Meghalaya High Court Strikes Down Excise Notification Cutting Liquor Retailers' Profit Margin From 20% to 15%

A coram comprising Justice B. Bhattacharjee and Justice H.S. Thangkhiew, while partly allowing the writ petition filed by the East Khasi Hills Wine Dealers Welfare Association against the State of Meghalaya, held that:

“The State, though vested with the rule making power under section 36 of the Meghalaya Excise Act, to make rules relating to excise revenue, even without any criteria or standard being laid down, this however, cannot be said to mean that the State Government formulates a policy or acts in exercise of delegation of powers which would offend Article 14 of the Constitution. Though normally, delegated legislation cannot be challenged on the grounds of unreasonableness, however, if the same is anchored to Article 14, in the considered view of this Court, such delegated legislation can be challenged on the ground of unreasonableness and arbitrariness.”

The dispute arose following the introduction of the Integrated Excise Management System (IEMS) under the Meghalaya Excise (Amendment) Rules, 2024. IMES was introduced as a “track and trace” solution requiring holograms and QR codes on all liquor bottles to monitor movement through the supply chain, from manufacturers to retailers. The system entailed additional per-bottle costs by the State government, such as, Rs. 2.40 + GST for the IEMS application, Rs. 1.50 for holograms/QR codes, and for additional revenue component, a Rs. 0.50.

These additional costs were initially borne by manufacturers and warehouses but ultimately passed on to retailers. Simultaneously, via a notification dated September 12, 2025, the State reduced the retailers' maximum profit margin from 20% to 15%, despite an overall price increase of approximately 5% per bottle caused by the IEMS implementation. The petitioners, representing wine dealers, challenged these additional charges and the margin reduction as arbitrary.

The petitioners argued that the additional charges lacked proper statutory backing under sections 21 and 36 of the Meghalaya Excise Act, 1910, and were imposed by an authority not competent to levy such charges. They further contended that the reduction in margin was not an independent fiscal measure but was intrinsically linked to the implementation of IEMS, intended to effectively shift the financial burden of the system onto the retailers.

The petitioners further submitted that while the retailers' margins were slashed, the other stakeholders, like Central Bonded Warehouses and Bonded Warehouses, continued to operate at existing margins, i.e., 6 and 8 percent, respectively. They further argued that the move amounted to a colourable exercise of power. They argued that the move amounted to an “indirect enhancement of excise revenue” extracted from retailers without statutory backing.

The State, on the contrary, contended that trade in liquor is a privilege, not a right, and thus is subject to complete state regulation in the public interest, narrowing the scope of judicial review. The respondents further submitted that the introduction of the IEMS with QR Code base was a policy decision aimed at tracking and tracing liquor bottles to ensure transparency, prevent pilferage, and secure State revenue. They further argued that the State has “wide latitude” in economic matters, and the judiciary should rarely interfere with policy decisions regarding profit margins.

The Division Bench rejected the State's objection to the petition's maintainability, ruling that a single writ petition by an association is permissible when the right to relief arises from the same act and involves a common question of law or fact affecting all members uniformly.

The Court found a clear nexus between the IEMS implementation and the decision to cut retailer margins. It held that the reduction was unreasonable because the financial burden of the new system fell exclusively on retailers, while other players in the chain were virtually untouched.

The bench reiterated that although there is no fundamental right to trade in liquor, once the State permits private participation, it is incumbent upon the State to also ensure that the principles of equality are observed. The Bench further observed that the delegated legislation can be challenged if it is manifestly arbitrary or lacks a rational basis.

The bench held:

“In the instant case, as observed earlier, the introduction of the IEMS coupled with the reduction of the retailer profit margin from 20% to 15% by way of the impugned amendment dated 12-09-2025, without any discernible impact or reduction in the profit margin on the other stake holders, would surely therefore amount to an action which is unreasonable and arbitrary and against the principles of equality and fairness, and as such, the amendment to Rule 372 as contained in clause 5 of the Notification No. ERTS (E) 22/2025/29 dated 12-09-2025, is liable to be struck down as being violative of Article 14 of the Constitution.”

The Court emphasised that while there is no fundamental right to trade in liquor, once permitted, the State must act in a manner consistent with equality under Article 14.

The High Court accordingly struck down the notification to the extent it reduced retailer margins, while upholding the IEMS scheme, subject to its fair and transparent implementation.

For Petitioner/Applicant: Advocates R B Phookan with S. Sen, M.U. Ahmed

For Respondent: AG A. Kumar with GA S. Laloo, Advocate D. Mukherjee