this Court on the grounds that (a) Rule does not have the statutory backing; (b) Rule is in excess of the rule making power in Section 25 of the Act and suffers from excessive delegation; (c) Rule seeks to get breweries to pay for the salaries and costs of the government officials involved in revenue collection and it is manifestly unjust and arbitrary; (d) Rule imposes a tax not a fee without the authority of law and, therefore, contrary to Article 265 of the Constitution; and lastly (e) The Rule is unreasonable and arbitrary and hence contrary to Article 14 of the Constitution.

8. Before we proceed further to answer the aforesaid questions, we may at this stage, point out that this Court held that a trade in liquor is res extra commercium and, therefore, not entitled to the protection of Article 19(1)(g), but any licensing, regulation or imposition in respect of the liquor trade cannot be arbitrary and discriminatory.

9. In Khoday Distilleries Ltd. v. State of Karnataka1, it is said that the State can adopt any mode of selling the licenses for trade or business with a view to maximize its revenue so long as the method adopted is not discriminatory."

10. In Khoday Distilleries Ltd. v. State of Karnataka1, it is said in paragraph 13:

.....Although the protection of Article 19(1 )(g) 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.