Licensing is the architecture on which the entire Abkari Act, 1 of 1077 rests. Every act the Act touches - manufacture, possession, transport and sale - is forbidden except under the authority and subject to the terms and conditions of a licence. Because the Supreme Court treats dealing in intoxicants as res extra commercium, a citizen has no fundamental right to trade in liquor; what the State grants is a privilege, and the licence is the instrument through which that privilege is conferred, conditioned and, when breached, recalled. This note maps the licensing scheme - the prohibitory sections, the grant of exclusive privilege under Section 18A, the form and conditions of licences, and the power to cancel or suspend - against the bare provisions and the controlling case law.
The foundational premise: no right, only a privilege
The licensing scheme of the Abkari Act cannot be understood without first grasping the constitutional premise on which it sits. In Har Shankar v. Deputy Excise & Taxation Commissioner (1975) AIR SC 1121, a Constitution Bench held that there is no fundamental right in a citizen to carry on trade or business in liquor; the State has the exclusive right to manufacture and sell intoxicants, and being the owner of that right it may part with it for a consideration. The amount charged to a licensee, the Court held, "is neither a fee nor a tax but the price of a privilege." This was reaffirmed and elaborated by the Constitution Bench in Khoday Distilleries Ltd. v. State of Karnataka (1995) 1 SCC 574, which held that the State can create a monopoly in itself or its agency over manufacture, possession, sale and distribution of liquor, and may sell licences to citizens by charging fees; once it decides to part with the privilege, however, the distribution of licences must conform to Article 14. The Abkari Act is the Kerala embodiment of exactly this doctrine: it prohibits everything and then licenses selectively. For the wider constitutional and historical frame, see the introduction and the hub on the Kerala Abkari Act.
Sections 12 to 13A: the prohibition that makes a licence necessary
The need for a licence is generated by the prohibitory sections. Section 12 declares that no liquor or intoxicating drug shall be manufactured, no toddy-producing tree tapped, no toddy drawn, no distillery, brewery or winery constructed or worked, and no liquor bottled for sale, "except under the authority and subject to the terms and conditions of a licence granted by the Commissioner in that behalf, or under the provisions of Section 21." A proviso allows Government to exempt, by notification, manufacture of liquor for bona-fide home consumption in any local area, and licences under the section extend to cover the licensee's servants and agents. Section 12A caps manufacture of preparations containing liquor; Section 12B requires a licence to utilise liquor in manufacturing preparations and limits possession of such preparations; and Section 12C criminalises counterfeiting of labels and security stickers used for sale. Section 13 prohibits possession in excess of the prescribed quantity by anyone who is not a licensed manufacturer or vendor "unless under a licence granted by the Commissioner" - though its first proviso bars any fee for a licence for bona-fide private consumption. Section 13A empowers Government to prohibit possession altogether by notification. The detailed quantitative scheme is treated in possession limits and the underlying activities in manufacture, sale, transport and possession.
Section 14: licensing distilleries, breweries and warehouses
While Section 12 licenses persons and activities, Section 14 licenses establishments. It empowers the Commissioner, with the previous approval of Government, to (a) establish public distilleries, breweries or wineries, or authorise the establishment of private ones "in which liquor may be manufactured under a licence granted under this Act"; (b) establish public warehouses or authorise private warehouses where liquor may be kept with or without payment of duty under a licence; (c) discontinue any such establishment; (d) prescribe the mode of supervision necessary to ensure proper collection of duties and proper utilisation of liquor; (e) prescribe the size and cost of the supervisory establishment, recoverable from licensees; and (f) prescribe wastage allowances for alcohol in manufacture, storage, transport and use. Section 14 thus creates the licensed infrastructure - the bonded and supervised premises - within which the manufacturing privilege granted under Section 18A is actually exercised, and ties the cost of departmental supervision directly to the licensee.
Section 18A: grant of exclusive or other privilege on payment of rental
The heart of the licensing-and-revenue scheme is Section 18A, headed "Grant of exclusive or other privilege of manufacture, etc., on payment of rentals." Sub-section (1) makes it "lawful for the Government to grant to any person, on such conditions and for such period as they may deem fit, the exclusive or other privilege" of (i) manufacturing or supplying by wholesale, (ii) selling by retail, or (iii) both, of any liquor or intoxicating drug within any local area, "on his or their payment to the Government of an amount as rental in consideration of the grant of such privilege." Crucially, the rental "may be settled by auction, negotiation or by any other method as may be determined by the Government," and "may be collected to the exclusion of, or in addition to the duty or tax leviable under Sections 17 and 18." Sub-section (2) provides the bridge to the licensing chapter: no grantee shall exercise the privilege until he has received a licence in that behalf from the Commissioner. Sub-section (3) allows Government to disapply Section 12 to toddy in such cases. Section 18A is the statutory recognition of the common-law right of the State to part with its privilege, and was upheld as an enabling provision enacted with regard to Article 47.
Rental as the price of privilege, not a tax
The character of the Section 18A levy is settled. The definition clause defines "rental" as "the rental payable under Section 18A in consideration of the grant of an exclusive or other privilege of manufacturing, supplying or selling any liquor or intoxicating drugs." In State of Kerala v. Maharashtra Distilleries Ltd. (2005) 11 SCC 1, the Supreme Court analysed Section 18A and held that the levy is relatable to Entry 8 of List II (intoxicating liquors) and is not excise duty stricto sensu under Entry 51, even though the Act loosely describes various levies as duty. The rental is consideration for parting with the State's exclusive privilege - the very price-of-a-privilege concept articulated in Har Shankar and Khoday Distilleries. This characterisation has practical consequences: because the rental is contractual consideration flowing from a voluntarily accepted privilege rather than a compulsory exaction, a successful bidder at auction cannot later resile from his bid on the ground that it is excessive or that the privilege proved unprofitable, as Har Shankar held when it refused to let bidders escape their accepted bids.
Sections 20 to 23: farming, letting and assigning the privilege
The privilege, once granted, is partly transferable but always under licence. Section 20 permits all or any duties, taxes and rentals leviable in any taluk or local area to be "farmed" with Government sanction, and requires such farmers to take out licences from the Commissioner. Section 21 provides that where the exclusive privilege of manufacturing toddy has been granted under Section 18A, Government may declare that the grantee's written permission to draw toddy shall have the same force as a Section 12 licence within the area of the privilege - a statutory delegation of the licensing function to the privilege-holder. Section 22 allows a grantee, in the absence of a contrary contract, to let or assign the whole or part of his privilege or farm; but the lessee or assignee "shall not exercise any rights as such" until the grantee has applied to the Commissioner for a licence to be given to the lessee or assignee and that licence has been received. Section 23 lets a grantee, farmer, lessee or assignee invoke the Collector to recover amounts due as if they were arrears of land revenue, subject to a civil-suit stay on furnishing security. The recurring theme is that every link in the chain - farmer, lessee, assignee - must itself be separately licensed before it can act.
Sections 24 and 25: form, conditions and counterpart agreement
Chapter VI ("Licenses, Etc.") governs the mechanics. Section 24 provides that every licence or permit granted under the Act shall be granted (a) on payment of such fees, if any; (b) for such period; (c) subject to such restrictions and on such conditions; and (d) in such form and with such particulars "as the Government may direct either generally or in any particular instance." This is the source of the open-ended conditioning power - the State may attach any condition to the privilege it sells, a corollary of the principle that the licensee takes the privilege on the State's terms or not at all. Section 25 allows the Commissioner to require every licensee to execute a counterpart agreement conforming to the tenor of his licence and to furnish security for performance. The breadth of the condition-imposing power is, however, not unlimited: in Kerala Samsthana Chethu Thozhilali Union v. State of Kerala (2006) 4 SCC 327, the Supreme Court struck down a rule under the Abkari Shops Disposal Rules, 2002 obliging toddy-shop licensees to employ displaced workers, holding that subordinate legislation must be intra vires the parent Act and in consonance with its legislative policy, and that the Abkari Act contains no provision authorising welfare measures of that kind.
Section 26: power to recall, cancel or suspend a licence
Section 26 empowers the Commissioner to cancel or suspend any licence or permit (a) if any fee, duty, tax or rental payable by the holder is not duly paid; (b) on any breach by the holder, his servant or anyone acting with his permission of any term or condition of the licence; (bb) if the holder or his servant sells or stores liquor for sale at any place other than the licensed premises; (c) if the holder is convicted of any offence against the Act, or of any cognizable and non-bailable offence, or under the Dangerous Drugs Act, 1930, the Trade and Merchandise Marks Act, 1958, or Sections 478 to 489 IPC; (d) where the licence was granted on the requisition of a privilege-holder or farmer, on that person's written requisition; and (e) if the licence conditions provide for cancellation or suspension at will. Read with the criminal scheme in offences, Section 26 makes the licence both the gateway and the chokepoint: a conviction or a breach can extinguish the privilege administratively, quite apart from any penal sentence.
Cancellation and the discipline of natural justice
Although Section 26 is silent on procedure, its exercise is a civil-consequence-laden quasi-judicial act and must satisfy natural justice. In V.K. Ashokan v. Assistant Excise Commissioner (2009) 14 SCC 85, the Supreme Court set aside action against an abkari licensee, emphasising that where a statute confers jurisdiction on a designated authority, that authority must apply its own mind and the procedure laid down must be scrupulously followed; an order issued by an authority other than the one empowered, or where the deciding mind was already made up, renders the hearing "nominal and sham." The Court invoked the classic principle of Commissioner of Police, Bombay v. Gordhandas Bhanji that a power must be exercised by the authority on whom it is conferred and in the manner prescribed. For the institutional hierarchy of the Commissioner and subordinate abkari officers who wield these powers, see excise officers' powers.
Sections 27 to 29: ancillary obligations, recovery and rule-making
Three further sections complete the licensing framework. Section 27 binds every person who manufactures or sells liquor or intoxicating drugs under a licence to supply himself with the prescribed measures, weights and instruments, keep them in good condition, and, on the requisition of an empowered abkari officer, to measure, weigh or test any liquor in his possession. Section 28 makes all duties, taxes, fines and fees, and all amounts due from any grantee, farmer or person under any Abkari contract, recoverable as arrears of land revenue from the person primarily liable or his surety; on default by a grantee or farmer, the Commissioner may take the grant under management at the defaulter's risk, declare it forfeited, or resell it at the defaulter's loss. Section 29 confers the wide rule-making power that fleshes out the licensing regime - including rules "for determining the number of licenses of each description to be granted in any local area," for fixing maximum and minimum prices, for warehousing, supervision and bottling, for appeals from orders, and for forfeiture of kists deposited by purchasers of the right to sell toddy, arrack or foreign liquor. It is under Section 29 that the Foreign Liquor Rules and the Abkari Shops Disposal Rules - the day-to-day grammar of licensing - are framed, and it was such a rule that fell for scrutiny in the Chethu Thozhilali Union case.
Synthesis: the licence as instrument of a sold privilege
The licensing provisions form a closed logical loop. The prohibitory sections (12 to 13A) make every dealing in liquor unlawful; Section 18A authorises the State to sell the privilege of dealing for a rental; sub-section (2) of Section 18A and Sections 20 to 22 insist that the privilege cannot be exercised - by grantee, farmer, lessee or assignee - until a licence issues from the Commissioner; Sections 24 and 25 fix the form, conditions and security; Section 26 supplies the power to recall; and Sections 27 to 29 add the supporting obligations, recovery machinery and rule-making power. Behind the whole edifice stands the constitutional doctrine that liquor is res extra commercium - a citizen has no right to trade in it, the State alone holds the privilege, and the licence is simply the conditioned, revocable instrument by which the State lends that privilege out. The judiciary polices only the outer boundaries: the rental must answer to its statutory character (Maharashtra Distilleries), rules must stay within the parent Act (Chethu Thozhilali Union), cancellation must observe natural justice (V.K. Ashokan), and within those limits the State's terms are as wide as Sections 18A and 24 allow.
Frequently asked questions
Is there a fundamental right to obtain a liquor licence under the Abkari Act?
No. In Har Shankar v. Deputy Excise & Taxation Commissioner (1975) AIR SC 1121 and Khoday Distilleries Ltd. v. State of Karnataka (1995) 1 SCC 574, the Supreme Court held that there is no fundamental right to trade in liquor. The State owns the exclusive privilege and may part with it for consideration, so a licence is a privilege granted on the State's terms, not a right that can be demanded.
What does Section 18A of the Abkari Act provide?
Section 18A empowers Government to grant, on such conditions and period as it deems fit, the exclusive or other privilege of manufacturing or supplying by wholesale, selling by retail, or both, of liquor or intoxicating drugs within a local area, on payment of an amount as rental. The rental may be fixed by auction, negotiation or any other method, and collected in addition to or in place of duty under Sections 17 and 18. No grantee may exercise the privilege until he receives a licence from the Commissioner.
Is the rental under Section 18A a tax or excise duty?
It is the price of a privilege, not excise duty stricto sensu. In State of Kerala v. Maharashtra Distilleries Ltd. (2005) 11 SCC 1 the Supreme Court held the Section 18A levy is relatable to Entry 8 of List II and is not excise duty under Entry 51, even though the Act loosely calls various levies duty. It is consideration for the State parting with its exclusive privilege.
Can a licensee transfer or sub-let the privilege he has been granted?
Only under licence. Section 22 allows a grantee, absent a contrary contract, to let or assign the whole or part of his privilege or farm, but the lessee or assignee cannot exercise any rights until the grantee applies to the Commissioner for a licence to be given to the lessee or assignee and that licence is actually received. Section 20 similarly requires farmers of duties and rentals to take out licences.
On what grounds can an abkari licence be cancelled or suspended?
Under Section 26 the Commissioner may cancel or suspend a licence for non-payment of any fee, duty, tax or rental; for breach of any term or condition by the holder or his agent; for selling or storing liquor outside the licensed premises; on conviction for an offence under the Act, any cognizable non-bailable offence, the Dangerous Drugs Act 1930, the Trade and Merchandise Marks Act 1958, or Sections 478-489 IPC; on requisition of a privilege-holder; or where the conditions allow cancellation at will.
Must natural justice be observed before cancelling an abkari licence?
Yes. Although Section 26 is silent on procedure, in V.K. Ashokan v. Assistant Excise Commissioner (2009) 14 SCC 85 the Supreme Court held that the empowered authority must apply its own mind and scrupulously follow the prescribed procedure; an order by a non-empowered authority or a hearing where the mind is already made up is nominal and sham and liable to be set aside.