TaxTMI 
TaxTMI 
1974 (1) TMI 116
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....ed. From January, 1971 till the end of July, 1971 he however, did not lift the determine monthly quota of liquor. He also for the said months did not pay the monthly rentals. 4. For the abovesaid lapses on the part of the petitioner, his licence and the lease were suspended and cancelled on 4-7-1971. And on 29-7-1971 the group of shops which the petitioner had obtained on lease were re-auctioned. The reaction fetched a rental of Rs. 265/- for the rest of the excise year. 5. As a result for the losses sustained by the Government a notice under the Madras Revenue Recovery Act was issued on 19-1-1972. The demand was for Rs. 7,804-76 Ps. 6. In the counter, however, the demand is put at Rs. 14,133-75 ps. the break up of this demand is shown as follows :-- (1) Rs, 9,361/- as the issue price of the total quantity of short lifted quota of liquor amounting to 2,300 litres. The petitioner' deposit of Rs. 3,100/- was adjusted towards the said amount due leaving a balance of Rs, 6,261/-. (2) The total amount due towards rental is shown to be Rs. 7,872-75 ps. 7. It is to challenge the said demand that the writ petition has been filed. A writ of certiorari is so....
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.... they were arrears of land revenue.' 15. The schedule referred to in Section 21 (1) of the Act is attached to the Act at the end, Serial No. 1 relates to arrack. In column 3, the mode of levying duty reads: 'On the quantity issued from the distillery or warehouse.' 16. We then proceed to read some of the Rues of the Andhra Pradesh, Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969, refereed hereafter as Retail Rules. 17. Rule 3 provides that every lease of right to sell liquor in retail shall be granted by auction. The lease shall ordinarily be for a period of one excise year. 18. Sub-rule (2) further provides that the Commissioner shall be competent to fix the minimum guaranteed quantity that should be sold in the case of the arrack shops in every excise year apart from other things mentioned therein. 19. Rule 10 prescribes the mode and the officers authorised to conduct auction. According to it the auction shall be conducted by bids or submission of tenders. 20. Rule 13 then relates to submission of tender and bidding. 21. Rule 15 pertains to signature in the register. it directs the auctioning authority to obtain in the regist....
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....nts may permit the licensee to lift the short drawn minimum guaranteed quantity of the previous month in the succeeding month for special reasons except for the month of September, unless the licensee has committed default in lifting the minimum guaranteed quantity for two successive months : Provided further where the Commissioner deems it necessary to permit a shop keeper to draw the deficit quantity short drawn in any month in the subsequent months, he shall obtain the prior approval of the Government for granting such permission. (2) Where a licensee fails to lift the arrack as permitted by the Excise Superintendent or to indemnify the advance amounts so adjusted by the end of the succeeding month in which the short drawal of quantity had occurred, the right acquired by the defaulting licensee shall be re-auctioned forthwith. (3) * * * (4) The successful purchaser of an arrack shop shall, before obtaining a licence, intimate the concerned Excise Superintendent in writing his distribution for each month of the minimum quantity of arrack guaranteed as per the requirements. The Excise Superintendent shall be competent to revise the distribution ....
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....possible during the subsistence of the contract under Rule 15 (1) of the Retail Vend Rules. 33. In case where in spite of the fact that the licensee has during the course of excise year had short-lifted the quota in one or more months but the authorities fail to adjust the issue price of the short-lifted quota towards the advance money or they fail to re-auction forthwith in cases where although permission was granted by the Superintendent to lift the quota in the succeeding month or the licensee had failed to indemnify the advance amount so adjusted, have the authorities no remedy after the conclusion of the contract to recover the issue price of the short-lifted quota? The answer obviously depends upon the question whether Rule 15 provides an exclusive remedy for recovery of issue price of the short-lifted quota. If it is borne in mind that the moment the licensee fails to (sic) (lift?) the minimum guaranteed quantity he commits a breach of contract. The minimum guaranteed quantity is determined at two levels. Firstly it is determined for the whole Excise year. And secondly the minimum guaranteed quantity for the excise year is spread over the 12 months of he excise year and f....
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.... issue price of such short-lifted quota from the advance money, it only means that although a breach has been committed and consequently a licensee has made himself liable for damages, the other party, i.e., the Government has not availed of the remedy of recovering the damages by adjusting it towards the advance money paid by the licensee. We fail to see as to how the liability to pay the damages which arose out of breach of contract or the right to recover damages on account of such breach accrued to the Government came to an end merely because the Government failed to adjust the amount of damages towards the advance money immediately and failed to call upon the licensee to replenish the advance money to that extent. The sub-rule (1) if read as permissive, then it is possible for the Government to adjust the issue price of the short-lifted quota for the whole year towards the advance money even after the contractual exercise year is over. We cannot find any limitation in Rule 15 (1) on the right of the Government to recover damages arising out of a breach of contract committed by the licensee. Such recovery of damages can be either by adjustment towards advance money as per sub-r....
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....er Rule 15, without being required to establish the efforts made to mitigate the damages is recognised. The right to recover the balance of liquidated damages after the balance of liquidating damages after the conclusion of contract is also recognised. To that extent then the judgment. To that extent then the judgment supports the view which we have taken. 39. In Writ Appeal No. 136 of 1972, D/- 26-4-1973 (Andh, Pra), a Division Bench consisting of M. Krishna Rao and G. Venkatrama Sastry, JJ. firstly held that 'So long as Rule 15 is valid in the sense that it is not unconstitutional or ultra vires, it should be implemented without reference to any consideration of the ordinary law of damages.' 40. It was further observed that 'in the context of Rules 15 and 16 it has to be inferred that Rule 15, recognises the right of the Government as a contracting party to recover damages against the licensee in case of breach on the part of licensee in lifting the minimum guaranteed quantity. The mode of recovery alone is provided by method of adjustment. Hence while holding that Rule 15 is valid, we hold that as a matter of interpretation of the said Rule it merely p....
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....ides for certain remedies, in the case of default on the part of the petitioners to lift the particular quantity. The rule has to be construed strictly and the authority of the Government must be limited to the exercise of those remedies which are provided under the Rule. If it seeks remedies other than those provided by the rule it has to rely on the ordinary law of contract.' 46. A reading of the said judgment makes it clear that while adjustments under Rule 15 can be made and the licensee called upon to replenish the advance amount, the said rule, however, does not authorise the Government to collect the full value of the liquor which the licensee failed to lift. After adjustment, if any balance of liquidated damages is left to be recovered , the Government can seek the ordinary remedy and it has to rely on the law of the contract. Since it was not shown that the Government has suffered any damage because of short lifting of the quota , it would not be justified in demanding the amount which it did. The learned Judge , however, did not agree with the view that the issue price is in the nature of liquidated damages fixed in the event of a breach. He also did not desire to ....
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....ilable to the Government to recover such damages . Before we deal with the question of remedies it is necessary to emphasise the difference, obvious though it is , between the right to recover the damages for breach of contract and the remedies available to the Government for the recovery of the same. 55. We then come to Section 74 of the Contract Act. A careful reading of that section would indicate, as the marginal note seems to make out, that the section applies to a contract where a penalty is stipulated by way of compensation for breach of contract. The section provides for two types of cases. Firstly a case in which a sum is named as the amount to be paid by way of compensation in case of breach. Secondly a case where the contract contains any other stipulation by way of penalty for a breach of contract. The disjunctive word 'or' makes it plain that both the situations which though have been alternatively mentioned are given the same treatment by the Section. The words 'any other stipulation by way of penalty' following the words 'if a sum is named in the contract etc.' make it manifest that the sum so named may also amount penalty in certain cases.....
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....ave been worked out in a number of leading cases and, if we may say so, they are effectively and conveniently brought together in the speech of Lord Dunedin in Dunlop Pneumatic Tyre Co. Ltd. v. New Garage & Motor Co. Ltd., (1915 AC 79). 59. Lord Dunedin stated succinctly the various propositions deducible from the authoritative decisions as follows : '1. Though the parties to a contract who use the words 'penalty' or 'liquidated damages' may prima facie be supposed to mean what they say , yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case. 2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party: the essence of liquidated damages is a genuine covenanted pre-estimate of damage (Clydebank Engineering and Ship-Building Co. v. Don Jose Ramos Yzquierdoy Castaneda, (1905 AC 6). 3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each....
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....pbell Discount Co. Ltd., (1962) 1 All ER 385. Lord Redcliffs said : 'My Lords, when a question arises whether a sum stipulated to be payable under a contract is liquidated damages for a breach of that contract or some part of it or is a penalty attached to the breach I think that, by this date, there is ample guidance in the authorities how to decide between the two alternatives. The appropriate tests have been worked out in a number of leading cases and, as we know, they are conveniently brought together in a speech of Lord Dunedin in (1915 AC 79). if believe that the line of demarcation if drawn in its simplest form (as Lord Dunedin himself said in 1906 AC 368 at p. 375) if one says that a sum cannot be legally exacted as liquidated damages unless it is found to amount to 'a genuine pre-estimate of' damages (to use the phrase originated by Lord Robertson in 1905 AC 6 at p. 19). If it does not amount to such a pre-estimate, then it is to be regarded as a penalty, and I do not myself think that it helps to identify a penalty to describe it as in the nature of a threat 'enforced in terrorem' (to use Lord Halsbury Phrase in (1886) 11 AC 332 at p. 348). I ....
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.... actual loss of damage has been proved because of breach of contract. Section 74 postulates 'reasonable compensation' not exceeding the sum named. The only restriction is that the court cannot decrees damages exceeding the amount previously agreed upon by the parties. The discretion of the court in the matter of reducing the amount of damages agreed upon is left unqualified by any limitation though of course the expression 'reasonable compensation' used in the section necessarily implies that the discretion so vested must be exercised with due care, caution and no sound principles. What follows is that 'reasonable' compensation is a question of fact and has to be decided in the light of facts and circumstances of each case. It is, however, manifest that if there is a penal provision against default some compensation under Section 74 has to be given irrespective of the fact whether damage has been actually suffered or not. We are fortified in this view by a decision of the Madras High Court in Muthukrishna v. Sankralingam, (1913) ILR 36 Mad 229 (FB). 63. To put it in other words, in practice it may frequently happen that a person suffers no damage at all a....
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....e of the short lifted quota towards the advance money in deposit with the Government and such an adjustment would amount to the payment of liquidated damages for breach of contract in not lifting the minimum guaranteed quantity as per the agreement. (3) If or any reason at the end of the excise year or of the contract the full agreed quota of liquor is not lifted and the Government has failed to take any action under Rule 15 of the Retail Vend Rules, even then the Government is entitled to set off the amount of compensation calculated at the rate of issue price for the quantum of liquor short lifted. Such a course even if falls outside the provisions of Rules 15 of Retail Vend Rules, the Government is entitled to such a course under the common law. (4) After set off as above, if any, the amount of compensation calculated at the rate of the issue price for the short-lifted quota, the Government has, according to the contract, a right to recover the compensation from the licensee who committed the breach. Even then if such a claim does not strictly come under Rule 15 of the Retail Vend Rules, even then under the common law and subject to Section 74 of the Contract A....
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....ear from a careful reading of this judgment that the stipulation was held to be a penalty. A reasonable compensation therefore within the limit of the amount so stipulated was awarded by the Supreme Court. The case clearly established that even in a case where no actual damage or loss is proved, even then the innocent party would be entitled to a reasonable compensation. 70. In H. C. Mills v. Tata Aircraft, : [1970]3SCR127 two questions were argued : (1) that the amount of Rs. 2,50,000/- was not by way of deposit or earnest money but was part of the purchase price and therefore it was not liable to be forfeited: (2) whether the said amount was liquidated damages or was it a panalty. 71. In regard to the first argument, the Supreme Court found that the amount was earnest money. In regard to the second question, the Supreme Court observed that it was unnecessary to go into the question as to whether the amount forfeited can be considered reasonable or not. This decision therefore does not decide anything contrary to what we have said. . 72. In Maula Bax v. Union of India, : [1970]1SCR928 the contention was that since the Government had not suffered any loss because of the de....
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....972, dated 26-4-1973. 79. What remains then to be considered is that apart from the cost of arrack short-lifted whether the Government is entitled to recover by way of compensation from licensee the excise duty levied on such short-lifted quota. 80. Now excise duty under Section 21 of the Act can be levied on any excisable article 'manufactured or produced'. In the State it can be levied at such rate as may be specified in the notification but in no case such rate shall exceed the rates mentioned in the schedule, Section 21 is thus the charging section. 81. Section 22 admittedly is not the charging section. It relates to the mode of levying duties. No doubt in clause (a) it says that the duty mentioned in Section 21 shall be levied in one or more of the modes mentioned therein. It then says 'rateably' on the quantity of any excisable article produced , manufactured in or issued from the distillery etc.' If Section 22 also is treated as a charging section , then Section 21 shall have no function to perform. If Section 21 is the only charging section , then since the duty is leviable on excisable articles manufactured or produced, no duty is possible to b....
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....ee according to the terms of the contract. It is not imposed on the liquor issued but collected according to the rules from the licensee. It is therefore a part of the issue price as mentioned in the rules and the licensee is required to pay along with the cost of arrack. 86. W. A. No. 224 of 1971 and batch dated 17-12-1971 takes the same view. We agree with the said judgment in this behalf although for the reasons given by us. 87. B. C. Banerjee v. State of M.P., : [1971]81ITR105(SC) can easily be distinguished on the facts. In that case it was held that the excise duty is a duty on manufacture or production. Section 25 of the M.P. Excise Act deals with duty on excisable articles. Section 26 prescribes the ways of levying such duty. These provisions are similar to our Sections 21 and 22 of the Act. Thus Section 25 imposes duty while Section 26 dealt with the manner of levying duty. In that case, however, the duty was sought to be levied by a rule on liquor which the contractor has failed to lift. It is because of this imposition of the duty that it was held that the rule-making authority could not have made such a rule . In the instant case no duty is imposed on the short-li....
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....er Section 65 applies to them. We think that such claims to money do come under clause (b) of Section 65 (1). The loss which has accrued to the Government in consequence of default committed by the licensee in short-lifting the quota is sought to be recovered. In consequence of such default. if the Government has taken either of the two actions i.e. either the lease is taken over under the Collector's management or the lease right has been resold. In all the instant cases it was not in dispute that for some reason or the other for default the lease rights were resold. The present cases therefore satisfy the requirements of clause (b) and they fall within its ambit. 93. The instant cases would also fall within the ambit of Section 65 (c) to the extent at least of excise duty agreed to be paid. The amounts are undoubtedly due to the Government. The word 'amount' is wide enough to include the sum due on account of liquidated damages atleast in regard to excise duty. There can be little doubt that such amounts due on account of excise contracts . It is incorrect to say that in some cases since no lease was executed , there was no contract. The contract in such cases is c....
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.... that the stipulated amount is a penalty, can award to the Government reasonable compensation in view of the facts and circumstances of each case. 98. With great respect to the learned Judges who decided W. A. No. 136 of 1972, D/- 26-4-1973 (Andh Pra.), we are unable to share their view that it is for the Government to file such suits. 99. The attention of the learned Judges was obviously not drawn to Section 65 of the Act and Section 22 of the Revenue Recovery Act. 100. It was then contended that in a certain case the re-auction took place after nearly ten months from the date of the petitioner's default. It is said therefore the Government is not entitled to damages. Unfortunately this contention has not been specifically raised. No counter therefore was filed. No prejudice seems to have been caused to the petitioner. It is not therefore possible to accept this contention. 101. In W.P. No. 1440 of 1973, Mr. Ramachandra Reddy argued that since the petition filed under Rule 29 for remission by the petitioner is pending before the Government, the demand notice should not be allowed to be enforced untill the said petition is disposed of. It is, however, seen from the ....