Case: ASSISTANT EXCISE COMMISSIONER, KOTTAYAM &amp; ORS Vs. ESTHAPPAN CHERIAN &amp; ANR

2. The licensee was the successful bidder for arrack shops in the state of Kerala for the year 1993-94; the bid amount it offered was Rs. 60 lakhs. A permit for import of 13,00,920 litres of rectified spirit was awarded. The excise duty payable for the designated quantity, monthly was Rs. 3,58,162/-. The licensee entered into an agreement with the State on 01-04-1993. Alleging that the licensee committed default in the payment of the bid amount, in not replenishing the security in a timely manner, the state issued a show cause notice on 23-07-1993 eliciting a response as to why action should not be taken. Later, alleging that the licensee failed to replenish the security amount, the license was cancelled by an order dated 19-08-1993, of the state. The licensed shops were put up for re-auction on seven different dates. However, the re- auction was unsuccessful as there were no bidders. As a consequence, the shops were managed by the Department of Excise in terms of the Abkari Shops Departmental Management Rules, 1972 (hereafter the Management Rules). A sum of Rs. 14,94,570 was collected as departmental management fee and Rs. 16,50,971/- was collected as duty on rectified spirit for the period 13-09-1993 to 31-03-1994. The state argued that had the licensee continued operating the shop, it would have gained revenues to the tune of Rs. 1,09,87,989/-. It accordingly demanded dues, from the licensee.3. The licensee preferred a writ petition for a declaration that the cancellation of the licensee for sale of country liquor for the period 01-04-1993 to 31-03-1994 was illegal and void and that its liability with respect to Group-II arrack shops for the year 1993–94 ended upon the cancellation taking place. It sought to limit its liability for the period April 1993 to 19th August 1994. The petition was dismissed by the single judge. Aggrieved with this, the licensee preferred an appeal to the Division Bench. The Division Bench by a short order-impugned in the present appeal- followed its previous decision and held that since the contracts were entered into before the amendment of Rule 13, the licensee was liable to pay only the actual loss suffered by the government, in realisation of rentals and excise duty. The court directed the government to issue fresh demands in accordance with the rules and agreements executed with the licensee covering only the actual loss.

Reasoning:
8. The facts stated shows that the licensee was a successful bidder in an auction held by the State of Kerala and had deposited a security amount, to ensure the timely payment of the amounts (kist) due in terms of the contract entered into. Alleging that the licensee did not remit the kist due to the State in a timely manner, a show-cause notice was issued and eventually the license was cancelled. Indisputably the license entered into was effective for the period, commencing from 01-04-1993. The cancellation of license occurred by an order dated 19-08-1993. The State repeatedly put up the shops in question for auction- seven times, but was unsuccessful in securing the proper bids. Therefore, it had to manage the shops- which it did. The shops appear to have been re-auctioned subsequently and given out in the next financial year. For the period 13-09-1993 (when the State took over the possession) to 31-03-1994 the state collected Rs. 14,94,570/- as Departmental Management Fee and Rs. 16,59,771/- as Excise Duty on rectified spirit.11. The petitioner deposited Rs. 31,81,800/- being 30% of the bid amount as security deposit in terms of Rule 10 of Chapter IV of Abkari (Disposal in Auction) Rules. This constituted the cash security for due performance of the conditions of the licence. The amount was to be credited towards kist dues for the last two or more instalments as the case may be of the contract unless previously appropriated under the rules as per Rule 5(19) of the Abkari Shops (Disposal in Auction) Rules. There are 10 instalments of kist. Each kist fell due on the 10th day of each and every subsequent month. A period of 15 days is allowed, from 10th onwards as the grace period to remit the kist instalment under Rule 6 (28) of the Abkari Disposal in Auction Rules. The petitioner was to pay seven instalments of kist up to 10-10-1992, leaving three instalments to be adjusted from security deposit, provided he had fulfilled all the conditions of the license.12. This court notices that the impugned judgment relied on a previous Division Bench ruling of the High Court, which dealt with the applicability of the amended Rule 13 to pre-existing contracts, and held that the condition of non-adjustability was inapplicable for contracts entered into, and vends auctioned, before it came into force. In that judgment, Lucka v State of Kerala & Ors (Dated 11-08-2000 in OP 8271/1994) the High Court had to deal with a similar situation, i.e. the rules applicable in the event of cancellation of an excise liquor vend. The court held that:On combined reading of the provisions of the act and rules, especially section 8 of the Act Rules 5, 10, 15 and 16 of the Abkari Shops Disposal Rule and Rule 13 of the Abkari Shops Departmental Management Rules, shows that due to the cancellation of the contract of the licensees any losses suffered by the revenue loss has to be reimbursed by the licensees. While calculating the loss amount obtained by the departmental management also should be taken into account and given credit as to that amount was received by the government and only after deducting the same actual loss can be found out. The words at the risk shows that only the actual loss suffered can be recovered from the licensees. This is apart from imposing any damages by the Government, according to law or passing a discretionary or order by the excess commissioner regarding the future of departmental fee for valid reasons after issuing show cause notice at the time when licences cancelled.The Division Bench also held that:With regard to Abkari contracts entered in 1992-93, there is not a question for dispute at all, as the contract period was over on 31. 3. 1993, before the amendment of rules and admittedly amended rules are not applicable and if no damages by way of kist ordered at the time of cancellation on the basis of amended Rule 13, no recovery steps can be issued with legal contracts and licensees for the Abkari year 1992-93. Other contracts and license under question in these original petitions were also entered before the amendment of the rules with effect from 1.4.1993. The amendment of Rules 13 was made on in December 1993. Therefore, contracts, executed after the amendment of rules may be bound by it if the rules are valid. But contracts covered in these years were executed prior to the amendment of the above rule.13. In this case, it is evident that when the state initiated recovery proceedings it did not give credit of the amounts collected under the head of department management fee -as was required under pre-existing Rule 13. Its main contention before this court is that amounts collected as departmental management fee were not adjustable. In view of the decision in Lucka(f.no. 1), there cannot be any dispute that contracts entered into before amendment of Rule 13-as in this case-were not to be treated as those transactions for which amounts were non- adjustable. There is no indication that Rule 13 applied retrospectively.14. There is profusion of judicial authority on the proposition that a rule or law cannot be construed as retrospective unless it expresses a clear or manifest intention, to the contrary. In Commissioner of Income Tax v Vatika Township (2015) 1 SCC 1   this court, speaking through a Constitution Bench, observed as follows:31. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrows backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips vs. Eyre[3], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.32. The obvious basis of the principle against retrospectivity is the principle of fairness, which must be the basis of every legal rule as was observed in the decision reported in LOffice Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co.Ltd[4]. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.16. The principle has been affirmed in many decisions such as Hukum Chand v Union of India (1973) 1 SCR 896 , Regional Transport Officer v Associated Transport Madras (1980) 4 SCC 597 ; Federation of Indian Mineral Industries v Union of India (2017) 16 SCC 186   and recently, in Union of India v G.S. Chatha Rice Mills 2021 (2) SCC 209. 17. The decision in Lucka(f.no.1), therefore, correctly stated the law. In these circumstances, the amounts calculated by the state as departmental management fees for the period September 1993 to March 1994, when it actually was in charge of the vend, and carried out transactions, had to be adjusted. In other words, the amounts collected could not be again recovered as department management fees. Likewise, it is not in dispute that during the same period, the state was able to collect revenue i.e. excise duty, as well of Rs. 16 lakhs.18. It appears that an amnesty scheme was introduced by the State(By an order, dated 26.5.2008), in 2008. The respondent sought to deposit amounts in terms of the said scheme. However, the state rejected this request by its letter dated 25-08-2008, contending that the department management fee could not be adjusted against arrears. This court permitted the respondent to deposit 50% of the amount it claimed as payable to the government, in terms of a subsequent amnesty scheme, framed in 2011.20. This court had noticed that the Division Bench in Lucka(f.no.1), correctly reasoned that the amended Rule 13 was inapplicable to contracts previously awarded or entered into. The sequitur is that departmental management fee collected by the state, for the period the vend (or outlet) was in its direct management, could not be recovered again, and had to be adjusted. Apparently, the state had preferred appeals, by special leave from the common judgment in Lucka(f.no.1). Those appeals were ultimately dismissed on 19.2.2008.(In Civil Appeal Nos. 4976-4987/2002 and connected cases as well as a special leave petition (SLP (C) 19586/2007).) In these circumstances, and having regard to the principle that retrospectivity cannot be presumed, unless there is clear intention in the new rule or amendment, it is held that there is no infirmity with the judgment of the High Court.21. The findings and conclusions previously recorded would have been dispositive of the issues arising in this appeal. However, this court is mindful of the fact that the respondent had succeeded before the High Court and was thus entitled to claim adjustment of the departmental management fees, for the period after its contract was terminated. The respondent was also entitled to claim relief under the Amnesty Scheme, which was denied to it despite having succeeded before the High Court. Eventually, when the Scheme was announced afresh in 2011, this Court permitted the respondent to deposit 50% of the admitted amount(The admitted amount being Rs. 40,51,288/-).